UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      DC 20549








**FORM
      10-K**








x
                ANNUAL
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                    ACT OF
                    1934
                  FOR
                    FISCAL YEAR ENDED June 3, 2006o
                TRANSITION
                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                    ACT OF
                    1934
  Commission
            file number: 000-04892
 **CAL-MAINE
        FOODS, INC.**
 (Exact
        name of registrant as specified in its charter)
 
  **Delaware**
              
              **64-0500378**(State
                  or other Jurisdiction of
                Incorporation
                    or Organization)
              
              (I.R.S.
                  Employer Identification
                  No.)


**3320
      Woodrow Wilson Avenue, Jackson, Mississippi 39209**


(Address
      of principal executive offices)  (Zip
      Code)





**(601)
      948-6813**


(Registrant’s
      telephone number, including area code)








Securities
      registered pursuant to Section 12 (b) of the Act: Common Stock, $0.01 par
      value





Securities
      registered pursuant to Section 12 (g) of the Act: NONE





Indicate
      by check mark if the registrant is a well-known seasoned issuer as defined
      in
      Rule 405 of the Securities Act.


Yes o   No
x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes o   No
x





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
o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. (  )





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer o Accelerated
      filer x Non-accelerated
      filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act.


Yes oNo
x





1





The
      aggregate market value, as reported by the NASDAQ National Market, of the
      registrant’s Common Stock, $0.01 par value, held by non-affiliates at November
      26, 2005, which was the date of the last business day of the registrant’s most
      recently completed second fiscal quarter, was $78,736,100.





As
      of
      August 7 **,** 2006,
      21,102,891 shares of the registrant’s Common Stock, $0.01 par value, and
      2,400,000 shares of the registrant’s Class A Common Stock, $0.01 par value, were
      outstanding.





DOCUMENTS
      INCORPORATED BY REFERENCE




The
      information called for by Part III of the Form 10-K is incorporated herein
      by
      reference from the registrant’s Definitive Proxy Statement which will be filed
      pursuant to Regulation 14A not later than 120 days after the end of the fiscal
      year covered by this report.





2


**TABLE
      OF CONTENTS**







**Part
                  I**PageItem
              
              Number1.
              Business
              41A.
              Risk
                  Factors
              111B.
              Unresolved
                  Staff Comments
              152.
              Properties
              153.
              Legal
                  Proceedings
              154.
              Submission
                  of Matters to a Vote of Security Holders
              16**Part
                  II**5.
              Market
                  for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities
              176.
              Selected
                  Financial Data
              197.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              207A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              278.
              Financial
                  Statements and Supplementary Data
              279.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              509A.
              Controls
                  and Procedures
              509B.
              Other
                  Information
              50**Part
                  III**10.
              Directors
                  and Executive Officers of the Registrant
              5111.
              Executive
                  Compensation
              5112.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              5113.
              Certain
                  Relationships and Related Transactions
              5114.
              Principal
                  Accountant Fees and Services
              51**Part
                  IV**15.
              Exhibits
                  and Financial Statement Schedules
              52Signatures
              56


3








**PART
      I**





**ITEM
      1. BUSINESS**





**Our
      Business**





Cal-Maine
      Foods, Inc. (“we”, “us”, “our”, or the “Company”) is the largest producer and
      marketer of shell eggs in the United States. In fiscal 2006, we sold
      approximately 683 million dozen shell eggs, which represented about 15.9% of
      domestic shell egg consumption in the United States. Our total flock of
      approximately 23 million layers and 6 million pullets and breeders is the
      largest in the United States. Layers are mature female chickens, pullets are
      young female chickens usually under 20 weeks of age, and breeders are male
      or
      female chickens used to produce fertile eggs to be hatched for egg production
      flocks. Our primary business is the production, grading, packaging, marketing
      and distribution of shell eggs. We sell most of our shell eggs in 29 states,
      primarily in the southwestern, southeastern, mid-western and mid-Atlantic
      regions of the United States. We market our shell eggs through our extensive
      distribution network to a diverse group of customers, including national and
      regional grocery store chains, club stores, foodservice distributors and egg
      product manufacturers. The strength of our position is evidenced by the fact
      that we have the largest market share in the grocery segment for shell eggs,
      and
      we sell shell eggs to a majority of the largest food retailers in the United
      States.





We
      are
      also one of the largest producers and marketers of value-added specialty shell
      eggs in the United States. Specialty shell eggs include reduced cholesterol,
      cage free and organic eggs and are a rapidly growing segment of the market.
      In
      fiscal 2006, specialty shell eggs represented approximately 14% of our shell
      egg
      dollar sales. Retail prices for specialty eggs are higher than standard shell
      eggs due to consumer willingness to pay for the increased benefits from those
      products. We market our specialty shell eggs under two distinct brands: *Egg-Land's
      Best* ( *TM* )
      and *Farmhouse* ( *TM* ). ** We
      own a
      25.7% equity interest in Egg-Land's Best, Inc., which markets the leading brand
      in the specialty shell egg segment. We have exclusive license agreements to
      market and distribute *Egg-Land's
      Best(TM)* specialty shell eggs in major metropolitan areas, including New York City,
      and a
      number of states in the southeast and southwest. We market cage free eggs under
      our trademarked *Farmhouse* brand
      and
      distribute those shell eggs across the southeast and southwest regions of the
      United States. We also produce market and distribute private label specialty
      shell eggs to several customers. Sales of specialty shell eggs accounted for
      approximately 6.6% of our total shell egg dozen volume in fiscal
      2006.





We
      are
      also a leader in industry consolidation. Since 1989, we have completed eleven
      acquisitions ranging in size from 600,000 layers to 7.5 million layers. Despite
      a market that has been characterized by increasing consolidation, the shell
      egg
      production industry remains highly fragmented. There currently are 65 producers
      who each own more than one million layers and the ten largest producers own
      approximately 41% of total industry layers. We believe industry consolidation
      will continue and we plan to capitalize on opportunities as they
      arise.





**Hillandale
      Acquisition**





We
      entered into an Agreement to Form a Limited Liability Company, Transfer Assets
      Thereto, and Purchase Units of Membership Therein, dated July 28, 2005, with
      Hillandale Farms, Inc. and Hillandale Farms of Florida, Inc. (together,
“Hillandale”), and the Hillandale shareholders (the “Agreement”). Under the
      terms of the Agreement, we acquired 51% of the units of membership in
      Hillandale, LLC for cash of approximately $27 million on October 12, 2005.
      The
      remaining 49% of the units of membership in Hillandale, LLC will be acquired
      in
      essentially equal annual installments over a four-year period, with the purchase
      price of the units equal to their book value at the time of purchases as
      calculated in accordance with the terms of the Agreement. The total preliminary
      purchase price is estimated to be as follows (in thousands):








Cash
                consideration paid to seller for 51% ofHillandale,
                LLC's membership units
            
            $
            27,006Obligation
                to acquire 49% ofHillandale,
                LLC's membership units
            
            
            25,94752,953Less
                discount of preliminary purchase price to thepresent
                value as of July 28, 2005
            
            
            (3,556
            )Total
                preliminary purchase price
            
            $
            49,397








4


The
      preliminary purchase price was allocated based upon the fair value of the assets
      acquired and liabilities assumed as follows (in thousands):








Assets
                acquired:Cash
                and cash equivalents
            
            $
            3,918Receivables
            
            
            7,181Inventories
            
            
            11,330Prepaid
                and other assets
            
            
            2,798Property,
                plant and equipment
            
            
            49,531Total
                assets acquired
            
            
            74,758Liabilities
                assumed:Accounts
                payable and accrued expenses
            
            
            3,567Notes
                payable and long-term debt
            
            
            21,794Total
                liabilities assumed
            
            
            25,361Net
                assets acquired
            
            $
            49,397





In
      October 2005, we paid substantially all of Hillandale, LLC notes payable and
      long-term debt and obtained a new $28 million term loan from an insurance
      company. The loan is secured by substantially all of the property, plant and
      equipment of Hillandale, LLC, and requires monthly principal payments of
      $150,000 plus interest beginning in January 2007 through November 2020. The
      obligation to acquire 49% of Hillandale, LLC is recorded at its present value
      of
      $23.6 million as of June 3, 2006, of which $6.9 million is included in current
      liabilities and $16.7 million is included in other non-current liabilities
      in
      the accompanying consolidated balance sheet. We will purchase an additional
      13%
      of Hillandale LLC based on the value of LLC membership units as of July 29,
      2006.





We
      gained
      effective control of the Hillandale operations upon signing of the Agreement.
      Accordingly, the acquisition date for accounting purposes is July 28, 2005.
      The
      operations of Hillandale, LLC have been consolidated with our operations
      beginning July 29, 2005.





Prior
      to
      the acquisition, we had a 44% membership interest in American Egg Products,
      LLC
      (“AEP”) and Hillandale, LLC had a 27.5% membership interest in AEP. Prior to the
      acquisition of Hillandale, LLC, our membership was accounted for by the equity
      method. Effective with our acquisition of Hillandale, LLC, we own a majority
      of
      the membership interest in AEP and, accordingly, the financial statements of
      AEP
      have been consolidated with our financial statements effective July 29, 2005.
      AEP, located in Georgia, processes shell eggs into liquid and frozen egg
      products that are sold primarily to food manufacturers and to the food service
      industry. AEP has contract shell egg production for approximately 50% of shell
      egg requirements and purchases the balance from regional egg
      markets.





Hillandale,
      LLC’s production facilities are principally located in Florida. Hillandale,
      LLC is a fully integrated shell egg producer with its own feed mills, hatchery,
      production, processing and distribution facilities. The
      Hillandale acquisition increased our current egg production capacity by
      approximately 30%.





As
      of
      July 28, 2005, Hillandale, LLC owned a 50% ownership interest in Hillandale
      Farms, LLC that was accounted for by the equity method. On October 5, 2005,
      Hillandale, LLC acquired the other 50% interest in Hillandale Farms, LLC for
      $1.0 million. The purchase price was allocated to the assets acquired and
      liabilities assumed and resulted in approximately $900,000 of goodwill.
      Hillandale Farms, LLC is engaged in the production, processing and distribution
      of shell eggs.





5





**Our
      Corporate Information**





We
      were
      incorporated in Delaware in 1969. Our principal executive office is located
      at
      3320 Woodrow Wilson Drive, Jackson, Mississippi 39209. The telephone number
      of
      our principal executive office is (601) 948-6813. We maintain a website at www.calmainefoods.com where
      general information about our business is available. The information contained
      in our website is not a part of this document. Our annual reports on Form 10-K,
      our quarterly reports on Form 10-Q, our current reports on Form 8-K, Forms
      3 and
      4, and all amendments to those reports are available, free of charge, through
      our web site as soon as reasonably practicable after they are filed with the
      SEC. Information concerning corporate governance matters is also available
      on
      the website.





Our
      Common Stock is listed on The NASDAQ Stock Market LLC (“NASDAQ”) under the
      symbol “CALM”.  On
      June
      2, 2006, the last sale price of our Common Stock on NASDAQ was $7.19 per
      share *.* Our
      fiscal year 2006 ended June 3, 2006 and the first three fiscal quarters of
      fiscal 2006 ended August 27, 2005, November 26, 2005 and February 25, 2006.
      All
      references herein to a fiscal year means our fiscal year and all references
      to a
      year mean a calendar year.










We
      have
      adopted a Code of Conduct and Ethics for Directors, Officers and Employees,
      including the chief executive and principal financial and accounting officers
      of
      the Company. We will provide a copy of the code free of charge to any person
      that requests a copy by writing to:





Cal-Maine
      Foods, Inc.


P.O.
      Box
      2960


Jackson,
      Mississippi 39207


Attn.:
      Investor Relations





Requests
      can be made by phone at (601) 948-6813





A
      copy is
      also available at our website www.calmainefoods.com .
      Information contained on our website is not a part of this report.








IMPORTANT
      FACTORS RELATING TO FORWARD-LOOKING STATEMENTS





This
      report contains numerous forward-looking statements relating to the Company's
      shell egg business, including estimated production data, expected operating
      schedules, expected capital costs and other operating data. Such forward-looking
      statements are identified by the use of words such as "believes," "intends,"
      "expects," "hopes," "may," "should," "plan," "projected," "contemplates,"
      "anticipates" or similar words. Actual production, operating schedules, results
      of operations and other projections and estimates could differ materially from
      those projected in the forward-looking statements. The factors that could cause
      actual results to differ materially from those projected in the forward-looking
      statements include (i) the risk factors set forth below under the following
      Item
      1A, (ii) the risks and hazards inherent in the shell egg business (including
      disease, pests, and weather conditions), (iii) changes in the market prices
      of
      shell eggs, and (iv) changes that could result from the Company's future
      acquisition of new flocks or businesses. Readers are cautioned not to put undue
      reliance on forward-looking statements. The Company disclaims any intent or
      obligation to update publicly these forward-looking statements, whether as
      a
      result of new information, future events or otherwise.





6








****** **Industry
      Background**




The
      United States Department of Agriculture reported that in 2003 the wholesale
      shell egg industry was a $4.5 billion market. Shell eggs are a staple food
      product and 94% of US homes buy shell eggs according to the 2003 Progressive
      Grocer Consumer Expenditure Study. Based on historical consumption trends,
      demand for shell eggs increases in line with overall population growth,
      averaging an increase of about 1% per year. According to U.S. Department of
      Agriculture reports, since 2000, annual per capita consumption in the United
      States has varied between 252 and 256 eggs. In 2005, per capita consumption
      in
      the United States was 254 eggs, or approximately five eggs per person per
      week.





**Prices
      for Shell Eggs**





Shell
      egg
      prices are a critical component of profitability in the industry. Over 90%
      of
      all shell eggs sold in the United States in the retail and foodservice channels
      are sold at prices related to the Urner Barry wholesale quotation for shell
      eggs. For fiscal 2006, wholesale shell egg prices averaged 75.1 cents per dozen
      compared to an average of 85.2 cents per dozen for fiscal years 2003 to 2005.
      The current price environment is weak due to seasonal factors and a slight
      oversupply of eggs.





Factors
      currently influencing demand:





-
      industry advertising campaigns successfully promoting the health benefits of
      eggs;





-
      positive announcements from the medical community highlighting eggs as a good
      source of protein;





-
      increased consumption resulting from the factors noted above as well as the
      reduced level of cholesterol in eggs; and





-
      increased demand from the foodservice channel.





Factors
      currently influencing supply:





-
      living
      space for newly hatched layers will increase 20% by 2008 according to guidelines
      put in place by the United
      Egg Producers, in conjunction with the Food Marketing Institute, both industry
      trade associations; and





- the
        process to bring new shell egg production capacity online has become more
        complex than in the past, increasing
        the time it takes to bring new capacity to market .





**Feed
      Costs for Shell Egg Production**





Feed
      is a
      primary cost component in the production of shell eggs and represents over
      one-half of industry production costs. Most shell egg processors are vertically
      integrated; manufacturing the majority of the feed they require themselves.
      Although feed ingredients, primarily corn and soybean meal, are available from
      a
      number of sources, prices for ingredients can fluctuate and can be affected
      by
      weather and by various supply and demand factors. Current feed prices are about
      the same as a year ago. Forecasts vary widely for prices for the next years,
      with some dry conditions reported in the Midwest and a stronger demand for
      corn
      from ethanol plants.





**Growth
      Strategy and Acquisitions**





For
      many
      years, we have pursued a growth strategy focused on the acquisition of existing
      shell egg production and processing facilities, as well as the construction
      of
      new and more efficient facilities. Since the beginning of fiscal 1989, we have
      completed eleven acquisitions. In addition, we have built seven new “in-line”
shell egg production and processing facilities and one pullet growing facility
      which added 8 million layers and 1.5 million growing pullets to our capacity.
      Each of the new shell egg production facilities generally provide for the
      processing of approximately 400 cases of shell eggs or 12,000 dozen eggs, per
      hour. These increases in capacity have been accompanied by the retirement of
      older and less efficient facilities and a reduction in eggs produced by contract
      producers. The “in-line” facilities result in the gathering, grading and
      packaging of shell eggs by less labor-intensive, more efficient, mechanical
      means.





7


As
      a
      result of our strategy, our total flock, including pullets, layers and breeders,
      has increased from approximately 6.8 million at May 28, 1988 to an average
      of
      approximately 24.8 million for the past five fiscal years. Also, the number
      of
      dozens of shell eggs sold has increased from approximately 117 million in the
      fiscal year ended May 28, 1988 to an average of approximately 599.2 million
      over
      the past five fiscal years. Net sales amounted to $477.6 million in fiscal
      2006
      compared to net sales of $69.9 million in fiscal 1988.




We
      propose to continue to pursue opportunities for the acquisition of other
      companies engaged in the production and sale of shell eggs. We will continue
      to
      evaluate and selectively pursue acquisitions that will expand our shell egg
      production capabilities in existing markets and broaden our geographic reach.
      We
      have extensive experience identifying, valuing, executing and integrating
      acquisitions and we intend to leverage that experience in the evaluation and
      execution of future acquisitions. We will seek to acquire regional shell egg
      businesses that have significant market share and long-standing customer
      relationships. We believe that enhancing our national presence will help us
      further strengthen our relationships with existing customers which have
      operations across the United States.





Through
      exclusive license agreements with Egg-Land's Best, Inc. in several key
      territories and our trademarked *Farmhouse* brand,
      we
      are one of the leading producers and marketers of value-added specialty shell
      eggs. We also produce, market and distribute private label specialty shell
      eggs
      to several customers. Since selling prices of specialty shell eggs are not
      related to the generic shell egg market, we believe that growing our specialty
      eggs business will enhance the stability of our margins. We expect that the
      price of specialty eggs will remain at a premium to regular shell eggs. We
      intend to pursue acquisitions that may expand our specialty shell egg
      production.





Federal
      anti-trust laws require regulatory approval of acquisitions that exceed certain
      threshold levels of significance. Also, we are subject to federal and state
      laws
      generally prohibiting anti-competitive conduct. Because the shell egg production
      and distribution industry is so fragmented, we believe that our sales of shell
      eggs during its last fiscal year represented only approximately 15.9% of
      domestic shell egg sales notwithstanding that we are the largest producer and
      distributor of shell eggs in the United States based on independently prepared
      industry statistics. We believe that regulatory approval of any future
      acquisitions either will not be required, or, if required, that such approvals
      will be obtained.





The
      construction of new, more efficient production and processing facilities is
      an
      integral part of our growth strategy. Any such construction will require
      compliance with applicable environmental laws and regulations, including the
      receipt of permits that could cause schedule delays, although we have not
      experienced any significant delays in the past.





**Shell
      Eggs**





***Production*** *.* Our
      operations are fully integrated. At our facilities, we hatch chicks, grow
      pullets, manufacture feed and produce and distribute shell eggs. Company-owned
      facilities accounted for approximately 89% of our total fiscal 2006 egg
      production, with the balance attributable to contract producers used by us.
      Under arrangements with our contract producers, we own the entire flock, furnish
      all feed and supplies, own the shell eggs produced and assume all market risks.
      The contract producers own their facilities and are paid a fee based on
      production with incentives for performance.





The
      commercial production of shell eggs requires a source of baby chicks for laying
      flock replacement. We produce approximately 96% of our chicks in our own
      hatcheries and obtain the balance from commercial sources. We own breeder
      facilities producing 15.5 million pullet chicks per year in a
      computer-controlled environment. These pullets are distributed to 28
      state-of-the-art laying operations around the southwestern, southeastern,
      mid-western and mid-Atlantic regions of the United States. The facilities
      produce an average of 1.5 million dozen of shell eggs per day and process the
      shell eggs through grading and packaging without handling by human hands. We
      have spent a cumulative total of $63 million over the past five years upgrading
      our facilities with the most advanced equipment and technology available in
      our
      industry. We believe our focus on automation throughout the supply chain enables
      us to be a low cost supplier in all the markets in which we
      compete.





