TO OUR STOCKHOLDERS



     Sales for the 52-week fiscal year ended May 29, 1999, were $25,482,561. The
Company  operated six stores  during the fiscal years ended May 29, 1999 and May
30, 1998.  The Company  operated at a net loss for the fiscal year of $56,963 as
compared to net profits of $85,589 for the  previous  year.  Earnings  per share
were 6 cents for the  current  fiscal  year as compared to 9 cents per share for
the  previous  fiscal year.  Book value per share at May 29,  1999,  and May 30,
1998, was $2.94 and $2.96, respectively.

     The Board of Directors  elected not to pay dividends  during the year.  The
Company repurchased 20,242 shares of common stock from unaffiliated shareholders
in response to several unsolicited requests during the year.

     The past  year has been a very  difficult  year for the  Company.  Wal-Mart
Super  Centers  have  opened  in two  geographical  areas in which  the  Company
operates.  United  Grocers Outlet and  Save-A-Lot  have opened  against  another
location and a Food Lion opened in May of 1999 in yet another  location in which
the Company operates. Increased pressure from competition is making it difficult
to remain profitable.

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

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

     Your support is very much appreciated.

                                           Sincerely,

                                           AMERICAN CONSUMERS, INC.




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


<PAGE>

<TABLE>
<S>                            <C>                           <C>
BOARD OF DIRECTORS             CORPORATE OFFICERS            CORPORATE INFORMATION

VIRGIL BISHOP (1)              MICHAEL A. RICHARDSON         EXECUTIVE OFFICES
Vice President                 Chairman of the Board,        P.O. Box 2328
American Consumers, Inc.          Chief Executive Officer    Fort Oglethorpe, GA  30742
                                  and President

PAUL R. COOK (1)               PAUL R. COOK                  AUDITORS
Executive Vice-President       Executive Vice-President      Hazlett, Lewis & Bieter, PLLC
    and Treasurer                 and Treasurer              Tivoli Center, Suite 300
American Consumers, Inc.                                     701 Broad Street
                                                             Chattanooga, TN  37402

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

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

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



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

(2)  Audit Committee

(3)  Compensation Committee


                                      -2-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                         FIVE-YEAR SUMMARY OF OPERATIONS

                    (In thousands, except per share amounts)

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

<TABLE>
<CAPTION>
                                                        FISCAL YEAR ENDED
                                    --------------------------------------------------------
                                     MAY 29      MAY 30      MAY 31      JUNE 1      JUNE 3
                                      1999        1998        1997        1996        1995
                                    --------    --------    --------    --------    --------
<S>                                 <C>         <C>         <C>         <C>         <C>
NET SALES .......................   $ 25,482    $ 26,920    $ 28,005    $ 29,286    $ 28,835
                                    --------    --------    --------    --------    --------

COST AND EXPENSES:
    Cost of goods sold ..........     19,831      21,015      22,047      22,996      22,896
Operating, general and
      administrative expenses ...      5,759       5,788       5,802       5,895       5,675
    Interest expense ............         52          58          72          46          18
Other income, net ...............        (71)        (64)        (45)        (27)        (41)
                                    --------    --------    --------    --------    --------

      Total .....................     25,571      26,797      27,876      28,910      28,548
                                    --------    --------    --------    --------    --------

Income (loss) before income taxes        (89)        123         129         376         287
                                    --------    --------    --------    --------    --------

INCOME TAXES:
    Federal .....................        (26)         29          14         119          99
    State .......................         (6)          8           6          21          16
                                    --------    --------    --------    --------    --------

      Total .....................        (32)         37          20         140         115
                                    --------    --------    --------    --------    --------

NET INCOME (LOSS) ...............   $    (57)   $     86    $    109    $    236    $    172
                                    ========    ========    ========    ========    ========
PER SHARE AMOUNTS:
    Net income (loss) ...........   $   (.06)   $    .09    $    .12    $    .25    $    .18
                                    ========    ========    ========    ========    ========

    Cash dividends ..............   $   --      $   --      $    .06    $    .04    $    .08
                                    ========    ========    ========    ========    ========


