UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D. C.  20549
 
 FORM
10-Q
 (Mark
One)
 T
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
quarterly period ended March 1, 2008
 OR
 
 £
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
transition period from _____________ to ______________
 
 Commission
File No. 0-5815
 
 AMERICAN
CONSUMERS, INC.
 (Exact
name of registrant as specified in its charter)
 
 GEORGIA
              
              58-1033765(State
      or other jurisdiction of Incorporation or organization)
              
              (I.R.S.
      Employer Identification Number)
 
 55 Hannah Way,
      Rossville, GA
              
              30741(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 Registrant’s
Telephone Number, including Area Code: (706) 861-3347
 __________________________________________________________________
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 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 T NO o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
 
 Large
      accelerated filer £
              
              
              
              Accelerated
      filer £Non-accelerated
      filer £
              (Do
      not check if a smaller reporting company)
              
              Smaller
      reporting company T
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). £
YES   T  NO
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS:
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
 
 Class
              
              Outstanding
      at April 10, 2008COMMON
      STOCK - $ .10 PAR VALUE
              
              781,779NON
      VOTING COMMON STOCK - $ .10 PAR VALUE
              
              ----
  
 
  ITEM
1.   FINANCIAL STATEMENTS
 FINANCIAL
INFORMATION
 AMERICAN
CONSUMERS, INC.
 CONDENSED
STATEMENTS OF INCOME AND RETAINED EARNINGS
 (UNAUDITED)
 
 
 THIRTEEN WEEKS ENDED
              
              
              THIRTY-NINE WEEKS ENDEDMarch
      1,
              
              
              March
      3,
              
              
              March
      1,
              
              
              March
      3,2008
              
              
              2007
              
              
              2008
              
              
              2007NET
      SALES
              
              $
              8,634,569
              
              
              $
              8,446,070
              
              
              $
              25,862,658
              
              
              $
              25,229,048COST
      OF GOODS SOLD
              
              
              6,566,425
              
              
              
              6,408,085
              
              
              
              19,777,570
              
              
              
              19,203,476Gross
      Margin
              
              
              2,068,144
              
              
              
              2,037,985
              
              
              
              6,085,088
              
              
              
              6,025,572OPERATING,
      GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              2,059,469
              
              
              
              2,006,513
              
              
              
              6,064,148
              
              
              
              6,010,073Operating
      Income
              
              
              8,675
              
              
              
              31,472
              
              
              
              20,940
              
              
              
              15,499OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              3,992
              
              
              
              4,080
              
              
              
              11,796
              
              
              
              11,738Other
      income
              
              
              27,946
              
              
              
              31,277
              
              
              
              95,467
              
              
              
              93,143Loss
      on disposition of property and equipment
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (484
              )Interest
      expense
              
              
              (17,326
              )
              
              
              (14,531
              )
              
              
              (52,394
              )
              
              
              (44,020
              )Income
      Before Income Taxes
              
              
              23,287
              
              
              
              52,298
              
              
              
              75,809
              
              
              
              75,876INCOME
      TAXES
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —NET
      INCOME
              
              
              23,287
              
              
              
              52,298
              
              
              
              75,809
              
              
              
              75,876RETAINED
      EARNINGS:Beginning
              
              
              924,737
              
              
              
              798,680
              
              
              
              872,388
              
              
              
              775,615Redemption
      of common stock
              
              
              (97
              )
              
              
              (128
              )
              
              
              (270
              )
              
              
              (641
              )Ending
              
              $
              947,927
              
              
              $
              850,850
              
              
              $
              947,927
              
              
              $
              850,850PER
      SHARE:Net
      Income
              
              $
              0.030
              
              
              $
              0.066
              
              
              $
              0.097
              
              
              $
              0.096Cash
      dividends
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —WEIGHTED
      AVERAGE NUMBEROF SHARES OUTSTANDING
              
              
              783,453
              
              
              
              790,842
              
              
              
              783,888
              
              
              
              791,920
 
 See Notes
to Financial Statements
  2
  FINANCIAL
INFORMATION
 AMERICAN
CONSUMERS, INC.
 CONDENSED
BALANCE SHEETS
 
 March
      1,
              
              
              June
      2,2008
              
              
              2007(Unaudited)--A
      S S E T S--CURRENT
      ASSETSCash
      and short-term investments
              
              $
              587,110
              
              
              $
              582,472Certificate
      of deposit
              
              
              307,900
              
              
              
              312,161Accounts
      receivable
              
              
              140,150
              
              
              
              233,057Inventories
              
              
              2,182,787
              
              
              
              2,118,189Prepaid
      expenses
              
              
              57,828
              
              
              
              154,213Total
      current assets
              
              
              3,275,775
              
              
              
              3,400,092PROPERTY
      AND EQUIPMENT - at costLeasehold
      improvements
              
              
              303,766
              
              
              
              300,800Furniture,
      fixtures and equipment
              
              
              3,339,201
              
              
              
              3,298,9233,642,967
              
              
              
              3,599,723Less
      accumulated depreciation
              
              
              (3,318,707
              )
              
              
              (3,275,328
              )324,260
              
              
              
              324,395TOTAL
      ASSETS
              
              $
              3,600,035
              
              
              $
              3,724,487--LIABILITIES
      AND STOCKHOLDERS' EQUITY--CURRENT
      LIABILITIESAccounts
      payable
              
              $
              762,445
              
              
              $
              904,396Short-term
      borrowings
              
              
              605,123
              
              
              
              623,940Current
      maturities of long-term debt
              
              
              53,152
              
              
              
              40,206Accrued
      sales tax
              
              
              132,834
              
              
              
              152,893Other
              
              
              224,376
              
              
              
              224,683Total
      current liabilities
              
              
              1,777,930
              
              
              
              1,946,118LONG-TERM
      DEBT
              
              
              144,058
              
              
              
              172,044STOCKHOLDERS'
      EQUITYNonvoting
      preferred stock – authorized 5,000,000 shares of no par value; no shares
      issued
              
              
              —
              
              
              
              —Nonvoting
      common stock – authorized 5,000,000 shares-$.10 par value; no shares
      issued
              
              
              —
              
              
              
              —Common
      stock - $.10 par value; authorized 5,000,000 shares; shares issued of
      781,779 and 785,870 respectively
              
              
              78,178
              
              
              
              78,587Additional
      paid-in capital
              
              
              651,942
              
              
              
              655,350Retained
      earnings
              
              
              947,927
              
              
              
              872,388Total
      Stockholders' Equity
              
              
              1,678,047
              
              
              
              1,606,325TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              3,600,035
              
              
              $
              3,724,487
 
 See Notes
to Financial Statements
  3
  FINANCIAL
INFORMATION
 AMERICAN
CONSUMERS, INC.
 CONDENSED
STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 THIRTY-NINE WEEKS ENDEDMarch
      1,
              
              
              March
      3,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
              
              $
              75,809
              
              
              $
              75,876Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              93,747
              
              
              
              114,173Loss
      on disposition of property and equipment
              
              
              —
              
              
              
              484Change
      in operating assets and liabilities:Accounts
      receivable
              
              
              92,907
              
              
              
              6,109Inventories
              
              
              (64,598
              )
              
              
              19,121Prepaid
      expenses
              
              
              96,385
              
              
              
              (59,296
              )Accounts
      payable
              
              
              (141,951
              )
              
              
              (78,742
              )Accrued
      sales tax
              
              
              (20,059
              )
              
              
              (22,328
              )Other
      accrued liabilities
              
              
              (307
              )
              
              
              30,870Net
      cash provided by operating activities
              
              
              131,933
              
              
              
              86,267CASH
      FLOWS FROM INVESTING ACTIVITIESDecrease
      in certificate of deposit
              
              
              4,261
              
              
              
              6,650Purchase
      of property and equipment
              
              
              (93,612
              )
              
              
              (31,869
              )Net
      cash used in investing activities
              
              
              (89,351
              )
              
              
              (25,219
              )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      (decrease) in short-term borrowings
              
              
              (18,817
              )
              
              
              (13,130
              )Proceeds
      from long-term borrowings
              
              
              35,435
              
              
              
              17,426Principal
      payments on long-term debt
              
              
              (50,475
              )
              
              
              (59,531
              )Redemption
      of common stock
              
              
              (4,087
              )
              
              
              (9,719
              )Net
      cash used in financing activities
              
              
              (37,944
              )
              
              
              (64,954
              )Net
      increase (decrease) in cash
              
              
              4,638
              
              
              
              (3,906
              )Cash
      and cash equivalents at beginning of period
              
              
              582,472
              
              
              
              334,654Cash
      and cash equivalents at end of period
              
              $
              587,110
              
              
              $
              330,748SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the six months for:Interest
              
              $
              53,336
              
              
              $
              47,748
 
 See Notes
to Financial Statements
  4
  AMERICAN
CONSUMERS, INC.
 NOTES TO
FINANCIAL STATEMENTS
  (1)
              Basis
      of Presentation.
 
