TO OUR STOCKHOLDERS


     Sales for the 53-week fiscal year ended June 3, 2000, were $25,618,564. The
Company  operated six stores  during the fiscal years ended June 3, 2000 and May
29, 1999.  The Company  operated at a net loss for the fiscal year of $50,537 as
compared to a net loss of $56,963 for the previous  year. Net loss per share was
6 cents for the  current  fiscal  year as  compared to a net loss of 6 cents per
share for the previous  fiscal year.  Book value per share at June 3, 2000,  and
May 29, 1999, was $2.96 and $2.94, respectively.

     The Board of Directors  elected not to pay dividends  during the year.  The
Company repurchased 34,738 shares of common stock from unaffiliated shareholders
in response to several unsolicited requests during the year.

     The past year has been a very  difficult  year for the  Company.  Increased
pressure from competition is making it difficult to remain profitable.  However,
the Company  changed its  principal  inventory  supplier in order to improve its
product acquisition cost. This change should allow the Company to better compete
in the marketplace.

     Management  continues  to  believe  there is a place for small  independent
retailers in the grocery business. While the reduction in sales and profits seem
to negate that belief, management believes factors other than the size alone are
responsible for the reductions.

     It is difficult to  anticipate  the effect of current and future events and
actions  in the  marketplace,  but  it is the  intent  of  management  of ACI to
consider  any and all legal  means that may be  available  to have your  Company
strive to grow.

     Your support is very much appreciated.

                                                   Sincerely,

                                                   AMERICAN CONSUMERS, INC.



                                                   Michael A. Richardson
                                                   Chairman & C.E.O.

<PAGE>

<TABLE>
<CAPTION>
BOARD OF DIRECTORS               CORPORATE OFFICERS             CORPORATE INFORMATION
<S>                              <C>                            <C>
VIRGIL BISHOP (1)                MICHAEL A. RICHARDSON          EXECUTIVE OFFICES
Vice President                   Chairman of the Board,         P.O. Box 2328
American Consumers, Inc.            Chief Executive Officer     Fort Oglethorpe, GA  30742
                                    and President

PAUL R. COOK (1)                 PAUL R. COOK                   AUDITORS
Executive Vice-President         Executive Vice-President       Hazlett, Lewis & Bieter, PLLC
    and Treasurer                   and Treasurer               Market Court, Suite 300
American Consumers, Inc.                                        537 Market Street
                                                                Chattanooga, TN  37402

JOHN PRICE (2)(3)                JAMES E. FLOYD (1)             COUNSEL
Pharmacist (Retired)             Vice-President                 Witt, Gaither & Whitaker, P.C.
                                                                1100 SunTrust Bank Building
                                                                Chattanooga, TN  37402

MICHAEL A. RICHARDSON (1)        VIRGIL BISHOP                  10-K REPORT
Chairman of the Board,           Vice-President                 American Consumers, Inc.'s
    Chief Executive Officer                                       annual report on Form 10-K
    and President                                                 as filed with The Securities
American Consumers, Inc.                                          and Exchange Commission is
                                                                  available to stockholders free
THOMAS L. RICHARDSON (2)(3)      REBA S. SOUTHERN (1)             of charge upon written request
Chairman of the Board            Secretary                        to Corporate Secretary
Learning Labs, Inc.                                               American Consumers, Inc.,
                                                                  P.O. Box 2328,
JEROME P. SIMS, SR. (2)(3)                                        Ft. Oglethorpe, GA
30742
Physician

ANDREW V. DOUGLAS (2)(3)
Retail Counselor (Retired)
Fleming Companies, Inc.
</TABLE>

(1)  Executive  Committee (Mr. Floyd and Mrs. Southern are ex officio members of
     the committee.)

(2)  Audit Committee

(3)  Compensation Committee


                                      -2-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                         FIVE-YEAR SUMMARY OF OPERATIONS

                    (In thousands, except per share amounts)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          FISCAL YEAR ENDED
                                             ----------------------------------------------------------------------------
                                              JUNE 3           MAY 29           MAY 30           MAY 31           JUNE 1
                                               2000             1999             1998             1997             1996
                                             --------         --------         --------         --------         --------
<S>                                          <C>              <C>              <C>              <C>              <C>
NET SALES                                    $ 25,619         $ 25,482         $ 26,920         $ 28,005         $ 29,286
                                             --------         --------         --------         --------         --------

