Exhibit
13




AMERICAN  CONSUMERS,  INC.





FIVE-YEAR  SUMMARY  OF  OPERATIONS





(In
thousands, except per share amounts)







FISCAL
      YEAR ENDEDMAY 31,
              2008
              (52 Weeks)
            
            
            JUNE 2,
              2007
              (52 Weeks)
            
            
            JUNE 3,
              2006
              (53 Weeks)
            
            
            MAY 28,
              2005
              (52 Weeks)
            
            
            MAY 29,
              2004
              (52 Weeks)NET
      SALES
            
            $
            34,492
            
            
            $
            33,783
            
            
            $
            33,280
            
            
            $
            32,101
            
            
            $
            30,011COST
      AND EXPENSES:Cost
      of goods sold
            
            
            26,265
            
            
            
            25,766
            
            
            
            25,234
            
            
            
            24,431
            
            
            
            22,819Operating,
      general and administrative expenses
            
            
            8,172
            
            
            
            8,001
            
            
            
            8,262
            
            
            
            8,031
            
            
            
            7,473Interest
      expense
            
            
            60
            
            
            
            61
            
            
            
            60
            
            
            
            59
            
            
            
            45Other
      income, net
            
            
            (138
            )
            
            
            (143
            )
            
            
            (109
            )
            
            
            (89
            )
            
            
            (90
            )Total
            
            
            34,359
            
            
            
            33,685
            
            
            
            33,447
            
            
            
            32,432
            
            
            
            30,247Income
      (loss) before income taxes
            
            
            133
            
            
            
            98
            
            
            
            (167
            )
            
            
            (331
            )
            
            
            (236
            )INCOME
      TAXES:Federal
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —State
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —NET
      INCOME (LOSS)
            
            $
            133
            
            
            $
            98
            
            
            $
            (167
            )
            
            $
            (331
            )
            
            $
            (236
            )PER
      SHARE AMOUNTS:Net
      income (loss)
            
            $
            .17
            
            
            $
            .12
            
            
            $
            (.21
            )
            
            $
            (.41
            )
            
            $
            (.29
            )Cash
      dividends
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING
            
            
            784
            
            
            
            791
            
            
            
            800
            
            
            
            807
            
            
            
            814TOTAL
      ASSETS
            
            $
            3,807
            
            
            $
            3,724
            
            
            $
            3,512
            
            
            $
            3,607
            
            
            $
            4,090LONG-TERM
      DEBT
            
            $
            184
            
            
            $
            212
            
            
            $
            223
            
            
            $
            426
            
            
            $
            662







Please
refer to “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” herein for a discussion of (i) the timing of new store
openings and other factors which affect the comparability of the summary
information presented above for each of the Company’s past five fiscal years and
(ii) material uncertainties which could cause the data set forth above to not
necessarily be indicative of the Company’s future financial condition or results
of operations.





- 1
-





MARKET,
DIVIDEND AND STOCK PERFORMANCE INFORMATION








The
Company’s common stock is quoted on the Pink Sheets, an electronic quotation
service for securities traded over-the-counter.  The approximate
number of record holders of the Company’s common stock at May 31, 2008, was
757.  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
            
            DividendsHigh
            
            
            Low
            
            
            High
            
            
            Low
            
            Per Share2008First
      Quarter
            
            $
            1.50
            
            
            $
            1.25
            
            
            $
            3.40
            
            
            $
            1.50
            
            NoneSecond
      Quarter
            
            $
            1.25
            
            
            $
            1.25
            
            
            $
            2.00
            
            
            $
            2.00
            
            NoneThird
      Quarter
            
            $
            1.25
            
            
            $
            1.25
            
            
            $
            2.00
            
            
            $
            2.00
            
            NoneFourth
      Quarter
            
            $
            1.25
            
            
            $
            1.15
            
            
            $
            2.15
            
            
            $
            2.00
            
            None2007First
      Quarter
            
            $
            1.26
            
            
            $
            1.26
            
            
            $
            3.00
            
            
            $
            2.25
            
            NoneSecond
      Quarter
            
            $
            1.35
            
            
            $
            1.26
            
            
            $
            2.25
            
            
            $
            2.25
            
            NoneThird
      Quarter
            
            $
            1.60
            
            
            $
            1.12
            
            
            $
            2.75
            
            
            $
            2.00
            
            NoneFourth
      Quarter
            
            $
            1.75
            
            
            $
            1.12
            
            
            $
            2.00
            
            
            $
            1.70
            
            None





The
information set forth in the above table is supplied through Pink Sheets LLC
where available.





The terms
of our debt agreements with our senior lender contain negative covenants which
currently prevent us from paying any dividends on our stock without the lender’s
written consent.  There is no established public trading market for
the Company’s stock, and the information set forth above is based on a small
number of isolated quotations and reflects inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
trades.  The market-makers as of May 31, 2008, are:





Automated
      Trading Desk Fincl Svcs
            
            (843)
      789-2180Carr
      Securities Corp.
            
            (516)
      944-8300David
      A. Noyes & Co.
            
            (312)
      606-4694Domestic
      Securities, Inc.
            
            (732)
      661-0300Hill
      Thompson Magid & Co.
            
            (800)
      631-3083Knight
      Equity Markets, LP
            
            (212)
      336-8769Monroe
      Securities, Inc.
            
            (800)
      766-5560UBS
      Securities, LLC
            
            (203)
      719-8710





- 2
-





MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL


CONDITION
AND RESULTS OF OPERATIONS





RESULTS OF
OPERATIONS





FISCAL YEAR ENDEDMay
      31,
              2008
            
            
            June
      2,
              2007Sales
            
            $
            34,492,631
            
            
            $
            33,783,052%
      Sales Increase
            
            
            2.10
            %
            
            
            1.51
            %Gross
      Margin %
            
            
            23.85
            %
            
            
            23.73
            %Operating,
      General and Administrative Expense:Amount
            
            $
            8,172,078
            
            
            $
            8,001,304%
      of Sales
            
            
            23.69
            %
            
            
            23.68
            %Net
      Income (Loss)
            
            $
            132,741
            
            
            $
            97,502





Overview:





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





The
Company completed the year with net income of $132,741.  This
represented our second consecutive profitable year after struggling with
operating losses for the three years prior to the year ended June 2,
2007.  Sales for the current year increased 2.10% over fiscal
2007.  The sales increases experienced for fiscal years 2007 and 2008
were less than those experienced during fiscal years 2005 and 2006, due in part
to ongoing pricing adjustments implemented during the most recent two years to
recover increases in our wholesale costs, as well as to the absence of the new
store openings and certain major sales promotions which significantly impacted
the increases reported for the 2005 and 2006 fiscal years.  Still, we
were pleased to be able to grow the Company’s sales for a ninth consecutive year
despite the continuous challenges posed by the competition that we face from
larger grocery retailers operating in the markets served by our
stores.  While operating, general and administrative expenses
increased in absolute terms during fiscal 2008, management’s ongoing efforts to
control these expenses succeeded in holding them relatively steady as a
percentage of sales.  Coupled with a slight increase in the gross
margin for fiscal 2008, this helped us translate the increased sales into the
Company’s second consecutive year of net profit despite a slight reduction in
our gross margin from the level achieved in fiscal 2006.





The
Company’s 23.85% gross margin for fiscal 2008 represents an increase of 0.12%
from fiscal 2007, but remains a decrease of 0.33% as compared to the 24.18%
gross margin achieved for fiscal 2006.  The slight increase over
fiscal 2007 is attributable to management’s ongoing efforts to increase gross
margin when possible and due to a lack of new promotional programs as mentioned
below during the year.  However, this slight increase was only
achieved during the fourth quarter, as the Company struggled with slight
decreases in the gross margin as compared to the comparable period of fiscal
2007 throughout the remainder of the year, due to ongoing increases in the
wholesale costs of certain grocery items as well as gradual increases in
suppliers’ fuel surcharges due to increased gasoline prices, that we have not
been able to immediately recover through adjustments to the Company’s retail
prices due to the impacts of competition.





- 3
-





The
reduction from 24.18% for fiscal 2006 to 23.73% for fiscal 2007 reflected the
impact of our introduction of certain lower-priced generic merchandise during
fiscal 2007, as well as certain targeted merchandise sales and other weekly
advertised specials run to stimulate sales, coupled with the fact that
competition prevented us from succeeding until the third quarter of fiscal 2007
in adjusting our retail prices to recover increases in our wholesale costs for
certain items (principally certain private label merchandise) which occurred
earlier in the year.





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 increase we achieved during fiscal 2006, 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 successes in recovering a significant wholesale price increase by our
principal supplier during 2005 and a fuel surcharge added by the supplier during
the second quarter of fiscal 2006), the Company still struggled to maintain or
improve its gross margin throughout most of fiscal 2008, due to the continuing
increase in wholesale costs as noted above.  Accordingly,further improvements in the gross margin may not be achievable at this
time, and further deterioration in the Company’s gross margin is
possible.  Management believes that competitive pressures on the
Company, which have led to the losses experienced in three out of the last five
fiscal years, will continue to increase over time as a result of the increased
presence of larger competitors operating 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.





