<PAGE>

                                    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 SEPTEMBER 30, 2001

                          -----------------------------
                         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 November 1, 2001, there were 10,624,586 shares of Common Stock $.01
par value per share, outstanding.
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.

                               INDEX TO FORM 10-Q
                      FOR QUARTER ENDED SEPTEMBER 30, 2001

<TABLE>
<CAPTION>
                                                                                                          PAGE NO.
                                                                                                          --------
<S>                                                                                                       <C>
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                                                                       7-9

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                               10-15

     ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     15

PART II.       OTHER INFORMATION

    ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            16

    ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K                                                               16

SIGNATURES                                                                                                    17
</TABLE>


                                       2
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                    SEPTEMBER 30,              MARCH 31,
                                                                                        2001                     2001
                                                                                    -------------            ------------
                                                                                     (Unaudited)
<S>                                                                                 <C>                      <C>
                                     ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                                       $  2,747,921             $        500
    Trade receivables, net                                                             8,251,088                8,053,561
    Inventories, net                                                                   6,776,423               10,774,540
    Other receivables                                                                    526,630                  519,624
    Deferred tax asset                                                                   532,000                  532,000
    Prepaid expenses                                                                   1,072,740                1,107,100
                                                                                    ------------             ------------
         Total current assets                                                         19,906,802               20,987,325

PROPERTY & EQUIPMENT, NET                                                             25,413,920               25,303,094
DEFERRED TAX ASSET                                                                     1,028,000                1,028,000
OTHER ASSETS                                                                             740,705                  764,707
                                                                                    ------------             ------------

            TOTAL                                                                   $ 47,089,427             $ 48,083,126
                                                                                    ============             ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Book overdrafts                                                                 $    648,703             $    446,829
    Line of credit                                                                     6,966,894                8,776,278
    Accounts payable - trade                                                           7,492,727                9,456,065
    Accrued liabilities                                                                  533,834                  143,782
    Current portion of term note payable                                               1,716,000                1,666,000
    Current portion of subordinated note payable                                         629,009                  502,866
    Current portion of obligations under capital leases                                  181,630                   28,755
                                                                                    ------------             ------------
         Total current liabilities                                                    18,168,797               21,020,575

TERM NOTE PAYABLE,
    less current portion                                                               8,726,535                9,614,499
SUBORDINATED NOTE PAYABLE                                                              2,957,531                2,878,930
OBLIGATIONS UNDER CAPITAL LEASES,
    less current portion                                                                 571,593                   29,825
                                                                                    ------------             ------------
         Total liabilities                                                            30,424,456               33,543,829
                                                                                    ------------             ------------

COMMITMENTS AND CONTINGENCIES                                                                 --                       --

REDEEMABLE CONVERTIBLE PREFERRED STOCK                                                 1,502,423                       --

STOCKHOLDERS' EQUITY:
    Common stock                                                                         106,080                  100,176
    Additional paid-in capital                                                        59,778,141               51,902,100
    Accumulated deficit                                                              (31,829,012)             (24,570,318)
                                                                                    ------------             ------------
                                                                                      28,055,209               27,431,958
    Less:  Notes receivable arising from the exercise
           of stock options and sale of common stock                                 (12,772,200)             (12,772,200)
    Less:  Treasury stock, 26,843, at cost                                              (120,461)                (120,461)
                                                                                    ------------             ------------
         Total stockholders' equity                                                   15,162,548               14,539,297
                                                                                    ------------             ------------

            TOTAL                                                                   $ 47,089,427             $ 48,083,126
                                                                                    ============             ============
</TABLE>

            See accompanying notes to condensed financial statements.


                                       3
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                                      SEPTEMBER 30,                         SEPTEMBER 30,
                                                             -------------------------------       -------------------------------
                                                                 2001               2000               2001               2000
                                                             ------------       ------------       ------------       ------------
                                                              (Unaudited)        (Unaudited)       (Unaudited)         (Unaudited)
<S>                                                          <C>                <C>                <C>                <C>
NET SALES                                                    $ 11,381,321       $ 12,214,562       $ 23,196,111       $ 23,470,983

COST OF GOODS SOLD                                              9,547,698          7,732,948         18,169,634         14,940,861
                                                             ------------       ------------       ------------       ------------

    Gross margin                                                1,833,623          4,481,614          5,026,477          8,530,122
                                                             ------------       ------------       ------------       ------------


OPERATING EXPENSES:
    Selling                                                     1,925,768          2,044,596          3,564,374          3,957,484
    Delivery                                                      570,362            628,676          1,212,621          1,280,051
    Non-cash compensation related to options                    2,047,577                 --          3,621,143                 --
    General and administrative                                  1,603,941            733,273          2,467,561          1,408,071
    Research and development                                       44,540             67,401             97,856            124,311
                                                             ------------       ------------       ------------       ------------