COST AND EXPENSES:
    Cost of goods sold                         19,682           19,831           21,015           22,047           22,996
    Operating, general and
      administrative expenses                   6,020            5,759            5,788            5,802            5,895
    Interest expense                               56               52               58               72               46
    Other income, net                             (66)             (71)             (64)             (45)             (27)
                                             --------         --------         --------         --------         --------

      Total                                    25,692           25,571           26,797           27,876           28,910
                                             --------         --------         --------         --------         --------

Income (loss) before income taxes                 (73)             (89)             123              129              376
                                             --------         --------         --------         --------         --------

INCOME TAXES:
    Federal                                       (18)             (26)              29               14              119
    State                                          (4)              (6)               8                6               21
                                             --------         --------         --------         --------         --------

      Total                                       (22)             (32)              37               20              140
                                             --------         --------         --------         --------         --------

NET INCOME (LOSS)                            $    (51)        $    (57)        $     86         $    109         $    236
                                             ========         ========         ========         ========         ========
PER SHARE AMOUNTS:
    Net income (loss)                        $   (.06)        $   (.06)        $    .09         $    .12         $    .25
                                             ========         ========         ========         ========         ========
    Cash dividends                           $   --           $   --           $   --           $    .06         $    .04
                                             ========         ========         ========         ========         ========

WEIGHTED AVERAGE NUMBER
    OF SHARES OUTSTANDING                         838              883              907              923              926
                                             ========         ========         ========         ========         ========
TOTAL ASSETS                                 $  3,674         $  4,033         $  4,257         $  4,301         $  4,503
                                             ========         ========         ========         ========         ========
OBLIGATIONS UNDER CAPITAL
    LEASE AGREEMENTS                         $     67         $    185         $    328         $    471         $    498
                                             ========         ========         ========         ========         ========
</TABLE>


                                      -3-
<PAGE>

                         MARKET AND DIVIDEND INFORMATION


     The Company's common stock is traded in the  over-the-counter  market.  The
approximate  number of record  holders of the Company's  common stock at June 3,
2000,  was  880.  The  following  table  gives  the  range  of high  and low bid
quotations  and  dividends  for each  quarterly  period for the two most  recent
fiscal years.

                             Bid Prices             Asked Prices     Dividends
------------------------------------------------------------------------------
                           High       Low         High        Low    Per Share

2000
------------------------------------------------------------------------------
  First Quarter           $0.50      $0.50        None       None         None
------------------------------------------------------------------------------
  Second Quarter          $0.50      $0.50        $1.25      $1.25        None
------------------------------------------------------------------------------
  Third Quarter           $0.50      $0.50        $1.25      $1.25        None
------------------------------------------------------------------------------
  Fourth Quarter          $0.50      $0.30        $1.25      $1.05        None
------------------------------------------------------------------------------

1999
------------------------------------------------------------------------------
  First Quarter           $0.50      $0.50        None       None         None
------------------------------------------------------------------------------
  Second Quarter          $0.50      $0.50        None       None         None
------------------------------------------------------------------------------
  Third Quarter           $0.50      $0.50        None       None         None
------------------------------------------------------------------------------
  Fourth Quarter          $0.50      $0.50        None       None         None
------------------------------------------------------------------------------

     The  information  set  forth in the above  table is  supplied  through  the
National Quotation Bureau, Inc. where available.

     There is no established  public trading market for the Company's stock. The
market-makers as of June 3, 2000, are:

     Carr Securities Corporation             New York             (800) 221-2243

     Hill Thompson Magid & Co.               New Jersey           (800) 631-3083

     Paragon Capital Corporation             Boca Raton           (800) 521-8877

     ABN - Amro Chicago Corporation          Chicago              (800) 621-1674

     Knight Securities                       New Jersey           (800) 232-3684

     Sharpe Capital, Inc.                    New York             (800) 355-5781


                                      -4-
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

                              RESULTS OF OPERATIONS

     The Company  experienced an after-tax loss in its fiscal year ended June 3,
2000, of $50,537 as compared to a loss of $56,963 for the prior fiscal year. Net
sales for the current fiscal year increased .53% from net sales for the previous
fiscal year.  Management  believes  that the smaller than  expected  increase in
sales,  despite the  Company's  decision  to open its retail  outlets on Sundays
beginning  in the second  quarter of fiscal  2000,  is due  primarily  to direct
competition.