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” and “Vendor Allowances” in Note 1 of the financial statements
appearing in the Company’s 2008 Annual Report to Shareholders.





Management
has been working to reduce operating, general and administrative expenses, both
in absolute terms and as a percentage of the Company’s
sales.  However, these expenses increased by $170,774 during the year
2008 while only increasing slightly relative to sales (from 23.68% of sales in fiscal
2007 to 23.69% of sales in fiscal 2008), due to both regulatory and
market-driven increases in several of these costs during the
year.  The significant components of the changes in these
expenses for fiscal 2008 are discussed below under Operating, General and
Administrative Expenses.





- 4
-





We achieved a measure of
success in reducing these expenses, both in dollar terms and as a percentage of
sales, in fiscal 2007 as compared to the prior two fiscal years, although the
two primary components of the $260,829 reduction in these expenses for fiscal
2007 may not be expected to recur in future periods.  Relative to
sales, operating, general and administrative expenses decreased from
25.02% of sales in fiscal 2005 to 24.83% of sales in fiscal 2006 (despite
increasing in absolute terms by $230,792 over the prior year) and to 23.68% of
sales in fiscal 2007.  The two principal components of the 2007
decrease, however, were the absence of a $98,750 charge for a loss due to
employee theft that impacted the fourth quarter of fiscal 2006 and a decrease of
$126,091 in depreciation expense for fiscal 2007 versus 2006.





The 2006 theft loss was an
unusual item.As discussed in prior periods, management
expects depreciation charges to return to more historically consistent levels as
the Company continues the process, which began during the fourth quarter of
fiscal 2008, of moving through anticipated replacement cycles for its cash
register and scanning hardware and software, and related back door systems, at
all of the Company’s retail locations.  (See “Material Commitments and
Contingencies” below for additional details regarding these
purchases.)  Accordingly, we expect
future periods to continue to reflect the overall increase in these expenses
that has occurred with the addition of the Company’s seventh and eighth grocery
stores since April 28, 2001, as well as with ongoing increases in service
charges 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
result in increases in operating, general and administrative expenses as a
percentage of sales, which would 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.”





Interest
expense has remained essentially flat over the last three fiscal years,
decreasing by $131 for the current year and increasing by $602 in fiscal 2007
from fiscal 2006.  The slight differences in interest expense for the
past three fiscal years reflects the effects of slight changes in our total
indebtedness coupled with only slight changes in the Company’s weighted average
interest rate applicable to our debt, despite greater reductions in prevailing
market rates, due to the 6.0% interest rate floor applicable to all of our
variable rate bank debt.  In fiscal 2007, the slight increase in
interest expense was more than offset by an increase in interest income of
$4,990.  For fiscal 2008, however, interest income actually decreased
by $112 as compared to fiscal 2007.  This differential reflects the
favorable re-pricing of our bank certificate of deposit that occurred during
fiscal 2007, as a result of an environment of generally rising interest rates on
bank deposits, which was not repeated in fiscal 2008.  We expect
interest expense to increase for fiscal 2009, due to additional debt the Company
will incur to finance a portion of the ongoing cash register and scanning
equipment replacements discussed above.





- 5
-





Sales:





Sales for
the 52-week fiscal year ended May 31, 2008 increased by 2.10% over the previous
52-week year ended June 2, 2007.  Management believes this increase is
due primarily to the influence of accelerated increases in the cost of gasoline
that occurred this year, which we believe accelerated the trend noted in recent
periods of customers choosing to eat more meals at home to reduce their spending
at restaurants, and to patronize grocery stores located closer to their homes,
as well as to due to cost-driven increases in our retail prices during the
year.  Management also believes the fact that we offer a broader
selection of generic and private label merchandise than some of our competitors
may have helped increase sales, as customers seek out more of these goods to
economize on their grocery spending.  It is hoped that these trends in
consumer preferences will continue, thereby helping to offset some of the
Company’s own increased costs.  During fiscal 2008, five of the
Company’s stores had increases in sales ranging from 0.24% to 7.83%, while the
other three stores experienced decreases ranging from 0.49% to
5.14%.  The stores with decreases suffered from increased competition
in their local market areas.  One of these stores also continues to be
adversely impacted by another tenant having moved out of the shopping center
where it is located during fiscal 2006 and been replaced by a tenant which does
not generate as much traffic, and by generally unfavorable traffic pattern
conditions at that location.





Sales for
the 52-week fiscal year ended June 2, 2007 increased by 1.51% over the previous
53-week fiscal year.  While this increase was significantly less than
that experienced during the prior two fiscal years, adjusting to eliminate the
effects of the extra week of operations during fiscal 2006 would have yielded an
annual sales increase of 3.46% for fiscal 2007.  Factors which
management believes contributed to the overall sales increase for fiscal 2007
included our introduction of certain lower-priced generic merchandise this year,
as well as certain targeted merchandise sales and other weekly advertised
specials run to stimulate sales, coupled with the closing of a competitor
located between two of our stores during the last quarter of fiscal
2006.  While this trend clearly accelerated during fiscal 2008, we
also believe that prevailing high gasoline prices during fiscal 2007 helped
boost sales in general, as customers chose to prepare more meals at home to
reduce their spending at restaurants and also chose to patronize grocery stores
located closer to their homes.  During fiscal 2007, four of our eight
locations experienced store sales increases (ranging from 2.79% to 6.13%), while
the other four stores experienced decreases ranging from 0.95% to
4.71%.  Besides the additional week of operations that was included in
the prior fiscal year, management attributes the declines experienced at these
locations to the impact of pricing adjustments implemented during the year to
recover certain prior increases in our wholesale costs, as well as to reductions
in our overall level of promotional activity during fiscal 2007.  One
of these stores also is the location that, as noted above, continues to be
adversely impacted by a tenant having moved out
of the same shopping center during fiscal 2006, and by generally unfavorable
traffic patterns.





Management
is continually working to increase sales through the Company’s advertising
programs, product selection and overall mix of retail prices.  This
effort is hindered, however, by the effects of ongoing price competition from
larger competitors with greater financial resources than the
Company.




- 6
-




The
following table sets forth information for the last two fiscal years as to the
amount of total sales contributed by each class of products which contributed a
significant percentage of the total retail sales and revenues of the Company
during such periods:


Product
      Class
            
            Fiscal
      2008
              (52 Weeks)
            
            
            Fiscal
      2007
              (52 Weeks)Grocery
      and Non-Food Items
            
            $
            22,327,217
            
            
            $
            21,627,218Meat
      and Deli
            
            
            9,452,010
            
            
            
            9,419,858Produce
            
            
            2,713,404
            
            
            
            2,735,976








Gross
Margin:





As
discussed above, the Company’s 23.85% gross margin for fiscal 2008 represents an
increase of 0.12% from fiscal 2007, but still lags behind the gross margins of
24.18% achieved for fiscal 2006 and 23.89% achieved for fiscal
2005.  Management continues to pass on increases in costs, to the
extent permitted by competition.  During fiscal 2008, management also
refrained from certain sales promotions conducted during fiscal 2007 which had a
negative impact on gross margin.  While increases in wholesale grocery
costs (including suppliers’ fuel surcharges) continued to pose challenges for
the Company throughout fiscal 2008, management is attempting, as much as
possible, to pass on wholesale price increases in a more timely manner to reduce
the negative impact of delays in adjusting retail prices.  At the
present time, however, competitive considerations continue to pose a challenge
in this area.





The
Company’s 23.73% gross margin for fiscal 2007 represented a decrease of 0.45%
from fiscal 2006 and a decrease of 0.16% as compared to fiscal
2005.  This reduction reflects the fact that competition prevented us
from succeeding until the third quarter of fiscal 2007 in adjusting our retail
prices to recover increases in our wholesale costs for certain items
(principally certain private label merchandise) which occurred earlier in the
year.  The gross margin also was impacted by our introduction of
certain lower-priced, lower-margin generic merchandise during fiscal 2007, as
well as certain targeted merchandise sales and other weekly advertised specials
run to stimulate sales.








Operating, General and
Administrative Expenses:





The
Company’s ongoing operating, general and administrative expenses are comprised
mainly of personnel salary and related payroll costs, utilities and telephone
expenses, rent, 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.