8


Feed
      for
      the laying flocks is produced by Company-owned and operated mills located in
      the
      southwestern, southeastern, mid-western and mid-Atlantic regions of the United
      States. All ingredients necessary for feed production are readily available
      in
      the open market and most are purchased centrally from Jackson, Mississippi.
      Approximately 98% of the feed for our flocks is manufactured at feed mills
      owned
      and operated by us. Poultry feed is formulated using a computer model to
      determine the least-cost ration to meet the nutritional needs of the flocks.
      Although most feed ingredients are purchased on an as-needed basis, from
      time-to-time, when deemed advantageous, we purchase ingredients in advance
      with
      a delayed delivery of several weeks or a few months.





Feed
      cost
      represents the largest element of our farm egg production cost, ranging from
      52%
      to 57% of total cost in the last five years. Although feed ingredients are
      available from a number of sources, we have little, if any, control over the
      prices of the ingredients we purchase, which are affected by weather and by
      various supply and demand factors. Increases in feed costs not accompanied
      by
      increases in the selling price of eggs can have a material adverse effect on
      the
      results of our operations. However, higher feed costs may encourage producers
      to
      reduce production, possibly resulting in higher egg prices. Alternatively,
      low
      feed costs can encourage industry overproduction, possibly resulting in lower
      egg prices. Historically, we have tended to have higher profit margins when
      feed
      costs are higher. However, this may not be the case in the future.





After
      the
      eggs are produced, they are graded and packaged. Substantially all of our farms
      have modern “in-line” facilities that mechanically gather, grade and package the
      eggs produced. The increased use of in-line facilities has generated significant
      cost savings as compared to the cost of eggs produced from non-in-line
      facilities. In addition to greater efficiency, the in-line facilities produce
      a
      higher percentage of grade A eggs, which sell at higher prices. Eggs produced
      on
      farms owned by contractors are brought to our processing plants where they
      are
      graded and packaged. Since shell eggs are perishable, we maintain very low
      shell
      egg inventories, usually consisting of approximately four days of
      production.





Our
      egg
      production activities are subject to risks inherent in the agriculture industry,
      such as weather conditions and disease factors. These risks are not within
      our
      control and could have a material adverse effect on our operations. Also, the
      marketability of our shell eggs is subject to risks such as possible changes
      in
      food consumption opinions and practices reflecting perceived health
      concerns.





We
      operate in a cyclical industry with total demand that is generally level and
      a
      product that is price-inelastic. Thus, small increases in production or
      decreases in demand can have a large adverse effect on prices and vice-versa.
      However, economic conditions in the egg industry are expected to exhibit less
      cyclicality in the future. The industry is concentrating into fewer but stronger
      hands, which should help lessen the extreme cyclicality of the
      past.







***Marketing*** *.* Of
      the
      683 million dozen shell eggs sold by us in the fiscal year ended June 3, 2006,
      537 million were produced by our flocks.





We
      sell
      our shell eggs to a diverse group of customers, including national and local
      grocery store chains, club stores, foodservice distributors and egg product
      manufacturers. We utilize electronic ordering and invoicing systems that enable
      us to manage inventory for certain of our customers. Our top 10 customers
      accounted for an aggregate of 66.8% of net sales in the fiscal 2006 and 64.7%
      of
      net sales for fiscal 2005. One customer, H.E. Butt Grocery Co., accounted for
      9.9% of net sales during fiscal 2006 and 12.1% of net sales for fiscal 2005,
      and
      two affiliated customers, Wal-Mart Stores and Sam’s Clubs, on a combined basis,
      accounted for 36.6% of net sales during fiscal 2006 and 30.9% of net sales
      for
      fiscal 2005.





The
      majority of eggs sold are merchandised on a daily or short-term basis. Most
      sales to established accounts are on open account with terms ranging from seven
      to 30 days. Although we have established long-term relationships with many
      of
      our customers, they are free to acquire shell eggs from other
      sources.





9


The
      shell
      eggs we sell are either delivered by us to our customers' warehouses and
      facilities with our own fleet of owned or contracted refrigerated delivery
      trucks or are picked up by our customers at our processing
      facilities.





We
      sell
      our shell eggs at prices generally related to independently quoted wholesale
      market prices. Wholesale prices are subject to wide fluctuations. The prices
      of
      our shell eggs reflect fluctuations in the quoted market, and the results of
      our
      shell egg operations are materially affected by changes in market quotations.
      Egg prices reflect a number of economic conditions, such as the supply of eggs
      and the level of demand, which, in turn, are influenced by a number of factors
      that we cannot control. No representation can be made as to the future level
      of
      prices.





According
      to U.S. Department of Agriculture reports, since 2000, annual per capita
      consumption in the United States has varied between 252 and 256 eggs. While
      we
      believe that fast food restaurant consumption, high protein diet trends, reduced
      egg cholesterol levels and industry advertising campaigns may result in a
      continuance of the recent increases in current per capita egg consumption
      levels, no assurance can be given that per capita consumption will not decline
      in the future.





We
      sell
      the majority of our shell eggs in approximately 29 states across the
      southwestern, southeastern, mid-western and mid-Atlantic regions of the United
      States. We are a major factor in egg marketing in a majority of these states.
      Many states in our market area are egg deficit regions; that is, production
      of
      fresh shell eggs is less than total consumption. Competition from other
      producers in specific market areas is generally based on price, service, and
      quality of product. Strong competition exists in each of our
      markets.




***Seasonality.*** Shell
      eggs are perishable. Consequently, we maintain very low shell egg inventories,
      usually consisting of approximately four days of production. Retail sales of
      shell eggs are greatest during the fall and winter months and lowest during
      the
      summer months. Prices for shell eggs fluctuate in response to seasonal demand
      factors and a natural increase in egg production during the spring and early
      summer. We generally experience lower sales and net income in our fourth and
      first fiscal quarters ending in May and August, respectively. During the past
      ten years, eight of our first quarters and six of our fourth quarters have
      resulted in net operating losses.





***Specialty
      Eggs.*** We
      also
      produce specialty eggs such as *Egg-Land’s
      BestTM* and *Farmhouse* eggs. *Egg-Land’s
      BestTM* eggs
      are
      patented eggs that are believed by its developers, based on scientific studies,
      to cause no increase in serum cholesterol when eaten as part of a low fat diet.
      We produce and process *Egg-Land’s
      BestTM* eggs *,* under
      license from Egg-Land’s Best, Inc. (“EB”), at our existing facilities, under EB
      guidelines. The product is marketed to our established base of customers at
      prices that reflect a premium over ordinary shell eggs. *Egg-Land’s
      Best TM* eggs
      accounted for approximately 11.4% of our shell egg dollar sales in fiscal 2006. *Farmhouse* brand
      eggs are produced at our facilities by hens that are not caged, and are provided
      with a diet of natural grains and drinking water that is free of hormones or
      other chemical additives. *Farmhouse* and
      other non EB specialty eggs accounted for 2.6% of our shell egg dollar sales
      in
      fiscal 2006. They are intended to meet the demands of consumers who are
      sensitive to environmental and animal welfare issues. The statistical data
      concerning specialty egg sales is about the same as last fiscal year and does
      not reflect the upward trend of specialty eggs. Specialty egg sales volume
      as a
      percent of shell egg sales for the Hillandale operations were not as high as
      our
      other operations.




***Competition*** *.* The
      production, processing, and distribution of shell eggs is an intensely
      competitive business, which, traditionally, has attracted large numbers of
      producers. Shell egg competition is generally based on price, service, and
      quality of production. Although we are the largest combined producer, processor,
      and distributor of shell eggs in the United States, we do not occupy a
      controlling market position in any area where our eggs are sold.





While
      the
      shell egg industry remains highly fragmented, it has been characterized by
      a
      growing concentration of producers . In
      2005,
      65 producers with one million or more layers owned 85% of the 291 million total
      U.S. layers, compared with the 56 producers with one million or more layers
      owning 64% of the 232 million total U.S. layers in 1990, and 61 producers with
      one million or more layers owning 56% of the 248.0 million total U.S. layers
      in
      1985. We believe that a continuation of that concentration trend may result
      in
      the reduced cyclicality of shell egg prices, but no assurance can be given
      in
      that regard. A continuation of this trend could also create greater competition
      among fewer producers.





10





***Patents
      and Tradenames*** *.* We
      own
      the trade names *Farmhouse,
      Rio Grande* and *Sunups* .
      We do
      not own any patents or proprietary technologies. We produce and market *Egg-Land's
      Best(TM)* eggs
      under license agreements with EB. We own a 25.7% equity interest in
      EB.




***Government
      Regulation*** *.* Our
      facilities and operations are subject to regulation by various federal, state
      and local agencies, including, but not limited to, the FDA, the USDA, the
      Environmental Protection Agency, the Occupational Safety and Health
      Administration and corresponding state agencies. The applicable regulations
      relate to grading, quality control, labeling, sanitary control and waste
      disposal. Our shell egg facilities are subject to periodic USDA inspections.
      Our
      feed production facilities are subject to FDA regulation and inspections. In
      addition, we maintain our own inspection program to assure compliance with
      our
      own standards and customer specifications. We do not know of any major capital
      expenditures necessary to comply with such statutes and regulations; however,
      there can be no assurance that we will not be required to incur significant
      costs for compliance with such statutes and regulations in the
      future.




***Environmental
      Regulation.*** Our
      operations and facilities are subject to various federal, state and local
      environmental laws and regulations governing, among other things, the
      generation, storage, handling, use, transportation, disposal and remediation
      of
      hazardous materials. Under these laws and regulations, we are also required
      to
      obtain permits from governmental authorities, including, but not limited to,
      wastewater discharge permits. We have made and will continue to make capital
      and
      other expenditures relating to compliance with existing environmental, health
      and safety laws and regulations and permits. We do not currently know of any
      major capital expenditures necessary to comply with such laws and regulations;
      however, because environmental, health and safety laws and regulations are
      becoming increasingly more stringent, including those relating to animal wastes
      and wastewater discharges, there can be no assurance that we will not be
      required to incur significant costs for compliance with such laws and
      regulations in the future. In addition, under certain circumstances, we may
      incur costs associated with our contract producers' failure to comply with
      laws
      and regulations, including environmental laws and regulations.




***Employees*** *.* As
      of
      June 3, 2006, we had a total of approximately 1,650 employees of whom 1,450
      worked in egg production, processing and marketing, 100 were engaged in feed
      mill operations and 100 were administrative employees, including officers,
      at
      our executive offices. Approximately 4% of our personnel are part-time. None
      of
      our employees are covered by a collective bargaining agreement. We consider
      our
      relations with employees to be good.




**** **Item
      1A. Risk Factors**





We
      are
      subject to numerous risks and uncertainties, including the
      following:





**Market
      prices of wholesale shell eggs are volatile and changes in these prices and
      costs can adversely impact our results of operations.**





Our
      operating results are significantly affected by wholesale shell egg market
      prices, which fluctuate widely and are outside of our control. Small increases
      in production or small decreases in demand can have a large adverse effect
      on
      shell egg prices. Shell egg prices have experienced an upward trend since 2002
      and rose to historical highs in late 2003 and early 2004. In the early fall
      of
      2004, the demand trend related to the popular diets faded dramatically. During
      this time of increased demand, the egg industry had geared up to produce more
      eggs to meet the demand. During the past nine to twelve months, the industry
      has
      experienced an oversupply of eggs resulting in lower egg prices. In March 2005,
      the egg industry took action to reduce the size of the laying flocks. Current
      U.S. Department of Agriculture statistics indicate a reduced flock size that
      is
      now more in line with current demand. There can be no assurance that shell
      egg
      prices will remain at or near current levels and that the supply of shell eggs
      will remain level in the future ***.***





11


Retail
      sales of shell eggs are greatest during the fall and winter months and lowest
      during the summer months. Prices for shell eggs fluctuate in response to
      seasonal factors and a natural increase in shell egg production during the
      spring and early summer. Shell egg prices tend to increase with the start of
      the
      school year and are highest prior to holiday periods, particularly Thanksgiving,
      Christmas and Easter. Consequently, we generally experience lower sales and
      net
      income in our first and fourth fiscal quarters ending in August and May,
      respectively. As a result of these seasonal and quarterly fluctuations,
      comparisons of our sales and operating results between different quarters within
      a single fiscal year are not necessarily meaningful comparisons.





**Changes
      in consumer demand for shell eggs can negatively impact our
      business.**





As
      discussed above, demand for shell eggs has increased in recent years as a result
      of a number of factors. We believe that increased fast food restaurant
      consumption, favorable reports from the medical community regarding the health
      benefits of shell eggs, reduced shell egg cholesterol levels, high protein
      diet
      trends and industry advertising campaigns have all contributed to the increase
      in shell egg demand. However, there can be no assurance that the demand for
      shell eggs will not decline in the future. Adverse publicity relating to health
      concerns and changes in the perception of the nutritional value of shell eggs,
      as well as movement away from high protein diets, could adversely affect demand
      for shell eggs, which would have a material adverse effect on our future results
      of operations and financial condition.





**Feed
      costs are volatile and changes in these costs can adversely impact our results
      of operations.**





Feed
      costs represent the largest element of our shell egg production cost, ranging
      from 52% to 57% of total annual cost in each of the last five fiscal years.
      Although feed ingredients are available from a number of sources, we have
      little, if any, control over the prices of the ingredients that we purchase,
      which are affected by various demand and supply factors and have experienced
      significant fluctuations in the past. Prices for corn and soybeans, essential
      feed ingredients, are favorable this year compared to with last year. However,
      there are wide swings in corn and soybean prices because of dry conditions
      in
      the Midwest and widely varying forecast projections for the 2006 fall harvest
      season in September and October. ****** Increases
      in feed costs which are not accompanied by increases in the selling price of
      shell eggs will have a material adverse effect on the results of our
      operations.





**Due
      to the cyclical nature of our business, our financial results from year to
      year
      may fluctuate.**





The
      shell
      egg industry has traditionally been subject to periods of high profitability
      followed by periods of significant loss. In the past, during periods of high
      profitability, shell egg producers have tended to increase the number of layers
      in production with a resulting increase in the supply of shell eggs, which
      generally has caused a drop in shell egg prices until supply and demand return
      to balance. As a result, our financial results from year to year may vary
      significantly.





**We
      purchase approximately 25% of the shell eggs we sell from outside producers
      and
      our ability to obtain such eggs at prices and in quantities acceptable to us
      could fluctuate.**





We
      produce approximately 75% of the total number of shell eggs sold by us and
      purchase the remaining amount from outside producers. As the wholesale price
      for
      shell eggs increases, our cost to acquire shell eggs from outside producers
      also
      increases. There can be no assurance that we will be able to continue to acquire
      shell eggs from outside producers in quantities and prices that are satisfactory
      and our inability to do so may have a material adverse affect on our business
      and profitability.




**Our
      acquisition growth strategy subjects us to various risks.**





We
      plan
      to pursue a growth strategy which includes acquisitions of other companies
      engaged in the production and sale of shell eggs. Acquisitions can require
      capital resources and divert management's attention from our existing business.
      Acquisitions also entail an inherent risk that we could become subject to
      contingent or other liabilities, including liabilities arising from events
      or
      conduct prior to our acquisition of a business that were not known to us at
      the
      time of acquisition. We may also incur significantly greater expenditures in
      integrating an acquired business than we had anticipated at the time of its
      purchase. We cannot assure you that we:





12


-
      will
      identify suitable acquisition candidates;





-
      can
      consummate acquisitions on acceptable terms; or





- can
        successfully integrate any acquired business into our operations or successfully
        manage the operations of any
        acquired business.





No
      assurance can be given that companies acquired by us in the future will
      contribute positively to our results of operations or financial condition.
      In
      addition, federal anti-trust laws require regulatory approval of acquisitions
      that exceed certain threshold levels of significance.





The
      consideration we pay in connection with any acquisition also affects our
      financial results. If we pay cash, we could be required to use a portion of
      our
      available cash to consummate the acquisition. To the extent we issue shares
      of
      our Common Stock, existing stockholders may be diluted. In addition,
      acquisitions may result in the incurrence of debt.




**Our
      largest customers have historically accounted for a significant portion of
      our
      net sales volume. Accordingly, our business may be adversely affected by the
      loss of, or reduced purchases by, one or more of our large
      customers.**





For
      the
      fiscal years ended June 3, 2006, and May 28, 2005, one customer, H.E. Butt
      Grocery Co., accounted for 9.9% of our net sales and 12.1% of our net sales,
      respectively, and two affiliated customers, Wal-Mart Stores and Sam’s Clubs, on
      a combined basis, accounted for 36.6% and 30.8% of our net sales, respectively.
      Our top 10 customers accounted for 66.8% and 64.7% of net sales during those
      periods. Although we have established long-term relationships with many of
      our
      customers, we do not have contractual relationships with any of our major
      customers for the sale of our shell eggs. If, for any reason, one or more of
      our
      larger customers were to purchase significantly less of our shell eggs in the
      future or were to terminate their purchases from us, and we are not able to
      sell
      our shell eggs to new customers at comparable levels, it would have a material
      adverse effect on our business, financial condition and results of
      operations.




**Failure
      to comply with applicable governmental regulations, including environmental
      regulations, could harm our operating results, financial condition and
      reputation.**





We
      are
      subject to federal and state regulations relating to grading, quality control,
      labeling, sanitary control and waste disposal. As a fully-integrated shell
      egg
      producer, our shell egg facilities are subject to United States Department
      of
      Agriculture, the USDA, and Food and Drug Administration, the FDA, regulation
      and
      various state and local health and agricultural agencies. Our shell egg
      processing facilities are subject to periodic USDA inspections. Our feed
      production facilities are subject to FDA regulation and
      inspections.





Our
      operations and facilities are also subject to various federal, state and local
      environmental, health and safety laws and regulations governing, among other
      things, the generation, storage, handling, use, transportation, disposal and
      remediation of hazardous materials. Under these laws and regulations, we are
      also required to obtain permits from governmental authorities, including, but
      not limited to wastewater discharge permits.





If
      we
      fail to comply with any applicable law or regulation or permit, or fail to
      obtain any necessary permits, we could be subject to significant fines and
      penalties or other sanctions, our reputation could be harmed and our operating
      results and financial condition could be materially and adversely affected.
      In
      addition, because these laws and regulations are becoming increasingly more
      stringent, there can be no assurances that we will not be required to incur
      significant costs for compliance with such laws and regulations in the
      future.





13


**Our
      business is highly competitive.**





The
      production and sale of fresh shell eggs, which have accounted for virtually
      all
      of our net sales in recent years, is intensely competitive. We compete with
      a
      large number of competitors that may prove to be more successful than we are
      in
      marketing and selling shell eggs. We cannot assure you that we will be able
      to
      compete successfully with any or all of these companies. In addition, increased
      competition could result in price reductions, greater cyclicality, reduced
      margins and loss of market share, which would negatively affect our business,
      results of operations and financial condition.





**Pressure
      from animal rights groups regarding the treatment of animals may subject us
      to
      additional costs to conform our practices to comply with developing standards
      or
      subject us to marketing costs to defend challenges to our current practices
      and
      protect our image with our customers.**





We
      and
      many of our customers are facing pressure from animal rights groups, such as
      People for the Ethical Treatment of Animals, or PETA, to require that any
      companies that supply food products operate their business in a manner that
      treats animals in conformity with certain standards developed by these animal
      rights groups. As a result, we are changing our operating procedures with
      respect to our flock of hens to meet some or all of these treatment standards.
      The treatment standards require, among other things, that we provide increased
      cage space for our hens and modify beak trimming and forced molting practices
      (the act of putting chickens into a regeneration cycle). Changing our procedures
      and infrastructure to conform to these guidelines has resulted and will continue
      to result in additional costs to our internal production of shell eggs,
      including cost increases from housing and feeding the increased flock population
      resulting from the modification of molting practices, and the cost for us to
      purchase shell eggs from our outside suppliers. While some of these increased
      costs have been passed on to our customers, we cannot assure you that we can
      continue to pass on these costs, or any additional costs we will face, in the
      future.





