FORM 10-Q/A

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

       __________________________________________________________________

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934


                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

                         ______________________________
                         COMMISSION FILE NUMBER 1-15345


                         GALAXY NUTRITIONAL FOODS, INC.
             (Exact name of registrant as specified in its charter)


                DELAWARE                                        25-1391475
     (State or other jurisdiction of                         (I.R.S. Employer
     incorporation or organization)                         Identification No.)

            2441 VISCOUNT ROW
            ORLANDO, FLORIDA                                       32809
(Address of principal executive offices)                        (Zip Code)

                                 (407) 855-5500
              (Registrant's telephone number, including area code)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]

     On November 8, 2002, there were 12,131,295  shares of Common Stock $.01 par
value per share, outstanding.

<PAGE>

                                Explanatory Note

The Company is filing this Amendment No. 1 to its Quarterly  Report on Form 10-Q
for the  quarterly  period ended  September 30, 2002  previously  filed with the
Securities and Exchange Commission on November 12, 2002 (the "Quarterly Report")
to effect the adjustments described below.

Results for the quarter ended  September  30, 2002,  reflect a correction in the
calculation and related  disclosures for preferred stock accretion and the value
of preferred stock. This correction  increased the preferred stock accretion for
estimated  redemption value, which then decreased net income available to common
shareholders by $223,588 and $385,280 on the Company's  Statements of Operations
for three and six months ended  September 30, 2002. The value of preferred stock
also  reflects  an  increase  of $79,684  from that  previously  reported on the
Company's Balance Sheets. These changes have no affect on the Company's revenue,
operating income, net income or cash flow.

The   Company's   Statements   of   Operations   were   adjusted  to  reflect  a
re-classification  of expenses  for coupons,  rebates and other price  discounts
from selling expenses to net sales in accordance with Emerging Issues Task Force
01-09,  "Accounting for Consideration Given by a Vendor to a Customer (Including
a Reseller of the Vendor's Products)." Additionally,  the Company's Statement of
Cash Flows and related  disclosures were adjusted to reflect a re-classification
of payments and amortization of financing costs related to long-term debt.

This  Amendment only updates Part I - Item 1 and Item 2 and Part II - Item 6 for
the  corrections  and  reclassifications  mentioned above and does not otherwise
update  disclosures  for events that occurred  subsequent to the original filing
date of the Quarterly Report.

                                       2
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.

                              INDEX TO FORM 10-Q/A
                      FOR QUARTER ENDED SEPTEMBER 30, 2002


                                                                        PAGE NO.
                                                                        --------

PART I.   FINANCIAL INFORMATION

      ITEM 1.  FINANCIAL STATEMENTS

          Balance Sheets                                                       4
          Statements of Operations                                             5
          Statement of Stockholders' Equity                                    6
          Statements of Cash Flows                                             7
          Notes to Financial Statements                                     8-13

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS               14-20

     ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK     21

     ITEM 4.   CONTROLS AND PROCEDURES                                        21



PART II.  OTHER INFORMATION

     ITEM 1.   LEGAL PROCEEDINGS                                              22

     ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS                      22

     ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                                23

     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS            23

     ITEM 5.   OTHER INFORMATION                                              23

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                            24-26

SIGNATURES & CERTIFICATIONS                                                27-29

                                       3
<PAGE>

                          PART I. FINANCIAL INFORMATION
                         GALAXY NUTRITIONAL FOODS, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,      MARCH 31,
                                                               2002             2002
                                                           ------------     ------------
                                                            (UNAUDITED)
                                ASSETS
CURRENT ASSETS:
<S>                                                        <C>              <C>
   Cash                                                    $      1,673     $        168
   Trade receivables, net                                     4,940,825        5,283,187
   Inventories                                                5,246,933        5,748,652
   Prepaid expenses and other                                   592,680          555,520
                                                           ------------     ------------

           Total current assets                              10,782,111       11,587,527

PROPERTY AND EQUIPMENT, NET                                  23,329,032       24,180,636
OTHER ASSETS                                                    641,551          479,387
                                                           ------------     ------------

           TOTAL                                           $ 34,752,694     $ 36,247,550
                                                           ============     ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
   Book overdrafts                                         $    383,571     $  1,192,856
   Line of credit                                             4,899,822        5,523,875
   Accounts payable                                           3,255,176        5,399,143
   Accrued liabilities                                        1,709,502          994,341
   Current portion of term notes payable                      2,035,436        1,809,000
   Current portion of subordinated note payable               4,000,000               --
   Current portion of obligations under capital leases          391,363          349,380
                                                           ------------     ------------

           Total current liabilities                         16,674,870       15,268,595

TERM NOTES PAYABLE, less current portion                      8,107,734        8,391,535
SUBORDINATED NOTE PAYABLE                                            --        3,385,770
OBLIGATIONS UNDER CAPITAL LEASES, less current portion          556,820          734,156
                                                           ------------     ------------

           Total liabilities                                 25,339,424       27,780,056
                                                           ------------     ------------

COMMITMENTS AND CONTINGENCIES                                        --               --

REDEEMABLE CONVERTIBLE PREFERRED STOCK                        2,301,942        2,156,311

STOCKHOLDERS' EQUITY:
   Common stock                                                 121,313          115,400
   Additional paid-in capital                                59,760,391       60,717,914
   Accumulated deficit                                      (39,877,715)     (41,629,470)
                                                           ------------     ------------

                                                             20,003,989       19,203,844

   Less:  Notes receivable arising from the exercise of
            stock options and sale of common stock          (12,772,200)     (12,772,200)
          Treasury stock, 26,843 shares, at cost               (120,461)        (120,461)
                                                           ------------     ------------

           Total stockholders' equity                         7,111,328        6,311,183
                                                           ------------     ------------

           TOTAL                                           $ 34,752,694     $ 36,247,550
                                                           ============     ============
</TABLE>

                 See accompanying notes to financial statements.

                                       4
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED                SIX MONTHS ENDED
                                                 SEPTEMBER 30,                     SEPTEMBER 30,
                                         -----------------------------     -----------------------------
                                             2002             2001             2002             2001
                                         ------------     ------------     ------------     ------------
<S>                                      <C>              <C>              <C>              <C>
NET SALES                                $ 10,062,331     $ 11,225,584     $ 20,040,035     $ 22,928,575

COST OF GOODS SOLD                          7,047,230        9,547,698       14,283,734       18,169,634
                                         ------------     ------------     ------------     ------------
  Gross margin                              3,015,101        1,677,886        5,756,301        4,758,941
                                         ------------     ------------     ------------     ------------

OPERATING EXPENSES:
Selling                                     1,345,678        1,748,431        2,335,315        3,270,238
Delivery                                      511,954          570,362        1,083,516        1,212,621
Non-cash compensation related to
   options & warrants                      (1,348,089)       2,051,638       (2,985,350)       3,629,267
General and administrative                    747,243        1,589,994        1,588,749        2,410,541
Research and development                       56,440           44,540          114,214           97,856
                                         ------------     ------------     ------------     ------------
  Total operating expenses                  1,313,226        6,004,965        2,136,444       10,620,523
                                         ------------     ------------     ------------     ------------

INCOME (LOSS) FROM OPERATIONS               1,701,875       (4,327,079)       3,619,857       (5,861,582)

Interest expense                              969,630          689,844        1,868,102        1,397,112
                                         ------------     ------------     ------------     ------------

NET INCOME (LOSS)                        $    732,245     $ (5,016,923)    $  1,751,755     $ (7,258,694)

Preferred Stock Dividends                      70,000          446,900          140,000          534,400
Preferred Stock Accretion to
   Redemption Value                           120,700          429,977          459,977          667,491
                                         ------------     ------------     ------------     ------------

NET INCOME (LOSS)
   AVAILABLE TO COMMON
   SHAREHOLDERS                          $    541,545     $ (5,893,800)    $  1,151,778     $ (8,460,585)
                                         ============     ============     ============     ============

BASIC NET INCOME
   (LOSS) PER COMMON
   SHARE                                 $       0.05     $      (0.59)    $       0.10     $      (0.84)
                                         ============     ============     ============     ============
DILUTED NET INCOME
   (LOSS) PER COMMON
   SHARE                                 $       0.04     $      (0.59)    $       0.09     $      (0.84)
                                         ============     ============     ============     ============
</TABLE>

                 See accompanying notes to financial statements.

                                       5
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.
                       STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                   Common Stock          Additional                        Notes
                            -------------------------     Paid-In       Accumulated    Receivable for    Treasury
                               Shares      Par Value      Capital          Deficit      Common Stock       Stock          Total
                            -------------------------------------------------------------------------------------------------------
<S>                         <C>            <C>          <C>             <C>             <C>             <C>            <C>
Balance at March 31, 2002    11,540,041    $  115,400   $ 60,717,914    $(41,629,470)   $(12,772,200)   $  (120,461)   $  6,311,183

Exercise of options               1,000            10          4,240              --              --             --           4,250
Issuance of common stock        586,773         5,868      2,304,159              --              --             --       2,310,027
Issuance of common stock
   under employee stock
   purchase plan                  3,481            35          9,709              --              --             --           9,744
Issuance of warrants                 --            --         70,000              --              --             --          70,000
Non-cash compensation
   related to options
   under non-recourse
   note receivable                   --            --     (3,060,000)             --              --             --      (3,060,000)
Dividends on preferred
   stock                             --            --       (140,000)             --              --             --        (140,000)
Accretion of discount on
   preferred stock                   --            --       (145,631)             --              --             --        (145,631)
Net income                           --            --             --       1,751,755              --             --       1,751,755
                            -------------------------------------------------------------------------------------------------------

Balance at September 30,
   2002                      12,131,295    $  121,313   $ 59,760,391    $(39,877,715)   $(12,772,200)   $  (120,461)   $  7,111,328
                            =======================================================================================================
</TABLE>

                See accompanying notes to financial statements.

                                       6
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,                                          2002             2001
                                                                    ------------     ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                 <C>              <C>
   Net Income (Loss)                                                $  1,751,755     $ (7,258,694)
   Adjustments to reconcile net income (loss) to net cash
     from (used in) operating activities:
       Depreciation and amortization                                   1,138,945        1,045,613
       Amortization of debt discount and financing costs                 989,205          273,279
       Provision for losses on trade receivables                         158,300          475,000
       Non-cash compensation related to options under
         non-recourse note receivable                                 (3,060,000)       3,621,143
       Amortization of consulting and director fee expense
         paid through issuance of common stock warrants                   74,650            8,124
       (Increase) decrease in:
         Trade receivables                                               184,062         (672,527)
         Inventories                                                     501,719        3,998,117
         Prepaid expenses and other                                      (37,160)           1,580
       Increase (decrease) in:
         Accounts payable                                               (953,465)      (2,342,338)
         Accrued liabilities                                             161,661          215,052
                                                                    ------------     ------------

   NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                   909,672         (635,651)
                                                                    ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                   (192,578)        (371,439)
   Increase in other assets                                                   --           (1,883)
                                                                    ------------     ------------

   NET CASH USED IN INVESTING ACTIVITIES                                (192,578)        (373,322)
                                                                    ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Increase (decrease) in book overdrafts                               (809,285)         201,874
   Net payments on line of credit                                       (624,053)      (1,809,384)
   Borrowings on term note payable                                       500,000               --
   Repayments on term notes payable                                     (904,840)        (458,964)
   Principal payments on capital lease obligations                      (230,116)         (90,357)
   Financing costs for long term debt                                   (128,289)         (25,000)
   Proceeds from issuance of common stock, net of offering costs       1,476,744        3,017,745
   Proceeds from exercise of common stock options                          4,250           19,521
   Proceeds from issuance of preferred stock, net of costs                    --        2,900,959
                                                                    ------------     ------------

   NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                  (715,589)       3,756,394
                                                                    ------------     ------------

NET INCREASE IN CASH                                                       1,505        2,747,421

CASH, BEGINNING OF YEAR                                                      168              500
                                                                    ------------     ------------

CASH, END OF YEAR                                                   $      1,673     $  2,747,921
                                                                    ============     ============
</TABLE>

                See accompanying notes to financial statements.