- 7
-




The
following table details the changes in these components of operating, general
and administrative expenses for fiscal years 2008 and 2007:


Expense
      Item
            
            2008 Amount
            
            
            %
      of 2008
              Total
            
            
            2007 Amount
            
            
            %
      of 2007
              TotalPayroll
            
            $
            4,020,408
            
            
            
            49.1
            
            
            $
            3,964,576
            
            
            
            49.6Utilities
      and telephone expense
            
            
            767,621
            
            
            
            9.4
            
            
            
            729,462
            
            
            
            9.1Rent
            
            
            661,289
            
            
            
            8.1
            
            
            
            643,711
            
            
            
            8.1Insurance
            
            
            562,157
            
            
            
            6.9
            
            
            
            618,679
            
            
            
            7.7Advertising
      and promotion
            
            
            515,018
            
            
            
            6.3
            
            
            
            527,303
            
            
            
            6.6General
      and office supplies
            
            
            399,754
            
            
            
            4.9
            
            
            
            371,429
            
            
            
            4.6Repairs
      and maintenance
            
            
            364,285
            
            
            
            4.5
            
            
            
            360,472
            
            
            
            4.5Depreciation
            
            
            127,465
            
            
            
            1.6
            
            
            
            153,159
            
            
            
            1.9Bank
      service charges and credit card fees
            
            
            150,078
            
            
            
            1.8
            
            
            
            152,952
            
            
            
            1.9Bad
      checks
            
            
            165,513
            
            
            
            2.0
            
            
            
            130,245
            
            
            
            1.6Professional
      fees
            
            
            192,476
            
            
            
            2.4
            
            
            
            115,411
            
            
            
            1.5All
      other misc.
            
            
            246,014
            
            
            
            3.0
            
            
            
            233,905
            
            
            
            2.9TOTAL
            
            $
            8,172,078
            
            
            
            100.0
            
            
            $
            8,001,304
            
            
            
            100.0





Operating,
general and administrative expenses increased by $170,774 (or 2.13%) in fiscal
2008 as compared to 2007.  Increases totaling $268,149 in payroll
($55,832), utilities and telephone ($38,159), rent ($17,578), general and office
supplies ($28,325), repairs and maintenance ($3,813), bad checks ($35,268),
professional fees ($77,065) and other miscellaneous expenses ($12,109), were
partially offset by decreases totaling $97,375 in insurance ($56,522),
advertising and promotion ($12,285), depreciation ($25,694), and bank service
charges and credit card fees ($2,874).





The
increase in payroll is attributable to the first in a series of federally
mandated increases in the minimum wage and to increases in bonuses paid based on
store-level and Company-level net income achieved for the
year.  Utilities and telephone expense, as well as general and office
supplies and other miscellaneous expenses, continue to increase as costs rise,
with the rising cost of energy and petroleum-based products (such as certain
packaging materials used by the Company) being a significant factor in these
increases.  Rent increased as a result of the scheduled renewal of
leases at certain of the Company’s stores, as well as to higher percentage rents
based on increased sales.  Bad checks continue to be a problem for the
Company.  However, we continue to
believe that the practice of cashing customers’ checks is vital to our
competitive strategy for maintaining customer traffic and growing sales in the
face of the competition from larger grocery retailers that we have experienced
in recent years.  We are working on replacing our current check
verification system with another system, with a wider data-base than our current
processor, and have also engaged a new collection agency to pursue recovery of
bad checks in an effort to reduce this expense.  The first
installation of this new check processing equipment was completed as of May 20,
2008 at our LaFayette, Georgia location.As previously
projected, professional fees increased significantly during fiscal 2008 due to
additional professional services required to assist in preparing for
management’s initial assessment of the Company’s internal control over financial
reporting in compliance with Section 404 the Sarbanes-Oxley Act of 2002, as well
as ongoing professional services related to compliance with other requirements
added in recent years pursuant to such Act.  Insurance expense
decreased as a result of a decrease in the Company’s workers’ compensation
premiums, as well as a decrease in the number of employees on the Company’s
group insurance plan.  Advertising and promotion expense decreased as
a result of management’s efforts to control these costs by reducing the amount
of certain of these activities during the year.  Depreciation expense
decreased due to the
age and fully depreciated status of much of our equipment, in particular the
cash register and scanning equipment that the Company is in the process of
replacing.  As discussed above, these charges may be expected to
return to more historically consistent levels as we move through the current
replacement cycle for this equipment.





- 8
-





Overall,
operating, general and administrative expenses decreased by $260,829 (or 3.16%)
in fiscal 2007 as compared to 2006.  Approximately 38% of this
decrease was attributable to the absence in fiscal 2007 of the $98,750 charge
for a loss due to employee theft that impacted the fourth quarter of fiscal
2006.  Another 48% of the decrease was due to a $126,091 reduction in
depreciation expense for fiscal 2007 versus 2006.  As noted above,
annual depreciation charges are expected to return to more historically
consistent levels as the Company moves through the current replacement cycle for
its electronic cash registers and scanning equipment.  The other major
reduction contributing to the net decrease in operating, general and
administrative expenses for fiscal 2007 was an $84,144 reduction in advertising
and promotion expense, reflecting the fact that certain major promotions run by
the Company during fiscal 2006 were not repeated in 2007.





These
reductions were partially offset by less significant increases in other
categories such as payroll ($28,136 – largely due to an increase in bonuses
awarded due to the net profit achieved by the Company for fiscal 2007),
utilities and telephone expense ($10,912 – largely due to increased energy
costs), rent ($14,946 – due to the renewal during fiscal 2007 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) and general and office supplies
($4,126).  A $9,662 increase in bad checks expense for fiscal 2007 was
more than offset by a $23,592 increase in check cashing fees versus fiscal
2006.





Looking
forward, management is concerned about the continuing impact that the annual
increases in the Federal minimum wage will have on our ability to control the
payroll costs, which amount to nearly half of the Company’s operating, general
and administrative expenses, as well as the possible impact of future increases
in energy costs.  Additionally, while professional fees decreased
slightly in fiscal 2007 (due principally to discontinuing the services of an
outside security firm that was contracted for one location during the prior
year), these fees increased significantly during fiscal 2008, as detailed above,
largely due to additional services required to document and test the Company’s
internal controls in preparation for management’s initial assessment of the
Company’s internal control over financial reporting in compliance with Section
404 the Sarbanes-Oxley Act of 2002, as well as ongoing services related to
compliance with other requirements added in recent years pursuant to such
Act.  As discussed in more detail under “Material Commitments and
Contingencies” below, while the initial spike in professional fees related to
Section 404 compliance is not expected to recur in fiscal 2009, we expect
compliance-related fees to continue to increase in future years, as the Act’s
requirement for an audit of internal control over financial reporting and other
pending governmental mandates begin to impact the Company.





- 9
-





Interest and Other
Income:





Other
income decreased $4,823 to $121,999 for the fiscal year ended May 31, 2008 as
compared to the fiscal year ended June 2, 2007.  This resulted from
reductions in the fees charged to cash checks without a grocery store purchase
($6,203, due partly to a decrease in the number of applicable transactions and
partly to some compliance failures by store employees) and in charges for money
orders ($3,151, due to less customer demand during fiscal 2008), partially
offset by an increase in other revenue ($3,974, due primarily to
activity-driven increases in revenue received from handling Federal Express
shipments, gum ball machines and coupon handling commissions, classified as
Revenue related to Fed Ex shipments/other in the table below), coupled
with smaller increases in returned check fees ($230, due to increased volume)
and vendor compensation ($327, due to increased sales levels).





Other
income increased from $97,845 for the fiscal year ended June 3, 2006 to $126,822
for the fiscal year ended June 2, 2007, due principally to an increase
implemented during the second quarter (in September 2006) in the fees charged to
cash checks without a grocery purchase.  This resulted in a $23,592
increase in check cashing fees for fiscal 2007, which, as noted above, more than offset the
increase of $9,662 in bad check expense for the year.  Returned
check fees collected by the Company also increased significantly over fiscal
2006, due to enhanced employee education efforts and enforcement of Company
policies.  The increase in other income also was aided by an increase
in fees received for handling money orders, partially offset by a decrease in
revenues related to Fed-Ex shipments, due to corresponding variations in the
level of customer demand for these services during fiscal 2007.





The
components of other income for the fiscal years ended May 31, 2008 and
June 2, 2007 were as follows:





Description
            
            2008 Amount
            
            
            2007 AmountCheck
      cashing fees
            
            $
            84,144
            
            
            $
            90,347Funds
      received for handling money orders
            
            
            7,870
            
            
            
            11,021Vendor’s
      compensation from the States of Alabama and Georgia for collecting and
      remitting sales taxes on a timely basis
            
            
            14,911
            
            
            
            14,584Returned
      check fees
            
            
            4,418
            
            
            
            4,188Revenue
      related to Fed-Ex shipments/other
            
            
            10,656
            
            
            
            6,682TOTAL
            
            $
            121,999
            
            
            $
            126,822





As noted
above, interest income decreased slightly (by $112), from $15,868 in fiscal 2007
to $15,756 in fiscal 2008.  The increase of $4,990 (to $15,868)
realized for fiscal 2007 versus 2006 reflected increases in prevailing interest
rates at the annual re-pricing of the Company’s bank certificate of
deposit.  This circumstance did not recur in 2008, however, and
interest income remained essentially flat.





