LUCILLE FARMS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
[Mark One] FORM 10-K

[x ] ANNUAL REPRORT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31,2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITITES EXCHANGE ACT OF 1934

Commission file number 1-12506
______________________________
LUCILLE FARMS, INC.
(Exact name of Registrant as specified in its Charter)

Delaware 13-2963923
(State of incorporation) (I.R.S. employer identification no.)

150 River Road, P.O. Box 517 (973) 334-6030
Montville, NJ 07045 (Registrant's telephone number)
(Address of principal executive office)

Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.001 per share
Preferred Stock Purchase Rights
(Titles of Classes)

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

Indicate by check mark 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. [x]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $5,545,854 based on the average bid and ask price as reported
by NASDAQ on June 15, 2000.

The number of shares of the Registrant's common stock outstanding as of
June 15, 2000 was: 2,971,342.

Documents Incorporated by Reference
None

PART I

ITEM 1. BUSINESS

General

Lucille Farms, Inc. (the "Company") is engaged in the manufacture and
marketing of mozzarella cheese and, to a lesser extent, other Italian variety
cheeses. Utilizing proprietary formulas and processes, the Company has
developed a line of value added, Nutritional cheeses, including reduced fat,
fortified, and organic cheeses. For the fiscal year ended March 31,2000,
conventional mozzarella cheese sales and blends accounted for over 90% of the
Company's revenues. Sales of the Company's Nutritional line of products
during these periods were not significant. The Company's products, which are
primarily manufactured in the Company's production facility in Swanton,
Vermont, are made of natural ingredients.

The Company's conventional mozzarella cheese is sold primarily to the
food service and industrial segments of the cheese market. The food service
segment includes pizza chains and independent pizzerias, restaurants,
recreational facilities, business feeders, health care facilities, schools
and other institutions which prepare food for on premises consumption. The
industrial segment includes manufacturers that utilize cheese products as an
ingredient in processed foods and frozen entrees and side dishes.

The Company believes that its proprietary process utilized in its
Nurtitional cheeses can be applied to a wide variety of cheese products and,
accordingly, plans to continue to develop new dairy related products that
meet the increasing demand for healthier products that satisfy consumer taste
and appearance expectations.

The Company has installed the necessary equipment enabling it to package
retail shredded cheese. The Company is negotiating with several companies to
co-pack their private label retail cheese lines in popular sizes.
Additionally, the Company has developed a distinctive Lucille Farms branded
line of retail cheeses. The Company has begun shipping to retailers in the
Northeast United States. The Company believes its new retail product line
will enable it to realize the higher profit margins available in the retail
marketplace. At present the Company is considering other retail
opportunities.

Health and Nutritional Concerns

During the past twenty years, medical and dietary experts have been
advocating a diet that is lower in saturated fat, cholesterol and sodium
as a means of reducing the risk of heart disease and other health problems.
The public's concern with eating a more healthful diet has increased
significantly.

The Company believes that as public awareness of health and
nutrition continues to grow, consumers will increasingly purchase organic,
natural and/or fortified foods.
Accordingly, the Company believes that nutritional
cheeses will represent an increasingly larger share of total cheese sales as
a result of their nutritional advantages over conventional cheeses.

2

Products

The Company's products include the following:

Conventional Cheese Group:

Conventional Mozzarella. The Company's premium quality, all natural
mozzarella cheese meets or exceeds all federal and industrial standards
for purity, freshness, taste, appearance and texture. During the
fiscal years ended March 31, 1998, 1999 and 2000, conventional
mozzarella cheese sales and blends accounted for approximately 88%, 86%
and 89 %, respectively, of the Company's sales.

Conventional Provolone. The Company's provolone is a premium
quality, all natural cheese that meets or exceeds all federal and
industry standards for purity, freshness, taste, appearance and
texture. During the fiscal years ended March 31, 1998, 1999 and 2000,
sales of conventional provolone accounted for approximately 5%, 5%, and
4 %, respectively, of the Company's sales.

Conventional Feta. The Company's Feta is a premium quality, all
natural cheese that meets or exceeds all federal and industrial
standards for purity, freshness, taste, appearance and texture. During
the fiscal years ended March 31, 1998, 1999 and 2000, sales of Feta
accounted for less than 1% of the Company's sales in each of such
periods.

Nutritional Product Group:

Organic Cheese. The Company is now marketing a line of Organic
Cheeses. The line includes consumer sized packages of shredded and
or/chunk Mozzarella, Cheddar, Monterey Jack, Jalapeno Jack, Garlic &
Herb, and Swiss cheeses, sold to supermarkets, gourmet and health food
stores in the Northeastern USA.

Lactose Free Mozzarella: The Company's lactose free Mozzarella looks
tastes and melts just like conventional Mozzarella, but has no lactose.
This product is targeted at the millions of Americans who have
difficulty digesting the lactose in dairy products.

Mozzi-RITET. The Company manufactures a proprietary mozzarella-style
cheese substitute made with 97% pasteurized skim milk and 3% canola and
sunflower oils. Mozzi-RITET is all natural, cholesterol free and low
in saturated fat and sodium. A "substitute cheese" must be
nutritionally equal or superior to its conventional counterpart,
whereas "imitation cheese" (which the Company does not produce) is
nutritionally inferior to conventional cheese. The Company believes
that its Mozzi-RITET cheese substitute has the taste, mouth feel,
texture, handling and cooking characteristics of conventional
mozzarella. Mozzi-RITET differs from "conventional cheese" in that
oils are used in its manufacture, whereas butterfat containing
cholesterol and saturated fat is used in the manufacture of
conventional cheese. To the Company's knowledge, there is currently no
other all-natural, cholesterol-free mozzarella-style cheese substitutes
on the market.
3
Tasty-Lite CheeseT - Fat Free. This all natural mozzarella cheese is
made from 100% pasteurized skim milk, and contains no fat or
cholesterol, is low in sodium and has reduced calories compared to
conventional mozzarella. The Company is not aware of any other all-
natural, real mozzarella cheese available that is both fat and
cholesterol free.

Tasty-Lite CheeseT - Light. This all-natural mozzarella cheese is
made from 100% pasteurized part-skim milk and contains nearly 60% less
fat than whole milk mozzarella, and 50% less fat than conventional
part-skim mozzarella. This product is low in cholesterol and sodium.
Its fat content, however, is greater than the Company's Tasty-Light
CheeseT - Low Fat nutritional product.

During the fiscal years ended March 31, 1998, 1999 and 2000, the
Company's nutritional product accounted for approximately 2%, 1% and
1%, respectively, of the Company's total sales. While the Company's
conventional cheeses are viewed as commodity items, the Company
believes that its nutritional line should be viewed as "premium"
products, which enables the Company to charge higher prices.

Proprietary Formulas and Processes; New Product Development

The Company's nutritional products are made using the Company's
formulas and processes, which are believed to be proprietary. The formulas
and processes for the Company's nutritional products were designed and
developed by the Company's founders specifically for these products. The
rights to these formulas and processes have been assigned by such officers to
the Company. These proprietary processes can be applied to a wide variety of
cheese, and the Company's future plans include developing other varieties of
nutritional cheeses and products (e.g., provolone, ricotta, feta and
cheddar). However, there can be no assurance that the Company will be
successful in such development, or that, if developed, such products will be
accepted by the marketplace or prove profitable.

Production Facilities

The Company currently produces substantially all of its products at
its manufacturing plant in Swanton, Vermont.The Swanton facility, located in
Franklin County, Vermont's highest volume dairy producing area, operates 24
hours a day, 6 days a week and ships approximately 550,000 pounds of bulk
products per week. The plant currently has 84 full-time employees. The
Company has equipment for shredding, dicing, slicing, vacuum packaging, gas
flush bag packaging, and labeling its products.The manufacturing equipment is
of modern design and assembled in a flow through arrangement for a labor
saving operation. The production operation has been established in such a
way that changes in cheese orders, whether size, specification, packaging,
labeling or delivery dates, can be accomplished without significant effort or
disruption of operations. Due to recent improvements, the Company's facility
now has the capacity to produce approximately 600,000 pounds of bulk product
per week. In the event additional capacity is required, the Company may
either (a) contract out its excess production to, and/or rent plant time
from, other manufacturers ("co-packing"), or (b) further expand its current
plant facilities, subject to appropriate financing, for which it believes it
has sufficient acreage and technical capabilities. However, there can be no
assurance that co-packing arrangements can be effectuated, or, if
effectuated, that such arrangements could be done in a timely manner and at a
reasonable cost.

4

Whey Drying Facility

The Company has recently completed construction of, and has begun
operating, a 10,000 square foot whey drying facility adjacent to its Swanton,
VT cheese plant. This project was built in conjunction with a leading
ingredient processing company, who provided the drying equipment and has
agreed to purchase all of the whey produced at the facility.

Whey is the residue of making cheese. It consists of water, protein,
calcium and other minerals. In the past, whey was regarded as an
environmental pollutant, and its disposal was expensive.

