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 December 1, 2007
 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, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act. (Check one):
 Large
                  accelerated filer £
              Accelerated
                  filer £
              Non-accelerated
                  filer 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 January 3, 2008COMMON
                  STOCK - $ .10 PAR VALUE
              
              782,769NON
                  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
              
              
              TWENTY-SIX
                WEEKS
                  ENDEDDecember 1,
              
              
              December 2,
              
              
              December 1,
              
              
              December 2,2007
              
              
              2006
              
              
              2007
              
              
              2006NET
                  SALES
              
              $
              8,487,207
              
              
              $
              8,392,267
              
              
              $
              17,228,089
              
              
              $
              16,782,978COST
                  OF GOODS SOLD
              
              
              6,513,801
              
              
              
              6,417,697
              
              
              
              13,211,145
              
              
              
              12,795,391Gross
                  Margin
              
              
              1,973,406
              
              
              
              1,974,570
              
              
              
              4,016,944
              
              
              
              3,987,587OPERATING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              1,987,573
              
              
              
              1,995,765
              
              
              
              4,004,679
              
              
              
              4,003,560Operating
                  Income (Loss)
              
              
              (14,167
              )
              
              
              (21,195
              )
              
              
              12,265
              
              
              
              (15,973
              )OTHER
                  INCOME (EXPENSE)Interest
                  income
              
              
              4,166
              
              
              
              4,030
              
              
              
              7,804
              
              
              
              7,658Other
                  income
              
              
              30,485
              
              
              
              35,032
              
              
              
              67,521
              
              
              
              61,382Interest
                  expense
              
              
              (16,790
              )
              
              
              (14,636
              )
              
              
              (35,068
              )
              
              
              (29,489
              )Income
                  Before Income Taxes
              
              
              3,694
              
              
              
              3,231
              
              
              
              52,522
              
              
              
              23,578INCOME
                  TAXES
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —NET
                  INCOME
              
              
              3,694
              
              
              
              3,231
              
              
              
              52,522
              
              
              
              23,578RETAINED
                  EARNINGS:Beginning
              
              
              921,165
              
              
              
              795,903
              
              
              
              872,388
              
              
              
              775,615Redemption
                  of common stock
              
              
              (122
              )
              
              
              (454
              )
              
              
              (173
              )
              
              
              (513
              )Ending
              
              $
              924,737
              
              
              $
              798,680
              
              
              $
              924,737
              
              
              $
              798,680PER
                  SHARE:Net
                  Income
              
              $
              0.005
              
              
              $
              0.004
              
              
              $
              0.067
              
              
              $
              0.030Cash
                  dividends
              
              $
              —
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —WEIGHTED
                  AVERAGE NUMBER OF SHARES OUTSTANDING
              
              
              783,836
              
              
              
              790,191
              
              
              
              784,758
              
              
              
              794,076
 See
          Notes
          to Financial Statements
  2
 FINANCIAL
        INFORMATION
 AMERICAN
        CONSUMERS, INC.
 CONDENSED
        BALANCE SHEETS
 
 December 1,
              
              
              June 2,2007
              
              
              2007(Unaudited)--A
                  S S E T S--CURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              628,200
              
              
              $
              582,472Certificate
                  of deposit
              
              
              303,924
              
              
              
              312,161Accounts
                  receivable
              
              
              156,254
              
              
              
              233,057Inventories
              
              
              2,201,132
              
              
              
              2,118,189Prepaid
                  expenses
              
              
              60,251
              
              
              
              154,213Total
                  current assets
              
              
              3,349,761
              
              
              
              3,400,092PROPERTY
                  AND EQUIPMENT - at costLeasehold
                  improvements
              
              
              303,766
              
              
              
              300,800Furniture,
                  fixtures and equipment
              
              
              3,310,564
              
              
              
              3,298,9233,614,330
              
              
              
              3,599,723Less
                  accumulated depreciation
              
              
              (3,287,250
              )
              
              
              (3,275,328
              )327,080
              
              
              
              324,395TOTAL
                  ASSETS
              
              $
              3,676,841
              
              
              $
              3,724,487--LIABILITIES
                  AND STOCKHOLDERS' EQUITY--CURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              825,367
              
              
              $
              904,396Short-term
                  borrowings
              
              
              614,867
              
              
              
              623,940Current
                  maturities of long-term debt
              
              
              50,112
              
              
              
              40,206Accrued
                  sales tax
              
              
              131,039
              
              
              
              152,893Other
              
              
              239,927
              
              
              
              224,683Total
                  current liabilities
              
              
              1,861,312
              
              
              
              1,946,118LONG-TERM
                  DEBT
              
              
              159,296
              
              
              
              172,044STOCKHOLDERS'
                  EQUITYNonvoting
                  preferred stock – authorized 5,000,000 shares of no par value; no shares
                  issued
              
              
              —
              
              
              
              —Nonvoting
                  common stock – authorized 5,000,000 shares-$.10 par value; no shares
                  issued
              
              
              —
              
              
              
              —Common
                  stock - $.10 par value; authorized 5,000,000 shares; shares issued
                  of
                  783,253 and 785,870 respectively
              
              
              78,325
              
              
              
              78,587Additional
                  paid-in capital
              
              
              653,171
              
              
              
              655,350Retained
                  earnings
              
              
              924,737
              
              
              
              872,388Total
                  Stockholders' Equity
              
              
              1,656,233
              
              
              
              1,606,325TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              3,676,841
              
              
              $
              3,724,487
  See
        Notes
        to Financial Statements
  3
 
 FINANCIAL
        INFORMATION
 AMERICAN
        CONSUMERS, INC.
 CONDENSED
        STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 
 TWENTY-SIX
                WEEKS
                  ENDEDDecember 1,
              
              
              December 2,2007
              
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  Income
              
              $
              52,522
              
              
              $
              23,578Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              62,291
              
              
              
              75,743Change
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              76,803
              
              
              
              (45,597
              )Inventories
              
              
              (82,943
              )
              
              
              (68,818
              )Prepaid
                  expenses
              
              
              93,962
              
              
              
              (63,345
              )Accounts
                  payable
              
              
              (79,029
              )
              
              
              90,048Accrued
                  sales tax
              
              
              (21,854
              )
              
              
              (22,394
              )Other
                  accrued liabilities
              
              
              15,244
              
              
              
              20,223Net
                  cash provided by operating activities
              
              
              116,996
              
              
              
              9,438CASH
                  FLOWS FROM INVESTING ACTIVITIESDecrease
                  in certificate of deposit
              
              
              8,237
              
              
              
              10,739Purchase
                  of property and equipment
              
              
              (64,976
              )
              
              
              (10,540
              )Net
                  cash provided by (used in) investing activities
              
              
              (56,739
              )
              
              
              199CASH
                  FLOWS FROM FINANCING ACTIVITIESNet
                  decrease in short-term borrowings
              
              
              (9,073
              )
              
              
              (13,410
              )Proceeds
                  from long-term borrowings
              
              
              35,435
              
              
              
              —Principal
                  payments on long-term debt
              
              
              (38,277
              )
              
              
              (41,007
              )Redemption
                  of common stock
              
              
              (2,614
              )
              
              
              (7,769
              )Net
                  cash used in financing activities
              
              
              (14,529
              )
              
              
              (62,186
              )Net
                  increase (decrease) in cash
              
              
              45,728
              
              
              
              (52,549
              )Cash
                  and cash equivalents at beginning of period
              
              
              582,472
              
              
              
              334,654Cash
                  and cash equivalents at end of period
              
              $
              628,200
              
              
              $
              282,105SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:Cash
                  paid during the six months for:Interest
              
              $
              35,068
              
              
              $
              29,489
  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 United States
        generally accepted accounting principles.
 
