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
1934





For the quarterly period ended February
28, 2009


OR





[  ]                      TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d)


OF THE SECURITIES EXCHANGE ACT OF
1934





For the transition period from
_____________ to ______________





Commission File No. 0-5815





AMERICAN CONSUMERS,
INC.


(Exact
name of registrant as specified in its charter)





GEORGIA
                58-1033765(State
      or other jurisdiction of
                  incorporation
      or organization)
                (I.R.S.
      Employer Identification
Number)





55 Hannah Way,
Rossville,
GA                30741


(Address
of principal executive offices)     (Zip
Code)





Registrant’s
Telephone Number, including Area Code: (706) 861-3347


__________________________________________________________________


(Former
name, former address and former fiscal year, if changed since last
report)





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large accelerated
filer      (   )              Accelerated
filer     (   )


Non-accelerated
filer        (   )            
 (Do not check if a smaller reporting company)Smaller reporting
company   (X)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   (   )
YES   (X)  NO





APPLICABLE
ONLY TO CORPORATE ISSUERS:


Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Class                                                                                      Outstanding at April
9, 2009


COMMON
STOCK - $ .10 PAR
VALUE                                                                                                                             767,576


NON
VOTING COMMON STOCK - $ .10 PAR
VALUE                                  ----








ITEM
      1.   FINANCIAL STATEMENTS




FINANCIAL
      INFORMATION
              AMERICAN
      CONSUMERS, INC.
              CONDENSED
      STATEMENTS OF INCOME AND RETAINED EARNINGS
              (UNAUDITED)


THIRTEEN
      WEEKS ENDED
                                                  
                                                  THIRTY-NINE
      WEEKS ENDEDFebruary
      28,
                                                  
                                                  March
      1,
                                                  
                                                  February
      28,
                                                  
                                                  March
      1,2009
                                                  
                                                  2008
                                                  
                                                  2009
                                                  
                                                  2008NET
      SALES
                                                  $
                                                  8,513,107
                                                  
                                                  $
                                                  8,634,569
                                                  
                                                  $
                                                  25,999,284
                                                  
                                                  $
                                                  25,862,658COST
      OF GOODS SOLD
                                                  
                                                  6,391,451
                                                  
                                                  
                                                  6,566,425
                                                  
                                                  
                                                  19,640,287
                                                  
                                                  
                                                  19,777,570Gross
      Margin
                                                  
                                                  2,121,656
                                                  
                                                  
                                                  2,068,144
                                                  
                                                  
                                                  6,358,997
                                                  
                                                  
                                                  6,085,088OPERATING,
      GENERAL AND
                                                    ADMINISTRATIVE
      EXPENSES
                                                  
                                                  2,123,307
                                                  
                                                  
                                                  2,059,469
                                                  
                                                  
                                                  6,365,124
                                                  
                                                  
                                                  6,064,148Operating
      Income (loss)
                                                  
                                                  (1,651)
                                                  
                                                  
                                                  8,675
                                                  
                                                  
                                                  (6,127)
                                                  
                                                  
                                                  20,940OTHER
      INCOME (EXPENSE)Interest
      income
                                                  
                                                  2,610
                                                  
                                                  
                                                  3,992
                                                  
                                                  
                                                  7,828
                                                  
                                                  
                                                  11,796Other
      income
                                                  
                                                  21,514
                                                  
                                                  
                                                  27,946
                                                  
                                                  
                                                  69,685
                                                  
                                                  
                                                  95,467Gain
      (Loss) on disposition of property
                                                    and
      equipment
                                                  
                                                  100
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  (2,043)
                                                  
                                                  
                                                  —Interest
      expense
                                                  
                                                  (15,239)
                                                  
                                                  
                                                  (17,326)
                                                  
                                                  
                                                  (34,553)
                                                  
                                                  
                                                  (52,394)Income
      Before Income Taxes
                                                  
                                                  7,334
                                                  
                                                  
                                                  23,287
                                                  
                                                  
                                                  34,790
                                                  
                                                  
                                                  75,809INCOME
      TAXES
                                                  
                                                  —
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  —NET
      INCOME
                                                  
                                                  7,334
                                                  
                                                  
                                                  23,287
                                                  
                                                  
                                                  34,790
                                                  
                                                  
                                                  75,809RETAINED
      EARNINGS:Beginning
                                                  
                                                  1,032,286
                                                  
                                                  
                                                  924,737
                                                  
                                                  
                                                  1,004,859
                                                  
                                                  
                                                  872,388Redemption
      of common stock
                                                  
                                                  (895)
                                                  
                                                  
                                                  (97)
                                                  
                                                  
                                                  (924)
                                                  
                                                  
                                                  (270)Ending
                                                  $
                                                  1,038,725
                                                  
                                                  $
                                                  947,927
                                                  
                                                  $
                                                  1,038,725
                                                  
                                                  $
                                                  947,927PER
      SHARE:Net
      Income
                                                  $
                                                  0.009
                                                  
                                                  $
                                                  0.030
                                                  
                                                  $
                                                  0.045
                                                  
                                                  $
                                                  0.097Cash
      dividends
                                                  $
                                                  —
                                                  
                                                  $
                                                  —
                                                  
                                                  $
                                                  —
                                                  
                                                  $
                                                  —WEIGHTED
      AVERAGE NUMBEROF
      SHARES OUTSTANDING
                                                  
                                                  780,268
                                                  
                                                  
                                                  783,453
                                                  
                                                  
                                                  780,751
                                                  
                                                  
                                                  783,888See
      Notes to Financial Statements


2


FINANCIAL
      INFORMATION
                                                                            AMERICAN
      CONSUMERS, INC.
                                                                            CONDENSED
      BALANCE SHEETSFebruary 28,
                                                                            2009
                                                                            (Unaudited)
                                                                          
                                                                          May 31, 2008--A
      S S E T S--CURRENT
      ASSETSCash
      and short-term investments
                                                                          $
                                                                          690,440
                                                                          
                                                                          $
                                                                          741,440Certificate
      of deposit
                                                                          
                                                                          304,923
                                                                          
                                                                          
                                                                          311,884Accounts
      receivable
                                                                          
                                                                          125,070
                                                                          
                                                                          
                                                                          118,334Inventories
                                                                          
                                                                          2,266,916
                                                                          
                                                                          
                                                                          2,241,670Prepaid
      expenses
                                                                          
                                                                          98,577
                                                                          
                                                                          
                                                                          70,494Total
      current assets
                                                                          
                                                                          3,485,926
                                                                          
                                                                          
                                                                          3,483,822PROPERTY
      AND EQUIPMENT – at costLeasehold
      improvements
                                                                          
                                                                          303,766
                                                                          
                                                                          
                                                                          303,766Furniture,
      fixtures and equipment
                                                                          
                                                                          3,255,131
                                                                          
                                                                          
                                                                          3,323,7133,558,897
                                                                          
                                                                          
                                                                          3,627,479Less
      accumulated depreciation
                                                                          
                                                                          (3,091,700
                                                                          
                                                                          
                                                                          (3,304,201
                                                                          )467,197
                                                                          
                                                                          
                                                                          323,278TOTAL
      ASSETS
                                                                          $
                                                                          3,953,123
                                                                          
                                                                          $
                                                                          3,807,100--LIABILITIES AND STOCKHOLDERS' EQUITY--
 CURRENT
      LIABILITIESAccounts
      payable
                                                                          $
                                                                          733,700
                                                                          
                                                                          $
                                                                          817,890Book
      overdraft
                                                                          
                                                                          52,375
                                                                          
                                                                          
                                                                          238,932Short-term
      borrowings
                                                                          
                                                                          716,051
                                                                          
                                                                          
                                                                          422,820Current
      maturities of long-term debt
                                                                          
                                                                          97,041
                                                                          
                                                                          
                                                                          53,922Accrued
      sales tax
                                                                          
                                                                          97,590
                                                                          
                                                                          
                                                                          150,205Other
                                                                          
                                                                          238,349
                                                                          
                                                                          
                                                                          258,087Total
      current liabilities
                                                                          
                                                                          1,935,106
                                                                          
                                                                          
                                                                          1,941,856LONG-TERM
      DEBT
                                                                          
                                                                          262,230
                                                                          
                                                                          
                                                                          130,265STOCKHOLDERS'
      EQUITYNonvoting
      preferred stock – authorized 5,000,000shares
      of no par value; no shares issued
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          —Nonvoting
      common stock – authorized 5,000,000shares-$.10
      par value; no shares issued
                                                                          
                                                                          —
                                                                          
                                                                          
                                                                          —Common
      stock - $.10 par value; authorized 5,000,000shares;
      shares issued of 767,796 and 781,779 respectively
                                                                          
                                                                          76,780
                                                                          
                                                                          
                                                                          78,178Additional
      paid-in capital
                                                                          
                                                                          640,282
                                                                          
                                                                          
                                                                          651,942Retained
      earnings
                                                                          
                                                                          1,038,725
                                                                          
                                                                          
                                                                          1,004,859Total
      Stockholders' Equity
                                                                          
                                                                          1,755,787
                                                                          
                                                                          
                                                                          1,734,979TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                          $
                                                                          3,953,123
                                                                          
                                                                          $
                                                                          3,807,100See
      Notes to Financial Statements





3





FINANCIAL
      INFORMATION
                                  AMERICAN
      CONSUMERS, INC.
                                  CONDENSED
      STATEMENTS OF CASH FLOWS
                                  (UNAUDITED) THIRTY-NINE WEEKS
  ENDED
 February
      28,
                                                                                                          2009
                                                                                                        