Recently, whey has become a valuable product, and is now used in animal
feeds, infant formulas, protein powders, ice cream and a variety of other
products.

The Company hopes that the current sales of its whey will provide
increased revenues and profits, but there can be no assurance that this will
occur.

The facility dries whey into a product referred to as whey popcorn,
which is milled and mixed with other ingredients for animal feed. The plant
was designed to enable the Company to upgrade it in the future in order to
take advantage of emerging new technologies in whey protein
fractionalization. The Company's ability to produce this higher value whey
protein has not been proven and there can be no assurance that this upgrade
will occur.

Quality Control

The Company is supplied with milk by the largest milk cooperative
headquartered in Vermont. Quality control starts on the local farms, which
produce the milk for the cooperative. The milk is delivered to the Company
directly from the farms on a regular and timely basis. The Company tests all
milk received. Throughout the production process, the Company subjects its
products to quality control inspection and testing in order to satisfy
federal regulation, meet customer specifications and assure consistent
product quality. The Company currently employs two persons qualified to
perform the necessary testing as prescribed by state, federal and the
Company's quality standards and specifications. Such tests are performed at
the Company's on-site laboratory. A sample of each product batch is tested
promptly after the manufacture and again before shipment for various
characteristics, including taste, color, acidity, surface tension, melt,
stretch and fat retention. On a frequent basis, random samples are sent to
qualified independent labs to test for bacteria and other microorganisms.
Federal and state regulatory agencies also perform regular inspections
of the Company's products and facilities.
5

Raw Materials
At present, there are adequate supplies of raw materials, primarily
milk, utilized by the Company in manufacturing its products and the Company
expects such adequate supplies to continue to be available.The Company has
milk supply contracts with several milk cooperatives and has been able to
purchase as much milk as needed for its production. The cooperatives also
ensure the Company a flexible mix of milk products, besides direct farm milk,
such as extra milk, skim milk, condensed skim milk or dry milk powder. This
flexibility is an advantage in cheese production. It enables the Company to
switch from one milk product to another on short notice with no down time.

Markets and Customers
The Company's products are sold primarily to the food service and
industrial segment of the cheese market. The Company has begun to market
its products to the retail segment of the cheese market beginning in July of
1999, primarily to supermarkets in the Northeastern U.S.

The food service segment of the cheese market includes pizza chains and
independent pizzerias, restaurants, recreational facilities, transportation
hubs, business feeders, health care facilities, schools and other
institutions which utilize the company's products as ingredients in preparing
foods for on premise consumption. The Company sells its products to the food
service segment of the cheese market through a network of 20 non-exclusive
food brokers that sell to approximately 140 independent distributors that
service the industry in over 27 states and Washington, D.C. The bulk of the
Company's products distributed in the food service market are utilized by
regional pizza chains and independent pizza shops. For the fiscal years
ended March 31, 1998, 1999 and 2000, sales of the Company's products to food
service segment of the cheese market accounted for approximately 70% to 80%
of revenues. Virtually all of such sales were of the Company's conventional
cheeses. In the fiscal years ended March 31, 2000 and 1999 one customer,
Lisanti Foods, Inc., accounted for approximately 11% and 15% of sales,
respectively. In the fiscal year ended March 31, 1998 no one customer
accounted for more than 10% of the Company's sales.

In the industrial segment of the cheese market, the Company sells its
products to manufacturers for use as an ingredient in processed foods, such
as frozen and refrigerated pizzas, a variety of Italian specialty convenience
foods, and general frozen entrees and side dishes. The finished processed
foods are then generally sold to retail supermarkets and grocery accounts
under various brand names. The majority of the Company's sales of its
conventional cheese and nutritional products to the industrial market are
made directly by the Company's in-house sales staff.For the fiscal years
ended March 31, 1998, 1999 and 2000, sales of the Company's products to the
industrial segment of the cheese market accounted for approximately 9% to 19%
of revenues.
The retail segment of the cheese market consists of independent and
chain supermarkets, natural food stores, warehouse club stores, and other
food retailers. The retail segment accounted for about 1% of total sales
in 2000.

Sales and Marketing

The thrust of the Company's sales and marketing efforts have recently
shifted to emphasize its retail and shredded cheese products. We believe
that the retail and shredded cheese market offers the Company a significant
marketing opportunity. The Company is seeking to establish these products as
a substantial portion of its sales, but there can be no assurance that it
will be successful in doing so.
6
Competition
The company faces intense competition. The conventional cheese market
is a commodity, price-sensitive industry, with numerous small local, medium-
sized regional and large national competitors. The Company competes with
many established national manufactures of conventional cheese, including
Kraft, Inc., Borden, Inc., Sargento Foods, Inc., Suprema Foods and Sorrento
Cheese Company Inc. There are also a number of national dairy cooperatives,
including Dairymen's Creamery Association Inc., Agri-Mark and D.F.A. Inc.
Many of these competitors have significantly greater financial and other
resources than the Company.

The principal competition for the Company's nutritional products group
include many of the same major competitors listed above in the conventional
cheese industry, in addition to Century Foods, Galaxy Foods, Land of Lakes
Inc. and Stella Foods, Inc.

The Company's nutritional products are positioned as premium products
and are generally higher in price than certain similar competitive products.
The Company believes that the principal competitive factors in the marketing
of cheese products are quality, customer service, price and brand
recognition. While the Company believes that its products compete favorably
with respect to these factors and believes that its anticipated increased
sales and marketing efforts will result in greater product recognition and
market penetration for its existing and new products, there can be no
assurance that the Company will be able to compete successfully, particularly
with respect to its new products and its entry into new markets.

Trademarks and Patents
The Company owns the trademarks Lucille FarmsT, Monte CarloT,
Mozzi-RITET, Real Italian Taste Experiencer, and Tasty-Lite CheeseT for its
products. The Company owns a registered trademark for Real Italian Taste
Experiencer. In addition, the Company is currently pursuing trademark
protection for a number of other potential names for existing and planned new
products.The Company believes these trademarks are an important means of
establishing consumer recognition for the Company and its products. However
there can be no assurance as to the degree that these trademarks offer
protection to the Company, or that the Company will have the financial
resources to engage in litigation against any infringement of its trademarks,
or as to the outcome of any litigation if commenced.

Although the Company believes its formulas, processes and technology
for its nutritional products are proprietary, the Company has not sought and
does not intend to seek patent protection for such technology. In not
seeking patent protection, the Company is instead relying on the complexity
of its technology, trade secrecy laws and employee confidentially agreements.
However, there can be no assurance that other companies will not acquire
information which the Company considers to be proprietary or will not
independently develop equivalent or superior products or technology and
obtain patents or similar rights with respect thereto. Although the Company
believes that its technology has been independently developed and does not
infringe upon the patents of others, certain components of the Company's
manufacturing processes could infringe existing or future patents, in which
event the Company may be required to modify its processes or obtain a
license. No assurance can be given that the Company will be able to do so in
a timely manner or upon acceptable terms and conditions, and the failure to
do either of the forgoing could have a material adverse effect on the
Company.
7
Government Regulation
The dairy industry is subject to extensive federal, state and local
government regulation, including the Food and Drug Administration ("FDA"),
the United States Department of Agriculture, the State of Vermont Department
of Agriculture and the Vermont Environmental Protection Agency, regarding the
quality, purity, manufacturing, marketing, advertising, labeling and
distribution of food products. The Company's plant is subject to regulation
and inspection by these agencies and failure to comply with one or more
regulatory requirements can result in fines and sanctions, including the
closing of all or a portion of the facility until the manufacturer, is able
to bring its operations or products into compliance.

Food products are also subject to "standard of identity" requirements
mandated by both federal and state agencies to determine the permissible
qualitative and quantitative ingredient content of foods. The Company
believes that all its products meet the applicable FDA standards of identify
and that the various products it labels as "no-cholesterol," "low-sodium,"
"low saturated fat," "fat-free," reduced calorie" and "source of calcium"
meet the applicable FDA standards of identity for such designations.

The Company's manufacturing plant is believed to be operating in
compliance with all regulations, and has all the necessary licenses, permits
and approvals required to operate. The Company currently operates a facility
for the purpose of pre-treating the wastewater generated from the Company's
manufacturing facility. The Company entered into an Agreement with the State
of Vermont, to make significant improvements in its waste water facility.
The improvements have been completed and the Company believes the facility is
in compliance with all regulatory requirements.

Employees

The Company and its wholly owned manufacturing subsidiary currently
employ 91 full-time employees, four of which are executive officers of the
Company. Of such employees, seven are in executive and administrative
positions, 79 are in production and distribution, and five are in clerical
positions. Of such employees, 84 are located at the Swanton, Vermont
facility and seven are located at the Company's executive offices in
Montville, New Jersey.