 The
        interim financial statements have not been audited and should be read in
        conjunction with the notes to the financial statements presented in the
        Corporation’s 2007 Annual Report to Shareholders.  The quarterly
        financial statements reflect all adjustments that are, in the opinion of
        management, necessary for a fair presentation of the results for interim
        periods.  All such adjustments are of a normal recurring
        nature.  The results for the interim periods are not necessarily
        indicative of the results to be expected for the complete fiscal
        year.
 
 (2)
              Commitments
                  and Contingencies.
 
 Ordinary
        course capital expenditures replacements of store equipment during fiscal
        2008
        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, two
        vehicles have been purchased during the first two quarters of fiscal 2008
        at a
        cost of $35,435.  We may also have to replace the Company’s
        maintenance vehicle during fiscal 2008 or early 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 will likely require such upgrades
        to begin within the current fiscal year.  The estimated costs of the
        upgrades range from $54,545 to $69,319 per store, depending on the ability
        to
        use current scanners and scales.  We will attempt to manage the number
        of units purchased and the timing of such purchases to both contain the
        Company’s overall costs and allow us to finance these purchases on the most
        favorable terms that we can obtain.  As of December 1, 2007, capital
        expenditures for the fiscal year to date totaled $64,976, including the above
        vehicles, three meat scales with printers, a used ice machine, a fence and
        a
        camera system.  Five more stores will need to be updated with meat
        scales and printers, probably during the current fiscal year, as part of
        the
        ordinary course replacements mentioned above.
 
 The
        Company adopted a retirement plan effective January 1, 1995.  The plan
        is a 401(k) plan administered by BISYS Qualified Plan Services. BISYS is
        currently in the process of changing its name to Ascensus following the
        combining of BISYS Commercial and Crump Insurance Services. Participation
        in the
        plan is available to all full-time employees after one year of service and
        age
        19.  Any contribution by the Company is at the discretion of the Board
        of Directors, which makes its decision annually at the quarterly meeting
        in
        January.  The Board voted to contribute $7,500 to the plan for both
        calendar years 2007 and 2006.
 
 (3)
              Cost
                  of Goods Sold.
 
 Cost
        of
        goods sold is comprised of the cost of purchasing the Company’s products (such
        as groceries and other vendor-supplied products) sold during the
        period.  Cost of goods sold is equal to the beginning inventory, plus
        the cost of goods purchased during the period, less the amount comprising
        ending
        inventory.  The cost of goods sold shown on the Company’s Statement of
        Income and Retained Earnings is presented net of rebates from
        suppliers.  These rebates represent cash consideration received from
        suppliers based primarily on the Company’s volume of purchases from such
        suppliers.  These rebates do not include reimbursement of costs
        incurred to sell the supplier’s products.  In accordance with EITF
        02-16, the Company applies rebates from suppliers (excluding rebates for
        advertising costs) as a reduction in cost of goods sold.
  5
  ITEM
        2
 MANAGEMENT’S
        DISCUSSION AND ANALYSIS
        OF FINANCIAL
 CONDITION
        AND RESULTS OF
        OPERATIONS
  RESULTS
        OF OPERATIONS
 
 THIRTEEN
                WEEKS
                  ENDED
              
              
              TWENTY-SIX
                WEEKS
                  ENDEDDecember 1,
              
              
              December 2,
              
              
              December 1,
              
              
              December 2,2007
              
              
              2006
              
              
              2007
              
              
              2006Sales
              
              $
              8,487,207
              
              
              $
              8,392,267
              
              
              $
              17,228,089
              
              
              $
              16,782,978%
                  Sales Increase
              
              
              1.13
              %
              
              
              4.28
              %
              
              
              2.65
              %
              
              
              4.61
              %Gross
                  Margin %
              
              
              23.25
              %
              
              
              23.53
              %
              
              
              23.32
              %
              
              
              23.76
              %Operating,
                  General and Administrative Expense:Amount
              
              $
              1,987,573
              
              
              $
              1,995,765
              
              
              $
              4,004,679
              
              
              $
              4,003,560%
                  of Sales
              
              
              23.42
              %
              
              
              23.78
              %
              
              
              23.25
              %
              
              
              23.85
              %Net
                  Income
              
              $
              3,694
              
              
              $
              3,231
              
              
              $
              52,522
              
              
              $
              23,578
  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
        thirteen weeks (quarter) ended December 1, 2007 resulted in a net income
        in the
        amount of $3,694, representing the sixth consecutive profitable quarter for
        the
        Company.  Sales increased by only 1.13% during the current quarter as
        compared to a 4.28% increase during the prior year.  The small sales
        increase, while tempered by a decrease in the gross margin of 0.28% for the
        quarter, also coincided with a decrease of $8,192 (or 0.41%) in the operating,
        general and administrative expenses for the quarter.  Interest expense
        for the quarter also increased by $2,154 as compared to the prior year, due
        to
        additional borrowing on the Company’s line of credit to support traditionally
        higher November inventory levels for the Thanksgiving holiday and to maintain
        two accounts as the Company changed bank accounts during the
        quarter.  Other income for the quarter also declined by $4,547 versus
        the prior year period, due principally to variations in the level of certain
        activities as discussed below under “Interest and Other
        Income.”  Cumulatively, these changes resulted in a small increase
        ($463) in net income for the quarter as compared to the same quarter last
        year.  For the first six months of fiscal 2008, sales increased by
        2.65%, offset somewhat by a 0.44% decrease in the gross
        margin.  Interest expense increased by $5,579 as compared to the first
        six months of the prior year, largely due to the same factors discussed above
        for the quarter, and operating, general and administrative expenses actually
        increased slightly (by $1,119, or 0.03%) for the first six months of fiscal
        2008.  However, the sales increase, coupled with an increase of $6,139
        in other income detailed below, helped to more than offset this slight increase
        in expenses and a 0.44% decline in the gross margin, leading a $28,944 increase
        in net income as compared to the first six months of fiscal 2007.
 
