FORM 10-Q

                       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 JUNE 30, 2002

                          -----------------------------
                         COMMISSION FILE NUMBER 0-16251

                         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 [ ]

     On August 5, 2002,  there were  11,921,189  shares of Common Stock $.01 par
value per share, outstanding.

                                       1
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.

                               INDEX TO FORM 10-Q
                         FOR QUARTER ENDED JUNE 30, 2002

                                                                        PAGE NO.
                                                                        --------

PART I.   FINANCIAL INFORMATION

     ITEM 1.   FINANCIAL STATEMENTS

          Balance Sheets                                                       3
          Statements of Operations                                             4
          Statement of Stockholders' Equity                                    5
          Statements of Cash Flows                                             6
          Notes to Financial Statements                                     7-11

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS               12-18

     ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES
               ABOUT MARKET RISK                                              18

PART II.  OTHER INFORMATION

     ITEM 1.   LEGAL PROCEEDINGS                                              19

     ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS                      19

     ITEM 3.   DEFAULTS UPON SENIOR SECURITIES                                20

     ITEM 5.   OTHER INFORMATION                                              20

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K                               21

SIGNATURES                                                                    24

                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                  JUNE 30,         MARCH 31,
                                                                    2002             2002
                                                                ------------     ------------
                                                                 (UNAUDITED)
                                     ASSETS
CURRENT ASSETS:
<S>                                                             <C>              <C>
  Cash                                                          $      1,787     $        168
  Trade receivables, net                                           5,306,614        5,283,187
  Inventories                                                      4,955,633        5,748,652
  Prepaid expenses                                                   247,156          225,520
                                                                ------------     ------------

         Total current assets                                     10,511,190       11,257,527

PROPERTY AND EQUIPMENT, NET                                       23,738,489       24,180,636
OTHER ASSETS                                                         841,694          479,387
                                                                ------------     ------------

         TOTAL                                                  $ 35,091,373     $ 35,917,550
                                                                ============     ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Book overdrafts                                               $    699,571     $  1,192,856
  Line of credit                                                   4,502,419        5,523,875
  Accounts payable                                                 4,839,572        5,399,143
  Accrued liabilities                                              1,622,704          994,341
  Current portion of term notes payable                            1,828,198        1,809,000
  Current portion of obligations under capital leases                331,787          349,380
                                                                ------------     ------------

         Total current liabilities                                13,824,251       15,268,595

TERM NOTES PAYABLE, less current portion                           7,665,535        8,061,535
SUBORDINATED NOTES PAYABLE                                         3,692,885        3,385,770
OBLIGATIONS UNDER CAPITAL LEASES, less current portion               660,034          734,156
                                                                ------------     ------------

         Total liabilities                                        25,842,705       27,450,056
                                                                ------------     ------------

COMMITMENTS AND CONTINGENCIES                                             --               --

REDEEMABLE CONVERTIBLE PREFERRED STOCK                             2,313,603        2,156,311

STOCKHOLDERS' EQUITY:
  Common stock                                                       119,212          115,400
  Additional paid-in capital                                      60,318,474       60,717,914
  Accumulated deficit                                            (40,609,960)     (41,629,470)
                                                                ------------     ------------

                                                                  19,827,726       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                                6,935,065        6,311,183
                                                                ------------     ------------

         TOTAL                                                  $ 35,091,373     $ 35,917,550
                                                                ============     ============
</TABLE>

                 See accompanying notes to financial statements.

                                       3
<PAGE>

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


THREE MONTHS ENDED JUNE 30,                           2002             2001
                                                  ------------     ------------

NET SALES                                         $ 10,046,398     $ 11,801,669

COST OF GOODS SOLD                                   7,236,504        8,621,936
                                                  ------------     ------------
  Gross margin                                       2,809,894        3,179,733
                                                  ------------     ------------

OPERATING EXPENSES:
Selling                                              1,058,331        1,620,485
Delivery                                               571,562          642,259
Non-cash compensation related to
  options & warrants                                (1,637,261)       1,577,629
General and administrative                             841,506          820,547
Research and development                                57,774           53,316
                                                  ------------     ------------
  Total operating expenses                             891,912        4,714,236
                                                  ------------     ------------