WEIGHTED AVERAGE NUMBER
    OF SHARES OUTSTANDING .......        883         907         923         926          93
                                    ========    ========    ========    ========    ========

TOTAL ASSETS ....................   $  4,033    $  4,257    $  4,301    $  4,503    $  3,737
                                    ========    ========    ========    ========    ========

OBLIGATIONS UNDER CAPITAL
    LEASE AGREEMENTS ............   $    185    $    328    $    471    $    498    $   --
                                    ========    ========    ========    ========    ========
</TABLE>


                                      -3-
<PAGE>


                         MARKET AND DIVIDEND INFORMATION


     The Company's common stock is traded in the  over-the-counter  market.  The
approximate  number of record  holders of the Company's  common stock at May 29,
1999,  was  901.  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.

<TABLE>
<CAPTION>
                                              Bid Prices                       Asked Prices                 Dividends
----------------------------------------------------------------------------------------------------------------------
                                       High               Low            High                Low            Per Share
                                       ----               ---            ----                ---            ---------
<S>                                     <C>               <C>             <C>                <C>                  <C>
1999
----------------------------------------------------------------------------------------------------------------------
  First Quarter                         $0.50             $0.50           None               None                 None
----------------------------------------------------------------------------------------------------------------------
  Second Quarter                        $0.50             $0.50           None               None                 None
----------------------------------------------------------------------------------------------------------------------
  Third Quarter                         $0.50             $0.50           None               None                 None
----------------------------------------------------------------------------------------------------------------------
  Fourth Quarter                        $0.50             $0.50           None               None                 None
----------------------------------------------------------------------------------------------------------------------


1998
----------------------------------------------------------------------------------------------------------------------
  First Quarter                         $0.50             $0.50           None               None                 None
----------------------------------------------------------------------------------------------------------------------
  Second Quarter                        $0.50             $0.50           None               None                None
---------------------------------------------------------------------------------------------------------------------
  Third Quarter                         $0.50             $0.50           None               None                 None
----------------------------------------------------------------------------------------------------------------------
  Fourth Quarter                        $0.50             $0.50           None               None                 None
----------------------------------------------------------------------------------------------------------------------
</TABLE>

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

     There is no established  public trading market for the Company's stock. The
market-makers as of May 29, 1999, are:

Carr Securities Corporation           New York             (800) 221-2243

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

Paragon Capital Corporation           Boca Raton           (800) 521-8877

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

Seidler Companies (THE), Inc.         Los Angeles          (800) 421-0164

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


                                      -4-
<PAGE>

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

                              RESULTS OF OPERATIONS

     The Company  experienced an after-tax loss in its fiscal year ended May 29,
1999,  of $56,963 as compared to a profit of $85,589 for the prior  fiscal year.
Net sales for the  current  fiscal  year  decreased  5.3% from net sales for the
previous  fiscal  year.  The  decrease  in  sales  is due  primarily  to  direct
competition.

     Increased  pressure from competition on the Company's  market share,  sales
and profits  during fiscal year 1999 is  threatening  the  profitability  of the
Company.  Management  believes  that  competitive  pressure on the Company  will
continue to increase over time as a result of its  competitors  opening more new
stores in the  Company's  trade  area.  Management  is  continuously  seeking to
imporve the gross margin and increase profitability by obtaining the lowest cost
for the Company's inventory.  Actions taken to improve the gross margin may also
be having an adverse effect on sales.

     The Company's gross margin  increased from 21.94% to 22.18% during the past
year.  The gross margin was 21.27% for the year ended May 31, 1997.  The Company
began an effort in the third  quarter  of  fiscal  year 1998 to  increase  gross
margin by increasing  retail prices on certain items, to the extent permitted by
competition.  The success of this effort has  resulted in the  increase in gross
margin.

     The Company's Operating, General and Administrative Expenses for the fiscal
year ended May 29, 1999, decreased form the previous fiscal year. However,  such
expenses as a percentage of sales  increased from 21.50% to 22.60% over the past
fiscal year. The fixed charge components of the Company's expenses of operations
have  remained  constant  but are a  greater  percentage  of  sales  because  of
decreased sales. Management is working on reducing variable expenses in order to
keep total operating expenses in line with the reduced sales. Operating, General
and  Administrative  Expenses  amounted  to 20.72% of net sales for fiscal  year
1997.

