UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C.  20549





FORM
10-Q


(Mark
One)


T
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
quarterly period ended August 30, 2008


OR





£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For the
transition period from _____________ to ______________





Commission
File No. 0-5815





AMERICAN
CONSUMERS, INC.


(Exact
name of registrant as specified in its charter)





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





55 Hannah Way,
      Rossville, GA
            30741(Address
      of principal executive offices)
            (Zip
      Code)





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


__________________________________________________________________


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





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





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





Large
      accelerated filer
            £
            Accelerated
      filer  £Non-accelerated
      filer
            £ (Do not
      check if a smaller reporting company)
            Smaller
      reporting company  T





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





APPLICABLE
ONLY TO CORPORATE ISSUERS:


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





Class
            Outstanding
      at October 7, 2008COMMON
      STOCK - $ .10 PAR VALUE
            781,779NON
      VOTING COMMON STOCK - $ .10 PAR VALUE
            ----













ITEM
1.   FINANCIAL STATEMENTS


FINANCIAL
INFORMATION


AMERICAN
CONSUMERS, INC.


CONDENSED
STATEMENTS OF INCOME AND RETAINED EARNINGS


(UNAUDITED)





THIRTEEN WEEKS ENDEDAugust 30,
            
            
            September 1,2008
            
            
            2007NET
      SALES
            
            $
            8,785,280
            
            
            $
            8,740,882COST
      OF GOODS SOLD
            
            
            6,699,136
            
            
            
            6,697,344Gross
      Margin
            
            
            2,086,144
            
            
            
            2,043,538OPERATING,
      GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            2,109,130
            
            
            
            2,017,106Operating
      Income (Loss)
            
            
            (22,986
            )
            
            
            26,432OTHER
      INCOME (EXPENSE)Interest
      income
            
            
            2,651
            
            
            
            3,638Other
      income
            
            
            26,092
            
            
            
            37,036Loss
      on disposal of equipment
            
            
            (569
            )
            
            
            —Interest
      expense
            
            
            (7,847
            )
            
            
            (18,278
            )Income
      (Loss) Before Income Taxes
            
            
            (2,659
            )
            
            
            48,828INCOME
      TAXES
            
            
            —
            
            
            
            —NET
      INCOME (LOSS)
            
            
            (2,659
            )
            
            
            48,828RETAINED
      EARNINGS:Beginning
            
            
            1,004,859
            
            
            
            872,388Redemption
      of common stock
            
            
            —
            
            
            
            (51
            )Ending
            
            $
            1,002,200
            
            
            $
            921,165PER
      SHARE:Net
      income (loss)
            
            $
            (0.003
            )
            
            $
            0.062Cash
      dividends
            
            $
            —
            
            
            $
            —WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING
            
            
            781,779
            
            
            
            785,416











See Notes
to Financial Statements





2





FINANCIAL
INFORMATION


AMERICAN
CONSUMERS, INC.


CONDENSED
BALANCE SHEETS





August 30,
            
            
            May 31,2008
            
            
            2008(Unaudited)--A
      S S E T S--CURRENT
      ASSETSCash
      and cash equivalents
            
            $
            719,467
            
            
            $
            741,440Certificate
      of deposit
            
            
            300,000
            
            
            
            311,884Accounts
      receivable
            
            
            134,524
            
            
            
            118,334Inventories
            
            
            2,291,588
            
            
            
            2,241,670Prepaid
      expenses
            
            
            102,361
            
            
            
            70,494Total
      current assets
            
            
            3,547,940
            
            
            
            3,483,822PROPERTY
      AND EQUIPMENT - at costLeasehold
      improvements
            
            
            303,766
            
            
            
            303,766Furniture,
      fixtures and equipment
            
            
            3,356,623
            
            
            
            3,323,7133,660,389
            
            
            
            3,627,479Less
      accumulated depreciation
            
            
            (3,313,402
            )
            
            
            (3,304,201
            )346,987
            
            
            
            323,278TOTAL
      ASSETS
            
            $
            3,894,927
            
            
            $
            3,807,100--LIABILITIES
      AND STOCKHOLDERS' EQUITY--CURRENT
      LIABILITIESAccounts
      payable
            
            $
            805,292
            
            
            $
            817,890Book
      overdraft
            
            
            71,866
            
            
            
            238,932Short-term
      borrowings
            
            
            682,635
            
            
            
            422,820Current
      maturities of long-term debt
            
            
            75,398
            
            
            
            53,922Accrued
      sales tax
            
            
            107,954
            
            
            
            150,205Other
            
            
            211,826
            
            
            
            258,087Total
      current liabilities
            
            
            1,954,971
            
            
            
            1,941,856LONG-TERM
      DEBT
            
            
            207,636
            
            
            
            130,265STOCKHOLDERS'
      EQUITYNonvoting
      preferred stock – authorized 5,000,000 shares of no par value; no shares
      issued
            
            
            —
            
            
            
            —Nonvoting
      common stock – authorized 5,000,000 shares-$.10 par value; no shares
      issued
            
            
            —
            
            
            
            —Common
      stock - $.10 par value; authorized 5,000,000 shares; shares issued of
      781,779 and 781,779
            
            
            78,178
            
            
            
            78,178Additional
      paid-in capital
            
            
            651,942
            
            
            
            651,942Retained
      earnings
            
            
            1,002,200
            
            
            
            1,004,859Total
      Stockholders' Equity
            
            
            1,732,320
            
            
            
            1,734,979TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            3,894,927
            
            
            $
            3,807,100











See Notes
to Financial Statements





3





FINANCIAL
INFORMATION


AMERICAN
CONSUMERS, INC.


