UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D. C.  20549
 
 FORM
10-Q
 (Mark
One)
 [X]
              
              QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d)

                OF
      THE SECURITIES EXCHANGE ACT OF 1934For the quarterly
      period ended November 28, 2009OR[  ]
              
              TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15 (d)

                OF
      THE SECURITIES EXCHANGE ACT OF 1934For 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  x     No 
o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
 Yes 
o     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  o                                                                                                                             Accelerated
filer  o
 Non-accelerated
filer    o     
(Do not check if a smaller reporting
company)                                
     Smaller reporting company  x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). oYES     NO   x
 
 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
      January 9, 2010COMMON STOCK -
      $ .10 PAR VALUE
              
              756,917NON VOTING COMMON
      STOCK - $ .10 PAR VALUE
              
              ----


ITEM
      1.   FINANCIAL STATEMENTSFINANCIAL
      INFORMATION
              AMERICAN
      CONSUMERS, INC.
              CONDENSED
      STATEMENTS OF INCOME AND RETAINED EARNINGS
              (UNAUDITED)  THIRTEEN
      WEEKS ENDED
              
              
              TWENTY-SIX WEEKS ENDEDNovember
      28,
                2009
              
              
              November
      29,
                2008
              
              
              November
      28,

                2009
              
              
              November
      29,

                2008NET
      SALES
              
              $
              8,138,983
              
              
              $
              8,700,897
              
              
              $
              16,782,881
              
              
              $
              17,486,177COST
      OF GOODS SOLD
              
              
              6,171,934
              
              
              
              6,549,700
              
              
              
              12,783,841
              
              
              
              13,248,836Gross
      Margin
              
              
              1,967,049
              
              
              
              2,151,197
              
              
              
              3,999,040
              
              
              
              4,237,341OPERATING,
      GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              2,162,198
              
              
              
              2,132,687
              
              
              
              4,222,665
              
              
              
              4,241,817Operating
      Income (Loss)
              
              
              (195,149
              )
              
              
              18,510
              
              
              
              (223,625
              )
              
              
              (4,476
              )OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              2,013
              
              
              
              2,567
              
              
              
              3,893
              
              
              
              5,218Other
      income
              
              
              19,984
              
              
              
              22,079
              
              
              
              43,151
              
              
              
              48,171Loss
      on disposal of equipment
              
              
              ----
              
              
              
              (1,574
              )
              
              
              ----
              
              
              
              (2,143
              )Interest
      expense
              
              
              (14,989
              )
              
              
              (11,467
              )
              
              
              (28,391
              )
              
              
              (19,314
              )Income  (Loss)
      Before Income Taxes
              
              
              (188,141
              )
              
              
              30,115
              
              
              
              (204,972
              )
              
              
              27,456INCOME
      TAXES
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —NET
      INCOME (LOSS)
              
              
              (188,141
              )
              
              
              30,115
              
              
              
              (204,972
              )
              
              
              27,456RETAINED
      EARNINGS:Beginning
              
              
              1,047,622
              
              
              
              1,002,200
              
              
              
              1,064,534
              
              
              
              1,004,859Redemption
      of common stock
              
              
              (551
              )
              
              
              (29
              )
              
              
              (632
              )
              
              
              (29
              )Ending
              
              $
              858,930
              
              
              $
              1,032,286
              
              
              $
              858,930
              
              
              $
              1,032,286PER
      SHARE:Net
      Income (Loss)
              
              $
              (0.248
              )
              
              $
              0.039
              
              
              $
              (0.268
              )
              
              $
              0.035Cash
      dividends
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —WEIGHTED
      AVERAGE NUMBEROF
      SHARES OUTSTANDING
              
              
              759,886
              
              
              
              781,696
              
              
              
              764,053
              
              
              
              781,717
  See
      Notes to Financial Statements











2





FINANCIAL
      INFORMATION
              AMERICAN
      CONSUMERS, INC.
              CONDENSED
      BALANCE SHEETSNovember
      28,
              2009
            
            May
      30,
              2009(Unaudited)  --A
      S S E T S--CURRENT
      ASSETSCash
      and cash equivalents
              
              $
              565,578
              
              
              $
              971,416Certificate
      of deposit
              
              
              312,694
              
              
              
              307,375Accounts
      receivable
              
              
              134,378
              
              
              
              122,646Inventories
              
              
              2,439,101
              
              
              
              2,283,909Prepaid
      expenses
              
              
              51,033
              
              
              
              33,513Total
      current assets
              
              
              3,502,784
              
              
              
              3,718,859PROPERTY
      AND EQUIPMENT - at costLeasehold
      improvements
              
              
              312,166
              
              
              
              303,766Furniture,
      fixtures and equipment
              
              
              3,110,432
              
              
              
              3,112,6063,422,598
              
              
              
              3,416,372Less
      accumulated depreciation
              
              
              (2,855,261
              )
              
              
              (2,804,322
              )567,337
              
              
              
              612,050TOTAL
      ASSETS
              
              $
              4,070,121
              
              
              $
              4,330,909--LIABILITIES
      AND STOCKHOLDERS' EQUITY--CURRENT
      LIABILITIESAccounts
      payable
              
              $
              672,773
              
              
              $
              766,878Book
      overdraft
              
              
              505,244
              
              
              
              394,631Short-term
      borrowings
              
              
              611,886
              
              
              
              596,660Current
      maturities of long-term debt
              
              
              113,769
              
              
              
              117,774Accrued
      sales tax
              
              
              86,327
              
              
              
              94,446Other
              
              
              236,281
              
              
              
              247,845Total
      current liabilities
              
              
              2,226,280
              
              
              
              2,218,234LONG-TERM
      DEBT
              
              
              276,983
              
              
              
              331,285STOCKHOLDERS'
      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 758,017 and 767,576 respectively
              
              
              75,802
              
              
              
              76,758Additional
      paid-in capital
              
              
              632,126
              
              
              
              640,098Retained
      earnings
              
              
              858,930
              
              
              
              1,064,534Total
      Stockholders' Equity
              
              
              1,566,858
              
              
              
              1,781,390TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              4,070,121
              
              
              $
              4,330,909
  See
      Notes to Financial Statements





3





FINANCIAL
      INFORMATION
              AMERICAN
      CONSUMERS, INC.
              CONDENSED
      STATEMENTS OF CASH FLOWS
              (UNAUDITED)  TWENTY-SIX WEEKS ENDEDNovember
      28,
              
              
              November
      29,2009
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income (Loss)
              
              $
              (204,972
              )
              
              $
              27,456Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
              
              
              62,417
              
              
              
              60,410Change
      in operating assets and liabilities:Accounts
      receivable
              
              
              (11,732
              )
              
              
              (27,352
              )Inventories
              
              
              (155,192
              )
              
              
              (112,807
              )Prepaid
      expenses
              
              
              (17,520
              )
              
              
              28,022Accounts
      payable
              
              
              (94,105
              )
              
              
              (150,052
              )Book overdraft
              
              
              110,613
              
              
              
              276,849Accrued
      sales tax
              
              
              (8,119
              )
              
              
              (46,864
              )Other
      accrued liabilities
              
              
              (11,564
              )
              
              
              (18,757
              )Net
      cash provided by (used in) operating activities
              
              
              (330,174
              )
              
              
              36,905CASH
      FLOWS FROM INVESTING ACTIVITIES(Increase)
      decrease in certificate of deposit
              
              
              (5,319
              )
              
              
              9,419Purchase
      of property and equipment
              
              
              (17,704
              )
              
              
              (234,022
              )Net
      cash used in investing activities
              
              
              (23,023
              )
              
              
              (224,603
              )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      increase (decrease) in short-term borrowings
              
              
              15,226
              
              
              
              (41,333
              )Proceeds
      from long-term borrowings
              
              
              —
              
              
              
              168,000Principal
      payments on long-term debt
              
              
              (58,307
              )
              
              
              (32,520
              )Redemption
      of common stock
              
              
              (9,560
              )
              
              
              (440
              )Net
      cash provided by (used in) financing activities
              
              
              (52,641
              )
              
              
              93,707Net
      decrease in cash
              
              
              (405,838
              )
              
              
              (93,991
              )Cash
      and cash equivalents at beginning of period
              
              
              971,416
              
              
              
              741,440Cash
      and cash equivalents at end of period
              
              $
              565,578
              
              
              $
              647,449SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW

                INFORMATION:Cash
      paid during the six months for:
                Interest
              
              $
              28,391
              
              
              $
              19,314
  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 2009 Annual Report to Shareholders.  The quarterly
financial statements reflect all adjustments that 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.