8

ITEM 2. PROPERTIES

The Company's Swanton, Vermont manufacturing plant was constructed in
1975 in conjunction with the Target Area Development Corporation (a non-
affiliated industrial development agency), which was to retain title to the
plant during a fixed lease period expiring on December 31, 1999. Under such
lease, the Company was obligated by Target Area Development Corporation to
finance the cost of constructing the plant. On July 5, 1994 the Company
exercised its right to purchase the premises for $1.00 plus the unamortized
balance of said loans. A majority of the machinery and equipment located at
the plant is also included under the above arrangement. The Swanton facility
is one floor consisting of approximately 40,000 square feet.

The Company currently operates a facility for the purpose of pre-
treating the wastewater generated from the Company's manufacturing facility.
The Company entered into an Agreement with the State of Vermont to make
significant improvements in the wastewater facility. The improvements have
been completed and the Company believes the facility is in compliance with
all regulatory requirements.

In 1999 the Company completed construction, and began operating,
a 10,000 square foot whey drying facility adjacent to its Swanton,
VT cheese plant.

The Company's executive offices, consisting of approximately 1,900
square feet, are located in Montville, New Jersey. Approximately 1,000
square feet of such premises are leased from Messrs. Gennaro and Alfonso
Falivene and the estate of Philip Falivene, officers, directors, and
principal stockholders of the Company, all of whom own the office condominium
unit. The Company currently pays Messrs. Falivene $1,200 per month rent for
such premises, which is the fair market value for such space, on a month-to-
month basis. The remainder of the Company's premises is occupied pursuant to
a month-to-month lease from Messrs. Gennaro and Alfonso Falivene, and the
estate of Philip Falivene, pursuant to which the Company pays $750 per month
rent.

The Company leases a parcel of land adjacent to the Vermont facility.
This parcel is owned by Messrs. Gennaro and Alfonso Falivene, and the estate
of Philip Falivene. The space is used as an employee parking lot and its use
was required in conjunction with the construction of the new Whey drying
facility. The lease is for a ten year period. Rentals are $750 monthly for
the first five years and $900 monthly for the additional five year period.
Rent expense for the years ended March 31, 2000 and 1999 was $9,000 and
$6,000, respectively. This lease has a purchase option to purchase at fair
market value at the end of the ten year period. This lease was assigned to
the Bank in conjunction with the Whey Plant financing.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings.

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

NOT APPLICABLE

9

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The Common Stock trades on the National Association of Securities
Dealers Automated quotation System ("NASDAQ") under the symbol "LUCY". The
following table sets forth the high and low bid quotations reported on NASDAQ
for the Common Stock for the periods indicated.

High Low

Year Ended March 31, 2000:

First Quarter 3-5/8 2-3/8
Second Quarter 3-3/8 2-3/8
Third Quarter 4-3/16 2-1/4
Fourth Quarter 5-1/2 3-1/2

Year Ended March 31, 1999:

First Quarter 1-13/16 1-1/8
Second Quarter 2-1/2 1-9/16
Third Quarter 3-1/4 1-13/16
Fourth Quarter 4 2-5/16

The above quotations represent prices between dealers, do not include
retail mark-ups, markdowns or commissions and do not necessarily reflect
actual transactions.

As of June 15, 2000 there were approximately 125 holders of record of
Common Stock. Since many shares are registered in street name, the number of
beneficial owners is considerably higher.

The Company has never paid cash dividends on its Common Stock. Payment
of dividends, if any, will be within the discretion of the Company's Board of
Directors and will depend, among other factors, on earnings, capital
requirements and the operating and financial condition of the Company. At the
present time, the Company's anticipated capital requirements are such that it
intends to follow a policy of retaining earnings, if any, in order to finance
its business.

10

ITEM 6. SELECTED FINANCIAL DATA

The following tables summarize certain financial data which should be
read in conjunction with the report of the Company's independent auditors and
the more detailed financial statements and the notes thereto which appear
elsewhere herein.

Statement of Operations Data (in thousands, except share and per share data)

Year Ended March 31

2000 1999 1998 1997 1996

Net Sales.. $42,810 $46,048 $36,175 $43,890 $41,708

Net income (loss). 71 729 (2,138) (935) 773

Net income (loss) per
share .. B .02 .24 (.71) (.31) .25

Weighted average common
and common equivalent
shares outstanding . 2,971,342 2,994,711 3,002,500 3,005,513 3,052,500

Balance Sheet Data (in thousands)

_____________March 31_______________________

2000 1999 1998 1997 1996

Total assets . . $15,223 $16,156 $11,656 $13,330 $12,773

Long-term debt and
capital lease
obligations . . 7,970 8,163 4,832 2,150 1,902

Total liabilities. 12,486 13,490 9,645 9,181 7,564

Working capital 1,945 2,746 1,282 713 1,345

Stockholders' equity. 2,737 2,666 2,011 4,149 5,209
____________________

11

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

Results of Operations

General
The Company's conventional cheese products, which account for
substantially all of the Company's sales, are commodity items. The Company
prices its conventional cheese products competitively with others in the
industry, which pricing, since May 1997, is referenced to the Chicago
Mercantile Exchange (and was formerly referenced to the Wisconsin Block
Cheddar Market). The price the Company pays for fluid milk, a significant
component of cost of goods sold, is not determined until the month after its
cheese has been sold. While the Company generally can anticipate a change in
price of milk, it cannot anticipate the extent thereof. By virtue of the
pricing structure for its cheese and the competitive nature of the
marketplace, the Company cannot always pass along to the customer the changes
in the cost of milk in the price of its conventional cheese. As a
consequence thereof, the Company's gross profit margin for such cheese is
subject to fluctuation, which fluctuation, however slight, can have a
significant effect on profitability.

The Company is unable to predict any future increase or decrease in the
prices in the Chicago Mercantile Exchange as such markets are subject to
fluctuation based on factors and commodity markets outside of the control of
the Company. Although the cost of fluid milk does tend to move
correspondingly with the Chicago Mercantile Exchange, the extent of such
movement and the timing thereof also is not predictable as it is subject to
government control and support. As a result of these factors, the Company is
unable to predict pricing trends.

Year ended March 31, 2000 compared to the year ended March 31, 1999

Sales for the year ended March 31, 2000 decreased to $42,810,000
from $46,048,000 for the comparable period in 1999, a decrease of
$3,238,000 (or 7.0%). Approximately $6,068,000 (or 187.4%) of such amount
was due to a decrease in the average selling price of cheese. This
decrease in sales was offset by an increase in the number of pounds of
cheese sold resulting in $1,860,000 increase in sales when compared to the
year ago period and approximately $970,000 (or 30%) was offset by
increased whey sales produced in our new facility.

Cost of sales and gross profit margin for the year ended March 31, 2000
were $40,012,000 (or 93.5% of sales) and $2,798,000 (or 6.5% of sales),
respectively, compared to a cost of sales and gross profit margin of
$42,366,000 (or 92.0% of sales) and $3,682,000 (or 8.0% of sales),
respectively, for the comparable period in 1999. The increase in cost of
sales and corresponding decrease in gross profit margin for 2000 as a
percentage of sales is primarily due to a increase in the Company's cost of
raw materials as a percentage of selling price.

Selling, general and administrative expenses for the year ended March
31, 2000 amounted to $2,299,000 (or 5.4% of sales) compared to $2,473,000 (or
5.4% of sales) for the comparable period in 1999. Selling, general and
administrative expenses as a percentage of sales remained constant in the
period.
12
Interest expense for the year ended March 31, 2000 amounted to
$691,000 compared to $505,000 for the year ended March 31, 1999 an increase
of $186,000. This increase is the result of increased borrowing due to the
addition of new plant production equipment and higher revolving credit line
usage in the year.

The provision for income tax for the year ended March 31, 2000 of
$8,000 and March 31, 1999 of $3,000 reflect minimum taxes with the tax
benefits of operating loss carryforwards being offset by the effect of
changes in the valuation allowance. Such amounts are re-evaluated each
year based on the results of the operations.

The Company's net income of $71,000 for the year ended March 31, 2000
represents a decrease of $658,000 from the net income of $729,000 for the
comparable period in 1999. The primary factors contributing to these changes
are discussed above.

With respect to its gross profit margin, the Company is continuing its
efforts to increase sales of its value added products which are less
dependent on the Chicago Mercantile Exchange. The selling price for the
Company's nutritional line of cheeses is less dependent on the Block Cheddar
Market, which dictates the Company's commodity cheese prices. With respect
to its nutritional line of cheeses, the Company is continuing its efforts to
increase sales of such products. To date sales of nutritional cheese has not
been significant. The Company has now positioned itself to co-pack private
label retail products. However, there can be no assurance as to whether such
sales can be achieved or maintained. In addition, the Company has continued
to upgrade its equipment to enable it to reduce costs and add product lines
with greater margins.