                                       7
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------
     The unaudited financial statements have been prepared by the Company, under
     the rules and  regulations of the Securities and Exchange  Commission.  The
     accompanying  financial statements contain all normal recurring adjustments
     which  are,  in  the  opinion  of   management,   necessary  for  the  fair
     presentation  of  such  financial   statements.   Certain  information  and
     disclosures  normally  included  in the  financial  statements  prepared in
     accordance with generally accepted accounting  principles have been omitted
     under such rules and  regulations  although the Company  believes  that the
     disclosures are adequate to make the information  presented not misleading.
     The  March  31,  2002  balance  sheet  data was  derived  from the  audited
     financial  statements,  but does not  include all  disclosures  required by
     accounting  principles  generally accepted in the United States of America.
     These unaudited financial statements should be read in conjunction with the
     financial  statements  and notes  included on Form 10-K for the fiscal year
     ended March 31,  2002.  Interim  results of  operations  for the  six-month
     period ended  September 30, 2002 may not  necessarily  be indicative of the
     results to be expected for the full year.

     Net Income (Loss) per Common Share
     ----------------------------------
     Net income  (loss) per common  share is computed by dividing  net income or
     loss by the weighted average shares outstanding.  Diluted income (loss) per
     common  share  is  computed  on  the  basis  of  weighted   average  shares
     outstanding  plus  potential  common  shares  which  would  arise  from the
     exercise  of  stock  options,  warrants  and  conversion  of the  Series  A
     preferred stock.

     Use of Estimates
     ----------------
     The  preparation  of financial  statements  in conformity  with  accounting
     principles  generally  accepted  in the United  States of America  requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities  and disclosure of contingent  assets and
     liabilities at the date of the financial statements and reported amounts of
     revenues and expense during the reporting period. The Company's significant
     estimates  include the  allowance  for  doubtful  accounts  receivable  and
     valuation of deferred taxes and warrants.  Actual results could differ from
     those estimates.

     New Accounting Pronouncements
     -----------------------------
     In July 2002, the Financial  Accounting  Standards  Board  ("FASB")  issued
     Statement of Financial  Accounting  Standards  ("SFAS") No. 146 "Accounting
     for Costs Associated with Exit or Disposal  Activities," which is effective
     January 1, 2003.  SFAS 146 provides than an exit cost liability  should not
     always be recorded at the date of an entity's  commitment  to an exit plan,
     but instead should be recorded when the obligation is incurred. An entity's
     commitment to a plan, by itself,  does not create an obligation  that meets
     the definition of a liability. The Company does not expect SFAS 146 to have
     a material impact on its financial condition and results of operations.

     Reclassifications
     -----------------
     Certain  items in the  financial  statements  of the prior period have been
     reclassified to conform to current period presentation.

     Segment Information
     -------------------
     The Company does not identify  separate  operating  segments for management
     reporting  purposes.  The  results  of  operations  are the  basis on which
     management evaluates operations and makes business decisions. The Company's
     sales are generated primarily within the United States of America.

(2)  INVENTORIES
     -----------
     Inventories are summarized as follows:
                                              September 30,      March 31,
                                                  2002             2002
                                              ------------     ------------
                                               (UNAUDITED)
     Raw materials                            $  2,704,513     $  2,482,458
     Finished goods                              2,542,420        3,266,194
                                              ------------     ------------
     Total                                    $  5,246,933     $  5,748,652
                                              ============     ============

                                       8
<PAGE>

(3)  LINE OF CREDIT AND NOTES PAYABLE
     --------------------------------
     As of September  30, 2002,  the Company had a line of credit with a maximum
     principal amount of $7.5 million from FINOVA Capital  Corporation  ("FINOVA
     Capital"),  the  proceeds of which are for working  capital  purposes.  The
     amount that the  Company can borrow  under the line of credit is based on a
     formula of up to 80% of eligible  accounts  receivable plus 50% of eligible
     inventories not to exceed $3 million, as defined in the agreement. Pursuant
     to a certain Amendment and Limited Waiver to Security  Agreement dated June
     26, 2002, the inventory  advance rate  decreases by 1% per month  beginning
     July 1,  2002 from a level of 50% at June 30,  2002 to 37% by the  maturity
     date (47% at  September  30,  2002).  The line of credit is  secured by all
     accounts  receivable,   inventory,  machinery,  equipment,  trademarks  and
     patents  owned  by  the  Company.   Interest  is  payable  monthly  on  the
     outstanding  draws  on the line of  credit  at a rate of  prime  plus  four
     percent  (8.75% at September 30, 2002).  The line of credit expires on July
     1, 2003, at which time the entire outstanding  principal amount of the line
     of credit, and all accrued but unpaid interest thereon,  is due and payable
     in full. As of September 30, 2002, the Company had an  outstanding  balance
     of $4,899,822 under this line.

     On September 30, 1999, the Company obtained a $4 million  subordinated loan
     from FINOVA  Mezzanine  Capital,  Inc.  ("FINOVA  Mezzanine").  The Company
     received loan proceeds in the amount of $3,620,000  after paying loan costs
     of  $380,000.   Amounts  outstanding  under  the  loan  are  secured  by  a
     subordinated  lien on substantially  all of the Company's assets. A balloon
     payment of the entire  principal  amount of the loan,  and all  accrued but
     unpaid interest thereon,  is due upon maturity on July 1, 2003. Interest on
     the loan is payable monthly at a rate of 15.5% per annum. In  consideration
     of the loan, the Company  issued to FINOVA  Mezzanine a warrant to purchase
     915,000  shares  of our  common  stock  (of  which  100,000  shares  remain
     unexercised) at an exercise price of $3.41 per share which  represented 80%
     of the fair  value of our stock on the date the  warrant  was  issued.  The
     warrant was valued at $786,900  which was  recorded as a debt  discount and
     was amortized to interest  expense from the date of issuance of the note to
     an  original  earlier  maturity  date of the note in  October  2002.  As of
     September  30, 2002,  this  discount  has been fully  amortized to interest
     expense and the Company had an outstanding balance of $4,000,000 under this
     loan.

     The line of credit and  subordinated  loan described  above contain certain
     financial  and  operating  covenants.  In June 2002,  the Company  notified
     FINOVA  Capital and FINOVA  Mezzanine that it had failed to comply with the
     minimum  operational  cash flow to  contractual  debt service ratio and the
     funded  debt  to  EBITDA  ratio.  FINOVA  Capital  agreed  to  waive  those
     violations  for the fiscal year ended March 31, 2002 and the fiscal quarter
     ended June 30,  2002 and to amend such  covenants  for the fiscal  quarters
     beginning July 1, 2002,  pursuant to a certain Amendment and Limited Waiver
     to Security  Agreement dated June 26, 2002. FINOVA Mezzanine also agreed to
     waive the  violations  of its covenants for the fiscal year ended March 31,
     2002 and the  fiscal  quarter  ended  June  30,  2002,  and to amend  those
     covenants for future fiscal quarters  pursuant to a letter  agreement dated
     June 26, 2002 and amendments to the subordinated notes. In consideration of
     the waivers and covenant  amendments,  the Company agreed to pay a facility
     fee of  $413,500,  which was  deemed  fully  earned on June 26,  2002.  The
     facility  fee is payable as  follows:  $172,500  is due and  payable on the
     earliest of (a) July 1, 2003, (b) the occurrence of an event of default, or
     (c) the date on which the Company  repays either all of the  obligations to
     FINOVA  Capital  under the Loan  Agreement or any portion of the  principal
     obligations to FINOVA  Mezzanine under the FINOVA Mezzanine loan documents,
     with the balance of $241,000 due and payable  only upon FINOVA  Mezzanine's
     exercise of its remaining 100,000  warrants.  The Company was in compliance
     with all revised covenants for the quarter ended September 30, 2002.

     In March 2000, the Company obtained a $10 million term loan from SouthTrust
     Bank,  N.A. This note bears  interest at prime rate (4.75% at September 30,
     2002)  and  is  due in  monthly  principal  installments  of  $93,000  plus
     interest. In a letter agreement dated September 27, 2002, the bank deferred
     the four principal payments, due in June 2002 through September 2002, until
     the  maturity  of the note.  The note  matures in March  2005.  The balance
     outstanding on this note as of September 30, 2002 was $8,593,734. This term
     loan is secured by certain machinery and equipment.

     In  October  2000,  the  Company's  president  guaranteed  a  $1.5  million
     short-term  bridge  loan that it obtained  from  SouthTrust  Bank,  N.A. by
     pledging one million of his shares of the Company's  common stock to secure
     the loan.  Interest on this note is at the prime rate  (4.75% at  September
     30,  2002).  The loan is being paid down by monthly  principal  payments of
     $50,000 plus interest.  In a letter agreement dated September 27, 2002, the
     bank  deferred  the  four  principal  payments,  due in June  2002  through
     September 2002, until the maturity of the note. The note matures in October
     2003.  The balance  outstanding  on this note as of September  30, 2002 was
     $900,000.

     The term loan and the short-term  bridge loan from  SouthTrust  Bank,  N.A.
     contain  certain  financial  and  operating  covenants.  The Company was in
     violation of all  financial  covenants at March 31, 2002. On June 27, 2002,
     the Company received a waiver for the year ended March 31, 2002 and for all
     future periods through July 1, 2003.

                                       9
<PAGE>

     In March 2002,  Angelo Morini,  the Company's Chief  Executive  Officer and
     President,  obtained  a  personal  home  equity  line of credit  and loaned
     $330,000 to the Company in order for it to pay down certain  notes  payable
     that were coming due. This loan bears interest at prime (4.75% at September
     30, 2002) and is due on or before June 15, 2006.

     On June 26,  2002,  the  Company  signed a  $550,000  promissory  note with
     Excalibur Limited Partnership, one of the holders of the Company's Series A
     Preferred Stock. In consideration of the note, the Company issued Excalibur
     Limited  Partnership  a warrant to purchase  30,000 shares of Common Stock,
     which are  exercisable  until June 26,  2007 at a price  equal to $5.50 per
     share. This note was non-interest bearing assuming that it was repaid on or
     before July 26,  2002.  This note was  secured by 250,000  shares of Common
     Stock owned by the Angelo S. Morini,  the Company's Chief Executive Officer
     and President.  In consideration  of his guarantee and related pledge,  the
     Company  granted Mr.  Morini  stock  options to acquire  289,940  shares of
     Common  Stock at an  exercise  price of $5.17  (110% of market)  per share.
     These  options have  subsequently  been repriced to $2.05 (See Note 9), and
     shall expire on July 1, 2007. On June 26, 2002,  the Company  received loan
     proceeds  in the amount of  $500,000 in cash.  The  additional  $50,000 was
     retained by Excalibur  Limited  Partnership as payment for consulting  fees
     due to  Excalibur  Limited  Partnership  in  accordance  with a  consulting
     agreement  entered into on June 26, 2002,  which expires December 31, 2002.
     This  note was paid in full on June  28th from  proceeds  derived  from the
     issuance of common stock as discussed in Note 5.

     On August 15,  2002,  the Company  signed a $347,475  promissory  note with
     Target Container,  Inc. in satisfaction of its accounts payable  obligation
     to this  vendor.  This note  bears  interest  at 7% per annum and is due in
     twelve equal monthly  installments of $30,066.  The balance  outstanding on
     this note as of September 30, 2002 was $319,436.

(4)  COMMITMENTS AND CONTINGENCIES
     -----------------------------
     On May 17,  2002,  Schreiber  Foods,  Inc. of Green Bay  Wisconsin  filed a
     lawsuit  against the Company in the federal  district court for the Eastern
     District of  Wisconsin  ("Wisconsin  lawsuit"),  being Case No.  02-C-0498,
     alleging various acts of patent  infringement.  The Complaint  alleges that
     the  Company's   machines  for  wrapping  of  individual   cheese   slices,
     manufactured by Kustner Industries, S.A. of Switzerland, known as models KE
     and KD, and the  Company's  machines  for  producing  individually  wrapped
     slices  manufactured  by Hart Design  Mfg.,  Inc. of Green Bay,  Wisconsin,
     infringe  unspecified claims of U.S. Patents Nos. 5,440,860,  5,701,724 and
     6,085,680. Additionally, the Complaint refers to U.S. Patent No. 5,112,632,
     but it does not explicitly allege infringement of that patent;  because the
     case is in the earliest  stages,  there has not yet been an  opportunity to
     determine  whether  Schreiber  Foods  intends  to  pursue   allegations  of
     infringement of the 5,112,632  Patent against the Company.  Schreiber Foods
     is seeking a preliminary and permanent  injunction  prohibiting the Company
     from further  infringing  acts and is also seeking damages in the nature of
     either lost profits or reasonable royalties.