INCOME (LOSS) FROM OPERATIONS                        1,917,982       (1,534,503)

Interest expense                                       898,472          707,268
                                                  ------------     ------------

NET INCOME (LOSS)                                 $  1,019,510     $ (2,241,771)

PREFERRED STOCK DIVIDENDS                              247,585          325,014
                                                  ------------     ------------

NET INCOME (LOSS) AVAILABLE TO
  COMMON SHAREHOLDERS                             $    771,925     $ (2,566,785)
                                                  ============     ============

BASIC NET INCOME (LOSS) PER COMMON SHARE          $       0.07     $      (0.26)
                                                  ============     ============
DILUTED NET INCOME (LOSS) PER COMMON SHARE        $       0.06     $      (0.26)
                                                  ============     ============

                See accompanying notes to financial statements.

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                            Common Stock                                                     Notes
                      -------------------------      Additional         Accumulated      Receivable for    Treasury
                         Shares       Par Value    Paid-In 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                   380,146        3,802         1,463,198                 --                 --           --       1,467,000
Issuance of warrants           --           --            50,700                 --                 --           --          50,700
Non-cash compensation
  related to options
  under non-recourse
  note receivable              --           --        (1,690,286)                --                 --           --      (1,690,286)
Dividends on
  preferred stock              --           --           (70,000)                --                 --           --         (70,000)
Accretion of discount
  on preferred stock                                    (157,292)                --                 --           --        (157,292)
Net income                     --           --                --          1,019,510                 --           --       1,019,510
                     --------------------------------------------------------------------------------------------------------------

Balance at June 30,
  2002                 11,921,187   $  119,212    $   60,318,474     $  (40,609,960)    $  (12,772,200)  $ (120,461)   $  6,935,065
                     ==============================================================================================================
</TABLE>

                See accompanying notes to financial statements.

                                        5
<PAGE>

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


<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,                                                2002             2001
                                                                       ------------     ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                    <C>              <C>
  Net Income (Loss)                                                    $  1,019,510     $ (2,241,771)
  Adjustments to reconcile net income (loss) to net cash from (used
    in) operating activities:
      Depreciation and amortization                                         568,770          455,547
      Amortization of debt discount                                         307,115          102,372
      Provision for losses on trade receivables                            (179,037)              --
      Non-cash compensation related to options under non-recourse
        note receivable                                                  (1,690,286)       1,573,566
      Amortization of consulting and director fee expense paid
        through issuance of common stock warrants                            53,025            4,063
      (Increase) decrease in:
        Trade receivables                                                   155,610         (704,280)
        Inventories                                                         793,019           52,242
        Prepaid expenses                                                    (21,636)         (69,919)
      Increase (decrease) in:
        Accounts payable                                                   (559,571)      (2,628,451)
        Accrued liabilities                                                 558,363           31,567
                                                                       ------------     ------------

   NET CASH FROM (USED IN) OPERATING ACTIVITIES                           1,004,882       (3,637,870)
                                                                       ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                                       (126,623)        (221,217)
  Increase in other assets                                                 (364,632)              --
                                                                       ------------     ------------

   NET CASH FROM (USED IN) INVESTING ACTIVITIES                            (491,255)        (221,217)
                                                                       ------------     ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Book overdrafts                                                          (493,285)         659,668
  Net borrowings (payments) on line of credit                            (1,021,456)         583,780
  Borrowings on term note payable                                           500,000               --
  Repayments on term notes payable                                         (876,802)        (285,360)
  Principal payments on capital lease obligations                           (91,715)          (6,798)
  Proceeds from issuance of common stock, net of offering costs           1,467,000               --
  Proceeds from exercise of common stock options                              4,250            7,820
  Proceeds from issuance of preferred stock, net of costs                        --        2,900,959
                                                                       ------------     ------------

   NET CASH FROM (USED IN) FINANCING ACTIVITIES                            (512,008)       3,860,069
                                                                       ------------     ------------

NET INCREASE IN CASH                                                          1,619              982

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

CASH, END OF YEAR                                                      $      1,787     $      1,482
                                                                       ============     ============
</TABLE>

                See accompanying notes to financial statements.