     Interest  expense  decreased  throughout the fiscal years  presented,  from
$72,116  in 1997 to  $58,538  in  1998 to  $51,643  in  1999.  The  decrease  is
attributable  to interest on capitalized  leases  decreasing over the three-year
period.  Interest expense on the Company's line of credit actually increased due
to an increase in the amount of funds borrowed during the latest fiscal year.


                                      -5-
<PAGE>

     Other income for the past three (3) 52-week  fiscal  years  consists of the
following:

                                              1999       1998       1997
                                            --------   --------   --------

     Vendors' compensation                  $ 14,049   $ 15,507   $ 15,338
     Gain (loss) on sale of assets              --        6,510    (28,973)
     Interest income                          22,949     24,713     40,236
     Other income                             33,768     17,544     18,777
                                            --------   --------   --------

         Totals                             $ 70,766   $ 64,274   $ 45,378
                                            ========   ========   ========

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

     The Company seeks to improve its profitability by obtaining the lowest cost
for its goods.  The Company's major supplier of staple groceries is Fleming Co.,
Inc.  ("Fleming"),  a supplier  with its  principal  corporate  office in Tulsa,
Oklahoma.

Income Taxes

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

     Federal and state  income  taxes are  included  as a current  asset for the
current fiscal year and as a current liability for fiscal 1998.

Inflation

     The Company continues to seek ways to cope with the threat of inflation. To
the extent  permitted by  competition,  increased costs of goods and services to
the Company are reflected in increased  selling prices for the Company's  goods.
When the  Company is forced to raise  overall  prices of its goods,  the Company
attempts to preserve its market share by competitive  pricing  strategies  which
emphasize weekly advertised specials.

                               FINANCIAL CONDITION

Liquidity and Capital Resources

     The Company finances its working capital  requirements  principally through
its cash flow from operations and short-term borrowings. Short-term borrowing to
finance inventory purchases is provided by the Company's $300,000 line of credit
with its  principal  inventory  supplier and an $800,000 line of credit from its
lead bank, Wachovia Bank, Dalton,  Georgia.  Short-term borrowings at the end of
the 1999 and 1998 fiscal year ends are as follows:

                                                               1999       1998
                                                             --------   --------
     Line of credit at Wachovia Bank                         $156,790   $   --
     Note to Michael and Diana Richardson                      97,972    158,125
     Note to trust for son of Michael and Diana Richardson     52,193     50,820
                                                             --------   --------
                       Totals                                $306,955   $208,945
                                                             ========   ========


                                      -6-
<PAGE>

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

     The ratio of current assets to current liabilities was 2.64 to 1 at the end
of fiscal 1999, as compared to 2.65 to 1 at the end of fiscal 1998,  and 2.54 to
1 at the end of fiscal 1997. Cash constituted  39.38% of total current assets at
May 29, 1999, as compared to 39.88% of total current  assets of May 30, 1998 and
38.33% at May 31, 1997.

     Accounts   receivable   decreased  due  to  a  decrease  in  receibles  for
advertising and merchandise as of May 29, 1999.

     Other current liabilities decreased due to a decrease in accrued bonuses at
May 29, 1999.

     During the fiscal year ended May 29, 1999, retained earnings decreased as a
result of the operating loss for the fiscal year.

Material Commitments

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

     The Company adopted a retirement  plan effective  January 1, 1995. The plan
is a 401(k) plan administered by Capital Guardian.  Participation in the plan is
available to all full-time employees. Any contribution by the Company will be at
the discretion of the Board of Directors. The Company's contribution to the plan
was $7,500 in 1999 and $10,000 in 1998.