**We
      are dependent on our management team, and the loss of any key member of this
      team may adversely affect the implementation of our business plan in a timely
      manner.**





Our
      success depends largely upon the continued services of our senior management
      team, including Fred R. Adams, Jr., our Chairman and Chief Executive Officer.
      The loss or interruption of Mr. Adams' services or those of one or more of
      our
      other executive officers could adversely affect our ability to manage our
      operations effectively and/or pursue our growth strategy. We have not entered
      into any employment or non-compete agreements with any of our executive officers
      nor do we carry any key-man life insurance on any such persons.





**Agricultural
      risks could harm our business.**





Our
      shell
      egg production activities are subject to a variety of agricultural risks.
      Unusual or extreme weather conditions, disease and pests can materially and
      adversely affect the quality and quantity of shell eggs we produce and
      distribute. If a substantial portion of our production facilities are affected
      by any of these factors in any given quarter or year, our business, financial
      condition and results of operations could be materially and adversely
      affected.





**We
      are controlled by a principal stockholder.**





** Fred
      R.
      Adams, Jr., our Chairman of the Board and Chief Executive Officer, and his
      spouse own 37.4% of the outstanding shares of our Common Stock, which has one
      vote per share, and Mr. Adams owns 90.2% and his son-in-law, Adolphus B. Baker,
      our president, chief operating officer and one of our directors, owns 9.8%
      of
      the outstanding shares of Class A Common Stock, which has ten votes per share.
      Mr. Baker and his spouse also own 1.7% of the outstanding shares of our Common
      Stock. As a result, currently Mr. Adams and his spouse possess 65.5%, and
      Messrs. Adams and Baker and their spouses possess 71.6% of the total voting
      power represented by the outstanding shares of our Common Stock and Class A
      Common Stock. These stockholdings include shares of our Common Stock accumulated
      under our employee stock ownership plan for the respective accounts of Messrs.
      Adams and Baker.





The
      Adams
      family intends to retain ownership of a sufficient amount of Common Stock and
      Class A Common Stock to assure its continued ownership of over 50% of the
      combined voting power of our outstanding shares of capital stock. Such ownership
      will make an unsolicited acquisition of us more difficult and discourage certain
      types of transactions involving a change of control of our company, including
      transactions in which the holders of Common Stock might otherwise receive a
      premium for their shares over then current market prices. In addition, certain
      provisions of our Certificate of Incorporation require that our Class A Common
      Stock be issued only to Fred R. Adams, Jr. and members of his immediate family,
      and that if shares of the Class A Common Stock, by operation of law or
      otherwise, are deemed not to be owned by Mr. Adams or a member of his immediate
      family, the voting power of any such shares shall be automatically reduced
      to
      one vote per share. The Adams family controlling ownership of our capital stock
      may adversely affect the market price of our Common Stock.





14


Based
      on
      Mr. Adams' beneficial ownership of our outstanding capital stock, we are a
      "controlled company," as defined in Rule 4350(c) (5) of the listing standards
      of
      the NASDAQ National Market on which our shares of Common Stock are quoted.
      Accordingly, we are exempt from certain requirements of NASDAQ's corporate
      governance listing standards, including the requirement to maintain a majority
      of independent directors on our board of directors and the requirements
      regarding the determination of compensation of executive officers and the
      nomination of directors by independent directors.





**** **ITEM
      1B. UNRESOLVED STAFF COMMENTS**





**** Not
      applicable




**** **ITEM
      2. PROPERTIES**





We
      operate farms, processing plants, hatcheries, feed mills, warehouses, offices
      and other properties located in Alabama, Arkansas, Florida, Georgia, Kansas,
      Kentucky, Louisiana, Mississippi, New Mexico, North Carolina, Ohio, South
      Carolina, Tennessee, Texas and Utah. The facilities currently include two
      breeding facilities, two hatcheries, two wholesale distribution centers, 16
      feed
      mills, 28 shell egg production facilities, 18 pullet growing facilities, and
      27
      processing and packing facilities Most of our operations are conducted from
      properties we own.







Presently,
      we own approximately 17,000 acres of land in various locations throughout our
      geographic market area. We have the ability to hatch 15.5 million pullet chicks
      annually, grow 13 million pullets annually, house 24 million laying hens and
      control the production of an aggregate total of 26 million layers. We also
      own
      or control mills that can produce 570 tons per hour of feed, and processing
      facilities capable of processing 8,800 cases of shell eggs per hour (with each
      case containing 30 dozen shell eggs). Our facilities are well-maintained and
      operate at a high level of efficiency. Typically, we insure our facilities
      for
      replacement value.





Over
      the
      past five fiscal years, our capital expenditures, excluding acquisitions of
      shell egg production and processing facilities from others, have totaled an
      aggregate amount of approximately $63 million. The Company’s facilities
      currently are maintained in good operable condition and are insured to an extent
      the Company deems adequate.




**** **ITEM
      3. LEGAL PROCEEDINGS**





Except
      as
      noted below, there have been no new matters or changes to matters discussed
      in
      our Annual Report on Form 10-K for the year ended May 28, 2005.




15


**** **Chicken
      Litter Litigation**





On
      May 2,
      2005, Cal-Maine Farms, Inc. (“Cal-Maine Farms”), one of our subsidiaries, was
      added as a defendant in an ongoing action in a case styled Leslie Carroll et
      al
      vs. Alpharma, Inc in the Circuit Court of Washington County, Arkansas. There
      are
      approximately 80 plaintiffs in the action. The plaintiffs complain of a wide
      variety of medical problems which they attribute to the use of chicken manure
      and litter throughout Washington County, Arkansas. The theory of liability
      is
      the same as in the McWhorter suit previously reported in our filings with the
      Securities and Exchange Commission and summarized below. An Answer has been
      filed, and discovery has begun, but no trial date been set. At this stage it
      is
      impossible to evaluate the potential exposure, if any, of Cal-Maine Farms to
      damages in this suit.





On
      February 3, 2004, Cal-Maine Farms was served with process in a civil complaint
      filed in the Circuit Court of Washington County, Arkansas, on behalf of Keith
      McWhorter and Patsy McWhorter, individually and as next friends and guardians
      of
      Hunter McWhorter. Other defendants include Alpharma Inc., Alpharma Animal Health
      Co., Cargill, Incorporated, George's Farms, Inc., Peterson Farms, Inc., Simmons
      Foods, Inc., Simmons Poultry Farms, Inc., and Tyson Foods, Inc. Each of the
      other poultry defendants is engaged in the broiler business. The Alpharma
      defendants produce additives for broiler feed. One individual was originally
      named as a defendant, but has been dismissed.





Both
      the
      McWhorter and Carroll suits allege that the plaintiffs have suffered medical
      problems resulting from living near land upon which "litter" from the
      defendants' flocks was spread as fertilizer. The Carroll suit focuses on a
      feed
      ingredient that contains arsenic and is alleged to be in the litter that was
      spread. We do not use this particular feed ingredient in our shell egg
      production feed formulation. The McWhorter suit focuses on mold and fungi
      allegedly created by the application of litter. Both suits address conditions
      alleged to exist in Washington County. Both suits seek unspecified actual
      damages and request unspecified punitive damages. An answer has been filed
      on
      behalf of Cal-Maine Farms and some initial discovery has taken place. At this
      stage, it is impossible to evaluate the potential exposure, if any, of Cal-Maine
      Farms to damages in this suit.




**State
      of Oklahoma Watershed Pollution Litigation**





On
      June
      18, 2005, the State of Oklahoma filed suit, in the United States District Court
      for the Northern District of Oklahoma, against a number of companies, including
      us and Cal-Maine Farms. We and Cal-Maine Farms filed our joint answer and motion
      to dismiss the suit on October 3, 2005. The State of Oklahoma claims that
      through the disposal of chicken litter the defendants have polluted the Illinois
      River Watershed. This watershed provides water to eastern Oklahoma. The
      Complaint seeks injunctive relief and monetary damages. The parties participated
      in a series of mediation meetings without success. We no longer have any
      operations in the watershed. Accordingly, we do not anticipate that we will
      be
      materially affected by the request for injunctive relief. Dispositive motions
      have been filed by the defendants, but no hearings on those motions have been
      set. We are not able at present to provide an opinion regarding the ultimate
      resolution of this action.




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





No
      matters were submitted to a vote of our security holders, through the
      solicitation of proxies or otherwise, during the fourth quarter of the fiscal
      year.








16





**PART
      II.**





**ITEM
      5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER** **MATTERS
      AND** **ISSUER
      PURCHASES OF EQUITY SECURITIES**





Our
      Common Stock is traded on the NASDAQ National Market under the symbol “CALM”.
      The last reported sale price for our Common Stock on August 4, 2006 was $6.78
      per share. The following table sets forth the high and low daily sale prices
      and
      dividends per share for four quarters of fiscal 2005 and fiscal
      2006.






Sales
                Price
            
            DividendsFiscal
                Year Ended
            
            Fiscal
                Quarter
            
            High
            
            LowMay
                28, 2005
            
            
            First
                Quarter
            
            $
            16.490
            
            $
            9.800
            
            $
            0.0125Second
                Quarter
            
            
            14.450
            
            
            9.910
            
            $
            0.0125Third
                Quarter
            
            
            14.930
            
            
            9.110
            
            $
            0.0125Fourth
                Quarter
            
            
            10**.**550
            
            
            5.720
            
            $
            0.0125June
                3, 2006
            
            
            First
                Quarter
            
            $
            6.900
            
            $
            5.550
            
            $
            0.0125Second
                Quarter
            
            
            7.010
            
            
            5.750
            
            $
            0.0125Third
                Quarter
            
            
            7.440
            
            
            6.080
            
            $
            0.0125Fourth
                Quarter
            
            
            7.900
            
            
            6.030
            
            $
            0.0125







There
      is
      no public trading market for the Class A Common Stock all the outstanding shares
      of which are owned by Fred R. Adams, Jr., Chairman of the Board of Directors
      and
      Chief Executive Officer of the Company (90.2%) and his son-in-law Adolphus
      Baker, President, Chief Operating Officer and Director of the Company
      (9.8%).





**STOCKHOLDERS**





At
      August
      4, 2006, there were approximately 306 ****** record
      holders of our Common Stock and approximately 4,225 beneficial owners whose
      shares were held by nominees or broker dealers.




**DIVIDENDS**





We
      have
      paid cash dividends on our Common Stock since 1998. The annual dividend rate
      of
      $0.05 per share of Common Stock, or $0.0125 per quarter, was paid in each of
      the
      full quarters shown in the table above. We expect to pay cash dividends on
      our
      Common Stock at the same annual rate of $0.05 per share. Since 1998, we have
      also paid cash dividends on our Class A Common Stock at a rate equal to 95%
      of
      the annual rate on our Common Stock. Our Board of Directors will continue to
      consider the declaration of cash dividends in the future in light of our results
      of operations, financial condition, capital requirements for possible
      acquisitions and new construction, and other relevant economic factors. In
      addition, under the terms of agreements with our principal lenders, we are
      subject to various financial covenants, including a limitation on our ability
      to
      pay cash dividends in an aggregate amount not to exceed $500,000 per
      quarter.





**RECENT
      SALES OF UNREGISTERED SECURITIES**





No
      sales
      of securities without registration under the Securities Act of 1933 occurred
      during our fiscal year ended June 3, 2006.








17





**EQUITY
      COMPENSATION PLAN INFORMATION**





NEW
      STOCK
      OPTION PLAN AND STOCK APPRECIATION RIGHTS PLAN





On
      July
      28, 2005, our Board of Directors approved the Cal-Maine Foods, Inc. 2005
      Incentive Stock Option Plan (the “Plan”) and reserved 500,000 shares of Common
      Stock for issuance upon exercise of options granted under the Plan. Options
      issued pursuant to the Plan may be granted to any of our employees. The options
      may have a term of up to ten years and generally will vest ratably over five
      years. On August 17, 2005, we issued 360,000 options with an exercise price
      of
      $5.93 per share. The options have ten-year terms and vest over five years
      beginning from the date of grant. The Plan was ratified by our shareholders
      at
      our annual meeting of shareholders held on October 13, 2005.





On
      July
      28, 2005, our Board of Directors also approved the Cal-Maine Foods, Inc. Stock
      Appreciation Rights Plan (the “Rights Plan”). The Rights Plan covers 1,000,000
      shares of Common Stock of the Company. Stock Appreciation Rights (“SAR”) may be
      granted to any employee or non-employee member of the Board of Directors. Upon
      exercise of a SAR, the holder will receive shares of our Common Stock equal
      to
      the difference between the fair market value of a single share of common stock
      at the time of exercise and the strike price which is equal to the fair market
      value of a single share of Common Stock on the date of the grant. The SARs
      have
      a ten-year term and vest over five years. On August 17, 2005, we issued 592,500
      SARs with a strike price of $5.93 and, on August 26, 2005, we issued 22,500
      SARs
      with a strike price of $6.71. The Rights Plan was ratified by our shareholders
      at our annual meeting of shareholders on October 13, 2005.








The
      following table contains information, as of June 3, 2006, about our equity
      compensation plans, all of which were approved by our shareholders .




**Number
                of Shares of Common****Stock
                Remaining Available for****Number
                of Shares of Common**
            
            **Weighted
                Average**
            
            **Future
                Issuance Under****Stock
                To Be Issued upon**
            
            **Exercise
                Price of**
            
            **Equity
                Compensation Plans****Exercise
                of Outstanding**
            
            **Outstanding
                Options,**
            
            **(Excluding
                Shares****Options,
                Warrants and Rights**
            
            **Warrants
                and Rights**
            
            **Reflected
                in Column (A))****Plan
                Category**
            
            **(A)**
            
            **(B)**
            
            **(C)**1993
                and 1999 Stock Option Plan
            
            113,400
            
            $1.93
            
            
            8,0002005
                Stock Option Plan.
            
            360,000
            
            $5.93
            
            
            140,0002005
                Stock Appreciation Rights Plan
            
            *
            
            $5.96
            
            
            385,000





*
      See
      paragraph above concerning exercising SARs





See
      Note
      9 “Stock Option Plan” in our Consolidated Financial Statements for the fiscal
      year ended June 3, 2006.








**PURCHASES
      OF EQUITY SECURITIES**





On
      August
      3, 2004, our Board of Directors approved a repurchase program whereby we were
      authorized to purchase up to 2,000,000 shares of our Common Stock. However,
      there were no purchases under the program in fiscal 2006, which expired on
      July
      31, 2005. We do not have any other stock repurchase programs.





18







**** **ITEM
      6. SELECTED FINANCIAL DATA**




The
      per
      share data shown in the following table has been adjusted to reflect the 2-for-1
      split of our Common Stock effective April 14, 2004, as if the split had occurred
      at the beginning of fiscal year 2002.


Fiscal
                    Years EndedJune
                    3,
                
                
                May
                    28,
                
                
                May
                    29,
                
                
                May
                    31,
                
                
                June
                    1,2006
                
                
                2005
                
                
                2004
                
                
                2003
                
                
                200253
                    wks
                
                
                52
                    wks
                
                
                52
                    wks
                
                
                52
                    wks
                
                
                52
                    wks(Amounts
                    in thousands, except per share
                    data)**Statement
                    of Operations Data:**Net
                    sales
                
                $
                477,555
                
                $
                375,266
                
                $
                572,331
                
                $
                387,462
                
                $
                326,171Cost
                    of sales
                
                
                415,338
                
                
                339,833
                
                
                396,704
                
                
                315,169
                
                
                291,767Gross
                    profit
                
                
                62,217
                
                
                35,433
                
                
                175,627
                
                
                72,293
                
                
                34,404Selling,
                    general and administrative
                
                
                57,702
                
                
                47,758
                
                
                69,305
                
                
                46,029
                
                
                42,332Operating
                    income (loss)
                
                
                4,515
                
                
                (12,325
                )
                
                106,322
                
                
                26,264
                
                
                (7,928
                )Other
                    income (expense):Interest
                    expense (net of non cash)
                
                
                (5,582
                )
                
                (4,222
                )
                
                (6,527
                )
                
                (8,096
                )
                
                (8,503
                )Interest
                    expense - non cash
                
                
                (1,284
                )
                
                -
                
                
                -
                
                
                -
                
                
                -Equity
                    in income (loss) of affiliates
                
                
                (757
                )
                
                (88
                )
                
                5,923
                
                
                442
                
                
                (480
                )Minority
                    Interest
                
                
                165
                
                
                -
                
                
                -
                
                
                -
                
                
                -Other
                    (net)
                
                
                1,465
                
                
                1,227
                
                
                524
                
                
                527
                
                
                547(5,993
                )
                
                (3,083
                )
                
                (80
                )
                
                (7,127
                )
                
                (8,436
                )Income
                    (loss) before income tax
                
                
                (1,478
                )
                
                (15,408
                )
                
                106,242
                
                
                19,137
                
                
                (16,364
                )Income
                    tax expense (benefit)
                
                
                (465
                )
                
                (5,050
                )
                
                39,800
                
                
                6,925
                
                
                (5,790
                )Net
                    income (loss)
                
                $
                (1,013
                )
                $
                (10,358
                )
                $
                66,442
                
                $
                12,212
                
                $
                (
                    10,574
                )Net
                    income (loss) per common share:Basic
                
                $
                (.04
                )
                $
                (.43
                )
                $
                2.78
                
                $
                .52
                
                $
                (.45
                )Diluted
                
                $
                (.04
                )
                $
                (.43
                )
                $
                2.73
                
                $
                .515
                
                $
                (.45
                )Cash
                    dividends declared per share *
                
                $
                0.050
                
                $
                0.050
                
                $
                0.050
                
                $
                0.050
                
                $
                0.050Weighted
                    average shares outstanding:Basic
                
                
                23,496
                
                
                23,834
                
                
                23,874
                
                
                23,528
                
                
                23,528Diluted
                
                
                23,496
                
                
                23,834
                
                
                24,342
                
                
                23,724
                
                
                23,528**Balance
                    Sheet Data:**Working
                    capital
                
                $
                60,800
                
                $
                73,587
                
                $
                92,949
                
                $
                27,749
                
                $
                17,310Total
                    assets
                
                
                317,118
                
                
                269,534
                
                
                301,559
                
                
                235,392
                
                
                229,654Total
                    debt (including current maturities)
                
                
                103,912
                
                
                82,994
                
                
                90,031
                
                
                108,244
                
                
                118,362Total
                    stockholders’ equity
                
                
                119,775
                
                
                121,855
                
                
                140,165
                
                
                66,085
                
                
                54,460**Operating
                    Data:**Total
                    number of layers at
                  period
                    ended (thousands)
                
                
                23,276
                
                
                18,164
                
                
                20,318
                
                
                19,877
                
                
                19,201Total
                    shell eggs sold (millions of dozens)
                
                
                683.1
                
                
                575.4
                
                
                605.2
                
                
                570.7
                
                
                561.8
 *Class
        A shares paid at 95% dividend rate








19








**** **ITEM
      7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL** **CONDITION
      AND RESULTS OF OPERATIONS**





Risk
      Factors; Forward-Looking Statements





For
      information relating to important risks and uncertainties that could materially
      adversely affect our business, securities, financial condition or operating
      results, reference is made to the disclosure set forth under Item 1A above
      under
      the caption "Risk Factors." In addition, because the following discussion
      includes numerous forward-looking statements relating to us, our results of
      operations and financial condition and business, reference is made to the
      information set forth above in Item 1 under the caption "Important Factors
      Relating to Forward-Looking Statements."








OVERVIEW





We
      are
      primarily engaged in the production, grading, packing, and sale of fresh shell
      eggs. Our fiscal year end is the Saturday nearest to May 31 which was June
      3,
      2006 (53 weeks), May 28, 2005 (52 weeks) and May 29, 2004 (52 weeks) for the
      most recent three fiscal years.