                                                                                                        March 1,
                                                                                                          2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
                                                                                                        $
                                                                                                        34,790
                                                                                                        
                                                                                                        $
                                                                                                        75,809Adjustments
      to reconcile net income to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
                                                                                                        
                                                                                                        93,705
                                                                                                        
                                                                                                        
                                                                                                        93,747Loss
      on disposition of property and equipment
                                                                                                        
                                                                                                        2,043
                                                                                                        
                                                                                                        
                                                                                                        —Change
      in operating assets and liabilities:Accounts
      receivable
                                                                                                        
                                                                                                        (6,736)
                                                                                                        
                                                                                                        
                                                                                                        92,907Inventories
                                                                                                        
                                                                                                        (25,246)
                                                                                                        
                                                                                                        
                                                                                                        (64,598)Prepaid
      expenses
                                                                                                        
                                                                                                        (28,083)
                                                                                                        
                                                                                                        
                                                                                                        96,385Accounts
      payable
                                                                                                          Book
      overdraft
                                                                                                        
                                                                                                        (84,190)
                                                                                                        
                                                                                                        
                                                                                                        (141,951)(186,557)
                                                                                                        
                                                                                                        
                                                                                                        —Accrued
      sales tax
                                                                                                        
                                                                                                        (52,615)
                                                                                                        
                                                                                                        
                                                                                                        (20,059)Other
      accrued liabilities
                                                                                                        
                                                                                                        (19,738)
                                                                                                        
                                                                                                        
                                                                                                        (307)Net
      cash provided by (used in) operating activities
                                                                                                        
                                                                                                        (272,627)
                                                                                                        
                                                                                                        
                                                                                                        131,933CASH
      FLOWS FROM INVESTING ACTIVITIESDecrease
      in certificate of deposit
                                                                                                        
                                                                                                        6,961
                                                                                                        
                                                                                                        
                                                                                                        4,261Purchase
      of property and equipment
                                                                                                        
                                                                                                        (239,667)
                                                                                                        
                                                                                                        
                                                                                                        (93,612)Net
      cash used in investing activities
                                                                                                        
                                                                                                        (232,706)
                                                                                                        
                                                                                                        
                                                                                                        (89,351)CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      increase (decrease) in short-term borrowings
                                                                                                        
                                                                                                        293,231
                                                                                                        
                                                                                                        
                                                                                                        (18,817)Proceeds
      from long-term borrowings
                                                                                                        
                                                                                                        228,470
                                                                                                        
                                                                                                        
                                                                                                        35,435Principal
      payments on long-term debt
                                                                                                        
                                                                                                        (53,386)
                                                                                                        
                                                                                                        
                                                                                                        (50,475)Redemption
      of common stock
                                                                                                        
                                                                                                        (13,982)
                                                                                                        
                                                                                                        
                                                                                                        (4,087)Net
      cash provided by (used in) financing activities
                                                                                                        
                                                                                                        454,333
                                                                                                        
                                                                                                        
                                                                                                        (37,944)Net
      increase (decrease) in cash
                                                                                                        
                                                                                                        (51,000)
                                                                                                        
                                                                                                        
                                                                                                        4,638Cash
      and cash equivalents at beginning of period
                                                                                                        
                                                                                                        741,440
                                                                                                        
                                                                                                        
                                                                                                        582,472Cash
      and cash equivalents at end of period
                                                                                                        $
                                                                                                        690,440
                                                                                                        
                                                                                                        $
                                                                                                        587,110SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW
                                                                                                          INFORMATION:Cash
      paid during the nine months for:Interest
                                                                                                        $
                                                                                                        34,553
                                                                                                        
                                                                                                        $
                                                                                                        53,336








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 2008 Annual Report to Shareholders.  The quarterly
financial statements reflect all adjustments, which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods.  All such adjustments are of a normal recurring
nature.  The results for the interim periods are not necessarily
indicative of the results to be expected for the complete fiscal
year.




(2)Commitments
and Contingencies.





Capital
expenditures for routine equipment replacements in the ordinary course during
fiscal 2009 (excluding the non-routine replacements discussed below) are
estimated to be $50,000 or less, which we expect to be funded from operating
cash flows.  We now expect to end fiscal 2009 without replacing any
vehicles.  However, we may have to replace up to three vehicles during
fiscal 2010 at a cost of approximately $25,000 each.  We also may also
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 the purchase
of these vehicles through either bank or manufacturer financing, whichever will
provide the Company with the most favorable terms.





As
discussed in prior reports, we began upgrading our cash registers and scanning
equipment during the third quarter of fiscal 2008 due to the pending change to
add an additional digit to UPC bar codes on inventory items and the
deterioration of the current equipment.  Through our quarter ended
November 29, 2008 we had completed installation of the equipment upgrades in
five of the Company’s eight stores.  On February 20, 2009, we executed
an agreement to purchase the upgraded cash registers and scanning equipment for
our Chatsworth, Georgia grocery store and, as reported in our Current Report on
Form 8-K dated March 5, 2009, we signed the purchase agreements for the
remaining two stores subsequent to the end of the current
quarter.  The equipment installations in all three of these stores are
expected to be completed during the fourth quarter of fiscal
2009.  Although a commitment for up to $440,000 of funding for these
upgrades was obtained from the Company’s lead bank, the Company has completed
the borrowing process and, including the notes executed for the two purchases
subsequent to February 28, 2009, only used $344,410 of the total loan
commitment.  This reflects management’s ongoing efforts to contain the
Company’s overall costs and to manage the additional debt incurred as
efficiently as possible.





As of
February 28, 2009, capital expenditures for the fiscal year to date totaled
$239,667, including the register and scanning equipment upgrades at four of the
Company’s locations (but excluding an additional $114,355 for the two register
purchase agreements dated March 5, 2009), as well as three scales purchased for
meat or produce departments and a fax machine, server and monitor purchased for
the corporate office.


5


The
Company has a 401(k) plan that is administered by
Ascensus.  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 2008 and
2007.





(3) Cost of
Goods Sold.








Cost of
goods sold is comprised of the cost of purchasing the Company’s products (such
as groceries and other vendor-supplied products) sold during the
period.  Cost of goods sold is equal to the beginning inventory, plus
the cost of goods purchased during the period, less the amount comprising ending
inventory.  The cost of goods sold shown on the Company’s Statement of
Income and Retained Earnings is presented net of rebates from
suppliers.  These rebates represent cash consideration received from
suppliers based primarily on the Company’s volume of purchases from such
suppliers.  These rebates do not include reimbursement of costs
incurred to sell the supplier’s products.  In accordance with EITF
02-16, the Company applies rebates from suppliers (excluding rebates for
advertising costs) as a reduction in cost of goods sold.











6


ITEM
2


MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS




RESULTS OF
OPERATIONS





THIRTEEN WEEKS ENDED
                                                                            
                                                                            
                                                                            THIRTY-NINE WEEKS ENDEDFebruary
      28,
                                                                              2009
                                                                            
                                                                            
                                                                            March
      1,
                                                                              2008
                                                                            
                                                                            
                                                                            February
      28,
                                                                              2009
                                                                            
                                                                            
                                                                            March
      1,
                                                                              2008Sales
                                                                            $
                                                                            8,513,107
                                                                            
                                                                            
                                                                            $
                                                                            8,634,569
                                                                            
                                                                            
                                                                            $
                                                                            25,999,284
                                                                            
                                                                            
                                                                            $
                                                                            25,862,658%
      Sales Increase (Decrease)
                                                                            
                                                                            (1.41)
                                                                            %
                                                                            
                                                                            
                                                                            2.23
                                                                            %
                                                                            
                                                                            
                                                                            0.53
                                                                            %
                                                                            
                                                                            
                                                                            2.51
                                                                            %Gross
      Margin %
                                                                            
                                                                            24.92
                                                                            %
                                                                            
                                                                            
                                                                            23.95
                                                                            %
                                                                            
                                                                            
                                                                            24.46
                                                                            %
                                                                            
                                                                            
                                                                            23.53
                                                                            %Operating,
      General and Administrative Expenses:Amount
                                                                            $
                                                                            2,123,307
                                                                            
                                                                            
                                                                            $
                                                                            2,059,469
                                                                            
                                                                            
                                                                            $
                                                                            6,365,124
                                                                            
                                                                            
                                                                            $
                                                                            6,064,148%
      of Sales
                                                                            
                                                                            24.94
                                                                            %
                                                                            
                                                                            
                                                                            23.85
                                                                            %
                                                                            
                                                                            
                                                                            24.48
                                                                            %
                                                                            
                                                                            
                                                                            23.45
                                                                            %Net
      Income
                                                                            $
                                                                            7,334
                                                                            
                                                                            
                                                                            $
                                                                            23,287
                                                                            
                                                                            
                                                                            $
                                                                            34,790
                                                                            
                                                                            
                                                                            $
                                                                            75,809




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.