            Total operating expenses                            6,192,188          3,473,946         10,963,555          6,769,917
                                                             ------------       ------------       ------------       ------------

INCOME (LOSS) FROM OPERATIONS                                  (4,358,565)         1,007,668         (5,937,078)         1,760,205
                                                             ------------       ------------       ------------       ------------


OTHER INCOME (EXPENSE):
    Interest expense                                             (652,986)          (311,186)        (1,325,510)          (613,639)
    Other income (expense)                                         (5,372)            15,748              3,894             14,988
                                                             ------------       ------------       ------------       ------------

            Total                                                (658,358)          (295,438)        (1,321,616)          (598,651)
                                                             ------------       ------------       ------------       ------------

NET INCOME (LOSS) BEFORE INCOME
    TAX BENEFIT                                                (5,016,923)           712,230         (7,258,694)         1,161,554

INCOME TAX BENEFIT                                                     --                 --                 --            240,000
                                                             ------------       ------------       ------------       ------------


NET INCOME (LOSS)                                              (5,016,923)           712,230         (7,258,694)         1,401,554

PREFERRED STOCK DIVIDENDS                                         876,877                 --          1,201,891                 --
                                                             ------------       ------------       ------------       ------------

NET INCOME (LOSS) AVAILABLE TO
    COMMON SHAREHOLDERS                                      $ (5,893,800)      $    712,230       $ (8,460,585)      $  1,401,554
                                                             ============       ============       ============       ============

BASIC NET EARNINGS (LOSS) PER
    COMMON SHARE                                             $      (0.59)      $       0.08       $      (0.84)      $       0.15
                                                             ============       ============       ============       ============

DILUTED NET EARNINGS (LOSS) PER
    COMMON SHARE                                             $      (0.59)      $       0.07       $      (0.84)      $       0.15
                                                             ============       ============       ============       ============
</TABLE>

            See accompanying notes to condensed financial statements.


                                       4
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.
                        STATEMENT OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                         Common Stock                                    Notes Receivable
                                         ------------        Additional     Accumulated     for Common      Treasury
                                      Shares    Par Value  Paid-In Capital    Deficit          Stock         Stock         Total
                                 --------------------------------------------------------------------------------------------------
<S>                              <C>            <C>        <C>             <C>           <C>               <C>          <C>
Balance at March 31, 2001          10,017,612   $100,176    $51,902,100    $(24,570,318)   $(12,772,200)   $(120,461)   $14,539,297
Exercise of Options                     4,143         41         19,480              --              --           --         19,521
Issuance of common stock              582,648      5,826      2,994,774              --              --           --      3,000,600
Issuance of common stock
under employee stock
purchase plan                           3,701         37         17,108              --              --           --         17,145
Non-cash compensation related
to options under non-recourse
note receivable                            --         --      3,621,143              --              --           --      3,621,143
Dividends on preferred stock               --         --       (175,000)             --              --           --       (175,000)
Discount on preferred stock                --         --      2,020,734              --              --           --      2,020,734
Accretion of discount on
preferred stock                            --         --       (622,198)             --              --           --       (622,198)
Net loss                                   --         --             --      (7,258,694)             --           --     (7,258,694)
                                 --------------------------------------------------------------------------------------------------

Balance at September 30, 2001
(unaudited)                         10,608,104   $106,080   $59,778,141    $(31,829,012)   $(12,772,200)   $(120,461)   $15,162,548
                                ===================================================================================================
</TABLE>

            See accompanying notes to condensed financial statements.


                                       5
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             SIX MONTHS ENDED
                                                                                                SEPTEMBER 30,
                                                                                       2001                     2000
                                                                                    -----------             -----------
                                                                                    (Unaudited)             (Unaudited)
<S>                                                                                 <C>                     <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
       Net Income (Loss)                                                            $(7,258,694)            $ 1,401,554
   ADJUSTMENTS TO RECONCILE NET INCOME
   TO NET CASH USED IN OPERATING ACTIVITIES:
       Depreciation expense                                                           1,045,613                 695,425
       Amortization of debt discount                                                    204,744                  78,690
       Provision for doubtful accounts                                                  475,000                      --
       Provision for inventory reserve                                                  600,000                      --
       Consulting and director services paid in exchange
        for issuance of common stock  and warrants                                        8,125                  78,507
       Deferred tax benefit                                                                  --                (240,000)
       Non-cash compensation related to options under
        non-recourse note receivable                                                  3,621,143                      --
       (Increase) decrease in:
         Trade receivables                                                             (672,527)               (649,331)
         Other receivables                                                               (7,006)               (162,399)
         Inventories                                                                  3,398,117              (2,961,242)
         Prepaid expenses and other                                                      85,237              (1,346,244)
       Increase (decrease) in:
         Accounts payable                                                            (2,342,338)                566,745
         Accrued liabilities                                                            215,052                 (53,635)
                                                                                    -----------             -----------