CONDENSED
STATEMENTS OF CASH FLOWS


(UNAUDITED)





THIRTEEN WEEKS ENDEDAugust 30,
            
            
            September 1,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income (Loss)
            
            $
            (2,659
            )
            
            $
            48,828Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            27,926
            
            
            
            30,834Change
      in operating assets and liabilities:Accounts
      receivable
            
            
            (16,190
            )
            
            
            98,014Inventories
            
            
            (49,918
            )
            
            
            (31,435
            )Prepaid
      expenses
            
            
            (31,867
            )
            
            
            (7,721
            )Accounts
      payable
            
            
            (12,598
            )
            
            
            (45,431
            )Accrued
      sales tax
            
            
            (42,251
            )
            
            
            (11,702
            )Other
      accrued liabilities
            
            
            (46,261
            )
            
            
            (944
            )Book
      overdraft
            
            
            (167,066
            )
            
            
            —Net
      cash provided by (used in) operating activities
            
            
            (340,884
            )
            
            
            80,443CASH
      FLOWS FROM INVESTING ACTIVITIESDecrease
      in certificate of deposit
            
            
            11,884
            
            
            
            12,161Purchase
      of property and equipment
            
            
            (51,635
            )
            
            
            (41,811
            )Net
      cash used in investing activities
            
            
            (39,751
            )
            
            
            (29,650
            )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      increase (decrease) in short-term borrowings
            
            
            259,815
            
            
            
            (39,356
            )Proceeds
      from long-term debt
            
            
            112,000
            
            
            
            35,435Principal
      payments on long-term debt
            
            
            (13,153
            )
            
            
            (26,583
            )Redemption
      of common stock
            
            
            —
            
            
            
            (770
            )Net
      cash provided by (used in) financing activities
            
            
            358,662
            
            
            
            (31,274
            )Net
      increase (decrease) in cash
            
            
            (21,973
            )
            
            
            19,519Cash
      and cash equivalents at beginning of period
            
            
            741,440
            
            
            
            582,472Cash
      and cash equivalents at end of period
            
            $
            719,467
            
            
            $
            601,991SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the quarter for:Interest
            
            $
            7,847
            
            
            $
            18,278











See Notes
to Financial Statements





4





AMERICAN
CONSUMERS, INC.


NOTES TO
FINANCIAL STATEMENTS





(1)
            Basis
      of Presentation.





The
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America.





The
interim financial statements have not been audited and should be read in
conjunction with the notes to the financial statements presented in the
Corporation’s 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.





Ordinary
course capital expenditures for replacements of store equipment during fiscal
2009 are estimated to be $50,000 or less, which we expect to be funded from
operating cash flows.  In addition to these expected equipment
replacements, up to three vehicles may have to be replaced during 2009 at a cost
of approximately $25,000 each and we may also have to replace the Company’s
maintenance vehicle during fiscal 2009 at an estimated cost of approximately
$30,000 to $35,000, which we expect to fund through either bank or manufacturer
financing, whichever will provide the Company with the most favorable
terms.  Finally, while management has attempted to postpone future
upgrades of our existing cash registers and scanning equipment, the pending
change to add an additional digit to UPC bar codes on inventory items and the
deterioration of the current equipment required us to begin the upgrades
beginning just prior to our year end in May 2008.  These upgrades were
installed in one location prior to year end and in one additional location prior
to the quarter ended on August 30, 2008.  Two additional stores were
upgraded in September of 2008 and one more is scheduled for October 2008 with
the remaining stores scheduled to be upgraded in early calendar
2009.  The cost of the upgrades is approximately $56,000 plus tax per
store.  Financing for the completion of the installations has been
obtained through our local bank.  As of August 30, 2008, capital
expenditures for the fiscal year to date totaled $51,635, including the register
and scanning equipment upgrades at one of the Company’s locations and the
purchase of a produce scale.  The equipment upgrades for this store
cost only $49,818 because we were able to use some equipment that had been
replaced earlier at that location.





The
Company has a 401(k) plan that is administered by
Ascensus.  Participation in the plan is available to all full-time
employees.  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.





5





(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) which are 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 ENDEDAugust 30,
      2008
            
            
            September 1,
      2007Sales
            
            $
            8,785,280
            
            
            $
            8,740,882%
      Sales Increase
            
            
            0.51
            %
            
            
            4.17
            %Gross
      Margin %
            
            
            23.75
            %
            
            
            23.38
            %Operating,
      General and Administrative Expenses:Amount
            
            $
            2,109,130
            
            
            $
            2,017,106%
      of Sales
            
            
            24.01
            %
            
            
            23.08
            %Net
      Income (Loss)
            
            $
            (2,659
            )
            
            $
            48,828






Overview:





American
Consumers, Inc. (the “Company”), operates eight (8) self-service supermarkets
within a compact geographical area that comprises Northwest Georgia, Northeast
Alabama, and Southeast Tennessee.  All of our supermarkets are
operated under the name “Shop-Rite,” and are engaged in the retail sale of
groceries including meats, fresh produce, dairy products, frozen foods, bakery
products, tobacco products, and miscellaneous other non-food items.