     Increased  pressure from competition on the Company's  market share,  sales
and profits  during fiscal year 2000 is  threatening  the  profitability  of the
Company.  Management  believes  that  competitive  pressure on the Company  will
continue to increase over time as a result of its  competitors  opening more new
stores in the  Company's  trade  area.  Management  is  continuously  seeking to
imporve the gross margin and increase profitability by obtaining the lowest cost
for the Company's inventory.

     The Company's gross margin  increased from 22.18% to 23.17% during the past
year.  The gross margin was 21.94% for the year ended May 30, 1998.  The Company
began an effort in the third  quarter  of  fiscal  year 1998 to  increase  gross
margin by increasing  retail prices on certain items, to the extent permitted by
competition.  The  success of this  effort  and a switch of our major  inventory
supplier  in the last  quarter of fiscal 2000 has  resulted  in the  increase in
gross margin.

     The Company's Operating, General and Administrative Expenses for the fiscal
year ended June 3, 2000,  increased from the previous fiscal year. Expenses as a
percentage of sales  increased  from 22.60% to 23.50% over the past fiscal year.
Payroll, repairs and services and advertising expenses account for almost 90% of
the increase. Payroll expense for the store personnel has increased in an effort
to maintain  competent  employees.  Repairs and services  have  increased due to
aging equipment and advertising costs such as paper,  supplies and payroll costs
have  increased.  Management  will continue to monitor these costs and make cuts
when deemed to be beneficial to business.  Operating, General and Administrative
Expenses amounted to 21.50% of net sales for fiscal year 1998.

     Interest expense varied throughout the fiscal years presented, from $58,538
in 1998 to $51,643 in 1999 to $55,206  in 2000.  The change is  attributable  to
interest on capitalized leases decreasing over the three-year  period.  Interest
expense on the Company's line of credit actually increased due to an increase in
the amount of funds borrowed during the latest fiscal year.


                                      -5-
<PAGE>

     Other income for the past three fiscal years consists of the following:

                                            2000         1999         1998
                                          -------      -------      -------
     Vendors' compensation                $10,019      $14,049      $15,507
     Gain on sale of assets                 2,009         --          6,510
     Interest income                       21,219       22,949       24,713
     Other income                          32,639       33,768       17,544
                                          -------      -------      -------
         Totals                           $65,886      $70,766      $64,274
                                          =======      =======      =======

     Other income  increased as a result of an increase in the  collection  of a
check-cashing  charge for induviduals wishing to cash their check but not making
a  purchase.  Also,  insurance  recoveries  in the  amount of  $5,808  have been
included in other income in 1999.

     The Company seeks to improve its profitability by obtaining the lowest cost
for its goods. The Company's major supplier of staple groceries was Fleming Co.,
Inc.  ("Fleming"),  a supplier  with its principal  corporate  offices in Tulsa,
Oklahoma.  However,  in an effort to lower its cost of goods,  the Company began
purchasing  its inventory  from Mitchell  Grocery  Corporation  in  Albertville,
Alabama in March 2000.

Income Taxes

     The provision for income taxes does not vary significantly from the Federal
statutory  rate of 34% and State rates of 5% to 6%. The components of income tax
are detailed in Note 5 of the Company's financial statements.

     Federal and state income taxes are included as a current  liability for the
current fiscal year and as a current asset for fiscal 1999.

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.
When the  Company is forced to raise  overall  prices of its goods,  the Company
attempts to preserve its market share by competitive  pricing  strategies  which
emphasize weekly advertised specials.

                               FINANCIAL CONDITION

Liquidity and Capital Resources

     The Company finances its working capital  requirements  principally through
its cash flow from operations and short-term borrowings. Short-term borrowing to
finance inventory purchases is provided by the Company's $600,000 line of credit
from its lead bank, Wachovia Bank, Dalton, Georgia. Short-term borrowings at the
end of the 2000 and 1999 fiscal year ends are as follows:

                                                        2000         1999
                                                      --------     --------
     Line of credit at Wachovia Bank                  $  9,956     $156,790
     Note to Michael and Diana Richardson               62,239       97,972
     Note to Matthew Richardson                         56,480       52,193
                                                      --------     --------
                       Totals                         $128,675     $306,955
                                                      ========     ========


                                      -6-
<PAGE>

     For detailed information concerning the Company's short-term borrowings see
Note 3 to the Company's financial statements.

     The ratio of current assets to current liabilities was 2.80 to 1 at the end
of fiscal 2000, as compared to 2.64 to 1 at the end of fiscal 1999,  and 2.65 to
1 at the end of fiscal 1998. Cash constituted  40.99% of total current assets at
June 3, 2000, as compared to 39.38% of total current assets of May 29, 1999, and
39.88% at May 31, 1998.