 The
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America.
 
 The
interim financial statements have not been audited and should be read in
conjunction with the notes to the financial statements presented in the
Corporation’s 2007 Annual Report to Shareholders.  The quarterly
financial statements reflect all adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods.  All such adjustments are of a normal recurring
nature.  The results for the interim periods are not necessarily
indicative of the results to be expected for the complete fiscal
year.
 
 (2)
              Commitments
      and Contingencies.
 
 Capital
expenditures for routine equipment replacements in the ordinary course during
fiscal 2008 (excluding the non-routine replacements discussed below) are
estimated to be $50,000 or less, which we expect to be funded from operating
cash flows.
 
 In
addition to these routine equipment replacements, two vehicles have been
purchased during the first quarter of fiscal 2008 at a cost of $35,435, funded
by a local financial institution.  The Company’s maintenance vehicle
may need to be replaced during fiscal 2009 at an estimated cost of approximately
$30,000 to $35,000, which we expect to fund through either bank or manufacturer
financing, whichever will provide the Company with the most favorable
terms.
 
 Further,
as we have discussed in recent quarters, while management has attempted to
postpone upgrades of our existing cash registers and scanning equipment, the
pending change to add an additional digit to UPC bar codes on inventory items
and the deterioration of the current equipment has prompted us to begin the
upgrade during the third quarter of fiscal 2008.  We entered into a
contract on February 5, 2008 for the purchase and installation of new cash
register hardware and software and scanning equipment for our LaFayette, Georgia
grocery store location at a cost of $54,893, including installation and initial
training services for store personnel and for limited warranty service on the
new equipment.  Additional costs for upgrades to DSL or cable are
being estimated to replace the current landlines in our
stores.  Although a commitment for up to $440,000 of funding for these
upgrades has been obtained from the Company’s lead bank, we will attempt to
manage the number of units purchased and the timing of such purchases in a
manner that both contains the Company’s overall costs and allows us to manage
the additional debt incurred as efficiently as possible.
 
 As of
March 1, 2008, capital expenditures for the fiscal year to date totaled $93,612,
including the above vehicles, three meat scales with printers, a used ice
machine, a fence, a camera system, an office copier and printer and a
downpayment on the registers and scanning equipment in the amount of
$28,000.  We presently intend to pay the $26,893 balance due on
delivery of the initial installment of the new cash registers and scanning
equipment out of operating cash flows when the equipment is delivered in May
2008, which will allow us to hold down debt and keep the above-referenced
funding commitment from Gateway Bank & Trust available for later
purchases.
  5
  The
Company adopted a retirement plan effective January 1, 1995.  The plan
is a 401(k) plan administered by BISYS Qualified Plan Services.  BISYS
is currently in the process of changing its name to Ascensus following the
combining of BISYS Commercial and Crump Insurance Services. Participation in the
plan is available to all full-time employees after one year of service and age
19.  Any contribution by the Company is at the discretion of the Board
of Directors, which makes its decision annually at the quarterly meeting in
January.  The Board voted to contribute $7,500 to the plan for both
calendar years 2007 and 2006.
 
 (3)
              Cost
      of Goods Sold.
 
 Cost of
goods sold is comprised of the cost of purchasing the Company’s products (such
as groceries and other vendor-supplied products) sold during the
period.  Cost of goods sold is equal to the beginning inventory, plus
the cost of goods purchased during the period, less the amount comprising ending
inventory.  The cost of goods sold shown on the Company’s Statement of
Income and Retained Earnings is presented net of rebates from
suppliers.  These rebates represent cash consideration received from
suppliers based primarily on the Company’s volume of purchases from such
suppliers.  These rebates do not include reimbursement of costs
incurred to sell the supplier’s products.  In accordance with EITF
02-16, the Company applies rebates from suppliers (excluding rebates for
advertising costs) as a reduction in cost of goods sold.
  6
  ITEM
2
 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
 CONDITION
AND RESULTS OF OPERATIONS
  RESULTS OF
OPERATIONS
 
 THIRTEEN WEEKS ENDED
              
              
              THIRTY-NINE WEEKS ENDEDMarch
      1,
                2008
              
              
              March
      3,
                2007
              
              
              March
      1,
                2008
              
              
              March
      3,
                2007Sales
              
              $
              8,634,569
              
              
              $
              8,446,070
              
              
              $
              25,862,658
              
              
              $
              25,229,048%
      Sales Increase
              
              
              2.23
              %
              
              
              3.30
              %
              
              
              2.51
              %
              
              
              4.17
              %Gross
      Margin %
              
              
              23.95
              %
              
              
              24.13
              %
              
              
              23.53
              %
              
              
              23.88
              %Operating,
      General and Administrative Expenses:Amount
              
              $
              2,059,469
              
              
              $
              2,006,513
              
              
              $
              6,064,148
              
              
              $
              6,010,073%
      of Sales
              
              
              23.85
              %
              
              
              23.76
              %
              
              
              23.45
              %
              
              
              23.82
              %Net
      Income
              
              $
              23,287
              
              
              $
              52,298
              
              
              $
              75,809
              
              
              $
              75,876
  Overview:
 
 American
Consumers, Inc., (the “Company”), operates eight (8) self-service supermarkets
within a compact geographical area that comprises Northwest Georgia, Northeast
Alabama and Southeast Tennessee. All of our supermarkets are operated under the
name “Shop-Rite,” and are engaged in the retail sale of groceries including
meats, fresh produce, dairy products, frozen foods, bakery products, tobacco
products and miscellaneous other non-food items.
 
 The
current quarter ended March 1, 2008 resulted in a net income in the amount of
$23,287, representing the seventh consecutive profitable quarter for the
Company.  Sales increased $188,499 (or 2.23%) during the current
quarter as compared to a $269,498 (or 3.30%) increase during the same quarter of
the prior year.  The sales increase was tempered by the fact that the
gross margin decreased by 0.18% and operating, general and administrative
expenses increased by 2.64% (or 0.09% as a percent of
sales).  Interest expense increased by $2,795 (or 19.23%) due to the
effects of increased borrowing on the Company’s line of credit, as compared to
the first nine months of fiscal 2007, to support higher inventory levels and to
maintain two accounts during a portion of the period as the Company completed
changing banks, as well as to two new vehicle loans incurred during the first
nine months of fiscal 2008.  Other income also decreased by $3,331
versus the prior year period, due principally to variations in the level of
certain activities as discussed below under “Interest and Other
Income.”  Cumulatively, these changes resulted in a decrease of
$29,011 (or 55.47%) in net income for the quarter as compared to the same
quarter last year.  For the first nine months of fiscal 2008, sales
increased by $633,610 (or 2.51%).  However, this increase also was
offset by a 0.35% decrease in gross margin, coupled with increases of 0.9%
operating, general and administrative expenses (despite decreasing by 0.37% as a
percentage of sales) and $8,374 (or 19.02%) in interest expense, offset by a
small increase ($2,324 or 2.5%) in other income, resulting in about the same net
income as for the first nine months of last year.
 
 The
thirteen weeks (quarter) ended March 3, 2007 resulted in a net income in the
amount of $52,298.  During this period sales increased 3.30% over the
same period of the prior year.  This increase was somewhat less than
the increase of 4.61% experienced during the first two quarters of fiscal 2007,
due to adjustments to our retail prices implemented during the quarter to
recover certain prior increases in our wholesale costs (principally for certain
private label merchandise), resulting in a year to date sales increase of
4.17%.  During the first quarter of fiscal 2006, we began a program to
introduce certain lower priced generic goods to compete with other stores in our
trade area who offer this option to their customers.  While management
believes that this program was a significant factor contributing to the increase
in sales, the increase was also influenced by the closing of a competitor
located between two of the Company’s stores during the last quarter of the
Company’s fiscal 2006.  We believe that prevailing high gasoline
prices during the first three quarters of the fiscal year also contributed to
the increase as customers chose to purchase more groceries for home meal
preparation to reduce their spending at restaurants and to patronize grocery
stores located closer to their homes.
  7
  The most
recent quarter ended March 1, 2008 has seen a continuation of the trend of
gradual erosion in the Company’s gross margins that has been noted in recent
periods.  The 0.18% decrease in gross margin from the 24.13% level
achieved in third quarter ended March 3, 2007 amounts to approximately $15,542
(or slightly over half) of the third quarter decrease in net income of
$29,011.  For the first nine months of fiscal 2008, the gross margin
declined by 0.35% to 23.53%, as compared to 23.88% for the first nine months of
the prior year.  The gross margin realized for the first nine months
of fiscal 2008 also represents reductions of 0.20% from the 23.73% gross margin
realized for fiscal 2007 and 0.65% from the 24.18% gross margin realized for
fiscal 2006.  These reductions reflect the continuing impact of the
introduction of lower-priced generic merchandise, as well as certain targeted
promotions and other weekly advertised specials run to stimulate sales during
the first nine months of both fiscal 2008 and fiscal 2007.  It also
reflects the impact of ongoing increases in the wholesale costs of certain
grocery items, as well as gradual increases in suppliers’ fuel surcharges due to
increased gasoline prices, that we are not able to immediately recover through
adjustments to the Company’s retail prices due to the impacts of
competition.
 