The
Company operated at a loss of $2,659 for the thirteen weeks ended August 30,
2008, after showing profits for each of the last eight consecutive
quarters.  Although sales increased by $44,398 (or 0.51%), operating,
general and administrative expenses increased $92,024 (or 0.93% as a percentage
of sales), resulting in the small net loss.  The sales increases
experienced for fiscal years 2007 and 2008 and for the first quarter of fiscal
2009 were less than those experienced during fiscal years 2005 and 2006, due in
part to the absence of new store openings and certain major sales promotions,
which significantly impacted the increases reported for the 2005 and 2006 fiscal
years.  Still, sales have grown for nine consecutive years despite the
continuous challenges posed by the competition we face from larger grocery
retailers operating in the markets served by our stores.  While the
gross margin for the first quarter of fiscal 2009 was slightly down from the
23.85% gross margin achieved for fiscal year 2008, the 23.75% gross margin
represented a slight improvement as compared to 23.38% for the comparable
quarter of the prior year, which helped offset the increase in operating,
general and administrative expenses to keep the loss for the quarter
low.  The increase in expenses are due primarily to increases in store
wages, increases in group insurance premiums, utility costs and professional
services.





The
thirteen weeks ended September 1, 2007 resulted in a net income in the amount of
$48,828 representing the fifth consecutive quarter in which the Company made a
profit.  An increase of 4.17% in sales contributed to the success in
the quarter in spite of the opening of a competing locally owned supermarket in
an area in which the Company operates two retail outlets.  Our gross
margin fell to 23.38% of sales from 23.99% for the first quarter of fiscal 2006,
but remained essentially level with the 23.28% gross margin we realized for the
fourth quarter of fiscal 2007.





7





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, 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 cost through pricing adjustments as competition allows, further improvements
in the gross margin may not be achievable at this time, and further
deterioration in the Company’s gross margin is possible.  While the
increases in sales in recent periods have mostly offset the impact of reduced
gross margins on profitability, the gross margin reductions experienced as a
result of pricing adjustments to increase sales during recent quarters provides
further evidence of this trend.





Management
believes that competitive pressures on the Company, which have led to the losses
experienced in three out of the last five fiscal years, will continue to
increase over time as a result of competitors opening more new stores in the
Company’s trade area.  These competitors have greater financial
resources than those of the Company, and may be able to obtain preferential
treatment from suppliers in the form of advertising allowances, lower prices and
other concessions not available to the Company.  These factors allow
our competitors to engage in aggressive pricing and promotional activities that
the Company cannot match, putting us at a competitive
disadvantage.  In response to these developments, management will
continue seeking to manage the Company’s pricing structure to produce the most
favorable balance between increases in sales, which help to offset our fixed
operating expenses, and the gross margin, which determines the profitability of
the additional sales.  We will attempt to improve the gross margin and
increase profitability by working to obtain the lowest cost for the Company’s
inventory, and as competition permits, by periodically implementing adjustments
in the Company’s overall mix of retail prices.





Our gross
margins may not be directly comparable to those of our larger competitors, since
some of those companies may include the costs of their internal distribution
networks in cost of goods sold – thus impacting the gross margin – while others
reflect such costs elsewhere (such as in operating, general and administrative
expenses).  Unlike many of the larger grocery store chains with which
we compete, the Company does not have an internal distribution
network.  Inventory is delivered directly to our individual store
locations by our wholesale supplier, which recovers its distribution costs
through the markup that it charges to the Company.  Accordingly, our
cost of goods sold as reflected in the Company’s financial statements is
comprised principally of our direct wholesale cost for the acquisition of such
inventory, net of applicable rebates and allowances as discussed under
“Inventories” in Note 1 of the financial statements presented in the Company’s
2008 Annual Report to Shareholders.





8





Management
has been working to contain increases in operating, general and administrative
expenses as much as possible.  As mentioned above, however, these
expenses increased $92,024 for the current quarter as compared to the same
period last year, increasing 0.93% as a percentage of sales for the
quarter.  This increase was brought about by factors over which
management has very little control, such as the increase in the minimum wage,
which caused wage costs to increase during the quarter, and by increases in
group insurance premiums, utility costs and costs associated with regulations
relating to Sarbanes-Oxley.  Depreciation was down for the first
quarter compared to the first quarter of last year, but will increase during the
next two quarters due to the ongoing replacements of cash registers and scanning
equipment at the Company’s retail stores.  Accordingly, we expect
future periods to continue to reflect the overall increase in these expenses
that has occurred with the addition of the Company’s seventh and eighth grocery
stores since April 28, 2001, as well as with ongoing increases in personnel and
utility costs and costs related to expanding governmental
regulations.  Management continues to monitor these expenses and
continues to evaluate the performance of each of our grocery store locations to
determine their long-term value to the Company.  Cost increases,
combined with the relatively fixed nature of certain of our expenses, mean that
any future decrease in sales due to the effects of ongoing competition will
likely further erode the improvements in these expenses as a percentage of sales
that we have experienced in recent periods which could, as illustrated by the
current quarter’s results, affect the Company’s operating profits.  A
more detailed discussion of these expenses and related changes for the periods
presented is set forth below under the caption “Operating, General and
Administrative Expenses.”





The
increase in expenses for the quarter, coupled with the decreases in certain
items of other income discussed in more detail below, contributed significantly
to the loss of $2,659 for the current quarter as compared to net income of
$48,828 for the same quarter of the prior year.  The impact of these
items was somewhat offset by a $10,431 decrease in interest expense, reflecting
a decrease in the average balance carried on our line of credit due to the
implementation of a cash management system during fiscal 2008.  The
decrease in interest expense is not expected to continue, due to the increased
borrowings to replace cash registers and scanning systems in our remaining
stores.  Interest income (principally comprised of interest on our
certificate of deposit) decreased from $3,638 to $2,651 due primarily to a
decrease in the interest rate at last renewal.