     NET CASH USED IN OPERATING ACTIVITIES:                                            (627,534)             (2,591,930)
                                                                                    -----------             -----------

CASH FLOWS USED IN INVESTING ACTIVITIES:
      Purchase of property and equipment                                               (371,439)             (6,439,812)
                                                                                    -----------             -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
       Net borrowings(payments) on line of credit                                    (1,809,384)              3,339,544
       Increase in book overdrafts                                                      201,874                 375,675
       Net borrowings (payments) on term note payable                                  (458,964)              5,393,692
       Principal payments on capital lease obligations                                  (90,357)                (23,387)
       Proceeds from issuance of common stock                                         3,017,745                  44,975
       Proceeds from exercise of common stock options                                    19,521                      --
       Proceeds from issuance of preferred stock                                      2,936,983                      --
       Financing costs from issuance of preferred stock                                 (36,024)                     --
     Purchase of treasury stock                                                              --                 (99,024)
       Financing costs for long-term debt                                               (35,000)                     --
                                                                                    -----------             -----------

    NET CASH FROM FINANCING ACTIVITIES                                                3,746,394               9,031,475
                                                                                    -----------             -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  2,747,421                    (267)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                              500                     383
                                                                                    -----------             -----------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $ 2,747,921             $       116
                                                                                    ===========             ===========
</TABLE>

           See accompanying notes to condensed financial statements.


                                       6
<PAGE>

                         GALAXY NUTRITIONAL FOODS, INC.
                          NOTES TO FINANCIAL STATEMENTS

(1)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The unaudited condensed consolidated financial statements have been
prepared by the Company, under the rules and regulations of the Securities and
Exchange Commission. The accompanying condensed consolidated 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 condensed or omitted under such rules and regulations although the
Company believes that the disclosures are adequate to make the information
presented not misleading. The year-end 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 condensed consolidated financial statements should be read in
conjunction with the financial statements and notes included on Form 10-K/A for
the fiscal year ended March 31,2001. Interim results of operations for the
six-month period ended September 30, 2001 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 number of common and potentially dilutive securities
outstanding during the year. Stock options and warrants are included in the
calculation of diluted net income per share, using the treasury stock method,
when the result is dilutive.

Use of Estimates

The preparation of consolidated 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 at the date of the consolidated financial
statements and reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141 "Business Combinations," and
SFAS No. 142 "Goodwill and Other Intangible Assets," which change the accounting
for business combinations and goodwill. SFAS No. 141 requires that the purchase
method of accounting be used for business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. SFAS No. 142
changes the accounting for goodwill from an amortization method to an
impairment-only approach. Amortization of goodwill, including goodwill recorded
in past business combinations, will therefore cease upon adoption of the
Statement, which for the Company will be January 1, 2002. The Company is
currently evaluating the impact of SFAS No. 141 and SFAS No. 142 on its
financial statements.

In August 2001, the FASB issued 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 both SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and 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 Company is currently evaluating the impact of SFAS No.
144 on its financial statements.

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.


                                       7
<PAGE>

(2)      INVENTORIES

         Inventories are summarized as follows:

<TABLE>
<CAPTION>
                                                                                   SEPTEMBER 30,             MARCH 31,
                                                                                        2001                   2001
                                                                                   -------------            -----------
                                                                                    (Unaudited)
<S>                                                                                 <C>                     <C>
Raw materials                                                                       $ 3,157,754             $ 4,314,685
Finished goods                                                                        4,218,669               6,459,855
Inventory Reserve                                                                      (600,000)                     --
                                                                                    -----------             -----------
Total                                                                               $ 6,776,423             $10,774,540
                                                                                    ===========             ===========
</TABLE>

(3)      EARNINGS PER SHARE

         The following table reflects the calculation of basic and diluted net
earnings (loss) per common share:

<TABLE>
<CAPTION>
                                                                       Three months ended                  Six months ended
                                                                          September 30,                       September 30,
                                                                 -----------------------------       ------------------------------
                                                                     2001             2000               2001              2000
                                                                 ------------      -----------       ------------       -----------
<S>                                                              <C>               <C>               <C>                <C>
     Numerator:
Net income (loss)                                                $ (5,893,800)     $   712,230       $ (8,460,585)      $ 1,401,554
                                                                 ============      ===========       ============       ===========

     Denominator:
Weighted average shares outstanding - basic                        10,048,447        9,170,104         10,033,874         9,179,052
Potential shares exercisable under stock option plans                      --        1,417,785                 --         1,417,785
Potential shares exercisable under warrant agreements                      --          922,143                 --           915,000
Less:  Shares assumed repurchased under treasury
  stock method                                                             --       (1,716,506)                --        (1,864,535)
                                                                 ------------      -----------       ------------       -----------