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

Year 2000

     The Year 2000 issue results from computer  programs being written using two
digits  rather  than  four to  define  the  applicable  year.  As the year  2000
approaches,  systems  using such  programs may be unable to  accurately  process
certain  date-base  information.  To the  extent  that  the  Company's  software
applications  contain source code that is unable to interpret  appropriately the
upcoming  calendar  year  2000  and  beyond,   some  level  of  modification  or
replacement of such  applications will be necessary to avoid system failures and
the  temporary  inability  to  process  transactions  or engage in other  normal
business activities.

     During  fiscal 1998,  the Company  began  evaluating  both its  information
technology  systems and other  systems and  equipment  in order to identify  and
adjust date sensitive systems for Year 2000 compliance. The Company's assessment
in its information  technology ("IT") area is approximately 50% complete and its
assessment in the  non-information  technology  ("Non-IT") area is approximately
45% complete.  The Company currently expects to complete its primary remediation
efforts  (including  acquisition and installation of any necessary new equipment
and  software) by  September  30, 1999,  leaving  approvimately  three monts for
testing and verification of any new systems proir to January 1, 2000.

     The total operating  expenditures to address the Company's Year 2000 issues
are estimated to be approximately  $12,000.  Approximately $5,000 of these costs
have been  incurred  through the end


                                      -7-
<PAGE>

of fiscal 1999. In additions,  the Compay  expects to incur  additional  capital
expenditures of approximately $20,000 for new equipment during the first quarter
of fiscal 2000.

     The  Company's IT issues fall into two principal  areas:  compliance of the
Company's corporate  accounting and other  record-keeping  hardware and software
and  compliance  of the  electronic  scanning  equipment  and  related  software
utilized  for  inventory   control  and  the   processing  of  retail   customer
transactions  in each of the  Company's  six  grocery  stores.  The  Company has
received  documentation  from  the  provider  of the  software  utilized  in the
Company's corporate accounting and record-keeping functions, certifying the Year
2000 compliant status of all of such software. The Company anticipates replacing
all of the  hardware  employed  in such  functions  with  new  hardware  that is
certified as Year 2000  compliant  by no later than  September  30, 1999,  at an
estimated cost not to exceed $18,000.  Under the terms of the Company's lease of
its electronic scanning equipment form Fleming Companies,  Inc., Fleming will be
responsible  for testing such equipment for Year 2000  compliance and making any
necessary modifications or replacements.  Based on its discussions with Fleming,
the Company  also  anticipates  that this  process will be completed by no later
than Septmeber 30, 1999.

     The risks of Year 2000 issues from a Non-IT  standpoint are  principally as
follows:  electrical  outages  resulting in breakdown of point of sales systems,
lighting  and  refrigeration  equipment  and the  loss of  utility  service.  In
addition,  certain store  equipment may have imbedded  chips or  microprocessors
that are not Year 2000  compliant.  The Company is in the process of identifying
such  equipment and either  replacing the affected chips or  microprocessors  or
purchasing  new  equipment  that is  compliant.  The events  noted  above  could
severely affect Company operations.  The Company plans to mitigate the potential
effect of such issues by preparing a contigency plan as discussed below.

     Significant  risk also  arises  out of the  possible  failure of vendors to
respond  to Year 2000  issues.  The  Company's  only  significant  vendor is its
primary  inventory  supplieer,  Fleming  Companies,  Inc.  The  Company  has had
discussions  with  representatives  of  Fleming  to  determine  the state of its
readiness and to review its Year 2000  contigency  plans.  The Company  believes
that Fleming is making adequate  progress toward Year 2000 compliance for all of
its systems that could impact on Fleming's  relationship  with the Company,  and
does not expect that the  Company's  business  will suffer any material  adverse
effects as a result of non-compliance by any of Fleming's systems.

     With respect to contigencies,  a program is being developed to identify the
additional resources that will be necessary to fully run the Company when and if
it is affected by the  foregoing  risk  factors.  During the first six months of
fiscal  2000,  the  Company  will  continue to expand its  contigency  plans and
detailed  procedures  in order to  mitigate  the effects of the Year 2000 issues
that might affect the Company.

     The Company believes that it has allocated  sufficient resources to resolve
all  significat  Year 2000 issues in a timely manner.  Accoudingly,  the Company
plans to be fully Year 2000 complaint (including the completion of all necessary
testing procedures) by November 1999.