 The
        thirteen weeks (quarter) ended December 2, 2006 resulted in a net income
        in the
        amount of $3,231.  During that period sales increased 4.28% over the
        same period last year.  This increase dropped slightly from the
        increase of 4.95% during the first quarter of fiscal 2007, resulting in a
        sales
        increase of 4.61% for the first six months of the fiscal year.  During
        the first quarter of fiscal 2007 we began a program to introduce certain
        lower
        priced generic goods to compete with other stores in our trade area who offer
        this option to their customers.  Management believes that this program
        was a significant factor contributing to the increase in sales, and that
        this
        impact has continued into the first half of fiscal 2008, as reflected in
        the
        results discussed above.  However, the increase was also influenced by
        the closing of a competitor located between two of the Company’s stores during
        the last quarter of the Company’s fiscal 2006.  We believe that
        prevailing high gasoline prices during the first two quarters of fiscal 2007
        also contributed to the increase, as customers chose to purchase more groceries
        for home meal preparation to reduce their spending at restaurants and to
        patronize grocery stores located closer to their homes, and that this impact
        also has carried over into the first two quarters of fiscal
        2008.
  6
 
 However,
        the introduction of the lower-priced generics, as well as certain targeted
        promotions and other weekly advertised specials run to stimulate sales during
        the first six months of both fiscal 2008 and fiscal 2007 also contributed
        to the
        gross margin declines reflected above for all of the periods
        presented.  The gross margins experienced for the quarter and first
        six months of fiscal 2008 represent reductions of 0.48% and 0.41%, respectively,
        from the 23.73% gross margin realized for fiscal year 2007, while the gross
        margins reflected above for the comparable periods of fiscal 2007 represented
        gross margin reductions of 0.65% and 0.42%, respectively, compared to the
        24.18%
        gross margin realized for fiscal year 2006.
 
 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 0.29% increase we achieved for fiscal 2006 versus
        2005, it is difficult to maintain a trend of consistent improvement in the
        gross
        margin due to competitive conditions which often delay the Company’s ability to
        pass through price increases experienced at the wholesale
        level.  Accordingly, while management attempts to offset increases in
        its cost (such as our recent successes in recovering our principal supplier’s
        wholesale price increase during 2005 and a fuel surcharge added by the supplier
        during the second quarter of fiscal 2006), further improvements in the gross
        margin may not be achievable at this time, and further deterioration in the
        Company’s gross margin is possible.  While the increases in sales in
        recent periods have more than 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 years prior to fiscal 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 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
        2007 Annual Report to Shareholders.
  7
 
 Management
        has been working to reduce operating, general and administrative
        expenses.  As indicated by the table above, these expenses decreased
        by $8,192 for the current quarter as compared to the same period last year,
        for
        a decrease of 0.36%.  While operating, general and administrative
        expenses increased slightly (by $1,119) for the first six months of fiscal
        2008,
        they actually decreased by 0.60% as a percentage of sales as compared to
        the
        same period of last year.  This improvement is attributable in part to
        increased sales for the periods, as well as to decreases in depreciation
        expense
        of approximately 16.4% for the quarter and 17.76% for the first six months
        as
        compared to the comparable periods of the prior fiscal year.  Given
        the age and fully depreciated status of a significant portion of our physical
        equipment, however, management expects depreciation charges to return to
        more
        historically consistent levels as the Company moves through anticipated
        replacement cycles for this equipment in future periods.  Accordingly,
        we expect future periods to continue to reflect overall increases in these
        expenses, including expenses related to our support for customer debit and
        credit card transactions and check cashing activities undertaken as a means
        of
        maintaining sales.  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 erode the improvement experienced in these expenses as a percentage
        of
        sales, which could affect the Company’s operating profits.  A more
        detailed discussion of these expenses and related changes for the periods
        presented is set forth below under the caption “Operating, General and
        Administrative Expenses.”
 
 Three
        Months Ended December
        1, 2007 Compared to Three Months Ended December 2,
        2006:
 
 Sales:
 
 Sales
        increased $94,940 or 1.13% during the quarter ended December 1, 2007 compared
        to
        the quarter ended December 2, 2006.  Sales have been affected at two
        of the Company’s stores by the opening of a locally owned supermarket, which
        opened between the Company’s two stores. The opening resulted in sales decreases
        for both of these stores.  Two of the Company’s other stores
        experienced sales decreases of 1.32% and 0.03%, while the other four stores
        showed increases in sales ranging from 1.47% to 6.93%.  Management
        will attempt to maintain the overall increase in sales 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 each of these factors, as well as the
        continuing effect of high gas prices on consumers’ spending choices and the
        availability of our check cashing program for customers, contributed to the
        sales increases experienced thus far in fiscal 2008.  Of course, as
        discussed below, pricing adjustments made to stimulate sales are also reflected
        in the gradual erosion of our gross margin in recent periods.
  8
 
 Sales
        for
        the three months ended December 2, 2006 increased $344,496 or 4.28% compared
        to
        the same quarter the previous year.  Seven of our eight grocery stores
        experienced sales increases for the quarter (ranging from 1.61% to
        8.92%).  The remaining location, where we had to replace certain
        store-level management employees in connection with the significant theft
        loss
        that was discovered during our annual audit, experienced a sales decline
        of
        1.14%.  This location also continued to be adversely impacted by the
        fact that another tenant moved out of the shopping center where it is located
        during fiscal 2006, as well as by generally unfavorable traffic pattern
        conditions at that location.  Although the increase of 4.28% was
        slightly less than the 4.95% sales increase during the first quarter of fiscal
        2007, we still achieved a healthy sales increase of 4.61% for the first six
        months of the 2007 fiscal year.  As discussed above, we believe these
        increases are attributable to certain lower-priced generic goods introduced
        during the first quarter, as well as to the closing of a competitor located
        between two of the Company’s stores and the effects of high gas prices on
        consumers’ spending choices.
 
 Gross
        Margin:
 
 The
        gross
        margin percentage for the Company for the three months ended December 1,
        2007
        decreased by 0.28%, from 23.53% to 23.25% as compared to the same quarter
        of
        last year.  This decrease represents a drop of 0.48% from the gross
        margin percentage of 23.73% obtained during the fiscal year ended June 1,
        2007.  This decrease versus the prior year period is attributable to
        the delays in recovering increases in the costs of certain goods through
        adjustments to our retail prices and to the promotional programs ran by the
        Company.  Management is working to strategically adjust the prices of
        the Company’s merchandise offerings to recover increases in our wholesale costs,
        to the extent permitted by competition.
 
 The
        Company’s gross margin percentage for the three months ended December 2, 2006
        decreased by 0.69% as compared to the three months ended November 26, 2005,
        from
        24.22% to 23.53%.  This decrease was attributable to the program to
        introduce lower-priced generic goods and to the other promotional activities
        discussed above, as well as to increased wholesale costs for certain items
        (principally certain private label merchandise) which we did not succeed
        in
        passing on through adjustments to our retail prices during the
        quarter.
 