Ordinary
course capital expenditures for replacements of store equipment during the
remainder of fiscal 2010, including anticipated replacements of meat scales and
printers at certain of our stores, are estimated to be $50,000 or less and are
expected to be funded from operating cash flows.  As of November 28,
2009, capital expenditures for the fiscal year to date totaled $17,704,
consisting of $8,400 in improvements to the office in one of our retail stores,
the addition of three computers in the Company’s executive offices in the amount
of $2,615, a new display case and door mat for one store totaling $1,680, two
cash counting machines totaling $4,326, and the replacement of a freezer door
for $683.  In addition to the equipment replacements described above,
up to three vehicles may have to be replaced during 2010 at a cost of
approximately $25,000 each.  We also may have to replace the Company’s
maintenance vehicle during fiscal 2010 at an estimated cost of $30,000 to
$35,000.  We expect to fund these vehicle replacements through either
bank or manufacturer financing, whichever will provide the Company with the most
favorable terms.  While management is attempting to postpone future
store improvements (which would include, among other things, replacement of
certain older refrigeration equipment with more modern, attractive and
energy-efficient cases), such improvements may be necessary prior to the end of
fiscal 2010.  We cannot reliably estimate the cost of any such
improvements at the present time, but we will attempt to manage the costs and
the timing of such improvements in a manner which both contains the Company’s
overall costs and allows us to finance these costs on the most favorable terms
that we are able to obtain.





The
Company has a 401(k) plan that is administered by Capital Bank and Trust
Company.  Participation in the plan is available to all full-time
employees after one year of service and age 19.  The Company’s annual
contributions to the plan are discretionary.  The Company’s
contribution to the plan was $7,500 in each of fiscal years 2009 and
2008.




(3)           The
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(the
“Codification” or “ASC”).


In June
2009, the FASB issued an accounting standard which established the Codification
to become the single source of authoritative GAAP recognized by the FASB to be
applied by nongovernmental entities, with the exception of guidance issued by
the U.S. Securities and Exchange Commission (the “SEC”) and its
staff.  All guidance contained in the Codification carries an equal
level of authority.  The Codification is not intended to change GAAP,
but rather is expected to simplify accounting research by reorganizing current
GAAP into approximately 90 accounting topics.


5


On
August 18, 2009 the Securities and Exchange Commission published
interpretive guidance titled “Commission Guidance Regarding the Financial
Accounting Standards Board’s Accounting Standards Codification”.In its guidance, the SEC
stated that concurrent with the Effective Date, references in the SEC’s rules
and SEC staff guidance to specific standards under U.S. generally accepted
accounting principles should be understood to mean the corresponding reference
in the FASB Codification.  The SEC also stated that the FASB
Codification does not supersede any SEC rules or regulations, is not the
authoritative source for SEC rules or SEC staff guidance, and the inclusion of
any SEC rules or SEC staff guidance in the FASB Codification will not affect how
such items may be updated in the future by the SEC.





The
Company adopted this accounting standard in preparing its consolidated financial
statements for the period ended November 28, 2009.  The adoption of
this accounting standard, which was subsequently codified into ASC Topic 105,
“Generally Accepted Accounting Principles,” had no impact on retained earnings
and will have no impact on the Company’s statements of income and
condition.




(4)           Fair
Value Disclosures.


Fair
Value Measurements:





ASC Topic
820, “Fair Value Measurements and Disclosures”, (ASC Topic 820) defines fair
value, establishes a framework for measuring fair value in GAAP and expands
disclosures about fair value measurements.  ASC Topic 820 applies only
to fair-value measurements that are already required or permitted by other
accounting standards and is expected to increase the consistency of those
measurements.  The definition of fair value focuses on the exit price,
i.e., the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date, not the entry price, i.e., the price that would be paid to
acquire the asset or received to assume the liability at the measurement
date.  The statement emphasizes that fair value is a market-based
measurement, not an entity-specific measurement.  Therefore, the fair
value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability.





ASC Topic
820 also establishes a three-tier fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value, as follows:





Level 1 –
Quoted prices (unadjusted) in active markets for identical assets or liabilities
that the Company has the ability to access.





Level 2 –
Significant other observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities in active markets, quoted prices in
markets that are not active and other inputs that are observable or can be
corroborated by observable market data.





Level 3 –
Significant unobservable inputs that reflect the Company’s own assumptions about
the assumptions that market participants would use in pricing an asset or
liability.





The
Company has no assets or liabilities whose fair values are measured using levels
1, 2 or 3 inputs.





Fair
value of financial instruments:





The
carrying values of cash and cash equivalents, the certificate of deposit,
accounts receivable, short-term borrowings, accounts payable, accrued expenses
and other liabilities are reasonable estimates of their fair values because of
the short maturity of these financial
instruments.  Based


6


on the
borrowing rates available to the Company for long-term debt with similar terms
and average maturities, the carrying amounts approximate the fair value of such
financial instruments.





(5)           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 ASC
Topic 605, “Customer Payments and Incentives,” the Company applies rebates from
suppliers (excluding rebates for advertising costs) as a reduction in cost of
goods sold.





(6)           Subsequent
Events.





Management
has performed an evaluation of subsequent events through January 12, 2010, the
date these financial statements were issued.  Material events or
transactions occurring after November 28, 2009, but prior to January 12, 2010,
that provided additional evidence about conditions that existed at November 28,
2009, have been recognized in the financial statements for the period ended
November 28, 2009.  Events or transactions that provided evidence
about conditions that did not exist at November 28, 2009, but arose before the
financial statements were issued have not been recognized in the financial
statements for the period ended November 28, 2009.











7


ITEM
2


MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS




RESULTS
OF OPERATIONS





THIRTEEN WEEKS ENDED
            
            TWENTY-SIX WEEKS ENDEDNovember
      28,
              2009
            
            November
      29,
              2008
            
            November
      28,
              2009
            
            November
      29,
              2008Sales
            
            $
            8,138,983
            
            
            $
            8,700,897
            
            
            $
            16,782,881
            
            
            $
            17,486,177%
      Sales Increase (Decrease)
            
            
            (6.46
            %)
            
            
            2.52
            %
            
            
            (4.02
            %)
            
            
            1.50
            %Gross
      Margin %
            
            
            24.17
            %
            
            
            24.72
            %
            
            
            23.83
            %
            
            
            24.23
            %Operating,
      General and Administrative Expenses:Amount
            
            $
            2,162,198
            
            
            $
            2,132,687
            
            
            $
            4,222,665
            
            
            $
            4,241,817%
      of Sales
            
            
            26.57
            %
            
            
            24.51
            %
            
            
            25.16
            %
            
            
            24.26
            %Net
      Income (Loss)
            
            $
            (188,141
            )
            
            $
            30,115
            
            
            $
            (204,972
            )
            
            $
            27,456





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
Company operated at a loss of $188,141 for the quarter ended November 28, 2009
of which $96,390 was related to damage that occurred when a storm drain became
clogged due to heavy rains in the parking lot of one of our grocery stores on
the night of September 20, 2009.  The clogged drain caused water to
enter the store through the front door and engulf the bottom shelves of
merchandise.  The store also suffered a disruption in its supply of
electrical power during the night, resulting in a further loss of merchandise
due to a lack of refrigeration.  We previously estimated this loss at
$86,651 in our Form 10-Q for the quarter ended August 29, 2009, but the final
loss increased by approximately $10,000 due to additional repair and clean up
costs.  Our landlord at the location where the flooding occurred has
replaced the old storm drain with a much better system, which is intended to
avoid any similar future problems.  In addition to the direct expenses
related to the flooding, the store was closed for three days during clean up,
which affected the Company’s cash flow due to lost sales estimated by management
to have been approximately $45,000.





