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Galaxy Nutritional Foods Reports Second Quarter Operating Results

November 14, 2008

ORLANDO, Fla., Nov. 14 /PRNewswire-FirstCall/ — Galaxy Nutritional Foods, Inc. (BULLETIN BOARD: GXYF) , 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 FY2009.

For the three months ended September 30, 2008, the Company reported net income of $195,878, or $0.01 per diluted share, on net sales of approximately $6.1 million. In the prior-year quarter, the Company reported net income of $660,341 or $0.03 per diluted share, on net sales of approximately $6.4 million.

For the six months ended September 30, 2008, the Company reported net income of $315,829, or $0.02 per diluted share, on net sales of approximately $12.2 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.

The Company generated EBITDA, as adjusted, (a non-GAAP measure), of $554,668 (4.6% of net sales) in the first half of FY2009, compared with EBITDA, as adjusted, of $1,424,901 (11.6% of net sales) in the first half of FY2008 (see EBITDA table at end of this release for further Non-GAAP information).

“Sales remain relatively strong given the declining economic conditions and we have continued to manage costs aggressively to deliver reasonable operating profits. We have begun to see a softening of certain commodity prices and should start to see better gross margins in the first quarter of FY2010.” stated Michael E. Broll, Chief Executive Officer of Galaxy Nutritional Foods, Inc.”

CONFERENCE CALL AND WEBCAST INFORMATION

The Company will host an investor conference call today, November 14, 2008 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 73514695 a few minutes before 11:00 am EST on November 14, 2008. A replay of the conference call will be available on Galaxy Nutritional Foods Website at: http://www.galaxyfoods.com/investors/transcripts.asp starting on Monday, November 17, 2008.

About Galaxy Nutritional Foods, Inc.

Galaxy Nutritional Foods, Inc. (OTC BB: GXYF) 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. Galaxy is also committed to reducing its environmental impact as part of an Eat Green for Body & Earth(TM) program that offsets carbon emissions associated with product shipping and emphasizes the use of organic ingredients. For more information on Galaxy’s products or green initiatives, visit http://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”.