     On or about  July 10,  2002,  the  Company  filed a Motion to  Dismiss  the
     Wisconsin  lawsuit on the grounds that  Schreiber  Technologies,  Inc., not
     Schreiber  Foods,  is the owner of the asserted  patents.  Also on July 10,
     2002, the Company filed a Declaratory  Judgment  action  against  Schreiber
     Technologies, Inc. in the federal court for the Middle District of Florida,
     being case No.  02-CV-784,  seeking a declaration that the Company does not
     infringe   these   patents   and/or   that  the  patents  are  invalid  and
     unenforceable.  Schreiber Foods has opposed the Motion to Dismiss  claiming
     that it reacquired  ownership of the patents.  Schreiber  Technologies  has
     moved to  dismiss  the  Florida  action  claiming  that it does not own the
     patents.

     The  Company  is not in a  position  at this time to  express a view on the
     likelihood  that it will  succeed  in its  position,  nor in the  amount of
     damages that might be awarded  against it should it be unsuccessful in that
     regard.

(5)  CAPITAL STOCK
     -------------
     On April 6, 2001, in accordance with an exemption from  registration  under
     Regulation D promulgated under the Securities Act of 1933, as amended,  the
     Company received from BH Capital  Investments,  L.P. and Excalibur  Limited
     Partnership  (the "Series A Preferred  Holders")  proceeds of approximately
     $3,082,000  less costs of $181,041 for the issuance of 72,646 shares of the
     Company's  Series  A  convertible  preferred  stock  with a face  value  of
     $3,500,000 and warrants to purchase  shares of the Company's  common stock.
     The shares are  subject to certain  designations,  preferences  and rights,
     including  the right to convert  such shares into shares of common stock at
     any time. The per share  conversion  price is the lower of (x) $4.08 or (y)
     95% of the  average of the two lowest  closing  bid prices on the  American
     Stock Exchange of the common stock out of the fifteen trading days prior to
     conversion.   The  liquidation   preference  of  each  preferred  share  is
     approximately  $48.18 plus accrued  dividends that are then unpaid for each
     share of the Series A convertible  preferred stock ($54.93 at September 30,
     2002).

                                       10
<PAGE>

     In no case,  however,  shall any Series A Preferred  Holder be permitted to
     convert the Series A  convertible  preferred  stock in an amount that would
     cause such holder to beneficially  own at any given time, in the aggregate,
     such  number of shares of common  stock  which  would  exceed  9.99% of the
     aggregate  outstanding  shares of common  stock,  unless such holder waives
     such  restriction  upon not less than 61 days prior  notice to the Company.
     The number of shares  issuable upon  conversion of the Series A convertible
     preferred  stock will vary  depending  upon the  closing  bid prices of the
     Company's common stock on the AMEX.

     The Series A  Preferred  Holders  have the right to require  the Company to
     redeem their shares of preferred  stock on April 6, 2005 or upon occurrence
     of other events, as defined.  The redemption price shall be paid in cash at
     a price  per  preferred  share  equal  to the  greater  of (a)  100% of the
     preference amount ($48.18 plus accrued dividends) or (b) an amount equal to
     the  number of shares of common  stock  that  would be then  issuable  upon
     conversion of the preferred stock and times the market price on the date of
     redemption.  The market price is based on a five-day average of the closing
     bid prices for the five trading days prior to the date of redemption.

     The Series A Preferred Holders have the right to receive on any outstanding
     Series A convertible  preferred  stock a ten percent stock  dividend on the
     shares, payable one year after the issuance of such preferred stock, and an
     eight percent stock  dividend for the  subsequent  three years  thereafter,
     payable in either  cash or shares of  preferred  stock.  For the six months
     ended  September  30,  2002 and 2001,  the  Company  has  recorded  accrued
     dividends of $140,000 for the 8% preferred  stock dividend and $175,000 for
     the 10% preferred  stock  dividend,  respectively,  in connection  with the
     issuance of the preferred  stock and warrants on April 6, 2001. On April 6,
     2001,  the Company  recorded the initial  carrying  value of the  preferred
     stock as $521,848,  which included  adjustment for the estimated fair value
     of the initial warrants ($277,200) and redemption warrants ($277,200). Each
     quarter the Company calculates the estimated  redemption value based on the
     formulas stated above and the difference between the initial carrying value
     and the estimated  redemption  value is then  accreted over the  redemption
     period (48 months  beginning  April 2001) using the  straight  line method,
     which  approximates the effective interest method. For the six months ended
     September 30, 2002 and 2001,  the Company  recorded  $459,977 and $667,491,
     respectively, related to the accretion of the redemption value of preferred
     stock and the beneficial  conversion  feature of accrued  dividends.  As of
     September  30,  2002,   the  value  of  the  72,646  shares  of  redeemable
     convertible preferred stock is $2,301,942.

     On September 25, 2001, the Company issued an investor,  in accordance  with
     an exemption from  registration  under  Regulation D promulgated  under the
     Securities  Act of 1933, as amended,  (i) an aggregate of 522,648 shares of
     common stock, $0.01 par value, and (ii) warrants to purchase 140,000 shares
     of  common  stock,  $0.01  par  value,  at  an  aggregate  sales  price  of
     approximately  $3,000,000.  Registration  of the  shares was  completed  by
     October 25, 2001.  All 140,000  warrants were  exercised in January 2002 at
     $4.50 per share for total proceeds of $630,000.

     In  conjunction  with the Series A Purchase  Agreement,  the Company agreed
     that it  would  not sell or enter  into  any  agreement  to sell any of its
     securities  or incur  any  indebtedness  outside  the  ordinary  course  of
     business for the time period  beginning April 6, 2001 and continuing  until
     three  months  after  the  date  the  investors'  shares  were  effectively
     registered  ("Anti-Financing  Right").  To induce  the  Series A  Preferred
     Holders to waive their Anti-Financing Right to allow the Company to proceed
     with  transactions  contemplated  by the  September  25, 2001 common  stock
     issuance,  the Company  issued 30,000 shares of common stock to each of the
     two Series A Preferred  Holders at a per share  purchase price of par value
     ($.01).  The  difference  between the total  purchase  price ($600) and the
     market  value of the stock on the closing  date  ($360,000)  is  considered
     preferred stock dividends.  This dividend amount of $359,400 is included in
     the  preferred  stock  dividends  amount for the three and six months ended
     September 30, 2001 and therefore  affects the  computation  of earnings per
     common share.

     In accordance  with Regulation D and pursuant to a certain Common Stock and
     Warrants  Purchase  Agreement dated June 28, 2002, the Company sold 367,647
     shares of Common Stock on June 28, 2002 for $4.08 (85% of an average market
     price) and issued warrants to purchase  122,549 shares of Common Stock at a
     price  equal to $5.52  per share to  Stonestreet  Limited  Partnership.  In
     connection  with such sale, the Company issued 7,812 shares of Common Stock
     to  Stonestreet  Corporation  and  4,687  shares  of  Common  Stock  to H&H
     Securities Limited in exchange for their services as finders. Per the terms
     of the agreement,  the Company received net proceeds of $930,000, after the
     repayment  of a $550,000  promissory  note dated June 26,  2002 in favor of
     Excalibur  Limited  Partnership  and  payment  of $20,000  for  Stonestreet
     Limited  Partnership's  costs and expenses related to the purchase of these
     shares of Common Stock.

                                       11
<PAGE>

     In accordance  with Section 4(2) of the Securities Act of 1933, as amended,
     and pursuant to a Food Service Brokerage Agreement dated June 25, 2002, the
     Company  issued  141,221  shares  of  Common  Stock  for $4.08 per share on
     September  9, 2002 to  certain  food  brokers  in  consideration  for prior
     services rendered valued at $576,179.

     In accordance  with Section 4(2) of the Securities Act of 1933, as amended,
     and pursuant to a Securities  Purchase Agreement dated August 27, 2002, the
     Company  issued  65,404  shares  of  Common  Stock  for  $4.08 per share in
     settlement of an outstanding payable to Hart Design and Manufacturing, Inc.
     in the amount of $266,848.

(6)  RELATED PARTY TRANSACTIONS
     --------------------------
     In March 2002,  Angelo Morini,  the Company's Chief  Executive  Officer and
     President,  obtained  a  personal  home  equity  line of credit  and loaned
     $330,000 to the Company in order for it to pay down certain  notes  payable
     that were coming due. This loan bears interest at prime (4.75% at September
     30,  2002) and is due on or  before  June 15,  2006.  On May 24,  2002,  in
     consideration  of this  personal  loan  to the  Company  and his  continued
     guarantee and related  pledge of one million of his shares of the Company's
     common  stock for the loan with  SouthTrust  Bank,  N.A.  (See Note 3), the
     Company  granted Mr.  Morini stock options to acquire  1,163,898  shares of
     Common  Stock at an  exercise  price of $5.72  (110% of market)  per share.
     These  options have  subsequently  been repriced to $2.05 (See Note 9), and
     shall expire on May 24, 2012.

     On July 1, 2002, in  consideration of his guarantee and related pledge on a
     $550,000  promissory note with Excalibur Limited  Partnership (See Note 3),
     the Company  granted Mr. Morini stock options to acquire  289,940 shares of
     Common  Stock at an  exercise  price of $5.17  (110% of market)  per share.
     These  options have  subsequently  been repriced to $2.05 (See Note 9), and
     shall expire on July 1, 2007.

(7)  EARNINGS PER SHARE
     ------------------
     The following is a reconciliation of basic net earnings (loss) per share to
     diluted net earnings (loss) per share:

<TABLE>
<CAPTION>
                                                              Three months ended                 Six months ended
                                                                 September 30,                     September 30,
                                                             2002             2001             2002             2001
                                                         ------------     ------------     ------------     ------------
<S>                                                      <C>              <C>              <C>              <C>
     Net income (loss) available to common
       shareholders                                      $    541,545     $ (5,893,800)    $  1,151,778     $ (8,460,585)
                                                         ============     ============     ============     ============

     Weighted average shares outstanding - basic           11,978,691       10,048,447       11,764,984       10,033,874
      "In-the-money" shares under stock option
        agreements                                          1,420,502               --        1,792,771               --
     "In-the-money" shares under stock warrant
        agreements                                            245,000               --          335,429               --

     Less:  Shares assumed repurchased under treasury
       stock method                                        (1,544,310)              --       (1,677,333)              --
                                                         ------------     ------------     ------------     ------------

     Weighted average shares outstanding - diluted         12,099,883       10,048,447       12,215,851       10,033,874
                                                         ============     ============     ============     ============

     Basic net income (loss) per common share            $       0.05     $      (0.59)    $       0.10     $      (0.84)
                                                         ============     ============     ============     ============

     Diluted net income (loss) per common share          $       0.04     $      (0.59)    $       0.09     $      (0.84)
                                                         ============     ============     ============     ============
</TABLE>

     Potential  conversion  of Series A preferred  stock for  1,359,659  shares,
     options for  2,872,220  and  2,499,951  shares and warrants for 410,570 and
     320,141  shares have not been  included in the  computation  of diluted net
     income (loss) per common share for the three and six months ended September
     30, 2002,  respectively,  as their effect would be antidilutive.  Potential
     conversion  of Series A  preferred  stock for 710,413  shares,  options for
     2,781,845 shares,  and warrants for 1,031,911 shares have not been included
     in the  computation  of diluted net income  (loss) per common share for the
     three and six months ended  September  30,  2001,  as their effect would be
     antidilutive.

                                       12
<PAGE>

(8)  SUPPLEMENTAL CASH FLOW INFORMATION
     ----------------------------------
     For purposes of the statement of cash flows, all highly liquid  investments
     with a  maturity  date of three  months or less are  considered  to be cash
     equivalents.