Sales:





Sales
increased by $44,398 (or 0.51%) for the current three months ended August 30,
2008 as compared to the three month period ended September 1,
2007.  Sales were up at five of the Company’s stores, with increases
ranging from 0.59% to 6.29%, while sales were down at three of the Company’s
stores, with decreases ranging from 3.66% to 9.12%.  The stores with
sales decreases suffered from increased competition in their local market areas
as compared to the prior year period, and one also 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, and by generally unfavorable traffic pattern conditions at that
location.  Sales for the month of September 2008 were up 3.29%
compared to the month of September 2007.  Management will attempt to
maintain the overall increase in sales by continuing to offer a broad selection
of generic and private label goods to our customers and by continuing with
advertised specials on a weekly basis (including certain targeted promotions)
throughout the year.  We believe that each of these factors, as well
as the continuing effects of high gas prices on consumer’s spending choices and
the availability of our check cashing program for customers, contributed to the
sales increases experienced thus far in fiscal 2009.





Sales for
the three months ended September 1, 2007 increased $350,171 (or 4.17%) over
sales for the same quarter of the prior year.  During that quarter all
eight of the Company’s stores experienced sales increases as compared to the
same quarter of the prior year, ranging from 0.21% to 10.69%.  The
location with the 10.69% increase also experienced an increase of 10.66% during
the subsequent month of September 2007 (as compared to September 2006), while
the two stores affected by the opening of a locally owned competitor showed a
decrease in sales in September 2007.  The Company experienced an
overall sales increase of 1.64% for the month of September 2007.





9





Gross
Margin:





The
Company’s gross margin percentage for the three months ended August 30, 2008
increased by 0.37% as compared to the same quarter of last
year.  While this represents a slight decrease from the 23.85% gross
margin realized for all of fiscal 2008, it is in the range of gross margins
experienced for the four quarters of fiscal 2008, which ranged from 23.25% to
24.83%. Management is attempting to keep the gross margin in line through
strategic pricing adjustments while competing with larger chains with more
resources available to them to reduce the impact of lower gross
margins.  As previously noted, if management is forced to reduce the
gross margin in order to remain competitive such a decrease would have
unfavorable effects on the Company’s net income.





The
Company’s gross margin percentage for the three months ended September 1, 2007
decreased by 0.61%, from 23.99% to 23.38% as compared to the same quarter of the
prior year.  However, the gross margin for the quarter reflected
relative stability as compared to the 23.28% gross margin experienced for the
fourth quarter of the fiscal year ended June 2, 2007.  This decrease
versus the prior year period was attributable to the impact of increased sales
of lower-priced generic goods (including delays in recovering increases in the
costs of certain of these goods through adjustments to our retail prices), as
well as to other promotional activities conducted during the
quarter.








Operating, General and
Administrative Expenses:





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





The
following table details the components of operating, general and administrative
expenses, both in absolute terms and as a percentage of the total of all such
expenses, for the quarters ended August 30, 2008 and September 1,
2007:





10




Expense
      Item
                
                First Quarter
                  2008 Amount
                
                
                % of First Qtr.
                  2008 Total
                
                
                First Quarter
                  2007 Amount
                
                
                % of First Qtr.
                  2007 TotalPayroll
                
                $
                1,044,087
                
                
                
                49.5
                
                
                $
                996,157
                
                
                
                49.4Utilities
      & telephone expense
                
                
                195,860
                
                
                
                9.3
                
                
                
                175,569
                
                
                
                8.7Rent
                
                
                165,781
                
                
                
                7.9
                
                
                
                162,209
                
                
                
                8.0Insurance
                
                
                146,976
                
                
                
                7.0
                
                
                
                141,433
                
                
                
                7.0Advertising
      & promotion
                
                
                130,829
                
                
                
                6.2
                
                
                
                137,082
                
                
                
                6.8General
      & office supplies
                
                
                103,406
                
                
                
                4.9
                
                
                
                101,345
                
                
                
                5.0Repairs
      & maintenance
                
                
                84,062
                
                
                
                4.0
                
                
                
                89,659
                
                
                
                4.5Depreciation
                
                
                27,926
                
                
                
                1.3
                
                
                
                30,834
                
                
                
                1.5Bank
      service charges and credit card fees
                
                
                37,102
                
                
                
                1.8
                
                
                
                37,692
                
                
                
                1.9Bad
      checks
                
                
                43,061
                
                
                
                2.0
                
                
                
                44,984
                
                
                
                2.2Professional
      fees
                
                
                70,449
                
                
                
                3.3
                
                
                
                42,665
                
                
                
                2.1All
      other misc.
                