 Management
actively monitors both the gross margin and the Company’s retail pricing
structure in an attempt to maximize profitability.  Management began
working on the Company’s gross margin during the quarter ended August 31, 2002,
at which time the gross margin stood at 22.79% for the fiscal year ended June 1,
2002.  While occasional improvements in gross profit have been seen,
such as the 0.29% increase we achieved for fiscal 2006 versus 2005, it is
difficult to maintain a trend of consistent improvement in the gross margin due
to competitive conditions which often delay the Company’s ability to pass
through price increases experienced at the wholesale
level.  Accordingly, while management attempts to offset increases in
its costs (such as our successes in recovering our principal supplier’s
wholesale price increase during 2005 and a fuel surcharge added by the supplier
during the second quarter of fiscal 2006), further improvements in the gross
margin may not be achievable at this time, and further deterioration in the
Company’s gross margin is possible.  While the increase in sales
offset the impact on profitability of the 0.35% reduction in gross margin
experienced for the nine months ended March 1, 2008 as compared to the first
nine months of fiscal 2007, the gross margin reduction experienced as a result
of pricing adjustments to increase sales during the period provides further
evidence of this trend.
 
 We will
attempt to maintain stability in the Company’s gross margin, or achieve slight
improvements, to the extent possible.  We will attempt to improve the
gross margin by working to obtain the lowest cost for the Company’s inventory,
and as competition permits, by periodically implementing adjustments in the
Company’s overall mix of retail prices.  However, we believe that
competitive pressures on the Company, which have led to the losses experienced
in recent periods, will continue to increase over time as a result of
competitors opening more new stores in the Company’s trade
area.  These competitors have greater financial resources than those
of the Company, and may be able to obtain preferential treatment from suppliers
in the form of advertising allowances, lower prices and other concessions not
available to the Company.  These factors allow our competitors to
engage in aggressive pricing and promotional activities that the Company cannot
match, putting us at a competitive disadvantage.  In response to these
developments, management will continue seeking to maximize profitability by
managing the Company’s pricing structure to produce the most favorable balance
between increases in sales, which help to offset our fixed operating expenses,
and the gross margin, which determines the profitability of the additional
sales.
  8
  Our gross
margins may not be directly comparable to those of our larger competitors, since
some of those companies may include the costs of their internal distribution
networks in cost of goods sold – thus impacting the gross margin – while others
reflect such costs elsewhere (such as in operating, general and administrative
expenses).  Unlike many of the larger grocery store chains with which
we compete, the Company does not have an internal distribution
network.  Inventory is delivered directly to our individual store
locations by our wholesale supplier, which recovers its distribution costs
through the markup that it charges to the Company.
 
 Management
has been working to hold the line on operating, general and administrative
expenses.  However, as shown in greater detail below, many of these
expenses relate to underlying costs which are relatively fixed or have been
gradually increasing in recent periods.  Operating, general and
administrative expenses increased by $54,075 (representing an increase of 0.90%,
or a decrease of 0.37% relative to sales) for the thirty-nine weeks ended March
1, 2008 when compared to the same period a year ago, with nearly all of that net
increase attributable to an increase of $52,956 (representing an increase of
2.64%, or 0.09% relative to sales) for the quarter ended March 1, 2008 as
compared to the prior year period.  Significant components of the
$52,956 increase for the current quarter included increases in the costs of
utilities, group insurance, repairs and services and rent.  The
Company also continues to see increases in bad checks expense and in service
charges for the processing of credit and debit transactions associated with
higher sales levels.  The new registers purchased in February 2008 are
expected to be installed at one of the Company’s locations during the current
quarter ending on May 31, 2008, and management is considering options for
related changes in service providers for processing checks, as well as debit and
credit card transactions, that will hopefully reduce the costs associated with
bad checks and service fees.
 
 Additionally,
as discussed in prior periods, management expects depreciation charges to return
to more historically consistent levels as the Company begins to move through
anticipated replacement cycles for its cash register and scanning hardware and
software, and related back door systems, at all of the Company’s retail
locations.  Management continues to monitor these expenses and
continues to evaluate the performance of each of our grocery store locations to
determine their long-term value to the Company.  Cost increases,
combined with the relatively fixed nature of certain of our expenses, mean that
any future decrease in sales due to the effects of ongoing competition will
likely result in increases in operating, general and administrative expenses as
a percentage of sales, which would affect the Company’s operating
profits.  A more detailed discussion of these expenses and related
changes for the periods presented is set forth below under the caption
“Operating, General and Administrative Expenses.”
 
 
 Three Months Ended March 1,
2008 Compared to Three Months Ended March 3, 2007:
 
 Sales:
 
 Sales for
the three months ended March 1, 2008 increased $188,499, or 2.23%, compared to
the same quarter last year.  Four of our eight grocery stores
experienced sales increases for the quarter (ranging from 3.42% to
8.73%).  The remaining four locations experienced decreases (ranging
from 0.25% to 6.15%), which management attributes to an increase in competition
at the locations with the largest sales decreases.  Although the
increase of 2.23% is lower than the 3.30% increase achieved during the same
quarter last year, the increase over the two-year period compared to the
comparable quarter ended February 25, 2006 is $457,998, or
5.60%.  Management believes that these sales increases, in spite of
new competition affecting three of the Company’s locations, may be attributable
at least in part to the continuing effects of continued high gasoline prices, as
customers chose to purchase more groceries for home meal preparation to reduce
their spending at restaurants and to patronize grocery stores located closer to
their homes.
  9
  Sales for
the three months ended March 3, 2007, increased $269,498 or 3.30%, compared to
the same quarter of fiscal 2006.  Five of our eight grocery stores
experienced sales increases for the quarter (ranging from 2.06% to
9.44%).  The remaining locations experienced decreases (ranging from
..05% to 2.50%), which management attributes to differences in the level of
promotional activity during the current quarter as compared to the prior year
period (including the fact that the Company ran a Super Bowl week promotion
during 2006 that was not repeated in 2007) as well as to the issues at one
location which suffered from the fact that another tenant moved out of the
shopping center where it is located during fiscal 2006, as well as from
generally unfavorable traffic pattern conditions at that
location.  Although the increase of 3.30% was slightly less than the
3.45% experienced during the same quarter of the previous year, we still
achieved a healthy sales increase of 4.17% for the thirty-nine week period ended
March 3, 2007.  As discussed above, we believe these increases are
attributable to the lower-priced vegetables program introduced during the first
quarter, as well as to the closing of a competitor located between two of the
Company’s stores and the effects of high gas prices on consumers’ spending
choices.
 
 Gross
Margin:
 
 The
Company’s gross margin decreased 0.18% from the same quarterly period a year
ago, going from 24.13% to 23.95%.  However, the increased sales for
the quarter more than offset the reduction in the gross margin percentage,
resulting in a $30,159 increase in the gross margin in absolute dollar
terms.  Management is continually working to strategically adjust the
prices of the Company’s merchandise offerings to recover increases in our
wholesale costs, to the extent permitted by competition.
 
 The
Company’s gross margin increased in absolute terms by $63,329, or 3.21%, for the
quarter ended March 3, 2007 as compared to the same period of the prior
year.  The gross margin percentage of 24.13% for the three months
ended March 3, 2007 was essentially unchanged from the previous year, when the
gross margin percentage for the third quarter stood at 24.15%, while the year to
date gross margin percentage of 23.88% was 0.39% lower than the gross margin for
the thirty-nine weeks ended February 25, 2006.  The decrease in the
year to date gross margin was attributable to the vegetable program and other
promotional activities discussed above, as well as to increased wholesale costs
for certain items (principally certain private label merchandise) which we did
not succeed in passing on through adjustments to our retail prices until the
third quarter of fiscal 2007 (which accounted for the improvement in the gross
margin for that period).
 