Forward-Looking Statements

     Information  provided by the Company,  including written or oral statements
made  by its  representatives,  may  contain  "forward-looking  information"  as
defined in Section 21E of the Securities  Exchange Act of 1934, as amended.  All
statements,  other than  statements  of of  historical


                                      -8-
<PAGE>

facts,  which  addresses  activities,  events or  developments  that the Company
expects or anticipates will or may occur in the future, including such things as
espansion  and  growth  of  the  Company's  business,   the  effects  of  future
competition,  future capital  expenditures and the Company's  business strategy,
are forward-looking  statements. In reviewing such information it should be kept
in mind that  actual  results  may differ  materially  from those  projected  or
suggested in such forward-looking  statements.  Thes forward-looking information
is based on various factors and was derived utilizing numerous assumptions. Many
of these factors have  previously  been identified in filings of statements made
by or on  behalf of the  Company,  including  filings  with the  Securities  and
Exchange Commission of Forms 10-Q, 10-K and 8-K. Important assumptions and other
important  factors that could cause  actual  results to differ  materially  from
those  set  forth in the  forward-looking  statements  include:  changes  in the
general  economy  or in the  Company's  primary  markets,  changes  in  consumer
spending,  competitive factors, the nature and extent of continued consolidation
in the grocery  store  industry,  changes in the rate of  inflation,  changes in
state or federal legislation or regulation,  adverse determinations with respect
to any  litigation or other claims,  inability to develop new stores or complete
remodels as rapidly as planned,  stability of product  costs,  supply or quality
control problems with the Company's vendors, issues and uncertainties related to
Year 2000, and other issues detailed from  time-to-time in the Company's filings
with the Securities and Exchange Commission.


                                      -9-
<PAGE>

               Report of Independent Certified Public Accountants





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

     We have audited the accompanying balance sheets of American Consumers, Inc.
as of May 29, 1999,  and May 30,  1998,  and the related  statements  of income,
changes in stockholders'  equity,  and cash flows for each of the three years in
the period ended May 29, 1999. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

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

     In our opinion, the financial statements mentioned above present fairly, in
all material respects, the financial position of American Consumers,  Inc. as of
May 29 1999,  and May 30, 1998,  and the results of its  operations and its cash
flows  for  each of the  three  years  in the  period  ended  May 29,  1999,  in
conformity with generally accepted accounting principles.






Chattanooga, Tennessee
June 25, 1999


                                      -10-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                              STATEMENTS OF INCOME

     For the Fiscal Years Ended May 29, 1999, May 30, 1998, and May 31, 1997


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

<TABLE>
<CAPTION>
                                              1999            1998            1997
                                           (52 Weeks)      (52 Weeks)      (52 Weeks)
                                          ------------    ------------    ------------
<S>                                       <C>             <C>             <C>
NET SALES                                 $ 25,482,561    $ 26,920,197    $ 28,004,993

COST OF GOODS SOLD                          19,831,422      21,014,735      22,047,027
                                          ------------    ------------    ------------
      Gross profit                           5,651,139       5,905,462       5,957,966

OPERATING, GENERAL AND
    ADMINISTRATIVE EXPENSES                  5,759,329       5,788,657       5,802,594
                                          ------------    ------------    ------------

      Operating income (loss)                 (108,190)        116,805         155,372
                                          ------------    ------------    ------------

OTHER INCOME (EXPENSE)
    Interest expense                           (51,643)        (58,538)        (72,116)
    Other income                                70,766          64,274          45,378
                                          ------------    ------------    ------------
                                                19,123           5,736         (26,738)
                                          ------------    ------------    ------------
      Income (loss) before income taxes        (89,067)        122,541         128,634

FEDERAL AND STATE INCOME
    TAXES (Note 5)                             (32,104)         36,952          19,719
                                          ------------    ------------    ------------
NET INCOME (LOSS)                         $    (56,963)   $     85,589    $    108,915
                                          ============    ============    ============