Weighted average shares outstanding - diluted                      10,048,447        9,793,526         10,033,874         9,647,302
                                                                 ============      ===========       ============       ===========

Basic net earnings (loss) per common share                       $      (0.59)     $      0.08       $      (0.84)      $      0.15
                                                                 ============      ===========       ============       ===========

Diluted net earnings (loss) per common share                     $      (0.59)     $      0.07       $      (0.84)      $      0.15
                                                                 ============      ===========       ============       ===========
</TABLE>

         Options of 2,781,845 and warrants of 1,050,214 have not been included
in the computation of diluted net earnings (loss) per common share for the three
and six months ended September 30, 2001, as their effect would be antidilutive.

(4)      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. Cash and cash equivalents include checking accounts.

<TABLE>
<CAPTION>
For the six months ended September 30,                                                2001                 2000
-------------------------------------------------------------------------------------------------------------------
                                                                                   (unaudited)          (unaudited)
<S>                                                                                <C>                  <C>
Noncash financing and investing activities:
Preferred dividends recorded for preferred
shareholder waiver received in exchange for
issuance of common stock                                                            $  359,400            $     --
Preferred stock dividends and related beneficial
Conversion feature                                                                  $  220,400            $     --
Discount related to preferred stock                                                 $2,020,734            $     --
Accretion of discount on preferred stock                                            $  622,198            $     --
Cash paid for:
Interest                                                                            $1,203,820            $535,039
</TABLE>

(5)      INCOME TAXES

         The Company has a deferred tax asset as of September 30, 2001 of
$1,560,000. The deferred tax asset represents mainly tax operating loss
carryforwards incurred in prior years, which are expected to be realized in the


                                       8
<PAGE>

future. Based upon an assessment of all available evidence, management believes
that realization of the deferred tax asset is more likely than not. In the event
that realization of the remaining tax asset is considered more likely than not
in the future, a portion of the related benefit will be allocated to the
cumulative effect of a change in accounting policy recorded in the third quarter
of fiscal 2001.

(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) $5.10, (y) the market price on the
original issue date or (z) 95% of the average of the two lowest closing bid
prices on the principal market 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 ($50.53 at September 30, 2001).

     The warrants include initial warrants of 120,000 shares, redemption
warrants of 120,000 shares, and 30% warrants. The initial warrants are
exercisable for a period of five years at an exercise price equal to the lower
of (a) $5.30 or (b) a price equal to 110% of the average of the closing bid
price of the common stock for the 30 trading days ending on January 1, 2002. The
redemption warrants are exercisable upon redemption for a period of five years
at an exercise price equal to the lower of (a) 110% of the market price of the
common stock at the redemption date or (b) 110% of the average closing bid price
of the common stock for 30 trading days ending on the 270th day following the
redemption date. The 30% warrants shall only become exercisable if at any time
after February 15, 2002 that both (a) all of the preferred shares have not been
redeemed in full and (b) the Registration Statement covering the resale of all
of the registerable securities is not then effective. The number of shares
underlying the 30% warrants is determined by dividing (x) 30% of the preferred
shares originally purchased by the investor by (y) the average closing bid price
of the Company's common stock during the five day period ending on February 15,
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.

     In connection with the issuance of the preferred stock and warrants, the
Company has recorded accrued dividends of $175,000 for the 10% preferred stock
dividend and $45,400 of dividends related to the beneficial conversion feature
on the accrued dividends to be paid with preferred stock. The Company recorded a
discount on preferred stock of $2,020,734 related to the beneficial conversion
feature ($1,466,334), 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 $4,403,719 over the carrying value
of $515,187 was $3,888,532 at September 30, 2001 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 six
months ended September 30, 2001, the Company recorded $622,198 of dividends
related to the accretion of preferred stock. The unamortized discount on
preferred stock was $1,398,536 at September 30, 2001

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


                                       9
<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.
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. 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.

Galaxy Nutritional Foods, Inc. (the "Company") is principally engaged in the
development, manufacturing and marketing of a variety of healthy cheese and
dairy related products, as well as other cheese alternatives. 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, food service and industrial
markets. Our headquarters and manufacturing facilities are located in Orlando,
Florida.

During the latter part of fiscal 2001 and the beginning of fiscal 2002, much of
our excess cash was used to purchase and install additional production
equipment. We began construction on six new production lines that included slice
lines, a new chunk cheese line, a cup line, a string cheese line, and a shred
line. All construction on these lines was completed by September 2001. This
equipment will enable us to produce new products, as well as, increase the
capacity and improve on products that we are already making. The installation of
the equipment was delayed significantly due to late shipments by manufacturers
and problems with configuring the machines to meet the manufacturing needs of
our unique line of products. These delays caused excess overhead costs and
downtime during the first and second quarter of fiscal 2002. As a result, the
large cash outlays related to this expansion along with the delays in new
product shipment created a significant shortfall in cash that affected nearly
every aspect of our operations.