                
                59,591
                
                
                
                2.8
                
                
                
                57,477
                
                
                
                2.9TOTAL
                
                $
                2,109,130
                
                
                
                100.0
                
                
                $
                2,017,106
                
                
                
                100.0





Operating,
general and administrative expenses for the quarter ended August 30, 2008
increased by $92,024 over the same quarter last year.  Payroll expense
increased by $47,930 (or 4.81%), due in part to the federally mandated increases
in the minimum wage that took effect on July 24, 2007 and again on July 24,
2008.  Another increase from the current rate of $6.55 to $7.25 per
hour is scheduled to go into effect on July 24, 2009.  Store
management is continually working to keep payroll expenses in line through
efficient management of employee scheduling.  Utilities and telephone
expense increased by $20,291 (or 11.56%) as energy costs continue to
rise.  Rent expense was up $3,572 (or 2.20%) due primarily to an
increase in the monthly base rent when a lease was renewed at one
location.  Insurance increased by $5,543 (or 3.92%) 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.  General and
office supplies increased by $2,061 (or 2.03%) due to increased cost of paper,
operating supplies and other office supplies.  Professional fees
increased $27,784 (or 65.12%) as compared to the same quarter last year, as
costs to comply with the Sarbanes-Oxley Act continued to rise, including
significant increases in utilization of legal services and other outside
consulting fees related to compliance with the internal controls provisions of
Section 404 of such Act.  All other expenses increased $2,114 (or
3.68%).  Expense categories where we experienced decreases during the
quarter included a decrease of $6,253 (or 4.56%) in advertising and promotion
expense due to management’s efforts to control these costs by reducing the
amount of certain of these activities during the year.  Repairs and
maintenance expenses were down $5,597 (or 6.24%) due to the reduction in repairs
to equipment during the quarter. Depreciation decreased $2,908 (or 9.43%) due to
the age and fully depreciated status of much of our equipment, in particular the
cash register and scanning equipment that the Company is in the process of
replacing.  As noted above, however, these charges will return to more
historically consistent levels as the Company continues to replace equipment and
vehicles in future periods.  Bank service charges and credit card fees
decreased by $590 (or 1.57%), due primarily to the impact of the cash management
system implemented by the Company since the first quarter of fiscal
2007.  The Company is also changing to a different provider to handle
its credit and debit card processing services, which will hopefully result in
savings to the Company in the future.  Bad checks decreased $1,923 (or
4.27%), which management hopes will begin a trend in reducing this expense with
a change in the provider of bad check collection services and improved
procedures.





11





Operating,
general and administrative expenses for the quarter ended September 1, 2007
increased overall by only $9,311 over the same quarter the previous
year.  While payroll expenses decreased by $3,611 (or 0.4%) versus
last year, these expenses increased during the next quarter because of the
federally mandated increase in the minimum wage that took effect immediately
after the quarter ended.  Insurance expense decreased by $24,577 (or
14.8%) as a result of a reduction in workman’s compensation premiums for our
policy period that began on July 1, 2007.  Advertising and promotion
expense increased $4,335 (or 3.3%), due primarily to increased costs associated
with certain sales promotions during the quarter as compared to the prior year
period.  General and office supplies increased $9,162 (or 9.9%)
due to increased cost for various items purchased by the
Company.  Repairs and maintenance increased $3,362 (or 3.9%) due to
our equipment requiring more upkeep due to its age.  Conversely,
depreciation expense was reduced by $6,712 (or 17.9%) also due to the age and
fully depreciated status of much of our equipment.  As noted above,
however, these charges may be expected to return to more historically consistent
levels as the Company moves through anticipated equipment replacement cycles in
future periods.  Professional fees increased $24,068 (or 129.4%) as a
result of increased regulatory compliance expense under the Sarbanes-Oxley Act,
coupled with increased utilization of legal services as compared to the same
quarter of last year.





Bank
service charges and credit card fees decreased by $2,837 (or 7.0%) due to the
improvements in the Company’s cash balances and cash management procedures as a
result of the recent change in our principal banking relationship during the
fourth quarter of fiscal 2007 and the associated increase in our revolving line
of credit.  Bad checks expense increased by $1,111 (or 2.5%),
reflecting a trend in the presentation and subsequent cashing of counterfeit
checks.  Management believes that the practice of cashing customers’
checks, while posing risks for the Company (such as the theft loss that was
experienced during the fourth quarter of fiscal 2006 and recent increases in bad
checks expense), is also vital to our competitive strategy for maintaining
customer traffic and growing sales in the face of the increased competition from
larger grocery retailers that we have experienced in recent years.  We
have installed a check verification system to reduce bad checks expense and are
investigating a possible upgrade to a more sophisticated system to further
combat this problem.  We also have implemented other measures to
improve our process for managing customer check cashing activities and reducing
associated expenses while continuing to offer this service to our customers,
including efforts undertaken during the past year to improve training and
employee education on this topic and related efforts to improve supervision of
the check cashing process by individual store managers.  All other
expenses remained generally consistent with last year’s figures.





12





Interest and Other
Income:





Other
income (not including interest income) decreased $11,513 (or 31.1%) for the
quarter ended August 31, 2008 as compared to the quarter ended September 1,
2007.  The components of other income for the quarters ended August
31, 2008 and September 1, 2007, apart from interest income, were as
follows:





THIRTEEN WEEKS ENDEDDescription
            
            August 30, 2008
            
            
            September 1, 2007Check
      cashing fees
            
            $
            19,624
            
            
            $
            22,944Funds
      for handling money orders/transfers
            
            
            571
            
            
            
            4,924Vendor’s
      compensation from the States of Alabama and Georgia for collecting and
      remitting sales taxes on a timely basis
            
            
            3,865
            
            
            
            3,724Returned
      check fees
            
            
            1,465
            
            
            
            377Revenue
      related to Fed-Ex shipments/other
            
            
            567
            
            
            
            5,067TOTAL
            
            $
            26,092
            
            
            $
            37,036





The
decrease in check cashing fees for the first quarter of 2008 reflects a
reduction in the activity of check cashing as management attempts to more
closely monitor the acceptance of bad checks. As discussed above, a new system
is in place at two of the Company’s stores at the end of the quarter ended
August 30, 2008 and the new system scans checks when presented and rejects any
checks not deemed good by their database.  Other changes in the
components of other income presented above relate primarily to variations in the
volume of the associated activity or service provided by the Company during each
of the fiscal quarters presented, with the exception of the comparison of funds
received for handling money orders and money transfers in the stores, which is
affected by an over-accrual error in these amounts that occurred during the
quarter ended September 1, 2007 and was reversed through a one-time adjustment
of $3,033 made to such amounts during the following quarter.  Interest
income decreased by $987 as compared to the first quarter of fiscal
2008.  This decrease is due primarily to the re-pricing of the
interest rate on the Company’s certificate of deposit at the latest renewal
date.