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 second quarter and net income of
$7,334 for the third quarter, allowing us to report a net income of $34,790 for
the first thirty-nine weeks of fiscal 2009.  We experienced a slight
sales decrease ($121,462, or 1.41%) during the current quarter as compared to
the same quarter of the prior year, when we experienced a $188,499 (or 2.23%)
increase in sales as compared to the third quarter of fiscal
2007.  Sales for the first three quarters of fiscal 2009 have remained
essentially flat (increasing only 0.53%) as compared to the same period in
fiscal 2008, when sales grew by 2.51% as compared to the first three quarters of
fiscal 2007.  The failure to match last year’s rates of growth in
sales was partially offset, however, by decreases in the Company’s cost of sales
of $174,974 (or 2.66%) for the quarter and $137,283 (or 0.69%) for the year to
date, which lead to significant increases in the gross margin for both the
quarter (to 24.92% from 23.95%) and nine month (to 24.46% from 23.53%)
periods.  Unfortunately, the improved gross margin for both periods
was more than offset by increases in operating, general and administrative
expenses ($63,838, or 1.09% as a percentage of sales for the quarter, and
$300,976, or 1.03% as a percentage of sales for the thirty-nine week period),
resulting in small operating losses for both the quarter ($1,651) and
thirty-nine week ($6,127) periods.  The increase in expenses was due
primarily to increases in payroll costs, increases in group insurance premiums,
utility costs and professional services.  However, the net positive
impact of other income and expense items allowed us to remain profitable for
both the current quarter and year-to-date periods.  Interest expense
was down somewhat for both the thirteen and thirty-nine week periods, reflecting
the continued favorable impact of a cash management system implemented during
fiscal 2008.  However, the decreases in interest expense for both the
quarter ($2,087) and year-to-date ($17,841) periods, as compared to the same
periods of fiscal 2008, were not as dramatic as those reported last quarter, as
the impact of decreased interest on the line of credit was offset by increased
interest expense on the additional borrowings associated with the purchases of
new cash registers and scanning equipment.  Partially offsetting the
decreases in interest expense were simultaneous decreases for the quarter and
thirty-nine week periods in


7


interest
income ($1,382 and $3,968, respectively, due principally to lower prevailing
interest rates on our bank deposits) and other income ($6,432 and $25,782,
respectively, due principally to variations in the level of certain activities),
as discussed below under “Interest and Other Income” for each period
presented.  Cumulatively, these changes resulted in decreases in net
income of $15,953 (or 68.51%) for the quarter and $41,019 (or 54.11%) for the
first nine months of fiscal 2009 as compared to the same periods of fiscal
2008.





The
quarter ended March 1, 2008 resulted in a net income in the amount of
$23,287.  Sales increased $188,499 (or 2.23%) during that quarter as
compared to a $269,498 (or 3.30%) increase during the same quarter for fiscal
2007.  The sales increase was tempered by the fact that the gross
margin decreased by 0.18% and operating, general and administrative expenses
increased by 2.64% (or 0.09% as a percent of sales).  Interest expense
increased by $2,795 or 19.23%) due to the effects of increased borrowing on the
Company’s line of credit, as compared to the first nine months of fiscal 2007,
to support higher inventory levels and to maintain two accounts during a portion
of the period as the Company completed changing banks, as well as two new
vehicle loans incurred during the first nine months of fiscal
2008.  Other income also decreased by $3,331 versus the prior year
period, due principally to variations in the level of the activities underlying
the various components of such income.  Cumulatively, theses changes
resulted in a decrease of $29,011 (or 55.47%) in net income for the quarter as
compared to the same quarter the previous year.  For the first nine
months of fiscal 2008, sales increased by $633,610 (or
2.51%).  However this increase also was offset by a 0.35% decrease in
gross margin, coupled with increases of 0.9% in operating, general and
administrative expenses (despite decreasing by 0.37% as a percentage of sales)
and $8,374 (or 19.02%) in interest expense, offset by a small increase ($2,324,
or 2.5%) in other income, resulting in about the same net income as for the
first nine months of fiscal 2007.





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 24.46% gross margin we achieved for the first nine
months of 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.  Accordingly, while management attempts to offset
increases in its costs through pricing adjustments as competition allows,
further improvements in the gross margin may not be achievable at this time, and
deterioration in the Company’s gross margin is possible. While the increases in
sales mostly offset the impact of reduced gross margins on profitability during
fiscal years 2007 and 2008, the gross margin reductions experienced as a result
of pricing adjustments made to increase sales during those periods provides
further evidence of this trend.





Management
believes that competitive pressures on the Company, which have led to the losses
experienced in years prior to 2007, will continue to increase over time as a
result of competitors opening more new stores in the Company’s trade
area.  These competitors have greater financial resources than those
of the Company, and may be able to obtain preferential treatment from suppliers
in the form of advertising allowances, lower prices and other concessions not
available to the Company.  These factors allow our competitors to
engage in aggressive pricing and promotional activities that the Company cannot
match, putting us at a competitive disadvantage.  In response to these
developments, management will continue seeking to maximize
profitability


8


by
managing the Company’s pricing structure to produce the most favorable balance
between increases in sales, which help to offset our fixed operating expenses,
and the gross margin, which determines the profitability of the additional
sales.  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
2008 Annual Report to Shareholders.





Management
has been working to contain operating, general and administrative expenses as
much as possible.  As indicated above, however, these expenses
increased by $63,838, or 1.09% as a percentage of sales, for the current quarter
as compared to the same period last year, and by $300,976, or 1.03% as a
percentage of sales, for the thirty-nine week period resulting in a small
operating loss for the first three quarters of fiscal
2009.  Management continues to monitor these increases in expenses and
to evaluate the performance of each of our grocery store locations to determine
their long-term value to the Company.  Cost increases, combined with
the relatively fixed nature of certain of our expenses, mean that any future
decrease in sales due to the effects of ongoing competition will likely erode
the improvement experienced in these expenses as a percentage of sales in recent
periods, which could affect the Company’s operating profits.  A more
detailed discussion of these expensed and related changes is set forth below
under the caption “Operating, General and Administrative Expenses” for each of
the periods presented.





Three Months Ended February
28, 2009 Compared to Three Months Ended March 1, 2008





Sales:





Sales
decreased $121,462 or 1.41% for the three months ended February 28, 2009
compared to the same quarter last year.  Four of our stores
experienced sales decreases (ranging from 3.32% to 7.20%) as compared to the
same quarter of the prior year, while the other four stores experienced less
significant sales increases (ranging from 0.12% to 3.28%).  While two
of our grocery store locations continue to be affected by the opening of a
locally owned supermarket located between the two locations, one of these
locations experienced a sales decrease for the third quarter as compared to the
same period of the prior year, while the other location experienced an increase,
which management attributes to the relative difference in driving distances from
the competitor to one of our stores versus the other.  Of the other
three stores that experienced sales decreases, one was affected by another local
operator having opened a supermarket within driving distance of that location
and another has been affected by the opening of a regional chain in its trade
area early in 2008, while the third continues 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,


9


and by
generally unfavorable traffic pattern conditions at that
location.  The overall sales increases experienced over the past four
fiscal years, as shown in the Company’s 2008 Annual Report to Stockholders, make
it more difficult for the Company to continue to show same-store sales increases
in consecutive periods without making pricing adjustments that would have more
adverse impacts on profitability.  Pricing adjustments made to
stimulate sales contributed to some erosion of the gross margin during fiscal
years 2007 and 2008, so maintaining profitable sales increases over time may not
be achievable.  Management will attempt to maintain overall sales
levels by continuing to offer lower priced generic goods to our customers and
continuing with weekly advertised specials (including certain targeted
promotions) throughout the year.  We believe that these factors, as
well as the services offered to our customers, such as our check cashing
program, will assist us in maintaining our sales volume.





Sales for
the three months ended March 1, 2008 increased $188,499, or 2.23%, compared to
the same quarter the previous year.  Four of our eight grocery stores
experienced sales increases for the quarter (ranging from 3.42% to
8.73%).  The remaining four locations experienced decreases (ranging
from 0.25% to 6.15%), which management attributes to an increase in competition
at the locations with the largest sales decreases.  Although the
increase of 2.23% is lower than the 3.30% increase achieved during the same
quarter of fiscal 2007, the increase over the two-year period compared to the
comparable quarter ended February 25, 2006 was $457,998, or
5.60%.  Management attributed these sales increases, in spite of new
competition affecting three of the Company’s locations, at least in part to the
then-current effects of high gasoline prices, with customers choosing to
purchase more groceries for home meal preparation to reduce their spending at
restaurants, and to patronize grocery stores located closer to their
homes.





Gross
Margin:





The
increase in the Company’s gross margin of 0.97% increasing from 23.95% for the
quarter ended March 1, 2008 to 24.92% for the quarter ended February 28,
2009.  This increase helped to realize only a small operating loss for
the quarter, despite the increases in operating, general and administrative
expenses discussed below, thereby contributing to the net income of $7,334
reported for the quarter.  Management continues to make adjustments to
retail prices of merchandise to recover increases in our wholesale costs, to the
extent permitted by competition, in order to keep the gross margin at a rate
favorable to the Company in its efforts to generate net income.





The
Company’s gross margin decreased 0.18% for the quarter ended March 1, 2008 as
compared to the corresponding quarter of fiscal 2007, going from 24.13% to
23.95%.  However, the increased sales for the quarter more than offset
the reduction in the gross margin percentage, resulting in a $30,159 increase in
the gross margin in absolute dollar terms between the quarters ended March 1,
2008 and March 3, 2007.





Operating, General and
Administrative Expenses:





The
Company’s operating, general and administrative expenses are comprised mainly of
personnel salary and related costs, utilities and telephone expenses, rental
payments for leased locations, insurance expense, advertising and promotion
expense, general and office supplies expense, repairs and maintenance,
depreciation expense, bank service charges and credit card fees, bad checks
expense, professional fees, and other minor miscellaneous
expenses.  In accordance with EITF 02-16, advertising rebates received
from suppliers are deducted from advertising expense within this
category.