     Accounts   receivable   decreased  due  to  a  decrease  in  receibles  for
advertising and merchandise as of June, 3, 2000.

     During the fiscal year ended June 3, 2000, retained earnings decreased as a
result of the operating loss for the fiscal year.

Material Commitments

     Capital expenditures are not expected to exceed $150,000 for the year.

     The Company adopted a retirement  plan effective  January 1, 1995. The plan
is a 401(k) plan administered by Capital Guardian.  Participation in the plan is
available to all full-time employees. Any contribution by the Company will be at
the discretion of the Board of Directors. The Company's contribution to the plan
was $7,500 in 2000 and 1999.

     None of the Company's employees are represented by a union.

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,  other  than  statements  of  of  historical  facts,  which  address
activities,  events or developments that the Company expects or anticipates will
or may occur in the future, including such things as espansion 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
have previously been identified in filings or statements made by or on behalf of
the Company,  including  filings with the Securities and Exchange  Commission of
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:  changes in the general  economy or in the
Company's primary markets,  changes in consumer spending,  competitive  factors,
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 detailed from time-to-time in the Company's
filings with the Securities and Exchange Commission.


                                      -7-
<PAGE>

               Report of Independent Certified Public Accountants



To the Board of Directors and Stockholders
American Consumers, Inc.
Fort Oglethorpe, Georgia

     We have audited the accompanying balance sheets of American Consumers, Inc.
as of June 3, 2000,  and May 29,  1999,  and the related  statements  of income,
changes in stockholders'  equity,  and cash flows for each of the three years in
the period ended June 3, 2000. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements mentioned above present fairly, in
all material respects, the financial position of American Consumers,  Inc. as of
June 3, 2000,  and May 29, 1999,  and the results of its operations and its cash
flows  for  each of the  three  years  in the  period  ended  June 3,  2000,  in
conformity with generally accepted accounting principles.


Chattanooga, Tennessee
June 28, 2000


                                      -8-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                              STATEMENTS OF INCOME

     For the Fiscal Years Ended June 3, 2000, May 29, 1999, and May 30, 1998

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                      2000            1999             1998
                                                   (53 Weeks)      (52 Weeks)       (52 Weeks)
                                                  -----------     -----------      -----------
<S>                                               <C>             <C>              <C>
NET SALES                                         $25,618,564     $25,482,561      $26,920,197

COST OF GOODS SOLD                                 19,682,468      19,831,422       21,014,735
                                                  -----------     -----------      -----------
      Gross profit                                  5,936,096       5,651,139        5,905,462

OPERATING, GENERAL AND
    ADMINISTRATIVE EXPENSES                         6,019,545       5,759,329        5,788,657
                                                  -----------     -----------      -----------

      Operating income (loss)                         (83,449)       (108,190)         116,805
                                                  -----------     -----------      -----------

OTHER INCOME (EXPENSE)
    Interest expense                                  (55,206)        (51,643)         (58,538)
    Other income                                       65,886          70,766           64,274
                                                  -----------     -----------      -----------
                                                       10,680          19,123            5,736
                                                  -----------     -----------      -----------

      Income (loss) before income taxes               (72,769)        (89,067)         122,541

FEDERAL AND STATE INCOME
    TAXES                                             (22,232)        (32,104)          36,952
                                                  -----------     -----------      -----------

NET INCOME (LOSS)                                 $   (50,537)    $   (56,963)     $    85,589
                                                  ===========     ===========      ===========

EARNINGS (LOSS) PER SHARE                         $      (.06)    $      (.06)     $       .09
                                                  ===========     ===========      ===========

WEIGHTED AVERAGE NUMBER
    OF SHARES OUTSTANDING                             838,443         883,203          906,602
                                                  ===========     ===========      ===========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.