 Operating,
        General and
        Administrative Expenses:
 
 The
        Company’s operating, general and administrative expenses are comprised mainly of
        personnel salary and related payroll costs, utilities and telephone expenses,
        rental payments for leased locations, insurance expense, advertising and
        promotion expense, general and office supplies expense, repairs and maintenance,
        depreciation expense, bank service charges and credit card fees, bad checks
        expense, professional fees, 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 December 1, 2007 and December 2,
        2006:
  9
 
 Expense
                  Item
              
              Second
                  Quarter 2008
                  Amount
              
              
              %
                  of Second Qtr. 2008 Total
              
              
              Second
                  Quarter 2007
                  Amount
              
              
              %
                  of Second Qtr. 2007 TotalPayroll
              
              $
              989,207
              
              
              
              49.8
              
              
              $
              985,019
              
              
              
              49.4Utilities
                  & telephone expense
              
              
              185,760
              
              
              
              9.2
              
              
              
              177,844
              
              
              
              8.9Rent
              
              
              166,806
              
              
              
              8.4
              
              
              
              160,779
              
              
              
              8.1Insurance
              
              
              127,035
              
              
              
              6.4
              
              
              
              157,849
              
              
              
              7.9Advertising
                  & promotion
              
              
              113,854
              
              
              
              5.9
              
              
              
              121,451
              
              
              
              6.1General
                  & office supplies
              
              
              102,169
              
              
              
              5.0
              
              
              
              86,263
              
              
              
              4.3Repairs
                  & maintenance
              
              
              87,811
              
              
              
              4.4
              
              
              
              89,827
              
              
              
              4.5Depreciation
              
              
              31,457
              
              
              
              1.6
              
              
              
              37,616
              
              
              
              1.9Bank
                  service charges and credit card fees
              
              
              37,775
              
              
              
              1.9
              
              
              
              42,359
              
              
              
              2.1Bad
                  checks
              
              
              43,077
              
              
              
              2.2
              
              
              
              35,428
              
              
              
              1.8Professional
                  fees
              
              
              45,000
              
              
              
              2.3
              
              
              
              40,693
              
              
              
              2.0All
                  other miscellaneous
              
              
              57,622
              
              
              
              2.9
              
              
              
              60,637
              
              
              
              3.0TOTAL
              
              $
              1,987,573
              
              
              
              100.0
              
              
              $
              1,995,765
              
              
              
              100.0
 
 Overall,
        operating, general and administrative expenses decreased slightly, by $8,192
        (or
        0.41%), for the second quarter of fiscal 2008 as compared to the comparable
        period of fiscal 2007.  Payroll expense increased by $4,188 (or 0.4%)
        versus last year due to the federally mandated increase in the minimum wage
        that
        took effect at the first of this quarter.  Store management has been
        working to reduce these expenses prior to the wage increase through more
        efficient management of employee scheduling and will continue to do
        so.  Utilities and telephone expense increased by $7,916 (or 4.45%) as
        energy costs continue to rise.  Rent increased by $6,027 due to
        increases in rent at two locations.  General and office supplies
        increased by $15,906 (or 18.44%) due to increases in costs as well as additional
        supplies needed to accommodate increased sales.  Bad checks expense
        increased $7,649 (or 21.59%), 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 increased competition from grocery retailers that we have experienced
        in
        recent years. Professional fees increased by $4,307 (or 10.58%) as costs
        continue to increase due to compliance with Sarbanes-Oxley Act.
 
 Insurance
        expense decreased by $30,814 (or 19.52%) 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 decreased by $7,597, (or
        6.26%) due to management’s efforts to reduce these costs during the current
        quarter.  Repairs and maintenance expense decreased by $2,016 (or
        2.24%) due to a reduction in the need for repairs during the
        quarter.  Depreciation decreased by $6,159 (or 16.37%) due to the age
        and fully depreciated status of much of our equipment.  These charges
        may be expected to return to more historically consistent levels as the Company
        moves through anticipated equipment replacement cycles in future
        periods.  Bank service charges and credit card fees decreased by
        $4,584 (or 10.82%) due to improved cash flow resulting in reduced bank service
        charges during the quarter.  All other expenses remained generally
        consistent with last year’s figures.
 
 10
  For
        the
        second quarter of last year that ended on December 2, 2006, operating, general
        and administrative expenses decreased slightly, by $3,122 (or 0.16%), as
        compared to the comparable period of fiscal 2006.  Significant
        reductions in depreciation expense, advertising and promotion expense, and
        insurance helped to offset a significant increase in payroll and lesser
        increases in certain other expenses in this category.  Payroll costs
        increased by $33,354 (or 3.50%) as compared to the same period last year
        due to
        an increase in the bonuses awarded or accrued during the quarter (principally
        to
        store-level management employees) of approximately $4,875 and increases in
        base
        salaries given to store personnel during the month of April 2006, as well
        as the
        addition of one employee to the Company’s main office staff during the month of
        October 2005.  While management strives to control payroll costs as
        much as possible (such as by using part-time employees where appropriate),
        it is
        also vital to our ability to compete with larger grocery retailers that we
        maintain adequate staffing levels and continue to provide certain customer
        services (such as grocery carry-out) that increase labor
        costs.  General and office supplies expense increased by $9,781 (or
        12.79%) compared to the corresponding quarter of the prior year, due to price
        increases for some of the routine supplies purchased by the Company
        (particularly certain petroleum-based packaging materials) as well as to
        routine
        fluctuations in the timing and volume of supply orders placed by each of
        our
        individual stores.  Professional fees increased $2,129 (or 5.52%) due
        to additional work and delays in the filing of our annual report for fiscal
        2006
        occasioned by the theft loss that was discovered during the annual
        audit.  We also experienced increases of $3,694 (or 9.55%) in bank
        service charges and credit card fees and $1,531 (or 4.52%) in bad checks
        expense
        during the current quarter as compared to the prior year period.  As
        we have previously reported, the Company’s practice of cashing payroll checks
        for customers at its grocery store locations contributes to ongoing increases
        in
        these expenses, but they also are attributable to increases in merchant fees
        paid by the Company as more customers elect to pay for grocery purchases
        with
        debit and credit cards.  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 are also continuously
        exploring 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.
 
 Significant
        decreases in these expenses during the quarter ended December 2, 2006 included
        a
        decrease of $31,907 (or 45.89%) in depreciation (reflecting a continued
        reduction in our purchases of new equipment as compared to prior years, as
        well
        as the fact that some of our older equipment is now fully depreciated), a
        decrease of $20,536 (or 14.46%) in advertising and promotion expense (reflecting
        the fact that we did not run certain programs that increased these expenses
        the
        prior year, but also offset by increases in the cost of the other promotions
        described above during the first two quarters of fiscal 2007), and a decrease
        of
        $7,452 (or 4.51%) in insurance expense (due mainly to timing issues involving
        premium payments and refunds for new and departing employees).
 
 Interest
        and Other
        Income:
 
 Other
        income (not including interest income) decreased from $35,032 for the quarter
        ended December 2, 2006 to $30,485 for the quarter ended December 1,
        2007.  The reduction of $4,390 in funds received for handling money
        orders and money transfers in the stores was due to a one-time adjustment
        of
        $3,033 made to reverse an over-accrual error in these amounts that occurred
        during the first quarter as well as to a reduction in the volume of these
        transactions as compared to the prior year period.  Excluding the
        one-time adjustment, funds received for handling money orders would have
        been
        $2,566 for the quarter ended December 1, 2007.  The reduction in
        returned check fees is largely due to the fact that a greater proportion
        of the
        Company’s bad checks are now being collected through an outside vendor which
        deducts a commission for its services before remitting the net amount of
        such
        fees to the Company.  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
        December 1, 2007 and December 2, 2006 were as follows:
  11
 
 THIRTEEN
                  WEEKS ENDEDDescription
              
              December 1,
                  2007
              
              
              December 2,
                  2006Check
                  cashing fees
              
              $
              23,877
              
              
              $
              25,235Funds
                  received for handling money orders
              
              
              (467
              )
              
              
              3,923Vendor’s
                  compensation from the States of Alabama and Georgia for collecting
                  and
                  remitting sales taxes on a timely basis
              
              
              3,629
              
              
              
              3,646Returned
                  check fees
              
              
              1,460
              
              
              
              2,024Revenue
                  related to Fed-Ex shipments/other
              
              
              1,986
              
              
              
              204TOTAL
              
              $
              30,485
              
              
              $
              35,032
 
 Interest
        income remained relatively consistent for all periods presented.
 