10





The
following table details the components of operating, general and administrative
expenses, both in absolute terms and as a percentage of the total of all such
expenses, for the quarters ended February 28, 2009 and March 1,
2008:





Expense Item
                
                ThirdQuarter
                  2009 Amount
                
                
                %
      of Third
                  Qtr. 2009Total
                
                
                Third
      Quarter
                  2008Amount
                
                
                %
      of Third
                  Qtr. 2008 TotalPayroll
                
                $
                1,058,527
                
                
                
                49.8
                
                
                $
                1,014,965
                
                
                
                49.3Utilities
      & telephone expense
                
                
                236,780
                
                
                
                11.1
                
                
                
                205,435
                
                
                
                10.0Rent
                
                
                168,964
                
                
                
                8.0
                
                
                
                166,010
                
                
                
                8.1Insurance
                
                
                148,014
                
                
                
                7.0
                
                
                
                151,222
                
                
                
                7.3Advertising
      & promotion
                
                
                132,461
                
                
                
                6.2
                
                
                
                136,186
                
                
                
                6.6General
      & office supplies
                
                
                96,987
                
                
                
                4.6
                
                
                
                93,573
                
                
                
                4.6Repairs
      & maintenance
                
                
                80,963
                
                
                
                3.8
                
                
                
                100,939
                
                
                
                4.9Depreciation
                
                
                33,296
                
                
                
                1.6
                
                
                
                31,457
                
                
                
                1.5Bank
      service charges and credit card fees
                
                
                32,998
                
                
                
                1.6
                
                
                
                37,038
                
                
                
                1.8Bad
      checks
                
                
                28,952
                
                
                
                1.4
                
                
                
                28,463
                
                
                
                1.4Professional
      fees
                
                
                48,403
                
                
                
                2.3
                
                
                
                29,697
                
                
                
                1.4All
      other miscellaneous
                
                
                56,962
                
                
                
                2.6
                
                
                
                64,484
                
                
                
                3.1TOTAL
                
                $
                2,123,307
                
                
                
                100.0
                
                
                $
                2,059,469
                
                
                
                100.0





Operating,
general and administrative expenses increased by $63,838 (or 3.10%) for the
third quarter of fiscal 2009 as compared to the comparable period of fiscal
2008.  Payroll expenses increased by $43,562 versus last year due to
the federally mandated increase in the minimum wage that took effect on July 24,
2008, which was partially offset by a decrease in store-level bonuses for the
current quarter in the amount of $2,078 due to a reduction in net
income.  This increase was also affected by an increase in
administrative payroll of approximately $9,700 during the quarter, due to hiring
an additional office employee and one employee receiving additional training for
a supervisory position.  Utilities and telephone expense increased by
$31,345 (or 15.26%) as energy costs continue to escalate.  The
increase in rent of $2,954 (or 1.78%) is due to an increase in one location at
the last lease renewal.  General and office supplies increased by
$3,414 (or 3.65%) due to increases in the cost of supplies and office supply
items purchased to make changes in the Company’s office due to personnel
changes.  Depreciation expense increased by $1,839 (or 5.85%),
primarily attributable to the net effect of the new register systems added since
the third quarter of fiscal 2008.  As noted above, we expect to
complete (or nearly complete) the installation of the replacement systems at our
remaining three stores by the end of the fourth quarter of this fiscal
year.  Bad checks expense, which decreased during the second quarter
of fiscal 2009, increased by $489 (or 1.72%), due primarily to problems at one
store involving a change in management personnel during the current quarter
which impacted the administration of our current check cashing
guidelines.  Management believes this problem has been corrected.
Professional fees increased by $18,706 (or 62.99%) as compared to the same
quarter last year, as costs to comply with the Sarbanes-Oxley Act continued to
rise, including increases in utilization of legal and other professional
services related to compliance with the internal controls provisions of Section
404 of such Act.  We are also incurring additional expense for the use
of an outside agent to collect bad checks, which resulted in a decrease in bad
checks expense in the stores using the new system.  Advertising
&


11


promotion
remained relatively consistent, decreasing by only $3,725 (or 2.74%) compared to
the same quarter of last year.  Insurance expense decreased by $3,208
(or 2.12%) despite an increase in group insurance premiums in January 2009, due
to a credit based on an audit of the Company’s workers compensation and
liability insurance.  Repairs and maintenance expenses were down by
$19,976 (or 19.79%) due to a reduction in repairs to equipment during the
quarter as compared to the prior year period.  Repairs and maintenance
expense has trended downward over the last two quarters, however this trend is
not expected to continue as much of our equipment continues to age and requires
more upkeep.  Bank service charges and credit card fees decreased by
$4,040 (or 10.91%), as the Company has changed to a new provider to handle its
credit and debit card processing services in conjunction with the ongoing
replacement of our registers.  All other expenses decreased by $7,522
(or 11.66%) due to decreases in other miscellaneous expenses during the
quarter.  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.





Operating,
general and administrative expenses increased by $52,956 (or 2.64%) for the
third quarter of fiscal 2008 as compared to the same period of fiscal
2007.  However, these expenses only increased by 0.09% relative to
sales (to 23.85% from 23.76% for the same quarter of the prior year), due to the
sales increase during the period.  Payroll costs only increased $5,589
(or 0.55%), and decreased as a percentage of total expenses, reflecting the
efforts of the Company’s store mangers to mitigate the initial effects of the
federally mandated increase in the minimum wage that took effect during the
second quarter of fiscal 2008 through more efficient management of employee
scheduling.  Utilities and telephone expense increased $25,107 (or
13.92%) due to increases in energy costs.  Rent increased by $5,026
(or 3.12%), due primarily to increases in rent under intervening lease
renewals.  Insurance increased by $12,878 (or 9.31%) due to an
increase in premiums on group health insurance on the January 1, 2008 renewal
date.  General and office supplies remained very consistent,
increasing only slightly due to additional supplies required to support
increased sales.  Repairs and maintenance increased $7,546 (or 8.08%)
as the Company’s aging store equipment required additional repair work during
the quarter.  Bank service charges and credit/debit card service
center fees increased $2,929 (or 8.59%), as card service fees continue to rise
due to increased popularity and usage by consumers in lieu of traditional cash
payments.  Bad checks increased $8,360 (or 41.59%) compared to the
same quarter a year ago.  While management believes the practice of
cashing customers’ checks is vital to our competitive strategy for maintaining
customer traffic and growing sales, we also have taken steps above in more
recent periods to improve both our check verification systems and the training
of our store personnel in check processing procedures to mitigate these
expenses.  Professional fees increased $1,619 (or 5.77%) as costs
continue to increase due to compliance with Sarbanes-Oxley Act and related
issues.  Advertising and promotion expense decreased $4,555 (or 3.24%)
as management continued to work on reducing these costs.  Depreciation
expense decreased $7,554 (or 19.36%) due to the age and fully depreciated status
of much of our equipment, in particular the cash register and scanning equipment
that the Company has since replaced.  While we expect these charges to
return to more historically consistent levels due to the current replacement
cycle for the cash registers and scanning equipment, the impact of the new
systems is not expected to be as great as was the initial purchase of the
equipment being replaced, due to intervening reductions in the cost of
technology and the fact that the new equipment is being depreciated over seven
years, as opposed to five for the prior systems.  All other
miscellaneous expenses decreased $4,260 (or 6.20%), which was consistent with
the prior year’s figures.





12


Interest and Other
Income:





Other
income (not including interest income) decreased from $27,946 for the quarter
ended March 1, 2008 to $21,514 for the quarter ended February 28, 2009, due to a
decrease in fees charged to cash checks without a grocery purchase (which
reflected a lower volume of this activity during the current quarter as compared
to the prior year period), as well as decreases in revenue related to Fed-Ex
shipments/other (due to a slight decrease in this activity), and a reduction in
returned check fees, as management attempts to more closely monitor the
acceptance of bad checks.  An improved system is now in place at the
five stores that had received the cash register and scanning equipment updates
as of February 28, 2009, which scans checks when presented and rejects any
checks deemed not good by the system’s enhanced database.  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 February 28, 2009 and March 1, 2008 were
as follows:









THIRTEEN
      WEEKS ENDEDDescription
                                                      
                                                      February 28, 2009
                                                      
                                                      
                                                      March 1, 2008Check
      cashing fees
                                                      
                                                      $
                                                      13,728
                                                      
                                                      
                                                      $
                                                      19,036Funds
      received for handling money orders
                                                      
                                                      
                                                      1,398
                                                      
                                                      
                                                      
                                                      1,349Vendor’s
      compensation from the States of
                                                        Alabama
      and Georgia for collecting and
                                                        remitting
      sales taxes on a timely basis
                                                      
                                                      
                                                      3,708
                                                      
                                                      
                                                      
                                                      3,796Returned
      check fees
                                                      
                                                      
                                                      1,703
                                                      
                                                      
                                                      
                                                      2,101Revenue
      related to Fed-Ex shipments/other
                                                      
                                                      
                                                      977
                                                      
                                                      
                                                      
                                                      1,664TOTAL
                                                      
                                                      $
                                                      21,514
                                                      
                                                      
                                                      $
                                                      27,946





Interest
income decreased by $1,382 for the quarter, due to re-pricing of the Company’s
certificate of deposit at the last renewal date.