Results of Operations

Net Sales were $11,381,321 in the three months ended September 30, 2001,
compared to net sales of $12,214,562 for the three months ended September 30,
2000, a decrease of 7%. Net sales were $23,196,111 for the six months ended
September 30, 2001 as compared to $23,470,983 for the same period one year ago,
a decrease of 1%.

Due to the significant reduction in cash flows in the second quarter of fiscal
2002, we experienced an inability to purchase raw materials, which resulted in
short shipments to customers. The short shipments to customers forced us to
temporarily reduce product prices to maintain our shelf space in supermarkets.
While demand for our products continues to increase rapidly, sales growth was
maintained at prior year levels until we obtained the cash required to meet
these demands. We believe that we would have shown an increase in sales had we
not experienced cash shortages, production delays, and shipping shortages.

Cost of Goods Sold were $9,547,698 representing 84% of net sales for the quarter
ended September 30, 2001, compared with $7,732,948 or 63% of net sales for the
same period ended September 30, 2000. Cost of goods sold were $18,169,634 for
the six months ended September 30, 2001, representing 78% of net sales as
compared to $14,940,861 or 64% of net sales for the six months ended September
30, 2000.

The increase was the result of four key factors: problems associated with the
construction of new production lines, an increase in raw materials costs, vendor
terms and a change in production focus: (a) The installation of the equipment
was delayed significantly due to late shipments by manufacturers and problems
with configuring the machines to meet the manufacturing needs of our unique line
of products. These delays caused excess overhead costs and downtime during the
first and second quarter of fiscal 2002. (b) Due to a worldwide shortage
resulting from the outbreak of "Mad Cow" and "foot and mouth" disease epidemics
in Europe, the price of casein, our


                                       10

<PAGE>

primary raw ingredient, increased by approximately 26% in the six months ended
September 30, 2001 compared to the same period one year ago. (c) Due to the
shortage of cash, our purchasing department was not able to purchase in terms or
quantities that created the optimum prices to keep our costs at a reasonable
level. (d) Finally, in the second quarter of fiscal 2002, we scaled back our
product mix to focus on 200 core items that made up nearly 98% of our sales. As
a result of the change in focus, we have provided for a $600,000 reserve for
potential obsolete and slow moving inventory.

Selling expenses were $1,925,768 for the quarter ended September 30, 2001,
compared with $2,044,596 for the same period ended September 30, 2000, a
decrease of 6%. For the six months ended September 30, 2001, selling expenses
were $3,564,374 as compared to $3,957,484 for the same period one year ago, a
decrease of 10%. The decrease in expenses is due to a reduction in advertising
and promotional expenses during the first and second quarters in fiscal 2002.
During the six months ended September 30, 2000, we were involved in an extensive
advertising campaign to promote our flagship Veggie product line. This campaign
included print, television, and radio advertising and focuses on key markets
throughout the country where distribution of our products is widespread. We also
incurred increased slotting fees to expand our shelf space in retail stores
during the six months ended September 2000. These fees have been significantly
reduced during the six months ended September 2001. Finally, we terminated
several executive sales employees during April 2001 in an effort to streamline
operations and reduce costs.

Delivery expenses were $570,362 for the quarter ended September 30, 2001,
compared with $628,676 for the same period ended September 30, 2000, a 9%
decrease. Delivery expenses were $1,212,621 for the six months ended September
30, 2001 as compared to $1,280,051 for the six months ended September 30, 2000,
a decrease of 5%. The decrease in delivery costs is a result of bringing a
portion of our logistics services in-house and a decrease in shipments during
the six months ended September 30, 2001.

Non-cash compensation related to stock options increased $2,047,577 and
$3,621,143 for the three and six months ended September 30, 2001, respectively,
as compared to the same periods one year ago. The change is the result of the
adoption of Interpretation No. 44 ("FIN 44"). The Financial Accounting Standards
Board issued FIN 44, which clarifies the application of APB Opinion 25 relating
to the accounting consequences of various modifications to fixed stock options.
FIN 44 covers specific events that occurred after December 15, 1998 and was
effective as of July 2, 2000. FIN 44 clarified that when an option is repriced,
it is treated as a variable option and is marked to market each quarter. The
adoption of FIN 44 required us to change our accounting related to the note
receivable from our president. The underlying options were required to be
treated as variable due to the exchange of interest bearing recourse notes with
a non-interest bearing non-recourse note. Accordingly, any differences between
the exercise price of the options and the market price of our common stock is
recorded as compensation expense at each reporting period.