- 10
-





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 basis 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 either of the two fiscal years ended May
31, 2008, as a result of remaining net operating loss carryforwards and the
related valuation of the Company’s net deferred tax assets.





At May
31, 2008, the Company has net operating loss carryforwards for federal and state
income tax purposes of approximately $428,000 and $554,000,
respectively.  The Company has established a valuation allowance,
which effectively reduces the carrying value of its net deferred taxes to zero
at May 31, 2008 and June 2, 2007.  Unless the Company realizes
sufficient taxable income in future periods to demonstrate that the likelihood
of realization of the net deferred tax assets is reasonably assured under the
accounting guidelines of SFAS No. 109, this valuation allowance will be
continued in future periods.  If not utilized, the carryforwards will
expire at various dates through 2025.








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:





Effective
May 3, 2007, we entered into a new $980,000 credit facility with Gateway Bank
& Trust (“Gateway”), which replaced our former credit facilities with
Northwest Georgia Bank.  Between May 3, 2007 and
June 2, 2007, we drew $609,650 under an $800,000 line of credit with Gateway
(including $500,000 used to pay off our former line at Northwest Georgia Bank),
resulting in a net increase in borrowings under our line of credit of $109,650
for fiscal 2007 and leaving $190,350 available for additional borrowings under
the line at the end of fiscal 2007.  Due to the impact of daily cash
sweeps and other improved cash management procedures implemented in cooperation
with Gateway during fiscal 2008, the outstanding balance under the revolving
line of credit was reduced to $411,490 as of May 31, 2008, leaving $388,510
available for additional borrowings as of such date.The line
of credit has a term of 12 months, subject to annual renewals, and was renewed
by the Company, effective as of April 25, 2008, on substantially the same terms
for an additional year.  The Company is required to make monthly
interest only payments on the outstanding balance under the line of credit, and
(in the absence of an annual renewal) is required to repay outstanding principal
and accrued interest at the end of each successive one year term, with interest
at an annual rate equal to the Wall Street Journal prime rate (subject to a
minimum annual interest rate of 6.0%).  The Gateway 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.





- 11
-





The
credit facility entered into May 3, 2007 also included a 60-month term loan in
the amount of $180,000, with interest at an annual rate equal to the Wall Street
Journal prime rate, subject to a minimum annual interest rate of
6.0%.  The proceeds of the term loan were used to retire the remaining
$134,789 balance on an existing term note payable to Northwest Georgia Bank
incurred in December 2003 to finance the addition of the Company’s eighth
grocery store, with the remaining $45,211 utilized to pay closing costs and for
working capital.





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





Cash
Flows from Operating Activities





During the fiscal year
ended May 31, 2008, the Company generated $518,169 in cash flow from operating
activities.  Significant sources of cash flow during the year included
our net income of $132,741 for the year, as well as decreases in accounts
receivable ($114,723) and prepaid expenses ($83,719) and an increase in book
overdraft ($238,932), plus the impact of non-cash depreciation charges in the
amount of $127,465.The decrease in accounts receivable was
due primarily to the collection of a short-term promissory note from a former
employee in the amount of $78,035 that was outstanding at June 2, 2007 and paid
shortly after year end, as well as to a $21,211 reduction in year-end
receivables for vendor allowances as compared to the prior year, due to
decreases in the level of inventory purchases subject to vendor promotions
during the fourth quarter of fiscal 2008, with the remaining $15,477 reduction
attributable to normal fluctuations in other components of accounts
receivable.  The decrease in prepaid expenses was due to timing
differences of payments for rent and fees which were actually paid for the month
of June prior to the Company’s fiscal year end date of June 2, 2007, but were
not paid for the current month until June 2, 2008, following the May 31 fiscal
year end date, as well as to timing differences in payments for commercial
insurance premiums.  The $238,932 increase in book overdraft reflects
a temporary timing difference as of the balance sheet date between the amount of
checks cleared and the balance in the Company’s primary account, attributable to
the new cash sweep/cash management program put in place with our primary bank
during fiscal 2008.  These amounts were partially offset by a small
net gain on sales of property and equipment, by a $55,790 decrease in accounts
payable and accrued liabilities (due primarily to decreases in trade payables
and amounts due for money orders attributable to ordinary course variations in
these amounts) and by a $123,481 increase in inventories, which are being
maintained at a higher balance than at the end of the Company’s June 2, 2007
fiscal year to handle increased sales and to take advantage of purchasing
incentives in the form of rebates (resulting in an overall $10,400 increase in
vendor allowances for fiscal 2008 versus the prior year).  A portion
of this increase is also due to the increases in wholesale costs for certain
items and gradual increases in inventory suppliers’ fuel surcharges, as noted
above.





- 12
-





During the fiscal year
ended June 2, 2007, the Company generated $203,854 in cash flow from operating
activities.  This resulted primarily from our net income of $97,502
for the year, coupled with a $6,242 decrease in inventories(due to
management’s efforts to reduce inventories as a means of providing working
capital) and a $39,886 increase in accounts payable and accrued liabilities (due
to normal fluctuations in these amounts),plus the impact of
non-cash charges related to depreciation ($153,159) and a small loss on the sale
of property and equipment disposed of during the year ($474).  The
impact of these cash-positive items was partially offset by a $30,668 increase
in prepaid expenses(largely due to timing differences in payments for
insurance premiums and prepaid maintenance contracts on our cash registers and
scanning equipment)and a $62,741 increase in accounts receivable(due primarily to the
impact of a short-term promissory note from a former employee in the amount of
$78,035 that was outstanding at June 2, 2007 and paid shortly after year end,
partially offset by other normal fluctuations in accounts receivable).





Cash
Flows from Investing Activities





During
the fiscal year
ended May 31, 2008,net cash used in investing activities of $125,931
consisted primarily of additions to property and equipment in the amount of
$126,658, partially offset by a $277 reduction in the balance of our certificate
of deposit and $450 of proceeds from a small amount of property disposed of
during the year.  The $126,658 of equipment purchases included $35,435
for the purchase of two automobiles, $56,804 for the purchase
ofnew cash registers/scanning equipment and the related back door system
for our LaFayette store (the first of our stores to receive these ongoing
upgrades), $16,641
to replace fourmeat scales and printers, and an aggregate of $17,778
for the purchase of one used ice machine, a copy machine and a printer
for the main office, a security fence required by local authorities at one store
and a new camera system at one store.





Net cash used in investing
activities during thefiscal year ended June 2, 2007totaled $31,439,
reflecting $34,151 used to fund purchases of property and equipment partially
offset by a $2,612 reduction in the balance of our certificate of deposit and
$100 of proceeds from a small amount of property disposed of during the
year.These purchases of property and equipment included the
replacement of one used vehicle for $17,426, as well as aggregate expenditures
of $16,725 to replace a front door, a dumpster, a security camera system, an ice
machine and a produce scale as well as adding shelving at some
locations.  Please refer to “Material Commitments and Contingencies”
below for a discussion of anticipated capital spending during fiscal 2009 and
beyond.





Cash
Flows from Financing Activities





Net cash
used in financing activities for the fiscal year ended May 31, 2008 amounted to
$233,270.  This reflected a net reduction of short-term borrowings in
the amount of $201,120 (primarily due to the impact of daily cash
sweeps and improved cash management procedures implemented in cooperation with
Gateway during fiscal 2008 to reduce the average outstanding balances and
related interest expense on our revolving line of credit),together with
a net reduction of long-term debt in the amount of $28,063 (consisting of
payments of $63,498 partially offset by new long-term debt of $35,435 to finance
the purchase of the two vehicles mentioned above) and $4,087 used for
repurchases of the Company’s stock in response to unsolicited requests received
during the year.





- 13
-





During
the fiscal year ended June 2, 2007, net cash provided by financing activities
amounted to $75,403.  This resulted from the effects of a $96,809 net
increase in short-term borrowings (due to $109,650 of additional funds borrowed
upon the replacement of our former revolving credit facility, partially offset
by a $12,841 net reduction in borrowings from affiliated parties) and $197,426
in proceeds from new long-term debt (consisting of the $180,000 term loan from
Gateway in May 2007 coupled with $17,426 of new debt incurred to finance the
purchase of an automobile, offset by $207,793 of principal payments on
outstanding long-term debt (including the $134,789 refinanced in connection with
the new term loan from Gateway plus $73,004 of payments on other long-term debt)
and the redemption of $11,039 in common stock.





Overall,
the Company’s cash and cash equivalents increased by $158,968 while its
certificate of deposit decreased by $277 for fiscal 2008.  By
comparison, the Company’s cash and cash equivalents increased by $247,818 while
its certificate of deposit decreased by $2,612 for fiscal 2007.