Year ended March 31, 1999 compared to the year ended March 31, 1998

Sales for the year ended March 31, 1999 increased to $46,048,000 from
$36,175,000 for the comparable period in 1998, an increase of $9,873,000 (or
27.3%). Approximately $4,560,000 (or 46.2%) of such amount was due to an
increase in the number of pounds of cheese sold and approximately $5,313,000
(or 53.8%) of such an increase was due to an increase in the average selling
price for cheese. The volume increase was due to increased demand in the
commodity cheese markets and an increase in plant production of cheese in the
period. The Company anticipates volume increases and increased demand in the
months ahead, although there can be no assurance in this regard. The
increase in average selling price was the result of an increase in block
cheddar market prices coupled with increased demand in the marketplace
resulting in a higher selling price per pound of cheese.

Cost of sales and gross profit margin for the year ended March 31, 1999
were $42,366,000 (or 92.0% of sales) and $3,682,000 (or 8.0% of sales),
respectively, compared to a cost of sales and gross profit margin of
$35,627,000 (or 98.5% of sales) and $548,000 (or 1.5% of sales),
respectively, for the comparable period in 1998. The decrease in cost of
sales and corresponding increase in gross profit margin for 1999 as a
percentage of sales is primarily due to a decrease in the Company's cost of
raw materials as a percentage of selling price. In addition, the allocation
of labor and overhead costs to more units of production resulted in a
slightly lower cost per pound and higher margins.

Selling, general and administrative expenses for the year ended March
31, 1999 amounted to $2,473,000 (or 5.4% of sales) compared to $2,260,000 (or
6.2% of sales) for the comparable period in 1998. The decrease in selling,
general and administrative expenses as a percentage of sales was primarily
due to the increased sales in the period without a corresponding increase in
these expenses.
13
Interest expense for the year ended March 31, 1999 amounted to $505,000
compared to $481,000 for the year ended March 31, 1998 an increase of
$24,000. This increase is the result of increased borrowing due to the
addition of new plant production equipment and higher revolving credit line
usage in the year.

The provision for income tax for the year ended March 31, 1999 of
$3,000 and March 31, 1998 of $1,000 reflect minimum state taxes with the tax
benefits of operating losses being offset by the effect of decreasing the
valuation allowance by $303,000 in 1999 and increasing the valuation
allowance by $754,000 in 1998. Such amounts are re-evaluated each year based
on the results of the operations.

The Company's net income of $729,000 for the year ended March 31, 1999
represents an improvement of $2,867,000 from the net loss of $2,138,000 for
the comparable period in 1998. The primary factors contributing to these
changes are discussed above.

Liquidity and Capital Resources

At March 31, 2000 the Company had working capital of $1,945,000 as
compared to working capital of $2,746,000 at March 31, 1999. The Company's
revolving bank line of credit is available for the Company's working capital
requirements.

At March 31, 2000, $3,117,000 was outstanding under such revolving
credit line of credit and no funds were available for additional borrowing at
that time (based on the inventory and receivable formula). Advances under
this facility are limited to 50% of inventory and 80% of receivables. The
rate of interest on amounts borrowed against the revolving credit facility is
prime plus 1%. A .25% annual unused line fee is also charged on this
facility. The agreement contains various restrictive covenants the most
significant of which reflects to limitations on capital expenditures
($500,000 annually without bank consent). In addition, the Company is
required to generate an increase in its dollar amount of net worth annually.
The Company intends to continue to utilize this line of credit as needed for
operations.

On February 8, 1999, a new $4,950,000 bank loan agreement was signed.
The new loan is collateralized by the Company's plant and equipment.
Provisions of the loan are as follows:

A $3,960,000 commercial term note with interest
fixed at 9.75 percent having an amortization period
of 20 years with a maturity in February, 2019.

A $990,000 commercial term note with interest
fixed at 10.75 percent having an amortization period
of 20 years with a maturity in February, 2019.

Proceeds of the new loans were used to repay the $2,647,000
of the long term debt outstanding at December 31, 1998, reduce
the revolving credit loan by $954,000 and the balance was
added to the working capital of the Company.

14
The Company's major source of external working capital financing has
been and is currently the revolving line of credit. For the foreseeable
future the Company believes that its current working capital and its existing
lines of credit will continue to represent the Company's major source of
working capital financing besides income generated from operations.

For the year ended March 31, 2000 cash provided by operating activities
was $10,000. In addition to the income from operations, decreases in
accounts receivable of $444,000,and a decrease in prepaid expenses and other
assets of $94,000 provided cash. Cash was decreased by decreases in accounts
payable of $767,000, an increase in inventories of $390,000 and a decrease in
accrued expenses of $64,000 also utilized cash.

Net cash used by investing activities was $1,204,000 for the year ended
March 31, 2000 which represented purchase of property, plant and equipment of
$1,199,000 and loan increases amounting to $5,000.

Net cash used by financing activities was $283,000 for the year ended
March 31, 2000. Repayments of the revolving credit loan amounting to
$183,000 used cash. Repayments of long-term debt and notes of $100,000 also
used cash in the period.

The Company estimates that based upon its current plans, its resources
including revenues from operations and utilization of its existing credit
lines, will be sufficient to meet its anticipated needs for at least 12
months.

Year 2000 Issue

The Company has assessed the potential issues associated with
the year 2000 and believes that its costs to address such issues
would not be material. The Company believes that all of its
operating systems are Year 2000 compliant

Safe Harbor Statement

This Annual Report on Form 10K (and any other reports issued by the
Company from time to time) contains certain forward-looking statements made
in reliance upon the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements, including
statements regarding the application of the Company's proprietary processes
to other cheese products, and the Company's ability to improve margins and
increase retail sales, are based on current expectations that involve
numerous risks and uncertainties. Actual results could differ materially
from those anticipated in such forward-looking statements as a result of
various known and unknown factors including, without limitation, future
economic, competitive, regulatory, and market conditions, future business
decisions, the uncertainties inherent in the pricing of cheese on the Chicago
Mercantile Exchange upon which the Company's prices are based, changes in
consumer tastes, fluctuations in milk prices, and those factors discussed
above under Management's Discussion and Analysis of Financial Condition and
Results of Operations. Words such as "believes," "anticipates," "expects,"
"intends," "may," and similar expressions are intended to identify forward-
looking statements, but are not the exclusive means of identifying such
statements. The Company undertakes no obligation to revise any of these
forward-looking statements.

15

ITEM 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

The registrant does not utilize market rate sensitive instruments
for trading or other purposes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Follow on next page

16

Shareholders
Lucille Farms, Inc.
and Subsidiaries

Independent Auditors' Report

We have audited the accompanying consolidated balance sheet of
Lucille Farms, Inc. and Subsidiaries as at March 31, 2000 and 1999 and
the related consolidated statements of operations, stockholders' equity
and cash flows for the years ended March 31, 2000, 1999 and 1998.
These financial statements 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 generally accepted
auditing standards. 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 aforementioned consolidated financial
statements present fairly, in all material respects, the financial
position of Lucille Farms, Inc. and Subsidiaries as at March 31, 2000
and 1999, and the results of their operations and their cash flows for
the years ended March 31, 2000, 1999 and 1998 in conformity with
generally accepted accounting principles.

/s/ Citrin Cooperman & Company, LLP
CITRIN COOPERMAN & COMPANY, LLP

New York, New York
June 2, 2000

17

LUCILLE FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31,

Assets 2000 1999
Current Assets:
Cash and cash equivalents $ 447,000 $ 1,924,000
Accounts receivable, net of allowances 3,122,000 3,618,000
of $103,000 in 2000 and $132,000 in 1999
Inventories 2,175,000 1,785,000
Deferred income taxes 60,000 67,000
Prepaid expenses and other current
assets 107,000 143,000
Total Current Assets 5,911,000 7,537,000
Property, Plant and Equipment, Net 8,328,000 7,591,000
Other Assets:
Due from officers 144,000 139,000
Deferred income taxes 490,000 469,000
Deferred loan costs, net 256,000 268,000
Other 94,000 152,000
Total Other Assets 984,000 1,028,000
TOTAL ASSETS $ 15,223,000 $ 16,156,000

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,556,000 $ 4,323,000
Current portion of long-term debt 103,000 97,000
Accrued expenses 307,000 371,000
Total Current Liabilities 3,966,000 4,791,000
Long-Term Liabilities:
Long-term debt 4,853,000 4,863,000
Revolving credit loan 3,117,000 3,300,000
Deferred income taxes 550,000 536,000

Total Long-Term Liabilities 8,520,000 8,699,000

TOTAL LIABILITIES 12,486,000 13,490,000

Stockholders' Equity:
Common stock,$0.001 par value,
10,000,000 shares authorized,
3,021,342 shares issued 3,000 3,000
Additional paid-in capital 4,438,000 4,438,000
Accumulated deficit (1,579,000) (1,650,000)
2,862,000 2,791,000

Less:Cost of 50,000 shares treasury
stock (125,000) (125,000)
Total Stockholders' Equity 2,737,000 2,666,000

TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $15,223,000 $16,156,000

See accompanying notes to consolidated financial statements.