                                       6
<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  three-month
     period ended June 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 August 2001, the Financial  Accounting  Standards  Board ("FASB") issued
     Statement of Financial  Accounting  Standards  ("SFAS") No. 144 "Accounting
     for the  Impairment  or Disposal of  Long-Lived  Assets,"  which  addresses
     financial  accounting  and  reporting  for the  impairment  or  disposal of
     long-lived assets.  While SFAS No. 144 supersedes SFAS No. 121, "Accounting
     for the  Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be
     Disposed Of" and the accounting and reporting provisions of APB Opinion No.
     30, "Reporting the Results of Operations--Reporting the Effects of Disposal
     of a Segment of a Business,  and  Extraordinary,  Unusual and  Infrequently
     Occurring Events and  Transactions," it retains the fundamental  provisions
     of those  Statements.  SFAS No. 144  becomes  effective  for  fiscal  years
     beginning  after  December 15,  2001.  The adoption of SFAS No. 144 did not
     have a material  effect on our results of operations or financial  position
     for the three months ended June 30, 2002.

     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.

                                       7
<PAGE>

(2)  INVENTORIES
     -----------
     Inventories are summarized as follows:
                                             June 30, 2002    March 31, 2002
                                             -------------    -------------
                                              (UNAUDITED)

         Raw materials                       $   2,255,514    $   2,482,458
         Finished goods                          2,700,119        3,266,194
                                             -------------    -------------

         Total                               $   4,955,633    $   5,748,652
                                             =============    =============

(3)  LINE OF CREDIT AND NOTES PAYABLE
     --------------------------------
     As of June 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 current level of 50% to 37% by the maturity  date.  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 June 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 June 30,  2002,  the  Company  had an  outstanding
     balance of $4,502,419 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 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 is being amortized to interest expense from the date
     of issuance of the note to the  maturity  date of the note.  As of June 30,
     2002, the Company had an outstanding balance of $3,692,885 under this loan,
     which  includes  principal of  $4,000,000  less  $307,115 of debt  discount
     remaining to be amortized.

     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 warrants.

     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 June 30, 2002)
     and is due in monthly principal  installments of $93,000 plus interest. The
     note matures in March 2005. The balance outstanding on this note as of June
     30, 2002 was $8,593,733. 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 June 30,
     2002). The loan is being paid down by monthly principal

                                       8
<PAGE>

     payments of $50,000 plus  interest.  The note matures in October 2003.  The
     balance outstanding on this note as of June 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.

     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.  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 6.

(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,  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 not
     yet responded to the Florida complaint.

     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)  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.  During the three  months  ended June 30,  2002 and 2001,  the
     Company  recorded $53,025 and $4,063 related to the issuance of warrants in
     exchange for consulting services.

     Three months ended June 30,                          2002           2001
     ---------------------------------------------------------------------------

     Non-cash financing and investing activities:
     Amortization of consulting and directors fees
     paid through issuance of common stock warrants    $   53,025     $    4,063
     Original issuance discount related to price
     guarantee on FINOVA transaction                           --        945,400
     Issuance of subordinated note payable related
     to price guarantee on FINOVA transaction                  --        815,000
     Exercise of warrants through reduction
     in line of credit                                         --      2,321,929
     Accrued preferred stock dividends and related
     beneficial conversion feature                         90,293        110,200

                                       9
<PAGE>

     Discount related to preferred stock                       --      1,904,495
     Accretion of discount on preferred stock             157,292        214,814

     Cash paid for:
     Interest                                             451,766        672,524
     Income taxes                                          24,000             --

(6)  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  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  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 each preferred share
     into ten shares of common stock,  the right to a ten percent stock dividend
     after one year of issuance  payable in shares of  preferred  stock,  and an
     eight  percent stock  dividend for the  subsequent  three years  thereafter
     payable  in  either  cash or  shares  of  preferred  stock.  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 $48.18 plus accrued dividends ($53.96
     at June 30, 2002).