Our
      operations are fully integrated. At our facilities we hatch chicks, grow
      pullets, manufacture feed, and produce, process, and distribute shell eggs.
      We
      currently are the largest producer and distributor of fresh shell eggs in the
      United States. Shell eggs accounted for approximately 94% of our net sales
      in
      fiscal 2006 and 96% in fiscal 2005. Egg products accounted for approximately
      2%
      of our net sales in fiscal 2006 and none in fiscal 2005. We primarily market
      our
      shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic
      regions of the United States. Shell eggs are sold directly by us primarily
      to
      national and regional supermarket chains.





We
      currently use contract producers for approximately 11% of our total egg
      production. Contract producers operate under agreements with us for the use
      of
      their facilities in the production of shell eggs by layers owned by us. We
      also
      own the eggs produced. Also, shell eggs are purchased, as needed, for resale
      by
      us from outside producers.





Our
      operating income or loss is significantly affected by wholesale shell egg market
      prices, which can fluctuate widely and are outside of our control. Retail sales
      of shell eggs are greatest during the fall and winter months and lowest during
      the summer months. Prices for shell eggs fluctuate in response to seasonal
      factors and a natural increase in egg production during the spring and early
      summer.





Our
      cost
      of production is materially affected by feed costs, which average about 55%
      of
      our total farm egg production cost. Changes in feed costs result in changes
      in
      our cost of goods sold. The cost of feed ingredients is affected by a number
      of
      supply and demand factors such as crop production and weather, and other
      factors, such as the level of grain exports, over which we have little or no
      control.





The
      purchase of Hillandale, LLC, AEP and Hillandale Farms, LLC described above
      in
      Part1, Item1, are collectively referred to below as the
“Acquisitions".








20







RESULTS
      OF OPERATIONS





The
      following table sets forth, for the years indicated, certain items from our
      consolidated statements of operations expressed as a percentage of net
      sales.











Percentage
                of Net SalesFiscal
                Years EndedJune
                3, 2006
            
            May
                28, 2005
            
            May
                29, 2004Net
                sales
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of sales
            
            
            87.0
            
            
            90.6
            
            
            69.3Gross
                profit
            
            
            13.0
            
            
            9.4
            
            
            30.7Selling,
                general & administrative expenses
            
            
            12.1
            
            
            12.7
            
            
            12.1Operating
                income (loss)
            
            
            0
                .9
            
            
            (3.3
            )
            
            18.6Other
                income (expense)
            
            
            (1.2
            )
            
            (0.8
            )
            
            (0.1
            )Income
                (loss) before taxes
            
            
            (0.3
            )
            
            (4.1
            )
            
            18.5Income
                tax expense (benefit)
            
            
            (0.1
            )
            
            (1.3
            )
            
            6.9Net
                income (loss)
            
            
            (0.2
            )%
            
            (2.8
            )%
            
            11.6
            %







***Fiscal
      Year Ended June 3, 2006 Compared to Fiscal Year Ended May 28,
      2005***





*Net
      Sales.* In
      fiscal
      2006, approximately 94% of our net sales consist of shell egg sales and
      approximately 4% was for incidental feed sales to outside egg producers, with
      the 2% balance consisting of sales of egg products.  Net
      sales
      for the fiscal year ended June 3, 2006 were $477.6 million, an increase of
      $102.3 million, or 27.2%, from net sales of $375.3 million for fiscal 2005.
      The
      Acquisitions accounted for $82.0 million of the increase. Excluding the
      Acquisitions, on a comparable basis, net sales increased $20.3 million, or
      5.4%.
      Total dozens of eggs sold and egg selling prices increased as compared to fiscal
      2005. In fiscal 2006, total dozens of shell eggs sold were 683.1 million,
      including 118.6 million dozen sold by the Acquisitions, an increase of 107.7
      million dozen, or 18.7%, compared to 575.4 million dozen sold in fiscal 2005.
      On
      a comparable basis, excluding the Acquisitions, dozens sold decreased 10.9
      million dozen. Our average selling price of shell eggs increased from $.625
      per
      dozen for fiscal 2005 to $.672 per dozen for fiscal 2006, an increase of $.047
      per dozen, or 7.5%. Our operating results are significantly affected by
      wholesale shell egg market prices, which are outside of our control. Small
      changes in production or demand levels can have a large effect on shell egg
      prices. During fiscal 2004, consumer demand increased, partially due to the
      popularity of high protein diets. Egg producers increased egg supply to meet
      consumer demand. During our second fiscal 2005 quarter, consumer demand
      decreased to normal levels. At the same time, egg supply continued at the higher
      levels and resulted in a drop in egg selling prices for the remainder of fiscal
      2005. During fiscal 2006, consumer demand improved slightly, but egg supply
      continued at higher levels.








*Cost
      of Sales.* Cost
      of
      sales consists of costs directly related to production and processing of shell
      eggs, including feed costs, and purchases of shell eggs from outside egg
      producers. Cost of sales for the fiscal year ended June 3, 2006 was $415.3
      million, an increase of $75.5 million, or 22.2%, as compared to cost of sales
      of
      $339.8 million for fiscal 2005. The Acquisitions’ cost of sales accounted for
      $76.6 million of the increase. Excluding the Acquisitions, on a comparable
      basis, cost of sales decreased $1.1 million. On a comparable basis, dozens
      produced, dozens purchased from outside shell egg producers and cost of feed
      ingredients decreased in fiscal 2006. The cost of the shell eggs purchased
      from
      outside producers increased slightly due to improved egg market selling prices.
      Feed cost for fiscal 2006 was $.206 per dozen, compared to $.225 per dozen
      for
      the prior fiscal year, a decrease of 8.4%. An increase in egg selling prices,
      a
      decrease in feed ingredient costs, offset by a higher cost of purchases from
      outside egg producers, resulted in an increase in gross profit from 9.4% of
      net
      sales for fiscal 2005 to 13.0% of net sales for fiscal 2006.





*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses include costs of marketing, distribution,
      accounting and corporate overhead. ** Selling,
      general and administrative expense was $57.7 million in fiscal 2006, an increase
      of $9.9 million as compared to $47.8 million for fiscal 2005. The Acquisitions’
selling, general and administrative expense accounted for $9.5 million of the
      increase. Excluding the Acquisitions, selling, general and administrative
      expense increased $400,000. Total insurance costs decreased $2.7 million and
      bad
      debt expense resulted in a net recovery of $500,000. These cost reductions
      were
      offset by an increase of $2.2 million in franchise fees for specialty egg sales
      and an increase in our equity compensation plan expense. In fiscal 2005, we
      recorded a benefit of $1.3 million, applicable to stock options and Tandem
      Stock
      Appreciation Rights accounted for under the variable plan accounting
      requirements of APB Opinion No.25, “Accounting for Stock Issued to Employees”.
      The market price of our outstanding common stock ranged from $13.80 at May
      29,
      2004 to $6.76 at May 28, 2005 and $7.19 at June 3, 2006. Delivery costs,
      including fuel costs, have also increased. Selling, general and administrative
      expense was $0.084 per dozen sold for fiscal 2006 as compared to $0.083 for
      fiscal 2005. As a percent of net sales, selling, general and administrative
      expense decreased from 12.7% for fiscal 2005 to 12.1% for fiscal
      2006.





21


*Operating
      Income(Loss) .* As
      a
      result of the above, our operating income was $4.5 million for fiscal 2006,
      as
      compared to operating loss of $12.3 million for fiscal 2005. As a percent of
      net
      sales, the operating income for fiscal 2006 was 0.9%, as compared to operating
      loss of 3.3% for fiscal 2005.





*Other
      Income (Expense).* Other
      income or expense consists of costs or income not directly charged to, or
      related to, operations such as equity in income of affiliates and interest
      expense.  Other
      expense for fiscal 2006 was $6.0 million as compared to other expense of $3.1
      million 2005, an increase of $2.9 million. For fiscal 2006, net interest expense
      increased $2.6 million, the net result of a $1.6 million increase in interest
      expense, a $1.3 million increase in non-cash interest expense and a $600,000
      decrease in interest income. Interest expense increased due to higher long-term
      debt balances and less interest income was received due to lower cash equivalent
      investments. The non-cash expense is imputed on our non-interest bearing
      obligation to acquire 49% of Hillandale, LLC’s membership units over a four year
      period. Other income for fiscal 2006 decreased due to net losses of affiliates.
      As a percent of net sales, other expense was 1.2% for fiscal 2006, as compared
      to 0.8% for fiscal 2005.





*Income
      Taxes.* For
      the
      fiscal year ended June 3, 2006, our pre-tax loss was $1.5 million, as compared
      to pre-tax loss of $15.4 million for fiscal 2005. For fiscal 2006, an income
      tax
      benefit of $465,000 was recorded with an effective tax rate of 31.5%, as
      compared to an income tax benefit of $5.0 million with an effective tax rate
      of
      32.8% for fiscal 2005. Our effective tax rate differs from the federal statutory
      income tax rate of 35% due to state income taxes and certain items included
      in
      income for financial reporting purposes that are not included in taxable income
      or loss for income tax purposes, including tax exempt interest income, certain
      employee stock option expense and 49% of Hillandale, LLC’s profits and losses
      held by its minority owners.





*Net
      Income.* As
      a
      result of the above, net loss for fiscal 2006 was  $1.0
      million, or $0.04 per basic and diluted share, compared to net loss of $10.4
      million, or $0.43 per basic and diluted share, for fiscal 2005.





***Fiscal
      Year Ended May 28, 2005 Compared to Fiscal Year Ended May 29,
      2004***





*Net
      Sales.* For
      fiscal 2005, approximately 96% of our net sales consisted of shell egg sales
      and
      approximately 3% consisted of incidental feed sales to outside egg producers,
      with the 1% balance consisting of net sales from other farming
      activities.  Net
      sales
      for the fiscal year ended May 28, 2005 were $375.3 million, a decrease of $197.0
      million, or 34.4%, from net sales of $572.3 million for fiscal 2004. Total
      dozens of eggs sold and egg selling prices decreased as compared to fiscal
      2004.
      In fiscal 2005, total dozens of shell eggs sold were 575.4 million, a decrease
      of 29.8 million dozen, or 4.9%, compared to 605.2 million dozen sold in fiscal
      2004. Our average selling price of shell eggs decreased from $.914 per dozen
      for
      fiscal 2004 to $.625 per dozen for fiscal 2005, a decrease of $.289 per dozen,
      or 32.0%. Our operating results are significantly affected by wholesale shell
      egg market prices, which are outside of our control. Small changes in production
      or demand levels can have a large effect on shell egg prices. During fiscal
      2004
      and the first quarter of fiscal 2005, consumer demand increased. This increase
      in demand was partially due to the popularity of high protein diets. At the
      start of fiscal 2004, egg supply was level and, during fiscal 2004, egg
      producers increased egg supply to meet consumer demand. During our second fiscal
      2005 quarter, consumer demand decreased to normal levels. At this same time,
      egg
      supply continued at the higher levels and resulted in a drop in egg selling
      prices for the remainder of fiscal 2005.





22





*Cost
      of Sales.* Cost
      of
      sales consists of costs directly related to production and processing of shell
      eggs, including feed costs, and purchases of shell eggs from outside egg
      producers. Cost of sales for the fiscal year ended May 28, 2005 was $339.8
      million, a decrease of $56.9 million, or 14.3%, as compared to cost of sales
      of
      $396.7 million for fiscal 2004. Dozens sold, cost of purchases from outside
      shell egg producers and cost of feed ingredients decreased in fiscal
      2005. D ozens
      produced in our facilities decreased 5.0% and dozens purchased from outside
      shell egg producers decreased 4.5%. The decrease in the cost of the shell eggs
      purchased from outside producers was due to lower egg market selling prices.
      Feed cost for fiscal 2005 was $.225 per dozen, compared to $.234 per dozen
      for
      the prior fiscal year, a decrease of 3.8%. A 32.0% decrease in egg selling
      prices, offset by a small decrease in feed ingredient costs and lower cost
      of
      purchases from outside egg producers, resulted in a decrease in gross profit
      from 30.7% of net sales for fiscal 2004 to 9.4% of net sales for fiscal
      2005.





*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses include costs of marketing, distribution,
      accounting and corporate overhead. ** Selling,
      general and administrative expense was $47.8 million in fiscal 2005, a decrease
      of $21.5 million as compared to $69.3 million for fiscal 2004. In fiscal 2004,
      we recorded $22.1 million for stock compensation expense as compared to a
      benefit of $1.3 million for fiscal 2005, applicable to stock options and Tandem
      Stock Appreciation Rights accounted for under the variable plan accounting
      requirements of APB Opinion No.25, “Accounting for Stock Issued to Employees”.
      The market price of our outstanding common stock ranged from $2.62 at May 31,
      2003 to $13.80 at May 29, 2004 to $6.76 at May 28, 2005. Excluding the stock
      compensation expense, fiscal 2005 selling, general and administrative expense
      was $49.1 million compared to $47.2 million for fiscal 2004, an increase of
      $1.9
      million, or 4.0%. The increase is due to increases in general insurance,
      franchise fees, employee health benefits, fuel costs, and costs to comply with
      the internal control reporting requirements of the Sarbanes-Oxley Act. On a
      cost
      per dozen sold basis, excluding the stock compensation expense, selling, general
      and administrative expense was $0.083 for fiscal 2005 as compared to $0.080
      for
      fiscal 2004. As discussed above, total dozens sold in fiscal 2005 decreased
      4.9%. As a percent of net sales, selling, general and administrative expense
      increased from 12.1% for fiscal 2004 to 12.7% for fiscal 2005.





*Operating
      Income(Loss) .* As
      a
      result of the above, our operating loss was $12.3 million for fiscal 2005,
      as
      compared to operating income of $106.3 million for fiscal 2004. As a percent
      of
      net sales, the operating loss for fiscal 2005 was 3.3%, as compared to operating
      income of 18.6% for fiscal 2004.





*Other
      Income (Expense).* Other
      income or expense consists of costs or income not directly charged to, or
      related to, operations such as interest expense and equity in income of
      affiliates.  Other
      expense for fiscal 2005 was $3.1 million as compared to other expense of $80,000
      for fiscal 2004. For fiscal 2005, net interest expense decreased $2.3 million,
      the net result of a $1.7 million decrease in interest expense and a $600,000
      increase in interest income. Interest expense decreased due to reduced long-term
      debt balances and additional interest income was received from cash equivalent
      investments. Other income for fiscal 2005 decreased from equity in lower income
      of affiliates. As a percent of net sales, other expense was 0.8% for fiscal
      2005, as compared to 0.1% for fiscal 2004.





*Income
      Taxes.* For
      the
      fiscal year ended May 28, 2005, our pre-tax loss was $15.4 million, as compared
      to pre-tax income of $106.2 million for fiscal 2004. For fiscal 2005, an income
      tax benefit of $5.0 million was recorded with an effective tax rate of 32.8%,
      as
      compared to an income tax expense of $39.8 million with an effective tax rate
      of
      37.5% for fiscal 2004.





*Net
      Income.* As
      a
      result of the above, net loss for fiscal 2005 was  $10.4
      million, or $0.43 per basic and diluted share, compared to net income of $66.4
      million, or $2.78 per basic share, or $2.73 per diluted share, for fiscal
      2004.





***Capital
      Resources and Liquidity*** *.* Our
      working capital at June 3, 2006 was $60.8 million compared to $73.6 million
      at
      May 28, 2005. Our current ratio was 1.94 at June 3, 2006 as compared with 2.41
      at May 28, 2005. Our need for working capital generally is highest in the first
      and second fiscal quarters ending in August and November. During the first
      quarter shell egg prices are normally at seasonal lows. In the second quarter,
      we usually build inventory balances in anticipation of the holiday season.
      Seasonal borrowing needs frequently are higher during these periods than during
      other fiscal periods. We have a $40 million line of credit with three banks,
      $2.7 million of which was utilized as a standby letter of credit at June 3,
      2006. Our long-term debt at that date, including current maturities, totaled
      $103.9 million, as compared to $83.0 million at May 28, 2005.





23


For
      the
      fiscal year ended June 3, 2006, $20.9 million in net cash was provided by
      operating activities. This compares to $9.6 million of net cash provided for
      fiscal year ended May 28, 2005. In fiscal 2006, $23.7 million was used for
      acquisitions of businesses, $12.3 million was used for purchases of property,
      plant and equipment, and $2.6 million was received from sales of property,
      plant
      and equipment. Net cash of $10.4 million was provided by investments and
      $200,000 received on notes receivable. As part of our stock option plan,
      approximately $100,000 was received for sales of common stock from the treasury,
      and $1.2 million was used for payments of dividends on our common stock.
      Proceeds from long-term borrowings of $28.0 million were received in additional
      long-term debt and payments of $31.9 million were made on long-term debt. The
      net result was a decrease in cash and cash equivalents of approximately $6.9
      million .





For
      the
      fiscal year ended May 28, 2005, $9.6 million in net cash was provided by
      operating activities. This compares to $85.1 million of net cash for fiscal
      year
      ended May 29, 2004. In fiscal 2005, $12.0 million was used for purchases of
      property, plant and equipment, and $879,000 was received from sales of property,
      plant and equipment. Net cash of $13.9 million was used in investments and
      payments of $1.3 million were received on notes receivable. Approximately $9.0
      million was used for net purchases of common stock for the treasury, and $1.2
      million was used for payments of dividends on our common stock. Proceeds from
      long-term borrowings of $2.5 million were received in additional long-term
      debt
      and payments of $9.5 million were made on long-term debt. The net result was
      a
      decrease in cash and cash equivalents of approximately $31.3 million .




Substantially
      all trade receivables and inventories collateralize our line of credit and
      property, plant and equipment collateralize our long-term debt under our loan
      agreements with our lenders. Unless otherwise approved by our lenders, we are
      required by provisions of these loan agreements to (1) maintain minimum levels
      of working capital (ratio of not less than 1.25 to 1) and net worth (minimum
      of
      $90.0 million tangible net worth, and 45% of cumulative net income); (2) limit
      dividends to an aggregate amount not to exceed $500,000 per quarter (allowed
      if
      no default), capital expenditures (not to exceed depreciation for the same
      four
      fiscal quarters), lease obligations and additional long-term borrowings (total
      funded debt to total capitalization not to exceed 55%); and (3) maintain various
      current and cash-flow coverage ratios (1.25 to 1), among other restrictions.
      At
      June 3, 2006, we were in compliance with the provisions of all loan agreements.
      Under certain of the loan agreements, the lenders have the option to require
      the
      prepayment of any outstanding borrowings in the event we undergo a change in
      control.





Under
      the
      terms of our Agreement with Hillandale and the Hillandale shareholders, the
      egg
      production and marketing operations acquired and liabilities assumed by us
      were
      transferred to a new Florida limited liability company named Hillandale, LLC.
      The two Hillandale companies were the initial members of Hillandale, LLC, for
      formation purposes. Upon the completion of an evaluation of the assets and
      liabilities acquired and assumed by us, as agreed to by the parties to the
      Agreement, we purchased 51% of the Units of Membership in Hillandale, LLC.
      The
      remaining 49% of the Units of Membership in Hillandale, LLC, are to be acquired
      in essentially equal annual installments over a four-year period, with the
      purchase price of the units equal to their book value as calculated in
      accordance with the terms of the Agreement. The acquisition was made for cash
      and borrowings to the extent necessary. Funding of the remaining Units of
      Membership of Hillandale is expected to be provided by our cash balances, cash
      provided by operations and our revolving credit agreement.





We
      project capital expenditures, excluding any future acquisitions, of an aggregate
      of approximately $10.0 million during fiscal 2007.





We
      currently have a $1.9 million deferred tax liability due to a subsidiary's
      change from a cash basis to an accrual basis taxpayer on May 29, 1988. The
      Taxpayer Relief Act of 1997 provides that this liability is payable ratably
      over
      the 20 years beginning in fiscal 1999. However, such taxes will be due in their
      entirety in the first fiscal year in which there is a change in ownership
      control so that we no longer qualify as a family farming corporation. We are
      currently making annual payments of approximately $150,000 related to this
      liability. However, while these current payments reduce cash balances, payment
      of the $1.9 million deferred tax liability would not impact our consolidated
      statement of operations or stockholders' equity, as these taxes have been
      accrued and are reflected on our consolidated balance sheet. See Note 10 of
      Notes to Consolidated Financial Statements.