General and Administrative expenses were $1,603,941 for the quarter ended
September 30, 2001, compared with $733,273 for the same period ended September
30, 2000, an 119% increase. General and administrative expenses increased 75% to
$2,467,561 for the six months ended September 30, 2001 as compared to $1,408,071
for the same period one year ago. In the second quarter of fiscal 2002, we
increased the reserve for doubtful accounts by $475,000. Management has begun an
intense credit and collection effort on its significantly outstanding deductions
by customers and hopes to recover some of this in the future. In addition, we
have increased the number of administrative personnel in order to support our
anticipated growth.

Research and Development expenses were $44,540 for the quarter ended September
30, 2001, compared with $67,401 for the quarter ended September 30, 2000, a 34%
decrease. These expenses were $97,856 for the six months ended September 30,
2001 as compared to $124,311 for the same period one year ago, a 21% decrease.
This decrease in expenses is mainly the result of the completion of several new
formulas in fiscal 2001.

Interest expense increased to $652,986 for the quarter ended September 30, 2001
from $311,186 for the quarter ended September 30, 2000, a 110% increase.
Interest expense was $1,325,510 for the six months ended September 30, 2001 as
compared to $613,639 for the same period in fiscal 2001, an increase of 116%.
The main reason for the increase is that approximately $160,000 and $305,000 of
interest charges for the three and six months ended September 30, 2000,
respectively, were capitalized to construction in progress. No interest was
capitalized during the six months ended September 30, 2001. The increase is also
attributable to additional borrowings under our term


                                       11

<PAGE>

note and line of credit, as well additional draws on the subordinated note. On
September 30, 1999, we entered into a $4,000,000 subordinated note payable with
Finova Mezzanine Corporation. In December 2000, we entered into an additional
$815,000 subordinated note payable in connection with a price guarantee we gave
to Finova upon the exercise of their warrants and sale of the underlying common
shares to the public. This debt originally bore interest at a rate of 11.5%, but
in July 2001 the note was amended to increase the rate to 13.5%. This debt
includes an original issue discount of $786,900, recorded in September 1999 and
an additional $945,400 recorded in December 2000 in connection with the price
guarantee, which is amortized as interest expense over the term of the debt.
During the first six months of fiscal 2002, $204,743 was amortized to interest
expense for these debt discounts, as compared to $78,600 during the first six
months of fiscal 2001.

In March 2000, we signed a $10 million term note payable with Southtrust Bank,
N.A. This note bears interest at prime rate and is due in monthly principal
installments of $93,000 plus interest. The balance outstanding on this note as
of September 30, 2001 was $9,242,535. This note was used to payoff our prior
term note payable and to finance approximately $7.5 million in new equipment to
expand our production capacity. Additionally, we acquired a $1.5 million loan in
October 2000. This loan bears interest at prime and is payable in monthly
principal installments of $50,000 plus interest. The balance on this loan is
$1.2 million as of September 30, 2001.

Income tax expense for the six months ended September 30, 2001 was $0 compared
to income tax benefit of $240,000 for the same period in the prior year at
September 30, 2000. We have recorded a deferred tax asset of $1,560,000 derived
mainly from tax net operating losses incurred in prior years, which are expected
to be realized in the future. This represents approximately 20% of the tax net
operating loss carry forward available at September 30, 2001.


Liquidity and Capital Resources

Operating Activities -- Net cash used in operating activities was $627,534 for
the six months ended September 30, 2001 compared to net cash used of $2,591,930
for the same period in 2000. The decrease in cash used for operations is the
result of a decrease in inventory as a result of the cash shortages which was
partially offset by a decrease in accounts payable which was paid down with
proceeds from our private placements of preferred stock in April 2001. In
addition, we reported a net loss of $7,258,694 for the six months ended
September 30, 2001 as compared to net income of $1,401,554 for the same period
in the prior year. The net loss was the result of delays in the installation of
new production lines of equipment during the latter part of fiscal 2001 and the
first six months of fiscal 2002.

Investing Activities -- Net cash used in investing activities totaled $371,439
for the six months ended September 30, 2001 compared to net cash used of
$6,439,812 for the same period in 2000. The decrease in cash used for investing
activities during fiscal 2002 as compared to fiscal 2001 resulted from the
majority of the new production equipment being purchased prior to March 31,
2001. There were still some remaining expenses related to this new production
equipment in the beginning of fiscal 2002. Installation of the new production
equipment was completed in September 2001. We expect the purchases and
installation of this new production equipment to double our production capacity
on key products.