     Six months ended September 30,                        2002          2001
     ---------------------------------------------------------------------------

     Non-cash financing and investing activities:
     Amortization of consulting and directors fees
       paid through issuance of common stock warrants   $   74,650    $    8,124
     Purchase of equipment through capital lease
       obligations and term notes payable                   94,763            --
     Reduction in accounts payable through
        issuance of notes payable                          347,475            --
     Reduction in accounts payable through issuance
        of common stock                                    843,027            --
     Discount related to preferred stock                        --     2,020,734
     Accrued preferred stock
       dividends                                           140,000       175,000
     Beneficial conversion feature related to
        preferred stock dividends                           17,844        45,400
     Accretion of discount on preferred stock              442,133       622,091
     Preferred dividends recorded for preferred
       shareholder waiver received in exchange for
       issuance of common stock                                 --       359,400

     Cash paid for:
     Interest                                            1,317,039     1,203,820
     Income taxes                                           51,037            --

(9)  SUBSEQUENT EVENTS
     -----------------
     On October 11, 2002 through  unanimous  consent of the Board of  Directors,
     the Company repriced all outstanding  options granted to employees prior to
     this date (4,284,108  shares at former prices ranging from $2.84 to $10.28)
     to the market price of $2.05 per share. In addition,  the Company  repriced
     the  outstanding  warrants held by current  consultants  prior to this date
     (291,429 shares at former prices ranging from $3.31 to $5.50) to the market
     price of $2.05 per  share.  This  stock  option  repricing  will  result in
     variable  accounting  treatment for these stock options in future  periods.
     Variable  accounting  treatment  will result in  unpredictable  stock-based
     compensation  expense or income  depending on fluctuations in quoted prices
     for the  Company's  common  stock.  Assuming  no  options or  warrants  are
     exercised or canceled,  a $0.01 increase in the Company's  stock price will
     result in a non-cash compensation expense of approximately $46,000.

                                       13
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following  discussion and analysis  should be read in  conjunction  with the
Financial  Statements and Notes thereto appearing  elsewhere in this report. The
following  discussion contains certain  forward-looking  statements,  within the
meaning of the "safe-harbor"  provisions of the Private Securities Reform Act of
1995, the attainment of which involves  various risks and  uncertainties.  These
forward-looking statements are based on our current expectations,  estimates and
projections  about our industry,  management's  beliefs and certain  assumptions
made  by  us.  Forward-looking  statements  may  be  identified  by  the  use of
forward-looking   terminology  such  as  "may",  "will",  "expect",   "believe",
"estimate",  "anticipate",  "continue",  or similar  terms,  variations of these
terms or the negative of those terms.  These  statements  are not  guarantees of
future  performance  and  are  subject  to  certain  risks,   uncertainties  and
assumptions  that are difficult to predict.  Therefore,  our actual  results may
differ materially from those described in these  forward-looking  statements due
to among other  factors,  competition  in our  product  markets,  dependence  on
suppliers,   our   manufacturing   experience,    and   production   delays   or
inefficiencies.   We   undertake   no   obligation   to  update   publicly   any
forward-looking  statements  for any  reason,  even if new  information  becomes
available or other events occur in the future.

Galaxy  Nutritional  Foods,  Inc.  (the  "Company")  is  principally  engaged in
developing,  manufacturing  and marketing a variety of healthy  cheese and dairy
related  products,  as well  as  other  cheese  alternatives,  and is a  leading
producer of soy-based alternative dairy products. These healthy cheese and dairy
related  products  include low or no fat, low or no cholesterol and lactose-free
varieties.   These   products  are  sold   throughout   the  United  States  and
internationally  to  customers  in the  retail  and food  service  markets.  The
Company's  headquarters  and  manufacturing  facilities  are located in Orlando,
Florida.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial statements and reported amounts of revenues and expense during the
reporting period. The Company's  significant estimates include the allowance for
doubtful  accounts  receivable  and  valuation of deferred  taxes and  warrants.
Actual results could differ from those estimates.

The Company records revenue upon shipment of products to its customers and there
is reasonable  assurance of collection on the sale. It provides  credit terms to
customers  usually based on net 30 days.  The Company  performs  ongoing  credit
evaluations of its accounts receivable and makes reserves for anticipated future
credits that will be issued to its customers for promotions,  discounts, spoils,
etc., based on historical  experience.  In addition,  the Company  evaluates the
accounts  for  potential   uncollectible   amounts.  The  reserve  for  accounts
receivable is then adjusted to reflect  these  estimates.  At September 30, 2002
and March 31, 2002, the Company had reserved approximately $815,000 and $678,000
for known and anticipated future credits and doubtful  accounts.  During the six
months ended  September  30, 2002 and 2001,  the Company  recorded  $158,300 and
$475,000,  respectively,  of expense  related to anticipated  future credits and
doubtful accounts.

Inventories  are  valued  at  the  lower  of  cost  (weighted   average,   which
approximates FIFO) or market.  The Company reviews its inventory  valuation each
month  and  writes  down  the  inventory  for  potential  obsolete  and  damaged
inventory.  In addition, the inventory value is reduced to market value when the
known sales price is less than the cost of the inventory.

Valuation  allowances  are  established  when  necessary to reduce  deferred tax
assets to the amount  expected  to be  realized.  Income tax  expense is the tax
payable or refundable  for the period plus or minus the change during the period
in deferred tax assets and liabilities.

Statement of Financial Accounting Standards No. 123 ("FAS 123"),  Accounting for
Stock Based Compensation, requires the Company to report compensation expense on
warrants issued to non-employees for services  rendered,  in accordance with the
fair value based method  prescribed  in FAS 123. The Company  estimates the fair
value  of  each  warrant  based  on the  expected  vesting  due  to  performance
requirements  set forth in the  warrant  or  service  agreement  and life of the
warrant  by  using a  Black-Scholes  option-pricing  model  with  the  following
assumptions used in the fiscal 2003 option-pricing model: no dividend yield, 37%
volatility,  risk-free interest rate of 4.06%, and expected lives of five years.
Assumptions  used for grants in fiscal 2002: no dividend yield,  38% volatility,
risk-free interest rate ranging from 4.75%, and expected lives of ten years.

                                       14
<PAGE>

RESULTS OF OPERATIONS

During  fiscal year 2000,  the  Company  experienced  increasing  demand for its
products but was unable to fill all of the orders it received due, in part, to a
lack of  production  capacity.  During  the latter  part of fiscal  2001 and the
beginning of fiscal 2002,  the Company  significantly  increased its  production
capacity by purchasing and installing  additional  production  equipment for six
new  production  lines that included two slice lines, a chunk cheese line, a cup
line, a string cheese line, and a shred line. This equipment enables the Company
to produce new products,  improve product  quality,  and increase the production
volume of existing  products.  The  installation  of the  equipment  was delayed
significantly  due to late shipments by manufacturers  and problems  configuring
the machines to meet the manufacturing needs of our unique line of products, but
was completed by September  2001.  Because of the delays in the  installation of
the equipment, the Company experienced excess overhead costs and downtime during
the first and second quarters of fiscal 2002,  which resulted in increased costs
and reduced cash flows for those periods.  Additionally,  although a substantial
portion of the purchase price and installation costs incurred in connection with
the new equipment was financed  through a loan  obtained from  SouthTrust  Bank,
N.A., the Company used nearly all of the excess cash that the Company had at the
time to purchase  and install the new  equipment.  As a result of the large cash
outlays related to this expansion along with the delays in new product shipment,
the Company experienced  shortfalls in cash that affected nearly every aspect of
its  operations  in fiscal  2002.  In fiscal  2003,  the Company has returned to
positive cash flow levels through efficiencies in production, purchase discounts
and  additional  cost  reductions.  All  excess  cash has  been  put  back  into
operations to improve the Company's operations and financial position.

NET SALES  were  $10,062,331  in the three  months  ended  September  30,  2002,
compared to net sales of  $11,225,584  for the three months ended  September 30,
2001, a decrease of 10%. The Company  experienced an overall decrease of 13% for
the first six months of fiscal 2003  compared to the same period in fiscal 2002.
Although  sales in fiscal 2003 is a decrease  from the sales levels in the first
half of fiscal 2002,  the sales are at the same level  (approx.  $10 million) as
they were for the fourth  quarter ended fiscal 2002. The decrease in fiscal 2003
sales compared to fiscal 2002 is attributed to the significant reduction in cash
flows in fiscal 2002 as described  above.  As a result of the cash shortages and
short shipments,  the Company made a strategic  product mix decision and decided
to focus on its  higher-margin  brand name  products  under the Veggie brand and
turn away  certain  private  label  business.  While  demand  for the  Company's
products and private  label  business  continues  to increase,  sales growth was
maintained at lower levels so that the Company can grow profitably.

COSTS OF GOODS SOLD were $7,047,230  representing 70% of net sales for the three
months ended  September 30, 2002,  compared with  $9,547,698 or 85% of net sales
for the same period ended  September 30, 2001.  These costs  represented 71% and
79% of net sales for the six months ended September 2002 and 2001, respectively.
There was an overall decrease in costs of $3,885,900 in the six months of fiscal
2003  compared  to  fiscal  2002.  This  decrease  in direct  materials  cost is
primarily  the result of several  factors:  (a) a  decrease  of $2.4  million in
proportion to the decrease in sales,  (b) the completed  installation of the new
equipment in fiscal 2002 resulted in an increase of $186,000 in depreciation and
personal property taxes in the first half of fiscal 2003.  However,  in response
to the  additional  efficiencies  that the new equipment is now  providing,  the
Company  substantially  decreased  the number of  production  personnel  late in
fiscal  2002,  which  caused  labor-related  expenses to decrease  approximately
$886,000  in the first  quarter of fiscal  2003,  (c) a decrease  of $600,000 in
inventory write-offs.  In the second quarter of fiscal 2002, the Company changed
its production focus by scaling back its product mix to 200 core items that made
up nearly 98% of sales. As a result of the change in focus, the Company provided
for a $600,000 reserve for potential obsolete and slow moving inventory; and (d)
a decrease of $200,000 in raw material costs due to improved  vendor  relations,
lower raw material costs and purchase discounts. Now that the equipment is fully
operational and the labor crews are trained,  the Company is seeing improved run
rates with more,  high-quality product produced per hour. This resulted in gross
margin increasing from the annual rate of 18% in fiscal 2002 to 29% in the first
six  months  of  fiscal  2003.  The  Company  expects  that  with its  increased
efficiencies  in labor,  production and purchasing  along with tight controls on
product mix, it will continue to sustain its improved margins in fiscal 2003.

SELLING  expenses were  $1,345,678  and  $2,335,315 for the three and six months
ended September 30, 2002, respectively,  compared with $1,748,431 and $3,270,238
for the three and six months ended September 30, 2001, respectively,  a decrease
of 23% and 29% in the  respective  periods.  The  decrease in expenses is due to
further  reductions in advertising  and  promotional  expenses of  approximately
$709,000 in the first six months of fiscal  2003  compared to the same period in
fiscal 2002. In 2002, more promotions were directed to provide incentives to our
direct customers for brand item purchases.  In addition, the Company experienced
a decrease (approximately 13%) in brokerage and salary costs proportional to the
decrease in net sales and a decrease in travel costs in excess of $104,000.  The
Company  expects that fiscal 2003 selling  expenses  will  continue to remain at
levels below that of fiscal 2002 expenses  based on the  Company's  current plan
for advertising and promotional  allowances that are granted on volume purchases
rather than on individual item discounts.

                                       15
<PAGE>

DELIVERY  expenses  were  $511,954 and  $1,083,516  for the three and six months
ended  September 30, 2002,  respectively,  compared with $570,362 and $1,212,621
for the same periods ended September 30, 2001. Delivery expenses  approximate 5%
of net sales each  period.  The  decrease  in  delivery  costs is  primarily  in
proportion to the decrease in net sales.