24


We
      believe that our existing cash and investments, as well as our unused lines
      of
      credit, if needed, will satisfy our foreseeable working capital requirements
      for
      at least the next twelve months.





***Off-Balance
      Sheet Arrangements***





We
      have
      no existing off-balance sheet arrangements as defined under Securities and
      Exchange Commission regulations.





***Contractual
      Obligations***





The
      following table summarizes future estimated cash payments, in thousands, to
      be
      made under existing contractual obligations. Further information on debt
      obligations is contained in Note 7, and on lease obligations in Note 6, of
      Notes
      to Consolidated Financial Statements. The table does not reflect the obligations
      incurred by us for the Hillandale acquisition, the exact amounts of which are
      to
      be determined under the terms of the Agreement. At the closing of the Hillandale
      transaction on October 12, 2005, we purchased 51% of the Units of Membership
      in
      Hillandale, LLC. We will incur costs, which cannot now be estimated, for our
      purchase of the remaining 49% of the Units of Membership over the four-year
      period following the closing.




Total
            
            2007
            
            2008
            
            2009
            
            2010
            
            2011
            
            Over
                5 yearsLong-term
                debt
            
            $
            103,912
            
            $
            11,902
            
            $
            12,787
            
            $
            10,945
            
            $
            11,180
            
            $
            8,997
            
            $
            48,101Operating
                leases
            
            $
            16,138
            
            $
            7,305
            
            $
            3,964
            
            $
            1,826
            
            $
            1,424
            
            $
            750
            
            $
            869Total
            
            $
            120,050
            
            $
            19,207
            
            $
            16,751
            
            $
            12,771
            
            $
            12,604
            
            $
            9,747
            
            $
            48,970








***Impact
      of Recently Issued Accounting Standards*** ***.***





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards ("SFAS") No. 123 (Revised 2004),
      "Share-Based Payment" ("SFAS No. 123(R)"), which replaces SFAS No. 123,
      "Accounting for Stock-Based Compensation," and supersedes APB No. 25,
      "Accounting for Stock Issued to Employees." SFAS 123(R) required companies
      to
      measure compensation costs for share-based payments to employees, including
      stock options, at fair value and expense such compensation over the service
      period beginning with the first annual period after December 15, 2005. The
      pro
      forma disclosures previously permitted under SFAS No. 123 will no longer be
      an
      alternative to financial statement recognition. We adopted SFAS No. 123(R)
      in
      the first quarter of fiscal 2007 using the modified prospective method. Under
      the modified prospective method, companies are required to record compensation
      cost for new and modified awards over the related vesting period of such awards
      prospectively and record compensation cost prospectively for the unvested
      portion, at the date of adoption, of previously issued and outstanding awards
      over the remaining vesting period of such awards. Companies are required to
      recognize a cumulative effect of a change in accounting principal, net of any
      tax effect, to reflect the difference between the intrinsic value and fair
      value
      of liability awards on the date of adoption. Statement
      123(R) also requires a portion of the benefits of tax deductions resulting
      from
      the exercise of stock options to be reported as a financing cash flow, rather
      than as an operating cash flow. This requirement will reduce net operating
      cash
      flows and increase net financing cash flows in periods after adoption. Total
      cash flow will remain unchanged from what would have been reported under prior
      accounting rules. No
      change
      to prior periods presented is permitted under the modified prospective method.
      Management expects the cumulative effect adjustment will be insignificant in
      the
      period of adoption.





On
      July
      13, 2006, the FASB issued Interpretation No. 48, Accounting for " Uncertainty
      in Income Taxes—an interpretation of FASB Statement No. 109 " *.* Interpretation 48 clarifies the accounting for uncertainty in income taxes
      recognized in a company's financial statements in accordance with Statement
      109
      and prescribes a recognition threshold and measurement attribute for financial
      statement disclosure of tax positions taken or expected to be taken on a tax
      return. Additionally, Interpretation 48 provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition. Interpretation 48 is effective for fiscal years
      beginning after December 15, 2006, with early adoption permitted. We are
      currently evaluating whether the adoption of Interpretation 48 will have a
      material effect on our consolidated financial position, results of operations
      or
      cash flows.





25


In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS No. 151
      amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4, to clarify that
      abnormal amounts of idle facility expense, freight, handling costs and spoilage
      should be recognized as current-period charges. In addition, SFAS No. 151
      requires that allocation of fixed production overhead to inventory be based
      on
      the normal capacity of the production facilities. SFAS No. 151 is effective
      for
      inventory costs incurred during fiscal years beginning after June 15, 2005.
      The
      Company does not expect SFAS No. 151 to have a significant impact on its results
      of operations, financial position or cash flows.




***Critical
      Accounting Policies.*** The
      preparation of financial statements in accordance with U.S. generally accepted
      accounting standards requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities at the date of the
      financial statements and the reported amounts of revenues and expenses during
      the reporting period. Actual results could differ from these
      estimates.





Management
      suggests that our Summary of Significant Accounting Policies, as described
      in
      Note 1 of the Notes to Consolidated Financial Statements, be read in conjunction
      with this Management’s Discussion and Analysis of Financial Condition and
      Results of Operations. We believe the critical accounting policies that most
      impact our consolidated financial statements are described below.





*Allowance
      for Doubtful Accounts.* In
      the
      normal course of business, we extend credit to our customers on a short-term
      basis. Although credit risks associated with our customers are considered
      minimal, we routinely review our accounts receivable balances and make
      provisions for probable doubtful accounts. In circumstances where management
      is
      aware of a specific customer’s inability to meet its financial obligations to us
      (e.g. bankruptcy filings), a specific reserve is recorded to reduce the
      receivable to the amount expected to be collected. For all other customers,
      we
      recognize reserves for bad debts based on the length of time the receivables
      are
      past due, generally 100% for amounts more than 60 days past due.





*Inventories.* Inventories
      of eggs, feed, supplies and livestock are valued principally at the lower of
      cost (first-in, first-out method) or market. If market prices for eggs and
      feed
      grains move substantially lower, we would record adjustments to write-down
      the
      carrying values of eggs and feed inventories to fair market value. The cost
      associated with flock inventories, consisting principally of chick purchases,
      feed, labor, contractor payments and overhead costs, are accumulated during
      the
      growing period of approximately 18 weeks. Capitalized flock costs are then
      amortized over the productive lives of the flocks, generally one to two years.
      Flock mortality is charged to cost of sales as incurred. High mortality from
      disease or extreme temperatures would result in abnormal adjustments to
      write-down flock inventories. Management continually monitors each flock and
      attempts to take appropriate actions to minimize the risk of mortality
      loss.





*Long-Lived
      Assets.* Depreciable
      long-lived assets are primarily comprised of buildings and improvements and
      machinery and equipment. Depreciation is provided by the straight-line method
      over the estimated useful lives, which are 15 to 25 years for buildings and
      improvements and 3 to 12 years for machinery and equipment. An increase or
      decrease in the estimated useful lives would result in changes to depreciation
      expense. We continually reevaluate the carrying value of our long-lived assets,
      for events or changes in circumstances, which indicate that the carrying value
      may not be recoverable. As part of this reevaluation, we estimate the future
      cash flows expected to result from the use of the asset and its eventual
      disposal. If the sum of the expected future cash flows (undiscounted and without
      interest charges) is less than the carrying amount of the asset, an impairment
      loss is recognized to reduce the carrying value of the long-lived asset to
      the
      estimated fair value of the asset.





*Investment
      in Affiliates* .
      We have
      invested in other companies engaged in the production, processing and
      distribution of shell eggs and egg products. Our ownership percentages in these
      companies range from less than 20% to 50%. Therefore, these investments are
      recorded using the cost or the equity method, and accordingly, not consolidated
      in our financial statements. Changes in the ownership percentages of these
      investments might alter the accounting methods currently used. Our investment
      in
      these companies amounted to $7.0 million at June 3, 2006. The combined total
      assets and total liabilities of these companies were approximately $38 million
      and $23 million, respectively, at June 3, 2006. We are a guarantor of
      approximately $5.4 million of long-term debt of one of the
      affiliates.





26


*Goodwill.* At
      June
      3, 2006, our goodwill balance represented 1.3% of total assets and 3.4% of
      stockholders’ equity. Goodwill relates to the fiscal 1999 acquisition of Hudson
      Brothers, Inc., and the fiscal 2006 acquisition of Hillandale Farms, LLC. We
      adopted, as of June 3, 2001, Statement of Financial Accounting Standards No.
      142, “Goodwill and Other Intangible Assets” (SFAS 142). Under SFAS 142, goodwill
      and indefinite lived intangible assets are no longer amortized but are reviewed
      annually or more frequently if impairment indicators arise, for impairment.
      An
      impairment loss would be recorded if the recorded goodwill exceeds its implied
      fair value. We have only one operating segment, which is our sole reporting
      unit. Accordingly, goodwill is tested for impairment at the entity level.
      Significant adverse industry or economic changes, or other factors not
      anticipated could result in an impairment charge to reduce recorded
      goodwill.





*Income
      Taxes.* We
      determine our effective tax rate by estimating our permanent differences
      resulting from differing treatment of items for tax and accounting purposes.
      We
      are periodically audited by taxing authorities. Any audit adjustments affecting
      permanent differences could have an impact on our effective tax
      rate.





***Forward
      Looking Statements*** .
      The
      foregoing statements contain forward-looking statements which involve risks
      and
      uncertainties and our actual experience may differ materially from that
      discussed above. Factors that may cause such a difference include, but are
      not
      limited to, those discussed in “Factors Affecting Future Performance” below, as
      well as future events that have the effect of reducing our available cash
      balances, such as unanticipated operating losses or capital expenditures related
      to possible future acquisitions. Readers are cautioned not to place undue
      reliance on forward-looking statements, which reflect management’s analysis only
      as the date hereof. We assume no obligation to update forward-looking
      statements.





***Factors
      Affecting Future Performance*** *.* Our
      future operating results may be affected by various trends and factors which
      are
      beyond our control. These include adverse changes in shell egg prices and in
      the
      grain markets. Accordingly, past trends should not be used to anticipate future
      results and trends. Further, our prior performance should not be presumed to
      be
      an accurate indication of future performance.








**** **ITEM
      7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**





Our
      interest expense is sensitive to changes in the general level of U.S. interest
      rates. We maintain certain of our debt as fixed rate in nature to mitigate
      the
      impact of fluctuations in interest rates. Under our current policies, we do
      not
      use interest rate derivative instruments to manage our exposure to interest
      rate
      changes. A 1% adverse move (decrease) in interest rates would adversely affect
      the net fair value of our debt by $4.3 million at June 3, 2006. We are a party
      to no other market risk sensitive instruments requiring disclosure.








**** **ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





**Management’s
      Report on Internal Control Over Financial Reporting**





The
      following sets forth, in accordance with Section 404(a) of the Sarbanes-Oxley
      Act of 2002 and Item 308 of the Securities and Exchange Commission’s Regulation
      S-K, the report of management on our internal control over financial
      reporting.





1.  Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. “Internal control over financial reporting” is
      a process designed by, or under the supervision of, our Chief Executive Officer
      and Chief Financial Officer, together with other financial officers, and
      effected by our Board of Directors, management and other personnel, to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles and includes those policies and
      procedures that:





27


·
            Pertain
                to the maintenance of records that in reasonable detail accurately
                and
                fairly reflect the transactions and dispositions of our
                assets;




·
            Provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that our receipts and expenditures are
                being
                made only in accordance with authorizations of our management and
                directors; and




·
            Provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of our assets that could
                have
                a material effect on the financial
                statements.




2.  Our
      management, in accordance with Rule 13a-15(c) under the Securities Exchange
      Act
      of 1934 and with the participation of our Chief Executive Officer and Chief
      Financial Officer, together with other financial officers, evaluated the
      effectiveness of our internal control over financial reporting as of June 3,
      2006. The framework on which management’s evaluation of our internal control
      over financial reporting is based is the “Internal Control - Integrated
      Framework” ** published
      in 1992 by the Committee of Sponsoring Organizations (“COSO”) of the Treadway
      Commission.





3.  We
      maintain documentation providing reasonable support for management’s assessment
      of the effectiveness of our internal control over financial reporting.
      Management’s documentation includes:





·
            The
                design of controls over all relevant assertions related to all significant
                accounts and disclosures in the financial
                statements;




·
            Information
                about how significant transactions are initiated, authorized, recorded,
                processed and reported;




·
            Sufficient
                information about the flow of transactions to identify the points
                at which
                material misstatements due to error or fraud could
                occur;




·
            Controls
                designed to prevent or detect fraud, including who performs the controls
                and the related segregation of
                duties;




·
            Controls
                over the period-end financial reporting
                process;




·
            Controls
                over safeguarding of assets; and




·
            The
                results of management’s testing and
                evaluation.




4.  Management
      has determined that our internal control over financial reporting as of June
      3,
      2006 is effective and that there is no material weakness in our internal control
      over financial reporting as of that date. In that connection, a “material
      weakness,” is a significant deficiency, or a combination of significant
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the financial statements will not be prevented or detected.
      A
“significant deficiency” is a control deficiency or a combination of control
      deficiencies, that adversely affects our ability to initiate, authorize, record,
      process, or report external financial data reliably in accordance with generally
      accepted accounting principles such that there is more than a remote likelihood
      that a misstatement of our financial statements that is more than
      inconsequential will not be prevented or detected. A “control deficiency” exists
      when the design or operation of a control does not allow management or
      employees, in the normal course of performing their assigned functions, to
      prevent or detect misstatements on a timely basis. It is noted that internal
      control over financial reporting cannot provide absolute assurance of achieving
      financial reporting objectives, but rather reasonable assurance of achieving
      such objectives.




5.  The
        attestation report of Ernst & Young LLP on management’s assessment of our
        internal control over financial reporting, which includes that firm’s opinion on
        management’s assessment of the effectiveness of internal control over financial
        reporting and opinion on the effectiveness of internal control over financial
        reporting, is set forth below.





28




**** Report
      of
      Independent Registered Public Accounting Firm


on
      Internal Control Over Financial Reporting




The
      Board
      of Directors and Stockholders


Cal-Maine
      Foods, Inc.





We
      have
      audited management’s assessment, included in the accompanying Management’s
      Report on Internal Control over Financial Reporting, that Cal-Maine Foods,
      Inc.
      and subsidiaries maintained effective internal control over financial reporting
      as of June 3,
      2006based on
      criteria established in Internal Control — Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission (the COSO
      criteria). Cal-Maine Foods, Inc.’s management is responsible for maintaining
      effective internal control over financial reporting and for its assessment
      of
      the effectiveness of internal control over financial reporting. Our
      responsibility is to express an opinion on management’s assessment and an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting based on our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company’s assets that could have a material effect on the
      financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




In
      our
      opinion, management’s assessment that Cal-Maine Foods, Inc. and subsidiaries
      maintained effective internal control over financial reporting as of June 3,
      2006 ,
      is
      fairly stated, in all material respects, based on the COSO criteria. Also,
      in
      our opinion, Cal-Maine Foods, Inc. maintained, in all material respects,
      effective internal control over financial reporting as of June 3,
      2006 ,
      based
      on the COSO criteria.




29


We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated balance sheets of Cal-Maine
      Foods, Inc. and
      subsidiaries as
      of June 3,
      2006  and
      May 28, 2005, and the related consolidated statements of operations,
      stockholders’ equity, and cash flows for the years ended June 3,
      2006 ,
      May 28, 2005, and May 29, 2004, and our report dated August 11,
      2006 expressed an unqualified opinion thereon.






/s/ Ernst & Young LLP




New
      Orleans, Louisiana


August
      11, 2006





30




Report
      of
      Independent Registered Public Accounting Firm




The
      Board
      of Directors and Stockholders


Cal-Maine
      Foods, Inc.





We
      have
      audited the accompanying consolidated balance sheets of Cal-Maine Foods, Inc.
      and subsidiaries as of June 3, 2006 and May 28, 2005, and the related
      consolidated statements of operations, stockholders’ equity, and cash flows for
      the three years ended June 3, 2006, May 28, 2005, and May 29,
      2004. Our audits also included the financial statement schedule listed in the
      Index at Item 15(c). These financial statements and schedule are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.




In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Cal-Maine Foods,
      Inc.
      and subsidiaries at June 3, 2006 and May 28, 2005, and the
      consolidated results of their operations and their cash flows for each of the
      years ended June 3, 2006, May 28, 2005, and May 29, 2004, in
      conformity with U.S. generally accepted accounting principles. Also, in our
      opinion, the related financial statement schedule, when considered in relation
      to the basic financial statements taken as a whole, present fairly in all
      material respects the information set forth therein.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of Cal-Maine Foods Inc.’s
      internal control over financial reporting as of June 3, 2006, based on
      criteria established in Internal Control — Integrated Framework issued by the
      Committee of Sponsoring Organizations of the Treadway Commission and our report
      dated August 11, 2006 expressed an unqualified opinion
      thereon.