The ratio
of current assets to current liabilities was 1.79 to 1 at the end of the latest
fiscal year, May 31, 2008 compared to 1.75 to 1 at the end of the fiscal year
ended June 2, 2007.  Cash, cash equivalents and the certificate of
deposit constituted 30.23% of the total current assets at May 31, 2008 as
compared to 26.31% at June 2, 2007.  As previously reported, the
Company has increased its reliance on bank financing and working capital
management, and limitations on additional capital spending to maintain adequate
liquidity to fund operations in connection with the operating losses experienced
in recent years.  The foregoing ratios, however, reflect the fact that
our liquidity situation has improved over the past two years as a result of the
net income of $132,741 and $97,502 reported for fiscal years 2008 and 2007,
respectively, coupled with a net reduction of approximately $14,000 in the
Company’s monthly debt service requirements through the retirement of long term
debt over the past three fiscal years.  As employment and inventory
costs increase, management will attempt to compensate for the increases through
operational efficiencies (including both efficient working capital management,
which has been aided by the cash management program instituted this year with
Gateway, and seeking to reduce other expenses where possible), and through
seeking to continue the favorable cash management arrangement with our primary
lender.





Historically,
we have financed our working capital requirements principally through cash flow
from operations.  Short-term borrowings to finance inventory purchases
are provided by the Company’s $800,000 line of credit from its bank and through
borrowings from related parties, as discussed below.  The bank line of
credit is secured by our 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.





- 14
-





Short-term
borrowings as of the end of the past two fiscal years are presented
below:





May 31,
            
            
            June 2,2008
            
            
            2007Michael
      and Diana Richardson
            
            $
            9,764
            
            
            $
            12,832Matthew
      Richardson
            
            
            1,566
            
            
            
            1,458Line
      of Credit
            
            
            411,490
            
            
            
            609,650Total
            
            $
            422,820
            
            
            $
            623,940





During
fiscal 2008, we reduced the Company’s borrowings from related parties by a net
amount of $2,960 (reflecting payments of $4,000 net of $1,040 in additional
interest accrued).  The largest principal balances outstanding on such
notes at any time during the Company’s fiscal year 2008 were $13,712 and $1,566,
respectively.  As discussed in more detail above, we increased
borrowings on our primary line of credit by a net amount of $109,650 during
fiscal 2007 in connection with the refinancing of the line of credit with
Gateway Bank & Trust during the fourth quarter, but reduced the outstanding
balance to $411,490 at May 31, 2008, principally as a result of improved cash
management practices implemented with the cooperation of Gateway during fiscal
2008.  We paid a total of $42,860 and $41,555 in interest on the
Company’s outstanding borrowings under its bank lines of credit during fiscal
2008 and 2007, respectively.





The
Company’s line of credit with Gateway Bank & Trust bears interest at the
prime rate as published in The Wall Street
Journal, 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 May
31, 2008, long-term debt included a note payable to Gateway Bank & Trust
with a balance of $148,486, which was incurred in conjunction with the
establishment of our new credit facility in May 2007 and was used primarily to
pay-off a Northwest Georgia Bank note which financed, in December 2003, the
addition of the Company’s eighth grocery store.  In addition, three
vehicle notes were financed with an aggregate balance due at May 31, 2008 of
$35,701.





The
components of the Company’s long term debt as of the end of each of the fiscal
years ended May 31, 2008 and June 2, 2007 are set forth in detail in Note 3 to
the accompanying financial statements.





The
following is a schedule by years of the amount of maturities of all long-term
debt subsequent to May 31, 2008:




Year
            
            Amount2009
            
            $
            53,9222010
            
            
            54,9942011
            
            
            42,5112012
            
            
            32,760$
            184,187


- 15
-




Material Commitments and
Contingencies:





Sarbanes-Oxley
Act Implementation Costs





The
Sarbanes-Oxley Act of 2002 included provisions addressing audits, financial
reporting and disclosure, conflicts of interest and corporate governance at
public companies.  The Company already incurred increased professional
fees during the prior fiscal years 2005, 2006 and 2007 related to compliance
with these provisions.





Section
404 of this Act deals with management’s report on internal control over
financial reporting and an annual attestation report on the effectiveness of
such internal control by the Company’s independent accountants.  While
the SEC previously delayed the effective dates of these requirements for smaller
entities, such as the Company, while various revisions to the original rules
were being adopted, the final rules require the Company to begin providing an
annual report by management assessing the effectiveness of our internal control
over financial reporting with our annual report for fiscal 2008, and to begin
including an annual attestation report by our independent auditors addressing
the effectiveness of such internal controls with our annual report for fiscal
2010.  During fiscal year 2008, the Company incurred additional
professional fees in the amount of $40,968 directly related to preparations for
management’s initial assessment of internal control over financial reporting
pursuant to these rules, in addition to having to devote significant internal
management effort and resources to these activities.  We currently
project that additional professional fees incurred during fiscal year 2009,
related to the completion of management’s initial assessment and to the
execution of management’s remediation plan for the material weaknesses in
internal controls that were detected in management’s initial assessment, will
amount to at least $20,000.





The SEC
has indicated that one purpose for the additional one year delay in imposing the
internal control audit requirement on smaller companies – such as the
Company – is to allow the SEC to complete a study of the costs and benefits
of Section 404 implementation, focusing particularly on the consequences for
smaller companies and the effects of the Section 404 auditor attestation
requirements.  The SEC previously approved the adoption by the Public
Company Accounting Oversight Board (PCAOB) of a new Auditing Standard No. 5 to
supersede the former standards governing the auditors’ annual attestation
reports on internal control over financial reporting, designed to focus the
auditors’ attention on those areas that pose the highest risk of material
misstatement to the financial statements with the objective of easing the
compliance burden for smaller companies.  Thus, while it is possible
that the SEC and PCAOB may adopt additional measures that could reduce the
Company’s internal control audit costs below what they otherwise would have
been, there is no guaranty such additional changes will be
forthcoming.  Further, we are unable to predict what changes may occur
in accounting industry practice in applying Auditing Standard No. 5 to smaller
public companies, as a result of the SEC study and other intervening
developments, between now and the Company’s initial internal control audit
date.  Accordingly, we are not presently able to estimate the full
extent of the additional costs that the Company may incur in connection with the
phase-in of the Section 404 internal control audit requirement.  We
anticipate, however, that such costs will be significant in relation to the
Company’s present annual audit fees.





- 16
-





Other
Commitments and Contingencies





We
presently estimate that capital expenditures for required replacements of
equipment in the ordinary course during fiscal 2009 will be $100,000 or less,
which we expect to fund from operating cash flows.  Additionally, we
are in the process of replacing cash registers and back door systems in all
stores, at an anticipated additional cost of approximately $380,000 plus tax
during fiscal 2009.  As previously disclosed, we are funding initial
purchases under this program, to the extent possible, through a combination of
funds provided by our operating cash flows and under our revolving line of
credit.  We have also signed a commitment letter with Gateway pursuant
to which we expect it to provide permanent financing for a portion of these
purchases.  The commitment letter calls for Gateway to provide up to
$440,000 of financing in the form of a five year term loan, with interest at the
Wall Street
Journal prime rate plus 0.5% per annum and interest and principal payable
on a five-year amortization schedule.  The commitment letter also
provides for an origination fee equal to 0.75% of the amounts advanced, and
provides that the debt will be secured by a first priority lien on the new
equipment in addition to being cross-collateralized with all of the Company’s
other indebtedness to Gateway.  The lending arrangements contemplated
by the commitment letter are subject to negotiation of mutually acceptable
definitive agreements approved by the Company’s Board of Directors and by
Gateway.  As of May 31, 2008, we had not yet initiated any borrowing
pursuant to this commitment; however, we funded initial debt in the total amount
of $112,000 pursuant to this commitment effective July 25, 2008, in connection
with the replacement of cash register and scanning equipment at two of our
stores.





If it
becomes necessary to replace the Company’s maintenance vehicle in fiscal 2009,
the estimated cost of replacement will be approximately
$35,000.  Future vehicle replacements, to the extent not paid for in
cash, are expected to be funded through either bank or manufacturing
financing, whichever
option will provide the Company with the most favorable
terms.  While management is attempting to postpone future store
improvements, such improvements may be necessary prior to the end of fiscal
2009.  We cannot reliably estimate the cost of any such improvements
at the present time, but we will attempt to manage the costs and the timing of
such improvements in a manner which both contains the Company’s overall costs
and allows us to obtain any necessary financing on the most favorable terms
available.





The
Company has adopted a 401(k) plan that is administered by Capital Bank and Trust
Company.  Participation in the plan is available to all full-time
employees.  The Company’s annual contributions to the plan are
discretionary.  The Company’s contribution to the plan was $7,500 in
each of fiscal years 2008 and 2007.





Critical Accounting
Policies:





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





- 17
-





We
believe that the following accounting policies are the most critical in the
preparation of our financial statements because they involve the most difficult,
subjective or complex judgments about the effect of matters that are inherently
uncertain.