EARNINGS (LOSS) PER SHARE                 $       (.06)   $        .09    $        .12
                                          ============    ============    ============

WEIGHTED AVERAGE NUMBER
    OF SHARES OUTSTANDING                      883,203         906,602         922,977
                                          ============    ============    ============
</TABLE>


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


                                      -11-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                                 BALANCE SHEETS

                          May 29, 1999 and May 30, 1998


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


                                                        1999           1998
                                                     -----------    -----------

         ASSETS

CURRENT ASSETS
    Cash and short-term investments (Note 2)         $   917,438    $   945,222
    Certificate of deposit (Note 3)                      414,520        394,792
    Accounts receivable                                  149,521        175,135
    Inventories (Note 3)                               1,860,037      1,830,003
    Prepaid expenses                                      13,078         14,613
    Refundable income taxes                               28,119           --
                                                     -----------    -----------

         Total current assets                          3,382,713      3,359,765
                                                     -----------    -----------






PROPERTY AND EQUIPMENT - at cost (Notes 3 and 4)
    Leasehold improvements                               185,689        185,831
    Furniture, fixtures and equipment                  2,752,410      2,754,007
                                                     -----------    -----------

                                                       2,938,099      2,939,838
    Less accumulated depreciation                     (2,287,484)    (2,046,381)
                                                     -----------    -----------

                                                         650,615        893,457
                                                     -----------    -----------




OTHER ASSETS                                                --            4,000
                                                     -----------    -----------

                                                     $ 4,033,328    $ 4,257,222
                                                     ===========    ===========


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


                                      -12-
<PAGE>

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

<TABLE>
<CAPTION>
                                                                1999         1998
                                                             ----------   ----------
<S>                                                          <C>          <C>
         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
    Accounts payable                                         $  653,117   $  655,937
    Short-term borrowings (Note 3)                              306,955      208,945
    Obligations under capital leases, current portion
     (Note 4)                                                   117,414      144,077
    Accrued sales tax                                            96,852      106,239
    Federal and state income taxes                                 --         24,634
    Other                                                       106,219      128,652
                                                             ----------   ----------

         Total current liabilities                            1,280,557    1,268,484
                                                             ----------   ----------

DEFERRED INCOME TAXES (Note 5)                                   40,335       62,504
                                                             ----------   ----------

OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS
    (Note 4)                                                     67,898      183,842
                                                             ----------   ----------

DEFERRED INCOME (Note 6)                                         86,897      107,546
                                                             ----------   ----------

STOCKHOLDERS' EQUITY (Note 3)
    Nonvoting preferred stock - authorized 5,000,000
      shares of no par value; no shares issued                     --           --
    Nonvoting common stock - $.10 par value; authorized
      5,000,000 shares; no shares issued                           --           --
    Common stock - $.10 par value; authorized 5,000,000
      shares; shares issued of 870,355 in 1999 and 890,597
      in 1998                                                    87,036       89,060
    Additional paid-in capital                                  725,807      742,688
    Retained earnings                                         1,744,798    1,803,098
                                                             ----------   ----------

                                                              2,557,641    2,634,846
                                                             ----------   ----------

                                                             $4,033,328   $4,257,222
                                                             ==========   ==========
</TABLE>


                                      -13-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

     For the Fiscal Years Ended May 29, 1999, May 30, 1998, and May 31, 1997


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


<TABLE>
<CAPTION>
                                                                    Additional
                                       Common         Paid-in        Retained
                                        Stock         Capital        Earnings        Total
                                     -----------    -----------    -----------    -----------
<S>                                  <C>            <C>            <C>            <C>
Balance, June 1, 1996                $    92,465    $   771,088    $ 1,666,324    $ 2,529,877

    Net income for year                     --             --          108,915        108,915

    Cash dividends, $.06 per share          --             --          (55,480)       (55,480)

    Redemption of common stock              (315)        (2,624)          (207)        (3,146)
                                     -----------    -----------    -----------    -----------

Balance, May 31, 1997                     92,150        768,464      1,719,552      2,580,166

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

      Redemption of common stock          (3,090)       (25,776)        (2,043)       (30,909)
                                     -----------    -----------    -----------    -----------