 Operating, General and
Administrative Expenses:
 
 The
Company’s operating, general and administrative expenses are comprised mainly of
personnel salary and related costs, utilities and telephone expenses, rental
payments for leased locations, insurance expense, advertising and promotion
expense, general and office supplies expense, repairs and maintenance,
depreciation expense, bank service charges and credit card fees, bad checks
expense, professional fees, and other minor miscellaneous
expenses.  In accordance with EITF 02-16, advertising rebates received
from suppliers are deducted from advertising expense within this
category.
  10
  The
following table details the components of operating, general and administrative
expenses, both in absolute terms and as a percentage of the total of all such
expenses, for the quarters ended March 1, 2008 and March 3, 2007:
 
 Expense
      Item
              
              Third
                Quarter
                2008Amount
              
              
              %
      of Third
                Qtr. 2008 Total
              
              
              Third
      Quarter
                2007Amount
              
              
              %
      of Third
                Qtr. 2007 TotalPayroll
              
              $
              1,014,965
              
              
              
              49.3
              
              
              $
              1,009,376
              
              
              
              50.3Utilities
      & telephone expense
              
              
              205,435
              
              
              
              10.0
              
              
              
              180,328
              
              
              
              9.0Rent
              
              
              166,010
              
              
              
              8.1
              
              
              
              160,984
              
              
              
              8.0Insurance
              
              
              151,222
              
              
              
              7.3
              
              
              
              138,344
              
              
              
              6.9Advertising
      & promotion
              
              
              136,186
              
              
              
              6.6
              
              
              
              140,741
              
              
              
              7.0General
      & office supplies
              
              
              93,573
              
              
              
              4.6
              
              
              
              93,302
              
              
              
              4.7Repairs
      & maintenance
              
              
              100,939
              
              
              
              4.9
              
              
              
              93,393
              
              
              
              4.7Depreciation
              
              
              31,457
              
              
              
              1.5
              
              
              
              39,011
              
              
              
              1.9Bank
      service charges and credit card fees
              
              
              37,038
              
              
              
              1.8
              
              
              
              34,109
              
              
              
              1.7Bad
      checks
              
              
              28,463
              
              
              
              1.4
              
              
              
              20,103
              
              
              
              1.0Professional
      fees
              
              
              29,697
              
              
              
              1.4
              
              
              
              28,078
              
              
              
              1.4All
      other miscellaneous
              
              
              64,484
              
              
              
              3.1
              
              
              
              68,744
              
              
              
              3.4TOTAL
              
              $
              2,059,469
              
              
              
              100.0
              
              
              $
              2,006,513
              
              
              
              100.0
 
 Operating,
general and administrative expenses increased by $52,956 (or 2.64%) for the
third quarter of fiscal 2008 as compared to the same period of fiscal
2007.  However, these expenses only increased by 0.09% relative to
sales (to 23.85% from 23.76% for the same quarter last year), due to the sales
increase during the period.  Payroll costs only increased $5,589 (or
0.55%), and actually decreased as a percentage of total expenses as indicated in
the table above, reflecting the ongoing efforts of the Company’s store mangers
to mitigate the effects of the federally mandated increase in the minimum wage
that took effect during the second quarter of fiscal 2008 through more efficient
management of employee scheduling.  Utilities and telephone expense
increased $25,107 (or 13.92%) compared to the same quarter of the prior year, as
energy costs continue to increase.  Rent increased by $5,026 (or
3.12%) due primarily to increases in rent as leases have been
renewed.  Insurance increased by $12,878 (or 9.31%) due to an increase
in premiums on group health insurance on the January 1, 2008 renewal
date.  General and office supplies remained very consistent,
increasing only slightly due to additional supplies required to support
increased sales.  Repairs and maintenance increased $7,546 (or 8.08%)
as the Company’s aging store equipment required additional repair work during
the quarter.  Bank service charges and credit/debit card service
center fees increased $2,929 (or 8.59%), as card service fees continue to rise
due to increased popularity and usage by consumers in lieu of traditional cash
payments.  Bad checks increased $8,360 (or 41.59%) compared to the
same quarter a year ago.  Management continues to believe that the
practice of cashing customers’ checks is vital to our competitive strategy for
maintaining customer traffic and growing sales in the face of the competition
from larger grocery retailers that we have experienced in recent
years.  We are looking at the possibility of replacing our current
check verification system with another system, with a wider data-base than our
current processor, in an effort to reduce this expense.  The first
installation of this new equipment is expected to be complete by mid-May of 2008
at our LaFayette, Georgia location.  Professional fees increased
$1,619 (or 5.77%) as costs continue to increase due to compliance with
Sarbanes-Oxley Act and related issues.
  11
  Advertising
and promotion expense decreased $4,555 (or 3.24%) as management continues to
work on reducing these costs.  Depreciation expense decreased $7,554
(or 19.36%) due to the age and fully depreciated status of much of our
equipment, in particular the cash register and scanning equipment that the
Company is in the process of replacing.  As discussed above, these
charges may be expected to return to more historically consistent levels as we
move through the current replacement cycle for this equipment.  All
other miscellaneous expenses decreased $4,260 (or 6.20%), which is consistent
with last year’s figures.
 
 Operating,
general and administrative expenses decreased slightly, by $26,273 (or 1.29%),
for the third quarter of fiscal 2007 as compared to the comparable period of
fiscal 2006.  Significant reductions in depreciation expense,
advertising and promotion expense, utilities and telephone expense, bank service
charges and credit card fees, and insurance helped to offset a significant
increase in payroll and lesser increases in certain other expenses in this
category.  Payroll costs increased by $33,005 (or 3.38%) as compared
to the same period the previous year, primarily due to an increase in the
bonuses awarded or accrued during the quarter to store-level employees in the
amount of $4,906 and to officers and supervisors in the amount of
$12,873.  No bonus was accrued to officers and supervisors in 2006
because of the loss sustained for the quarter and year to date ended February
25, 2006.  The bonus accrued for such personnel during fiscal 2007 was
not payable until the end of the fiscal year 2007.  The remainder of
the increase was due to increases in base salaries given to store personnel
during the month of April 2006 as well as ongoing increases given to hourly
store personnel.  While management strives to control payroll costs as
much as possible (such as by using part-time employees where appropriate), it is
also vital to our ability to compete with larger grocery retailers that we
maintain adequate staffing levels and continue to provide certain customer
services (such as grocery carry-out) that increase labor costs.
 
 We also
experienced an increase of $4,128 (or 25.84%) in bad checks expense during the
quarter ended March 3, 2007 as compared to the prior year period.  The
Company’s practice of cashing payroll checks for customers at its grocery store
locations contributes to ongoing increases in these
expenses.  Management believes that the practice of cashing customers’
checks, while posing risks for the Company is also vital to our competitive
strategy for maintaining customer traffic and growing sales in the face of the
increased competition from larger grocery retailers that we have experienced in
recent years.  While bad checks expense increased as compared to the
third quarter of fiscal 2006, the dollar amount of bad checks being written off
decreased for each of the first three quarters of fiscal 2007 (declining to
$20,103 for the third quarter as compared to $35,428 during the second quarter
and $43,873 for the first quarter).  These decreases reflected
improved supervision of the check cashing process during these periods by
individual store managers as a result of efforts by the Company to improve
training and employee education on this topic.
 
 Other
increases in these expenses during the third quarter of fiscal 2007 included an
increase of $7,722 (or 9.01%) as compared to the prior year period in repairs
and maintenance (related to the overall aging of the Company’s equipment); an
increase of $3,341 (or 2.12%) as compared to the prior year period in rent (due
to the renewal of a lease at one store location at a higher base rent as well as
to higher percentage rents based on the sales increases noted above); and $9,711
(or 16.45%) as compared to the prior year period in the “all other
miscellaneous” component of these expenses, composed primarily of a $5,554
increase in vehicle expense (due to rising fuel costs and increased vehicle
usage, as well as increased maintenance as we have stretched our historical
vehicle replacement schedules in order to reduce capital spending) and $3,894 in
taxes and licenses expense (due to increases in personal property taxes
attributable to some of our recent store equipment upgrades, as well as to
increases in state gross receipts taxes attributable to increased sales levels
versus the prior year).
  12
  Significant
decreases in these expenses during the third quarter of fiscal 2007 included a
decrease of $30,945 (or 44.23%) in depreciation (reflecting a continued
reduction in our purchases of new equipment as compared to prior years, as well
as the fact that some of our older equipment is now fully depreciated); a
decrease of $23,141 (or 11.37%) in utilities and telephone expense (due to
timing differences between periods in fuel purchases and utility billing
cycles); a decrease of $10,065 (or 22.78%) in bank service charges and credit
card fees (due to managements efforts to improve the efficiency of the Company’s
cash management practices during the third quarter); a decrease of $11,296 (or
7.43%) in advertising and promotion expense (reflecting the fact that we did not
run certain programs that increased these expenses for the prior year, but also
offset by increases in the cost of the other promotions described above during
fiscal 2007); and a decrease of $10,118 (or 6.82%) in insurance expense (due to
timing issues involving premium payments and refunds for new and departing
employees, as well as to changes in the overall number of employees electing
coverage under the Company’s group insurance).
 