Use
of Estimates





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





Inventories





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





Vendor
Allowances





The
Company receives funds for a variety of merchandising activities from vendors
whose products the Company buys for resale in its stores.  These
incentives and allowances include volume or purchased based incentives,
advertising allowances, and promotional discounts.  The purpose of
these incentives and allowances is generally to aid in the reduction of the
costs incurred by the Company for stocking, advertising, promoting and selling
the vendor’s products.  These allowances generally relate to
short-term arrangements with vendors, often relating to a period of one month or
less, and are typically negotiated on a purchase-by-purchase
basis.  Due to system constraints and the nature of certain
allowances, these allowances are applied as a reduction of inventory costs using
a rational and systematic methodology, which results in the recognition of these
incentives when the inventory related to the initial purchase is
sold.  Management recognized approximately $408,700 and $398,300 of
vendor allowances as a reduction in inventory costs for the fiscal years ended
May 31, 2008 and June 2, 2007, respectively. Amounts that represent a
reimbursement of specific identifiable incremental costs, such as advertising,
are recorded as a reduction to the related expense in the period that the
related expense is incurred.  Management recognized approximately
$59,600 and $50,600 in advertising allowances recorded as a reduction of
advertising expense for the fiscal years ended May 31, 2008 and June 2, 2007,
respectively.





- 18
-





Asset
Impairments





Management
accounts for any impairment of its long-lived assets in accordance with
Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets.”  Management monitors the
carrying value of its long-lived assets for potential impairment each quarter
based on whether any indicators of impairment have occurred.  As of
May 31, 2008 and June 2, 2007, no long-lived assets have been identified by
management as impaired.








Off-Balance Sheet
Arrangements:





The
Company has no significant off-balance sheet arrangements as of May 31,
2008.








Related Party
Transactions:





Except as
discussed under “Liquidity and Capital Resources” with regard to short-term
borrowings from related parties, there were no material related party
transactions during the fiscal year ended May 31, 2008.








Forward-Looking
Statements:





Information
provided by the Company, including written and 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 that 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 facts that
could cause results to differ materially from those set forth in the
forward-looking statements include the following (in addition to those matters
discussed in the Risk Factors included in Part I, Item 1A of our Annual Report
on Form 10-K for the fiscal year ended May 31, 2008):  changes in the
general economy or in the economy of Company’s primary markets, the effects of
ongoing price competition from competitors (some of which have greater financial
resources than those of the Company), changes in consumer spending, the nature
and extent of continued consolidation in the grocery store industry, changes in
the rate of inflation, changes in state or federal legislation or regulation,
adverse determinations with respect to any litigation or other claims, inability
to develop new stores or complete remodels as rapidly as planned, stability of
product costs, supply or quality control problems with the Company’s vendors,
and other issues and uncertainties detailed from time-to-time in the Company’s
filings with the Securities and Exchange Commission.





- 19
-




Report of Independent
Registered Public Accounting Firm








To the
Board of Directors and Stockholders


American
Consumers, Inc.


Fort
Oglethorpe, Georgia





We have
audited the balance sheets of American Consumers, Inc. as of May 31, 2008
and June 2, 2007, and the related statements of income, changes in
stockholders’ equity, and cash flows for the years then ended.  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 the standards of the Public Company
Accounting Oversight Board (United States).  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 referred to above present fairly, in all
material respects, the financial position of American Consumers, Inc. as of May
31, 2008 and June 2, 2007, and the results of its operations and its cash
flows for the years then ended in conformity with U.S. generally accepted
accounting principles.





We were
not engaged to examine management's assertion about the effectiveness of
American Consumers, Inc.’s internal control over financial reporting as of
fiscal year May 31, 2008, included in Management's Report on Internal
Control Over Financial Reportingfound in Item 9A(T) of
Form 10-K for fiscal year ended May 31, 2008, and, accordingly, we do not
express an opinion thereon.








/s/
Hazlett, Lewis & Bieter, PLLC





Chattanooga,
Tennessee


August
27, 2008


- 20
-




AMERICAN  CONSUMERS,  INC.





STATEMENTS  OF  INCOME





For the
Fiscal Years Ended May 31, 2008 and June 2, 2007







2008
            
            
            2007NET
      SALES
            
            $
            34,492,631
            
            
            $
            33,783,052COST
      OF GOODS SOLD
            
            
            26,265,102
            
            
            
            25,766,340Gross
      profit
            
            
            8,227,529
            
            
            
            8,016,712OPERATING,
      GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            8,172,078
            
            
            
            8,001,304Operating
      income
            
            
            55,451
            
            
            
            15,408OTHER
      INCOME (EXPENSE)Interest
      income
            
            
            15,756
            
            
            
            15,868Interest
      expense
            
            
            (60,465
            )
            
            
            (60,596
            )Other
      income
            
            
            121,999
            
            
            
            126,82277,290
            
            
            
            82,094Income
      before income taxes
            
            
            132,741
            
            
            
            97,502FEDERAL
      AND STATE INCOME TAXES
            
            
            -
            
            
            
            -NET
      INCOME
            
            $
            132,741
            
            
            $
            97,502INCOME
      PER SHARE
            
            $
            .17
            
            
            $
            .12WEIGHTED
      AVERAGE NUMBER OF SHARES OUTSTANDING
            
            
            783,864
            
            
            
            790,521





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





- 21
-





AMERICAN  CONSUMERS,  INC.





BALANCE  SHEETS





May 31,
2008 and June 2, 2007







2008
            
            
            2007ASSETSCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            741,440
            
            
            $
            582,472Certificate
      of deposit
            
            
            311,884
            
            
            
            312,161Accounts
      receivable
            
            
            118,334
            
            
            
            233,057Inventories
            
            
            2,241,670
            
            
            
            2,118,189Prepaid
      expenses
            
            
            70,494
            
            
            
            154,213Total
      current assets
            
            
            3,483,822
            
            
            
            3,400,092PROPERTY
      AND EQUIPMENT – at costLeasehold
      improvements
            
            
            303,766
            
            
            
            300,800Furniture,
      fixtures and equipment
            
            
            3,323,713
            
            
            
            3,298,9233,627,479
            
            
            
            3,599,723Less
      accumulated depreciation
            
            
            (3,304,201
            )
            
            
            (3,275,328
            )323,278
            
            
            
            324,395$
            3,807,100
            
            
            $
            3,724,487





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





- 22
-




2008
            
            
            2007LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable
            
            $
            817,890
            
            
            $
            904,396Book
      overdraft
            
            
            238,932
            
            
            
            -Short-term
      borrowings
            
            
            422,820
            
            
            
            623,940Current
      maturities of long-term debt
            
            
            53,922
            
            
            
            40,206Accrued
      sales tax
            
            
            150,205
            
            
            
            152,893Other
            
            
            258,087
            
            
            
            224,683Total
      current liabilities
            
            
            1,941,856
            
            
            
            1,946,118LONG-TERM
      DEBT
            
            
            130,265
            
            
            
            172,044STOCKHOLDERS’
      EQUITYNonvoting
      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
      781,779 in 2008 and 785,866 in 2007
            
            
            78,178
            
            
            
            78,587Additional
      paid-in capital
            
            
            651,942
            
            
            
            655,350Retained
      earnings
            
            
            1,004,859
            
            
            
            872,3881,734,979
            
            
            
            1,606,325$
            3,807,100
            
            
            $
            3,724,487




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


- 23
-




AMERICAN  CONSUMERS,  INC.





STATEMENTS  OF  CHANGES  IN  STOCKHOLDERS’  EQUITY





For the
Fiscal Years Ended May 31, 2008 and June 2, 2007







Shares
      of
              Common
              Stock
            
            
            Common
              Stock
            
            
            Additional
              Paid-in
              Capital
            
            
            Retained
              Earnings
            
            
            TotalBalance,
      June 3, 2006
            
            
            796,905
            
            
            $
            79,691
            
            
            $
            664,556
            
            
            $
            775,615
            
            
            $
            1,519,862Net
      income for year
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            97,502
            
            
            
            97,502Redemption
      of common stock
            
            
            (11,039
            )
            
            
            (1,104
            )
            
            
            (9,206
            )
            
            
            (729
            )
            
            
            (11,039
            )Balance,
      June 2, 2007
            
            
            785,866
            
            
            
            78,587
            
            
            
            655,350
            
            
            
            872,388
            
            
            
            1,606,325Net
      income for year
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            132,741
            
            
            
            132,741Redemption
      of common stock
            
            
            (4,087
            )
            
            
            (409
            )
            
            
            (3,408
            )
            
            
            (270
            )
            
            
            (4,087
            )Balance,
      May 31, 2008
            
            
            781,779
            
            
            $
            78,178
            
            
            $
            651,942
            
            
            $
            1,004,859
            
            
            $
            1,734,979





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


- 24
-




AMERICAN  CONSUMERS,  INC.