Nine Months Ended February
28, 2009 Compared to Nine Months Ended March 1, 2008





Sales:





Sales for
the nine months ended February 28, 2009 were relatively flat compared to the
prior year, increasing by $136,626 (or 0.53%) as the 1.41% decrease in sales
experienced during the third quarter largely offset the modest sales increases
experienced during the first and second quarters.  Sales grew at four
of the Company’s eight stores for the thirty-nine weeks ended February 28, 2009
(with increases ranging from 1.31% to 5.22%). The other four stores experienced
sales decreases ranging from 1.97% to 6.76%.  Factors believed by
management to have influenced these increases and decreases are discussed above
in relation to the third quarter numbers.  While it is difficult to
consistently increase sales due to the effects of competition, we are trying to
provide a mixture of pricing and service to both our new and old customers that
will encourage them to shop with us.


13


Although
sales only increased by 2.51% (or $633,610) for the thirty-nine weeks ended
March 1, 2008 as compared to an increase of 4.17% for the same period of fiscal
2007, the continued growth in sales was beneficial in offsetting increases in
cost of sales and in operating, general, and administrative
expenses.  We experienced sales increases at five of the Company’s
eight grocery stores (ranging from 0.96% to 7.89%) for the first nine months of
fiscal 2008.  The other three stores were faced with new competition
during the periods, including the location which , as discussed above, has
problems attributable to another tenant having moved out of the same center and
been replaced by a tenant with less complimentary traffic impacts, as well as by
generally unfavorable traffic flow at that location.  The sales
reductions experienced at these three stores for the first nine months of fiscal
2008 as compared to fiscal 2007 ranged from 0.28% to 4.69%.





Gross
Margin:





The
Company’s gross margin percentage for the thirty-nine week (nine month) period
ended February 28, 2009 increased by 0.93% as compared to the nine months ended
March 1, 2008, from 23.53% to 24.46%.  This added $273,909 of gross
margin, as compared to the prior year period, on a sales increase of only
$136,626.  The gross margin percentage achieved for all of fiscal 2008
was 23.85%, with the gross margin for the fourth quarter of fiscal 2008 being
24.83%.  The gross margin achieved in the four individual quarters
making up fiscal 2008 ranged from 23.25% to 24.83%, while the gross margins
achieved for the first three quarters of fiscal 2009 have been 23.75%, 24.72%
and 24.92%, respectively.  While we have succeeded in maintaining a
trend of improvements in the gross margin for the fiscal year to date, these
improvements are 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.





In
absolute terms, the Company’s gross margin increased by $59,516, or
approximately 1.00%, for the nine months ended March 1, 2008 as compared to the
same period of the prior year, due to the increase in sales.  Relative
to sales, the gross margin percentage actually decreased from 23.88% for the
thirty-nine weeks ended March 3, 2007 to 23.53% for the thirty-nine weeks ended
March 1, 2008.  This decrease versus the prior year period reflected
the impact of increasing customer acceptance of lower-priced generic
merchandise, as well as promotional activities conducted to increase sales
during the first nine months of both fiscal 2008 and fiscal 2007.  It
also reflected the impact of increases in the wholesale costs of certain grocery
items, as well as gradual increases in suppliers’ fuel surcharges due to
increased gasoline prices, that we were not able to immediately recover through
adjustments to the Company’s retail prices due to the impacts of
competition.





Operating, General and
Administrative Expenses:





The
following table details the components of operating, general and administrative
expenses, both in absolute terms and as a percentage of the total of all such
expenses, for the nine months ended February 28, 2009 and March 1,
2008:


14





Expense Item
                
                Nine
      Month
                  2009Amount
                
                %
      of 2009 Nine
                  Month Total
                
                Nine
      Month
                  2008Amount
                
                %
      of 2008 Nine
                  Month TotalPayroll
                
                $
                3,172,480
                
                
                49.7
                
                $
                3,000,328
                
                
                49.5Utilities
      & telephone expense
                
                
                646,978
                
                
                10.2
                
                
                566,764
                
                
                9.4Rent
                
                
                501,472
                
                
                7.9
                
                
                495,515
                
                
                8.2Insurance
                
                
                445,351
                
                
                7.0
                
                
                419,692
                
                
                6.9Advertising
      & promotion
                
                
                388,571
                
                
                6.1
                
                
                387,122
                
                
                6.4General
      & office supplies
                
                
                302,186
                
                
                4.8
                
                
                293,766
                
                
                4.8Repairs
      & maintenance
                
                
                241,283
                
                
                3.8
                
                
                278,408
                
                
                4.6Depreciation
                
                
                93,705
                
                
                1.5
                
                
                93,748
                
                
                1.6Bank
      service charges and credit card fees
                
                
                105,105
                
                
                1.6
                
                
                112,505
                
                
                1.8Bad
      checks
                
                
                99,626
                
                
                1.6
                
                
                116,524
                
                
                1.9Professional
      fees
                
                
                171,862
                
                
                2.7
                
                
                117,362
                
                
                1.9All
      other miscellaneous
                
                
                196,505
                
                
                3.1
                
                
                182,414
                
                
                3.0TOTAL
                
                $
                6,365,124
                
                
                100.0
                
                $
                6,064,148
                
                
                100.0





The
Company’s operating, general and administrative expenses increased by $300,976
(or 4.96%) over the same nine-month period last year.  Payroll costs
increased by $172,152 (or 5.74%).  As discussed above, this increase
is due to an increase in the minimum wage effective on July 24, 2008 and to the
hiring of additional personnel during the first nine months of fiscal
2009.  Officer’s and supervisor’s accrued bonuses actually decreased
by $9,710 for the nine month period because of the reduction in net income for
the nine months ended February 28, 2009 in the amount of $41,019 as compared to
the prior year period.  Utilities and telephone expenses increased by
$80,214 (or 14.15%) as compared to the prior year period as energy costs
continue to rise.  Rent expense only increased by $5,957 (or 1.20%)
over the same period of last year, due to increased rent at one location when
the lease agreement was renewed.  Insurance increased by $25,659 (or
6.11%) 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.  Advertising and promotion expense also remained fairly
consistent, increasing by only $1,449 (or 0.37%) as management continually works
to control these costs by reducing the amount of certain of these activities
during the year.  General and office supplies increased by $8,420 (or
2.87%), reflecting increases in costs of paper, operating supplies and other
store and office supplies.  Professional fees increased by $54,500 (or
46.44%) as compared to the same quarter last year, as costs to comply with the
Sarbanes-Oxley Act continues 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 $15,000 in professional
fees paid to a check collection agency in an effort to reduce bad checks
expense.  All other expense increased by $14,091 (or 7.72%), due to
increases in other miscellaneous expenses during the quarter.





Repairs
and maintenance decreased by $37,125 (or 13.33%) due to the reduction in repairs
to equipment during the thirty-nine week period this year compared to last
year.  These repairs are expensed as incurred and may not continue to
decrease during the remainder of the year. Depreciation remained consistent,
decreasing by $43 (or 0.05%) for the periods reported, but will


15


increase
during the remainder of fiscal 2009 due to the replacements of cash registers
and other equipment.  Bank service charges and credit card fees
decreased by $7,400 (or 6.58%), due to a more favorable fee structure with the
new processor of card transactions that we are switching to as the Company’s
cash registers are replaced.  Bad check expense decreased by $16,898
(or 14.50%), as management is also switching to a new provider of handling bad
checks and striving to improve store procedures.





Operating,
general and administrative expenses increased by $54,075 (or 0.90%) for the
first nine months of fiscal 2008, as compared to the same period of fiscal
2007.  Payroll costs increased $3,552 (or 0.12%) as management
continued working with scheduling to keep payroll costs down without sacrificing
services to our customers (such as grocery carry out) that are necessary to
support sales.  Utilities and telephone expense increased $35,076 (or
6.60%), due to increases in energy costs.  Rent expense increased
$13,032 (or 2.70%), due primarily to increases as new leases and/or extensions
of existing leases with higher base rents took effect.  General and
office supplies were up $18,506 (or 6.72%) due to increased prices as well as
increased stocking of certain expendable store-level supplies (such as grocery
bags) to support increased sales.  Repairs and services were up $8,892
(or 3.30%), due to the Company’s older equipment having required more repairs
during the first nine months of fiscal 2008 than during the comparable period of
fiscal 2007.  Bad checks expense increased $17,120 (or 17.22%) over
the first nine months of the prior year.  As noted above, we have
since taken steps above to improve both our check verification systems and the
training of our store personnel in check processing procedures to mitigate these
expenses.  Professional fees increased $29,994 (or 34.33%) due to the
increased regulatory compliance expense under the Sarbanes-Oxley Act, coupled
with increased utilization of legal services as compared to the same nine month
period of fiscal 2007.  All other miscellaneous expense increased
$3,148 (or 1.76%), remaining fairly consistent between the two periods
presented.





Insurance
decreased by $42,511 (or 9.20%) for the first nine months of fiscal 2008, due to
favorable quotes on the Company’s commercial insurance at the annual renewal on
July 1, 2007.  This decrease was partially offset by an increase in
group health insurance expense at the Company’s annual renewal on January 1,
2008.  Advertising and promotion expense decreased by $7,817 (or
1.98%) as management continues to work on reducing this expense
item.  Depreciation expense decreased by $20,425 (or
17.89%).  As previously noted, while we expect these charges to return
to more historically consistent levels due to the current replacement cycle for
the cash registers and scanning equipment, the impact of the new systems is not
expected to be as great as was the initial purchase of the equipment being
replaced for the reasons discussed above.  Bank service charges and
credit card fees decreased $4,492 (or 3.84%) for the first nine months of fiscal
2008, reflecting reduced bank charges during the period due to the improvements
in the Company’s cash balances and cash management procedures as a result of the
change in our principal banking relationship during the fourth quarter of fiscal
2007.  All other expenses remained consistent with the prior year’s
figures.