/s/ Ernst & Young LLP


New
      Orleans, Louisiana


August
      11, 2006





31





**Cal-Maine
      Foods, Inc. and Subsidiaries**


**Consolidated
      Balance Sheets**


*(in
      thousands)*





June
                  3
              
              May
                  282006
              
              2005**Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              13,295
              
              $
              20,221Investments
              
              
              25,000
              
              
              35,384Receivables:Trade
                  receivables, less allowance for doubtfulaccounts
                  of $346 in 2006 and $92 in 2005
              
              
              23,804
              
              
              16,044Other
              
              
              1,151
              
              
              695
 24,955
              
              
              16,739Recoverable
                  federal and state income taxes
              
              
              1,177
              
              
              6,676Inventories
              
              
              57,843
              
              
              45,628Prepaid
                  expenses and other current assets
              
              
              3,408
              
              
              1,308
 Total
                  current assets
              
              
              125,678
              
              
              125,956Other
                  assets:Notes
                  receivable and investments
              
              
              8,316
              
              
              11,681Goodwill
              
              
              4,016
              
              
              3,147Other
              
              
              2,833
              
              
              1,362
 15,165
              
              
              16,190Property,
                  plant and equipment, less accumulateddepreciation
              
              
              176,275
              
              
              127,388
 Total
                  assets
              
              $
              317,118
              
              $
              269,534
 **Liabilities
                  and stockholders' equity**Current
                  liabilities:Trade
                  accounts payable
              
              $
              24,190
              
              $
              20,034Accrued
                  wages and benefits
              
              
              6,262
              
              
              5,740Accrued
                  expenses and other liabilities
              
              
              4,190
              
              
              7,346Current
                  maturities of purchase obligation
              
              
              6,884
              
              
              -Current
                  maturities of long-term debt
              
              
              11,902
              
              
              10,149Deferred
                  income taxes
              
              
              11,450
              
              
              9,100
 Total
                  current liabilities
              
              
              64,878
              
              
              52,369Long-term
                  debt, less current maturities
              
              
              92,010
              
              
              72,845Minority
                  interest
              
              
              919
              
              
              -Purchase
                  obligation, less current maturities
              
              
              16,751
              
              
              -Other
                  noncurrent liabilities
              
              
              3,860
              
              
              2,175Deferred
                  income taxes
              
              
              18,925
              
              
              20,290
 Total
                  liabilities
              
              
              197,343
              
              
              147,679Stockholders'
                  equity:Common
                  stock, $.01 par valueAuthorized
                  shares – 60,000 in 2006 and 2005Issued
                  and outstanding shares – 35,130 in 2006 and 2005
              
              
              351
              
              
              351Class
                  A common stock, $.01 par valueAuthorized
                  shares – 2,400 in 2006 and 2005Issued
                  and outstanding shares – 2,400 in 2006 and 2005
              
              
              24
              
              
              24Paid-in
                  capital
              
              
              28,700
              
              
              28,621Retained
                  earnings
              
              
              112,183
              
              
              114,366Common
                  stock in treasury (14,039 shares in 2006 and 14,043shares
                  in 2005)
              
              
              (21,483
              )
              
              (21,507
              )
 Total
                  stockholders' equity
              
              
              119,775
              
              
              121,855
 Total
                  liabilities and stockholders' equity
              
              $
              317,118
              
              $
              269,534
    *See
                  accompanying notes.*
   32


**Cal-Maine
      Foods, Inc. and Subsidiaries**


**Consolidated
      Statements of Operations**


*(in
      thousands, except per share amounts)*








Fiscal
                year endedJune
                3
            
            May
                28
            
            May
                292006
            
            2005
            
            2004Net
                sales
            
            $
            477,555
            
            $
            375,266
            
            $
            572,331Cost
                of sales
            
            
            415,338
            
            
            339,833
            
            
            396,704Gross
                profit
            
            
            62,217
            
            
            35,433
            
            
            175,627Selling,
                general and administrative
            
            
            57,702
            
            
            47,758
            
            
            69,305Operating
                income (loss)
            
            
            4,515
            
            
            (12,325
            )
            
            106,322Other
                income (expense):Interest
                expense
            
            
            (7,949
            )
            
            (5,906
            )
            
            (7,618
            )Interest
                income
            
            
            1,083
            
            
            1,684
            
            
            1,091Equity
                in income (loss) of affiliates
            
            
            (757
            )
            
            (88
            )
            
            5,923Minority
                interest
            
            
            165
            
            
            -
            
            
            -Other,
                net
            
            
            1,465
            
            
            1,227
            
            
            524(5,993
            )
            
            (3,083
            )
            
            (80
            )Income
                (loss) before income taxes
            
            
            (1,478
            )
            
            (15,408
            )
            
            106,242Income
                tax expense (benefit)
            
            
            (465
            )
            
            (5,050
            )
            
            39,800Net
                income (loss)
            
            $
            (1,013
            )
            $
            (10,358
            )
            $
            66,442Net
                income (loss) per share:Basic
            
            $
            (.04
            )
            $
            (.43
            )
            $
            2.78Diluted
            
            $
            (.04
            )
            $
            (.43
            )
            $
            2.73Weighted
                average shares outstanding:Basic
            
            
            23,496
            
            
            23,834
            
            
            23,874Diluted
            
            
            23,496
            
            
            23,834
            
            
            24,342





*See
      accompanying notes.*





33


**Cal-Maine
      Foods, Inc. and Subsidiaries**


**Consolidated
      Statements of Stockholders' Equity**


*(in
      thousands)*





**Common
                Stock****Class
                A**
            
            **Class
                A**
            
            **Treasury**
            
            **Treasury**
            
            **Paid-in**
            
            **Retained****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Earnings**
            
            **Total**Balance
                at May 31, 2003
            
            
            17,565
            
            $
            176
            
            
            1,200
            
            $
            12
            
            
            7,001
            
            $
            (13,099
            )
            $
            18,784
            
            $
            60,212
            
            $
            66,085Two-for-one
                stock spliteffected
                in the form of astock
                dividend
            
            
            17,565
            
            
            175
            
            
            1,200
            
            
            12
            
            
            7,001
            
            
            -
            
            
            (187
            )
            
            -
            
            
            -Cash
                dividends paid($.05
                per common share) *
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (746
            )
            
            (746
            )Issuance
                of common stockfrom
                treasury
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (695
            )
            
            673
            
            
            7,711
            
            
            -
            
            
            8,384Net
                income for fiscal 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            66,442
            
            
            66,442Balance
                at May 29, 2004
            
            
            35,130
            
            
            351
            
            
            2,400
            
            
            24
            
            
            13,307
            
            
            (12,426
            )
            
            26,308
            
            
            125,908
            
            
            140,165Purchase
                of treasury stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            943
            
            
            (9,344
            )
            
            -
            
            
            -
            
            
            (9,344
            )Cash
                dividends paid ($.05per
                common share) *
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,184
            )
            
            (1,184
            )Issuance
                of commonstock
                from treasury
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (207
            )
            
            263
            
            
            2,313
            
            
            -
            
            
            2,576Net
                loss for fiscal 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (10,358
            )
            
            (10,358
            )Balance
                at May 28, 2005
            
            
            35,130
            
            
            351
            
            
            2,400
            
            
            24
            
            
            14,043
            
            
            (21,507
            )
            
            28,621
            
            
            114,366
            
            
            121,855Cash
                dividends paid ($.05per
                common share) *
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,170
            )
            
            (1,170
            )Issuance
                of commonstock
                from treasury
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (4
            )
            
            24
            
            
            79
            
            
            -
            
            
            103Net
                loss for fiscal 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,013
            )
            
            (1,013
            )Balance
                at June 3, 2006
            
            
            35,130
            
            $
            351
            
            
            2,400
            
            $
            24
            
            
            14,039
            
            $
            (21,483
            )
            $
            28,700
            
            $
            112,183
            
            $
            119,775




* Class
      A
      shares paid at 95% dividend rate




*See
      accompanying notes.*





34


**Cal-Maine
      Foods, Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


*(in
      thousands)*






Fiscal
                year endedJune
                3
            
            May
                28
            
            May
                292006
            
            2005
            
            2004**Cash
                flows from operating activities**Net
                income (loss)
            
            $
            (1,013
            )
            $
            (10,358
            )
            $
            66,442Adjustments
                to reconcile net income (loss)to
                net cash provided by operating activities:Depreciation
                and amortization
            
            
            20,569
            
            
            16,441
            
            
            16,842Deferred
                income taxes
            
            
            985
            
            
            (710
            )
            
            3,550Equity
                in (income) loss of affiliates
            
            
            757
            
            
            88
            
            
            (5,924
            )Gain
                on disposal of property, plant andequipment
            
            
            (1,108
            )
            
            (599
            )
            
            (307
            )Interest
                on purchase obligation
            
            
            1,284
            
            
            -
            
            
            -Minority
                interest
            
            
            (165
            )
            
            -
            
            
            -Change
                in operating assets and liabilities, netof
                effects from acquisitionReceivables
                and other assets
            
            
            3,244
            
            
            4,835
            
            
            (1,459
            )Inventories
            
            
            2,136
            
            
            3,624
            
            
            (756
            )Accounts
                payable, accrued expensesand
                other liabilities
            
            
            (5,758
            )
            
            (3,707
            )
            
            6,750Net
                cash provided by operating activities
            
            
            20,931
            
            
            9,614
            
            
            85,138**Cash
                flows from investing activities**Purchases
                of investments
            
            
            (60,823
            )
            
            (89,499
            )
            
            (32,491
            )Sales
                of investments
            
            
            71,207
            
            
            75,581
            
            
            11,025Acquisition
                of businesses, net of cash acquired
            
            
            (23,756
            )
            
            -
            
            
            -Payments
                received on notes receivable andfrom
                investments
            
            
            2,288
            
            
            2,170
            
            
            2,405Purchases
                of property, plant and equipment
            
            
            (12,372
            )
            
            (11,977
            )
            
            (10,673
            )Increase
                in notes receivable and investments
            
            
            (2,048
            )
            
            (811
            )
            
            -Net
                proceeds from disposal of property,plant
                and equipment
            
            
            2,638
            
            
            879
            
            
            594Net
                cash used in investing activities
            
            
            (22,866
            )
            
            (23,657
            )
            
            (29,140
            )**Cash
                flows from financing activities**Long-term
                borrowings
            
            
            28,000
            
            
            2,500
            
            
            25,000Principal
                payments on long-term debt
            
            
            (31,924
            )
            
            (9,537
            )
            
            (43,213
            )Proceeds
                from issuance of common stock fromtreasury
            
            
            103
            
            
            314
            
            
            8,384Purchases
                of common stock for treasury
            
            
            -
            
            
            (9,344
            )
            
            -Payments
                of dividends
            
            
            (1,170
            )
            
            (1,184
            )
            
            (746
            )Net
                cash used in financing activities
            
            
            (4,991
            )
            
            (17,251
            )
            
            (10,575
            )Increase
                (Decrease) in cash and cash equivalents
            
            
            (6,926
            )
            
            (31,294
            )
            
            45,423Cash
                and cash equivalents at beginning of year
            
            
            20,221
            
            
            51,515
            
            
            6,092Cash
                and cash equivalents at end of year
            
            $
            13,295
            
            $
            20,221
            
            $
            51,515Non-cash
                investing activity - note receivable forsale
                of livestock
            
            $
            -
            
            $
            644
            
            $
            1,865





*See
      accompanying notes.*





35


**Cal-Maine
      Foods, Inc. and Subsidiaries**





**Notes
      to Consolidated Financial Statements**


*(in
      thousands, except share and per share amounts)*


*June
      3, 2006*


**1.
      Significant Accounting Policies**





**Principles
      of Consolidation**


The
      consolidated financial statements include the accounts of Cal-Maine Foods,
      Inc.
      and its subsidiaries (the "Company"). All significant intercompany transactions
      and accounts have been eliminated in consolidation.





**Business**


The
      Company is engaged in the production, processing and distribution of shell
      eggs.
      The Company's operations are significantly affected by the market price
      fluctuation of its principal products sold, shell eggs, and the costs of its
      principal feed ingredients, corn and other grains.





Primarily
      all of the Company's sales are to wholesale egg buyers in the southeastern,
      southwestern, mid-western and mid-Atlantic regions of the United States. Credit
      is extended based upon an evaluation of each customer's financial condition
      and
      credit history and generally collateral is not required. Credit losses have
      consistently been within management's expectations. One customer accounted
      for
      36.6%, 30.9% and 26.8% of the Company's net sales in fiscal 2006, 2005 and
      2004,
      respectively. Another customer accounted for 9.9%, 12.1% and 11.9% of the
      Company's net sales in fiscal 2006, 2005 and 2004, respectively.





**Use
      of Estimates**


The
      preparation of the consolidated financial statements in conformity with U.S.
      generally accepted accounting principles requires management to make estimates
      and assumptions that affect the amount reported in the consolidated financial
      statements and accompanying notes. Actual results could differ from those
      estimates.





**Cash
      Equivalents**


The
      Company considers all highly liquid investments with a maturity of three months
      or less when purchased to be cash equivalents.





**Investments**


Investments
      include primarily pre-funded municipal bonds and certificates of deposit with
      maturities of three to six months when purchased. We have designated these
      investments as available-for-sale securities and have accounted for them in
      accordance with the standards of Statement of Financial Accounting Standards
      SFAS No.115, "Accounting For Certain Investments: Debt and Equity Securities."
      Due to the nature of the investments, the cost at June 3, 2006 and May 28,
      2005
      approximates fair value; therefore, accumulated other comprehensive income
      (loss) has not been recognized as a separate component of stockholders'
      equity.





**Trade
      Receivables**


Trade
      receivables are comprised primarily of amounts owed to the Company from
      customers, which amounted to $23,804 at June 3, 2006 and $16,044 at May 28,
      2005. Trade receivables are presented net of allowance for doubtful accounts
      of
      $346 at June 3, 2006 and $92 at May 28, 2005.





36


**Allowance
      for Doubtful Accounts**


In
      the
      normal course of business, we extend credit to our customers on a short-term
      basis. Although credit risks associated with our customers are considered
      minimal, we routinely review our accounts receivable balances and make
      provisions for probable doubtful accounts. In circumstances where management
      is
      aware of a specific customer's inability to meet its financial obligations
      to us
      (e.g. bankruptcy filings), a specific reserve is recorded to reduce the
      receivable to the amount expected to be collected. For all other customers,
      we
      recognize reserves for bad debts based on the length of time the receivables
      are
      past due, generally 100% for amounts more than 60 days past due.





**Inventories**


Inventories
      of eggs, feed, supplies and livestock are valued principally at the lower of
      cost (first-in, first-out method) or market.





The
      cost
      associated with flocks, consisting principally of chick purchases, feed, labor,
      contractor payments and overhead costs, are accumulated during a growing period
      of approximately 18 weeks. Flock costs are amortized over the productive lives
      of the flocks, generally one to two years.





**Property,
      Plant and Equipment**


Property,
      plant and equipment are stated at cost. Depreciation is provided by the
      straight-line method over the estimated useful lives, which are 15 to 25 years
      for buildings and improvements and 3 to 12 years for machinery and equipment.
      We
      expense repair and maintenance costs as incurred.





**Impairment
      of Long-Lived Assets**


The
      Company continually reevaluates the carrying value of its long-lived assets
      for
      events or changes in circumstances which indicate that the carrying value may
      not be recoverable. When triggering events or circumstances indicate a fixed
      asset may be impaired, we perform an impairment analysis in accordance with
      SFAS
      No. 144, "Accounting for the Impairment or Disposal of Long-Lived
      Assets."





**Intangible
      Assets**


Included
      in other assets are loan acquisition costs which are amortized over the life
      of
      the related loan and franchise fees which are amortized over ten
      years.





**Goodwill**


Goodwill
      represents the excess of cost of business acquisitions over the fair value
      of
      the net identifiable assets acquired. Goodwill is reviewed for impairment
      annually or more frequently if impairment indicators arise.





**Revenue
      Recognition and Delivery Costs**


Revenue
      is recognized when product is delivered and title has passed to
      customers.





Costs
      to
      deliver product to customers are included in selling, general and administrative
      expenses in the accompanying consolidated statements of operations and totaled
      $24,560, $18,311, and $18,172 in fiscal 2006, 2005 and 2004,
      respectively.





37





**Advertising
      Costs**


The
      Company expenses advertising costs as incurred. Total advertising costs were
      $875 in fiscal 2006, $821 in fiscal 2005, and $564 in fiscal 2004.





**Income
      Taxes**


Income
      taxes have been provided using the liability method. Deferred income taxes
      reflect the net tax effects of temporary differences between the carrying
      amounts of assets and liabilities for financial reporting purposes and the
      amounts used for income tax purposes.





**Stock
      Based Compensation**


The
      Company accounts for stock option grants in accordance with APB Opinion No.
      25,
      "Accounting for Stock Issued to Employees." The following table illustrates
      the
      effect on net income (loss) and earnings (loss) per share if the Company had
      applied the fair value recognition provisions of Statement of Financial
      Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
      which require compensation cost for all stock-based employee compensation plans
      to be recognized based on the use of a fair value method.







Fiscal
                year endedJune
                3
            
            May
                28
            
            May
                292006
            
            2005
            
            2004Net
                income (loss)
            
            $
            (1,013
            )
            $
            (10,358
            )
            $
            66,442Add:
                Stock-based employee compensationexpense
                income included in reportednet
                income (loss)
            
            
            256
            
            
            (798
            )
            
            14,316Deduct:
                Total stock-based employeecompensation
                (expense) income determinedunder
                fair value based method for all awards
            
            
            (201
            )
            
            400
            
            
            (6,905
            )Pro
                forma net income (loss)
            
            $
            (958
            )
            $
            (10,756
            )
            $
            73,853Net
                income (loss) per share:Basic
                — as reported
            
            $
            (.04
            )
            $
            (.43
            )
            $
            2.78Basic
                — pro forma
            
            $
            (.04
            )
            $
            (.45
            )
            $
            3.09Diluted
                — as reported
            
            $
            (.04
            )
            $
            (.43
            )
            $
            2.73Diluted
                — pro forma
            
            $
            (.04
            )
            $
            (.45
            )
            $
            3.03





**Net
      Income (Loss) per Common Share**


Basic
      net
      income (loss) per share is based on the weighted average common shares
      outstanding. Diluted net income (loss) per share includes any dilutive effects
      of options and warrants outstanding. Stock options representing approximately
      85,000 and 185,000 common shares were excluded from the calculation of dilutive
      net loss per share for the years ended June 3, 2006 and May 28, 2005,
      respectively, because the effect was anti-dilutive.





**Stock
      Split**


On
      April
      14, 2004, the Shareholders of the Company approved amendments to the Certificate
      of Incorporation to facilitate a two-for-one stock split approved by the Board
      of Directors on January 26, 2004. The split was affected in the form of a stock
      dividend paid on April 23, 2004 to stockholders of record on April 14, 2004.
      All
      share and per share data in this report has been adjusted to reflect this stock
      split.





38


**Impact
      of Recently Issued Accounting Standards**


In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      ("SFAS") No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"),
      which replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and
      supercedes APB No. 25, "Accounting for Stock Issued to Employees." SFAS 123(R)
      required companies to measure compensation costs for share-based payments to
      employees, including stock options, at fair value and expense such compensation
      over the service period beginning with the first annual period after December
      15, 2005. The pro forma disclosures previously permitted under SFAS No. 123
      will
      no longer be an alternative to financial statement recognition. The Company
      adopted SFAS No. 123(R) in the first quarter of fiscal 2007 using the modified
      prospective method. Under the modified prospective method, companies are
      required to record compensation cost for new and modified awards over the
      related vesting period of such awards prospectively and record compensation
      cost
      prospectively for the unvested portion, at the date of adoption, of previously
      issued and outstanding awards over the remaining vesting period of such awards.
      Companies are required to recognize a cumulative effect of a change in
      accounting principal, net of any tax effect, to reflect the difference between
      the intrinsic and fair value of liability awards on the date of adoption. Statement
      123(R) also requires a portion of the benefits of tax deductions resulting
      from
      the exercise of stock options to be reported as a financing cash flow, rather
      than as an operating cash flow. This requirement will reduce net operating
      cash
      flows and increase net financing cash flows in periods after adoption. Total
      cash flow will remain unchanged from what would have been reported under prior
      accounting rules. No
      change
      to prior periods presented is permitted under the modified prospective method.
      Management expects the cumulative effect adjustment will be insignificant in
      the
      period of adoption.





On
      July
      13, 2006, the FASB issued Interpretation No. 48, Accounting for " Uncertainty
      in Income Taxes—an interpretation of FASB Statement No. 109 " *.* Interpretation 48 clarifies the accounting for uncertainty in income taxes
      recognized in a company's financial statements in accordance with Statement
      No.109 and prescribes a recognition threshold and measurement attribute for
      financial statement disclosure of tax positions taken or expected to be taken
      on
      a tax return. Additionally, Interpretation No.48 provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition. Interpretation 48 is effective for fiscal
      years beginning after December 15, 2006, with early adoption permitted. We
      are
      currently evaluating whether the adoption of Interpretation 48 will have a
      material effect on our consolidated financial position, results of operations
      or
      cash flows.





In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS No. 151
      amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4, to clarify that
      abnormal amounts of idle facility expense, freight, handling costs and spoilage
      should be recognized as current-period charges. In addition, SFAS No. 151
      requires that allocation of fixed production overhead to inventory be based
      on
      the normal capacity of the production facilities. SFAS No. 151 is effective
      for
      inventory costs incurred during fiscal years beginning after June 15, 2005.
      The
      Company does not expect SFAS No. 151 to have a significant impact on its results
      of operations, financial position or cash flows.








**Fiscal
      Year**


The
      Company's fiscal year-end is on the Saturday nearest May 31, which was June
      3,
      2006 (53 weeks), May 28, 2005 (52 weeks) and May 29, 2004 (52 weeks), for the
      most recent three fiscal years.