18

LUCILLE FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED MARCH 31,

2000 1999 1998
Sales $42,810,000 $46,048,000 $36,175,000

Cost of Sales 40,012,000 42,366,000 35,627,000

Gross Profit 2,798,000 3,682,000 548,000

Other Expense (Income):
Selling 1,655,000 1,655,000 1,624,000
General and
Administration 644,000 818,000 636,000
Other Income (256,000) -- (10,000)
Interest Income (15,000) (28,000) (46,000)
Interest Expense 691,000 505,000 481,000

Total Other Expense
(Income) 2,719,000 2,950,000 2,685,000

Income(loss)before
income taxes 79,000 732,000 (2,137,000)

(Provision) for
income taxes (8,000) (3,000) (1,000)

Net Income (Loss) $71,000 $ 729,000 $(2,138,000)
--------- ----------- -------------
Net Income(Loss)per $ .02 $ .24 $ (.71)
share(basic)

Net Income (Loss) per
share(diluted) $ .02 $ .24 $ (.71 )

Weighted average shares
outstanding used to compute
net income (loss) per share
(basic) 2,971,342 2,994,711 3,002,500

Weighted average shares
outstanding used to compute
net income (loss) per share
(diluted) 2,956,817 2,984,832 3,002,500

See accompanying notes to consolidated financial statements.

19

LUCILLE FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000, 1999 AND 1998

Common Stock Additional Accumulated Treasury Stock
Paid In
Shares Amount Capital Deficit Shares Amount Total

Balance
March 31,
1997 3,052,500 $3,000 $4,512,000 $(241,000) 50,000$(125,000)$4,149,000

Net loss (2,138,000) (2,138,000)

Balance
March 31,
1998 3,052,500 3,000 4,512,000 (2,379,000) 50,000 (125,000) 2,011,000

Net income 729,000 729,000

Purchase and
retirement of
31,158 shares
of stock (31,158) (74,000) ________ _______ ______ (74,000)

Balance
March 31,
1999 3,021,342 3,000 4,438,000 (1,650,000) 50,000 (125,000) 2,666,000

Net income______ ______ ___ 71,000 ______ ______ 71,000

Balance
March 31,
2000 3,021,342 $3,000 $4,438,000 $(1,579,000) 50,000 $(125,000)$2,737,000

See accompanying notes to consolidated financial statements

20

LUCILLE FARMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31,
2000 1999 1998
Cash Flows from Operating Activities:
Net income(loss) $ 71,000 $729,000 $(2,138,000)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 570,000 451,000 394,000
Provision for doubtful accounts 52,000 54,000 21,000
Gain on sale of equipment - - (10,000)
(Increase) decrease in assets:
Accounts receivable 444,000 (839,000) 145,000
Inventories (390,000) 110,000 809,000
Prepaid expenses and other
current assets 36,000 (74,000) 35,000
Other assets 58,000 (29,000) (7,000)
Increase (decrease) in liabilities:
Accounts payable (767,000) 532,000 837,000
Accrued expenses (64,000) 147,000 5,000
Net cash provided by operating
activities 10,000 1,081,000 91,000
Cash Flow From Investing Activities:
(Increase) repayment of officers'
loans (5,000) 30,000 7,000
Proceeds from sale of equipment 19,000
Purchase of property, plant and
equipment (1,199,000)(2,726,000) (395,000)
Deposits on equipment ___________ 9,000
Net cash used by investing
activities (1,204,000)(2,696,000) (360,000)
Cash Flow From Financing Activities:
Proceeds from (repayments of)
revolving credit loan-net (183,000) 353,000 (193,000)
Proceeds from long-term debt -- 4,964,000 16,000
Principal payments of long-term
debt (100,000)(2,171,000) (239,000)
Increase in mortgage loan costs -- (270,000) --
Purchase of stock _ __ -- (74,000) --___
Net cash provided (used)
by financing activities (283,000) 2,802,000 (416,000)
Net increase(decrease) in cash (1,477,000) 1,187,000 (685,000)
Cash and cash equivalents-beginning1,924,000 737,000 1,422,000
CASH AND CASH EQUIVALENTS-
ENDING $447,000 $1,924,000 $737,000
--------- ----------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION:
Cash paid for:
Interest $681,000 $554,000 $478,000
Income taxes 8,000 1,000 2,000
Additions to property, plant and
equipment acquired by debt issue 96,000

See accompanying notes to consolidated financial statements
21

LUCILLE FARMS,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business Activity

Lucille Farms, Inc. and Subsidiaries ("the Company") is engaged in the
manufacture and marketing of a variety of cheese products which are sold
primarily to retailers through independent distributors.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles 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 periods. Actual results could differ from those estimates.

Basis of Presentation

The consolidated financial statements include the accounts of Lucille Farms,
Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.

Statement of Cash Flows

For purposes of the consolidated statement of cash flows, the Company
considers temporary investments with a maturity of three months or less to be
cash equivalents.

Inventories

Inventories are stated at the lower of cost or market determined on a first-
in, first out method of accounting.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation and
amortization is being provided on a straight-line basis over the estimated
useful lives of the assets as follows:
Plant 35 years
Equipment 3-10 years

Deferred Loan Costs

Costs of obtaining a mortgage and term facility were deferred and are being
amortized on a straight-line basis over the term of the mortgage.

22

LUCILLE FARMS,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes

The Company provides for deferred income taxes resulting from temporary
differences in reporting certain income and expense items (principally
depreciation) for income tax and financial reporting purposes. Income tax
benefits from operating loss and investment tax credit carryforwards are
recognized to the extent available less a valuation allowance if it is more
likely than not that some portion of the deferred tax asset will not be
realized.

Earnings per Share

Basic earnings per share is computed by dividing net earnings available to
common shareholders by the weighted average common shares outstanding for the
period. Diluted earnings per share is computed by dividing net earnings
available to common shareholders by the weighted average common shares
outstanding adjusted for the dilutive effect of options granted under the
Company's stock option plans. Basic and diluted earnings per share were the
same for 1998 since options and warrants were not included in the calculation
because their effect would have been antidilutive. The dilution for 2000 and
1999 is due to the net incremental effect of options of 14,525 shares and
9,879 shares, respectively.

Accounting for Stock-Based Compensation

Effective April 1, 1996, the Company adopted the fair value disclosure
requirement of SFAS No. 123, "Accounting for Stock-Based Compensation." As
permitted by SFAS No. 123, the Company did not change the method of
accounting for its employee stock compensation plans. See Note 13 for the
fair value disclosures required under SFAS No. 123.

NOTE 2 - ACCOUNTS RECEIVABLE

The Company has entered into a revolving credit facility with a bank whereby
it has pledged all of its accounts receivable as collateral (Note 6).

NOTE 3 - INVENTORIES

Inventories consist of the following:

March 31, 2000 March 31, 1999

Finished goods $ 1,169,000 $ 855,000
Raw materials 524,000 572,000
Supplies and packaging 482,000 358,000
$ 2,175,000 $ 1,785,000

Inventories are pledged as collateral under a revolving credit
facility with a bank (Note 6).

23

LUCILLE FARMS,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
March 31, 2000 March 31, 1999

Land $ 25,000 $ 25,000
Plant 4,316,000 3,955,000
Equipment 7,128,000 6,454,000
Whey facility 2,020,000 1,787,000
------------ ------------
13,489,000 12,221,000

Less: accumulated
depreciation and
amortization 5,161,000 4,630,000
$ 8,328,000 $ 7,591,000

Included in property, plant and equipment at March 31, 2000 is capitalized
interest of $109,000 and capitalized labor of $85,000. Interest of $3,000
and labor of $24,000 was capitalized for the year ended March 31, 2000.
Interest of $22,000 was capitalized for the year ended March 31, 1999.

NOTE 5 - DUE FROM OFFICERS

Amounts due from officers reflect advances and loans which effective June 1,
1992 are represented by promissory notes bearing interest at 9% per annum.
Interest is payable beginning on June 1, 1994 and annually thereafter, with
the principal due on June 1, 2000 which has been extended to June 1, 2001.
$11,000, $14,000 and $14,000 was included in operations as interest income
for the years ended March 31, 2000, 1999 and 1998, respectively.

NOTE 6 - REVOLVING CREDIT LOAN

The Company has available a $5,000,000 revolving credit facility at March 31,
2000 that expires on May 1, 2001. The rate of interest on amounts borrowed
against the revolving credit facility is based upon the New York prime rate
plus 1% (10% at March 31, 2000 and 8.75% at March 31, 1999). Advances under
this facility are limited to 50% of inventory (with a cap on inventory
borrowings of $1,000,000) and 80% of receivables as defined in the agreement.
The commitment contains various restrictive covenants the most significant of
which relates to limitations on capital expenditures ($500,000 annually
without bank consent). In addition, the Company is required to generate an
increase in its dollar amount of net worth annually.