 Six
        Months Ended December 1,
        2007 Compared to Six Months Ended December 2, 2006:
 
 Sales:
 
 Sales
        for
        the six months ended December 1, 2007 increased $445,111 or 2.65% compared
        to
        the same six months last year. This increase is down from the 4.61% increase
        obtained for the six months ended December 2, 2006 over the six months ended
        November 26, 2005. Six of our eight grocery stores experienced sales increases
        for the first six months of fiscal 2008 (ranging from 1.07% to
        8.78%).  Competition opened in the market area of the Company’s other
        two stores that experienced decreases of 3.99% and 0.74% during the
        period.
 
 Sales
        for
        the six months ended December 2, 2006 increased $740,118 or 4.61% compared
        to
        the same quarter last year.  Seven of our eight grocery stores
        experienced sales increases for the first six months of fiscal 2007 (ranging
        from 0.79% to 10.40%).  The remaining location, where we had to
        replace certain store-level management employees in connection with the
        significant theft loss that was discovered during our annual audit, experienced
        a sales decline of 2.64% for the period.  This location also continued
        to be adversely impacted by the fact that another tenant moved out of the
        shopping center where it is located during fiscal 2006, as well as by generally
        unfavorable traffic pattern conditions at that location.  As discussed
        above, we believe these increases are attributable to certain lower-priced
        generic goods introduced during the first quarter, as well as to the closing
        of
        a competitor located between two of the Company’s stores and the effects of high
        gas prices on consumers’ spending choices.
  12
  Gross
        Margin:
 
 The
        Company’s gross margin percentage for the six months ended December 1, 2007
        decreased by 0.44% as compared to the six months ended December 2, 2006,
        from
        23.76% to 23.32%. However, the gross margin for the current six months 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 is attributable to the impact of delays in recovering
        increases in the costs of certain merchandise through adjustments to our
        retail
        prices, as well as to the other promotional activities described
        above.  Management is working to strategically adjust the prices of
        the Company’s merchandise to recover increases in our wholesale costs, to the
        extent permitted by competition.
 
 The
        Company’s gross margin percentage for the six months ended December 2, 2006
        decreased by 0.57% as compared to the six months ended November 26 2005,
        from
        24.33% to 23.76%.  As discussed above, this decrease is attributable
        to increased offerings of certain lower priced generic goods and the other
        promotional activities implemented during the first half of fiscal 2007,
        as well
        as to increased wholesale costs for certain items (principally certain private
        label merchandise) which we did not succeed in passing on through adjustments
        to
        our retail prices during the period.
 
 Operating,
        General and
        Administrative Expenses:
 
 The
        Company’s operating, general and administrative expenses are comprised mainly of
        personnel salary and related payroll costs, utilities and telephone expenses,
        rental payments for leased locations, insurance expense, advertising and
        promotion expense, general and office supplies expense, repairs and maintenance,
        depreciation expense, bank service charges and credit card fees, bad checks
        expense, professional fees, and other minor miscellaneous expenses.
 
 The
        following table details the components of operating, general and administrative
        expenses, both in absolute terms and as a percentage of the total of all
        such
        expenses, for the six month periods ended December 1, 2007 and December 2,
        2006:
 
 Expense
                  Item
              
              2008
                  Six
                Month
                  Amount
              
              
              %
                  of 2008Six
                Month
                  Total
              
              
              2007
                  Six
                Month
                  Amount
              
              
              %
                  of 2007 Six
                Month
                  TotalPayroll
              
              $
              1,985,363
              
              
              
              49.6
              
              
              $
              1,987,400
              
              
              
              49.6Utilities
                  & telephone expense
              
              
              361,329
              
              
              
              9.0
              
              
              
              351,361
              
              
              
              8.8Rent
              
              
              329,506
              
              
              
              8.2
              
              
              
              320,234
              
              
              
              8.0Insurance
              
              
              268,468
              
              
              
              6.7
              
              
              
              323,859
              
              
              
              8.1Advertising
                  & promotion
              
              
              250,936
              
              
              
              6.3
              
              
              
              254,198
              
              
              
              6.3General
                  & office supplies
              
              
              203,514
              
              
              
              5.0
              
              
              
              181,959
              
              
              
              4.5Repairs
                  & maintenance
              
              
              177,470
              
              
              
              4.4
              
              
              
              176,123
              
              
              
              4.4Depreciation
              
              
              62,291
              
              
              
              1.6
              
              
              
              75,743
              
              
              
              1.9Bank
                  service charges and credit card fees
              
              
              75,467
              
              
              
              1.9
              
              
              
              82,888
              
              
              
              2.1Bad
                  checks
              
              
              88,061
              
              
              
              2.2
              
              
              
              79,301
              
              
              
              2.0Professional
                  fees
              
              
              87,665
              
              
              
              2.2
              
              
              
              59,290
              
              
              
              1.5All
                  other miscellaneous
              
              
              114,609
              
              
              
              2.9
              
              
              
              111,204
              
              
              
              2.8TOTAL
              
              $
              4,004,679
              
              
              
              100.0
              
              
              $
              4,003,560
              
              
              
              100.0
  13
 
 The
        Company’s operating, general and administrative expenses for the six months
        ended December 1, 2007 increased overall by only $1,119, or 0.03% over the
        same
        six month period last year.  While payroll expenses decreased by
        $2,037 (or 0.10%) versus last year, these expenses increased during the most
        recent quarter because of the federally mandated increase in the minimum
        wage
        that took effect early in the second quarter.  Utilities and telephone
        expense increased by $9,968 (or 2.84%) for the six month period due to increases
        in energy costs.  Rent expense increased by $9,272 (or 2.90%) due to
        increases in rent at two of the Company’s locations as leases were
        renewed.  General and office supplies increased by $21,555, or
        (11.85%) due to increases in costs as well as additional supplies needed
        to
        accommodate increased sales.  Repairs and maintenance only increased
        by $1,347, (or 0.76%) due to a reduction of needed repairs in the second
        quarter
        of this year.  Bad checks increased by $8,760, (or 11.05%) reflecting
        a trend in the presentation and subsequent cashing of counterfeit
        checks.  Management is continually making efforts to improve training
        and employee education on this topic.  Professional fees increased by
        $28,375 (or 47.86%) 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 six month period last year.
 
 Insurance
        expense decreased by $55,391 (or 17.10%) 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 decreased by $3,262 (or
        1.28%) due to management’s efforts to reduce this expense
        item.  Depreciation expense was reduced by $13,452 (or 17.76%) 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.  Bank service charges
        and credit card fees decreased by $7,421 (or 8.95%) 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.  All other expenses remained generally consistent with
        last year’s figures.
 