39


**2.
      Acquisitions**


The
      Company entered into an Agreement to Form a Limited Liability Company, Transfer
      Assets Thereto, and Purchase Units of Membership Therein, dated July 28, 2005,
      with Hillandale Farms, Inc. and Hillandale Farms of Florida, Inc. (together,
      "Hillandale"), and the Hillandale shareholders (the "Agreement"). Under the
      terms of the Agreement, we acquired 51% of the units of membership in
      Hillandale, LLC for cash of approximately $27,000 October 12, 2005. The
      remaining 49% of the units of membership in Hillandale, LLC will be acquired
      in
      essentially equal annual installments over a four-year period, with the purchase
      price of the units equal to their book value at the time of purchases as
      calculated in accordance with the terms of the Agreement. The total preliminary
      purchase price is estimated to be as follows :





Cash
                consideration paid to seller for 51% of Hillandale, LLC's membership
                units
            
            $
            27,006Obligation
                to acquire 49% of Hillandale, LLC's membership units
            
            
            25,94752,953Less
                discount of preliminary purchase price to the present value as of
                July 28,
                2005
            
            
            (3,556
            )Total
                preliminary purchase price
            
            $
            49,397





The
      preliminary purchase price was allocated based upon the fair value of the assets
      acquired and liabilities assumed as follows:




Assets
                acquired:Cash
                and cash equivalents
            
            $
            3,918Receivables
            
            
            7,181Inventories
            
            
            11,330Prepaid
                and other assets
            
            
            2,798Property,
                plant and equipment
            
            
            49,531Total
                assets acquired
            
            
            74,758Liabilities
                assumed:Accounts
                payable and accrued expenses
            
            
            3,567Notes
                payable and long-term debt
            
            
            21,794Total
                liabilities assumed
            
            
            25,361Net
                assets acquired
            
            $
            49,397





In
      October 2005, the Company paid substantially all of Hillandale, LLC’s notes
      payable and long-term debt and obtained a new $28,000 term loan from an
      insurance company secured by substantially all of the property, plant and
      equipment of Hillandale, LLC, and requires monthly principal payments of $150
      plus interest beginning in January 2007 through November 2020. The obligation
      to
      acquire 49% of Hillandale, LLC is recorded at its present value of $23,600
      million as of June 3, 2006, of which $6,900 million is included in current
      liabilities and $16,700 million is included in non-current liabilities in the
      accompanying consolidated balance sheet. The Company will purchase an additional
      13% of Hillandale, LLC based on the value of LLC membership as of July
      29,2006.





The
      Company gained effective control of the Hillandale operations upon signing
      of
      the Agreement. Accordingly, the acquisition date for accounting purposes is
      July
      28, 2005. The operations of Hillandale, LLC were consolidated with our
      operations as of July 29, 2005.





Prior
      to
      the acquisition, the Company had a 44% membership interest in American Egg
      Products, LLC ("AEP") and Hillandale, LLC had a 27.5% membership interest in
      AEP. Prior to the acquisition of Hillandale, LLC, the Company's membership
      in
      AEP was accounted for by the equity method. Effective with our acquisition
      of
      Hillandale, LLC, we own a majority of the membership interest in AEP.
      Accordingly, the financial statements of AEP have been consolidated with our
      financial statements beginning July 29, 2005. AEP, located in Georgia, processes
      shell eggs into liquid and frozen egg products that are sold primarily to food
      manufacturers and to the food service industry. AEP has contract shell egg
      production for approximately 50% of its shell egg requirements and purchases
      the
      balance from regional egg markets.





40


Hillandale,
      LLC's production facilities are principally located in Florida. Hillandale,
      LLC
      is a fully integrated shell egg producer with its own feed mills, hatchery,
      production, processing and distribution facilities. The Hillandale acquisition
      increased our current egg production capacity by approximately 30%.





As
      of
      July 28, 2005, Hillandale, LLC owned a 50% ownership interest in Hillandale
      Farms, LLC that was accounted for by the equity method. On October 5, 2005,
      Hillandale, LLC acquired the other 50% interest in Hillandale Farms, LLC for
      $1,000. The purchase price was allocated to the assets acquired and liabilities
      assumed and resulted in approximately $900 of goodwill. Hillandale Farms, LLC
      is
      engaged in the production, processing and distribution of shell
      eggs.





The
      unaudited financial information in the table below summarizes the combined
      results of our operations and Hillandale, LLC, on a pro forma basis, as though
      we had been combined as of the beginning of the earliest period presented.
      The
      pro forma financial information is presented for informational purposes only
      and
      is not indicative of the results of operations that would have been achieved
      if
      the acquisition had taken place at the beginning of the earliest period
      presented.




Fiscal
                Year EndedJune
                3, 2006
            
            May
                28, 2005Net
                sales
            
            $
            490,529
            
            $
            456,018Net
                loss
            
            $
            (5,169
            )
            $
            (29,326
            )Basic
                net loss per share
            
            $
            (0.22
            )
            $
            (1.25
            )Diluted
                net loss per share
            
            $
            (0.22
            )
            $
            (1.25
            )





**3.
      Investment in Affiliates**





The
      Company owns 50% each of Cumberland Milling JV, Specialty Eggs LLC, Delta Egg
      Farm, LLC ("Delta Egg") and Green Forest Foods, LLC at June 3, 2006. Investment
      in affiliates, recorded using the equity method of accounting, totaled $6,763
      and $8,502 at June 3, 2006 and at May 28, 2005, respectively. Equity in income
      or (loss) of ($757), ($88), and $5,923 from these entities have been included
      in
      the consolidated statements of operations for fiscal 2006, 2005 and 2004,
      respectively.





The
      Company is a guarantor of 50% of Delta Egg's long-term debt, which totaled
      approximately $10,768 million at June 3, 2006. Delta Egg's long-term debt is
      secured by substantially all fixed assets of Delta Egg and is due in monthly
      installments through fiscal 2009. Delta Egg is engaged in the production,
      processing and distribution of shell eggs. The other 50% owner also guarantees
      50% of the debt. The guarantee arose when Delta Egg borrowed funds to construct
      its production and processing facility in 1999. The guarantee would be required
      if Delta Egg is not able to pay the debt. Management of the Company believes
      this possibility is unlikely because Delta Egg is now well
      capitalized.






41


**4.
      Inventories**





Inventories
      consisted of the following:





June
                3,
            
            May
                28,2006
            
            2005Flocks
            
            $
            39,092
            
            
            31,088Eggs
            
            
            3,820
            
            
            2,477Feed
                and supplies
            
            
            14,931
            
            
            12,063$
            57,843
            
            
            45,628








**5.
      Property, Plant and Equipment**





Property,
      plant and equipment consisted of the following:





June
                3,
            
            May
                28,2006
            
            2005Land
                and improvements
            
            $
            40,741
            
            
            35,416Buildings
                and improvements
            
            
            133,884
            
            
            105,519Machinery
                and equipment
            
            
            158,791
            
            
            137,401Construction-in-progress
            
            
            6,415
            
            
            2,990339,831
            
            
            281,326Less
                accumulated depreciation
            
            
            163,556
            
            
            153,938$
            176,275
            
            
            127,388





Depreciation
      expense was $20,417 and $16,367 and $16,520 in fiscal 2006, 2005 and 2004,
      respectively.





**6.
      Leases**





Future
      minimum payments under noncancelable operating leases that have initial or
      remaining noncancelable terms in excess of one year at June 3, 2006 are as
      follows:





2007
            
            $
            7,3052008
            
            
            3,9642009
            
            
            1,8262010
            
            
            1,4242011
            
            
            750Thereafter
            
            
            869Total
                minimum lease payments
            
            $
            16,138





Substantially
      all of the leases provide that the Company pays taxes, maintenance, insurance
      and certain other operating expenses applicable to the leased assets. The
      Company has guaranteed under certain operating leases the residual value of
      transportation equipment at the expiration of the leases. Rent expense was
      $9,918, $8,109 and $9,193 in fiscal 2006, 2005 and 2004, respectively, primarily
      for the lease of certain operating facilities, equipment and transportation
      equipment. Included in rent expense are vehicle rents totaling $1,049, $1,318
      and $1,766 in fiscal 2006, 2005 and 2004, respectively.





42






**7.
      Credit Facilities and Long-Term Debt**


Long-term
      debt consisted of the following:




June
                3
            
            May
                282006
            
            2005Note
                payable at 6.7%; due in monthly installmentsof
                $100, plus interest, maturing in 2009
            
            $
            9,600
            
            $
            10,900Note
                payable at 8.26%; due in monthly installmentsof
                $155, including interest, maturing in 2015
            
            
            14,500
            
            
            15,138Series
                A Senior Secured Notes at 6.87%; due inannual
                principal installments of $1,917 beginning inDecember
                2002 through 2008 with interest duesemi-annually
            
            
            3,833
            
            
            5,750Series
                B Senior Secured Notes at 7.18%; due inannual
                principal installments of $2,143 beginning inDecember
                2003 through 2009 with interest duesemi-annually
            
            
            8,571
            
            
            10,714Industrial
                revenue bonds at 6.10%; due inmonthly
                installments of $146, including interest,maturing
                in 2011
            
            
            7,301
            
            
            8,561Note
                payable at 7.5%; due in monthly installmentsof
                $36, including interest, maturing in 2011
            
            
            1,822
            
            
            2,106Note
                payable at 7.06%; due in monthly installmentsof
                $53, including interest, maturing in 2015
            
            
            5,211
            
            
            5,467Note
                payable at 6.87%; due in monthly installmentsof
                $45, including interest, maturing in 2015
            
            
            4,441
            
            
            4,663Note
                payable at 6.80%; due in monthly installmentsof
                $165, plus interest, maturing in 2013
            
            
            15,050
            
            
            17,195Note
                payable at 5.8%; due in annual principalinstallments
                of $250 beginning in April 2006 through2015
                with interest due quarterly
            
            
            2,250
            
            
            2,500Note
                payable at 5.99%; due in monthlyinstallments
                of $150, plus interest, beginning inJanuary
                2007 through 2020
            
            
            28,000
            
            
            -Note
                payable at 6.75%;due in monthly principalinstallments
                of $25, plus interest, maturing in 2009
            
            
            2,825
            
            
            -Other
            
            
            508
            
            
            -103,912
            
            
            82,994Less
                current maturities
            
            
            11,902
            
            
            10,149$
            92,010
            
            $
            72,845





The
      aggregate annual fiscal year maturities of long-term debt at June 3, 2006 are
      as
      follows:





2007
            
            $
            11,9022008
            
            
            12,7872009
            
            
            10,9452010
            
            
            11,1802011
            
            
            8,997Thereafter
            
            
            48,101$
            103,912




43


The
      Company has a $40,000 line of credit with three banks. The line of credit,
      which
      expires on December 31, 2007, is limited in availability based upon accounts
      receivable and inventories. The Company had $37,300 available to borrow under
      the line of credit at June 3, 2006. Borrowings under the line of credit bear
      interest at 3% above the federal funds rate. Facilities fees of 0.5% per annum
      are payable quarterly on the unused portion of the line.





Substantially
      all trade receivables and inventories collateralize our line of credit and
      property, plant and equipment collateralize our long-term debt under our loan
      agreements with our lenders. Unless otherwise approved by our lenders, we are
      required by provisions of these loan agreements to (1) maintain minimum levels
      of working capital (ratio of not less than 1.25 to 1) and net worth (minimum
      of
      $90.0 million tangible net worth, and 45% of cumulative net income); (2) limit
      dividends to an aggregate amount not to exceed $500,000 per quarter (allowed
      if
      no default), capital expenditures (not to exceed depreciation for the same
      four
      fiscal quarters), lease obligations and additional long-term borrowings (total
      funded debt to total capitalization not to exceed 55%); and (3) maintain various
      current and cash-flow coverage ratios (1.25 to 1), among other restrictions.
      At
      June 3, 2006, we were in compliance with the provisions of all loan agreements.
      Under certain of the loan agreements, the lenders have the option to require
      the
      prepayment of any outstanding borrowings in the event we undergo a change in
      control, the Chief Executive Officer of the Company, or his family, must
      maintain ownership of not less than 50% of the outstanding voting stock of
      the
      Company.





Interest
      of $7,198, $5,860 and $7,386 was paid during fiscal 2006, 2005 and 2004,
      respectively. Interest of $222 and $72 was capitalized for construction of
      certain facilities during fiscal 2006 and 2005, respectively. No interest was
      capitalized during fiscal 2004.





**8.
      Employee Benefit Plans**





The
      Company maintains a medical plan that is qualified under Section 401(a) of
      the
      Internal Revenue Code and not subject to tax under present income tax laws.
      Under its plan, the Company self-insures, in part, coverage for substantially
      all full-time employees with coverage by insurance carriers for certain
      stop-loss provisions for losses greater than $150 for each occurrence. The
      Company's expenses including accruals for incurred but not reported claims,
      were
      approximately $5,128, $7,065 and $5,911 in fiscal 2006, 2005 and 2004,
      respectively.





The
      Company has a 401(k) plan which covers substantially all employees. Participants
      in the Plan may contribute up to the maximum allowed by Internal Revenue Service
      regulations. The Company does not make contributions to the 401(k)
      plan.





The
      Company has an employee stock ownership plan (ESOP) that covers substantially
      all employees. The Company makes contributions to the ESOP of 3% of
      participants' compensation, plus an additional amount determined at the
      discretion of the Board of Directors. Contributions may be made in cash or
      the
      Company's common stock. Company contributions to the ESOP vest immediately.
      The
      Company's contributions to the plan were $1,069, $1,643 and $1,755 in fiscal
      2006, 2005 and 2004, respectively.





The
      Company has deferred compensation agreements with certain officers for payments
      to be made over specified periods beginning when the officers reach age 65
      or
      over as specified in the agreements. Amounts accrued for these agreements are
      based upon deferred compensation earned over the estimated remaining service
      period of each officer. Deferred compensation expense totaled approximately
      $59
      in fiscal 2006, $72 in fiscal 2005 and $80 in fiscal 2004.




44




**9.
      Stock Compensation Plans**





The
      Company has elected to follow APB No. 25 and related Interpretations in
      accounting for its employee stock options. Pro forma information regarding
      net
      income (loss) and net income (loss) per share is required by SFAS No. 123,
      and
      has been determined as if the Company had accounted for its employee stock
      options under the fair value method of that Statement. The fair value for these
      options was estimated at the date of grant using a Black-Scholes option pricing
      model with the following weighted-average assumptions for fiscal 2006: risk-free
      interest rate of 3%; dividend yield of 1%; volatility factor of the expected
      market price of the Company's common stock of 39.2%, and a weighted-average
      expected life of the options of 5 years. No options were granted by the Company
      during fiscal 2005 and 2004. The weighted-average fair value of options granted
      during fiscal 2006 was $2.68.





On
      July
      28, 2005, our Board of Directors approved the Cal-Maine Foods, Inc. 2005
      Incentive Stock Option Plan (the "Plan") and reserved 500,000 shares for
      issuance upon exercise of options granted under the Plan. Options issued
      pursuant to the Plan may be granted to any of our employees. The options may
      have a term of up to ten years and generally will vest ratably over five years.
      On August 17, 2005, we issued 360,000 options with an exercise price of $5.93.
      The options have ten-year terms and vest over five years beginning from the
      date
      of grant. The Plan was ratified by our shareholders at our annual meeting of
      shareholders on October 13, 2005.





A
      summary
      of the Company's stock option activity and related information is as
      follows:





Weighted-AverageExerciseShares
            
            PriceOutstanding
                at June 1, 2003
            
            
            1,087,200
            
            $
            1.63Exercised
            
            
            (748,400
            )
            
            1.56Forfeited
            
            
            (8,000
            )
            
            1.80Outstanding
                at May 29, 2004
            
            
            330,800
            
            
            1.70Exercised
            
            
            (202,000
            )
            
            1.54Outstanding
                at May 28, 2005
            
            
            128,800
            
            
            1.91Granted
            
            
            360,000
            
            
            5.93Exercised
            
            
            (15,400
            )
            
            1.82Outstanding
                at June 3, 2006
            
            
            473,400
            
            
            4.97





Stock
      option information presented by the range of exercise prices was as follows
      at
      June 3, 2006:







Number
                of Options
            
            
            Weighted
                Average
            
            
            WeightedRange
                of
            
            
            Outstanding
            
            
            Exercise
                Price
            
            
            AverageExercise
                  Price
            
            
            Total
            
            
            Exercisable
            
            
            Total
            
            
            Exercisable
            
            
            Remaining
                Life$
                1.5 to $ 2.13
            
            
            113,400
            
            
            77,640
            
            $
            1.93
            
            $
            1.87
            
            
            5.9
                years$
                5.93
            
            
            360,000
            
            
            -
            
            $
            5.93
            
            $
            -
            
            
            9.1
                years





The
      Company has reserved 1,600,000 shares under its 1993 Stock Option Plan. The
      options have ten-year terms and vest annually over five years beginning one
      year
      from the grant date. At
      June
      3, 2006, no shares were available for grant under the 1993 plan.





45


The
      Company has reserved 1,000,000 shares under its 1999 Stock Option Plan, all
      of
      which were granted to officers and key employees in fiscal 2000. Each stock
      option granted under the 1999 Stock Option Plan was accompanied by the grant
      of
      a Tandem Stock Appreciation Right ("TSAR").





The
      options and TSARs have ten-year terms and vest annually over five years
      beginning one year from the grant date. Upon exercise of a stock option, the
      related TSAR is also considered to be exercised, and the holder will receive
      a
      cash payment from the Company equal to the excess of the fair market value
      of
      the Company's common stock and the option exercise price. At June 3, 2006,
      8,000
      shares were available for grant under the 1999 plan.




On
      July
      28, 2005, our Board of Directors also approved the Cal-Maine Foods, Inc. Stock
      Appreciation Rights Plan (the "Rights Plan"). The Rights Plan covers 1,000,000
      shares of common stock of the Company. Stock Appreciation Rights ("SAR") may
      be
      granted to any employee or non-employee member of the Board of Directors. Upon
      exercise of a SAR, the holder will receive shares of our common stock equal
      to
      the difference between the fair market value of a single share of common stock
      at the time of exercise and the strike price which is equal to the fair market
      value of a single share of common stock on the date of the grant. The SARs
      have
      a ten-year term and vest over five years. On August 17, 2005, we issued 592,500
      SARs with a strike price of $5.93 and, on August 26, 2005, we issued 22,500
      SARs
      with a strike price of $6.71. The Rights Plan was ratified by our shareholders
      at our annual meeting of shareholders on October 13, 2005.





The
      weighted average remaining contractual life of the options outstanding was
      8
      years at June 3, 2006, 5 years at May 28, 2005, and 6 years at May 29, 2004.
      Of
      the total options outstanding, 77,600, 39,600 and 25,000 were exercisable at
      June 3, 2006, May 28, 2005, and May 29, 2004, respectively.





**10.
      Income Taxes**





Income
      tax expense (benefit) consisted of the following:




Fiscal
                  year endedJune
                  3,
              
              May
                  28,
              
              May
                  29,2006
              
              2005
              
              2004Current:Federal
              
              $
              (1,450
              )
              $
              (3,899
              )
              $
              33,500State
              
              
              -
              
              
              (387
              )
              
              2,750(1,450
              )
              
              (4,286
              )
              
              36,250Deferred:Federal
              
              
              1,245
              
              
              (672
              )
              
              2,950State
              
              
              (260
              )
              
              (92
              )
              
              600985
              
              
              (764
              )
              
              3,550$
              (465
              )
              $
              (5,050
              )
              $
              39,800












46




Significant
        components of the Company's deferred tax liabilities and assets were as
        follows:
 
 June
                  3
              
              May
                  282006
              
              2005Deferred
                  tax liabilities:Property,
                  plant and equipment
              
              $
              16,217
              
              $
              16,329Cash
                  basis temporary differences
              
              
              1,911
              
              
              2,070Inventories
              
              
              12,636
              
              
              11,830Investment
                  in affiliates
              
              
              1,686
              
              
              2,126Other
              
              
              1,553
              
              
              984Total
                  deferred tax liabilities
              
              
              34,003
              
              
              33,339Deferred
                  tax assets:Accrued
                  expenses
              
              
              2,384
              
              
              3,523Discount
                  on acquisition purchase price
              
              
              372
              
              
              -Amortization
                  of non-compete contracts
              
              
              209
              
              
              -Job
                  tax credit carryforward
              
              
              250
              
              
              -Other
              
              
              413
              
              
              426Total
                  deferred tax assets
              
              
              3,628
              
              
              3,949Net
                  deferred tax liabilities
              
              $
              30,375
              
              $
              29,390
 
 Effective
        May 29, 1988, the Company could no longer use cash basis accounting for its
        farming subsidiary because of tax law changes. The *Taxpayer Relief Act of 1997* provides
        that taxes on the cash basis temporary differences as of that date are generally
        payable over 20 years beginning in fiscal 1999 or in full in the first fiscal
        year in which there is a change in ownership control. The Company uses the
        farm-price method for valuing inventories for income tax purposes.
 