 Interest and Other
Income:
 
 Other
income (not including interest income) decreased from $31,277 for the quarter
ended March 3, 2007 to $27,946 for the quarter ended March 1, 2008, due to a
decrease in fees charged to cash checks without a grocery purchase (which
reflected a lower volume of this activity during the current quarter as compared
to the prior year period), as well as a slight decrease in revenue related to
Fed-Ex shipments/other due to a slight decrease in this
activity.  These decreases were partially offset by activity-related
increases in the other components of other income components reflected
below.  The components of other income for the quarters ended March 1,
2008 and March 3, 2007 were as follows:
  
  THIRTEEN WEEKS ENDEDDescription
              
              March 1, 2008
              
              
              March 3, 2007Check
      cashing fees
              
              $
              19,036
              
              
              $
              24,675Funds
      received for handling money orders
              
              
              1,349
              
              
              
              757Vendor’s
      compensation from the States of Alabama and Georgia for collecting and
      remitting sales taxes on a timely basis
              
              
              3,796
              
              
              
              3,680Returned
      check fees
              
              
              2,101
              
              
              
              369Revenue
      related to Fed-Ex shipments/other
              
              
              1,664
              
              
              
              1,796TOTAL
              
              $
              27,946
              
              
              $
              31,277
 
 Interest
income decreased by $88 for the quarter, remaining basically consistent with the
same period last year.
  13
  Nine Months Ended March 1,
2008 Compared to Nine Months Ended March 3, 2007:
 
 Sales:
 
 Although
sales only increased by 2.51% (or $633,610) for the thirty-nine weeks ended
March 1, 2008 as compared to an increase of 4.17% for the same period last year,
the continued growth in sales has been beneficial in offsetting increases in
cost of sales and in operating, general, and administrative
expenses.  We experienced sales increases at five of the Company’s
eight grocery stores (ranging from 0.96% to 7.89%) for the first nine months of
fiscal 2008.  The other three stores have been faced with new
competition and, as noted above, the Company is still struggling with one
location which has problems attributable to another tenant having moved out of
the same center and been replaced by a tenant with less complimentary traffic
impacts, as well as by generally unfavorable traffic flow at that
location.  The sales reductions experienced at these three stores for
the first nine months of fiscal 2008 as compared to fiscal 2007 ranged from
0.28% to 4.69%.
 
 Sales for
the nine months ended March 3, 2007 increased $1,009,616, or 4.17%, over the
nine months ended February 25, 2006.  We experienced sales increases
at seven of the Company’s eight grocery stores (ranging from .48% to
10.02%).  As discussed above, we believe these increases are
attributable to certain lower-priced generic goods introduced during the first
quarter of fiscal 2007, as well as to the closing of a competitor located
between two of the Company’s stores and the effects of high gas prices on
consumers’ spending choices.  The remaining location, where we had to
replace certain store-level management employees in connection with the
significant theft loss that was discovered during our annual audit for fiscal
2006, experienced a sales decline of 2.37% for the period.  This also
is the store that continued to be adversely impacted by the fact that another
tenant moved out of the shopping center where it is located during fiscal 2006,
as well as by generally unfavorable traffic pattern conditions at that
location.
 
 Gross
Margin:
 
 In
absolute terms, the Company’s gross margin increased by $59,516, or
approximately 1.00%, for the nine months ended March 1, 2008 as compared to the
same thirty-nine week period of the prior year due to the increase in
sales.  Relative to sales, the gross margin percentage actually
decreased from 23.88% for the thirty-nine weeks ended March 3, 2007 to 23.53%
for the thirty-nine weeks ended March 1, 2008.  This decrease versus
the prior year period reflects the continuing impact of the introduction of
lower-priced generic merchandise, as well as promotional activities conducted to
increase sales during the first nine months of both fiscal 2008 and fiscal
2007.  It also reflects the impact of ongoing increases in the
wholesale costs of certain grocery items, as well as gradual increases in
suppliers’ fuel surcharges due to increased gasoline prices, that we are not
able to immediately recover through adjustments to the Company’s retail prices
due to the impacts of competition.  Management is working to
strategically adjust the prices of the Company’s merchandise to recover
increases in our wholesale costs, to the extent permitted by
competition.
 
 The
Company’s gross margin increased by $147,129, or 2.5%, for the quarter ended
March 3, 2007 as compared to the same period of the prior year.  The
gross margin percentage for the nine months ended March 3, 2007 was down,
however, by 0.39% as compared to the nine month period ended February 25,
2006.  As discussed above, this decrease is attributable to the
introduction of lower priced generic merchandise with lower margins and to the
other promotional activities implemented during the first half of fiscal 2007,
as well as to increased wholesale costs for certain items (principally certain
private label merchandise) which we finally succeeded in passing on through
adjustments to our retail prices during the third quarter of fiscal
2007.  The overall increase in sales that resulted from these changes
in our product and pricing mix served to more than offset the impact of the
small reduction in gross margin percentage on the Company’s overall
profitability for the period.
  14
  Operating, General and
Administrative Expenses:
 
 The
following table details the components of operating, general and administrative
expenses, both in absolute terms and as a percentage of the total of all such
expenses, for the nine months ended March 1, 2008 and March 3,
2007:
 
 Expense
      Item
              
              Nine
      Month
                2008Amount
              
              
              %
      of 2008 Nine
                Month Total
              
              
              Nine
      Month
                2007Amount
              
              
              %
      of 2007 Nine
                Month TotalPayroll
              
              $
              3,000,328
              
              
              
              49.5
              
              
              $
              2,996,776
              
              
              
              49.8Utilities
      & telephone expense
              
              
              566,764
              
              
              
              9.4
              
              
              
              531,688
              
              
              
              8.8Rent
              
              
              495,515
              
              
              
              8.2
              
              
              
              482,483
              
              
              
              8.0Insurance
              
              
              419,692
              
              
              
              6.9
              
              
              
              462,203
              
              
              
              7.7Advertising
      & promotion
              
              
              387,122
              
              
              
              6.4
              
              
              
              394,939
              
              
              
              6.6General
      & office supplies
              
              
              293,766
              
              
              
              4.8
              
              
              
              275,260
              
              
              
              4.6Repairs
      & maintenance
              
              
              278,408
              
              
              
              4.6
              
              
              
              269,516
              
              
              
              4.5Depreciation
              
              
              93,748
              
              
              
              1.6
              
              
              
              114,173
              
              
              
              1.9Bank
      service charges and credit card fees
              
              
              112,505
              
              
              
              1.8
              
              
              
              116,997
              
              
              
              2.0Bad
      checks
              
              
              116,524
              
              
              
              1.9
              
              
              
              99,404
              
              
              
              1.6Professional
      fees
              
              
              117,362
              
              
              
              1.9
              
              
              
              87,368
              
              
              
              1.5All
      other miscellaneous
              
              
              182,414
              
              
              
              3.0
              
              
              
              179,266
              
              
              
              3.0TOTAL
              
              $
              6,064,148
              
              
              
              100.0
              
              
              $
              6,010,073
              
              
              
              100.0
 
 Operating,
general and administrative expenses increased by $54,075 (or 0.90%) for the
first nine months of fiscal 2008, as compared to the same period of fiscal
2007.  Payroll costs increased $3,552 (or 0.12%) as management
continues to work with scheduling to keep payroll costs down without sacrificing
services to our customers (such as grocery carry out) that are necessary to
support sales.  Utilities and telephone expense increased $35,076 (or
6.60%), as energy costs continue to increase.  Rent expense increased
$13,032 (or 2.70%) due primarily to increases as new leases and/or extensions of
current leases with higher base rents take effect. General and office supplies
are up $18,506 (or 6.72%) due to increased prices as well as increased stocking
of certain expendable store-level supplies (such as grocery bags) to support
increased sales.  Repairs and services are up $8,892 (or 3.30%) due to
the Company’s older equipment having required more repairs during the first nine
months of fiscal 2008 than during the comparable period of last
year.  Bad checks expense has continued to increase with an increase
of $17,120 (or 17.22%) over the first nine months of last year.  As
noted above, we have begun the process of replacing our registers and back door
equipment, with the first store to be completed by mid-May of 2008, and
anticipate replacing the current service provider handling bad checks with a new
provider with a broader database to reduce the amount of bad and counterfeit
checks being cashed at our stores.  Professional fees increased
$29,994 (or 34.33%) due to the increased regulatory compliance expense under the
Sarbanes-Oxley Act, coupled with increased utilization of legal services as
compared to the same nine month period last year.  All other
miscellaneous expense increased $3,148 (or 1.76%), remaining fairly consistent
between the two periods presented.
  15
  Insurance
decreased for the thirty-nine week period by $42,511 (or 9.20%) due to favorable
quotes on the Company’s commercial insurance at the annual renewal on July 1,
2007.  This decrease was partially offset by an increase in group
health insurance expense at the Company’s annual renewal on January 1, 2008,
which is reflected in the comparison for the current quarter ended March 1, 2008
as discussed above.  Advertising and promotion expense decreased by
$7,817 (or 1.98%) as management continues to work on reducing this expense
item.  Depreciation expense decreased by $20,425 (or
17.89%).  As noted above, however, we expect the trend of ongoing
reductions to depreciation expense in recent periods to be reversed as the
Company moves through the replacement cycle that began this quarter for its cash
registers, scanners and back door equipment.  Bank service charges and
credit card fees decreased $4,492 (or 3.84%) for the first nine months of fiscal
2008, reflecting reduced bank charges during the period due to the improvements
in the Company’s cash balances and cash management procedures as a result of the
change in our principal banking relationship during the fourth quarter of fiscal
2007.  All other expenses remained consistent with last year’s
figures.
 