NON-CASH  COMPENSATION  RELATED  TO  OPTIONS  AND  WARRANTs  showed an income of
$1,348,089 and $2,985,350 for the three and six months ended September 30, 2002,
respectively,  compared to an expense of $2,051,638 and $3,629,267 for the three
and six months ended September 30, 2001, respectively.  The Financial Accounting
Standards  Board issued  Interpretation  No. 44 ("FIN 44"),  which clarifies the
application of APB Opinion 25 relating to the accounting consequences of various
modifications  to fixed  stock  options.  FIN 44  states  that when an option is
repriced,  it is  treated  as a  variable  option  and is marked to market  each
quarter.  In  accordance  with FIN 44,  the  underlying  options  related to the
$12,772,200 note receivable from Angelo S. Morini, the Company's Chief Executive
Officer and  President,  are  treated as variable  due to the nature of the note
being a non-interest bearing and non-recourse note. Accordingly, any differences
between the  exercise  price of the options  ($4.38) and the market price of the
Company's  common  stock is recorded as  compensation  income or expense at each
reporting  period.  During the six months ended  September 30, 2002,  the market
value of the Company's  stock decreased from $5.43 at March 31, 2002 to $3.14 at
September 30, 2002. Therefore, the Company recorded a $3,060,000 decrease in the
compensation  related  to this  decrease  in stock  value to the floor of $4.38.
Additionally,  the Company  recorded a $74,650 expense related to the fair value
of  warrants  issued  for  consulting  services.  During  the six  months  ended
September 30, 2001, the market value of the Company's stock increased from $4.76
at March  31,  2001 to $6.00 at  September  30,  2001.  Therefore,  the  Company
recorded a $3,629,267  increase in the compensation  related to this increase in
stock value. Additionally, the Company recorded an $8,124 expense related to the
fair value of warrants issued for consulting services.  Due to the volatility of
the market price of the Company's  common  stock,  it is incapable of predicting
whether this expense will increase or decrease in the future.  A $0.01  increase
or decrease in the Company's common stock price results in an expense or income,
respectively, of $29,143.

On October 11, 2002 through  unanimous  consent of the Board of  Directors,  the
Company repriced all outstanding options granted to employees prior to this date
(4,284,108  shares at former prices  ranging from $2.84 to $10.28) to the market
price of $2.05 per share.  In addition,  the Company  repriced  the  outstanding
warrants  held by  current  consultants  prior to this date  (291,429  shares at
former  prices  ranging  from $3.31 to $5.50) to the  market  price of $2.05 per
share. This stock option repricing will result in variable accounting  treatment
for these stock options in future periods.  Variable  accounting  treatment will
result in unpredictable  stock-based compensation expense or income depending on
fluctuations  in quoted  prices for the  Company's  common  stock.  Assuming  no
options or warrants are exercised or canceled, a $0.01 increase in the Company's
stock  price will  result in a non-cash  compensation  expense of  approximately
$46,000.

GENERAL AND  ADMINISTRATIVE  expenses were $747,243 and $1,588,749 for the three
and six months ended September 30, 2002, respectively,  compared with $1,589,994
and  $2,410,541  for the same periods  ended  September  30, 2001, a 53% and 34%
respective  decrease.  The decrease was  primarily due to a decrease in bad debt
expense and personnel  costs in 2003 along with a general  reduction in standard
administrative  expenses due to cost cutting measures  implemented at the end of
fiscal 2002.

RESEARCH AND  DEVELOPMENT  expenses  were $56,440 and $114,214 for the three and
six months ended  September  30, 2002,  respectively,  compared with $44,540 and
$97,856 for the three and six months ended September 30, 2001,  respectively,  a
27% and 17%  respective  increase.  This  increase is primarily  the result of a
change in the  allocation  of general  overhead  costs to this  department.  The
Company expects that these expenses will remain at this level throughout  fiscal
2003.

INTEREST  expense  increased  $470,990  or 34% in the first six months of fiscal
2003 compared to the first six months of fiscal 2002. This increase was $279,786
or 41% for the three  months  ended  September  30,  2002  compared to the three
months ended September 30, 2001. On September 30, 1999, the Company entered into
a  $4,000,000  subordinated  note payable with FINOVA  Mezzanine  Capital,  Inc.
("FINOVA Mezzanine").  This debt currently bears interest at a rate of 15.5% and
includes an  original  issuance  discount of  $786,900,  which is  amortized  as
interest  expense  over  the  term  of  the  debt.  In  connection  with  FINOVA
Mezzanine's  warrant  exercise and transfer of 815,000  shares of the  Company's
Common Stock, the Company agreed to guarantee the price at which the shares were
sold to the  public at $4.41 per  share.  The actual  price  received  by FINOVA
Mezzanine  was $3.25 per share and the  difference of $945,400 was recorded as a
debt discount and is being amortized over the remaining term of the subordinated
note.  During the six months  ended  September  30, 2002 and 2001,  $614,230 and
$204,743,  respectively,  of the total debt discount of $1,732,300 was amortized
to interest expense.  This non-cash  amortization  increased by $409,487 because
the period of this loan was shortened by FINOVA  Mezzanine in a waiver issued in
November  2001.  In  addition,  the loan  fees  amortized  to  interest  expense
increased  approximately $303,000 during the six months ended September 30, 2002
due to additional loan costs and the shortened loan periods. The increase in the
above mentioned  amortization was offset by a decrease of approximately $242,000
in interest expense as a

                                       16
<PAGE>

result of lower debt balances  during  fiscal 2003 compared to fiscal 2002.  See
"Debt Financing" below for further detail on the Company's outstanding debts and
interest rates thereon.

LIQUIDITY AND CAPITAL RESOURCES

OPERATING  ACTIVITIES - Net cash from operating  activities was $909,672 for the
six months ended  September  30, 2002 compared to net cash used of $635,6514 for
the same period ended  September 30, 2001. The increase in cash from  operations
is  primarily  attributable  to a net income of  $1,751,755  reduced by non-cash
items of $698,900 (or  $1,052,855)  evidencing  the improved  gross  margins and
reduction  in cash  operating  expenditures  in fiscal  2003 along with  further
reductions in inventory  levels.  In fiscal 2002, the Company used a significant
portion of its cash to  decrease  its  amounts  payable  to vendors  and to fund
operating losses.

INVESTING  ACTIVITIES - Net cash used in investing  activities  totaled $192,578
for the six  months  ended  September  30,  2002  compared  to net cash  used of
$373,322 for the same period ended September 30, 2001. The decrease in cash used
for investing activities during fiscal 2003 as compared to fiscal 2002 primarily
resulted from less purchases of fixed assets during the period.

FINANCING ACTIVITIES - Net cash flows used by financing activities were $715,589
for the six months ended  September 30, 2002 compared to cash flows  provided by
financing activities of $3,756,394 for the same period ended September 30, 2001.
During the first quarter of fiscal 2003, the Company received loan proceeds from
Excalibur Limited Partnership in the amount of $500,000 in cash. The proceeds of
which were used to pay down a portion of the  Company's  outstanding  debt under
its term loan from  SouthTrust  Bank,  N.A.  In  addition,  the  Company  raised
$1,500,000  through the issuance of common stock (as further  discussed  below).
These  proceeds  were  used to pay off its  term  loan  from  Excalibur  Limited
Partnership  and for working  capital  purposes.  The Company used its cash from
operating  activities  to reduce the balance of the Company's  outstanding  debt
under  its line of  credit  from  FINOVA  Capital.  The large  cash  flows  from
financing  activities  during  the six  months  ended  September  30,  2001 were
primarily the result of the issuance of common and preferred stock. The majority
of these  proceeds were used to pay down the line of credit from FINOVA  Capital
and to finance the Company's operating activities in fiscal 2002.

Debt Financing
As of  September  30,  2002,  the  Company  had a line of credit  with a maximum
principal amount of $7.5 million from FINOVA Capital  Corporation,  the proceeds
of which are for  working  capital  purposes.  The amount  that the  Company can
borrow  under the line of credit is based on a formula of up to 80% of  eligible
accounts  receivable plus 50% of eligible  inventories not to exceed $3 million,
as defined in the agreement.  Pursuant to a certain Amendment and Limited Waiver
to Security  Agreement dated June 26, 2002, the inventory advance rate decreases
by 1% per month  beginning  July 1, 2002 from a level of 50% at June 30, 2002 to
37% by the maturity  date (47% at  September  30,  2002).  The line of credit is
secured by all accounts receivable,  inventory, machinery, equipment, trademarks
and patents owned by the Company. Interest is payable monthly on the outstanding
draws on the line of  credit  at a rate of prime  plus  four  percent  (8.75% at
September 30, 2002).  The line of credit  expires on July 1, 2003, at which time
the entire  outstanding  principal amount of the line of credit, and all accrued
but unpaid  interest  thereon,  is due and payable in full.  As of September 30,
2002, the Company had an outstanding balance of $4,899,822 under this line.

On September 30, 1999, the Company obtained a $4 million  subordinated loan from
FINOVA Mezzanine to finance additional  working capital and capital  improvement
needs.  The Company  received loan  proceeds in the amount of  $3,620,000  after
paying loan costs of $380,000. Amounts outstanding under the loan are secured by
a subordinated  lien on  substantially  all of the Company's  assets.  A balloon
payment of the entire  principal  amount of the loan, and all accrued but unpaid
interest  thereon,  is due  upon  maturity  in  July  2003.  The  interest  rate
applicable  to the loan was  increased  from  11.5%  to 13.5% in July  2001.  In
February  2002, the interest rate increased to 15.5%.  In  consideration  of the
loan,  the Company  issued to FINOVA  Mezzanine  a warrant to  purchase  915,000
shares  of our  common  stock at an  exercise  price of $3.41  per  share  which
represented  80% of the fair  value of our  stock  on the date the  warrant  was
issued.  The warrant,  valued at $786,900,  was recorded as a debt  discount was
amortized  to  interest  expense  from  the date of  issuance  of the note to an
original  earlier maturity date of the note in October 2002. As of September 30,
2002, the discount has been fully amortized to interest  expense and the Company
had an outstanding principal balance of $4,000,000 under this loan.

On December 26, 2000, the FINOVA Mezzanine exercised a portion of the warrant to
purchase  815,000  shares of Common  Stock at a price of $3.41  per  share.  The
Company  received  from the exercise of the warrant net proceeds of  $2,452,329,
after paying transaction costs of $326,822. In connection with this transaction,
the Company agreed to reimburse  FINOVA  Mezzanine for brokerage  commission and
other expenses incurred by it, in connection with the sale of the 815,000 shares
to

                                       17
<PAGE>

the  public,  which  were sold at a price of $3.25 per  share.  These  costs and
expenses were recorded as a reduction in the proceeds received from the exercise
of the warrants.  In addition,  the Company agreed to guarantee the price ($4.41
per  share) at which the  shares  would be sold to the  public.  The  difference
between the actual price received by FINOVA Mezzanine ($3.25) and the guaranteed
price ($4.41) was  $945,400,  which was recorded as a debt discount and is being
amortized over the remaining term of the  subordinated  note. The  consideration
for the difference  between the exercise price of $3.41 and the guaranteed price
of $4.41 was $815,000.  FINOVA  Mezzanine agreed to finance such amount under an
additional  subordinated  term loan which was  payable in full on  December  29,
2001.  However,  the Company obtained an extension for a fee of $55,000 and made
payments of $30,000 per  business day through  February 28, 2002,  at which time
the additional loan was paid in full.  During the six months ended September 30,
2002 and 2001, $614,230 and $204,743,  respectively, of the total debt discounts
of $1,732,300 were amortized to interest  expense.  At September 30, 2002, there
were no remaining unamortized debt discounts and the remaining principal balance
due on the notes was $4,000,000.