 Overall,
        operating, general and administrative expenses increased slightly, by $34,884
        (or 0.88%), for the first six months of fiscal 2007 as compared to the
        comparable period of fiscal 2006.  Significant reductions in
        depreciation expense, advertising and promotion expense, and professional
        fees
        helped to offset significant increases in payroll expense, bank service charges
        and credit card fees and bad checks expenses, as well as lesser increases
        in
        certain other expenses in this category.  Payroll costs increased by
        $75,849 (or 3.97%) as compared to the same period of the prior year due to
        an
        increase in the bonuses awarded or accrued during the quarter (principally
        to
        store-level management employees) of approximately $11,376and increases in
        base
        salaries given to store personnel during the month of April 2006, as well
        as the
        addition of one employee to the Company’s main office staff during the month of
        October 2005.  We experienced increases of $11,182 (or 15.59%) in bank
        service charges and credit card fees and $11,288 (or 16.60%) in bad checks
        expense during the six months ended December 2, 2006 as compared to the prior
        year period.  As noted above, the Company’s practice of cashing
        payroll checks for customers contributes to ongoing increases in these expenses,
        but they also are attributable to increases in merchant fees paid by the
        Company
        as more customers elect to pay for grocery purchases with debit and credit
        cards.  The 16.6% increase in bad checks expense resulted from a 28.6%
        increase during the first quarter of fiscal 2007 as compared to the 4.52%
        increase experienced in the second quarter, reflecting improved supervision
        of
        the check cashing process by individual store managers as a result of recent
        efforts by the Company to improve training and employee education on this
        topic.  Other significant increases in these expenses for the first
        six months of fiscal 2007 included an increase of $22,488 (or 6.84%) in
        utilities and telephone expense (largely due to increasing energy costs in
        recent periods which are beyond the Company’s control), a $9,305 (or 2.99%)
        increase in rent (due to the recent renewal of a lease at one store location
        at
        a higher base rent as well as to higher percentage rents based on the sales
        increases noted above), an increase of $7,624 (or 4.37%) in general and office
        supplies expense (due to price increases for some of the routine supplies
        purchased by the Company (particularly certain petroleum-based packaging
        materials) as well as to routine fluctuations in the timing and volume of
        supply
        orders placed by each of our individual stores), and an increase of $7,163
        (or
        6.85%) in the “all other miscellaneous” component (composed primarily of a
        $5,735 increase in vehicle expenses due to increased vehicle usage as well
        as
        increased maintenance as we stretched our historical vehicle replacement
        schedules in order to reduce capital spending).
  14
 
 Significant
        decreases in these expenses during the first six months of fiscal 2007 included
        a decrease of $60,526 (or 44.61%) in depreciation (reflecting a continued
        reduction in our purchases of new equipment as compared to prior years, as
        well
        as the fact that some of our older equipment is now fully depreciated), a
        decrease of $37,922 (or 12.98%) in advertising and promotion expense (reflecting
        the fact that we did not run certain programs that increased these expenses
        for
        the prior year, but also offset by increases in the cost of the other promotions
        described above during the first half of fiscal 2007), and a decrease of
        $7,928
        (or 11.79%) in professional fees (due principally to discontinuing the services
        of an outside security firm that was contracted for one location during the
        corresponding period of the prior year).
 
 Interest
        and Other
        Income:
 
 Other
        income (not including interest income) increased from $61,382 for the six
        months
        ended December 2, 2006 to $67,521 for the six months ended December 1, 2007,
        due
        principally to an increase in the amount the Company charges to cash checks
        without a grocery purchase and an increase in revenues related to Fed-Ex
        shipments due to an increase in the volume of this business as compared to
        the
        same period of the prior year.  These increases were partially offset
        by a net decrease in revenues related to handling money orders and money
        transfers in the stores due
        to a
        decrease in the volume of these transactions as compared to the prior year
        period, as well as a reduction in returned check fees, due largely to the
        fact that a greater proportion of the Company’s bad checks are now being
        collected through an outside vendor which deducts a commission for its services
        before remitting the net amount of such fees to the Company. The components of
        other
        income for the six months ended December 1, 2007 and December 2, 2006 were
        as
        follows:
 
 TWENTY-SIX
                WEEKS
                  ENDEDDescription
              
              December 1,
                  2007
              
              
              December 2,
                  2006Check
                  cashing fees
              
              $
              46,821
              
              
              $
              42,755Funds
                  received for handling money orders
              
              
              4,457
              
              
              
              6,824Vendor’s
                  compensation from the States of Alabama and Georgia for collecting
                  and remitting sales taxes on a timely basis
              
              
              7,354
              
              
              
              6,856Returned
                  check fees
              
              
              1,837
              
              
              
              2,580Revenue
                  related to Fed-Ex shipments/other
              
              
              7,052
              
              
              
              2,367TOTAL
              
              $
              67,521
              
              
              $
              61,382
 
 Interest
        income remained very consistent with that of the same period last year,
        increasing only slightly by $146.
  15
 
 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 six months ended December 1,
        2007 or
        December 2, 2006, as a result of a continued net operating loss carryforward
        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, 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:
 
 During
        the twenty-six weeks ended December 1, 2007, the Company generated $116,996
        in
        cash flow from operating activities, due to a net income of $52,522, coupled
        with the impact of non-cash depreciation charges in the amount of $62,291
        as
        well as reductions in accounts receivable of $76,803 (due to a slight increase
        in advertising and volume-based rebates from vendors which was more than
        offset
        by collection of a short-term promissory note from a former employee that
        was
        repaid during the period) and prepaid expenses of $93,962 (largely due to
        timing
        differences in payments for insurance premiums), partially offset by other
        changes in the Company’s working capital accounts – principally the effect of a
        $82,943 increase in inventories (due to seasonal requirements for increased
        inventory to meet customer demand during the holiday periods in November
        and
        December) and a $79,029 reduction in accounts payable versus the prior year
        ended.  This compares to cash generated from operating activities of
        $9,438 for the twenty-six weeks ending December 2, 2006.  These funds
        resulted from a $90,048 increase in accounts payable, net income of $23,578,
        depreciation (which is a non-cash expense) of $75,743 and an increase of
        $20,223
        in other liabilities, offset by increases of $45,597 in accounts receivable
        (largely attributable to increases in advertising and volume-based rebates
        from
        vendors as compared to prior periods), $68,818 in inventories (due to seasonal
        requirements to meet seasonal holiday demand) and $63,345 in prepaid expense
        (largely due to timing differences in payments for insurance premiums and
        prepaid maintenance contracts on our cash registers and scanning equipment)
        and
        a decrease of $22,394 in sales tax payable (due largely to the timing of
        state
        sales tax payments in relation to quarterly sales levels).
  16
 
 Net
        cash
        provided by operating activities for the twenty-six weeks ended December
        1, 2007
        was partially offset by cash flows used in investing activities in the amount
        of
        $56,739 (consisting of a decrease of $8,237 in the balance of our certificate
        of
        deposit, offset by $64,976 used to fund purchases of property and equipment,
        including the purchase of two vehicles) during the quarter.  For the
        twenty-six weeks ended December 2, 2006, we generated $199 in net cash flow
        from
        investing activities (consisting of a $10,739 reduction in the balance of
        our
        certificate of deposit, offset by $10,540 used to fund purchases of property
        and
        equipment (consisting of additional store shelving purchased for our seventh
        and
        eighth grocery store locations as well as the replacement of the front door
        at
        one grocery store and purchase of a new dumpster for waste disposal at another
        store location.)
 