Overall,
sales during the quarter ended November 28, 2009 decreased by $561,914, or
6.46%, compared to the same quarter last year, continuing a trend which began in
the first quarter of fiscal 2010 when sales decreased by 1.61% compared to the
prior year period.  This sales decrease was due in part to the lower
prices (both wholesale and retail) on milk and other dairy products during the
current quarter as compared to the prior year period, as well as to the
additional factors discussed below under “Sales” for both the three and six
month periods ended November 28, 2009.  In addition to the sales
decrease, our gross margin was down by 0.55% from the same period last year,
impacting net income by approximately $44,800, due to certain pricing changes
made in an effort to stimulate sales during the quarter.  Operating,
general and administrative expenses, which included the flood loss of $96,390,
were up by only $29,511 over last year, but were up as a percentage of sales by
2.06%.  Without the $96,390 flood loss, these expenses would have been
down by $66,879, but still would have equaled 25.38% of sales as compared to
24.51% of sales for the same quarter a year ago, due to the sales
decrease.  As


8


discussed
in more detail below, the decrease in operating, general and administrative
expenses, excluding the flood loss, was primarily due to decreases in utilities
and telephone expense, general and office supplies expense, bank service charges
and bad checks expense, vehicle expenses, and certain other miscellaneous
expenses, as compared to the prior year period.  Both interest income
and other income decreased slightly for the second quarter and first six months
of fiscal 2010 as compared to fiscal 2009, due, respectively, to lower
prevailing interest rates on the Company’s bank deposits and to variations in
the level of certain activities, as discussed below under “Interest and Other
Income” for each period presented.  Interest expense increased for
both the three and six month periods, due largely to additional debt incurred
since the first quarter of fiscal 2009 to finance the replacement cycle for the
Company’s electronic cash registers and scanning equipment that was completed
during fiscal 2009.





After
operating at a loss of $2,659 for the first quarter of fiscal 2009, the Company
operated at a net income of $30,115 for the thirteen weeks (quarter) ended
November 29, 2008, which allowed us to report a net income of $27,456 for the
first half of fiscal 2009.  Sales increased by $213,690 (or 2.52%) as
compared to the same quarter of fiscal 2008, as the economy continued to force
consumers to alter their spending habits.  While this quarterly sales
increase was partially offset by the minimal increase of only 0.51% experienced
during our first fiscal quarter, sales for the first half of fiscal 2009 still
increased by $258,088 (or 1.50%) over the comparable twenty-six weeks ended
December 1, 2007.  Unfortunately, the impact of this sales increase,
coupled with significant increases in the gross margin (to 24.72% from 23.25%
for the quarter and to 24.23% from 23.32% for the first six months of fiscal
2008) was offset by increases in operating, general and administrative expenses
($145,114, or 1.09% as a percentage of sales for the quarter, and $237,138, or
1.01% as a percentage of sales for the twenty-six week period), resulting in a
small ($4,476) operating loss for the twenty-six weeks ended November 29, 2008,
though we achieved operating income of $18,510 for the second quarter of fiscal
2009.  The increase in expenses was due primarily to increases in
payroll costs, increases in group insurance premiums, utility costs and
professional services.  Still, favorable net changes in other
income/expense items allowed us to remain profitable for both the second quarter
and first six months of fiscal 2009.  The most significant component
of these changes was the reduction in interest expense for both the thirteen and
twenty-six week periods, due primarily to a decrease in the average balance
carried on our line of credit resulting from the implementation of a cash
management system during fiscal 2008.  Interest expense did increase
by $3,620 in the second quarter as compared to the first quarter of fiscal 2009,
however, due to the new debt incurred to finance equipment purchases of new cash
registers and scanning equipment during the period.  Partially
offsetting the decreases in interest expense were simultaneous decreases in
interest income (due principally to lower prevailing interest rates on our bank
deposits) and other income (due principally to variations in activity levels
between periods).





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 in
recent periods, such as the 24.55% gross margin we achieved for fiscal 2009 as
compared to the gross margins of 23.85% for fiscal 2008 and 23.73% for fiscal
2007, 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.  The
gross margin fell to 23.83% for the current twenty-six week period from the
24.23% gross margin achieved for the first twenty-six weeks of fiscal 2009, due
to certain pricing adjustments made in an effort to stimulate
sales.  While management attempts to


9


offset
increases in its cost through pricing adjustments as competition allows, further
improvements in the gross margin may not be achievable at this time, and further
deterioration in the Company’s gross margin is possible.





Management
believes that competitive pressures on the Company, which have led to the losses
experienced in years prior to fiscal 2007, and for the current fiscal year to
date, 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 manage 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.  We will attempt to improve the gross margin and
increase profitability 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.





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.  Accordingly, our
cost of goods sold as reflected in the Company’s financial statements is
comprised principally of our direct wholesale cost for the acquisition of such
inventory, net of applicable rebates and allowances as discussed under
“Inventories” in Note 1 of the financial statements presented in the Company’s
2009 Annual Report to Shareholders.





Management
has been working to contain operating, general and administrative expenses as
much as possible.  As indicated above, these expenses would have
decreased by $66,879 without the flood loss of $96,390 during the current
quarter.  Excluding the flood loss, operating, general and
administrative expenses would be $2,065,808 or 25.38% of sales for the second
quarter of fiscal 2010 as opposed to 24.51% of sales for the same period last
year, and would be $4,126,275, or 24.59% of sales, for the first twenty-six
weeks of fiscal 2010 as compared to $4,241,817, or 24.26% of sales, for the
first half of fiscal 2009.  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 whenever sales decrease, due to the effects of ongoing competition or
otherwise, prior improvements experienced in these expenses as a percentage of
sales will be eroded.  As demonstrated by the results for the current
quarter and first six months of fiscal 2010, this directly and adversely affects
the Company’s operating profits.  A more detailed discussion of these
expenses and related changes is set forth below under the caption “Operating,
General and Administrative Expenses” for each of the periods
presented.





10


Three Months Ended November
28, 2009 Compared to Three Months Ended November 29, 2008:





Sales:





Sales
decreased $561,914 during the quarter ended November 28, 2009 compared to the
quarter ended November 29, 2008.  One of the Company’s stores actually
experienced an increase in sales of 0.01%, while the other seven stores
experienced sales decreases ranging from 1.87% to 15.41%.  Having to
close one store for the flood for three days contributed to the $561,914
decrease.  A reduction in the retail sales prices of dairy items was
one factor contributing to the overall sales decrease.  The current
quarter also continued the recent trend of customers purchasing more private
label merchandise, which normally retails at lower prices than national
brands.  The Company is also experiencing increased competition from
specials being promoted by the restaurant and fast food businesses, which are
reducing their retail prices in an effort to increase their share of consumers’
food purchases in response to the trend observed in recent periods of customers
preparing more meals at home to reduce spending.  Management further
believes that the economy itself is affecting retail grocery sales, as
individuals are forced to reduce spending in an effort to provide other
essentials to their families.





Sales
increased $213,690 or 2.52% during the quarter ended November 29, 2008 compared
to the quarter ended December 1, 2007.  While sales have continued to
be affected at two of our grocery stores by the opening of a locally owned
supermarket between these two store locations, sales at one of these stores
increased by 1.21% during the second quarter of fiscal 2009 as compared to the
prior year period, while the other experienced an increase of 6.13% as customers
are, or at least seemed to be, shopping closer to home during the
period.  Still, three of the Company’s stores experienced sales
decreases ranging from 1.25% to 5.56%, while the other five stores showed
increases in sales ranging from the 1.21% mentioned above to
7.57%.  The stores with sales decreases generally suffered from
increased competition in their local market areas as compared to the prior year
period, and one also continued to be adversely impacted by another tenant having
moved out of the shopping center where it is located during fiscal 2006 and been
replaced by a tenant which does not generate as much traffic, and by generally
unfavorable traffic pattern conditions at that location.