This loan is secured by substantially all of the Company's assets.

24

LUCILLE FARMS,INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - LONG-TERM DEBT

Long-term debt consists of the following:

March 31, March 31,
2000 1999

Term loan with a bank dated February 8, 1999,
secured by real estate and equipment, payable
monthly at $37,561 including interest at
9.75% for 20 years
maturing February 8, 2019. $3,889,000 $3,957,000

Term loan with a bank dated February 8, 1999
secured by real estate and equipment,
payable monthly at
$10,051 including interest at 10.75% for
20 years maturing February 8, 2019 974,000 974,000

Equipment notes payable in monthly
installments of $972 including interest
at 9.75% through November 2004. The notes
are collateralized by equipment with
a net book value of approximately $44,000 at
March 31, 2000. The notes represent
drawings against a credit facility totalling
$1,000,000. 44,000

Discounted obligations under capital leases 49,000
(Note 9)

Insurance premium financing February 3,
1998 for $16,000 payable monthly at
$1,860 including interest at 11% -- 14,000

----------- -------------
4,956,000 4,960,000

Less: current portion 103,000 97,000
----------- -----------

TOTAL $4,853,000 $4,863,000
========== ===========

As of March 31, 2000 long-term debt
matures as follows:

2001 $103,000
2002 121,000
2003 134,000
2004 144,000
2005 142,000
2006
and thereafter 4,312,000
----------
$ 4,956,000
=========

Virtually all of the Company's property, plant and equipment are
pledged as collateral for these obligations.

25

LUCILLE FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - INCOME TAXES

Temporary differences and carryfowards which give rise to deferred tax assets
and liabilities are as follows:

March 31,2000 March 31,1999
Deferred Deferred
Deferred Tax Deferred Tax
Tax Asset Liability Tax Asset Liablity

Depreciation $550,000 $536,000
Provision for doubtful
accounts $ 39,000 $ 50,000
Reserve for compensated
absences 21,000 17,000
Investment tax credit
carryfowards 74,000 88,000
Operating loss carryfowards 1,281,000 1,181,000
Contribution carryfowards 2,000 ________ 2,000 _______
1,417,000 550,000 1,338,000 536,000
Valuation allowance (867,000) _______ (802,000) ________
$ 550,000 $550,000 $536,000 $536,000

The net change in the valuation allowance for the periods presented were as
follows:
March 31,
______________________________
2000 1999 1998

Valuation allowance increase(decrease) $65,000 $(303,000) $754,000

The provision for income taxes represents the provision for minimum state
taxes, with the tax benefits of loss carryfowards being offset by increases
or decreases in the valuation allowance.

The provision for income taxes is different than the amount computed using
the United States Federal Statutory income tax rate for the reasons set forth
below:

_Years Ended March 31,________
2000 1999 1998

Expected tax at U.S. Statutory Rate 30.0% 34.0% (34.0)%
State and local income taxes 1.2 1.5 (1.3)
Permanent differences and other (104.0) 6.3
Valuation allowance for operating loss
carryfowards not expected to be used
(released) 82.9 (41.4) 35.3
10.1% .4% 0.0%

Included in other in 2000 is the reduction of income of $256,000 of life
insurance proceeds which is not taxable.

26

LUCILLE FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - INCOME TAXES (CONTINUED)

Operating loss carryforwards and investment tax credit carryforwards totaled
approximately $3,372,000 and $74,000, respectively, as of March 31, 2000 and
expire on March 31, of the following years:

Net Operating Loss Investment Tax Credit
2010 $ 75,000 2001 $74,000
2012 913,000
2013 2,122,000
2015 262,000
Total $3,372,000

NOTE 9 - LEASE COMMITMENTS
The Company leases automobiles for three of its officers under lease
arrangements classified as operating leases. The leases expire in June 2000,
October 2000 and December 2001. Rent expense was approximately $18,000 in
each of the years ended March 31, 2000, 1999 and 1998. Future minimum
payments under the leases are approximately $11,000 as at March 31, 2000.

On December 20, 1994 the Company began leasing waste water purification
equipment under leasing arrangements classified as an operating lease. The
monthly lease payments are $3,870 for a period of 60 months. Leasing expense
was $23,000 for the year ended March 31, 2000 and $46,000 for each of the
years ended March 31, 1999 and 1998. As per the agreement, the Company
exercised its option to purchase the equipment and purchased the equipment
during the year ended March 31, 2000. In addition, the Company leases some
equipment under operating leases expiring through January 2004. Minimum
monthly lease payments under these leases total $1,000. Minimum annual lease
payments are $11,000 for each of the years ending in 2001, 2002 and 2003 and
$4,000 in the year ending March 31, 2004.

The Company also leases some equipment under a lease that includes an option
to purchase the equipment at the end of the lease term. Capital lease
property of $50,000 is included in property, plant and equipment.

Future minimum lease payments under capital leases are as follows:
2001 $ 17,000
2002 17,000
2003 17,000
2004 12,000
Total minimum lease payments 63,000
Less amount representing interest 14,000
Present value of net minimum
payments 49,000

Less current maturities 11,000
--------
Long-term obligation $ 38,000
---------

27

LUCILLE FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - RELATED PARTY TRANSACTIONS

The Company leases a parcel of land adjacent to the facility. This parcel is
owned by three of its stockholders. The space is used as an employee parking
lot and its use was required in conjunction with the construction of the new
Whey drying facility. The lease is for a ten year period. Rentals are $750
monthly for the first five years and $900 monthly for the additional five
year period. Rent expense for the years ended March 31, 2000 and 1999 was
$9,000 and $6,000, respectively. This lease has a purchase option to
purchase at fair market value at the end of the ten year period. This lease
was assigned to the Bank in conjunction with the Whey Plant financing.

The Company leases space for its executive offices at $1,200 per month from
three of its stockholders on a month to month basis. Rent expense was
approximately $14,000 for each of the years ended March 31, 2000,1999 and
1998.

The Company also leases an additional 900 square feet for $750 monthly on a
month to month basis. These premises are owned by three of its stockholders.
This space is primarily used for the Company's marketing operations. Rent
expense was $9,000 for each of the years ended March 31, 2000, 1999 and 1998.

NOTE 11 - STOCKHOLDERS' EQUITY

In May 1993, the Board of Directors of the Company adopted a resolution
authorizing the issue of 250,000 shares of Preferred Stock, par value $0.001
per share. Such preferred stock may be issued in series, the terms of which
will be determined by the Company's Board of Directors without action by
stockholders and may include dividend and liquidation preferences to common
stock, voting rights, redemption and sinking fund provisions and conversion
rights. No shares have been issued at March 31, 2000.

NOTE 12 - SIGNIFICANT CUSTOMERS

In the years ended March 31, 2000 and 1999, one customer accounted for
approximately 11% and 15% of sales, respectively. In the year ended March 31,
1998, no customer accounted for 10% or more of sales.

NOTE 13 - OTHER EVENTS

a. Employment Agreements

In April 1993, the Company entered into four year employment agreements to be
effective upon the closing of the public offering with its three principal
officers and three other newly employed individuals pursuant to which the
three officers each shall be paid salaries of $100,000, $100,000 and $90,000
per annum, respectively, and the other three individuals shall be paid
salaries of $110,000, $88,000 and $85,000 per annum, respectively. Such
salaries increased each year to the extent of any cost-of living increases.
In December 1995 the agreement with the individual earning $110,000 was
terminated. Effective April 1, 1997 all employment agreements expired and
the officers continue employment at the salaries applicable in the final year
of their agreements.
28

LUCILLE FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENT

NOTE 13 - OTHER EVENTS (CONTINUED)

b. 1993 Stock Option Plan

On April 1, 1993 the Company adopted its 1993 Stock Option Plan. An
aggregate of 200,000 shares of Common Stock has been reserved for
issuance upon exercise of options which may be granted from time to
time in accordance with the plan. Options may be granted to employees,
including officers, directors, consultants and advisors. Options shall
be designated as either Incentive Stock Options or Non-Incentive Stock
Options being issued at a purchase price of not less than 100% (110% in
case of optionees who own more than 10% of the voting power of all
classes of stock of the Company) of fair market value of the Common
Stock on the date the option is granted. In April 1995, options to
purchase 10,000 shares were granted to each of two employees pursuant
to the stock option plan at an exercisable price of $3.625. The options
shall expire on April 4, 2000 and have been extended an additional five
years. In May 1996, options to purchase 50,000 shares were granted to
a newly hired employee pursuant to the stock option plan at an
exercisable price of $4.00. These options will vest and be exercisable
ratably over a five year period beginning one year from date of
employment. The options expire upon plan termination, April 1, 2003.
In January 1998, options to purchase 25,000 shares were granted to a
director of the Company in his capacity as consultant, pursuant to the
stock option plan at an exercise price of $1.50 per share. The options
shall expire on January 2008 and will vest to the extent of 5,000
shares on date of issue and 5,000 shares on each of the next four
anniversary dates. On March 1, 1999 the Company granted an option to a
consultant pursuant to the stock option plan to purchase 7,500 shares
of common stock at $4.00 per share for a period of three years. During
the year ended March 31, 2000 the agreement was terminated and the
options cancelled. The per share fair value of stock options granted
during the years ended March 31, 1999 and 1998 was $1.65 and $1.01,
respectively, on the date of grant using the Black Scholes option-
pricing model with the following assumptions:
March 31, 1999 March 31, 1998
Expected dividend yield -0-% -0-%
Risk free interest rate 5.5% 5.6%
Expected stock volatility 62.3% 48.1%
Expected option life 3 years 10 years