 The
        differences between income tax expense (benefit) at the Company's effective
        income tax rate and income tax expense (benefit) at the statutory federal
        income
        tax rate were as follows:
 
 Fiscal
                  year endJune
                  3
              
              May
                  28
              
              May
                  292006
              
              2005
              
              2004Statutory
                  federal income tax (benefit)
              
              
              
              
              $
              (518
              )
              $
              (5,393
              )
              $
              37,185State
                  income taxes (benefit), net
              
              
              
              
              
              (169
              )
              
              (311
              )
              
              2,178Non-deductible
                  Hillandale, LLC losses
              
              
              
              
              
              750
              
              
              -
              
              
              -Tax
                  exempt interest income
              
              
              
              
              
              (634
              )
              
              -
              
              
              -Other,
                  net
              
              
              
              
              
              106
              
              
              654
              
              
              437$
              (465
              )
              $
              (5,050
              )
              $
              39,800
 
 Federal
        and state income taxes of $128, $391, and $41,868 were paid in fiscal 2006,
        2005
        and 2004, respectively. Federal and state income taxes of $7,077, $3,062
        and
        $6,875 were refunded in fiscal 2006, 2005 and 2004, respectively.
 
 
 
 47
 
 
 
 **11.
        Other Matters**
 
 The
        carrying amounts in the consolidated balance sheet for cash and cash
        equivalents, accounts receivable, notes receivable and investments and accounts
        payable approximate their fair values. The fair value of the Company's long-term
        debt is estimated to be $102,500. The fair values for notes receivable and
        long-term debt are estimated using discounted cash flow analysis, based on
        the
        Company's current incremental borrowing rates for similar arrangements.
  The
        Company's interest expense is sensitive to changes in the general level of
        U.S.
        interest rates. The Company maintains certain of its debt as fixed rate in
        nature to mitigate the impact of fluctuations in interest rates. Under its
        current policies, the Company does not use interest rate derivative instruments
        to manage its exposure to interest rate changes. A one percent (1%) adverse
        move
        (decrease) in interest rates would adversely affect the net fair value of
        the
        Company's debt by $4,347 at June 3, 2006. The Company is a party to no other
        market risk sensitive instruments requiring disclosure.
 
 The
        Company is the defendant in certain legal actions. It is the opinion of
        management, based on advice of legal counsel, that the outcome of these actions
        will not have a material adverse effect on the Company's consolidated financial
        position or operations.
 
 **12.
        Quarterly Financial Data:** (unaudited, amount in thousands, except per share data):
 
 Fiscal
                  Year 2006First
              
              Second
              
              Third
              
              FourthQuarter
              
              Quarter
              
              Quarter
              
              QuarterNet
                  sales
              
              
              
              
              $
              79,756
              
              $
              138,288
              
              $
              130,107
              
              $
              129,404Gross
                  profit
              
              
              
              
              
              960
              
              
              17,809
              
              
              25,973
              
              
              17,475Net
                  income (loss)
              
              
              
              
              
              (8,108
              )
              
              (685
              )
              
              7,990
              
              
              (210
              )Net
                  income (loss) per share:Basic
              
              
              
              
              $
              (.35
              )
              $
              (.03
              )
              $
              .34
              
              $
              (.01
              )Diluted
              
              
              
              
              $
              (.35
              )
              $
              (.03
              )
              $
              .34
              
              $
              (.01
              )
 
 
 Fiscal
                  Year 2005First
              
              Second
              
              Third
              
              FourthQuarter
              
              Quarter
              
              Quarter
              
              QuarterNet
                  sales
              
              
              
              
              $
              102,017
              
              $
              90,730
              
              $
              101,042
              
              $
              81,477Gross
                  profit
              
              
              
              
              
              10,681
              
              
              4,986
              
              
              17,115
              
              
              2,651Net
                  income (loss)
              
              
              
              
              
              (887
              )
              
              (5,342
              )
              
              2,421
              
              
              (6,550
              )Net
                  income (loss) per share:Basic
              
              
              
              
              $
              (.04
              )
              $
              (.23
              )
              $
              .10
              
              $
              (.28
              )Diluted
              
              
              
              
              $
              (.04
              )
              $
              (.23
              )
              $
              .10
              
              $
              (.28
              )
 
 
 48
 
 
  **SCHEDULE
        II - VALUATION AND QUALIFYING ACCOUNTS**
 **Years
        ended June 3, 2006, May 28, 2005, and May 29, 2004**
 **(** ***in
        thousands*** **)**
 
 
 **Balance
                  at**
              
              **Charged
                  to**
              
              
              
              **Balance
                  at****Beginning
                  of**
              
              **Cost**
              
              **Write-off**
              
              **End
                  of****Description**
              
              **Period**
              
              **and
                Expense**
              
              **of
                    Accounts**
              
              **Period**Year
                  ended June 3, 2006:Allowance
                  for doubtful accounts
              
              $
              92
              
              $
              892
              
              $
              638
              
              $
              346Year
                  ended May 28, 2005:Allowance
                  for doubtful accounts
              
              $
              90
              
              $
              253
              
              $
              251
              
              $
              92Year
                  ended May 29, 2004:Allowance
                  for doubtful accounts
              
              $
              1,158
              
              $
              279
              
              $
              1,347
              
              $
              90
 
 
 
 49
  
 **ITEM
        9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL**
 **DISCLOSURE**
 
 None.
 
 
 **ITEM
        9A. CONTROLS AND PROCEDURES**
 
 ***Disclosure
        Controls and Procedures***
 
 Our
        disclosure controls and procedures are designed to provide reasonable assurance
        that information required to be disclosed by it in its periodic reports filed
        with the Securities and Exchange Commission is recorded, processed, summarized
        and reported, within the time periods specified in the Commission’s rules and
        forms. Based on an evaluation of our disclosure controls and procedures
        conducted by our Chief Executive Officer and Chief Financial Officer, together
        with other financial officers, such officers concluded that our disclosure
        controls and procedures were effective as of June 3, 2006.
 
 ***Internal
        Control Over Financial Reporting***
 
 (a)  ***Management’s
        Report on Internal Control Over Financial Reporting***
 
 In
        accordance with Section 404(a) of the Sarbanes-Oxley Act of 2002 and Item
        308(a)
        of the Commission’s Regulation S-K, the report of management on our internal
        control over financial reporting is set forth in this Annual Report on Form
        10-K
        under Item 8. Financial Statements and Supplementary Data.
  (b)  ***Attestation*** **** ***Report
        of the Registrant’s Public Accounting Firm***
 
 The
        attestation report of Ernst & Young LLP on management’s assessment of our
        internal control over financial reporting is set forth in this Annual Report
        on
        Form 10-K under Item 8. Financial Statements and Supplementary
        Data.
  (c)  ***Changes
        in Internal Control Over Financial Reporting***
 
 In
        accordance with Rule 13a-15(c) under the Securities Exchange Act of 1934,
        management, with the participation of our Chief Executive Officer and Chief
        Financial Officer, together with other financial officers, evaluated the
        effectiveness, as of June 3, 2006, of our internal control over financial
        reporting. Management determined that there was no change in our internal
        control over financial reporting that occurred during the fourth quarter
        ended
        June 3, 2006, that has materially affected, or is reasonably likely to
        materially affect, our internal control over financial reporting.
 
 **ITEM
        9B OTHER INFORMATION**
  Not
        applicable
 
 50
 **PART
        III**
 
 **ITEM
        10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**
 
 The
        information concerning directors and executive officers is incorporated by
        reference from our definitive proxy statement which is to be filed pursuant
        to
        Regulation 14A under the Securities Exchange Act of 1934 in connection with
        our
        2006 Annual Meeting of Shareholders.
 
 **ITEM
        11. EXECUTIVE COMPENSATION**
 
 The
        information concerning executive compensation is incorporated by reference
        from
        our definitive proxy statement which is to be filed pursuant to Regulation
        14A
        under the Securities Exchange Act of 1934 in connection with our 2006 Annual
        Meeting of Shareholders.
 
 **ITEM
        12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND** **** **MANAGEMENT
        AND RELATED STOCKHOLDER MATTERS**
 
 The
        information concerning security ownership of certain beneficial owners and
        management and related stockholder matters is incorporated by reference from
        our
        definitive proxy statement which is to be filed pursuant to Regulation 14A
        under
        the Securities Exchange Act of 1934 in connection with our 2006 Annual Meeting
        of Shareholders.
 
 **ITEM
        13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
 
 The
        information concerning certain relationships and related transactions is
        incorporated by reference from our definitive proxy statement which is to
        be
        filed pursuant to Regulation 14A under the Securities Exchange Act of 1934
        in
        connection with our 2006 Annual Meeting of Shareholders.
 
 **ITEM
        14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**
 
 The
        information concerning principal accounting fees and services is incorporated
        by
        reference from our definitive proxy statement which is to be filed pursuant
        to
        Regulation 14A under the Securities Exchange Act of 1934 in connection with
        our
        2006 Annual Meeting of Shareholders.
 
 51
 **PART
        IV**
 
 **ITEM
        15.**  **EXHIBITS
        AND FINANCIAL STATEMENT SCHEDULES**
 
 (a)(1)  Financial
        Statements
 
 The
        following financial statements are filed herewith:
 
 The
        following consolidated financial statements of Cal-Maine Foods, Inc. and
        subsidiaries are included in Item 8:
  Report
        of
        Independent Registered Public Accounting Firm.
 
 Consolidated
        Balance Sheets - June 3, 2006 and May 28, 2005.
 
 Consolidated
        Statements of Operations - Years Ended June 3, 2006, May 28, 2005 and May
        29,
        2004.
 
 Consolidated
        Statements of Changes in Shareholders' Equity for the Years Ended
 June
        3,
        2006, May 28, 2005 and May 29, 2004.
 
 Consolidated
        Statements of Cash Flows for the Years Ended June 3, 2006, May 28, 2005 and
        May
        29, 2004.
 
 Notes
        to
        Consolidated Financial Statements.
 
 ( a)(2) Financial
        Statement Schedule
 
 Schedule
        II - Valuation and Qualifying Accounts
 
 All
        other
        schedules are omitted either because they are not applicable or required,
        or
        because the required information is included in the financial statements
        or
        notes thereto.
  (a)(3) Exhibits
        Required by Item 601 of Regulation S-K
 
 See
        Part
        (b) of this Item 15.
 
 (b)  Exhibits
        Required by Item 601 of Regulation S-K
 
 The
        following exhibits are filed herewith or incorporated by reference:
 
 Exhibit
 Number     Exhibit
 
 2.1
                  Agreement
                      to Form a Limited Liability Company, Transfer Assets Thereto,
                      and Purchase
                      Units of Membership Therein, dated July 28, 2005, by and among
                      Hillandale
                      Farms of Florida, Inc., Hillandale Farms, Inc., Cal-Maine Foods,
                      Inc. and
                      Jack E. Hazen, Jack E. Hazen, Jr., Homer E. Honeycutt, Jr.,
                      Orland R.
                      Bethel and Dorman W. Mizell. (9)3.1
                  Amended
                      and Restated Certificate of Incorporation of the Registrant.
                      (1)3.1(a)
                  Amendment
                      to Article 4 of the Certificate of Incorporation of the Registrant.
                      (7)3.2
                  By-Laws
                      of the Registrant, as amended. (1)
  52
 4.1
                  See
                      Exhibits 3.1 and 3.2 as to the rights of holders of the Registrant’s
                      common stock.10.1
                  Amended
                      and Restated Term Loan Agreement, dated as of May 29, 1990,
                      between
                      Cal-Maine Foods, Inc. and Cooperative Centrale Raiffeisen -
                      Boerenleenbank
                      B.A., “Rabobank Nederland,” New York Branch, and Amended and Restated
                      Revolving Credit Agreement among Cal-Maine Foods, Inc., and
                      Barclays Banks
                      PLD (New York) and Cooperatieve Centrale Raiffeisen-Borenleenbank
                      B.A.,
                      dated as of 29 May 1990, and amendments thereto (without exhibits).
                      (1)10.1(a)
                  Amendment
                      to Term Loan Agreement (see Exhibit 10.1) dated as of June
                      3, 1997
                      (without exhibits). (2)10.1(b)
                  Amendment
                      to Term Loan Agreement (see Exhibit 10.1) dated as of March
                      31, 2004
                      (without exhibits). (7)10.1(c)
                  Amendment
                      to Term Loan Agreement (see Exhibit 10.1) dated as of April
                      14, 2004
                      (without exhibits). (7)10.1(d)
                  Amendment
                      to Term Loan Agreement (see Exhibit 10.1) dated as of August
                      6**,**2004
                      (without exhibits). (8)10.1(e)
                  Amendment
                      to Term Loan Agreement (see Exhibit 10.1) dated as of March
                      15**,**2005
                      (without exhibits). (8)10.1(f)
                  Amendment
                      to Term Loan Agreement (see Exhibit 10.1) dated as of October
                      13, 2006
                      (without exhibits).10.2
                  Note
                      Purchase Agreement, dated as of November 10, 1993, between
                      John Hancock
                      Mutual Life Insurance Company and Cal-Maine Foods, Inc., and
                      amendments
                      thereto (without exhibits). (1)10.3
                  Loan
                      Agreement, dated as of May 1, 1991, between Metropolitan Life
                      Insurance
                      Corporation and Cal-Maine Foods, Inc., and amendments thereto
                      (without
                      exhibits). (1)10.4
                  Employee
                      Stock Ownership Plan, as Amended and Restated. (1)+10.5
                  1993
                      Stock Option Plan, as Amended. (1)+10.6
                  Wage
                      Continuation Plan, dated as of July 1, 1986, between Jack Self
                      and the
                      Registrant, as amended on September 2, 1994. (1)+10.7
                  Wage
                      Continuation Plan, dated as of April 15, 1988, between Joe
                      Wyatt and the
                      Registrant. (1)+10.8
                  Redemption
                      Agreement, dated March 7, 1994, between the Registrant and
                      Fred R. Adams,
                      Jr. (1)10.9
                  Note
                      Purchase Agreement, dated December 18, 1997, among the Registrant,
                      Cal-Maine Farms, Inc., Cal-Maine Egg Products, Inc., Cal-Maine
                      Partnership, LTD, CMF of Kansas LLC and First South Production
                      Credit
                      Association and Metropolitan Life Insurance Company (without
                      exhibits,
                      except names of guarantors and forms of notes) (3)10.10
                  Wage
                      Continuation Plan, dated as of January 14, 1999, among Stephen
                      Storm,
                      Charles F. Collins, Bob Scott and the Registrant (4)+10.11
                  Secured
                      note purchase agreement dated September 28, 1999 among the
                      Registrant,
                      Cal-Maine Partnership, LTD, and John Hancock Mutual Life Insurance
                      Company, and John Hancock Variable Life Insurance Company (without
                      exhibits, annexes and disclosure schedules) (5)10.12
                  1999
                      Stock Option Plan (6)+10.13
                  2005
                      Stock Option Plan (10)+
  53
 10.14
                  2005
                      Stock Appreciation Rights Plan (11)+21
                  Subsidiaries
                      of the Registrant23
                  Consent
                      of Independent Auditors31.1
                  Certification
                      of Chief Executive Officer31.2
                  Certification
                      of Chief Financial Officer32
                  Written
                      Statement of the Chief Executive Officer and the Chief Financial
                      Officer
 
 
 +   Management
        contract or compensatory plan.
 (1)
                Incorporated
                    by reference to the same exhibit in Registrant’s Form S-1
                    Registration Statement No. 333-14809.(2)
                Incorporated
                    by reference to the same exhibit in Registrant’s Form 10-K for fiscal
                    year ended May 31, 1997.(3)
                Incorporated
                    by reference to the same exhibit in Registrant’s Form 10-Q for the
                    quarter ended November 29, 1997.(4)
                Incorporated
                    by reference to the same exhibit in Registrant’s Form 10-K for fiscal year
                    ended May 29, 1999.(5)
                Incorporated
                    by reference to the same exhibit in Registrant’s Form 10-Q for the quarter
                    ended November 27, 1999.(6)
                Incorporated
                    by reference to  the same exhibit in Registrant’s Form S-8
                    Registration Statement No. 333-39940, dated June 23,
                    2000.(7)
                Incorporated
                    by reference to the same exhibit in Registrant’s Form 10-K for fiscal
                    year ended May 29, 2004.(8)
                Incorporated
                    by reference to the same exhibit in Registrant’s Form 10-K for fiscal
                    year ended May 28, 2005.(9)
                Incorporated
                    by reference to the same exhibit in Registrant’s Form 8-K, dated July 28,
                    2005.(10)
                Incorporated
                    by reference to Appendix B to Registrant’s Proxy Statement for Annual
                    Meeting held October 13, 2005.(11)
                Incorporated
                    by reference to Appendix C to Registrant’s Proxy Statement for Annual
                    Meeting held October 13,
                    2005.
 
 The
        Company agrees to file with the Securities and Exchange Commission, upon
        request, copies of any instrument defining the rights of the holders of its
        consolidated long-term debt.
 
 
 54
 
 
 (c)  Financial
        Statement Schedules Required by Regulation S-X
 
 The
        financial statement schedule required by Regulation S-X is filed at page
        49. All
        other schedules for which
 provision
        is made in the applicable accounting regulations of the Securities and Exchange
        Commission are not required
 under
        the
        related instructions or are inapplicable and therefore have been
        omitted.
   55
  **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned, thereunto duly authorized, in Jackson, Mississippi, on this
        16th  day
        of
        August, 2006.
 
 CAL-MAINE
        FOODS, INC.
 
 /s/
        Fred R. Adams, Jr.
 Fred
        R.
        Adams, Jr.
 Chairman
        of the Board and
 Chief
        Executive Officer
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the registrant and in
        the
        capacities and on the dates indicated:
 
 
 
 Signature
                
                Title
                
                Date/s/
                    Fred R. Adams, Jr.
                
                Chairman
                    of the Board and
                
                August
                    16, 2006Fred
                    R. Adams, Jr.
                
                Chief
                    Executive Officer(Principal
                    Executive Officer)/s/
                    Richard K. Looper
                
                Vice
                    Chairman of the Board
                
                August
                    16, 2006Richard
                    K. Looper
                
                and
                    Director/s/
                    Adolphus B. Baker
                
                President
                    and Director
                
                August
                    16, 2006Adolphus
                    B. Baker/s/
                    Timothy A. Dawson
                
                Vice
                    President, Chief Financial
                
                August
                    16, 2006Timothy
                    A. Dawson
                
                Officer
                    and Director(Principal
                    Financial Officer)/s/
                    Charles F. Collins
                
                Vice
                    President, Controller
                
                August
                    16, 2006Charles
                    F. Collins
                
                (Principal
                    Accounting Officer)/s/
                    Letitia C. Hughes
                
                Director
                
                August
                    16, 2006Letitia
                    C. Hughes/s/
                    R. Faser Triplett
                
                Director
                
                August
                    16 , 2006R.
                    Faser Triplett/s/
                    James E. Poole
                
                Director
                
                August
                    16 , 2006James
                    E. Poole
  56
 
 CAL-MAINE
        FOODS, INC.
 Form
        10-K
        for the fiscal year
 Ended
        June 3, 2006
 EXHIBIT
        INDEX
 
 ExhibitNumber
                Exhibit10.1(f)
                Amendment
                    to Term Loan Agreement dated as of October 13, 2005 (without
                    exhibits).21
                Subsidiaries
                    of Cal-Maine Foods, Inc23
                Consent
                    of Independent Auditors31.1
                Certification
                    of The Chief Executive Officer31.2
                Certification
                    of The Chief Financial Officer32
                Written
                    Statement of The Chief Executive Officer and Chief Financial
                    Officer
 
 57