                                      -9-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                                 BALANCE SHEETS

                          June 3, 2000 and May 29, 1999

--------------------------------------------------------------------------------


                                                      2000              1999
                                                  -----------       -----------
    ASSETS

CURRENT ASSETS
    Cash and short-term investments               $   852,652       $   917,438
    Certificate of deposit                            434,887           414,520
    Accounts receivable                               140,593           149,521
    Inventories                                     1,659,588         1,860,037
    Prepaid expenses                                   53,473            13,078
    Refundable income taxes                              --              28,119
                                                  -----------       -----------

         Total current assets                       3,141,193         3,382,713
                                                  -----------       -----------


PROPERTY AND EQUIPMENT - at cost
    Leasehold improvements                            201,253           185,689
    Furniture, fixtures and equipment               2,755,604         2,752,410
                                                  -----------       -----------

                                                    2,956,857         2,938,099
    Less accumulated depreciation                  (2,424,512)       (2,287,484)
                                                  -----------       -----------

                                                      532,345           650,615
                                                  -----------       -----------

                                                  $ 3,673,538       $ 4,033,328
                                                  ===========       ===========


The Notes to Financial Statements are an integral part of these statements.


                                      -10-
<PAGE>

--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                          2000              1999
                                                                       ----------        ----------
<S>                                                                    <C>               <C>
         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                                   $  696,560        $  653,117
    Short-term borrowings                                                 128,675           306,955
    Obligations under capital leases, current portion                      63,321           117,414
    Accrued sales tax                                                     117,954            96,852
    Federal and state income taxes                                          3,706              --
    Other                                                                 112,647           106,219
                                                                       ----------        ----------

         Total current liabilities                                      1,122,863         1,280,557
                                                                       ----------        ----------

DEFERRED INCOME TAXES                                                      12,587            40,335
                                                                       ----------        ----------

OBLIGATIONS UNDER CAPITAL LEASE
    AGREEMENTS                                                              3,904            67,898
                                                                       ----------        ----------

DEFERRED INCOME                                                            61,818            86,897
                                                                       ----------        ----------

STOCKHOLDERS' EQUITY
    Nonvoting preferred stock - authorized 5,000,000
      shares of no par value; no shares issued                               --                --
    Nonvoting common stock - $.10 par value; authorized
      5,000,000 shares; no shares issued                                     --                --
    Common stock - $.10 par value; authorized 5,000,000
      shares; shares issued of 835,618 in 2000 and 870,355
      in 1999                                                              83,562            87,036
    Additional paid-in capital                                            696,839           725,807
    Retained earnings                                                   1,691,965         1,744,798
                                                                       ----------        ----------

                                                                        2,472,366         2,557,641
                                                                       ----------        ----------

                                                                       $3,673,538        $4,033,328
                                                                       ==========        ==========
</TABLE>


                                      -11-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

     For the Fiscal Years Ended June 3, 2000, May 29, 1999, and May 30, 1998

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   Additional
                                                Common              Paid-in             Retained
                                                Stock               Capital             Earnings               Total
                                             -----------          -----------          -----------          -----------
<S>                                          <C>                  <C>                  <C>                  <C>
Balance, May 31, 1997                        $    92,150          $   768,464          $ 1,719,552          $ 2,580,166

    Net income for year                             --                   --                 85,589               85,589

    Redemption of common stock                    (3,090)             (25,776)              (2,043)             (30,909)
                                             -----------          -----------          -----------          -----------
Balance, May 30, 1998                             89,060              742,688            1,803,098            2,634,846

    Net loss for year                               --                   --                (56,963)             (56,963)

    Redemption of common stock                    (2,024)             (16,881)              (1,337)             (20,242)
                                             -----------          -----------          -----------          -----------

Balance, May 29, 1999                             87,036              725,807            1,744,798            2,557,641

    Net loss for year                               --                   --                (50,537)             (50,537)

    Redemption of common stock                    (3,474)             (28,968)              (2,296)             (34,738)
                                             -----------          -----------          -----------          -----------

Balance, June 3, 2000                        $    83,562          $   696,839          $ 1,691,965          $ 2,472,366
                                             ===========          ===========          ===========          ===========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.


                                      -12-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                            STATEMENTS OF CASH FLOWS