     The holders of the preferred stock 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  product of (1) the number of shares of common  stock then  issuable to
     the holders upon  conversion of the preferred  stock being redeemed and (2)
     the market price on the date of redemption.

     For the three months ended June 30, 2002 and 2001, the Company has recorded
     accrued  dividends  of $70,000  for the 8%  preferred  stock  dividend  and
     $82,500 for the 10% preferred stock dividend,  respectively,  in connection
     with the issuance of the preferred stock and warrants. The Company recorded
     a discount  on  preferred  stock of  $2,003,770  related to the  beneficial
     conversion  feature  ($1,449,370),  the fair value of the initial  warrants
     ($277,200)  and  redemption  warrants  ($277,200) and the fair value of the
     mandatory   redemption  price.  The  excess  of  the  redemption  value  of
     $4,391,861  over the initial  carrying value of $523,830 was $3,868,031 and
     is being accreted and recorded as dividends over the redemption  period (48
     months) using the straight line method,  which  approximates  the effective
     interest  method.  For the three months  ended June 30, 2002 and 2001,  the
     Company recorded $157,292 and $214,814,  respectively, of dividends related
     to the accretion of preferred  stock. As of June 30, 2002, the value of the
     redeemable convertible preferred stock is $2,313,603.

     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 and expenses related to the purchase of these shares of Common Stock.

                                       10
<PAGE>

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

     Three months ended June 30,                      2002             2001
     ---------------------------------------------------------------------------

     Net income (loss) per common share              $   771,925    $(2,566,785)
     Basic net income (loss) per common share        $      0.07    $     (0.26)
                                                     ---------------------------

     Average shares outstanding - basic               11,548,929     10,019,304
     Conversion of Series A preferred stock              943,686             --
     "In-the-money" shares under
       stock option agreements                         2,470,504             --
     "In-the-money" shares under
       stock warrant agreements                          427,572             --
     Less:  Shares assumed repurchased under
       treasury stock method                          (2,214,701)            --
                                                     ---------------------------

     Average shares outstanding - diluted             13,175,990     10,019,304
                                                     ---------------------------

     Diluted income (loss) per common share          $      0.06    $     (0.26)
                                                     ===========================

     Options for 1,501,296  shares and warrants for 227,998 shares have not been
     included in the  computation  of diluted net income (loss) per common share
     for the  three  months  ended  June  30,  2002,  as their  effect  would be
     antidilutive.  Potential conversion of Series A preferred stock for 710,396
     shares,  options for 1,573,357 shares, and warrants for 258,429 shares have
     not been  included  in the  computation  of diluted  net income  (loss) per
     common  share for the three  months  ended June 30,  2001,  as their effect
     would be antidilutive.

                                       11
<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 June 30, 2002 and
March 31, 2002, the Company had reserved approximately $495,000 and $678,000 for
known and  anticipated  future credits and doubtful  accounts.  During the three
months ended June 30, 2002, the Company  recorded income of $179,037  related to
collections of doubtful  accounts.  No income or expense was recorded during the
three months ended June 30, 2001.

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.

                                       12
<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
our operations in fiscal 2002.

NET SALES were $10,046,398 in the three months ended June 30, 2002,  compared to
net sales of $11,801,669 for the three months ended June 30, 2001, a decrease of
15%.  Although the sales in fiscal 2003 is a decrease  from the first quarter 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 first quarter fiscal
2003 sales  compared to the first  quarter of 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 deciding 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.

COST OF GOODS SOLD were $7,236,504 representing 72% of net sales for the quarter
ended June 30, 2002,  compared with  $8,621,936 or 73% of net sales for the same
period ended June 30,  2001.  The decrease in direct  materials  cost  decreased
proportionally with the decrease in sales, resulting in approximately $1 million
in decreased  costs.  The completed  installation of the new equipment in fiscal
2002 created an increase of $160,000 in depreciation and personal property taxes
in the first  quarter 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 $500,000 in the first quarter
of fiscal 2003. 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 19% in fiscal 2002 to 28% in the first  quarter 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 and improve its margins in fiscal 2003.