We will
continue to attempt to maintain overall sales levels through active management
of the Company’s advertising programs, product selection and overall mix of
retail prices throughout the year.  We believe that offering a broader
selection of generic and private label merchandise than some of our competitors
may have helped bolster sales in recent periods, prior to the declines
experienced for the first half of fiscal 2010, as customers seek out more of
these goods to economize on their grocery spending.  It is hoped that
these trends in consumer preferences will continue and, together with the
availability of our check cashing program for customers, will assist us in
bolstering sales and thereby offsetting some of the Company’s own increased
costs.  Of course, as also demonstrated by the current period’s
results, pricing adjustments made to stimulate sales can contribute to erosion
of the gross margin, as also occurred during fiscal years 2007 and 2008, so
maintaining profitable increases in sales over time may not be
achievable.





Gross
Margin:





Our gross
margin for the second quarter of fiscal 2010 increased over the gross margin
achieved for the first quarter, from 23.51% to 24.17%, although it did not reach
the 24.72% level achieved for the quarter ended November 29,
2008.  Management will continue its efforts to keep
the


11


gross
margin in line through strategic pricing adjustments, while competing with
larger chains with more resources available to them to reduce the impact of
lower gross margins.  If we are forced to reduce the gross margin in
order to remain competitive, as occurred during the first half of fiscal 2010,
then, in the absence of offsetting reductions in expenses, the Company’s net
income will be negatively impacted.





Our gross
margin percentage for the three months ended November 29, 2008 increased by
1.47% from the same quarter of fiscal 2008.  However, the 24.72% gross
margin for that quarter was down slightly from the gross margin of 24.83% for
the fourth quarter ended May 31, 2008.





Operating, General and
Administrative Expenses:





The
Company’s operating, general and administrative expenses are comprised mainly of
personnel salary and related payroll 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, vehicle expenses and other minor miscellaneous
expenses.  In accordance with ASC Topic 605, advertising rebates
received from suppliers are deducted from advertising expense within this
category.





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 November 28, 2009 and November 29,
2008:





Expense Item
            Second
              Quarter
              2010 Amount
            %
      of Second
              Qtr. 2010 Total
            Second
              Quarter
              2009 Amount
            %
      of Second
              Qtr. 2009 TotalPayroll
            $
      1,074,753
            49.7
            $
      1,069,866
            50.2Utilities
      & telephone expense
            199,453
            9.2
            214,338
            10.0Rent
            166,973
            7.8
            166,212
            7.8Insurance
            148,957
            6.9
            150,362
            7.1Advertising
      & promotion
            123,741
            5.7
            125,281
            5.9General
      & office supplies
            89,545
            4.1
            105,273
            4.9Repairs
      & maintenance
            78,507
            3.6
            76,258
            3.6Depreciation
            31,049
            1.4
            32,484
            1.5Bank
      service charges and credit card fees
            31,386
            1.5
            35,006
            1.6Bad
      checks
            13,307
            0.6
            27,613
            1.3Professional
      fees
            52,084
            2.4
            53,010
            2.5Vehicle
      expenses
            9,248
            0.4
            13,604
            0.6Flood
      loss
            96,390
            4.5
            —
            —All
      other miscellaneous
            46,805
            2.2
            63,380
            3.0TOTAL
            $2,162,198
            100.0
            $2,132,687
            100.0





Overall,
operating, general and administrative expenses increased by $29,511 (or 1.38%),
for the second quarter of fiscal 2010 as compared to the comparable period of
fiscal 2009.  These expenses would have actually decreased if not for
the flood loss experienced at one of the Company’s retail stores in September
2009.  Apart from the flood loss, the Company achieved
a


12


net
decrease of $66,879 in these expenses as compared to the second quarter of
fiscal 2009, reflecting management’s ongoing efforts to control
costs.  Utilities and telephone expense decreased by $14,885 (or
6.94%), due to decreases in utility rates as well as a mild period of weather
experienced during the quarter.  Colder weather being experienced at
the present time, however, may offset the decreased utility rates in the next
quarterly report.  Insurance expense decreased slightly, due primarily
to refunds recognized during the quarter ended November 28, 2009 in connection
with audits of liability policies.  While essentially flat,
advertising and promotion expense decreased slightly, by $1,540 (or 1.23%) as
compared to the prior year.  General and office supplies decreased
$15,728 (or 14.94%) due to reduced sales resulting in reduced usage of certain
operating supplies, such as grocery bags.  Bank service charges and
credit card fees decreased by $3,620 (or 10.34%), as costs continued to decline
due to the new service provider for credit/debit card
transactions.  Bad checks expense decreased by $14,306 (or 51.81%),
reflecting the continuing favorable impact of having switched all of our stores
to a new provider for bad check collection and control services during fiscal
2009.  Vehicle expense decreased by $4,356 (or 32.02%), due to
expenditures required for several repairs to the Company’s aging fleet during
the second quarter of fiscal 2009 as compared to the absence of such expenses in
the current quarter.  All other miscellaneous expenses decreased by
$16,575 (or 26.15%), due to a reduction in various miscellaneous expenses not
otherwise classified.  These reductions were partially offset by
increases in certain operating, general and administrative expenses, including
an increase in payroll expenses of $4,887 (or 0.46%) as the last of the
federally mandated increases in the minimum wage took effect on July 25, 2009,
partially offset by management efforts to contain these cost increases through
the use of more efficient employee scheduling.  Repairs and
maintenance increased by $2,249 (or 2.95%) due to additional work required on
the Company’s aging equipment during the quarter.  Depreciation
remained fairly consistent, actually decreasing by $1,435 (or 4.4%) as compared
to the second quarter of fiscal 2009, while rent expense and professional fees
also remained fairly stable between the two quarters presented.





Operating,
general and administrative expenses increased by $145,114 (or 7.30%), for the
second quarter of fiscal 2009 as compared to the comparable period of fiscal
2008.  Payroll expenses increased by $80,659 (or 8.15%) versus the
prior year due to the federally mandated increase in the minimum wage that took
effect on July 24, 2008, as well as a $9,459 increase in bonuses accrued during
the second quarter of fiscal 2009 as compared to the same quarter of fiscal
2008, due to the improved net income for the quarter.  This increase
was also affected by an increase in administrative payroll of approximately
$26,000 during the quarter, due to hiring an additional office employee and
employees receiving additional training for management and supervisory
positions.  Utilities and telephone expense increased by $28,578 (or
15.38%) as energy costs continued to escalate.  Insurance increased by
$23,327 (or 18.36%) due to the receipt in the second quarter of fiscal 2008 of a
premium refund that resulted from an audit of the Company’s workman’s
compensation package, with no comparable refund received during the 2009 fiscal
quarter.  Advertising and promotion expense, which remained constant
as a percentage of sales, increased by $11,427 (or 10.04%), as costs to purchase
comparable advertising increased.  General and office expense
increased by $3,104 (or 3.04%) due to increases in the cost of
supplies.  Depreciation expense increased by $1,027 (or 3.26%), as the
Company moved forward with replacing its cash register and scanning systems
during the quarter.  Professional fees increased by $8,010 (or 17.80%)
as compared to the same quarter of the prior year, as costs to comply with the
Sarbanes-Oxley Act continued to rise, including increases in utilization of
legal services related to compliance with the internal controls provisions of
Section 404 of such Act.  We also incurred additional expense for the
use of an outside agent to collect bad checks, which resulted in a decrease in
bad check expense as discussed below.  Vehicle expenses
increased


13


$6,187
(or 83.42%) due to additional repairs and maintenance required for the Company’s
aging fleet of vehicles.  All other expenses increased $13,175 (or
26.20%), due to increases in other miscellaneous expenses during the
quarter.





The
Company experienced decreases in the following expenses during the second
quarter of fiscal 2009.  Rent expense remained fairly consistent
decreasing by $594 (or 0.36%) during the quarter due to a decrease in overages
at one of the Company’s locations that experienced a decrease in sales during
the trailing twelve months.  Repairs and maintenance expenses were
down $11,553 (or 13.16%) due to a reduction in repairs to equipment during the
2009 fiscal quarter as compared to the prior year period.  Bank
service charges and credit card fees decreased by $2,769 (or 7.33%), as the
Company has changed to a new provider to handle its credit and debit card
processing services in conjunction with the replacement of our
registers.  Bad checks decreased by $15,464 (or 35.90%), reflecting
improved recoveries due to a change in the provider of bad check collection
services coupled with improved procedures for processing checks at the store
level that have caused more questionable checks to be refused at the
register.  This decrease was partially offset by additional
professional fees attributable to the new provider of collection
services.  Management continues to monitor these expenses in an effort
to reduce or limit increases to the extent possible, given the costs passed on
to the Company by its suppliers of goods and services.





