Galaxy Nutritional Foods Reports Third Quarter Results

ORLANDO, Fla., Feb 13, 2007 /PRNewswire-FirstCall via COMTEX/ -- Galaxy Nutritional Foods, Inc. (GXYF) , a leading developer and marketer of cheese alternative and dairy-related products, today reported improved operating results for the third quarter and first nine months of FY2007.

For the three months ended December 31, 2006, the Company reported net income of $726,184, or $0.03 per diluted share, on net sales of approximately $6.1 million. In the third quarter of the previous fiscal year, the Company reported a net loss of ($11,754,981), or ($0.59) per share, on net sales of approximately $9.1 million.

For the nine months ended December 31, 2006, the Company reported a net loss of ($54,681), or $0.00 per share, on net sales of approximately $20.7 million. Operating expenses during the first nine months of FY2007 included a previously disclosed final write-down of a non-recurring, non-cash reserve on a stockholder note receivable in the amount of $1,428,000. In addition, the Company incurred $327,827 in costs related to disposal and asset sale activities and $108,160 in non-cash stock-based compensation expense. Exclusive of these items, the Company would have reported income from operations of approximately $2.4 million in the nine months ended December 31, 2006.

In the nine months ended December 31, 2005, the Company reported a net loss of ($22,315,233), or ($1.14) per share, on net sales of approximately $29.4 million. Operating expenses in the first nine months of FY2006 included a previously disclosed write-down of a non-recurring, non-cash reserve on a stockholder note receivable in the amount of $9,129,343, expenses related to asset disposal, equipment impairment, and asset sale activities of $9,309,724, plus $923,513 in non-cash stock-based compensation expense. Exclusive of these items, the Company would have reported a loss from operations of approximately ($2.1 million) in the nine months ended December 31, 2005.

The Company generated EBITDA, as adjusted (a non-GAAP measure), of $2,608,181 (12.6% of net sales) in the first nine months of FY2007, compared with EBITDA, as adjusted, of a negative ($424,236) in the first nine months of FY2006 (see EBITDA table at end of this release for further Non-GAAP information).

"We are very pleased to report our third consecutive quarter of profitability, exclusive of the non-operating expenses noted above," stated Michael E. Broll, Chief Executive Officer of Galaxy Nutritional Foods, Inc. "Net income of $726,184 in the third quarter of Fiscal 2007 was primarily driven by an improvement in gross margin to 44.0% of net sales, versus a gross margin of 20.8% in the prior-year quarter. The Company also reported an approximate $1.6 million improvement in operating cash flow through the first three quarters of Fiscal 2007 versus the same period last year."

"Lower sales during the first three quarters of Fiscal 2007, when compared with prior-year levels, primarily reflected the elimination of unprofitable and marginally profitable private label and Galaxy imitation sales," continued Broll. "Our focus on a brand-oriented sales and marketing strategy has allowed gross margins to improve significantly from prior-year levels. With profitability and positive operating cash flows having been restored, our strategic initiatives going forward will include a greater emphasis on sales and marketing activities and new product introductions that are designed to increase sales to existing customers and expand overall consumer awareness of Galaxy's 'healthy alternative' food product lines. While fourth quarter sales will continue to trail year-earlier levels for the reasons mentioned above, we expect profitability to improve when compared with results in the fourth quarter of FY2006."

About Galaxy Nutritional Foods, Inc.
Galaxy Nutritional Foods, Inc. (GXYF) develops and globally markets plant-based cheese and dairy alternatives, as well as processed organic cheese and cheese food 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, and Wholesome Valley. Galaxy Nutritional Foods, Inc. is dedicated to developing nutritious products to meet the taste and dietary needs of today's increasingly 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".

Any statement of future expectations in this press release, including without limitation, as to future revenues, 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.

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