The line of credit  and  subordinated  loans  described  above  contain  certain
financial and operating  covenants.  In June 2002, the Company  notified  FINOVA
Capital  and  FINOVA  Mezzanine  that it had failed to comply  with the  minimum
operational  cash flow to contractual  debt service ratio and the funded debt to
EBITDA ratio.  FINOVA  Capital  agreed to waive those  violations for the fiscal
year ended  March 31,  2002 and the fiscal  quarter  ended June 30,  2002 and to
amend such covenants for the fiscal quarters beginning July 1, 2002, pursuant to
a certain  Amendment  and Limited  Waiver to Security  Agreement  dated June 26,
2002. FINOVA Capital extended the maturity date from October 15, 2002 to July 1,
2003, removed any prepayment penalties, reduced the credit line from $13 million
to $7.5 million,  reduced the inventory limit from $6 million to $3 million, and
will reduce the inventory  advance rate by 1% per month  beginning  July 1, 2002
(from a level  of 50% at June  30,  2002 to 37% by the  maturity  date).  FINOVA
Mezzanine  also agreed to waive the  violations  of its covenants for the fiscal
year ended March 31, 2002 and the fiscal  quarter  ended June 30,  2002,  and to
amend those covenants for future fiscal quarters  pursuant to a letter agreement
dated June 26, 2002 and amendments to the  subordinated  notes. In consideration
of the waivers and covenant amendments, the Company agreed to pay a facility fee
of $413,500, which was deemed fully earned on June 26, 2002. The facility fee is
payable as follows:  $172,500 is due and payable on the  earliest of (a) July 1,
2003,  (b) the  occurrence of an event of default,  or (c) the date on which the
Company  repays either all of the  obligations  to FINOVA Capital under the Loan
Agreement or any portion of the principal  obligations to FINOVA Mezzanine under
the FINOVA  Mezzanine  loan  documents,  with the  balance of  $241,000  due and
payable only upon FINOVA Mezzanine's exercise of its remaining 100,000 warrants.
The Company was in compliance  with all revised  covenants for the quarter ended
September 30, 2002.

In March 2000,  the Company  obtained a $10  million  term loan from  SouthTrust
Bank,  N.A. This note bears interest at prime rate (4.75% at September 30, 2002)
and is due in monthly  principal  installments  of $93,000 plus  interest.  In a
letter  agreement dated September 27, 2002, the bank deferred the four principal
payments,  due in June 2002 through  September  2002,  until the maturity of the
note. The note matures in March 2005. The balance outstanding on this note as of
September  30, 2002 was  $8,593,734.  This note was used to pay off a prior term
loan and to finance  approximately  $7.5 million in new  equipment  purchases to
expand our production capacity, including the new production equipment purchased
and installed throughout fiscal 2001 and the beginning of fiscal 2002. This term
loan is secured by certain machinery and equipment,  including the Company's new
production equipment.

In October 2000,  Angelo S. Morini,  the Company's Chief  Executive  Officer and
President,  guaranteed  a $1.5 million  short-term  bridge loan that the Company
obtained from SouthTrust Bank, N.A. by pledging one million of his shares of the
Company's Common Stock to secure the loan. Interest on this note is at the prime
rate (4.75% at March 31, 2002). The loan is being paid down by monthly principal
payments of $50,000 plus interest.  In a letter  agreement  dated  September 27,
2002,  the bank deferred the four principal  payments,  due in June 2002 through
September  2002,  until the  maturity of the note.  The note  matures in October
2003.  The  balance  outstanding  on this  note as of  September  30,  2002  was
$900,000.  In  consideration  of his guarantee and related  pledge,  the Company
granted Mr. Morini stock options to acquire 343,125 shares of Common Stock at an
exercise price of $3.88 per share. These options have subsequently been repriced
to $2.05 (See Note 9), and shall expire on December 15, 2010.

The term loan and the short-term  bridge loan from SouthTrust Bank, N.A. contain
certain financial and operating  covenants.  The Company was in violation of all
financial  covenants at March 31, 2002. On June 27, 2002, the Company received a
waiver for the year ended March 31, 2002 and for all future periods through July
1, 2003.

                                       18
<PAGE>

In March  2002,  Angelo  Morini,  the  Company's  Chief  Executive  Officer  and
President, obtained a personal home equity line of credit and loaned $330,000 to
the Company in order for it to pay down certain  notes  payable that were coming
due. This loan bears  interest at prime (4.75% at September 30, 2002) and is due
on or before June 15, 2006.

On May 24, 2002, in  consideration  of this personal loan to the Company and his
continued  guarantee  and  related  pledge of one  million  of his shares of the
Company's common stock for the loan with SouthTrust Bank, N.A. (See Note 3), the
Company granted Mr. Morini stock options to acquire  1,163,898  shares of Common
Stock at an exercise  price of $5.72 (110% of market) per share.  These  options
have  subsequently  been repriced to $2.05 (See Note 9), and shall expire on May
24, 2012.

On June 26, 2002, the Company signed a $550,000  promissory  note with Excalibur
Limited  Partnership,  one of the  holders of the  Company's  Series A Preferred
Stock.  In  consideration  of the note,  the Company  issued  Excalibur  Limited
Partnership  a warrant to  purchase  30,000  shares of Common  Stock,  which are
exercisable  until June 26, 2007 at a price equal to $5.50 per share.  This note
was non-interest bearing assuming that it was repaid on or before July 26, 2002.
This note was secured by 250,000  shares of Common  Stock owned by the Angelo S.
Morini, the Company's Chief Executive Officer and President. In consideration of
his guarantee and related  pledge,  the Company granted Mr. Morini stock options
to acquire 289,940 shares of Common Stock at an exercise price of $5.17 (110% of
market) per share.  These options have  subsequently been repriced to $2.05 (See
Note 9),  and shall  expire  on July 1,  2007.  On June 26,  2002,  the  Company
received loan proceeds in the amount of $500,000 in cash. The additional $50,000
was retained by Excalibur Limited Partnership as payment for consulting fees due
to Excalibur  Limited  Partnership  in  accordance  with a consulting  agreement
entered into on June 26, 2002,  which expires  December 31, 2002.  This note was
paid in full on June 28th from  proceeds  derived  from the  issuance  of common
stock as discussed below.

On August 15, 2002,  the Company signed a $347,475  promissory  note with Target
Container,  Inc. in  satisfaction  of its accounts  payable  obligation  to this
vendor.  This note  bears  interest  at 7% per annum and is due in twelve  equal
monthly installments of $30,066.


Equity Financing
On April 6,  2001,  the  Company  issued to BH  Capital  Investments,  L.P.  and
Excalibur Limited Partnership, in accordance with an exemption from registration
under  Regulation D  promulgated  under the  Securities  Act of 1933, as amended
("Regulation  D"), (i) an aggregate of 72,646 shares of the  Company's  Series A
convertible  preferred stock,  $0.01 par value (the "Series A Preferred Stock"),
and (ii) warrants to purchase  shares of the Common Stock, at an aggregate sales
price of  approximately  $3,082,000.  The Series A Preferred Stock is subject to
certain  designations,  preferences  and rights set forth in our  Certificate of
Designations,  Preferences and Rights of Series A Convertible  Preferred  Stock,
including  the right to convert  such shares into shares of Common  Stock at any
time, at a current conversion rate (subject to appropriate  adjustment for stock
splits,  stock  dividends,  recapitalizations  and  other  events)  equal to the
quotient of:

     o    $48.18, plus all accrued dividends that are then unpaid for each share
          of Series A Preferred Stock then held by the holder,

          divided by,

     o    the  lesser of (x) $4.08 or (y) 95% of the  average  of the two lowest
          closing bid prices on the American  Stock Exchange of the Common Stock
          out of the  fifteen  trading  days  immediately  prior to  conversion;
          provided  that,  in certain  circumstances,  such  amount may not fall
          below $3.10.

In no case,  however,  shall any holder of Series A Preferred Stock be permitted
to convert Series A Preferred Stock in an amount that would cause such holder to
beneficially own, in the aggregate,  such number of shares of Common Stock which
would exceed 9.99% of the aggregate outstanding shares of Common Stock.

In  connection  with the issuance of the Series A Preferred  Stock,  the Company
also granted to BH Capital  Investments,  L.P. and Excalibur Limited Partnership
warrants to purchase an aggregate of 120,000 shares of common stock. The initial
warrants  were  exercisable  for a period of five years from April 6, 2001, at a
per share exercise price of $5.30.  Pursuant to a letter agreement dated October
5, 2001,  the Company  agreed to issue  additional  warrants  to acquire  60,000
shares of its Common Stock at an exercise price of $5.86 per share to each of BH
Capital Investments, L.P. and Excalibur Limited Partnership. In exchange for the
warrants, BH Capital Investments,  L.P. and Excalibur Limited Partnership agreed
to  provide  us certain  consulting  services,  including  the  introduction  of
potential customers in Canada. Subsequently, the

                                       19
<PAGE>

Company  agreed to reduce the per share  exercise  price on all the  warrants to
$2.67 in order to induce BH Capital  Investments,  L.P.  and  Excalibur  Limited
Partnership to exercise their warrants and to gain their required approval for a
private  placement.  On January  17,  2002,  BH Capital  Investments,  L.P.  and
Excalibur Limited Partnership exercised all 240,000 for a total of $640,800.

In accordance with Regulation D and pursuant to a Securities  Purchase Agreement
dated as of September  24, 2001,  Hare & Co. f/b/o John Hancock  Small Cap Value
Fund, an affiliate of John Hancock Advisors,  Inc.,  purchased 522,648 shares of
Common  Stock and warrants to purchase  140,000  shares of Common  Stock,  at an
aggregate sales price of $3,000,000.  The warrants held by Hare & Co. f/b/o John
Hancock  Small Cap Value  Fund were  exercisable  at a price per share  equal to
$6.74 until September 25, 2006.  Subsequently,  the Company agreed to reduce the
per share  exercise price on all the warrants to $4.50 in order to induce Hare &
Co. f/b/o John Hancock Small Cap Value Fund to exercise their  warrants.  All of
the warrants were  exercised in January 2002 at a price of $4.50 per share for a
total of $630,000.

In  accordance  with  Regulation D and pursuant to certain  Securities  Purchase
Agreements  dated January 17, 2002 with FNY Millenium  Partners,  LP,  Millenium
Global  Offshore  Ltd.,  Potomac  Capital  Partners,  LP,  and  Potomac  Capital
International  Ltd.,  the Company sold 158,095  shares of Common Stock for $4.74
(95% of an average market price) and issued  warrants to purchase  39,524 shares
of  Common  Stock at a price  equal to $5.74  per  share.  Pursuant  to the same
Securities  Purchase  Agreements dated January 17, 2002, the Company sold 12,270
shares of Common  Stock for $4.74  (95% of an average  market  price) and issued
warrants to purchase  3,068 shares of Common Stock at a price equal to $5.74 per
share to its officers  Angelo S. Morini,  Christopher  New, LeAnn  Hitchcock and
Kulbir  Sabharwal.  All of the warrants are exercisable  until January 17, 2007.
The Company  received  total  proceeds of $808,212  related to the sale of these
shares of Common Stock.

In  accordance  with  Regulation  D and  pursuant to a certain  Common Stock and
Warrants Purchase Agreement dated June 28, 2002, the Company sold 367,647 shares
of Common Stock for $4.08 (85% of an average  market price) and issued  warrants
to purchase  122,549  shares of Common Stock at a price equal to $5.52 per share
to Stonestreet  Limited  Partnership.  In connection with such sale, the Company
issued 7,812 shares of Common Stock to Stonestreet  Corporation and 4,687 shares
of Common  Stock to H&H  Securities  Limited in exchange  for their  services as
finders.  Per the terms of the agreement,  the Company  received net proceeds of
$930,000,  after the repayment of a $550,000 promissory note dated June 26, 2002
in favor of Excalibur Limited Partnership and payment of $20,000 for Stonestreet
Limited Partnership's costs and expenses related to the purchase of these shares
of Common Stock.

In accordance  with Section 4(2) of the Securities Act of 1933, as amended,  and
pursuant to a Food Service Brokerage  Agreement dated June 25, 2002, the Company
issued  141,221  shares of Common Stock for $4.08 per share on September 9, 2002
to certain food brokers in consideration  for prior services  rendered valued at
$576,179.

In accordance  with Section 4(2) of the Securities Act of 1933, as amended,  and
pursuant to a Securities  Purchase  Agreement dated August 27, 2002, the Company
issued  65,404  shares of Common Stock for $4.08 per share in  settlement  of an
outstanding  payable to Hart  Design and  Manufacturing,  Inc.  in the amount of
$266,848.