Interest and Other
Income:





Other
income (not including interest income) decreased from $22,079 for the quarter
ended November 29, 2008 to $19,984 for the quarter ended November 28,
2009.  The decrease in check cashing fees for the second quarter of
fiscal 2010 reflects a reduction in the activity of check cashing, as management
attempts to more closely monitor the acceptance of bad checks.  An
improved system is now in place at all stores, which scans checks when presented
and rejects any checks deemed not good by the system’s database.  The
increase of $604 for the quarter ended November 28, 2009 in funds received for
handling money orders and money transfers in the stores was due to an increase
in the volume of these transactions as compared to the prior year
period.  Changes in the other components of other income presented
below relate primarily to variations in the volume of the associated activity or
service provided by the Company during each of the fiscal periods
presented.  The components of other income for the quarters ended
November 28, 2009 and November 29, 2008 were as follows:





THIRTEEN
      WEEKS ENDED  Description
            
            November 28, 2009
            
            November 29,
2008  Check
      cashing fees
            $13,386
            
            $15,065Funds
      received for handling money orders
            1,143
            
            539Vendor’s
      compensation from the States of
              Alabama
      and Georgia for collecting and
              remitting
      sales taxes on a timely basis
            3,501
            
            3,739Returned
      check fees
            1,326
            
            1,243Revenue
      related to Fed-Ex shipments/other
            628
            
            1,493TOTAL
            $19,984
            
            $22,079





Interest
income decreased by $554 as compared to the second quarter of fiscal 2009, due
to the re-pricing of the interest rate on the Company’s certificate of deposit
at the latest renewal date.


14


Six Months Ended November 28, 2009 Compared
to Six Months Ended November 29, 2008:





Sales:





Sales for
the six months ended November 28, 2009 decreased $703,296 (or 4.02%) compared to
the same six-month period last year. Six of the Company’s eight stores
experienced sales decreases, ranging from 2.61% to 11.21%, with sales at the
other two stores remaining essentially flat as compared to the first six months
of fiscal 2009.  As discussed in more detail above in relation to the
three month period, competition, the economy and retail price reductions on
items such as milk and dairy products all contributed to this decrease, as well
as the effects of the unscheduled closing in September 2009 due to a flood at
one location.  Management is continuing to adjust the Company’s retail
pricing structure, in response to competitive conditions, in an effort to
improve sales levels and maintain a loyal customer base.





Sales for
the six months ended November 29, 2008 increased $258,088 or 1.50% compared to
the same six-month period of the prior fiscal year.  While the sales
increase of 2.52% realized in the second quarter of fiscal 2009 as compared to
the same quarter of fiscal 2008 was roughly in line with the 2.65% sales
increase experienced for the first six months of fiscal 2008, this increase was
tempered by nearly flat sales for the first quarter of fiscal 2009 as compared
to the prior fiscal year.  Sales increased at four of the Company’s
eight stores for the twenty-six weeks ended November 29, 2008 (ranging from
1.90% to 6.21%).  The other four stores experienced sales decreases,
ranging from 0.46% to 7.37%.  Factors believed by management to have
influenced these increases and decreases are discussed above in relation to the
second quarter numbers.





Gross
Margin:





The
Company’s gross margin percentage for the six months ended November 28, 2009
decreased from 24.23% to 23.83% as compared to the six months ended November 29,
2008.  The gross margin percentage is dependent on our ability to keep
pace with increases in wholesale prices, and our ability to pass those increases
on to the customer based on competition.  Management is constantly
working to strategically adjust the retail prices of our merchandise to recover
increases in our wholesale costs, to the extent permitted by
competition.





The
Company’s gross margin percentage for the six months ended November 29, 2008
increased by 0.91% as compared to the six months ended December 1, 2007, from
23.32% to 24.23%.  The gross margin percentage for fiscal 2008 was
23.85%, with the gross margin for the fourth quarter of fiscal 2008 being
24.83%.  The gross margin for the first quarter of fiscal 2009 was
23.75%.  The gross margin achieved in the four individual quarters
making up fiscal 2008 ranged from 23.25% to 24.83%.





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 six month fiscal periods ended November 28, 2009 and November
29, 2008:





15





Expense Item
            FY
      2010 Six
              Month Amount
            
            %
      of FY 2010 Six
              Month Total
            
            FY
      2009 Six
              Month Amount
            
            %
      of FY 2009
              Six Month TotalPayroll
            $2,130,353
            
            50.4
            
            $2,113,952
            
            49.8Utilities
      & telephone expense
            402,060
            
            9.5
            
            410,199
            
            9.7Rent
            336,048
            
            7.9
            
            332,508
            
            7.8Insurance
            300,318
            
            7.1
            
            297,337
            
            7.0Advertising
      & promotion
            249,508
            
            5.9
            
            256,110
            
            6.0General
      & office supplies
            189,177
            
            4.5
            
            208,679
            
            4.9Repairs
      & maintenance
            137,219
            
            3.3
            
            160,320
            
            3.8Depreciation
            62,417
            
            1.5
            
            60,410
            
            1.4Bank
      service charges and credit card fees
            64,066
            
            1.5
            
            72,108
            
            1.7Bad
      checks
            22,805
            
            0.5
            
            70,674
            
            1.7Professional
      fees
            116,003
            
            2.8
            
            123,459
            
            2.9Vehicle
      expenses
            16,359
            
            0.4
            
            24,197
            
            0.6Flood
      loss
            96,390
            
            2.3
            
            —
            
            —All
      other miscellaneous
            99,942
            
            2.4
            
            111,864
            
            2.7TOTAL
            $4,222,665
            
            100.0
            
            $4,241,817
            
            100.0





In spite
of the flood loss experienced in the second quarter, the Company’s operating,
general and administrative expenses decreased by $19,152 (or 0.45%) for the
first six months of fiscal 2010 as compared to the same period last year,
reflecting management’s ongoing
efforts to control costs.  Without the flood loss, the decrease
would have been $115,542 (or 2.72%).  Utilities and telephone expense
decreased by $8,139 (or 1.98%), for the reasons discussed above in relation to
the second quarter.  Advertising and promotion decreased by $6,602 (or
2.58%), due to reductions in sales promotions as a result of decreased sales, as
well as reductions in advertising programs.  General and office
supplies expense declined by $19,502 (or 9.35%), due to reduced sales decreasing
the Company’s use of certain operating supplies such as grocery
bags.  Repairs and maintenance declined by $23,101 (or 14.41%), due in
part to fewer equipment repairs being required during the current six month
period as compared to the same period of fiscal 2009.  The drop
in maintenance expenses also reflected the fact that the maintenance agreements
entered into in connection with the new cash registers and scanning equipment
purchased during fiscal 2009 initially cost the Company significantly less per
year than the comparable agreements covering the equipment that was
replaced.  During the second quarter of fiscal 2010, however, the
first annual increases were triggered on those stores that passed their first
anniversary date under these agreements, so these expenses will gradually
increase again over time.Bank service charges and credit card fees
decreased by $8,042 (or 11.15%), reflecting ongoing cost savings from changing
of the Company’s service provider for processing credit and debit card
transactions.  Bad checks expense decreased by $47,869 (or 67.73%),
also due to the change of the Company’s service provider handling bad
checks.  Professional fees were down $7,456 (or 6.04%) during the
first six months of fiscal 2010 as compared to the prior year period, reflecting
heavier utilization of professional services during the prior fiscal year in
connection with the Company’s first year of compliance with the internal
controls provisions of Section 404 of the Sarbanes-Oxley Act of
2002.  Vehicle expense decreased by $7,838 (or 32.39%), due to repairs
having been required on several vehicles during the first six months of fiscal
2009 as compared to far fewer repairs during the same period of fiscal
2010.  Miscellaneous expenses were down





16




several reductions in various
miscellaneous expenses not otherwise classified Depreciation
increased by $2,007 (or 3.32%), due to items that were placed in service
subsequent to November 29, 2008 and subject to depreciation during the current
period (primarily the remainder of the new cash registers, scanning
equipment and other assets purchased during fiscal 2009).  Rent
remained relatively consistent, increasing by only $3,540 (or 1.06%) due to a
lease renewal.  Management is continually working to reduce these
costs, but the continued reduction is subject to sales levels, the economy, the
continued aging of the Company’s equipment, government regulation and many other
factors.