SELLING  expenses were $1,058,331 for the quarter ended June 30, 2002,  compared
with  $1,620,485 for the same period ended June 30, 2001, a decrease of 35%. The
decrease in expenses is due to further reductions in advertising and promotional
expenses of  approximately  $334,000  in the first  three  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 15%) in brokerage
and salary costs  proportional to the decrease in net sales. The Company expects
that fiscal 2003 selling  expenses  will  continue to remain at levels below its
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.

DELIVERY  expenses were  $571,562 for the quarter ended June 30, 2002,  compared
with  $642,259  for the same  period  ended  June 30,  2001.  Delivery  expenses
approximate 5.5% of net sales each period.  The decrease in delivery costs is in
direct proportion to the decrease in net sales.

NON-CASH  COMPENSATION  RELATED  TO  OPTIONS  AND  WARRANTs  showed an income of
$1,637,261  for the three months  ended June 30, 2002  compared to an expense of
$1,577,629  for the three months ended June 30, 2001.  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

                                       13
<PAGE>

differences  between the  exercise  price of the options and the market price of
the Company's common stock is recorded as compensation income or expense at each
reporting period.  During the three months ended June 30, 2002, the market value
of the Company's  stock  decreased from $5.43 at March 31, 2002 to $4.85 at June
30,  2002.  Therefore,  the  Company  recorded  a  $1,690,286  decrease  in  the
compensation related to this decrease in stock value. Additionally,  the Company
recorded a $53,025  expense  related to the fair  value of  warrants  issued for
consulting  services.  During the three months  ended June 30, 2001,  the market
value of the Company's  stock increased from $4.76 at March 31, 2001 to $5.30 at
June 30, 2001.  Therefore,  the Company  recorded a  $1,573,566  increase in the
compensation related to this increase in stock value. Additionally,  the Company
recorded  a $4,063  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.

GENERAL AND ADMINISTRATIVE expenses were $841,506 for the quarter ended June 30,
2002,  compared  with  $820,547  for the same period  ended June 30,  2001, a 3%
increase.  The  increase  was  primarily  due to an increase  in legal  expenses
incurred  in  relation  to  financing   transactions  and  consulting   services
undertaken during the first quarter of fiscal 2003.

RESEARCH AND  DEVELOPMENT  expenses  were $57,774 for the quarter ended June 30,
2002, compared with $53,316 for the quarter ended June 30, 2001, an 8% increase.
This increase is primarily  the result of a change in the  allocation of general
overhead  costs to this  department.  The  Company  expects  that this will be a
permanent increase for fiscal 2003.

INTEREST expense  increased  $191,204 or 27% in the first quarter of fiscal 2003
compared to the first quarter of fiscal 2002. 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  three  months  ended  June 30,  2002 and 2001,
$307,115 and  $194,659,  respectively,  of the total debt discount of $1,732,300
was  amortized to interest  expense.  This  non-cash  amortization  increased by
$112,456  because the period of this loan was shortened by FINOVA Mezzanine in a
waiver issued in November  2001.  Interest  expense also  increased  because the
interest  rate charged by FINOVA  Capital  ("FINOVA  Capital")  Corporation  and
FINOVA  Mezzanine on the Company's  outstanding  debt was 4% higher in the first
quarter of fiscal 2003 compared to the first  quarter of 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 $1,004,882 for the
three months ended June 30, 2002 compared to net cash used of $3,637,870 for the
same  period  ended June 30,  2001.  The  increase  in cash from  operations  is
primarily  attributable to a 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.

INVESTING  ACTIVITIES - Net cash used in investing  activities  totaled $491,255
for the three months  ended June 30, 2002  compared to net cash used of $221,217
for the same period ended June 30, 2001. The increase in cash used for investing
activities during fiscal 2003 as compared to fiscal 2002 primarily resulted from
the  increase in deferred  loan costs  related to the FINOVA  Capital and FINOVA
Mezzanine  loans as  further  discussed  below.  These  deferred  loan costs are
capitalized and expensed to interest over the life of the loans.