The Company applies APB Opinion No. 25 in accounting for its Plan, and
accordingly, no compensation costs has been recognized in the financial
statements for its stock options which have an exercise price equal to
the fair value of the stock on the date of the grant. Had the Company
determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
Years Ended
March 31, 2000 March 31, 1999 March 31,1998
Net income (loss):
As reported $71,000 $ 729,000 $(2,138,000)
Pro forma $49,000 $ 707,000 $(2,160,000)
Net earnings (loss) per share:
As reported $ .02 $ .24$ (.71)
Pro forma $ .02 $ .24$ (.72)

29

LUCILLE FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - OTHER EVENTS (CONTINUED)

The full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period.

Subsequent to March 31, 2000 the Company entered into an agreement with an
investment banking firm wherein for one year such firm would act as the
Company's exclusive financial advisor with respect to a combination. For such
services the Company granted the firm a seven-year warrant to acquire 90,000
shares of the Company's common stock at $4.63 per share, the closing price of
the of the Company's common stock on the date the agreement was entered into.
The warrant will vest only upon the conclusion of a trasaction during the
term. In the event no combination is consummated the warrant will be
terminated.

c. Purchase of Stock

In April of 1996 the Company purchased 50,000 share of its common stock for
cash at a total cost of $125,000 from one of its former officers. In
February of 1999, the Company purchased and retired 31,158 shares of its
common stock for cash at a total cost of $74,000.

d. Preferred Share Purchase Rights

On June 2, 1997, the Board of Directors declared a dividend distribution of
one preferred share purchase right on each outstanding share of common stock.
The rights will be exercisable only if a person or group acquires 20% or more
of the Company's common stock or announces a tender offer the consummation of
which would result in ownership by a person or group of 20% or more of the
common stock. Each right will entitle stockholders to buy one one-hundredth
of a share of a new series of preferred stock at an exercise price of $8.00.
In the event of an acquisition, merger, or other business combination
transaction after a person has acquired 20% or more of the Company's
outstanding common stock, each right will entitle its holder to purchase, at
the right's then-current exercise price, a number of the acquiring company's
common shares having a market value of twice such price. In addition, if a
person or group acquires 20% or more of Company's outstanding common stock,
each right will entitle its holder (other than such person or members of such
group) to purchase, at the right's then-current price, a number of the
Company's common shares having a market value of twice such price. Following
the acquisition by a person or group of beneficial ownership of 20% or more
of the Company's common stock and prior to an acquisition of 50% or more of
the common stock, the Board of Directors may exchange the rights (other than
rights owned by such person or group), in whole or in part, at an exchange
ratio of one share of common stock (or approximately one one-hundredth of a
share of the new series of junior participating preferred stock) per right.
Prior to the acquisition by a person or group of beneficial ownership 20% or
30
LUCILLE FARMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

more of the Company's common stock, the rights are redeemable for one tenth
of one cent per right at the option of the Board of Directors.

NOTE 14 - FAIR VALUE AND CREDIT RISK

The Company provides credit to customers on an unsecured basis after
evaluating customer credit worthiness. Since the Company sells to a broad
range of customers with a wide geographical dispersion, concentrations of
credit risk are limited. in addition, the Company provides a reserve for bad
debts for accounts receivable, which are potentially uncollectable.

The Company maintains cash accounts with several major financial
institutions. At March 31, 2000 approximately $603,000 of the Company's cash
was in excess of FDIC insured limits.

The Company considers the fair value of all financial instruments to be not
materially different from their carrying value at year-end.

31

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

NOT APPLICABLE

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are as follows:

Name Age Present office or Position

Gennaro Falivene 70 Vice Chairman of the Board of Directors
and Executive Vice President-Quality
Control

Alfonso Falivene 58 Director, President and Chief Executive
Officer

David McCarty 44 Vice President-Marketing and Sales

Stephen M. Katz 65 Director, Vice-President-Finance and
Administration, Chief Financial Officer
and Secretary

Howard S. Breslow 60 Director

Jay M. Rosengarten 55 Director

Mr. Gennaro Falivene is a founder of the Company and has been a
director of the Company since inception in 1976. He served as Vice president
and Treasurer of the Company from inception until April 1993 when he was
appointed Vice chairman of the Board and Executive Vice president-Quality
control.

Mr. Alfonso Falivene is a founder of the Company and has been a
director of the company since inception in 1976. He served as Vice President
and Secretary of the Company until April 1993 when he was appointed President
and Chief Executive Officer.

Mr. David McCarty has been Vice President-Marketing and Sales of the
Company since April 1993. From July 1991 to March 1993, Mr. McCarty was the
Vice President of Braff & Company, Inc., a New York, New York based marketing
and public relations firm which specializes in consumer products,
particularly in the food industry. Braff & Company, Inc. has represented a
broad range of clients, including The Dannon Company, Kraft General Foods and
The Seagram Beverage company and has played an integral role in the start-up,
launch and promotion of such products as The Dove Bar and Micro Magic Foods.
From February 1990 to July 1991, Mr. McCarty was the New York area Manager
for Good Humor, a division of Thomas J. Lipton, where he established a new
distribution network, created a sales promotion program and aided in
reversing a sales decline and increasing sales. From August 1986 to February
1990, Mr. McCarty was the Director of Marketing of Braff & Company, Inc. From
1982 to 1986, Mr. McCarty was the Director of Marketing (1985 and 1986) and
National Sales Manager (1982-1985) for Ginseng VP Corp., a "New Age" beverage
corporation.
32
Mr. Stephen M. Katz has been a director of the Company, its Vice
President-Finance and Administration and chief Financial Officer and
Secretary since April 1993. Mr. Katz was a partner in the certified public
accounting firm of Drogin & Katz, a position he held since 1970. Drogin &
Katz was the company's accounting firm from 1973 to March 1993. Mr. Katz is a
certified public accountant licensed in New York and Florida.

Mr. Howard S. Breslow has been a director of the Company since April
1993. He has been a practicing attorney in New York for more than 25 years
and has been a member of the law firm of Breslow & Walker, LLP New York, New
York for more than 20 years, which firm is counsel to the Company. Mr.
Breslow currently serves as a director of Cryomedical Sciences, Inc., a
publicly-held company engaged in the research, development and sale of
products for use in low temperature medicine, Vikonics, Inc., a publicly-held
company engaged in the design and sale of computer-based security systems,
and Excel Technology, Inc., a publicly-held company engaged in the
development and sale of laser products.

Mr. Jay Rosengarten was appointed to the Board of Directors effective
February 1, 1998. Mr. Rosengarten, the former Board Chairman of Shopwell,
Chicago is an internationally recognized consultant, author and lecturer on
Consumer Marketing, Ethnic Marketing and Business Management. He has been the
keynote speaker at numerous national trade association meetings and major
corporate events. Mr. Rosengarten has a J.D., from Fordham University Law
School. Mr. Rosengarten is a principal in the Rosengarten Group, a management
consulting firm, a position he has held from 1993 to present.

Gennaro Falivene and the other founder Philip Falivene are brothers.
Philip is the father of Alfonso Falivene. No other family relationship exists
between any director or executive officer and any other director or executive
officer of the Company.

Officers serve at the discretion of the Board of Directors and are
elected at the annual meeting of the Board of Directors. Directors are
elected at the annual meeting of stockholders for a term of one year. The
Company's Certificate of Incorporation provides that no director shall be
personally liable to the company or its stockholders for monetary damages for
breach of fiduciary duty except for: (a) any breach of the duty of loyalty;
(b) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (c) improper distributions to
stockholders or loans to officers or directors; or (d) any transactions from
which a director derives an improper personal benefit. The company currently
maintains insurance to indemnify directors and officers.

33

Section 16A Benefical Ownership Reporting Companies

The Company is not aware of any late filings of, or failure to file,
the reports required by Section 16(a) of the Securities Exchange Act of 1934,
as amended.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information regarding
compensation paid by the Company during each of the Company's last three
fiscal years to the Company's Chief Executive Officer and to each of the
Company's executive officers (other than the Chief Executive Officer) who
received salary and bonus payments in excess of $100,000 during the year
ended March 31, 2000. None of such persons owns, or ever has been granted,
stock options of the Company.