Financing Activities -- Net cash flows provided by financing activities were
$3,746,394 for the six months ended September 30, 2001 compared to cash flows
provided by financing activities of $9,031,475 for the same period in 2000. The
large cash flows from financing activities during the six months ended September
30, 2001 were primarily the result of the issuance of common stock and preferred
stock. These proceeds were partially offset by payments under the line of credit
and term note. During the six months ended September 30, 2000, the large in-
flows were the result of draws on the equipment note payable and line of credit.
The increased draws in fiscal 2001 were used to finance the build up in
inventories, as well as to purchase and install new state-of-the-art production
equipment.

During November 1996, we entered into a two-year agreement with Finova Capital
Corporation which provided a $2 million line of credit for working capital and
expansion purposes. The availability under this line of credit was increased to
$3 million in February 1997, $3.5 million in June 1998, $5.5 million in December
1998, $7.5 million in April 2000 and $13 million in August 2000. The amount
available under the line of credit is based on a formula of


                                       12


<PAGE>

up to 85% of eligible accounts receivable plus 50% of eligible inventories not
to exceed $6,000,000, as defined in the agreement. Amounts outstanding under the
agreement are collateralized by all accounts receivable, inventory and machinery
and equipment owned by us. Interest is payable monthly on the outstanding draws
on the line of credit at a rate of prime plus two percent (8.0% at September 30,
2001). The line of credit expires on August 1, 2003.

In March 2000, we signed a $10 million term note payable with Southtrust Bank,
N.A. This note bears interest at prime rate 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 September 30, 2001 was $9,242,535. This
note was used to payoff our prior term note payable and to finance approximately
$7.5 million in new equipment to expand our production capacity. Amounts under
the new agreement are collateralized by machinery and equipment owned by us. The
new note was used to finance the new production equipment purchased and
installed throughout fiscal 2001 and the beginning of 2002.

In October 2000, our president guaranteed a $1.5 million short-term bridge loan
from Southtrust Bank, N.A. with shares of his common stock pledged as
collateral. Interest on this note is at the prime rate (6% at September 30,
2001). The loan is being paid down by monthly principal payments of $50,000 plus
interest. The note matures in October 2003.

On September 30, 1999, we secured a $4 million subordinated note payable less
loan costs of $380,000 to finance our working capital and capital improvement
needs. Amounts outstanding under the note are collateralized by a subordinated
lien on substantially all of our assets. The subordinated note is payable in one
lump sum upon maturity in August 2003 and bore interest payable monthly at a
rate of 11.5%. This interest rate was adjusted in July 2001 from 11.5% to 13.5%.
We issued a warrant to purchase 915,000 shares of common stock to the
subordinated note holder 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.

On December 26, 2000, the subordinated note holder exercised a portion of the
warrant to purchase 815,000 shares of common stock at a price of $3.41 per
share. We received net proceeds of $2,452,329, after paying transaction costs of
$326,822. In connection with this transaction, we agreed to reimburse the note
holder for brokerage commission and other expenses incurred by the note holder
for 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, we 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 the note holder
($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 and was funded through the
issuance of an additional subordinated term note which is due in full in
December 2001.

The line of credit, term note payable, and subordinated note payable contain
certain financial and operating covenants. We were in violation of substantially
all financial covenants at September 30, 2001. The lender of the subordinated
note payable waived the violation for the quarters ended March 31, 2001 and June
30, 2001 and amended the covenants for the quarters subsequent to June 30, 2001.
In connection with the amendment to the subordinated debt covenants dated July
12, 2001, the interest on the subordinated note was increased to 13.5% and the
maturity date was changed to August 1, 2003. The lender of the line of credit
waived the violations for the year ended March 31, 2001 and quarter ended June
30, 2001 and amended the covenants for the quarters subsequent to June 30, 2001.
In connection with the amendment to the line of credit covenants dated July 13,
2001, the interest on the line of credit was increased to prime plus 2%. The
lender of the term note payable waived the violations for the year ended March
31, 2001 and on July 16, 2001 amended the covenants for the periods subsequent
to March 31, 2001. Total fees incurred in connection with these waivers and
amendments were $120,000 and are due by December 31, 2001.

On April 6, 2001, we issued to two specified investors, in accordance with an
exemption from registration under Regulation D promulgated under the Securities
Act of 1933, as amended, (i) an aggregate of 72,646 shares Series A convertible
preferred stock, $0.01 par value, and (ii) warrants to purchase shares common
stock, $0.01 par value, at


                                       13


<PAGE>

an aggregate sales price of approximately $3,082,000. 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, and an eight percent stock dividend
for the subsequent three years thereafter. We have undertaken the obligation and
have completed the registration of these shares.