Income
Taxes:





The
Company accounts for income taxes in accordance with the provisions of 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 thirteen weeks ended August 30, 2008
or September 1, 2007, as a result of a continued net operating loss
carry-forward and the related full valuation of the Company’s net deferred tax
assets.





13





Inflation:





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








FINANCIAL
CONDITION





Liquidity and Capital
Resources:





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





Cash
Flows from Operating Activities





During
the thirteen week quarter ended August 30, 2008, the Company used $340,884 in
cash flow from operating activities.  In addition to the Company’s net
loss of $2,659 for the quarter, other uses of cash included a $167,066 reduction
in the book overdraft as compared to fiscal 2008 year end (resulting from a
combination of additional draws on our revolving line of credit plus timing
differences between draws and disbursements under the new equipment loan, which
increased cash balances as of the August 30 balance sheet date), a $49,918
increase in inventories (due primarily to continued increases in wholesale
costs, but also reflecting increases in certain orders from our supplier to
mitigate cost increases by taking advantage of certain promotional programs), a
$46,261 decrease in other accrued liabilities (due primarily to $38,498 in
officer bonuses that were accrued at year end based on the Company’s fiscal 2008
net income but were paid during the first quarter of fiscal 2009), a $42,251
decrease in accrued sales taxes (due primarily to the fact that the final month
of the May 2008 quarter had five weeks of sales, whereas the final month of the
August quarter had only four weeks), a $31,867 increase in prepaid expenses (due
primarily to deposits paid to the manufacturer on the upgraded cash registers
and scanning equipment ordered for two additional stores), a $12,598 decrease in
accounts payable (resulting primarily from the timing of invoices paid during
the quarter), and a net increase of $16,190 in receivables (due primarily to a
$19,704 increase in receivables from our primary inventory supplier resulting
from increased orders to take advantage of their promotion program, as discussed
above).  These uses of cash were partially offset by the impact of
$27,926 in non-cash depreciation charges.





During
the thirteen weeks ended September 1, 2007, the Company generated $80,443 in
cash flow from operating activities.  In addition to net income of
$48,828, sources of funds included a $98,014 reduction in accounts receivable
(due primarily to the impact 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) and the impact of non-cash depreciation charges in the
amount of $30,834.  The most significant uses of funds which partially
offset these amounts included a $45,431 (or 5.0%) reduction in accounts payable
versus the prior year period, a $31,435 increase in inventories (generally due
to increases in the wholesale cost of certain items purchased by the Company)
and an $11,702 decrease in accrued sales taxes (due primarily to timing
differences in payments between quarters).





14





Cash
Flows from Investing Activities





Investing
activities used $39,751 of cash flow during the thirteen weeks ended August 30,
2008, due to $51,635 of expenditures for the purchase of the upgraded cash
register and scanning equipment system for one store plus the purchase of a
produce scale, partially offset by a decrease in the Company’s certificate of
deposit in the amount of $11,884.





Cash used
in investing activities of $29,650 during the thirteen weeks ended September 1,
2007 consisted of $41,811 used to purchase two vehicles and some miscellaneous
store-level equipment, partially offset by a $12,161 decrease in the Company’s
certificate of deposit.





Cash
Flows from Financing Activities





Financing
activities provided $358,662 of additional cash flow during the thirteen weeks
ended August 30, 2008, as a net increase of $259,815 in short-term debt
(primarily outstanding borrowings under our line of credit, which fluctuate
throughout each quarter as amounts are continuously drawn and repaid, based on
the timing of expenditures and revenues, under the terms of the cash management
facility with our lender) and $112,000 of additional long-term debt incurred to
purchase cash register and scanning equipment for two stores as noted above were
partially offset by payments on long-term debt in the amount of
$13,153.





During
the thirteen weeks ended September 1, 2007, we decreased the Company’s short
term borrowings by $39,356, paid $26,583 on the Company’s long term debt,
redeemed $770 in common stock and borrowed $35,435 in connection with the
purchases of the two new vehicles during the quarter, resulting in net cash used
in financing activities of $31,274.





Overall,
the Company’s cash and cash equivalents decreased by $21,973 during the first
quarter of fiscal 2009 as compared to an increase in cash and cash equivalents
of $19,519 for the first quarter of fiscal 2008.





The ratio
of current assets to current liabilities was 1.81 to 1 at the end of the latest
quarter, August 30, 2008 compared to 1.80 to 1 on September 1, 2007 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 28.73% of the total
current assets at August 30, 2008, as compared to 26.94% of the total current
assets at September 1, 2007 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 have resulted in a net reduction of
approximately $14,000 in the Company’s monthly debt service requirements through
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 ongoing replacement of the Company’s cash registers and
scanning equipment at each of its stores, as well as 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 cash management program instituted this year with
Gateway, and seeking to reduce other expenses where possible), and through
seeking to continue the favorable cash management arrangement with our primary
lender.





