Galaxy Nutritional Foods, a manufacturer of cheese alternative and dairy-related products, revealed that it has returned to profit in the second quarter despite reduced sales.

For the quarter ended 30 September the company reported net income of US$561,564, or $0.03 per diluted share, on net sales of approximately $6.7m. This compares to a net loss of $1,416,138, or $0.07 per share, posted in the second quarter of last year on net sales of approximately $10.4m.

“We are very pleased to report net income of $561,564 in the second quarter of Fiscal 2007, reflecting an improvement in gross margin to 41.2%, versus 25.1% in the prior-year quarter, and significant reductions in selling and delivery expenses,” stated Michael E. Broll, CEO of Galaxy Nutritional. “We have been able to eliminate significant costs through the outsourcing of our manufacturing and distribution activities as part of the company’s turnaround strategy.”

For the first half of the year, Galaxy Nutritional reported a net loss of $780,865, or $0.04 per share, on sales of $14.6m. Operating expenses during the half included a write-down of a non-recurring, non-cash reserve on a stockholder note receivable in the amount of $1,428,000. Additionally, the company incurred $173,308 in costs related to disposal and asset sale activities and $98,160 in a non-cash stock-based compensation expense. Exclusive of these items, the company would have reported income from operations of $1,408,041 in the six months ended September 30, 2006.

“The reductions in net sales during the second quarter and first half of the fiscal year primarily reflect our elimination of unprofitable or marginally profitable customers and product lines, as we focus on a brand-oriented sales and marketing strategy. Now that the company is cashflow-positive and has returned to profitability, we intend to pursue new product opportunities and the potential to modify and/or adapt some of our existing products to more effectively meet changing consumer expectations regarding ‘healthy alternative’ foods,” concluded Broll.