 Operating,
general and administrative expenses increased slightly, by $8,611 (or 0.14%) for
the first nine months of fiscal 2007 as compared to the comparable period of
fiscal 2006.  Reductions in depreciation expense, advertising and
promotion expense, insurance expense and professional fees helped to offset
increases in payroll expense, rent, and bad check expense, as well as lesser
increases in certain other expenses in this category.  Payroll costs
increased $108,853 (or 3.77%) as compared to the same period last year due to an
increase in the bonuses awarded or accrued during the three quarters ended March
3, 2007 and increases in base salaries given to store personnel during the month
of April 2006, as well as the addition of one employee to the Company’s main
office during the month of October 2005.  The increase in rent of
$12,840 (or 2.73%) is due to the renewal of a lease at one store location at a
higher base rent as well as to higher percentage rents based on the sales
increases noted above.  We experienced an increase in bad check
expense of $15,416 (or 18.36%) for the first nine months of fiscal
2007.  As noted above, while the Company’s practice of cashing payroll
checks for customers contributes to ongoing increases in this expense, the
amount of bad checks expense declined for each consecutive quarter of fiscal
2007, due to improved supervision of the check cashing process by individual
store managers and improved training and employee education on this topic, which
management intends to continue in order to further control these
costs.  The “all other miscellaneous” component of these expenses
increased $21,052 (or 13.31%), composed primarily of a $11,289 increase in
vehicle expense (due to rising fuel costs and increased vehicle usage, as well
as increased maintenance as we have stretched our historical vehicle replacement
schedules to reduce capital spending) and $4,050 in taxes and licenses expense
(due to increases in personal property taxes attributable to some of our recent
store equipment upgrades, as well as to increases in state gross receipts taxes
attributable to increased sales levels versus the prior year).
 
 Significant
decreases in these expenses during the first nine months of fiscal 2007 included
a decrease of $95,839 (or 45.64%) in depreciation (reflecting a continued
reduction in our purchases of new equipment as compared to prior years, as well
as the fact that some of our older equipment is now fully depreciated); a
decrease of $49,219 (or 11.08%) in advertising and promotion expense (reflecting
the fact that we did not run certain programs that increased these expenses
during fiscal 2006, but also offset by increases in the cost of the other
promotions described above during fiscal 2007); a decrease of $9,254 (or 1.96%)
in insurance expense (due to timing issues involving premium payments and
refunds for new and departing employees, as well as to changes in the overall
number of employees electing coverage under the Company’s group insurance); and
a decrease of $7,649 (or 8.05%) in professional fees (due principally to
discontinuing the services of an outside security firm that was contracted for
one location during the corresponding period of the prior
year).
  16
  Interest and Other
Income:
 
 Other
income (not including interest income) increased from $93,143 for the nine
months ended March 3, 2007 to $95,467 for the nine months ended March 1, 2008,
due primarily to an increase in revenue received from handling Federal Express
shipments, gum ball machines and coupon handling commissions, classified as
Revenue related to Fed Ex shipments/other in the table below.  This
increase was partially offset by a slight decrease in revenues from handling
money orders for the nine month period, due to a decrease in the amount of these
services provided, and a decrease in check cashing fees, due to a slight
decrease in activity as compared to the prior year period.  The
components of other income for the thirty-nine weeks ended March 1, 2008 and
March 3, 2007 were as follows:
  THIRTY-NINE WEEKS ENDEDDescription
              
              March 1, 2008
              
              
              March 3, 2007Check
      cashing fees
              
              $
              65,856
              
              
              $
              67,430Funds
      received for handling money orders
              
              
              5,806
              
              
              
              7,582Vendor’s
      compensation from the States of Alabama and Georgia for collecting and
      remitting sales taxes on a timely basis
              
              
              11,150
              
              
              
              11,017Returned
      check fees
              
              
              3,693
              
              
              
              2,948Revenue
      related to Fed-Ex shipments/other
              
              
              8,962
              
              
              
              4,166TOTAL
              
              $
              95,467
              
              
              $
              93,143
 
 Interest
income remained relatively consistent, increasing by only $58 for the first nine
months of fiscal 2008 as compared to the prior year period.
 
 
 Income
Taxes:
 
 The
Company accounts for income taxes in accordance with the provisions of SFAS No.
109, “Accounting for Income Taxes,” which requires that deferred income taxes be
determined based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given the provisions
of the enacted tax laws.  Valuation allowances are used to reduce
deferred tax assets to the amount considered likely to be realized.
 
 No
amounts have been provided for current and deferred federal and state tax
expense in the statements of income for the nine months ended March 1, 2008 or
March 3, 2007, as a result of a continued net operating loss carryforward and
the related full valuation of the Company’s net deferred tax
assets.
  17
  Inflation:
 
 The
Company continues to seek ways to cope with the threat of
inflation.  To the extent permitted by competition, increased costs of
goods and services to the Company are reflected in increased selling prices for
the Company’s goods.  As discussed above, however, competitive
conditions often delay our ability to pass through price increases experienced
at the wholesale level.  When the Company is forced to raise overall
prices of its goods, the Company attempts to preserve its market share by
competitive pricing strategies that emphasize weekly-advertised
specials.
 
 
 FINANCIAL
CONDITION
 
 Liquidity and Capital
Resources:
 
 Changes
in the Company’s liquidity and capital resources during the periods presented
resulted primarily from the following:
 
 The
Company generated $131,933 in cash flow from operating activities for the
thirty-nine weeks ended March 1, 2008.  Sources of cash flow during
the period included net income of $75,809, depreciation (which is a non-cash
expense) of $93,747, and a decrease in accounts receivable of
$92,907.  The decrease in accounts receivable was due primarily to the
collection of a short-term promissory note from a former employee in the amount
of $78,035 that was outstanding at June 2, 2007 and paid shortly after year end,
with the remaining $14,872 reduction attributable to normal fluctuations in
other components of accounts receivable.  An additional source of cash
flow during the period was a $96,385 decrease in prepaid expenses, due to timing
differences of payments for rent and fees which were actually paid for the month
of June prior to the Company’s fiscal year end date of June 2, 2007, but were
not paid for the most recent period until March 3, 2008 following the end of the
third fiscal quarter, as well as to timing differences in payments for
commercial insurance premiums.  Those increases in cash flow from
operations were partially offset by an increase of $64,598 in inventories which,
while down from $2,201,132 at December 1, 2007, are still being maintained at a
higher balance than at the end of the Company’s June 2, 2007 fiscal year to
handle increased sales and to take advantage of purchasing incentives in the
form of rebates (which resulted in a $15,000 increase in vendor allowances for
the first nine months of fiscal 2008 versus the prior year).  A
portion of this increase is also due to the increases in wholesale costs for
certain items and gradual increases in inventory suppliers’ fuel surcharges, as
noted above.  We also recorded a $141,951 reduction in accounts
payable during the thirty-nine week period ended March 1, 2008.  This
decrease is normal for this time of year, due to the seasonal pay-down trade
accounts generated by the holiday build-up of inventory.Accounts payable
were $762,445 at March 1, 2008 as compared to $788,921 at March 3,
2007.  Sales tax payable decreased $20,059 due to the change in the
amount owed for sales tax at March 1, 2008 compared to the amount owed at June
2, 2007.  Other accrued liabilities remained consistent decreasing
only $307.
 
 During
the thirty-nine weeks ending March 3, 2007, the Company generated $86,267 in
cash flow from operating activities, due to the effects of net income of
$75,876, depreciation (which is a non-cash expense) of $114,173, and a decrease
in inventories of $19,121 (due to management’s ongoing efforts to reduce
inventories as a means of providing working capital), offset by an increase of
$59,296 in prepaid expenses (largely due to timing differences in payments for
insurance premiums and prepaid maintenance contracts on our cash registers and
scanning equipment), a decrease of $78,742 in accounts payable (due to
reductions in inventory levels and differences in the timing of payments between
periods) and a decrease of $22,328 in accrued sales tax payable (due largely to
the timing of state sales tax payments in relation to quarterly sales
levels).  Total accounts receivable of $164,207 at March 3, 2007 still
included $24,000 of anticipated insurance recoveries not received which were
related to the theft loss discovered during our fiscal 2006 year-end audit, and
which were subsequently written down to zero during the fourth quarter of fiscal
2007 due to ongoing delays in resolving the claim with our
insurer.
  18
  During
the thirty-nine weeks ended March 1, 2008, net cash used in investing activities
of $89,351 consisted of additions to property and equipment in the amount of
$93,612, partially offset by a $4,261 reduction in the balance of the Company’s
certificate of deposit.  The $93,612 of equipment purchases included
two automobiles with an aggregate cost of $35,435, three meat scales and
printers, a copy machine and a printer for the main office, a security fence
required by local authorities at one store, a camera system for one store and a
downpayment on new cash registers/scanning equipment and the related back door
system purchased for our LaFayette store in the amount of
$28,000.  The remaining cost of the equipment, in the amount of
$26,893, is due on the date of installation, which is expected to be around the
first of May, and is expected to be funded through new long-term bank financing
as discussed above.
 