15





Historically,
the Company has financed its working capital requirements principally through
its cash flow from operations.  Short-term borrowing to finance
inventory purchases is currently provided by the Company’s $800,000 line of
credit 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 an $800,000 line of credit with a
12 month term.  The line of credit contains a borrowing base provision
that limits the maximum outstanding indebtedness to forty percent (40%) of the
value of the Company’s inventory, as measured on a quarterly
basis.  As of August 30, 2008, we had $128,860 available to be
borrowed under the line of credit.  The bank line of credit is secured
by the Company’s certificate of deposit, as well as by a security interest in
substantially all of our accounts receivable, inventory, machines and equipment,
furniture and fixtures and by 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:





August 30,
              2008
            
            
            May 31,
              2008
            
            
            September 1,
              2007Michael
      and Diana Richardson
            
            $
            9,906
            
            
            $
            9,764
            
            
            $
            13,096Matthew
      Richardson
            
            
            1,589
            
            
            
            1,566
            
            
            
            1,488Line
      of Credit
            
            
            671,140
            
            
            
            411,490
            
            
            
            570,000TOTAL
            
            $
            682,635
            
            
            $
            422,820
            
            
            $
            584,584





During
the quarter ended August 30, 2008, we increased the Company’s borrowings from
related parties by a net amount of $165 (reflecting additional interest accrued)
and also increased the outstanding balance under the line of credit by a net
amount of $259,650.





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.





16





Long-Term
Debt:





At August
30, 2008, long-term debt consisted of a note payable to Gateway Bank & Trust
of $139,662 incurred in May 2007 to refinance the addition of the Company’s
eighth grocery store.  In addition, three vehicles were purchased and
financed through Tennessee Valley Federal Credit Union with balances due at
August 30, 2008, of $8,563, $10,662 and $12,147.  Additionally, two
loans in the amount of $56,000 each were borrowed from Gateway Bank & Trust
to finance the purchase of register and back door equipment at two of the
Company’s locations. Long-term debt as of specific dates is presented
below:





August 30,
              2008
            
            
            May 31,
              2008
            
            
            September 1,
              2007Two
      notes payable, Bank, secured by all inventory, machinery and equipment,
      due $1,087 each, monthly, interest at prime with 6% floor through August
      2013.
            
            $
            112,000
            
            
            $
            —
            
            
            $
            —Note
      payable, Bank, secured by all inventory, machinery and equipment, due
      $3,684 monthly, interest at the prime rate with 6% floor through April
      2012.
            
            
            139,662
            
            
            
            148,486
            
            
            
            172,774Vehicle
      loans; collateralized by automobiles due monthly through July
      2010.
            
            
            31,372
            
            
            
            35,701
            
            
            
            48,328$
            283,034
            
            
            $
            184,187
            
            
            $
            221,102Less
      current maturities
            
            
            75,398
            
            
            
            53,922
            
            
            
            48,395$
            207,636
            
            
            $
            130,265
            
            
            $
            172,707











The
following is a schedule by years of the amount of maturities of all long-term
debt subsequent to August 30, 2008:





Twelve
      Months
              Ending
      August
            Amount2009
            $   75,3982010
            73,7982011
            64,0082012
            46,0792013
            23,751





During
the quarter ended August 30, 2008 retained earnings decreased as a result of the
Company’s net loss for the quarter.





17





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.





Use
of Estimates:





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





Inventories:





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





Vendor
Allowances:





The
Company receives funds for a variety of merchandising activities from vendors
whose products the Company buys for resale in its stores.  These
incentives and allowances include volume or purchased based incentives,
advertising allowances, and promotional discounts.  The purpose of
these incentives and allowances is generally to aid in the reduction of the
costs incurred by the Company for stocking, advertising, promoting and selling
the vendor’s products.  These allowances generally relate to
short-term arrangements with vendors, often relating to a period of one month or
less, and are typically negotiated on a purchase-by-purchase
basis.  Due to system constraints and the nature of certain
allowances, these allowances are applied as a reduction of inventory costs using
a rational and systematic methodology, which results in the recognition of these
incentives when the inventory related to the initial purchase is
sold.  Management recognized approximately $89,950 and $89,516 of
vendor allowances as a reduction in inventory costs for the thirteen weeks ended
August 30, 2008 and September 1, 2007, respectively.  Amounts that
represent a reimbursement of specific identifiable incremental costs, such as
advertising, are recorded as a reduction to the related expense in the period
that the related expense is incurred.  Management recognized
approximately $16,332 and $8,750 in advertising allowances recorded as a
reduction of advertising expense for the thirteen weeks ended August 30, 2008
and September 1, 2007, respectively.





18





Asset
Impairments:





Management
accounts for any impairment of its long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”  Management monitors the
carrying value of its long-lived assets for potential impairment each quarter
based on whether any indicators of impairment have occurred.  As of
August 30, 2008 and September 1, 2007, no long-lived assets have been identified
by management as impaired.








Off-Balance Sheet
Arrangements:





The
Company had no significant off-balance sheet arrangements as of August 30,
2008.








Related Party
Transactions:





Except as
discussed above under “Liquidity and Capital Resources,” there were no material
related party transactions during the thirteen week period ended August 30,
2008.