STATEMENTS  OF  CASH  FLOWS





For the
Fiscal Years Ended May 31, 2008 and June 2, 2007







2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
            
            $
            132,741
            
            
            $
            97,502Adjustments
      to reconcile net income to net cashprovided by operating
      activities:Depreciation
      and amortization
            
            
            127,465
            
            
            
            153,159Loss
      (gain) on sale of property and equipment
            
            
            (140
            )
            
            
            474Change
      in operating assets and liabilities:Accounts
      receivable
            
            
            114,723
            
            
            
            (62,741
            )Inventories
            
            
            (123,481
            )
            
            
            6,242Prepaid
      expenses
            
            
            83,719
            
            
            
            (30,668
            )Accounts
      payable and accrued liabilities
            
            
            (55,790
            )
            
            
            39,886Book
      overdraft
            
            
            238,932
            
            
            
            —Net
      cash provided by operating activities
            
            
            518,169
            
            
            
            203,854CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of certificate of deposit
            
            
            (311,884
            )
            
            
            (312,161
            )Proceeds
      from maturity of certificate of deposit
            
            
            312,161
            
            
            
            314,773Purchase
      of property and equipment
            
            
            (126,658
            )
            
            
            (34,151
            )Proceeds
      from disposal of property and equipment
            
            
            450
            
            
            
            100Net
      cash used in investing activities
            
            
            (125,931
            )
            
            
            (31,439
            )CASH
      FLOWS FROM FINANCING ACTIVITIESNet
      increase (decrease) in short-term borrowings
            
            
            (201,120
            )
            
            
            96,809Proceeds
      from long-term debt
            
            
            35,435
            
            
            
            197,426Principal
      payments on long-term debt
            
            
            (63,498
            )
            
            
            (207,793
            )Redemption
      of common stock
            
            
            (4,087
            )
            
            
            (11,039
            )Net
      cash provided by (used in) financing activities
            
            
            (233,270
            )
            
            
            75,403NET
      INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            158,968
            
            
            
            247,818CASH
      AND CASH EQUIVALENTS, beginning of year
            
            
            582,472
            
            
            
            334,654CASH
      AND CASH EQUIVALENTS, end of year
            
            $
            741,440
            
            
            $
            582,472SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONCash
      paid during the year for:Income
      taxes
            
            $
            750
            
            
            $
            750Interest
            
            
            64,482
            
            
            
            63,952




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





- 25
-




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.





Fiscal
year:





The
Company’s fiscal year ends on the Saturday nearest May 31.  The last
two fiscal years consist of the 52-week periods ended May 31, 2008 and
June 2, 2007.





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.





Accounts
receivable:





The
Company extends unsecured credit for 30-day terms to selected customers in the
ordinary course of business, but mitigates the associated credit risk by
carefully screening applicants and actively pursuing past due
accounts.  An allowance for doubtful accounts has not been established
since management is of the opinion that all accounts receivable at year-end are
fully collectible.





Inventories:





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





- 26
-


AMERICAN  CONSUMERS,  INC.
 
 NOTES  TO  FINANCIAL  STATEMENTS





Note
      1.
            Nature
      of Business and Summary of Significant Accounting Policies
      (continued)





Vendorallowances:





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





Property
and equipment:





Expenditures
for property and equipment are charged to asset accounts at
cost.  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.  Repairs and maintenance are
expensed as incurred.  Depreciation expense included in the statements
of income was $127,465 and $153,159 in 2008 and 2007, respectively.





Revenue
recognition:





The
financial statements of the Company are prepared under the accrual method of
accounting.  The Company recognizes income on the sale of all grocery
and non-food merchandise at the point-of-sale.  Discounts provided by
vendors, usually in the form of paper coupons, are not recognized as a reduction
in sales.  Sales taxes are not recorded as a component of
sales.





Advertising
costs:





Advertising
costs are charged to operations when incurred.  Advertising costs
charged to operations were $515,018 and $527,303 in 2008 and 2007,
respectively.





- 27
-




AMERICAN  CONSUMERS,  INC.
 
 NOTES  TO  FINANCIAL  STATEMENTS





Note
      1.
            Nature
      of Business and Summary of Significant Accounting Policies
      (continued)





Deferred
income taxes:





The
Company accounts for income taxes in accordance with the provisions of Statement
of Financial Accounting Standards (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 basis 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.





Asset
impairments:





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





Recent
accounting pronouncements:





In June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109.”  FIN
No. 48 clarifies the accounting for uncertainty in tax
positions.  FIN No. 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return.  This
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods, disclosure and
transition.  FIN No. 48 became effective for the Company on
June 3, 2007, and did not have a material effect on the Company’s financial
statements.  Further, during fiscal year May 31, 2008, the Company
recognized no interest and penalties assessed by taxing authorities on any
underpayment of income tax.





In
September 2006, the FASB issued Statement of Financial Accounting Standard
No. 157, “Fair Value Measurements.”  SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in GAAP, and expands
disclosures about fair value measurement.  SFAS No. 157 does not
require any new fair value measurements.  SFAS No. 157 will
become effective for the Company on June 1, 2008, and is not expected to
have a material effect on the Company’s financial statements.





- 28
-




AMERICAN  CONSUMERS,  INC.





NOTES  TO  FINANCIAL  STATEMENTS







Note
      1.
            Nature
      of Business and Summary of Significant Accounting Policies
      (continued)





Recent
accounting pronouncements: (continued)





In
February 2007, the FASB issued Statement of Financial Accounting Standard
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities – Including an Amendment of FASB Statement No. 115.”  SFAS
No. 159 permits entities to make an irrevocable election to measure certain
financial instruments and other assets and liabilities at fair value on an
instrument-by-instrument basis.  Unrealized gains and losses on items
for which the fair value option has been elected should be recognized into net
earnings at each subsequent reporting date.  SFAS No. 159 will become
effective for the Company’s fiscal year beginning June 1,
2008.  The Company is currently evaluating the effect of adopting SFAS
No. 159.





- 29
-


AMERICAN  CONSUMERS,  INC.
 
 NOTES  TO  FINANCIAL  STATEMENTS





Note
      2.
            Short-Term
      Borrowings





The
Company has a line-of-credit agreement with a bank totaling $800,000 at May 31,
2008 and June 2, 2007.  The interest rate on amounts outstanding under
the line-of-credit agreement is based on prime subject to a 6.00%
floor.  This agreement is scheduled to mature on April 25,
2009.





The
line-of-credit is secured by the Company’s certificate of deposit, as well as by
a security interest in substantially all of its 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.





At May
31, 2008 and June 2, 2007, the Company has short-term borrowings consisting
of unsecured notes payable 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.





A summary
of short-term borrowings for the fiscal years ended May 31, 2008 and
June 2, 2007, is as follows:





2008
            
            
            2007Line-of-credit
      agreements
            
            $
            411,490
            
            
            $
            609,650Loans
      payable to shareholders
            
            
            11,330
            
            
            
            14,290Total
      outstanding
            
            $
            422,820
            
            
            $
            623,940Weighted
      average interest rate at year end
            
            
            6.00
            %
            
            
            8.24
            %Weighted
      average interest rate during year
            
            
            7.39
            %
            
            
            8.23
            %Maximum
      amount outstanding during year
            
            $
            815,278
            
            
            $
            637,773Average
      amount outstanding during year
            
            $
            543,877
            
            
            $
            516,131





- 30
-


AMERICAN  CONSUMERS,  INC.
 
 NOTES  TO  FINANCIAL  STATEMENTS





Note
      3.
            Long-Term
      Debt





Long-term
debt consists of the following notes payable at May 31, 2008 and June 2,
2007:




2008
            
            
            2007Note
      payable to Gateway Bank & Trust; principal and interest due in monthly
      installments of $3,684, through April 2012; interest at prime rate with
      6.00% floor; collateralized by equipment, inventory, and personal
      guarantees of the Company’s President and Executive Vice
      President
            
            $
            148,486
            
            
            $
            180,000Vehicle
      installment loan; due in monthly installments of $433; collateralized by
      an automobile; paid in full during August 2007
            
            
            -
            
            
            
            16,636Vehicle
      installment loan; due in monthly installments of $524, through January
      2010; collateralized by an automobile
            
            
            10,014
            
            
            
            15,614Vehicle
      installment loan; due in monthly installmentsof $510, through June
      2010; collateralized by an automobile
            
            
            12,039
            
            
            
            -Vehicle
      installment loan; due in monthly installments of $557, through July 2010;
      collateralized by an automobile
            
            
            13,648
            
            
            
            -184,187
            
            
            
            212,250Less
      current maturities
            
            
            53,922
            
            
            
            40,206Total
      long-term debt
            
            $
            130,265
            
            
            $
            172,044








- 31
-




AMERICAN  CONSUMERS,  INC.