Interest and Other
Income:





Other
income (not including interest income) decreased from $95,467 for the nine
months ended March 1, 2008 to $69,685 for the nine months ended February 28,
2009, due primarily to activity-driven decreases in check cashing fees, funds
for handling money orders and revenue received from handling Federal Express
shipments, gum ball machines and coupon handling commissions, classified as
Revenue related to Fed-Ex shipments/other in the table below.  This
decrease was partially offset by a slight increase in revenues from returned
check fees during the




16


thirty-nine
week periods presented.  The components of other income for the
thirty-nine weeks ended February 28, 2009 and March 1, 2008 were as
follows:




THIRTY-NINE
      WEEKS ENDEDDescription
                                            
                                            February 28, 2009
                                            
                                            
                                            March 1, 2008Check
      cashing fees
                                            
                                            $
                                            48,418
                                            
                                            
                                            $
                                            65,856Funds
      received for handling money orders
                                            
                                            
                                            2,508
                                            
                                            
                                            
                                            5,806Vendor’s
      compensation from the States of
                                              Alabama
      and Georgia for collecting and
                                              remitting
      sales taxes on a timely basis
                                            
                                            
                                            11,311
                                            
                                            
                                            
                                            11,150Returned
      check fees
                                            
                                            
                                            4,412
                                            
                                            
                                            
                                            3,693Revenue
      related to Fed-Ex shipments/other
                                            
                                            
                                            3,036
                                            
                                            
                                            
                                            8,962TOTAL
                                            
                                            $
                                            69,685
                                            
                                            
                                            $
                                            95,467





Interest
income decreased by $3,968 due to re-pricing of the Company’s certificate of
deposit at last renewal.








Income
Taxes





The
Company accounts for income taxes in accordance with the provisions of SFAS No.
109, “Accounting for Income Taxes,” which requires that deferred income taxes be
determined based on the estimated future tax effects of differences between the
financial statement and tax bases of assets and liabilities given the provisions
of the enacted tax laws.  Valuation allowances are used to reduce
deferred tax assets to the amount considered likely to be realized.





No
amounts have been provided for current and deferred federal and state tax
expense in the statements of income for the nine months ended February 28, 2009
or March 1, 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.








Inflation





The
Company continues to seek ways to cope with the threat of
inflation.  To the extent permitted by competition, increased costs of
goods and services to the Company are reflected in increased selling prices for
the Company’s goods.  As discussed above, however, competitive
conditions often delay our ability to pass through price increases experienced
at the wholesale level.  When the Company is forced to raise overall
prices of its goods, we attempt to preserve our market share through competitive
pricing strategies that emphasize weekly-advertised specials.





17


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 thirty-nine weeks ended February 28, 2009 the Company used a net amount of
$272,627 in cash flows in its operating activities.  In addition to
the Company’s net income of $34,790 for the period, other sources of operating
cash flow included the impact of non-cash depreciation charges in the amount of
$93,705 and a non-cash loss on disposition of property and equipment of $2,043
related to older equipment discarded or sold, primarily in connection with the
upgrade of the Company’s cash register and scanning systems.  As noted
above, while we expect depreciation charges to return to more historically
consistent levels due to the current replacement cycle for the cash registers
and scanning equipment, the impact of the new systems is not expected to be as
great as was the initial purchase of the equipment being replaced, due to
intervening reductions in the cost of technology and the fact that the new
equipment is being depreciated over seven years, as opposed to five for the
prior systems.  These sources of operating cash flows were more than
offset by uses of funds that included a decrease in the book overdraft in the
amount of $186,557 (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), a $84,190 decrease in accounts payable (due to the seasonal pay-down of
trade accounts generated by the holiday build-up of inventory), a reduction of
$52,615 in sales tax payable (due mainly to timing of payments), an increase in
inventories of $25,246 (due to increases in wholesale inventory costs), an
increase in prepaid expenses of $28,083 (due mainly to timing differences
involving payments of commercial liability and workers’ compensation insurance
premiums, but also due in part to deposits on new register purchases), an
increase in accounts receivable of $6,736 (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 a net decrease of $19,738 in
other accrued liabilities (due mainly to a $26,576 reduction in accrued bonus
compensation due to the Company’s lower net income for the fiscal year to
date).





The
Company generated $131,933 in cash flow from operating activities for the
thirty-nine weeks ended March 1, 2008.  Sources of cash flow during
the period included net income of $75,809, the impact of non-cash depreciation
in the amount of $93,747, and a decrease in accounts receivable of
$92,907.  The decrease in accounts receivable was due primarily to the
collection of a short-term promissory note from a former employee in the amount
of $78,035 that was outstanding at June 2, 2007 and paid shortly after year end,
with the remaining $14,872 reduction attributable to normal fluctuations in
other components of accounts receivable.  An additional source of cash
flow during the period was a $96,385 decrease in prepaid expenses, due to timing
differences of payments for rent and fees which were actually paid for the month
of June prior to the Company’s fiscal year end date of June 2, 2007, but were
not paid for the most recent period until March 3, 2008 following the end of the
third fiscal quarter, as well as to timing differences in payments for
commercial insurance premiums.  Those increases in cash flow from
operations were partially offset by an increase of $64,598 in inventories which,
while


18


down from
$2,201,132 at December 1, 2007, were still being maintained at a higher balance
than at the end of the Company’s June 2, 2007 fiscal year to handle increased
sales and to take advantage of purchasing incentives in the form of rebates
(which resulted in a $15,000 increase in vendor allowances for the first nine
months of fiscal 2008 versus the prior year).  A portion of this
increase was also due to increases in wholesale costs for certain items and to
gradual increases in inventory suppliers’ fuel surcharges.  We also
recorded a $141,951 reduction in accounts payable during the thirty-nine week
period ended March 1, 2008.  As noted above, this decrease is normal
for this time of year, due to the seasonal pay-down trade accounts generated by
the holiday build-up of inventory.Accounts payable
were $762,445 at March 1, 2008 as compared to $788,921 at March 3,
2007.  Sales tax payable decreased $20,059 due to the change in the
amount owed for sales tax at March 1, 2008 compared to the amount owed at June
2, 2007.  Other accrued liabilities remained consistent decreasing
only $307.








Cash
Flows from Investing Activities





Investing
activities used $232,706 of cash flow during the thirty-nine weeks ended
February 28, 2009, due to $239,667 of expenditures for the equipment
purchases ($223,926 for the upgraded cash register and scanning equipment
systems for five stores plus approximately $15,841 for the purchase of three
scales for produce and meat departments and a fax machine, server and monitor
purchased for the corporate office, less $100 of proceeds from disposal of the
old equipment), partially offset by a decrease in the Company’s certificate of
deposit in the amount of $6,961.





During
the thirty-nine weeks ended March 1, 2008, net cash used in investing activities
of $89,351 consisted of additions to property and equipment in the amount of
$93,612, partially offset by a $4,261 reduction in the balance of the Company’s
certificate of deposit.  The $93,612 of equipment purchases included
two automobiles with an aggregate cost of $35,435, three meat scales and
printers, a copy machine and a printer for the main office, a security fence
required by local authorities at one store, a camera system for one store and a
downpayment on new cash registers/scanning equipment and the related back door
system purchased for our LaFayette store in the amount of
$28,000.  The remaining cost of the equipment, in the amount of
$26,893, was paid upon installation in May 2008 and was funded through long-term
bank financing.








Cash
Flows from Financing Activities





Financing
activities provided $454,333 of net cash flow during the thirty-nine weeks ended
February 28, 2009.  We incurred $228,470 of additional long-term debt
in connection with the ongoing cash register and scanning equipment purchases,
partially offset by principal payments on long-term debt in the amount of
$53,386.  We also had a net increase in borrowings under the Company’s
line of credit of $293,231, which related primarily to the reductions in book
overdraft and accounts payable discussed above under operating cash
flows.  Outstanding borrowings under our line of credit typically
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.  We also redeemed common stock in
the amount of $13,982 during the first nine months of fiscal 2009.





Net cash
used in financing activities for the thirty-nine weeks ended March 1, 2008
amounted to $37,944.  This reflected a net reduction of short-term
borrowings in the amount of $18,817,


19


together
with a net reduction of long-term debt in the amount of $15,040 (consisting of
payments of $50,475 partially offset by new long-term debt of $35,435 to finance
the purchase of the two vehicles mentioned above) and $4,087 used for
repurchases of the Company’s stock in response to unsolicited requests received
during the period.





Overall,
the Company’s cash and cash equivalents decreased by $51,000 during the
thirty-nine week period ended February 28, 2009, versus an increase in cash and
cash equivalents of $4,638 during the comparable period of the prior
year.