     For the Fiscal Years Ended June 3, 2000, May 29, 1999, and May 30, 1998

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               2000               1999               1998
                                                                            (53 Weeks)         (52 Weeks)         (52 Weeks)
                                                                            ---------          ---------          ---------
<S>                                                                         <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss)                                                       $ (50,537)         $ (56,963)         $  85,589
    Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
        Depreciation and amortization                                         232,684            250,105            271,792
        Deferred income taxes                                                 (27,748)           (22,169)            14,234
        (Gain) loss on sale of property and equipment                          (1,971)                10             (6,510)
        Change in operating assets and liabilities:
          Accounts receivable                                                   8,928             25,614            (28,384)
          Inventories                                                         200,449            (30,034)           (92,194)
          Prepaid expenses and other assets                                   (40,395)             5,535             12,673
          Refundable income taxes                                              28,119            (28,119)            80,953
          Accounts payable and accrued liabilities                             70,973            (34,640)           (56,489)
          Federal and state income taxes                                        3,706            (24,634)            24,634
                                                                            ---------          ---------          ---------
            Net cash provided by operating activities                         424,208             84,705            306,298
                                                                            ---------          ---------          ---------
CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of certificate of deposit                                       (434,887)          (414,520)          (394,792)
    Proceeds from maturity of certificate of deposit                          414,520            394,792            374,396
    Purchase of property and equipment                                       (145,822)           (27,922)          (113,762)
    Proceeds from disposal of property and equipment                            8,300               --                6,950
                                                                            ---------          ---------          ---------
            Net cash used in investing activities                            (157,889)           (47,650)          (127,208)
                                                                            ---------          ---------          ---------
CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase (decrease) in short-term borrowings                         (178,280)            98,010             79,945
    Principal payments on obligations under capital leases                   (118,087)          (142,607)          (143,376)
    Redemption of common stock                                                (34,738)           (20,242)           (30,909)
                                                                            ---------          ---------          ---------
      Net cash used in financing activities                                  (331,105)           (64,839)           (94,340)
                                                                            ---------          ---------          ---------

Net increase (decrease) in cash
  and cash equivalents                                                        (64,786)           (27,784)            84,750

Cash and cash equivalents, beginning of year                                  917,438            945,222            860,472
                                                                            ---------          ---------          ---------
Cash and cash equivalents, end of year                                      $ 852,652          $ 917,438          $ 945,222
                                                                            =========          =========          =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
    INFORMATION
      Cash paid (received) during the year for:
        Income taxes                                                        $ (22,308)         $  46,818          $ (78,370)
        Interest                                                               55,206             50,310             59,551
                                                                            =========          =========          =========
</TABLE>

The Notes to Financial Statements are an integral part of these statements.


                                      -13-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 1.    Nature of Business and Summary of Significant Accounting Policies

           Nature of business:

           The Company is engaged in a single line of business, the operation of
           a chain of retail grocery stores.  The stores are located in Georgia,
           Tennessee,  and  Alabama  and  operate  under  the name of  Shop-Rite
           Supermarket.

           Use of estimates:

           The preparation of financial  statements in conformity with generally
           accepted accounting  principles requires management to make estimates
           and assumptions that affect certain reported amounts and disclosures.
           Accordingly, actual results could differ from those estimates.

           Cash and cash equivalents:

           For  purposes of  reporting  cash flows,  the Company  considers  all
           highly-liquid  debt  instruments  with an original  maturity of three
           months or less to be cash equivalents.

           Inventories:

           Inventories are stated at the lower of average cost or market.

           Depreciation of property and equipment:

           Depreciation is provided on the straight-line  and  declining-balance
           methods at rates based upon the estimated useful lives of the various
           classes of depreciable property.

           Advertising costs:

           Advertising   costs  are  charged  to   operations   when   incurred.
           Advertising costs charged to operations were $495,680,  $431,188, and
           $454,847 in 2000, 1999, and 1998 respectively.

           Deferred income taxes:

           Deferred  tax assets  and  liabilities  are  reflected  at  currently
           enacted  income  tax  rates  applicable  to the  period  in which the
           deferred  tax assets or  liabilities  are  expected to be realized or
           settled.  As changes in tax laws or rates are  enacted,  deferred tax
           assets and liabilities are adjusted  through the provision for income
           taxes.


                                      -14-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 2.    Securities Purchased Under Agreement to Resell

           Included in cash and short-term  investments are securities purchased
           under  agreement to resell.  The Company invests excess funds in U.S.
           Government or U.S.  Government  Agency securities which are purchased
           under an  agreement to resell  (reverse  repurchase  agreement).  The
           securities are purchased  from a bank but do not constitute  deposits
           at the bank and are not  insured  by the  Federal  Deposit  Insurance
           Corporation.  The bank maintains  possession of the  securities,  but
           title of  ownership  passes to the Company  according to the terms of
           the agreement.  The bank  repurchases the securities the business day
           immediately  following  the  Company's  purchase  date.  The carrying
           amount of securities purchased under agreement to resell approximates
           fair value.  Risk of market value  deterioration  is mitigated by the
           short-term  nature  of the  transaction  and the  type of  securities
           purchased.  There were no amounts  outstanding under the agreement at
           June  3,  2000  and May  29,  1999.  Amounts  outstanding  under  the
           agreement were $161,256 at May 30, 1998.