 Net cash
used in investing activities during the thirty-nine weeks ended March 3, 2007
totaled $25,219, reflecting a $6,650 reduction in the balance of our certificate
of deposit, offset by $31,869 used to fund purchases of property and equipment
(consisting of additional store shelving purchased as well as the replacement of
the front door at one grocery store, the purchase of a dumpster for waste
disposal at another store location, the purchase of a camera system at one
location and the purchase of an ice machine for one location) in the amount of
$14,443, and the purchase of one vehicle for $17,426.
 
 Net cash
used in financing activities for the thirty-nine weeks ended March 1, 2008
amounted to $37,944.  This reflected a net reduction of short-term
borrowings in the amount of $18,817, together with a net reduction of long-term
debt in the amount of $15,040 (consisting of payments of $50,475 partially
offset by new long-term debt of $35,435 to finance the purchase of the two
vehicles mentioned above) and $4,087 used for repurchases of the Company’s stock
in response to unsolicited requests received during the period.
 
 During
the thirty-nine weeks ended March 3, 2007, net cash used in financing activities
amounted to $64,954.  We reduced the Company’s long-term debt by a net
amount of $42,105 (including principal payments of $59,531 on existing debt,
partially offset by a new loan in the amount of $17,426 to finance one vehicle
purchased), reduced short-term debt by $13,130 and redeemed $9,719 in common
stock.
 
 Overall,
the Company’s cash and cash equivalents increased by $4,638 during the
thirty-nine week period ended March 1, 2008, versus a decrease in cash and cash
equivalents of $3,906 during the comparable period of the prior
year.
 
 The ratio
of current assets to current liabilities was 1.84 to 1 at the end of the latest
quarter, March 1, 2008 compared to 1.75 to 1 on March 3, 2007 and 1.75 to 1 at
the end of the fiscal year ended on June 2, 2007.  Cash, cash
equivalents and the certificate of deposit constituted 27.32% of the total
current assets at March 1, 2008, as compared to 20.67% of the total current
assets at March 3, 2007 and 26.31% at June 2, 2007.  As the Company
has experienced operating losses or only minimal profitability in recent years,
we have been forced to rely more extensively on managing other elements of the
Company’s overall working capital structure, as well as on additional borrowings
under the line of credit, to fund ongoing operations.  During the last
two years, management also has limited additional capital spending and has
attempted to control costs in other areas to moderate the effects of these
developments on the Company’s overall liquidity by reducing the Company’s
working capital requirements.  In general, management also has been
working to reduce the Company’s inventory levels when possible as an additional
means of providing working capital.  As noted above, however,
inventories at March 1, 2008 reflected an increase of $64,598 over inventories
at June 2, 2007 which, while down from the $82,943 increase in interim
inventories for the first six months of fiscal 2008 (ended December 1, 2007),
still reflect a decision to maintain higher inventories than at the end of the
last fiscal year to handle increased sales and to take advantage of purchasing
incentives in the form of rebates.  The overall level of inventory
balances in recent periods also has been affected by the ongoing cost increases
noted above.
  19
  Historically,
the Company has financed its working capital requirements principally through
its cash flow from operations.  Short-term borrowing to finance
inventory purchases is provided by the Company’s $800,000 line of credit from
its bank and through borrowings from related parties, as discussed
below.  Effective May 3, 2007, we entered into a new credit facility
with Gateway Bank & Trust, which includes the $800,000 line of credit with a
12 month term. The line of credit contains a borrowing base provision that
limits the maximum outstanding indebtedness to forty percent (40%) of the value
of the Company’s inventory, as measured on a quarterly basis.  As of
March 1, 2008, we had available $210,000 to be borrowed under the line of
credit.  The bank line of credit is secured by the Company’s
certificate of deposit as well as by a security interest in substantially all of
our accounts receivable, inventory, machines and equipment, furniture and
fixtures and by personal guarantees of Michael A. Richardson and Paul R. Cook,
the Company’s President and CEO and Executive Vice President and CFO,
respectively.  While we believe that these sources will continue to
provide us with adequate liquidity to supply the Company’s working capital
needs, if the Company’s operating losses were to increase relative to
depreciation and other non-cash charges, our operating cash flows could be
adversely affected.  If this happens, we could be required to seek
additional financing through bank loans, or other sources, in order to meet our
working capital needs.  If we were required to seek such additional
financing and were not able to obtain it, or were unable to do so on
commercially reasonable terms, we could be required to reduce the Company’s
current level of operations in order to lower our working capital requirements
to a level that our present financing arrangements would support.
 
 Short-term
borrowings as of specific dates are presented below:
 
 March
      1,
                2008
              
              
              June
      2,
                2007
              
              
              March
      3,
                2007Michael
      and Diana Richardson
              
              $
              13,580
              
              
              $
              12,832
              
              
              $
              12,576Matthew
      Richardson
              
              
              1,543
              
              
              
              1,458
              
              
              
              1,429Line
      of Credit
              
              
              590,000
              
              
              
              609,650
              
              
              
              499,996TOTAL
              
              $
              605,123
              
              
              $
              623,940
              
              
              $
              514,001
 
 During
the first nine months of fiscal 2008, we increased the Company’s borrowings from
related parties by a net amount of $833 (reflecting accrued interest) and
reduced the outstanding balance under the line of credit by a net amount of
$19,650 (consisting of borrowings of $250,000 and payments of $269,650). We also
paid total interest of $32,459 on borrowings under the line of credit during the
nine month period.
 
 The
Company’s line of credit with Gateway Bank & Trust bears interest at prime,
subject to a 6.0% floor.  Notes to Michael and Diana Richardson and to
Matthew Richardson are unsecured, payable on demand and bear interest at .25%
below the base rate charged by Gateway Bank & Trust on the line of
credit.  Michael Richardson is Chairman of the Board and Chief
Executive Officer of the Company.  Diana Richardson is the wife of
Michael Richardson, and Matthew Richardson is their son.
  20
  Long-Term
Debt:
 
 At March
1, 2008, long-term debt consisted of a note payable to Gateway Bank & Trust
of $157,246 incurred in May 2007 to refinance the addition of the Company’s
eighth grocery store. In addition, two vehicles were purchased and financed
through Tennessee Valley Federal Credit Union with balances due at March 1, 2008
of $13,399 and $15,126. An additional vehicle loan, also financed with Tennessee
Valley Federal Credit Union, had a balance due of $11,439.  Long-term
debt as of specific dates is presented below:
 
 March
      1,
                2008
              
              
              June
      2,
                2007
              
              
              March
      3,
                2007Note
      payable, Bank, secured by all inventory, machinery and equipment, due
      $6,781 monthly, with interest at prime with 6% floor through December
      2008.
              
              $
              —
              
              
              $
              —
              
              
              $
              145,866Note
      payable, Bank, secured by all inventory, machinery and equipment, due
      $3,684 monthly plus interest at prime with 6% floor through April
      2012.
              
              
              157,246
              
              
              
              180,000
              
              
              
              —Vehicle
      loans, collateralized by automobiles, due monthly through July
      2010.
              
              
              39,964
              
              
              
              32,250
              
              
              
              34,646$
              197,210
              
              
              $
              212,250
              
              
              $
              180,512Less
      current maturities
              
              
              53,152
              
              
              
              40,206
              
              
              
              81,770$
              144,058
              
              
              $
              172,044
              
              
              $
              98,742
 
 The
following is a schedule by years of the amount of maturities of all long-term
debt subsequent to March 1, 2008:
 
 Twelve
      Months
                Ending March
              
              Amount2009
              
              $
              53,1522010
              
              
              55,7602011
              
              
              45,0532012
              
              
              42,7032013
              
              
              542
 
 During
the quarter ended March 1, 2008 retained earnings increased as a result of the
Company’s net income for the quarter.
 
 Critical Accounting
Policies:
 
 Critical
accounting policies are those policies that management believes are important to
the portrayal of the Company’s financial condition and results of operations and
require management’s most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain.  Management believes it has chosen accounting
policies that are appropriate to report accurately and fairly our operating
results and financial position, and we apply those accounting policies in a
consistent manner.  Our significant accounting policies are summarized
in Note 1 to the Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended June 2, 2007.
  21
  We
believe that the following accounting policies are the most critical in the
preparation of our financial statements because they involve the most difficult,
subjective or complex judgments about the effect of matters that are inherently
uncertain.
 