Forward – Looking
Statements:





Information
provided by the Company, including written or oral statements made by its
representatives, may contain “forward looking information” as defined in Section
21E of the Securities Exchange Act of 1934, as amended.  All
statements which address activities, events or developments that the Company
expects or anticipates will or may occur in the future, including such things as
expansion and growth of the Company’s business, the effects of future
competition, future capital expenditures and the Company’s business strategy,
are forward-looking statements.  In reviewing such information it
should be kept in mind that actual results may differ materially from those
projected or suggested in such forward-looking statements.  This
forward-looking information is based on various factors and was derived
utilizing numerous assumptions.  Many of these factors previously have
been identified in filings or statements made on behalf of the Company,
including filings with the Securities and Exchange Commission on Forms 10-Q,
10-K and 8-K.  Important assumptions and other important factors that
could cause actual results to differ materially from those set forth in the
forward-looking statements include the following (in addition to those matters
discussed in the Risk Factors included in Part I, Item 1A of our Annual Report
on Form 10-K for the fiscal year ended May 31, 2008): changes in the general
economy or in the Company’s primary markets, the effects of ongoing price
competition from competitors (some of which have 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.





19





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.








ITEM
      4T.
            CONTROLS
      AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures





The
Company maintains disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) designed to ensure
that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms.  Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in its reports that it files or submits under the
Exchange Act is accumulated and communicated to the Company’s management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions 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 August 30, 2008.  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 reasonably likely
to materially affect, our internal control over financial reporting are
discussed below:





20





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
internal control 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 review of the Company’s
bank statements used by the Chief Financial Officer to perform reconciliations
are not being performed and it was determined that these control deficiencies
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 quarter of fiscal 2009, management has begun implementing the
following steps to begin to address and remediate the material weaknesses
described above:





·
            Management
      has hired additional staff that will have 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.





·
            Additionally,
      the Chief Executive Officer will be performing a detailed review of the
      bank statements, including examination of individual items, used by the
      Chief Financial Officer in the preparation of
    reconciliations.





While we
are still in the process of developing new procedures to establish 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 tests 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
quarter of fiscal 2009 that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.





21





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:





There
were no repurchases of common stock made by the Company during the fiscal
quarter covered by this report.





ITEM
      6.
            EXHIBITS





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





22





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:
            October
      14, 2008
            
            /s/
      Michael A. RichardsonMichael
      A. RichardsonCHAIRMAN
      OF THE BOARD ANDCHIEF
      EXECUTIVE OFFICER(Principal
      Executive Officer)Date:
            October
      14, 2008
            
            /s/
      Paul R. CookPaul
      R. CookEXECUTIVE
      VICE PRESIDENT ANDTREASURER(Principal
      Financial Officer & ChiefAccounting
      Officer)





23





AMERICAN
CONSUMERS, INC.





EXHIBIT
INDEX








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





Exhibit
      No.
            Description10.32
            Cash
      Register Purchase Agreement for the Company’s Chickamauga, Georgia
      location, dated July 18, 2008.  Incorporated by reference to
      Exhibit 10.35 to Current Report on Form 8-K dated July 18,
      2008.10.33
            Cash
      Register Purchase Agreement for the Company’s Stevenson, Alabama location,
      dated July 18, 2008.  Incorporated by reference to Exhibit 10.36
      to Current Report on Form 8-K dated July 18, 2008.10.34
            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,
      2008.10.35
            Two
      Promissory Notes for $56,000 each between the Company and Gateway Bank
      & Trust Company, dated as of July 25, 2008.  Incorporated by
      reference to Exhibit 10.38 to Current Report on Form 8-K dated July 25,
      2008.10.36
            Commercial
      Security Agreements between the Company and Gateway Bank & Trust
      Company related to Two $56,000 Promissory Notes dated as of July 25,
      2008.  Incorporated by reference to Exhibit 10.39 to Current
      Report on Form 8-K dated July 25, 2008.10.37
            Assignments
      of Deposit Account between the Company and Gateway Bank & Trust
      Company related to Two $56,000 Promissory Notes dated as of July 25,
      2008.  Incorporated by reference to Exhibit 10.40 to Current
      Report on Form 8-K dated July 25, 2008.10.38
            Cash
      Register Purchase Agreement of the Company’s Dayton, Tennessee location,
      dated September 2, 2008.  Incorporated by reference to Exhibit
      10.41 to Current Report on Form 8-K dated September 2,
    2008.10.39
            Promissory
      Note for $56,000 between the Company and Gateway Bank & Trust Company,
      dated as September 2, 2008.  Incorporated by reference to
      Exhibit 10.42 to Current Report on Form 8-K dated September 2,
      2008.10.40
            Commercial
      Security Agreement between the Company and Gateway Bank & Trust
      Company related to the $56,000 Promissory Note dated as of September 2,
      2008.  Incorporated by reference to Exhibit 10.43 to Current
      Report on Form 8-K dated September 2,
2008.





24




Exhibit
      No.
            Description10.41
            Assignment
      of Deposit Account between the Company and Gateway Bank & Trust
      Company related to the $56,000 Promissory Note dated as of September 2,
      2008.  Incorporated by reference to Exhibit 10.44 to Current
      Report on Form 8-K dated September 2, 2008.11
            Statement
      re: computation of per share earnings.*31.1
            CEO
      Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).*31.2
            CFO
      Certification pursuant to Exchange Act Rules 13a-14(a) and
      15d-14(a).*32.1
            CEO
      Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).*32.2
            CFO
      Certification pursuant to Exchange Act Rules 13a-14(b) and
      15d-14(b).*





* Filed
herewith.








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






25