                                       14
<PAGE>

FINANCING ACTIVITIES - Net cash flows used by financing activities were $512,008
for the three  months  ended June 30, 2002  compared  to cash flows  provided by
financing  activities  of  $3,860,069  for the same period  ended June 30, 2001.
During the three months ended June 30, 2002, 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 three months ended June 30, 2001 were primarily
the result of the issuance of preferred stock and increased draws on the line of
credit from FINOVA Capital.  The majority of these proceeds were used to finance
the Company's operating activities in fiscal 2002.

Debt Financing
As of June 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 current level of 50% to 37% by the maturity
date.  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 June 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 June 30, 2002, the Company had an outstanding  balance of $4,502,419
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 was valued at $786,900 which was recorded as a debt discount
and is being amortized to interest expense from the date of issuance of the note
to the  maturity  date of the note.  As of March 31,  2002,  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 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 three  months ended June 30,
2002 and 2001, $307,115 and $102,372,  respectively, of the total debt discounts
of  $1,732,300  were  amortized  to  interest  expense.  At June 30,  2002,  the
unamortized debt discounts totaled $307,115 and the remaining  principal balance
due on the notes was $4,000,000,  resulting in a net balance of $3,692,885 as of
June 30, 2002.

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

                                       15
<PAGE>

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 warrants.

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 June 30, 2002) and
is due in monthly  principal  installments  of $93,000 plus  interest.  The note
matures in March 2005. The balance  outstanding on this note as of June 30, 2002
was  $8,593,733.  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. The note matures in October 2003. The balance
outstanding on this note as of June 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. Such options 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.

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.  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.

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,

                                       16
<PAGE>

     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 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.  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 and  expenses  related to the  purchase of these  shares of
Common Stock.

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
undergoing a  preliminary  due  diligence  process with a potential  third party
lender than would replace FINOVA Capital as our primary  asset-based  lender. In
the event that FINOVA is not replaced  before the quarter  ended  September  30,
2002,  the Company  believes that it will be in  compliance  with the new FINOVA
loan covenants established in the June 26, 2002 waiver and amendment documents.

                                       17
<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  June  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 $35,000 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 June 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.

                                       18
<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,   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 not yet responded to the Florida complaint.

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 it is currently  investigating  further
appeal  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

                                       19
<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.

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 warrants.

ITEM 5.   OTHER INFORMATION

NONE

                                       20
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

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

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.)

*4.8           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.)

*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.)

                                       21
<PAGE>

*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.)

*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.)

                                       22
<PAGE>

10.40          Non-qualified  stock  option  agreement  between  the Company and
               Angelo S. Morini dated May 24, 2002 (Filed herewith.)

10.41          Stock  purchase  warrant  issued to Douglas  Walsh dated June 11,
               2002 (Filed herewith.)

10.42          Incentive  stock  option   agreement   between  the  Company  and
               Salvatore J. Furnari dated July 8, 2002 (Filed herewith.)

10.43          Non-qualified  stock  option  agreement  between  the Company and
               Angelo S. Morini dated July 1, 2002 (Filed herewith.)

99.1           Certification  of the  Company's  Chief  Executive  Officer dated
               August 5, 2002 (Filed herewith.)

99.2           Certification  of the  Company's  Chief  Financial  Officer dated
               August 5, 2002 (Filed herewith.)

*              Previously Filed

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

     There  were no reports  on Form 8-K filed by the  Company  during the three
months ended June 30, 2002.

                                       23
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                                   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: August 5, 2002                    /s/ Angelo S. Morini
                                        ---------------------------------
                                        Angelo S. Morini
                                        Chairman, Chief Executive Officer
                                        and President
                                        (Principal Executive Officer)


Date: August 5, 2002                    /s/ Salvatore J. Furnari
                                        ---------------------------------
                                        Salvatore J. Furnari
                                        Chief Financial Officer
                                        (Principal Financial Officer)

                                       24
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