NOTES  TO  FINANCIAL  STATEMENTS













Note
      3.
            Long-Term
      Debt (continued)





The
aggregate maturities or principal payments required on long-term debt for years
subsequent to May 31, 2008, are as follows:





Year
            
            Amount2009
            
            $
            53,9222010
            
            
            54,9942011
            
            
            42,5112012
            
            
            32,760Total
            
            $
            184,187





Note
      4.
            Lease
      Commitments





The
Company leases the facilities in which its retail grocery operations are located
under noncancelable operating leases that expire at various dates through
April 2014.  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 May 31, 2008:





Fiscal
            
            MinimumYear Ending
            
            Rentals2009
            
            $
            646,6902010
            
            
            525,5082011
            
            
            493,0702012
            
            
            469,1532013
            
            
            244,245Thereafter
            
            
            62,700Total
            
            $
            2,441,366





Rental
expense for the fiscal years ended May 31, 2008 and June 2, 2007, is as
follows:





2008
            
            
            2007Minimum
      rentals
            
            $
            642,989
            
            
            $
            629,107Contingent
      rentals based on sales
            
            
            18,300
            
            
            
            14,604Total
            
            $
            661,289
            
            
            $
            643,711





- 32
-


AMERICAN  CONSUMERS,  INC.
 
 NOTES  TO  FINANCIAL  STATEMENTS





Note
      5.
            Federal
      and State Income Taxes





No
amounts have been provided for current and deferred federal and state tax
expense in the statements of income for the years ended May 31, 2008 and
June 2, 2007, as a result of recurring net operating losses and the related
full valuation allowance on the Company’s net deferred tax assets.





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





2008
            
            
            2007Federal
      income tax expense computed at the statutory rates
            
            $
            19,900
            
            
            $
            14,700State
      income tax, net of federal income tax expense
            
            
            7,300
            
            
            
            5,400Change
      in deferred tax asset valuation allowance
            
            
            (27,200
            )
            
            
            (20,100
            )Total
      income tax expense
            
            $
            -
            
            
            $
            -





The tax
effects of significant temporary differences that comprise deferred tax assets
and liabilities at May 31, 2008 and June 2, 2007, are as
follows:





2008
            
            
            2007Deferred
      tax assets:Net
      operating loss carryforward
            
            $
            (94,700
            )
            
            $
            (125,000
            )Other
            
            
            (16,700
            )
            
            
            (12,200
            )Deferred
      tax liabilities:Depreciable
      basis of property and equipment
            
            
            6,000
            
            
            
            4,600Deferred
      tax asset valuation allowance
            
            
            105,400
            
            
            
            132,600$
            -
            
            
            $
            -


- 33
-
  AMERICAN  CONSUMERS,  INC.
 
 NOTES  TO  FINANCIAL  STATEMENTS


Note
      5.
            Federal
      and State Income Taxes (continued)





At May
31, 2008, the Company has net operating loss carryforwards for federal and state
income tax purposes of approximately $428,000 and $554,000,
respectively.  The Company has established a full valuation allowance,
which effectively reduces the carrying value of its net deferred taxes to zero
at May 31, 2008 and June 2, 2007.  Unless the Company realizes
sufficient taxable income in future periods to demonstrate that the likelihood
of realization of the net deferred tax assets is reasonably assured under the
accounting guidelines of SFAS No. 109, this valuation allowance will be
continued in future periods.  If not utilized, the carryforwards will
expire at various dates through 2025.








Note
      6.
            Employee
      Benefit Plan





The
Company has 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
2008 and 2007.








Note
      7.
            Concentration
      of Credit Risk and Major Supplier





The
Company maintains a certificate of deposit and other deposit accounts at
financial institutions in amounts that exceed the Federal Deposit Insurance
Corporation (FDIC) insurance limit.  The total of deposits that
exceeded the FDIC insurance limit was $330,264 at May 31, 2008.  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.  The Company has not experienced any losses as a result
of its cash in banks in excess of FDIC insurance limits.





Approximately
82 percent of the Company’s purchased merchandise for the year ended May
31, 2008, was procured from the Company’s main supplier.





- 34
-




AMERICAN  CONSUMERS,  INC.





NOTES  TO  FINANCIAL  STATEMENTS







Note
      8.
            Related
      Party Transactions





As
described in greater detail in Note 2 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.








Note
      9.
            Segment
      Reporting





SFAS No.
131, “Disclosures about Segments of an Enterprise and Related Information”
provides for the identification of reportable segments on the basis of discrete
business units and their financial information to the extent such units are
reviewed by an entity’s chief decision maker (which can be an individual or
group of management persons).  The Statement permits aggregation or
combination of segments that have similar characteristics.  In the
Company’s operations, each store is viewed by management as being a separately
identifiable business or segment from the perspective of monitoring performance
and allocation of financial resources.  Although the stores operate
independently and are managed and monitored separately, each is substantially
similar in terms of business focus, type of customers, products and
services.  Accordingly, the Company’s financial statements reflect the
presentation of segment information on an aggregated basis in one reportable
segment.








Note
      10.
            Fair
      Value of Financial Instruments





The
carrying values of cash and cash equivalents, the certificate of deposit,
accounts receivable, short-term borrowings, accounts payable, accrued expenses
and other liabilities are reasonable estimates of their fair values because of
the short maturity of these financial instruments.  Based on the
borrowing rates available to the Company for long-term debt with similar terms
and average maturities, the carrying amounts approximate the fair value of such
financial instruments.





- 35
-




AMERICAN  CONSUMERS,  INC.





NOTES  TO  FINANCIAL  STATEMENTS







Note
      11.
            Quarterly
      Data (unaudited)





Fiscal
      Years EndedMay
      31, 2008
            
            
            June
      2, 2007Thirteen
              Weeks
      Ended
              5/31/2008
            
            
            Thirteen
              Weeks
      Ended
              3/1/2008
            
            
            Thirteen
              Weeks
      Ended
              12/1/2007
            
            
            Thirteen
              Weeks
      Ended
              9/1/2007
            
            
            Thirteen
              Weeks
      Ended
              6/2/2007
            
            
            Thirteen
              Weeks
      Ended
              3/3/2007
            
            
            Thirteen
              Weeks
      Ended
              12/2/2006
            
            
            Thirteen
              Weeks
      Ended
              9/2/2006Net
      sales
            
            $
            8,629,973
            
            
            $
            8,634,569
            
            
            $
            8,487,207
            
            
            $
            8,740,882
            
            
            $
            8,554,004
            
            
            $
            8,446,070
            
            
            $
            8,392,267
            
            
            $
            8,390,711Cost
      of goods sold
            
            
            6,487,532
            
            
            
            6,566,425
            
            
            
            6,513,801
            
            
            
            6,697,344
            
            
            
            6,562,864
            
            
            
            6,408,085
            
            
            
            6,417,697
            
            
            
            6,377,694Gross
      profit
            
            
            2,142,441
            
            
            
            2,068,144
            
            
            
            1,973,406
            
            
            
            2,043,538
            
            
            
            1,991,140
            
            
            
            2,037,985
            
            
            
            1,974,570
            
            
            
            2,013,017Operating,
      general and administrative expenses
            
            
            2,107,930
            
            
            
            2,059,469
            
            
            
            1,987,573
            
            
            
            2,017,106
            
            
            
            1,991,231
            
            
            
            2,006,513
            
            
            
            1,995,765
            
            
            
            2,007,795Operating
      income (loss)
            
            
            34,511
            
            
            
            8,675
            
            
            
            (14,167
            )
            
            
            26,432
            
            
            
            (91
            )
            
            
            31,472
            
            
            
            (21,195
            )
            
            
            5,222Other
      income
            
            
            30,492
            
            
            
            31,938
            
            
            
            34,651
            
            
            
            40,674
            
            
            
            38,293
            
            
            
            35,357
            
            
            
            39,062
            
            
            
            29,978Interest
      expense
            
            
            (8,071
            )
            
            
            (17,326
            )
            
            
            (16,790
            )
            
            
            (18,278
            )
            
            
            (16,576
            )
            
            
            (14,531
            )
            
            
            (14,636
            )
            
            
            (14,853
            )Income
      before income taxes
            
            
            56,932
            
            
            
            23,287
            
            
            
            3,694
            
            
            
            48,828
            
            
            
            21,626
            
            
            
            52,298
            
            
            
            3,231
            
            
            
            20,347Income
      taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      income
            
            $
            56,932
            
            
            $
            23,287
            
            
            $
            3,694
            
            
            $
            48,828
            
            
            $
            21,626
            
            
            $
            52,298
            
            
            $
            3,231
            
            
            $
            20,347Earnings
      per common share:
            
            $
            0.07
            
            
            $
            0.03
            
            
            $
            0.01
            
            
            $
            0.06
            
            
            $
            0.02
            
            
            $
            0.07
            
            
            $
            0.00
            
            
            $
            0.03