SUMMARY COMPENSATION TABLE
Annual Compensation____
Name and Principal Fiscal Other Annual
___Positions _ Year Salary Bonus Compensation (1)

Alfonso Falivene 2000 $ 110,000 - 9,000
President and Chief 1999 110,000 - 8,000
Executive Officer 1998 106,000 - 8,000

Gennaro Falivene 2000 108,000 - 5,000
Executive Vice 1999 106,000 - 4,000
President - Quality 1998 106,000 4,000
Control
______________________
(1) Represents automobile allowances and/or automobile lease payments for
the benefit of such employee.

Employment Agreements

There are no employment agreements in effect.

Compensation of Directors

The Company currently does not compensate its directors for their
services in such capacity.

Compensation Committee Interlocks and Insider Participation

During the year ended March 31, 2000, Messrs. Alfonso Falivene, Gennaro
Falivene and Philip Falivene, and Stephen Katz were each officers of the
Company as well as directors of the Company who participated in deliberations
of the Company's Board of Directors concerning executive officer
compensation. Reference is made to Item 13 "Certain Relationships and Related
Transactions".

34

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.

The following table, as of June 15, 2000, sets forth certain
information concerning each stockholder known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock,
each director of the Company, the named executive officers set forth in the
table in Item 11, and all executive officers and directors of the Company as
a group. Unless expressly indicated otherwise, each stockholder exercises
sole voting and investment power with respect to the shares beneficially
owned.
Amount and
Name and Address Nature of Percent
Beneficial Owners Beneficial of
Ownership Class

Gennaro Falivene 327,41 11.0%
Box 125
Swanton, VT 05488

Alfonso Falivene (1) 464,917 15.6%
150 River Rd., P.O. Box 517
Montville, NJ 07045

The Estate of
Philip Falivene 219,917 7.4%
Box 125
Swanton, VT 05488

Stephen Katz (2) 85,750 2.9%
150 River Rd., P.O. Box 517
Montville, NJ 07045

B&W Investment Associates 193,799 6.5%
c/o Breslow and Walker
100 Jericho Quadrangle
Jericho, NY 11753

Howard S. Breslow 193,799 (3) 6.5%
100 Jericho Quadrangle
Jericho, NY 11753

David Mccarty 81,250 2.7%
150 River Rd., P.O. Box 517
Montville, NJ 07045

Jay M. Rosengarten 25,000 (4) .8%
150 River Rd., P.O. Box 517
Montville, NJ 07045

All officers and
Directors as a group 1,398,050 (4) 46.7%

(1) Includes for purposes of this table 7,500 shares owned by
Mr. Falivenes wife and 20,000 shares owned by one of his children.
(2) Includes for purposes of this table 40,000 shares owned by
Mr. Katz's wife.
(3) Represents all of the shares owned by B&W Investment Associates, a
partnership of which Howard S. Breslow, a director of the Company,
is a partner.
(4) Includes 25,000 shares issuable under outstanding options.

35

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

At March 31, 2000, Alfonso Falivene, Gennaro Falivene and the estate of
Philip Falivene each was indebted to the Company in the amount of $31,666,
$31,667 and $31,667, respectively. Such indebtedness is represented by
promissory notes, dated as of June 1, 1992, with the principal due on
June 1, 2000, which has been extended to June 1,2001. The notes bear interest
at the rate of 9% per annum, which interest is payable annually commencing
June 1, 1994.

The Company leases a parcel of land adjacent to its facility. This
parcel is owned by three of its officers. The space is used as an employee
parking lot and its use was required in conjunction with the construction of
the new Whey drying facility. The lease is for a ten year period. Rentals
are $750 monthly for the first five years and $900 monthly for the additional
five year period. Rent expense for the years ended March 31, 2000 and 1999
was $9,000 and $6,000 respectively. This lease has a purchase option to
purchase at fair market value at the end of the ten year period. This lease
was assigned to the Bank in conjunction with the Whey Plant financing.

The Company leases a portion of its Montville, New Jersey offices from
Messrs. Alfonso Falivene, Gennaro Falivene, and the Estate of Philip Falivene
the joint owners of the office condominium unit. During the fiscal years
ended March 31, 1998, 1999 and 2000, the Company paid approximately $14,000,
$14,000 and $14,000, respectively, towards the rental of such offices. The
Company currently pays $1,200 per month rent for such premises on a month-to-
month basis. The Company also leases an additional 900 adjacent square feet
for $750 monthly on a month-to-month basis. These premises are also owned by
Messrs. Alfonso Falivene, Gennaro Falivene, and the Estate of Philip
Falivene. This space is primarily used for marketing operations. Rent expense
for this space was $9,000, $9,000 and $9,000, respectively, for the years
ended March 31, 1998, 1999 and 2000.

The Company has retained Jay Rosengarten as an independent sales
consultant. Mr. Rosengarten has been paid $50,000 for his services.

The Company is the owner and beneficiary of life insurance policies on
the lives of Messrs. Falivene, each in the amount of $300,000. In the event
of the death of any such insured, the Company has agreed(subject to tender)
to utilize the proceeds of such policy to purchase shares of Common Stock
from the deceased's estate at the market value of such shares on the date of
death.

36

PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
ON FORM 10-K

(a) The following documents are filed as part of this report:

1. Consolidated Financial Statements (included in Part II, Item 8):

Independent Auditors' Report

Consolidated Balance Sheet as at March 31, 2000 and March 31, 1999

Consolidated Statement of Operations for the years ended March 31,
2000, March 31, 1999 and March 31, 1998

Consolidated Statement of Stockholders' Equity for the years
ended March 31, 2000, March 31, 1999 and March 31, 1998

Consolidated statement of cash Flows for the years ended March 31,
2000, March 31, 1999 and March 31, 1998

Notes to consolidated Financial Statements
2. Consolidated Financial Statement Schedules (included in Part II,
Item 8)*

3. Exhibits included herein:
Index to Exhibits for exhibits filed as part of this Form 10-
K annual report.
(b) Reports on Form 8-K None

Financial statement schedules are omitted because they are either not
applicable or not required, or because the information sought is
included in the consolidated Financial Statements or the Notes
thereto.
INDEX TO EXHIBITS

Exhibit Number Document

3.1 Restated Certificate of Incorporation of the
Company (1)

3.2 By-Laws of the company, as amended (1)

4.1 Specimen Common Stock Certificate (1)

4.3 Underwriter's Unit Purchase Warrant (1)
4.4 Form of Warrant Agreement (1)
10.1 1993 Stock Option Plan (1)
10.2 Whey Supply Agreement between Lucille Farm
Products, Inc. (A/K/A Lucille Farms of
Vermont, Inc.) and Vermont Whey Company,
dated February 3, 1994 (2)

37

10.3 Loan facility with Chittenden Bank,
including Commitment Letter, dated April 30,
1996, Loan Agreement, dated June 13, 1996,
and Promissory Notes (2) dated June 13,
1996, relating to short term working capital
facility and capital expenditures line of
credit (3) and amendment thereto dated June
11, 1997 (4)

10.4 Loan facility with First International
Bank, N.A., including Collateral
Assignments, Financial Condition
Affidavits, Loan Agreements and
Promissory Notes (2) dated February 8,
1999, Assignment of Contract Rights,
Security Agreement, dated February 8,
1999, and Commercial Mortgage and
Security Agreement, dated February 8,
1999.(5)

21 List of subsidiaries of the Company (1)

23 Consent of Citrin Cooperman & Company, LLP

27 Financial Data Schedule

(1) Incorporated by reference to the Company's Registration Statement
Form S-1, File No. 33-64868.
(2) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1994.
(3) Incorporated by reference to the company's Annual Report on Form
10-K the fiscal year ended March 31, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1997.
(5) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31,1999.

38

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.
LUCILLE FARMS, INC.

By: /s/ Alfonso Falivene
Alfonso Falivene, President
(Principal Executive Officer)

By: /s/ Stephen Katz
Stephen Katz, Vice President-
Finance and Administration
(Principal Financial and
Accounting Officer

39

Date: June 22, 2000
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/Gennaro Falivene Director June 22,2000
Gennaro Falivene

/s/Alfonso Falivene Director June 22,2000
Alfonso Falivene

/s/Stephen M. Katz Director June 22,2000
Stephen M. Katz

/s/Howard S Breslow Director June 22,2000
Howard S. Breslow

/s/Jay M. Rosengarten Director June 22,2000
Jay M. Rosengarten

40

Exhibit 23

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

As independent certified public accountants, we hereby consent to the
use of our report dated June 2, 2000, on the consolidated financial
statements of Lucille Farms, Inc. and subsidiaries as at March 31, 2000 and
for the year then ended included in, or incorporated by reference in
Registration Statement No. 33-90420 on Form S-3 and the related Prospectus.

/s/Citrin Cooperman & Company,LLP
CITRIN COOPERMAN & COMPANY, LLP

June 22, 2000
New York, New York

41

42