Note 3.    Short-Term Borrowings

           The  Company  had a  line-of-credit  agreement  with a bank  totaling
           $600,000 at June 3, 2000. The Company had  line-of-credit  agreements
           with a bank and a major supplier totaling $1,100,000 at May 29, 1999.
           During 2000 and 1999, only the bank line of credit was used.

           Amounts  outstanding  under the bank  agreement  bear interest at the
           bank's base rate, and the maximum amount  available is $600,000.  The
           line of credit is collateralized by a $434,887 certificate of deposit
           owned by the Company.  Outstanding balances under this line-of-credit
           were  $9,956  and  $156,790  at  June  3,  2000  and  May  29,  1999,
           respectively.

           Short-term  borrowings  at June 3, 2000,  and May 29,  1999,  include
           unsecured notes payable totaling $118,719 and $150,165, respectively,
           to  Michael  and  Diana  Richardson,  principal  shareholders  of the
           Company,  and to their son, Matthew  Richardson.  These notes provide
           for  interest  at .25% below the bank's  base rate and are payable on
           demand.  The carrying  amount of short-term  borrowings  approximates
           fair value.

           The  weighted  average  interest  rate on amounts  outstanding  under
           short-term  borrowings  was 8.21% and 7.84% at June 3, 2000,  and May
           29, 1999, respectively.

Note 4.    Lease Commitments

           Capital leases:

           The Company  leases  cash  registers  and  scanning  equipment  under
           agreements which are classified as capital leases. The leased capital
           assets  included  in  property  and  equipment  totaled  $54,309  and
           $154,703 net of accumulated  depreciation of $592,904 and $492,511 at
           June 3, 2000, and May 29, 1999,  respectively.  Depreciation  expense
           for leased capital assets is included in total  depreciation  expense
           as a part of operating,  general and  administrative  expenses in the
           statements of income.


                                      -15-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------


Note 4.    Lease Commitments (continued)

           Capital leases:  (continued)

           Future minimum lease  payments,  by year and in the aggregate,  under
           noncancelable capital leases are as follows:

                 Fiscal
               Year Ending
               -----------

                 2001                                                   $66,824
                 2002                                                     3,947
                                                                      ---------
                                                                         70,053
                 Less amount representing interest                       (2,828)
                                                                      ---------

                     Total obligation under capital leases               67,225

                 Less current maturities of obligation under
                   capital leases                                       (63,321)
                                                                      ---------

                                                                        $ 3,904
                                                                      =========
           Operating leases:

           The  Company  leases  the  facilities  in which  its  retail  grocery
           operations  are located under  noncancelable  operating  leases which
           expire at various dates through December 2004.  Substantially  all of
           the leases include  renewal  options.  The following is a schedule by
           years of future minimum  rental  payments  required  under  operating
           leases that have  initial or remaining  noncancelable  lease terms in
           excess of one year as of June 3, 2000:

                        Fiscal
                      Year Ending
                      -----------

                         2001                   $    446,002
                         2002                        425,502
                         2003                        268,122
                         2004                        136,960
                         2005                         24,220
                                                ------------

                         Total                  $  1,300,806
                                                ============


                                      -16-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 4.    Lease Commitments (continued)

           Operating leases:  (continued)

           Rental expense for the fiscal years ended June 3, 2000, May 29, 1999,
           and May 30, 1998, is as follows:

<TABLE>
<CAPTION>
                                                                    2000           1999           1998
                                                                 ---------      ---------      ---------
<S>                                                              <C>            <C>            <C>
                    Minimum rentals                              $ 446,002      $ 445,426      $ 433,594
                    Contingent rentals based on sales               15,389          4,963         11,985
                                                                 ---------      ---------      ---------

                        Total                                    $ 461,391      $ 450,389      $ 445,579
                                                                 =========      =========      =========
</TABLE>

Note 5.    Federal and State Income Taxes

           The  components of income tax expense for the fiscal years ended June
           3, 2000, May 29, 1999, and May 30, 1998, are as follows:

<TABLE>
<CAPTION>
                                                                    2000           1999           1998
                                                                 ---------      ---------      ---------
<S>                                                              <C>            <C>            <C>
                    Current tax expense:
                       Federal                                   $   4,583      $  (7,704)     $  15,729
                       State                                           993         (2,231)         6,989
                                                                 ---------      ---------      ---------