 During
        the twenty-six weeks ended December 1, 2007, the Company used $14,529 in
        cash
        flow from financing activities, consisting of a $9,073 reduction in the
        Company’s short term borrowings and payments of $38,277 on the Company’s long
        term debt, offset by $35,435 of new debt incurred in connection with the
        purchase of the two new vehicles during the six month period and the expenditure
        of $2,614 to redeem common stock, resulting in net cash used in financing
        activities of $14,529.  Net cash used in financing activities of
        $62,186 for the twenty-six weeks ended December 2, 2006 consisted of reductions
        of $13,410 in the Company’s short-term debt and $41,007 in its long-term debt,
        coupled with the expenditure of $7,769 to redeem common stock during the
        period.
 
 Overall,
        the Company increased its cash and cash equivalents by $45,728 during the
        twenty-six weeks ended December 1, 2007, versus a decrease in cash and cash
        equivalents of $52,549 for the comparable period ended December 2,
        2006.
 
 The
        ratio
        of current assets to current liabilities was 1.80 to 1 at the end of the
        latest
        quarter, December 1, 2007 compared to 1.66 to 1 on December 2, 2006 and 1.75
        to
        1 at the end of the fiscal year ended on June 2, 2007.  Cash, cash
        equivalents and the certificate of deposit constituted 27.83% of the total
        current assets at December 1, 2007, as compared to 18.42% of the total current
        assets at December 2, 2006 and 26.31% at June 2, 2007.  As the Company
        has experienced operating losses or only minimal profitability in recent
        years,
        we have been forced to rely more extensively on managing other elements of
        the
        Company’s overall working capital structure as well as on additional borrowings
        under the line of credit, to fund ongoing operations.  During the last
        two years, management also has limited additional capital spending and has
        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.
 
 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 December 1, 2007 increased by
        $82,943 over the inventory at year-end June 2, 2007, due to normal seasonal
        requirements for increased inventory to meet customer demand during the
        holidays, as discussed above.  The overall level of inventory balances
        in recent periods also has been affected by ongoing increases in the Company’s
        cost for certain staple grocery items.
 
 Historically,
        the Company has financed its working capital requirements principally through
        its cash flow from operations.  Short-term borrowing to finance
        inventory purchases is 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
        which 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
        December 1, 2007, we had available $200,000 to be borrowed under the line
        of
        credit.  The bank line of credit is secured by the Company’s
        certificate of deposit, as well as by a security interest in substantially
        all
        of our accounts receivable, inventory, machines and equipment, furniture
        and
        fixtures and by personal guarantees of Michael A. Richardson and Paul R.
        Cook,
        the Company’s President and CEO and Executive Vice President and CFO,
        respectively.  While we believe that these sources will continue to
        provide us with adequate liquidity to supply the Company’s working capital
        needs, if the Company’s operating losses were to increase relative to
        depreciation and other non-cash charges, our operating cash flows could be
        adversely affected.  If this happens, we could be required to seek
        additional financing through bank loans, or other sources, in order to meet
        our
        working capital needs.  If we were required to seek such additional
        financing and were not able to obtain it, or were unable to do so on
        commercially reasonable terms, we could be required to reduce the Company’s
        current level of operations in order to lower our working capital requirements
        to a level that our present financing arrangements would
        support.
  17
 
 Short-term
        borrowings as of specific dates are presented below:
  December 1,
                2007
              
              
              June 2,
                2007
              
              
              December 2,
                2006Michael
                  and Diana Richardson
              
              $
              13,350
              
              
              $
              12,832
              
              
              $
              12,325Matthew
                  Richardson
              
              
              1,517
              
              
              
              1,458
              
              
              
              1,400Line
                  of Credit
              
              
              600,000
              
              
              
              609,650
              
              
              
              499,996TOTAL
              
              $
              614,867
              
              
              $
              623,940
              
              
              $
              513,721
 
 During
        the first six months of fiscal 2008, we increased the Company’s borrowings from
        related parties by a net amount of $577 (reflecting additional accrued interest)
        and reduced the outstanding balance under the line of credit by a net amount
        of
        $9,650 (reflecting borrowings of $250,000 and payments of $259,650 in
        principal).  We also paid total interest of $23,530 on borrowings
        under the line of credit during the six month period.
 
 The
        Company’s line of credit with Gateway Bank & Trust bears interest at prime,
        subject to a 6.0% floor.  Notes to Michael and Diana Richardson and to
        Matthew Richardson are unsecured, payable on demand and bear interest at
        .25%
        below the base rate charged by Gateway Bank & Trust on the line of
        credit.  Michael Richardson is Chairman of the Board and Chief
        Executive Officer of the Company.  Diana Richardson is the wife of
        Michael Richardson, and Matthew Richardson is their son.
  Long-Term
        Debt:
 
 At
        December 1, 2007, long-term debt consisted of a note payable to Gateway Bank
        & Trust of $165,228 incurred in May 2007 to refinance the addition of the
        Company’s eighth grocery store.  In addition, two vehicles were
        purchased and financed through Tennessee Valley Federal Credit Union with
        balances due at December 1, 2007 of $14,740 and
        $16,586.  Additionally, a vehicle loan, also financed with Tennessee
        Valley Federal Credit Union, had a balance due of $12,854. Long-term debt
        as of
        specific dates is presented below:
  18
 
 December 1,
                2007
              
              
              June 2,
                2007
              
              
              December 2,
                2006Note
                  payable, Bank, secured by all inventory, machinery and equipment,
                  due
                  $6,781 monthly, with interest at prime with 6% floor through December
                  2008.
              
              $
              —
              
              
              $
              —
              
              
              $
              162,934Note
                  payable, Bank, secured by all inventory, machinery and equipment,
                  due
                  $3,684 monthly, with interest at the prime rate through April
                  2012.
              
              
              165,228
              
              
              
              180,000
              
              
              
              ---Vehicle
                  loans; collateralized by automobiles due monthly through July
                  2010.
              
              
              44,180
              
              
              
              32,250
              
              
              
              18,676$
              209,408
              
              
              $
              212,250
              
              
              $
              181,610Less
                  current maturities
              
              
              50,112
              
              
              
              40,206
              
              
              
              74,712$
              159,296
              
              
              $
              172,044
              
              
              $
              106,898
 
 The
        following is a schedule by years of the amount of maturities of all long-term
        debt subsequent to December 1, 2007:
  Twelve
                  Months Ending November
              
              Amount2008
              
              $   50,1122009
              
              53,5932010
              
              47,1572011
              
              41,1392012
              
              17,407
  During
        the quarter ended December 1, 2007 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
        has determined valuation of its inventories as a critical accounting
        policy.  Inventories are stated at the lower of average cost or
        market.
  Off-Balance
        Sheet
        Arrangements:
 
 The
        Company had no significant off-balance sheet arrangements as of December
        1,
        2007.
  Related
        Party
        Transactions:
 
 Except
        as
        discussed under “Liquidity and Capital Resources,” there were no material
        related party transactions during the twenty-six week period ended December
        1,
        2007.
  19
 
 Forward
–
Looking
        Statements:
 