The warrants include an initial issuance to the investors of warrants to
purchase an aggregate of 120,000 shares of common stock. The initial warrants
are exercisable for a period of five years from April 6, 2001, at a per share
exercise price equal to the lesser of (a) $5.30 or (b) a price equal to 110% of
the average of the closing bid price of the common stock for the thirty trading
days ending on January 1, 2002. The warrants also include the issuance to the
investors of warrants to purchase an aggregate of 120,000 shares of common
stock, which are exercisable simultaneous with and as a condition to any
redemption of the shares. Finally, the warrants include the issuance to the
investors of warrants to purchase shares of common stock in an amount determined
by dividing (x) 30% of the shares originally purchased by the investors by (y)
the average closing bid price of the common stock during the five day period
ending on February 15, 2002 (the "30% warrants"). The 30% warrants are
exercisable for a period of five years from February 15, 2002 at per share
exercise price equal to 110% of the average closing bid price of the common
stock during the five day period ending on February 15, 2002.

On September 25, 2001, we issued to one specified investor, in accordance with
an exemption from registration under Regulation D promulgated under the
Securities Act of 1933, as amended, (i) an aggregate of 522,648 shares of common
stock, $0.01 par value, and (ii) warrants to purchase 140,000 shares of common
stock, $0.01 par value, at an aggregate sales price of approximately $3,000,000.
Registration of the shares was completed by October 25, 2001.

Management believes that proceeds received in connection with the preferred
stock issuance in April 2001 and the common stock issuance in September 2001
together with cash flow from current operations will allow us to meet our future
liquidity needs based on current operation levels.


RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, "Business Combinations" which
addresses the financial accounting and reporting for business combinations and
supersedes APB Opinion No. 16, "Business Combinations," and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises." SFAS No.
141 requires that all business combinations be accounted for by a single method,
the purchase method, modifies the criteria for recognizing intangible assets,
and expands disclosure requirements. The provisions of SFAS No. 141 apply to all
business combinations initiated after June 30, 2001. We do not expect that the
adoption of SFAS No. 141 will have a material effect on our results of
operations or statements of financial position.

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB Opinion No. 17, "Intangible
Assets." SFAS No. 142 addresses how intangible assets that are acquired
individually or with a group of other assets should be accounted for in
financial statements upon their acquisition and after they have been initially
recognized in the financial statements. SFAS No. 142 requires that goodwill and
intangible assets that have indefinite useful lives not be amortized but rather
tested at least annually for impairment, and intangible assets that have finite
useful lives be amortized over their useful lives. SFAS No. 142 provides
specific guidance for testing goodwill and intangible assets that will not be
amortized for impairment. In addition, SFAS No. 142 expands the disclosure
requirements about goodwill and other intangible assets in the years subsequent
to their acquisition. SFAS No. 142 is effective for our fiscal year 2003.
Impairment losses for goodwill and indefinite-life intangible assets that arise
due to the initial application of SFAS No. 142 are to be reported as resulting
from a change in accounting principle. However, goodwill and intangible assets
acquired after June 30, 2001 will be subject immediately to provisions of SFAS
142. We are currently evaluating the impact of SFAS No. 144 on our financial
statements.

In August 2001, the FASB issued 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 both SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and


                                       14
<PAGE>

for Long-Lived Assets to Be Disposed Of" and 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. We
are currently evaluating the impact of SFAS No. 144 on our financial statements.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The interest on the Company's debt is floating and based on the prevailing
market interest rates. For market based debt, interest rate changes generally do
not affect the market value of the debt but do impact future interest expense
and hence earnings and cash flows, assuming other factors remain unchanged. A
theoretical 1% change in market rates in effect on September 30, 2001 with
respect to the Company's anticipated debt as of such date would increase
interest expense and hence reduce the net income of the Company by approximately
$43,000 for the quarter.

The Company's sales for the six months ended September 30, 2001 and 2000
denominated in a currency other than U.S. dollars were less than 1% of total
sales and no net assets were maintained in a functional currency other than U.S.
dollars at September 30, 2001. The effects of changes in foreign currency
exchange rates has not historically been significant to the Company's operations
or net assets.


                                       15

<PAGE>
                           PART II. OTHER INFORMATION

                         GALAXY NUTRITIONAL FOODS, INC.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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


<TABLE>
<CAPTION>
EXHIBIT NO        EXHIBIT DESCRIPTION

<S>               <C>
*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.)

*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.)

*10.5             Preferability letter from BDO Seidman, L.L.P. (Filed as
                  Exhibit 10.3 on Form 10-Q for quarter ended December 31,
                  2000, and incorporated herein by reference.)
</TABLE>


REPORTS ON FORM 8-K

         There were no reports on Form 8-K filed by the Company during this
period.

*Previously filed


                                      17
<PAGE>


                                   SIGNATURES


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



                                    GALAXY NUTRITIONAL FOODS, INC.



Date: November 14, 2001             /s/ Angelo S. Morini
                                    -------------------------------------------
                                    Angelo S. Morini
                                    Chairman and President
                                    (Principal Executive Officer)


                                      18