Management  believes  that with the  proceeds  received in  connection  with its
credit  facilities  and equity  financings  together with cash flow from current
operations,  the Company will have enough cash to meet its fiscal 2003 liquidity
needs  based  on  current  operation  levels.  However,  substantial  additional
financing  is  necessary  to meet the demands of expected  future  higher  sales
volumes and to refinance the FINOVA Capital and FINOVA Mezzanine loans that will
mature in July 2003. The Company is currently conducting  negotiations and is in
the final  approval  phase with a potential  new third  party  lender that would
replace  FINOVA  Capital as our primary  asset-based  lender.  In the event that
FINOVA is not replaced  before the quarter ended  December 31, 2002, the Company
believes  that it will remain in compliance  with the new FINOVA loan  covenants
established in the June 26, 2002 waiver and amendment documents.

                                       20
<PAGE>

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The interest on the Company's debt to FINOVA Capital  Corporation and SouthTrust
Bank N.A. is floating and based on the prevailing  market  interest  rates.  For
market-based  debt,  interest  rate  changes  generally do not affect the market
value of the debt but do impact future  interest  expense and hence earnings and
cash flows, assuming other factors remain unchanged.  A theoretical 1% change in
market  rates in effect on  September  30,  2002 with  respect to the  Company's
anticipated  debt as of such date  would  increase  interest  expense  and hence
reduce net income of the Company by approximately $36,000 per quarter.

The Company's  fiscal 2002 and 2001 sales  denominated  in a currency other than
U.S.  dollars were less than 5% of total sales and no net assets were maintained
in a functional  currency  other than U. S.  dollars at  September  30, 2002 and
2001.  The  effects  of  changes  in  foreign  currency  exchange  rates has not
historically been significant to the Company's operations or net assets.

ITEM 4.   CONTROLS AND PROCEDURES

Within ninety (90) days prior to the filing of this report,  an  evaluation  was
performed  under the  supervision  and with the  participation  of the Company's
management, including the President and Chief Executive Officer ("CEO"), and the
Chief  Financial  Officer  ("CFO"),  of  the  effectiveness  of the  design  and
operation of the Company's disclosure controls and procedures to insure that the
Company  records,  processes,  summarizes  and reports in a timely and effective
manner  the  information  required  to be  disclosed  in  reports  filed with or
submitted to the Securities and Exchange  Commission.  Based on that evaluation,
the  Company's  management,  including  the  CEO and  CFO,  concluded  that  the
Company's  disclosure  controls and procedures were effective in timely bringing
to their attention  material  information  related to the Company required to be
included in the Company's periodic  Securities and Exchange  Commission filings.
Since the date of this evaluation, there have been no significant changes in the
Company's internal controls or in other factors that could significantly  affect
those controls.

                                       21
<PAGE>

                           PART II. OTHER INFORMATION
                           --------------------------
                         GALAXY NUTRITIONAL FOODS, INC.

ITEM 1.   LEGAL PROCEEDINGS

On May 17, 2002,  Schreiber  Foods,  Inc. of Green Bay Wisconsin filed a lawsuit
against the Company in the federal  district  court for the Eastern  District of
Wisconsin ("Wisconsin lawsuit"), being Case No. 02-C-0498, alleging various acts
of patent  infringement.  The Complaint alleges that the Company's  machines for
wrapping of individual cheese slices,  manufactured by Kustner Industries,  S.A.
of  Switzerland,  known as  models KE and KD,  and the  Company's  machines  for
producing  individually wrapped slices manufactured by Hart Design Mfg., Inc. of
Green  Bay,  Wisconsin,   infringe  unspecified  claims  of  U.S.  Patents  Nos.
5,440,860,  5,701,724 and 6,085,680.  Additionally, the Complaint refers to U.S.
Patent No.  5,112,632,  but it does not explicitly  allege  infringement of that
patent.  Because the case is in the earliest  stages,  there has not yet been an
opportunity to determine whether  Schreiber Foods intends to pursue  allegations
of infringement of the 5,112,632 Patent against the Company.  Schreiber Foods is
seeking a preliminary  and  permanent  injunction  prohibiting  the Company from
further infringing acts and is also seeking damages in the nature of either lost
profits or reasonable royalties.  On or about July 10, 2002, the Company filed a
Motion  to  Dismiss  the  Wisconsin   lawsuit  on  the  grounds  that  Schreiber
Technologies,  Inc., not Schreiber Foods, is the owner of the asserted  patents.
Also on July 10, 2002, the Company filed a Declaratory  Judgment  action against
Schreiber  Technologies,  Inc. in the federal  court for the Middle  District of
Florida,  being case No. 02-CV-784,  seeking a declaration that the Company does
not   infringe   these   patents   and/or  that  the  patents  are  invalid  and
unenforceable.  Schreiber Foods has opposed the Motion to Dismiss  claiming that
it  reacquired  ownership of the patents.  Schreiber  Technologies  has moved to
dismiss the Florida action claiming that it does not own the patents.

The '860 and '724  Patents--and the Kustner machines for producing  individually
wrapped  slices--were  the subject of a lawsuit  commenced  by Schreiber in 1997
against  Beatrice Foods and others in the Eastern  District of Wisconsin,  being
Case No.  97-CV-11.  Schreiber  alleges that the machines  that were at issue in
that case are similar to the Kustner machines in use by the Company. In the 1997
lawsuit,  the matter was tried to a jury,  which found the  Kustner  machines to
infringe and awarded  Schreiber  $26 million in a verdict of August 25, 1998. On
March 30, 2000, however,  the judge reversed that verdict,  entered a finding of
no  infringement  on the part of Beatrice,  and  dismissed  the case.  Schreiber
appealed  that  order to the Court of Appeals  for the  Federal  Circuit,  which
entered its judgment on appeal on February 27, 2002.  The appeals court reversed
the action of the trial court,  found that  substantial  evidence  supported the
jury's finding of infringement, and ordered the jury verdict reinstated. Kustner
Industries  has informed the Company that a petition for certiorari is currently
before the Supreme Court and that it is considering additional judicial options.
Schreiber has also commenced a similar action against Borden,  Inc., and others,
in March 2002, but no result has yet been reached in that case.

Several  years  prior to the filing of the  lawsuit  against  the  Company,  the
Company   modified  the  seals  on  its  Kustner  machines  to  make  them  more
technologically  safe and  superior.  The seals on the two Hart Design  machines
were modified by the manufacturer from the standard Hart Design configuration at
Galaxy's request and were delivered to the Company as modified.

The  Company  believes  that  these  modifications  are such  that the  modified
machines do not literally infringe upon any of the identified  patents,  and the
Company will  vigorously  defend this position.  However,  a formal opinion from
patent counsel has not yet been obtained to that regard, given the recent filing
date of the lawsuit. Therefore, the Company is not in a position at this time to
express a view on the  likelihood  that it will succeed in its position,  nor in
the amount of damages that might be awarded against it should it be unsuccessful
in that regard.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

In  accordance  with  Regulation  D and  pursuant to a certain  Common Stock and
Warrants Purchase Agreement dated June 28, 2002, the Company sold 367,647 shares
of Common Stock for $4.08 (85% of an average  market price) and issued  warrants
to purchase  122,549  shares of Common Stock at a price equal to $5.52 per share
to Stonestreet  Limited  Partnership.  In connection with such sale, the Company
issued 7,812 shares of Common Stock to Stonestreet  Corporation and 4,687 shares
of Common  Stock to H&H  Securities  Limited in exchange  for their  services as
finders.  Registration of all of these shares,  including the shares  underlying
the warrants,  is to be completed within 120 days of issuance.  Per the terms of
the  agreement,  the  Company  received  net  proceeds  of  $930,000,  after the
repayment  of a  $550,000  promissory  note  dated  June  26,  2002 in  favor of
Excalibur  Limited  Partnership and payment of $20,000 for  Stonestreet  Limited
Partnership's costs

                                       22
<PAGE>

and  expenses  related to the  purchase  of these  shares of Common  Stock.  The
Company  used the $930,000 in net proceeds to pay $13,000 for its own legal fees
related to the financing and the remainder for working capital purposes.

In accordance  with Section 4(2) of the Securities Act of 1933, as amended,  and
pursuant to a Food Service Brokerage  Agreement dated June 25, 2002, the Company
issued  141,221  shares of Common Stock for $4.08 per share on September 9, 2002
to certain food brokers in consideration  for prior services  rendered valued at
$576,179.

In accordance  with Section 4(2) of the Securities Act of 1933, as amended,  and
pursuant to a Securities  Purchase  Agreement dated August 27, 2002, the Company
issued  65,404  shares of Common Stock for $4.08 per share in  settlement  of an
outstanding  payable to Hart  Design and  Manufacturing,  Inc.  in the amount of
$266,848.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

In June 2002, the Company  notified FINOVA Capital and FINOVA  Mezzanine that it
had failed to comply with the minimum  operational cash flow to contractual debt
service  ratio and the funded debt to EBITDA  ratio.  FINOVA  Capital  agreed to
waive those  violations  for the fiscal year ended March 31, 2002 and the fiscal
quarter ended June 30, 2002 and to amend such covenants for the fiscal  quarters
beginning  July 1, 2002,  pursuant to a certain  Amendment and Limited Waiver to
Security  Agreement  dated June 26, 2002.  FINOVA Capital  extended the maturity
date from October 15, 2002 to July 1, 2003,  removed any  prepayment  penalties,
reduced the credit line from $13 million to $7.5 million,  reduced the inventory
limit from $6 million to $3 million,  and will reduce the inventory advance rate
by 1% per month  beginning July 1, 2002 (from a level of 50% at June 30, 2002 to
37% by the maturity date).  FINOVA Mezzanine also agreed to waive the violations
of its covenants for the fiscal year ended March 31, 2002 and the fiscal quarter
ended June 30, 2002,  and to amend those  covenants for future  fiscal  quarters
pursuant  to a letter  agreement  dated  June 26,  2002  and  amendments  to the
subordinated notes. In consideration of the waivers and covenant amendments, the
Company agreed to pay a facility fee of $413,500,  which was deemed fully earned
on June 26, 2002.  The  facility fee is payable as follows:  $172,500 is due and
payable on the earliest of (a) July 1, 2003,  (b) the  occurrence of an event of
default,  or (c)  the  date  on  which  the  Company  repays  either  all of the
obligations  to FINOVA  Capital  under the Loan  Agreement or any portion of the
principal  obligations  to FINOVA  Mezzanine  under the  FINOVA  Mezzanine  loan
documents,  with the  balance  of  $241,000  due and  payable  only upon  FINOVA
Mezzanine's  exercise  of its  remaining  100,000  warrants.  The Company was in
compliance with all revised covenants for the quarter ended September 30, 2002.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NONE

ITEM 5.   OTHER INFORMATION

NONE

                                       23
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

The following exhibits are filed as part of this Form 10-Q/A.

EXHIBIT NO     EXHIBIT DESCRIPTION

*3.1           Certificate of Incorporation of the Company, as amended (Filed as
               Exhibit 3.1 to the Company's Registration Statement on Form S-18,
               No. 33-15893-NY, incorporated herein by reference.)

*3.2           Amendment to Certificate of Incorporation  of the Company,  filed
               on  February  24, 1992  (Filed as Exhibit  4(b) to the  Company's
               Registration  Statement on Form S-8, No.  33-46167,  incorporated
               herein by reference.)

*3.3           By-laws of the Company,  as amended  (Filed as Exhibit 3.2 to the
               Company's  Registration  Statement on Form S-18, No. 33-15893-NY,
               incorporated herein by reference.)

*3.4           Amendment to Certificate of Incorporation  of the Company,  filed
               on  January  19,  1994  (Filed as  Exhibit  3.4 to the  Company's
               Registration   Statement  on  Form  SB-2,   No.   33-80418,   and
               incorporated herein by reference.)

*3.5           Amendment to Certificate of Incorporation  of the Company,  filed
               on July 11,  1995 (Filed as Exhibit 3.5 on Form 10-KSB for fiscal
               year ended March 31, 1996, and incorporated herein by reference.)

*3.6           Amendment to Certificate of Incorporation  of the Company,  filed
               on January  31,  1996  (Filed as Exhibit  3.6 on Form  10-KSB for
               fiscal  year ended March 31,  1996,  and  incorporated  herein by
               reference.)