 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, liabilities, revenues, and expenses, and
related disclosures of contingent assets and liabilities.  Management
determines its estimates based on historical experience and other factors
believed to be reasonable under the circumstances.  Actual results
could differ from those estimates.
 
 Inventories:
 
 All
inventories are valued at the lower of average cost or market, following the
Average Cost-to-Retail Method.  Under this method, inventory is stated
at average cost, which is determined by applying an average cost-to-retail ratio
to each similar merchandise category’s ending retail value.  If
average cost is determined to exceed market value, the impacted merchandise’s
carrying value is reduced to market value, with the reduction flowing through
current period earnings.  Management recognizes inventory shortages
throughout the year based on actual physical counts, which are performed on a
quarterly basis at each store location.
 
 Vendor
Allowances:
 
 The
Company receives funds for a variety of merchandising activities from vendors
whose products the Company buys for resale in its stores.  These
incentives and allowances include volume or purchased based incentives,
advertising allowances, and promotional discounts.  The purpose of
these incentives and allowances is generally to aid in the reduction of the
costs incurred by the Company for stocking, advertising, promoting and selling
the vendor’s products.  These allowances generally relate to
short-term arrangements with vendors, often relating to a period of one month or
less, and are typically negotiated on a purchase-by-purchase
basis.  Due to system constraints and the nature of certain
allowances, these allowances are applied as a reduction of inventory costs using
a rational and systematic methodology, which results in the recognition of these
incentives when the inventory related to the initial purchase is
sold.  Management recognized approximately $326,000 and $311,000 of
vendor allowances as a reduction in inventory costs for the thirty-nine weeks
ended March 1, 2008 and March 3, 2007, respectively.  Amounts that
represent a reimbursement of specific identifiable incremental costs, such as
advertising, are recorded as a reduction to the related expense in the period
that the related expense is incurred.  Management recognized
approximately $42,000 and $40,000 in advertising allowances recorded as a
reduction of advertising expense for the thirty-nine weeks ended March 1, 2008
and March 3, 2007, respectively.
  22
  Asset
Impairments:
 
 Management
accounts for any impairment of its long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”  Management monitors the
carrying value of its long-lived assets for potential impairment each quarter
based on whether any indicators of impairment have occurred.  As of
March 1, 2008 and March 3, 2007, no long-lived assets have been identified by
management as impaired.
 
 
 Off-Balance Sheet
Arrangements:
 
 The
Company had no significant off-balance sheet arrangements as of March 1,
2008.
 
 
 Related Party
Transactions:
 
 Except as
discussed under “Liquidity and Capital Resources,” there were no material
related party transactions during the thirty-nine week period ended March 1,
2008.
 
 
 Forward – Looking
Statements:
 
 Information
provided by the Company, including written or oral statements made by its
representatives, may contain “forward looking information” as defined in Section
21E of the Securities Exchange Act of 1934, as amended.  All
statements which address activities, events or developments that the Company
expects or anticipates will or may occur in the future, including such things as
expansion and growth of the Company’s business, the effects of future
competition, future capital expenditures and the Company’s business strategy,
are forward-looking statements.  In reviewing such information it
should be kept in mind that actual results may differ materially from those
projected or suggested in such forward-looking statements.  This
forward-looking information is based on various factors and was derived
utilizing numerous assumptions.  Many of these factors previously have
been identified in filings or statements made on behalf of the Company,
including filings with the Securities and Exchange Commission on Forms 10-Q,
10-K and 8-K.  Important assumptions and other important factors that
could cause actual results to differ materially from those set forth in the
forward-looking statements include the following (in addition to those matters
discussed in the Risk Factors included in Part I, Item 1A of our Annual Report
on Form 10-K for the fiscal year ended June 2, 2007): changes in the general
economy or in the Company’s primary markets, the effects of ongoing price
competition from competitors with greater financial resources than those of the
Company, changes in consumer spending, the nature and extent of continued
consolidation in the grocery store industry, changes in the rate of inflation,
changes in state or federal legislation or regulation, adverse determinations
with respect to any litigation or other claims, inability to develop new stores
or complete remodels as rapidly as planned, stability of product costs, supply
or quality control problems with the Company’s vendors, and other issues and
uncertainties detailed from time-to-time in the Company’s filings with the
Securities and Exchange Commission.
  23
  ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 The
Company does not engage in derivative transactions, nor does it hold or issue
financial instruments for trading or other speculative purposes.  The
Company is exposed to market risk related to changes in interest rates primarily
as a result of its borrowing activities.  The effective interest rate
on the Company’s borrowings under its Line of Credit Agreements and under its
outstanding notes varies with the prime rate.  The Company does not
maintain any interest rate hedging arrangements.  Based on the
Company’s outstanding indebtedness at March 1, 2008 (and annualized to represent
a full twelve months of results), a one percent (1.0%) increase in the prime
interest rate would increase interest expense applicable to our variable rate
debt (and decrease our net income) by approximately $7,600
annually.  Due to the interest rate floor provisions in the Company’s
variable rate debt, decreases in the prime interest rate currently would have no
impact on the Company’s annualized interest expense.  All of the
Company’s business is transacted in U.S. dollars and, accordingly, foreign
exchange rate fluctuations have never had a significant impact on the Company
and they are not expected to in the foreseeable future.
 
 
 ITEM
      4.
              CONTROLS
      AND PROCEDURES
 
 As of the
end of the period covered by this quarterly report, an evaluation was performed,
under the supervision and with the participation of our management, including
the Company’s Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15.  Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures are
effective.  No change in the Company’s internal control over financial
reporting occurred during the period covered by this quarterly report that
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
  24
  AMERICAN
CONSUMERS, INC.
 
 PART
II OTHER
INFORMATION
 
 ITEM
      1A.
              RISK
      FACTORS
 
 Information
regarding risk factors appears under the caption “Forward-Looking Statements” in
Part I, Item 2 of this Form 10-Q and in Part I, Item 1A of our Annual Report on
Form 10-K for the fiscal year ended June 2, 2007.  There have been no
material changes from the risk factors previously disclosed in our Annual Report
on Form 10-K.
   ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  (c)           Issuer
Repurchases:
  The
following table presents information with respect to repurchases of common stock
made by the Company during the fiscal quarter covered by this
report:
 Period
              
              Total
      Number
                of
      Shares
                Purchased (1)
              
              
              Average
                Price
                Paid
      per
                Share
              
              
              Total
      Number of
                Shares
      Purchased as
                Part
      of a Publicly
                Announced Plan
              
              
              Maximum
      Number of
                Shares
      that May Yet
                Be
      Purchased
                Under the PlanDecember
      2 –Dec.
      29, 2007
              
              
              484
              
              
              $
              1.00
              
              
              
              —
              
              
              
              —December
      30,2007 – January 26, 2008
              
              
              440
              
              
              
              1.00
              
              
              
              —
              
              
              
              —January
      27 – March 1, 2008
              
              
              550
              
              
              
              1.00
              
              
              
              —
              
              
              
              —Total
              
              
              1,474
              
              
              $
              1.00
              
              
              
              —
              
              
              
              —
  (1)
              Represents
      shares repurchased at $1.00 per share in response to unsolicited requests
      from unaffiliated shareholders during the
  quarter.
   ITEM
      6
              EXHIBITS
  The
following exhibits are filed as a part of the report.
  Exhibit
      No.
              
              Description10.1
              
              Lease
      Agreement for the Company’s Ringgold, Georgia location, as amended through
      the Fifth Amendment thereto dated February 18, 2008.11
              
              Statement
      re: computation of per share earnings.31.1
              
              CEO
      Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).31.2
              
              CFO
      Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).32.1
              
              CEO
      Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).32.2
              
              CFO
      Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).
  25
  SIGNATURES
 
 
 Pursuant
to the requirements 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.
 
 
 AMERICAN
      CONSUMERS, INC.(Registrant)Date:
              April
      14, 2008
              
              /s/
      Michael A. RichardsonMichael
      A. RichardsonCHAIRMAN
      OF THE BOARD AND CHIEF
      EXECUTIVE OFFICER(Principal
      Executive Officer)Date:
              April
      14, 2008
              
              /s/
      Paul R. CookPaul
      R. CookEXECUTIVE
      VICE PRESIDENT AND TREASURER(Principal
      Financial Officer & Chief Accounting
      Officer)
  26
  AMERICAN
CONSUMERS, INC.
 
 EXHIBIT
INDEX
 
 
 Exhibits
filed with this report:
 
 Exhibit
      No.
              
              Description10.1
              
              Lease
      Agreement for the Company’s Ringgold, Georgia location, as amended through
      the Fifth Amendment thereto dated February 18, 2008.11
              
              Statement
      re: computation of per share earnings.31.1
              
              CEO
      Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).31.2
              
              CFO
      Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).32.1
              
              CEO
      Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).32.2
              
              CFO
      Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).






27