The
Company’s operating, general and administrative expense for the first six months
of fiscal 2009 increased overall by $237,138 (or 5.92%) over the same six-month
period of fiscal 2008.  Payroll costs increased by $128,589 (or
6.48%).  This increase was due to a federally mandated increase in the
minimum wage effective on July 24, 2008 and to the hiring of additional
personnel during the first six months of fiscal 2009.  Officer’s and
supervisors accrued bonuses actually decreased by $5,880 for the six month
period because of the reduction in net income for the six months ended November
29, 2008 in the amount of $25,066 as compared to the prior year
period.  Utilities and telephone expenses increased by $48,870 (or
13.53%) as energy costs continued to rise.  Rent expense remained
fairly consistent, increasing by $3,002 (or 0.91%) for the twenty-six week
period and actually decreased during the quarter ended November 29, 2008, as
discussed above.  Insurance increased by 28,869 (or 10.75%) due to
increased premiums under the Company’s health insurance package maintained for
employees, partially offset by a decrease in the premiums for the Company’s
workmen’s compensation package and commercial liability coverage.  The
Company also received a return premium of approximately $18,000 during the first
six months of fiscal 2008 from a workmen’s compensation audit that had not been
completed during the first six months of fiscal 2009.  Advertising and
promotion expense increased by only $5,174 (or 2.06%), reflecting management’s
continual efforts to control these costs by reducing the amount of certain of
these activities during the fiscal period.  General and office
supplies expense increased by $5,165 (or 2.54%), reflecting increases in costs
of paper, operating supplies and other office supplies.  Professional
fees increased by $35,794 (or 40.83%) as compared to the first six months of
fiscal 2008, as costs to comply with the Sarbanes-Oxley Act continued to rise,
including significant increases in utilization of legal services and other
outside consulting fees related to compliance with the internal controls
provisions of Section 404 of such Act.  The Company also incurred
approximately $7,500 in professional fees paid to a check collection agency
engaged during the fiscal 2009 period, in an effort to reduce bad checks
expense.  Vehicle expenses increased $10,060 (or 71.16%) due to
additional repairs and maintenance required during the period for the Company’s
aging fleet of vehicles.  All other expenses increased $11,392 (or
11.34%), due to increases in other miscellaneous expenses during the first six
months of fiscal 2009.





Repairs
and maintenance decreased by $17,150 (or 9.66%) due to the reduction in repairs
to equipment during the first twenty-six weeks of fiscal 2009 as compared to the
same period of fiscal 2008.  These repairs are expensed as
incurred.  Depreciation decreased by $1,881 (or 3.02%) for the periods
reported but will increase during the remainder of fiscal 2009 due to the
ongoing replacements of cash registers and other equipment.  Bank
service charges and credit card fees decreased by $3,359 (or 4.45%) as
management is switching service providers for card


17








Interest and Other
Income:





Other
income (not including interest income) decreased from $48,171 for the six months
ended November 29, 2008 to $43,151 for the six months ended November 28, 2009,
due primarily to variations in the volume of the associated activity or service
provided by the Company during each of the fiscal periods
presented.  As discussed above, the Company has tightened its controls
over the process for accepting checks, resulting in some reduction in the volume
of check cashing activity, and has switched to a different provider for the
handling of bad check collections.  This has resulted in more income
from returned check fees, partially offset by the increased cost of the provider
reflected under professional fees above.  The components of other
income for the six months ended November 28, 2009 and November 29, 2008 were as
follows:





TWENTY-SIX WEEKS ENDEDDescription
            
            November 28, 2009
            
            November 29,
2008  Check
      cashing fees
            $28,394
            $34,689Funds
      received for handling money orders
            2,590
            1,110Vendor’s
      compensation from the States of
              Alabama
      and Georgia for collecting and
              remitting
      sales taxes on a timely basis
            7,117
            7,604Returned
      check fees
            4,355
            2,708Revenue
      related to Fed-Ex shipments/other
            695
            2,060TOTAL
            $43,151
            $48,171





Interest
income decreased by $1,325 for the first six months of fiscal 2010 as compared
to the first six months of fiscal 2009, due to the re-pricing of the interest
rate on the Company’s certificate of deposit at the latest renewal
date.





Income
Taxes:





The
Company accounts for income taxes in accordance with the provisions of ASC Topic
740, “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 six months ended November 28, 2009
or November 29, 2008, as a result of a continued net operating loss
carry-forward and the related full valuation of the Company’s net deferred tax
assets.








18




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.  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, we attempt to preserve the Company’s market share through competitive
pricing strategies that emphasize weekly-advertised specials.





19





FINANCIAL
CONDITION








Liquidity and Capital
Resources:





Changes
in the Company’s liquidity and capital resources during the periods presented
resulted primarily from the following:





Cash
Flows from Operating Activities





During
the twenty-six weeks ended November 28, 2009, the Company used a net amount of
$330,174 in cash flows from operating activities.  In addition to the
Company’s net loss of $204,972 for the period, other uses of operating cash flow
included: an increase of $11,732 in accounts receivable (due primarily to an
increase in the advertising and volume-based rebates from vendors partially
offset by a decrease in coupons receivable due to timing of mailing coupons for
redemption); a $155,192 increase in inventories (due to seasonal requirements
for increased inventory to meet customer demand during the holiday periods in
November and December); a $17,520 increase in prepaid expenses (due to an
increase in prepaid maintenance charges as we entered the second year of the
Company’s maintenance contract for its new registers in some stores); $94,105
reduction of accounts payable, as amounts owed to vendors were down from the
total at the end of fiscal 2009; a decrease of $8,119 in accrued sales tax as
sales continue to decrease; and a $11,564 decrease in other accrued liabilities
(due to a reduction in accrued
management bonuses in current quarter as compared to the prior year period, as
well as to differences in the timing of payments on certain other liabilities in
comparing the two periods presented.These uses of cash were
partially offset by the impact of $62,417 of non-cash depreciation expense, as
well as a $110,613 increase in the book overdraft related to carrying the
increased inventory during the period (resulting from the timing impact of draws
and repayments on our revolving line of credit in conjunction with the
associated cash management feature).





During
the twenty-six weeks ended November 29, 2008, the Company generated a net amount
of $36,905 in cash flows from operating activities.  In addition to
the Company’s net income of $27,456 for the period, other sources of operating
cash flow included the impact of non-cash depreciation charges in the amount of
$60,410 and an increase in the book overdraft in the amount of $276,849
(resulting from the timing impacts of draws and repayments under our revolving
line of credit in conjunction with the cash management program instituted during
fiscal 2008 with the bank that provides the line of credit), partially offset by
a decrease in accounts payable of $150,052.  Operating cash flow was
also generated by a $28,022 decrease in prepaid expenses.  This was
due to a combination of (i) a decrease in prepaid maintenance expense, since the
new registers being installed come with the first year maintenance free and only
a nominal fee for software maintenance and (ii) the fact that there were no
deposits on registers at November 29, 2008 as compared to a $24,216 deposit that
was being carried at May 31, 2008, partially offset by an increase in the
prepaid insurance balance between May 31, 2008 and November 29, 2008 due to the
payment of premiums.  Additional uses of operating cash flows during
the first half of fiscal 2009 included (i) a $112,807 increase in inventories
(due to seasonal requirements for increased inventory to meet customer demand
during the holiday periods in November and December); (ii) a $27,352 increase in
accounts receivable (due to an increase in advertising and volume-based rebates
from vendors and a decrease in coupons receivable due to timing of mailing
coupons for redemption); and (iii) reductions of $46,864 in sales tax payable
(due mainly to timing of payments) and $18,757 in other accrued
liabilities.