*3.7           Amendment to Certificate of Incorporation  of the Company,  filed
               on  November  16,  2000,  effective  November  17, 2000 (Filed as
               Exhibit 3.1 to Registration  Statement on Form S-3 filed November
               28, 2000, and incorporated herein by reference.)

*3.8           Certificate of  Designations,  Preferences and Rights of Series A
               Convertible  Preferred  Stock  filed on April 5,  2001  (Filed as
               Exhibit 3.8 on Form 10-K/A for fiscal year ended March 31,  2001,
               and incorporated herein by reference.)

*4.3           Stock Purchase  Warrant issued to Excalibur  Limited  Partnership
               dated as of June 26, 2002.  (Filed as Exhibit 4.3 to Registration
               Statement on Form S-3 filed September 30, 2002.)

*4.4           Registration  Rights  Agreement  dated as of June 28, 2002 by and
               among the Registrant,  Stonestreet Limited Partnership, Excalibur
               Limited  Partnership,  H&H  Securities  Limited  and  Stonestreet
               Corporation.  (Filed as Exhibit 4.4 to Registration  Statement on
               Form S-3 filed September 30, 2002.)

*4.5           Purchase Agreement dated as of August 27, 2002 by and between the
               Registratnt  and Hart Design & Mfg, Inc. (Filed as Exhibit 4.5 to
               Registration Statement on Form S-3 filed September 30, 2002.)

*4.6           Form of Subscription  Agreement by and between the Registrant and
               those food brokers named in the selling  stockholders  section of
               this   Registration   Statement.   (Filed  as   Exhibit   4.6  to
               Registration  Statement on Form S-3 filed  September 30, 2002.)

*4.8           Common Stock and Warrants  Purchase  Agreement by and between the
               Company and Stonestreet  Limited  Partnership dated June 28, 2002
               (Filed as Exhibit  4.8 on Form 10-K for fiscal  year ended  March
               31, 2002, and incorporated herein by reference.)

*4.9           Stock Purchase Warrant issued to Stonestreet Limited Partnership,
               dated June 28, 2002 (Filed as Exhibit 4.9 on Form 10-K for fiscal
               year ended March 31, 2002, and incorporated herein by reference.)

*10.1          Second Amendment to the Security  Agreement with Finova Financial
               Services  dated June 1998 (Filed as Exhibit 10.1 on Form 10-K for
               fiscal  year ended March 31,  1999,  and  incorporated  herein by
               reference.)

                                       24
<PAGE>

*10.2          Third Amendment to the Security  Agreement with Finova  Financial
               Services  dated December 1998 (Filed as Exhibit 10.2 on Form 10-K
               for fiscal year ended March 31, 1999, and incorporated  herein by
               reference.)

*10.3          Term Loan Agreement with  Southtrust Bank dated March 2000 (Filed
               as Exhibit  10.3 on Form  10-K/A for fiscal  year ended March 31,
               2000, and incorporated herein by reference.)

*10.4          Cabot Industrial  Properties L.P. Lease dated July 1999 (Filed as
               Exhibit 10.4 on Form 10-K/A for fiscal year ended March 31, 2000,
               and incorporated herein by reference.)

*10.6          Third Amendment to Lease Agreement,  dated as of August 14, 2001,
               by and between  Anco  Company  and the Company  (Filed as Exhibit
               10.6 on Form  10-K/A for fiscal year ended  March 31,  2001,  and
               incorporated herein by reference.)

*10.7          Amendment and Limited Waiver to Security  Agreement,  dated as of
               July 13,  2001,  by and between  the  Company and FINOVA  Capital
               Corporation (Filed as Exhibit 10.7 on Form 10-Q/A for the quarter
               ended September 30, 2001, and incorporated herein by reference.)

*10.8          Waiver Letter from FINOVA Mezzanine Capital,  Inc. to the Company
               dated as of July 12, 2001  (Filed as Exhibit  10.8 on Form 10-Q/A
               for the quarter ended September 30, 2001, and incorporated herein
               by reference.)

*10.9          Amended and Restated  Secured  Promissory  Note in the  principal
               amount of $815,000,  dated as of July 13, 2001, by the Company in
               favor of FINOVA Mezzanine Capital, Inc. (Filed as Exhibit 10.9 on
               Form  10-Q/A  for the  quarter  ended  September  30,  2001,  and
               incorporated herein by reference.)

*10.10         Second  Amended  and  Restated  Secured  Promissory  Note  in the
               principal amount of $4,000,000, dated as of July 13, 2001, by the
               Company  in favor of FINOVA  Mezzanine  Capital,  Inc.  (Filed as
               Exhibit 10.10 on Form 10-Q/A for the quarter ended  September 30,
               2001, and incorporated herein by reference.)

*10.11         Amendment and Limited Waiver to Security  Agreement,  dated as of
               November 14, 2001, by and between the Company and FINOVA  Capital
               Corporation  (Filed  as  Exhibit  10.11  on Form  10-Q/A  for the
               quarter ended  September  30, 2001,  and  incorporated  herein by
               reference.)

*10.12         Intellectual  Property Security  Agreement,  dated as of November
               14,  2001,  by  and  between  the  Company  and  FINOVA   Capital
               Corporation  (Filed  as  Exhibit  10.12  on Form  10-Q/A  for the
               quarter ended  September  30, 2001,  and  incorporated  herein by
               reference.)

*10.13         Waiver Letter from FINOVA Mezzanine Capital,  Inc. to the Company
               dated as of November  14,  2001  (Filed as Exhibit  10.13 on Form
               10-Q/A for the quarter ended September 30, 2001, and incorporated
               herein by reference.)

*10.14         Allonge to Second Amended and Restated  Secured  Promissory Note,
               dated as of November 14, 2001,  by the Company in favor of FINOVA
               Mezzanine  Capital,  Inc.  (Filed as Exhibit 10.14 on Form 10-Q/A
               for the quarter ended September 30, 2001, and incorporated herein
               by reference.)

*10.15         Amendment and Limited Waiver to Security  Agreement,  dated as of
               February 13, 2002, by and between the Company and FINOVA  Capital
               Corporation  (Filed as Exhibit 10.15 of Form 10-Q for the quarter
               ended December 31, 2001, and incorporated herein by reference.)

*10.16         Waiver Letter from FINOVA Mezzanine Capital,  Inc. to the Company
               dated as of February  13,  2002  (Filed as Exhibit  10.16 of Form
               10-Q for the quarter ended  December 31, 2001,  and  incorporated
               herein by reference.)

*10.17         Allonge to Second Amended and Restated  Secured  Promissory  Note
               dated as of February 13, 2002,  by the Company in favor of FINOVA
               Mezzanine Capital,  Inc. (Filed as Exhibit 10.17 of Form 10-Q for
               the quarter ended December 31, 2001, and  incorporated  herein by
               reference.)

                                       25
<PAGE>

*10.18         Amendment and Limited Waiver to Security  Agreement,  dated as of
               June 26,  2002,  by and between  the  Company and FINOVA  Capital
               Corporation  (Filed as Exhibit 10.18 on Form 10-K for fiscal year
               ended March 31, 2002, and incorporated herein by reference.)

*10.19         Amendment and Limited Waiver to Loan  Agreement  dated as of June
               26,  2002,  by and  between  the  Company  and  FINOVA  Mezzanine
               Capital,  Inc.  (Filed as  Exhibit  10.19 on Form 10-K for fiscal
               year ended March 31, 2002, and incorporated herein by reference.)

*10.20         Allonge to Second Amended and Restated  Secured  Promissory  Note
               dated as of June 26,  2002,  by the  Company  in favor of  FINOVA
               Mezzanine  (Filed as Exhibit  10.20 on Form 10-K for fiscal  year
               ended March 31, 2002, and incorporated herein by reference.)

*10.25         Letter  from  SouthTrust  Bank,  N.A.  dated  September  27, 2002
               regarding  principal  deferment on  $10,000,000  Promissory  Note
               (Filed as Exhibit 10.25 on Form 10-Q for the fiscal quarter ended
               September 30, 2002, and incorporated herein by reference.)

*10.26         Letter  from  SouthTrust  Bank,  N.A.  dated  September  27, 2002
               regarding  principal  deferment  on  $1,500,000  Promissory  Note
               (Filed as Exhibit 10.26 on Form 10-Q for the fiscal quarter ended
               September 30, 2002, and incorporated herein by reference..)

*10.30         Promissory  Note payable to Angelo S. Morini dated March 28, 2002
               (Filed as Exhibit 10.30 on Form 10-Q for the fiscal quarter ended
               September 30, 2002, and incorporated herein by reference.)

*10.31         Promissory  Note payable to Target  Container,  Inc. dated August
               15,  2002  (Filed as  Exhibit  10.31 on Form 10-Q for the  fiscal
               quarter ended  September  30, 2002,  and  incorporated  herein by
               reference.)

*10.40         Non-qualified  stock  option  agreement  between  the Company and
               Angelo S. Morini  dated May 24,  2002 (Filed as Exhibit  10.40 on
               Form  10-Q  for the  fiscal  quarter  ended  June 30,  2002,  and
               incorporated herein by reference.)

*10.41         Stock  purchase  warrant  issued to Douglas  Walsh dated June 11,
               2002 (Filed as Exhibit 10.41 on Form 10-Q for the fiscal  quarter
               ended June 30, 2002, and incorporated herein by reference.)

*10.42         Incentive  stock  option   agreement   between  the  Company  and
               Salvatore J. Furnari  dated July 8, 2002 (Filed as Exhibit  10.42
               on Form 10-Q for the  fiscal  quarter  ended June 30,  2002,  and
               incorporated herein by reference.)

*10.43         Non-qualified  stock  option  agreement  between  the Company and
               Angelo S. Morini  dated July 1, 2002  (Filed as Exhibit  10.43 on
               Form  10-Q  for the  fiscal  quarter  ended  June 30,  2002,  and
               incorporated herein by reference.)

99.1           Certification of the Company's Chief Executive Officer dated July
               16, 2003 (Filed herewith.)

99.2           Certification of the Company's Chief Financial Officer dated July
               16, 2003 (Filed herewith.)

*              Previously Filed

REPORTS ON FORM 8-K
-------------------

There  was one  report  on Form 8-K  dated  July 8,  2002  whereby  the  Company
disclosed that LeAnn Hitchcock  changed her position with the Company from Chief
Financial Officer to SEC Compliance and Auditing Manager. Salvatore Furnari, the
Company's  Controller,  then  assumed  the  role  and  responsibilities  of  the
Company's Chief Financial Officer. There were no other reports on Form 8-k filed
during the three months ended September 30, 2002.

                                       26
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                    GALAXY NUTRITIONAL FOODS, INC.

Date: July 16, 2003                 /s/ Christopher J. New
                                    ------------------------------
                                    Christopher J. New
                                    Chief Executive Officer
                                    (Principal Executive Officer)


Date: July 16, 2003                 /s/ Salvatore J. Furnari
                                    ------------------------------
                                    Salvatore J. Furnari
                                    Chief Financial Officer
                                    (Principal Accounting and Financial Officer)

                                       27
<PAGE>

I, Christopher J. New, certify that:

1.   I have reviewed this quarterly report on Form 10-Q/A of Galaxy  Nutritional
     Foods, Inc.("the registrant");

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based  on  my  knowledge,   the  financial   statements,   other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most  recent  evaluation  to the  registrant's  auditors  and the audit
     committee of registrant's board of directors:

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors and material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

                               /s/ Christopher J. New
                               ----------------------------
                               Christopher J. New
                               Chief Executive Officer
                               July 16, 2003

<PAGE>

I, Salvatore J. Furnari, certify that:

1.   I have reviewed this quarterly report on Form 10-Q/A of Galaxy  Nutritional
     Foods, Inc.("the registrant");

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based  on  my  knowledge,   the  financial   statements,   other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a.   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b.   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c.   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most  recent  evaluation  to the  registrant's  auditors  and the audit
     committee of registrant's board of directors:

     a.   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors and material  weaknesses in
          internal controls; and

     b.   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

6.   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

                                    /s/ Salvatore J. Furnari
                                    ---------------------------
                                    Salvatore J. Furnari
                                    Chief Financial Officer
                                    July 16, 2003

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