                                                                     5,516         (9,935)        22,718
                                                                 ---------      ---------      ---------
                    Deferred tax expense:
                       Federal                                     (22,431)       (18,369)        13,466
                       State                                        (5,317)        (3,800)           768
                                                                 ---------      ---------      ---------

                                                                   (27,748)       (22,169)        14,234
                                                                 ---------      ---------      ---------

                         Total income tax expense (benefit)      $ (22,232)     $ (32,104)     $  36,952
                                                                 =========      =========      =========
</TABLE>

                A reconciliation  of income tax expense computed by applying the
                U.S.  Federal  statutory  rate to income before income taxes and
                actual income tax expense is as follows:

<TABLE>
<CAPTION>
                                                                    2000           1999           1998
                                                                 ---------      ---------      ---------
<S>                                                              <C>            <C>            <C>
                    Federal income tax expense (benefit)
                       computed at the statutory rate            $ (11,000)     $ (18,500)     $  31,000
                    State income tax, net of federal
                       income tax benefit                           (3,700)        (4,500)         5,900
                    Other                                           (7,532)        (9,104)            52
                                                                 ---------      ---------      ---------
                       Total income tax expense (benefit)        $ (22,232)     $ (32,104)     $  36,952
                                                                 =========      =========      =========
</TABLE>


                                      -17-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 5.    Federal and State Income Taxes (continued)

           The tax effects of significant  temporary  differences which comprise
           the deferred tax assets and  liabilities at June 3, 2000, and May 29,
           1999, are as follows:

<TABLE>
<CAPTION>
                                                                      2000            1999
                                                                    --------        --------
<S>                                                                 <C>             <C>
              Assets:
                 Deferred income                                    $(17,655)       $(23,708)
                 Other                                               (17,603)         (7,311)

              Liabilities:
                 Depreciable basis of property and equipment          46,926          66,925
                 Other                                                   919           4,429
                                                                    --------        --------

                                                                    $ 12,587        $ 40,335
                                                                    ========        ========
</TABLE>

Note 6.    Sale of Assets and Deferred Income

           On April 29, 1988, the Company sold its strip shopping center located
           in Chatsworth,  Georgia.  The strip shopping center  consisted of two
           separate buildings with a total of 42,900 square feet.  Approximately
           18,540  square feet of the shopping  center were leased to others and
           approximately  24,360  square  feet were used by the  Company for its
           retail grocery store.

           Effective as of the date of sale,  the Company  leased back its store
           location in the center for a period of 15 years.  The minimum  annual
           rental  payments of $91,350 are included in the minimum annual rental
           payments of operating  leases described in Note 4. The gain resulting
           from  the sale of  these  assets  has  been  deferred  for  financial
           reporting  purposes  and is being  amortized  over the 15-year  lease
           term.

Note 7.    Employee Benefit Plan

           Effective  January 1, 1995,  the  Company  adopted a 401(k)  employee
           benefit  plan  covering  substantially  all  employees  who  have met
           minimum   service   and  age   requirements.   The  service  and  age
           requirements  were  waived  for  the  initial  plan  participants  to
           encourage   participation.   The  Company's  annual  contribution  is
           discretionary.  The Company's  contribution to the plan was $7,500 in
           2000 and 1999.


                                      -18-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

--------------------------------------------------------------------------------

Note 8.    Concentration of Credit Risk

           The Company  maintains  a  certificate  of deposit and other  deposit
           accounts  at  financial  institutions  in  amounts  which  exceed the
           Federal Deposit  Insurance  Corporation  (FDIC)  insurance limit. The
           total of  deposits  which  exceeded  the  FDIC  insurance  limit  was
           $611,617  at June 3, 2000.  The  Company  believes  that  maintaining
           deposits  in  these  financial  institutions  does  not  represent  a
           significant  credit risk and that the Company benefits from favorable
           banking  relationships as a result of maintaining deposits with these
           institutions.


Note 9.    Related Party Transactions

           As described in greater detail in Note 3 above,  the Company finances
           a portion of its  working  capital  requirements  through  borrowings
           consisting  of two  unsecured  notes,  payable to  Michael  and Diana
           Richardson,  principal shareholders of the Company, and to their son,
           Matthew  Richardson.  These  notes bear  interest at a rate per annum
           .25%  below  the  base  rate of  interest  charged  on the  Company's
           borrowings from its lead bank and are payable on demand.


                                      -19-