20


Cash
Flows from Investing Activities





Investing
activities used $23,023 of cash flow during the twenty-six weeks ended
November 28, 2009.  Such amount included $17,704 of expenditures
for equipment purchases during the period, as described above in Note 2 to the
Company’s financial statements for the six months ended November 28,
2009.  The balance on Company’s bank certificate of deposit also
increased in the amount of $5,319 during the period.





Investing
activities used $224,603 of cash flow during the twenty-six weeks ended
November 29, 2008, due to $234,022 of expenditures for the equipment
purchases ($221,022 for the upgraded cash register and scanning equipment
systems for four stores plus approximately $13,000 for the purchase of three
scales for produce and meat departments), partially offset by a decrease in the
Company’s certificate of deposit in the amount of $9,419.





Cash
Flows from Financing Activities





Financing
activities used $52,641 of additional cash flow during the twenty-six weeks
ended November 28, 2009.  Principal payments on long-term debt in the
amount of $58,307 and the redemption of common stock in the amount of $9,560
were partially offset by the increase in short-term borrowings of
$15,226.





Financing
activities provided $93,707 of additional cash flow during the twenty-six weeks
ended November 29, 2008.  The impact of $168,000 of additional
long-term debt incurred in connection with the ongoing cash register and
scanning equipment purchases was partially offset by principal payments on
long-term debt in the amount of $32,520, a net decrease of $41,333 in short-term
debt (primarily outstanding borrowings under our line of credit, which fluctuate
throughout each quarter as amounts are continuously drawn and repaid, based on
the timing of expenditures and revenues, under the terms of the cash management
facility with our lender) and the redemption of common stock in the amount of
$440.





Overall,
the Company’s cash and cash equivalents decreased by $405,838 during the
twenty-six weeks ended November 28, 2009, versus a decrease in cash and cash
equivalents of $93,991 during the twenty-six weeks ended November 29,
2008.





The ratio
of current assets to current liabilities was 1.57 to 1 at the end of the latest
quarter, November 28, 2009 compared to 1.75 to 1 on November 29, 2008 and 1.68
to 1 at the end of the fiscal year ended May 30, 2009.  Cash, cash
equivalents and the certificate of deposit constituted 25.07% of the total
current assets at November 28, 2009, as compared to 27.20% of total current
assets at November 29 2008 and 34.39% of total current assets at May 30,
2009.  As previously reported, the Company has increased its reliance
on bank financing and working capital management, and has limited additional
capital spending where possible, to maintain adequate liquidity to fund
operations in connection with the operating losses experienced in five out of
the last ten fiscal years.  Our liquidity situation has also benefited
from a net reduction of approximately $7,500 in the Company’s monthly debt
service requirements over the past four fiscal years, achieved through a
combination of the retirement of long term debt and our success in limiting the
additional debt incurred to finance our equipment replacements during fiscal
2009 to less than the amount originally anticipated.  As employment
and inventory costs increase, management will continue to attempt to compensate
for the increases through operational efficiencies (including both efficient
working capital management and seeking to reduce other


21


expenses
where possible), and through seeking to continue the favorable cash management
arrangements with our primary lender.





In
general, management also has been working to reduce the Company’s inventory
levels when possible as an additional means of providing working
capital.  However, inventories at November 28, 2009 increased by
$155,192 over the inventory at year-end May 30, 2009, due to normal seasonal
requirements for increased inventory to meet customer demand during the
holidays, as discussed above.  The overall level of inventory balances
in recent periods also has been affected by ongoing increases in the Company’s
cost for certain staple grocery items.





Historically,
the Company has financed its working capital requirements principally through
its cash flow from operations.  Short-term borrowing to finance
inventory purchases is currently provided by the Company’s $800,000 line of
credit with Gateway Bank & Trust and through borrowings from related
parties, as discussed below.  The bank line of credit has a 12 month
term which requires that it be renewed in May of each year and 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 November 28, 2009, we had $188,640 available
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 the personal guarantee of Paul R.
Cook, the Company’s President and Chief Executive Officer.  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:





November
      28,
              2009
            
            
            May
      30,
              2009
            
            
            November
      29,
              2008Michael
      and Diana Richardson
            
            $
            ------
            
            
            $
            ------
            
            
            $
            10,051Matthew
      Richardson
            
            
            526
            
            
            
            510
            
            
            
            496Line
      of Credit
            
            
            611,360
            
            
            
            596,150
            
            
            
            370,940TOTAL
            
            $
            611,886
            
            
            $
            596,660
            
            
            $
            381,487





During
the first six months of fiscal 2009, we increased the Company’s borrowings from
related parties by $16 (reflecting additional accrued interest), and also
increased the outstanding balance under the line of credit by a net amount of
$15,210.  We paid a total of $14,378 and $10,462 in interest on the
Company’s outstanding borrowings under its bank line of credit during the first
six months of fiscal years 2010 and 2009, respectively.





The
Company’s line of credit with Gateway Bank & Trust bears interest at prime,
subject to a 6.0% floor.  Notes 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.








22


Long-Term
Debt:





At
November 28, 2009, long-term debt included a note payable to Gateway Bank &
Trust of $93,412 incurred in May 2007 to refinance the addition of the Company’s
eighth grocery store. The Company also has six loans (current balance of
$287,941) with the proceeds used to purchase registers and related
equipment.  In addition, three vehicles have been purchased and
financed through Tennessee Valley Federal Credit Union, with balances due at
November 28, 2009 of 9,399.  Long-term debt as of specific dates is
presented below:








November
      28,
              2009
            
            
            May
      30,
              2009
            
            
            November
      29,
              2008Six
      notes payable (three on November 29, 2008),
              to Gateway Bank & Trust;
      principal and
              interest due in monthly
      installments
              aggregating $6,685; interest at
      prime rate
              plus 0.5%with 6.00% floor, and
      maturities
              ranging from August 2013
      through
              March 2014; collateralized by
      equipment,
              inventory and personal
      guarantee
              of the Company’s
    CEO
            
            $
            287,941
            
            
            $
            318,672
            
            
            $
            161,954Note
      payable to Gateway Bank & Trust;
              principal and interest due in
      monthly
              installments of $3,684, through
      April 2012;
              interest at prime rate with 6.00%
      floor;
              collateralized by equipment,
      inventory, and
              personal guarantee of the
      Company’s CEO
            
            
            93,412
            
            
            
            112,316
            
            
            
            130,704Three
      vehicle installment loans;
              principal and interest due in
      monthly
              installments aggregating
      $1,591;
              maturities ranging from January
      2010
              through July 2010;
              collateralized by
      automobiles
            
            
            9,399
            
            
            
            18,071
            
            
            
            27,009$
            390,752
            
            
            $
            449,059
            
            
            $
            319,667Less current
      maturities
            
            
            113,769
            
            
            
            117,774
            
            
            
            85,718$
            276,983
            
            
            $
            331,285
            
            
            $
            233,949





The
following is a schedule by years of the amount of maturities of all long-term
debt subsequent to November 28, 2009:





Twelve
      Months
              Ending November
            
            Amount2010
            
            $
      113,7692011
            
            110,8072012
            
            84,4972013
            
            68,4982014
            
            13,181





During
the quarter ended November 28, 2009 retained earnings decreased as a result of
the Company’s net loss for the quarter.








23


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 May 30, 2009.





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 principals requires management to make estimates and assumptions that
affect the reported amount 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 purchase 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.  The 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 vendor allowances of $105,612 and $196,485, respectively, as a
reduction in inventory costs for the thirteen and twenty-six week periods ended
November 28, 2009, and recognized vendor allowances of $115,085 and $205,035,
respectively, as a reduction in inventory costs for the thirteen and twenty-six
week periods ended November 29, 2008.


24


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 $19,320 and $33,970, respectively, in advertising allowances
recorded as a reduction of advertising expense for the thirteen and twenty-six
week periods ended November 28, 2009, and recognized approximately $14,350 and
$30,682, respectively, in advertising allowances recorded as a reduction of
advertising expense for the thirteen and twenty-six week periods ended November
29, 2008.