Any statement of future expectations in this press release, including without limitation, as to future cost of goods sold, revenues, gross margins, 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; the Company’s ability to refinance or repay certain short-term indebtedness due an affiliate of the Company and its potential impact on the Company’s ability to continue as a going concern; risks associated with the launch of new marketing campaigns; future costs and fluctuations in the price of goods sold (including in particular, casein); 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, including without limitation, the Company’s annual report on Form 10-K for the year ended March 31, 2008. 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,                                                     2008           2008                                                 (Unaudited)                        ASSETS   CURRENT ASSETS:      Cash                                        $2,275,604     $1,893,425      Trade receivables, net                       2,256,049      2,516,496      Inventories, net                               138,693        116,902      Prepaid expenses and other                     223,799         95,906          Total current assets                      4,894,145      4,622,729    PROPERTY AND EQUIPMENT, NET                        58,896         65,671   OTHER ASSETS                                       55,745         68,463          TOTAL                                    $5,008,786     $4,756,863            LIABILITIES AND STOCKHOLDERS' DEFICIT   CURRENT LIABILITIES:      Secured borrowings                                 $--            $--      Accounts payable                             1,441,111      1,393,810      Accrued and other current liabilities        1,181,213      1,028,049      Accrued employment contracts                    18,228        282,599      Related party note payable                   2,685,104      2,685,104          Total current liabilities                 5,325,656      5,389,562    COMMITMENTS AND CONTINGENCIES                          --             --    STOCKHOLDERS' DEFICIT:      Common stock                                   171,100        171,100      Additional paid-in capital                  70,167,149     70,167,149      Accumulated deficit                        (70,655,119)   (70,970,948)          Total stockholders' deficit                (316,870)      (632,699)          TOTAL                                    $5,008,786     $4,756,863                            GALAXY NUTRITIONAL FOODS, INC.                              Statements of Income                                  (UNAUDITED)                                  THREE MONTHS ENDED      SIX MONTHS ENDED                                    SEPTEMBER 30,          SEPTEMBER 30,                                  2008       2007        2008        2007    Net Sales                   $6,115,690 $6,401,124 $12,152,280 $12,317,261   Cost of Goods Sold           4,128,425  3,740,838   8,204,180   7,201,206      GROSS MARGIN              1,987,265  2,660,286   3,948,100   5,116,055    OPERATING EXPENSES:   Selling                        776,658    940,833   1,530,176   1,830,241   Delivery                       254,326    262,018     493,057     508,863   General and administrative     591,377    587,501   1,249,906   1,211,117   Employment contract    expense-general and    administrative                     --         --          --     346,447   Research and development        60,908     79,718     143,276     162,995   Total operating expenses     1,683,269  1,870,070   3,416,415   4,059,663    INCOME FROM OPERATIONS         303,996    790,216     531,685   1,056,392    INTEREST EXPENSE              (108,118)  (117,875)   (215,856)   (233,052)    INCOME BEFORE TAXES            195,878    672,341     315,829     823,340    INCOME TAX EXPENSE                  --    (12,000)         --     (12,000)    NET INCOME                    $195,878   $660,341    $315,829    $811,340    BASIC NET INCOME PER    COMMON SHARE                    $0.01      $0.04       $0.02       $0.05   DILUTED NET INCOME PER    COMMON SHARE                    $0.01      $0.03       $0.02       $0.04                          GALAXY NUTRITIONAL FOODS, INC.                          Statements of Cash Flows                                (UNAUDITED)    Six Months Ended September 30,                     2008           2007    CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:      Net Income                                    $315,829       $811,340      Adjustments to reconcile net income to net       cash from (used in) operating activities:         Depreciation and amortization                22,983         22,062         Amortization of debt discount and          financing costs                             12,718         28,469         Provision for future credits and doubtful          accounts on trade receivables             (342,620)      (538,500)         Inventory reserve                           (23,533)       (92,983)         (Increase) decrease in:            Trade receivables                        603,067        297,228            Inventories                                1,742        271,971            Prepaid expenses and other              (127,893)        42,905         Increase (decrease) in:            Accounts payable                          47,301       (466,558)            Accrued and other liabilities           (111,207)       (49,919)       NET CASH FROM OPERATING ACTIVITIES             398,387        326,015    CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:      Purchase of property and equipment             (16,208)       (10,871)       NET CASH USED IN INVESTING ACTIVITIES          (16,208)       (10,871)    CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:      Net payments on secured borrowings                  --       (197,941)       NET CASH USED IN FINANCING ACTIVITIES               --       (197,941)    NET INCREASE IN CASH                              382,179        117,203    CASH, BEGINNING OF PERIOD                       1,893,425        879,487    CASH, END OF PERIOD                            $2,275,604       $996,690                            GALAXY NUTRITIONAL FOODS, INC.            EBITDA, as adjusted, (a non-GAAP measure) Reconciliation                                  (Unaudited)                                  THREE MONTHS ENDED      SIX MONTHS ENDED                                    SEPTEMBER 30,          SEPTEMBER 30,                                  2008       2007        2008       2007    NET SALES                   $6,115,690 $6,401,124 $12,152,280 $12,317,261    NET INCOME (LOSS)             $195,878   $660,341    $315,829    $811,340   Plus:   Employment contract expense         --         --          --     346,447   Interest expense               108,118    117,875     215,856     233,052   Taxes                               --     12,000          --      12,000   Depreciation and    amortization expense           11,107     11,091      222,98      22,062   EBITDA, as adjusted           $315,103   $801,307    $554,668  $1,424,901    As a % of Net Sales                5.2%      12.5%        4.6%       11.6%     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 the foregoing non-GAAP measures, management excludes the September 30, 2007 employment contract expense from its analysis of operating income because it believes that this item does not accurately reflect the Company’s current on-going 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




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