 Information
        provided by the Company, including written or oral statements made by its
        representatives, may contain “forward looking information” as defined in Section
        21E of the Securities Exchange Act of 1934, as amended.  All
        statements which address activities, events or developments that the Company
        expects or anticipates will or may occur in the future, including such things
        as
        expansion and growth of the Company’s business, the effects of future
        competition, future capital expenditures and the Company’s business strategy,
        are forward-looking statements.  In reviewing such information it
        should be kept in mind that actual results may differ materially from those
        projected or suggested in such forward-looking statements.  This
        forward-looking information is based on various factors and was derived
        utilizing numerous assumptions.  Many of these factors previously have
        been identified in filings or statements made on behalf of the Company,
        including filings with the Securities and Exchange Commission on Forms 10-Q,
        10-K and 8-K.  Important assumptions and other important factors that
        could cause actual results to differ materially from those set forth in the
        forward-looking statements, include the following (in addition to those matters
        discussed in the Risk Factors included in Part I, Item 1A of our Annual Report
        on Form 10-K for the fiscal year ended June 2, 2007): changes in the general
        economy or in the Company’s primary markets, the effects of ongoing price
        competition from competitors with greater financial resources than those
        of the
        Company, changes in consumer spending, the nature and extent of continued
        consolidation in the grocery store industry, changes in the rate of inflation,
        changes in state or federal legislation or regulation, adverse determinations
        with respect to any litigation or other claims, inability to develop new
        stores
        or complete remodels as rapidly as planned, stability of product costs, supply
        or quality control problems with the Company’s vendors, and other issues and
        uncertainties detailed from time-to-time in the Company’s filings with the
        Securities and Exchange Commission.
 
 
 ITEM
                  3.
              QUANTITATIVE
                  AND QUALITATIVE
                  DISCLOSURES ABOUT MARKET
                  RISK
 
 The
        Company does not engage in derivative transactions, nor does it hold or issue
        financial instruments for trading or other speculative purposes.  The
        Company is exposed to market risk related to changes in interest rates primarily
        as a result of its borrowing activities.  The effective interest rate
        on the Company’s borrowings under its Line of Credit Agreements and under its
        outstanding notes varies with the prime rate.  The Company does not
        maintain any interest rate hedging arrangements.  Based on the
        Company’s outstanding indebtedness at December 1, 2007 (and annualized to
        represent a full twelve months of results), a one percent (1.0%) increase
        in the
        prime interest rate would increase interest expense applicable to our variable
        rate debt (and decrease our net income) by approximately $7,800
        annually.  Conversely, a one percent (1.0%) decrease in the prime
        interest rate would decrease interest expense applicable to our variable
        rate
        debt (and increase our net income) by approximately $7,800
        annually.
 
 
 ITEM
                  4.
              CONTROLS
                  AND
                  PROCEDURES
 
 As
        of the
        end of the period covered by this quarterly report, an evaluation was performed,
        under the supervision and with the participation of our management, including
        the Company’s Chief Executive Officer and the Chief Financial Officer, of the
        effectiveness of the design and operation of the Company’s disclosure controls
        and procedures pursuant to Exchange Act Rule 13a-15.  Based on that
        evaluation, the Chief Executive Officer and Chief Financial Officer
  20
  concluded
        that the Company’s disclosure controls and procedures are
        effective.  No change in the Company’s internal control over financial
        reporting occurred during the period covered by this quarterly report that
        materially affected, or is reasonably likely to materially affect, our internal
        control over financial reporting.
  21
  AMERICAN
        CONSUMERS,
        INC.
 
 PART
        II  OTHER
        INFORMATION
 
 
 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 PlanSeptember
                  2 – Sept. 29, 2007
              
              
              110
              
              
              $
              1.00
              
              
              
              —
              
              
              
              —September
                  30,  – Oct. 27, 2007
              
              
              1,239
              
              
              
              1.00
              
              
              
              —
              
              
              
              —October
                  28,  – Dec. 1, 2007
              
              
              495
              
              
              
              1.00
              
              
              
              —
              
              
              
              —Total
              
              
              1,844
              
              
              $
              1.00
              
              
              
              —
              
              
              
              —
 
 (1)
              Represents
                  shares repurchased at $1.00 per share in response to unsolicited
                  requests
                  from unaffiliated shareholders during the
                  quarter.
 
 ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE
                  OF SECURITY HOLDERS
 
 The
        Company held its Annual Meeting of Shareholders on October 18, 2007, at which
        shareholders were asked to vote on the election of directors for the fiscal
        year
        ending in 2008. Proxies were solicited by management in favor of seven nominees,
        with no solicitation in opposition to management’s nominees.  All of
        such nominees were elected, with the number of votes cast for, against, or
        withheld as well as the number of broker non-votes as to each nominee having
        been as follows:
 
 NOMINEE
              
              TOTAL
                  SHARES VOTED
              
              VOTES
                  CAST FOR
              
              VOTES
                  CAST AGAINST
              
              VOTES
                  WITHHELD
              
              BROKER
                  NON-VOTESMichael
                  A. Richardson
              
              538,262
              
              537,932
              
              330
              
              0
              
              0Paul
                  R. Cook
              
              538,262
              
              538,262
              
              0
              
              0
              
              0Virgil
                  E. Bishop
              
              538,262
              
              538,262
              
              0
              
              0
              
              0Thomas
                  L. Richardson
              
              538,262
              
              537,932
              
              330
              
              0
              
              0Andrew
                  V. Douglas
              
              538,262
              
              538,262
              
              0
              
              0
              
              0Danny
                  R. Skates
              
              538,262
              
              538,262
              
              0
              
              0
              
              0
  22
 
 ITEM
                  6
              EXHIBITS
 
 The
        following exhibits are filed as a part of the report.
 
 (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).
  23
  SIGNATURES
 
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the registrant
        has
        duly caused this report to be signed on its behalf by the undersigned thereunto
        duly authorized.
 
 
 AMERICAN
                  CONSUMERS, INC.(Registrant)Date:
              January
                  15, 2008
              
              /s/
                  Michael A. RichardsonMichael
                  A. RichardsonCHAIRMAN
                  OF THE BOARD AND CHIEF
                  EXECUTIVE OFFICER(Principal
                  Executive Officer)Date:
              January
                  15, 2008
              
              /s/
                  Paul R. CookPaul
                  R. CookEXECUTIVE
                  VICE PRESIDENT AND TREASURER(Principal
                  Financial Officer & Chief Accounting
                  Officer)
  24
  AMERICAN
        CONSUMERS,
        INC.
 
 EXHIBIT
        INDEX
 
 
 Exhibits
        filed with this report:
 (11)
                  Statement
                      re: computation of per share
                      earnings.
 
 (31.1)
                CEO
                    Certification pursuant to Exchange Act Rules 13a-14(a) and
                    15d-14(a).
 
 (31.2)
                CFO
                    Certification pursuant to Exchange Act Rules 13a-14(a) and
                    15d-14(a).
 
 (32.1)
                CEO
                    Certification pursuant to Exchange Act Rules 13a-14(b) and
                    15d-14(b).
 
 (32.2)
                CFO
                    Certification pursuant to Exchange Act Rules 13a-14(b) and
                    15d-14(b).
   25