Asset
Impairments:





Management
accounts for any impairment of its long-lived assets in accordance with ASC
Topic 360, “Property, Plant and Equipment.”  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
November 28, 2009 and November 29, 2008, 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 November 28,
2009.








Related Party
Transactions:





Except as
discussed above under “Liquidity and Capital Resources,” there were no material
related party transactions during the twenty-six week period ended November 28,
2009.








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 May 30, 2009): 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


25


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.








ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM
      4T.
            CONTROLS
      AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures





The
Company maintains disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) designed to
ensure that information required to be disclosed in reports filed or submitted
under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in its reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”), or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.





Management
of the Company also is responsible for establishing and maintaining adequate
internal control over financial reporting (as defined in Section 13a-15(f)
of the Securities Exchange Act of 1934, as amended).  Internal control
over financial reporting is a process designed by, or under the supervision of,
the Company’s CEO and CFO to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company’s
financial statements for external reporting purposes in conformity with U.S.
generally accepted accounting principles and include those policies and
procedures that (i) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and disposition
of the assets of the Company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements.





Our
management, including our CEO (who also has continued acting, on an interim
basis, as our CFO), does not expect that our disclosure controls and procedures
or our internal control over financial reporting will prevent or detect all
errors and all fraud.  A control system, no matter how well designed
and operated, can provide only reasonable, not absolute, assurance that the
control system’s objectives will be met.  Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their
costs.  Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the


26


Company
have been detected.  These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake.  Controls can also be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the controls.  Over time, controls may
become inadequate because of changes in conditions or deterioration in the
degree of compliance with associated policies or procedures.  Because
of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.





The
Company’s management, with the participation of its Chief Executive Officer (who
also has continued acting, on an interim basis, as its Chief Financial Officer),
evaluated the effectiveness of our disclosure controls and procedures (as
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or
15d-15(e)) as of November 28, 2009.  Based on that evaluation,
the Company’s Chief Executive Officer (and interim Chief Financial Officer)
concluded that the Company’s disclosure controls and procedures were effective
as of such date.





Changes in Internal Control
over Financial Reporting





There
were no changes made in our internal control over financial reporting during our
most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.  However, subsequent to the end of the quarter, the
following changes were made in certain roles and responsibilities related to the
Company’s internal control over financial reporting, as a result of the
management changes triggered by the death of the Company’s former Chairman of
the Board and Chief Executive Officer, Michael A. Richardson, on November 20,
2009:




·
              At
      a Board meeting held on December 3, 2009, Paul R. Cook was elected by the
      Board of Directors to fill the positions of Chairman of the Board,
      President and Chief Executive Officer of the Company that previously were
      held by Michael A. Richardson.  Due to the fact that the Company
      has not identified any successor to Mr. Cook in his role as the Company’s
      principal financial officer, the Board of Directors also determined that
      Mr. Cook should retain his prior responsibilities as the Company’s
      Treasurer and Chief Financial Officer (principal financial officer) on at
      least an interim basis.
 
 ·
              The
      Company previously had implemented procedures pursuant to which the CEO
      performed a detailed review of all bank statements for unusual items or
      transactions, prior to their use by the CFO in the preparation of
      reconciliations.  The CEO was to then document his review and
      any questions arising from the review, and work with the CFO to oversee
      the investigation and resolution of any unusual items.  The CEO
      was then to report to the Audit Committee of the Board of Directors any
      item not satisfactorily resolved as a result of management’s initial
      investigation, for further follow-up in accordance with the Audit
      Committee’s directions.  Since Mr. Cook is now occupying the
      dual positions of CEO and CFO on at least an interim basis, due to the
      death of Michael A. Richardson, the responsibilities that previously were
      assigned to the CEO in implementing this control have now been assigned to
      the Company’s Secretary and Assistant Treasurer, Reba S.
      Southern.


27


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 for our Annual Report on
Form 10-K for the fiscal year ended May 30, 2009.  There have been no
material changes from the risk factors previously disclosed in our Annual Report
on Form 10-K, except for the risk factor concerning the loss of key employees,
which has been revised to read as follows after the death of our former CEO on
November 20, 2009:




The
loss of our new Chief Executive Officer, or of any of our other key employees,
could have a material adverse effect on our business and, in the case of Mr.
Cook, could result in an event of default under the credit arrangements with our
senior lender.
 
 We are heavily dependent upon the
services of Paul R. Cook, who, following the untimely death of our former
Chairman and CEO, Michael A. Richardson, on November 20, 2009, is now serving as
our Chairman of the Board, President and Chief Executive Officer, in addition to
retaining his prior responsibilities as the Company’s Treasurer and Chief
Financial Officer on at least an interim basis.  We also are very
dependent on the continued services of certain other key
personnel.  If Mr. Cook or any of our other key personnel were to
unexpectedly leave the Company, our business, financial condition and results of
operations could be materially and adversely affected.  In particular,
all of our credit arrangements with our senior lender, Gateway Bank and Trust,
contain provisions that would allow the lender to declare the debt to be in
default based on the death, incapacity or insolvency of a personal
guarantor.  The lender waived all of these provisions in connection
with the recent death of Mr. Richardson.  However, Mr. Cook is now the
only remaining personal guarantor of the Company’s indebtedness under these
arrangements, and there can be no assurance that the lender would provide a
similar waiver in the event of the death, incapacity or insolvency of Mr.
Cook.  Further, we must continue to attract, retain and motivate a
significant number of qualified management and operating personnel, including
replacement of senior management upon retirement.  Individuals of this
caliber are historically in short supply and this shortage may limit our ability
to hire and retain qualified personnel, and thus, may hinder our ability to
operative effectively.







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:




28




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 PlanAugust
      30 –
              Sept.
      26, 2009
            
            3,495
            
            $1.00
            
            —
            
            —September
      27,  –
              Oct.31, 2009
            
            4,840
            
            1.00
            
            —
            
            —November
      2,  –
              Nov.
      29 2008
            
            ----
            
            1.00
            
            —
            
            —Total
            
            8,335
            
            $1.00
            
            —
            
            —





(1)
            Represents
      shares repurchased at $1.00 per share in response to unsolicited requests
      from unaffiliated shareholders during the
  quarter.








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





The
Company held its Annual Meeting of Shareholders on October 8, 2009, at which
shareholders were asked to vote on the election of directors for the fiscal year
ending in 2010.  Proxies were solicited by management in favor of six
nominees, with no solicitation in opposition to management’s
nominees.  All of such nominees were elected, with the number of votes
cast for, against, or withheld as well as the number of broker non-votes as to
each nominee having been as follows:





NOMINEE
            
            TOTAL
              SHARES
              VOTED
            
            VOTES
              CAST
              FOR
            
            VOTES
              CAST
              AGAINST
            
            VOTES
              WITHHELD
            
            BROKER
              NON-VOTESMichael
      A. Richardson
            
            568,087
            
            568,087
            
            0
            
            0
            
            0Paul
      R. Cook
            
            568,087
            
            568,087
            
            0
            
            0
            
            0Virgil
      E. Bishop
            
            568,087
            
            568,087
            
            0
            
            0
            
            0Thomas
      L. Richardson
            
            568,087
            
            568,087
            
            0
            
            0
            
            0Andrew
      V. Douglas
            
            568,087
            
            568,087
            
            0
            
            0
            
            0Danny
      R. Skates
            
            568,087
            
            568,087
            
            0
            
            0
            
            0







ITEM
6                      EXHIBITS





The
Exhibit Index attached to this report is incorporated by reference into this
Item 6.














29


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: 
      January 12,
      2010
              By:
              /s/ Paul
      R. CookPaul
      R. Cook
                CHAIRMAN
      OF THE BOARD AND
                CHIEF
      EXECUTIVE OFFICER
                (Principal
      Executive Officer)
                
                CHIEF
      FINANCIAL OFFICER AND TREASURER
                (Principal
      Financial Officer & Chief
                Accounting
      Officer)




30


AMERICAN
CONSUMERS, INC.





EXHIBIT
INDEX








The
following exhibits are filed with this report, as noted below:





Exhibit No.
            
            Description11
            
            Statement
      re: computation of per share earnings.*31
            
            CEO
      and CFO Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).*32
            
            CEO
      and CFO Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).*





* Filed
herewith.














31