The ratio
of current assets to current liabilities was 1.80 to 1 at the end of the latest
quarter, February 28, 2009 compared to 1.84 to 1 on March 1, 2008 and 1.79 to 1
at the end of the fiscal year ended on May 31, 2008.  Cash, cash
equivalents and the certificate of deposit constituted 28.55% of the total
current assets at February 28, 2009, as compared to 27.32% of the total current
assets at March 1, 2008 and 30.23% at May 31, 2008.  As previously
reported, the Company has increased its reliance on bank financing and working
capital management to maintain adequate liquidity to fund operations in
connection with the operating losses experienced in recent
years.  During the last three years, management also has limited
additional capital spending and has been attempting to control costs in other
areas to moderate the effects of these developments on the Company’s overall
liquidity by reducing the Company’s working capital
requirements.  While these efforts resulted in a net reduction of
approximately $14,000 in the Company’s monthly debt service requirements through
the end of fiscal 2008 due to the retirement of long term debt over the three
year period, these savings will be partially offset by debt service requirements
on the new financing obtained in connection with the replacement of the
Company’s cash registers and scanning equipment at each of its stores, which we
expect to complete by the end of fiscal 2009, and in connection with vehicles
purchased in recent periods.  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, which has been aided by the addition of a cash management program
during the second half of fiscal 2008, and seeking to reduce other expenses
where possible), and through seeking to continue the favorable cash management
arrangement 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 February 28, 2009 reflected a slight
increase of $25,246 over the inventory at year-end May 31, 2008.  As
previously discussed, the overall level of inventory balances in recent periods
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 provided by the Company’s $800,000 line of credit from
its bank and through borrowings from related parties, as discussed
below.  Effective May 3, 2007, we entered into a new credit facility
with Gateway Bank & Trust, which includes the $800,000 line of credit with a
12 month term which was renewed for an additional year in May
2008.  Based on current discussions with the lender, we expect the
line of credit to be renewed for an additional year, on substantially similar
terms, prior to its expiration date.  The line of credit contains a
borrowing base provision that limits the maximum outstanding indebtedness to
forty percent (40%) of the value of the Company’s inventory, as measured on a
quarterly basis.  As of February 28, 2009, we had $94,650 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


20


receivable,
inventory, machines and equipment, furniture and fixtures and by personal
guarantees of Michael A. Richardson and Paul R. Cook, the Company’s President
and CEO and Executive Vice President and CFO, respectively.  While we
believe that these sources will continue to provide us with adequate liquidity
to supply the Company’s working capital needs, if the Company’s operating losses
were to increase relative to depreciation and other non-cash charges, our
operating cash flows could be adversely affected.  If this happens, we
could be required to seek additional financing through bank loans, or other
sources, in order to meet our working capital needs.  If we were
required to seek such additional financing and were not able to obtain it, or
were unable to do so on commercially reasonable terms, we could be required to
reduce the Company’s current level of operations in order to lower our working
capital requirements to a level that our present financing arrangements would
support.





Short-term
borrowings as of specific dates are presented below:





February
      28,2009
                                              
                                              
                                              May
      31,2008
                                              
                                              
                                              March
      1,2008Michael
      and Diana Richardson
                                              
                                              $
                                              10,198
                                              
                                              
                                              $
                                              9,764
                                              
                                              
                                              $
                                              13,580Matthew
      Richardson
                                              
                                              
                                              503
                                              
                                              
                                              
                                              1,566
                                              
                                              
                                              
                                              1,543Line
      of Credit
                                              
                                              
                                              705,350
                                              
                                              
                                              
                                              411,490
                                              
                                              
                                              
                                              590,000TOTAL
                                              
                                              $
                                              716,051
                                              
                                              
                                              $
                                              422,820
                                              
                                              
                                              $
                                              605,123





During
the first nine months of fiscal 2009, we decreased the Company’s borrowings from
related parties by a net amount of $629 (reflecting additional accrued interest
of $471 and principal repayments in the amount of $1,100).  We also
increased the outstanding balance under the line of credit by a net amount of
$293,860.





The
Company’s line of credit with Gateway Bank & Trust bears interest at prime,
subject to a 6.0% floor.  Notes to Michael and Diana Richardson and to
Matthew Richardson are unsecured, payable on demand and bear interest at .25%
below the base rate charged by Gateway Bank & Trust on the line of
credit.  Michael Richardson is Chairman of the Board and Chief
Executive Officer of the Company.  Diana Richardson is the wife of
Michael Richardson, and Matthew Richardson is their son.





Long-Term
Debt





At
February 29, 2009, long-term debt consisted of a note payable to Gateway Bank
& Trust of $121,614 incurred in May 2007 to refinance the addition of the
Company’s eighth grocery store. The Company also borrowed $228,470 (current
balance of $215,086) in four related loans, with the proceeds used to purchase
registers and related equipment in four stores.  In addition, three
vehicles were purchased and financed through Tennessee Valley Federal Credit
Union, with balances due at February 28, 2009 of $5,617, $7,854 and
$9,100.  Long-term debt as of specific dates is presented
below:


21





February
      28,
                                            2009
                                          
                                          May
      1,
                                            2008
                                          
                                          March
      1,
                                            2008Four notes payable, Bank, secured
      by
                                            all inventory, machinery
      and
                                            equipment, with aggregate
      monthly
                                            payments of $4,440, interest
      at
                                            prime with 6% floor, and
      maturities
                                            ranging from May 2013
      through
                                            through February
      2014.
                                          $
                                          215,086
                                          
                                          $
                                          —
                                          
                                          $
                                          —Note payable, Bank, secured
      by
                                            all inventory, machinery
      and
                                            equipment, due $3,684
      monthly
                                            plus interest at prime with 6%
      floor
                                            through April
    2012.
                                          
                                          121,614
                                          
                                          
                                          148,486
                                          
                                          
                                          157,246Vehicle loans; collateralized
      by
                                            automobiles, due
      monthly
                                            through July
2010.
                                          
                                          22,571
                                          
                                          
                                          35,701
                                          
                                          
                                          39,964$
                                          359,271
                                          
                                          $
                                          184,187
                                          
                                          $
                                          197,210Less current
      maturities
                                          
                                          97,041
                                          
                                          
                                          53,922
                                          
                                          
                                          53,152$
                                          262,230
                                          
                                          $
                                          130,265
                                          
                                          $
                                          144,058





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





Twelve
      Months
                                Ending February
                              Amount2010
                              $97,0412011
                              89,0362012
                              89,4752013
                              50,1852014
                              33,534






During
the quarter ended February 28, 2009 retained earnings increased as a result of
the Company’s net income for the quarter.





Critical Accounting
Policies





Critical
accounting policies are those policies that management believes are important to
the portrayal of the Company’s financial condition and results of operations and
require management’s most difficult, subjective or complex judgments, often as a
result of the need to make estimates about the effect of matters that are
inherently uncertain.  Management believes it has chosen accounting
policies that are appropriate to report accurately and fairly our operating
results and financial position, and we apply those accounting policies in a
consistent manner.  Our significant accounting policies are summarized
in Note 1 to the Financial Statements included in the Company’s Annual Report on
Form 10-K for the year ended May 31, 2008.





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.


22


Use
of Estimates:





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues, and expenses, and
related disclosures of contingent assets and liabilities.  Management
determines its estimates based on historical experience and other factors
believed to be reasonable under the circumstances.  Actual results
could differ from those estimates.





Inventories:





All
inventories are valued at the lower of average cost or market, following the
Average Cost-to-Retail Method.  Under this method, inventory is stated
at average cost, which is determined by applying an average cost-to-retail ratio
to each similar merchandise category’s ending retail value.  If
average cost is determined to exceed market value, the impacted merchandise’
carrying value is reduced to market value, with the reduction flowing through
current period earnings.  Management recognizes inventory shortages
throughout the year based on actual physical counts, which are performed on a
quarterly basis at each store location.





Vendor
Allowances:





The
Company receives funds for a variety of merchandising activities from vendors
whose products the Company buys for resale in its stores.  These
incentives and allowances include volume or purchased based incentives,
advertising allowances, and promotional discounts.  The purpose of
these incentives and allowances is generally to aid in the reduction of the
costs incurred by the Company for stocking, advertising, promoting and selling
the vendor’s products.  These allowances generally relate to
short-term arrangements with vendors, often relating to a period of one month or
less, and are typically negotiated on a purchase-by-purchase
basis.  Due to system constraints and the nature of certain
allowances, these allowances are applied as a reduction of inventory costs using
a rational and systematic methodology, which results in the recognition of these
incentives when the inventory related to the initial purchase is
sold.  Management recognized vendor allowances of $104,900 and
$310,000, respectively, as a reduction in inventory costs for the thirteen and
thirty-nine week periods ended February 28, 2009, and recognized vendor
allowances of $114,600 and $326,000, respectively, as a reduction in inventory
costs for the thirteen and thirty-nine week periods ended March 1,
2008.  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 $17,700 and $44,000,
respectively, in advertising allowances recorded as a reduction of advertising
expense for the thirteen and thirty-nine week periods ended February 28, 2009,
and recognized approximately $10,800 and $42,000, respectively, in advertising
allowances recorded as a reduction of advertising expense for the thirteen and
twenty-six week periods ended March 1, 2008.





Asset
Impairments:





Management
accounts for any impairment of its long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”  Management monitors the
carrying value of its long-lived assets for potential impairment each quarter
based on whether any indicators of impairment have occurred.


23


As of
February 28, 2009 and March 1, 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 February 28,
2009.








Related Party
Transactions





Except as
discussed under “Liquidity and Capital Resources,” there were no material
related party transactions during the thirty-nine week period ended February 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 31, 2008): changes in the general
economy or in the Company’s primary markets, the effects of ongoing price
competition from competitors with greater financial resources than those of the
Company, changes in consumer spending, the nature and extent of continued
consolidation in the grocery store industry, changes in the rate of inflation,
changes in state or federal legislation or regulation, adverse determinations
with respect to any litigation or other claims, inability to develop new stores
or complete remodels as rapidly as planned, stability of product costs, supply
or quality control problems with the Company’s vendors, and other issues and
uncertainties detailed from time-to-time in the Company’s filings with the
Securities and Exchange Commission.








ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable








24


ITEM
      4T.
            CONTROLS
      AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures





The
Company maintains disclosure control and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a – 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 the 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 principal executive and principal financial executive
and principal financial officers, or persons performing similar function, as
appropriate to allow timely decision regarding required disclosure.





The
Company’s management, with the participation of its Chief Executive Officer and
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 February 28, 2009.  Based on that
evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were not
effective at a reasonable assurance level as of such date, because they are not
yet able to conclude that we have remediated the material weaknesses in internal
control over financial reporting identified in Item 9A(T) of our Annual Report
on Form 10-K for the fiscal year ended May 31, 2008.





Based
upon management’s conclusion that there were material weaknesses in the
Company’s internal control over financial reporting, management of the Company
has taken measures it deemed necessary to conclude that, notwithstanding such
material weaknesses, its unaudited condensed financial statements included in
this report are fairly stated, in all material respects, in accordance with
accounting principles generally accepted in the United States of
America.





Changes in Internal Control
over Financial Reporting





The
changes in our internal control over financial reporting, as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently
completed fiscal quarter that have materially affected, or are reasonable likely
to materially affect, our internal control over financial reporting are
discussed below:





Management’s Plan for
Remediation of Material Weaknesses





In
connection with the preparation of our financial statements for the year ended
May 31, 2008, management identified certain significant deficiencies in the
Company’s internal control over financial reporting that, individually and in
the aggregate, represent material weaknesses, including, insufficient
segregation of duties in our finance and accounting functions due to limited
personnel.  Specifically, management determined that a material
weakness existed due to a lack of any independent review of the spreadsheets
used to aggregate, summate and calculate the amounts used in the preparation of
the financial statements and related disclosures and a lack of segregation of
duties due to the concentration of many responsibilities with the Chief
Financial Officer without any independent review or
verification.  Additionally, meaningful reviews of the Company’s bank
statements used by the Chief Financial Officer to perform reconciliations were
not being performed, and it was determined that these control
deficiencies


25


could
result in material misstatement to our interim or annual financial statements
that would not be prevented or detected in a timely
manner.  Management believes that each of these material weaknesses
could have a pervasive impact on our internal control over financial
reporting.





During
the first three quarters of fiscal 2009, management has begun implementing the
following steps to address and remediate the material weaknesses described
above.





·
            Management
      has hired additional staff to segregate and provide additional backup for
      certain of the Chief Financial Officer’s duties.  Such staff,
      along with designated members of the existing staff, have been given the
      responsibility of independently reviewing the spreadsheets maintained by
      the Chief Financial Officer to verify the amounts, calculations, and
      formulas used to compile the amounts used in the preparation of the
      financial statements and related disclosures.  As of the end of
      the third quarter, the Company has completed the initial testing and
      verification of all of the major calculational spreadsheets used by the
      Chief Financial Officer in preparation of the financial
      statements.





·
            Additionally,
      the Chief Executive Officer has been performing a detailed review of the
      bank statements, including examination of individual items, used by the
      Chief Financial Officer in the preparation of reconciliations, and has
      instituted procedures for investigating and resolving any unusual items
      noted in the course of such
reviews.








While we
are still in the process of developing certain new procedures, and will continue
to test the independent verification of the Chief Financial Officer’s
spreadsheets and related calculations used in the preparation of the Company’s
financial statements, we believe the successful completion of these remediation
steps will correct the material weakness discussed above.  We will
assess the effectiveness of our remediation efforts in connection with our
management’s test of internal control over financial reporting in conjunction
with our 2009 year-end financial statements.  Except as discussed
above, we have not identified any changes in our internal control over financial
reporting during the first three quarters of fiscal 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.





26


AMERICAN CONSUMERS,
INC.





PART
II                      OTHER
INFORMATION








ITEM
      1A.
            RISK
      FACTORS





Information
regarding risk factors appears under the caption “Forward-Looking Statements” in
Part I, Item 2 of this Form 10-Q and in Part I, Item 1A of our Annual Report on
Form 10-K for the fiscal year ended May 31, 2008.  There have been no
material changes from the risk factors previously disclosed in our Annual Report
on Form 10-K.








ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS




(c)           Issuer
Repurchases:




The
following table presents information with respect to repurchases of common stock
made by the Company during the fiscal quarter covered by this
report:


Period
                                                                                            
                                                                                            Total
      Number
                                                                                              of
      Shares
                                                                                              Purchased
      (1)
                                                                                            
                                                                                            
                                                                                            Average
                                                                                              Price
                                                                                              Paid
      per
                                                                                              Share
                                                                                            
                                                                                            
                                                                                            Total
      Number of
                                                                                              Shares
      Purchased as
                                                                                              Part
      of a Publicly
                                                                                              Announced
      Plan
                                                                                            
                                                                                            
                                                                                            Maximum
      Number of
                                                                                              Shares
      that May Yet
                                                                                              Be
      Purchased
                                                                                              Under
      the PlanNovember
      30 –Dec.
      27, 2008
                                                                                            
                                                                                            
                                                                                            —
                                                                                            
                                                                                            
                                                                                            $
                                                                                            1.00
                                                                                            
                                                                                            
                                                                                            
                                                                                            —
                                                                                            
                                                                                            
                                                                                            
                                                                                            —December
      28,2008 – January 31, 2009
                                                                                            
                                                                                            
                                                                                            —
                                                                                            
                                                                                            
                                                                                            
                                                                                            1.00
                                                                                            
                                                                                            
                                                                                            
                                                                                            —
                                                                                            
                                                                                            
                                                                                            
                                                                                            —February
      1 – February 28, 2009
                                                                                            
                                                                                            
                                                                                            13,543
                                                                                            
                                                                                            
                                                                                            
                                                                                            1.00
                                                                                            
                                                                                            
                                                                                            
                                                                                            —
                                                                                            
                                                                                            
                                                                                            
                                                                                            —Total
                                                                                            
                                                                                            
                                                                                            13,543
                                                                                            
                                                                                            
                                                                                            $
                                                                                            1.00
                                                                                            
                                                                                            
                                                                                            
                                                                                            —
                                                                                            
                                                                                            
                                                                                            
                                                                                            —


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








ITEM
6                      EXHIBITS




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




27


SIGNATURES








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





AMERICAN
      CONSUMERS, INC.
                              (Registrant)Date: 
      April 14, 2009
                            /s/ Michael
      A. RichardsonMichael
      A. RichardsonCHAIRMAN
      OF THE BOARD AND CHIEF
      EXECUTIVE OFFICER (Principal
      Executive Officer)




Date: 
      April 14, 2009
                      /s/ Paul
      R. CookPaul
      R. CookEXECUTIVE
      VICE PRESIDENT AND TREASURER
                        (Principal
      Financial Officer & Chief Accounting
      Officer)










28


AMERICAN
CONSUMERS, INC.





EXHIBIT
INDEX








The
following exhibits are incorporated by reference or filed with this report, as
noted below:





Exhibit No.
                Description10.37
                Terms
      Sheet Letter between the Company and Gateway Bank & Trust Company,
      dated as of February 7, 2008, regarding commitment under which first
      borrowing was initiated July 25, 2008.  Incorporated by
      reference to Exhibit 10.37 to Current Report on Form 8-K dated July 25,
      2008.10.45
                Cash
      Register Purchase Agreement for the Company’s Chatsworth, Georgia
      location, dated February 20, 2009.  Incorporated by reference to
      Exhibit 10.45 to Current Report on Form 8-K dated February 20,
      2009.10.46
                Cash
      Register Purchase Agreement for the Company’s Jasper, Tennessee location,
      dated March 5, 2009.  Incorporated by reference to Exhibit 10.46
      to Current Report on Form 8-K dated March 5, 2009.10.47
                Cash
      Register Purchase Agreement for the Company’s Ringgold, Georgia location,
      dated March 5, 2009.  Incorporated by reference to Exhibit 10.47
      to Current Report on Form 8-K dated March 5, 2009.10.48
                Promissory
      Note for $60,470 between the Company and Gateway Bank & Trust Company,
      dated as of February 24, 2009.*10.49
                Commercial
      Security Agreement between the Company and Gateway Bank & Trust
      Company related to the $60,470 Promissory Note dated as of February 24,
      2009.*10.50
                Assignment
      of Deposit Account between the Company and Gateway Bank & Trust
      Company related to the $60,470 Promissory Note dated as of February 24,
      2009.*10.51
                Promissory
      Note for $60,470 between the Company and Gateway Bank & Trust Company,
      dated as of March 5, 2009.*10.52
                Commercial
      Security Agreement between the Company and Gateway Bank & Trust
      Company related to the $60,470 Promissory Note dated as of March 5,
      2009.*10.53
                Assignment
      of Deposit Account between the Company and Gateway Bank & Trust
      Company related to the $60,470 Promissory Note dated as of March 5,
      2009.*10.54
                Promissory
      Note for $55,470 between the Company and Gateway Bank & Trust Company,
      dated as of March 5, 2009.*10.55
                Commercial
      Security Agreement between the Company and Gateway Bank & Trust
      Company related to the $55,470 Promissory Note dated as of March 5,
      2009.*10.56
                Assignment
      of Deposit Account between the Company and Gateway Bank & Trust
      Company related to the $55,470 Promissory Note dated as of March 5,
      2009.*11
                Statement
      re: computation of per share earnings.*31.1
                CEO
      Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).*31.2
                CFO
      Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).*32.1
                CEO
      Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).*32.2
                CFO
      Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).*





* Filed
herewith.








All
references incorporating exhibits from documents previously filed by the Company
with the SEC are to SEC File No. 0-5815.




29