Balance, May 30, 1998                     89,060        742,688      1,803,098      2,634,846

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

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

Balance, May 29, 1999                $    87,036    $   725,807    $ 1,744,798    $ 2,557,641
                                     ===========    ===========    ===========    ===========
</TABLE>


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


                                      -14-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                            STATEMENTS OF CASH FLOWS

     For the Fiscal Years Ended May 29, 1999, May 30, 1998, and May 31, 1997

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

<TABLE>
<CAPTION>
                                                                1999         1998         1997
                                                             (52 Weeks)   (52 Weeks)   (52 Weeks)
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss)                                         $ (56,963)   $  85,589    $ 108,915
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Depreciation and amortization                           250,105      271,792      278,659
        Deferred income taxes                                   (22,169)      14,234        7,937
        (Gain) loss on sale of property and equipment                10       (6,510)      28,973
        Change in operating assets and liabilities:
          Accounts receivable                                    25,614      (28,384)      43,474
          Inventories                                           (30,034)     (92,194)     (74,505)
          Prepaid expenses and other assets                       5,535       12,673       42,469
          Refundable income taxes                               (28,119)      80,953      (80,953)
          Accounts payable and accrued liabilities              (34,640)     (56,489)    (115,730)
          Federal and state income taxes                        (24,634)      24,634      (24,067)
                                                              ---------    ---------    ---------

            Net cash provided by operating activities            84,705      306,298      215,172
                                                              ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of certificate of deposit                         (414,520)    (394,792)    (374,396)
    Proceeds from maturity of certificate of deposit            394,792      374,396      355,932
    Purchase of property and equipment                          (27,922)    (113,762)     (70,690)
    Proceeds from disposal of property and equipment               --          6,950       13,700
                                                              ---------    ---------    ---------

            Net cash used in investing activities               (47,650)    (127,208)     (75,454)
                                                              ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase (decrease) in short-term borrowings             98,010       79,945      (72,000)
    Principal payments on obligations under capital leases     (142,607)    (143,376)    (126,169)
    Cash dividends                                                 --           --        (55,480)
    Redemption of common stock                                  (20,242)     (30,909)      (3,146)
                                                              ---------    ---------    ---------

      Net cash used in financing activities                     (64,839)     (94,340)    (256,795)
                                                              ---------    ---------    ---------


Net increase (decrease) in cash
  and cash equivalents                                          (27,784)      84,750     (117,077)

Cash and cash equivalents, beginning of year                    945,222      860,472      977,549
                                                              ---------    ---------    ---------

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

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
      Cash paid (received) during the year for:
        Income taxes                                          $  46,818    $ (78,370)   $ 121,102
        Interest                                                 50,310       59,551       72,532
                                                              =========    =========    =========

NONCASH FINANCING ACTIVITIES
    Capital lease obligations incurred for use of equipment   $    --      $    --      $  99,716
                                                              =========    =========    =========
</TABLE>

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


                                      -15-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

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

          Nature of business:

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

          Use of estimates:

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

          Cash and cash equivalents:

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

          Inventories:

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

          Depreciation of property and equipment:

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

          Advertising costs:

          Advertising costs are charged to operations when incurred. Advertising
          costs charged to operations were $407,004,  $454,847, and $442,522, in
          1999, 1998, and 1997, respectively.

          Deferred income taxes:

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

Note 2.   Securities Purchased Under Agreement to Resell

          Included in cash and short-term  investments are securities  purchased
          under  agreement to resell.  The Company  invests excess funds in U.S.
          Government or U.S.  Government  Agency  securities which are purchased
          under an  agreement  to resell  (reverse  repurchase  agreement).  The
          securities are purchased from a bank but do not constitute deposits at
          the  bank  and  are  not  insured  by the  Federal  Deposit  Insurance
          Corporation. The bank

                                      -16-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

Note 2.   Securities Purchased Under Agreement to Resell (continued)

          maintains possession of the securities,  but title of ownership passes
          to the  Company  according  to the  terms of the  agreement.  The bank
          repurchases the securities the business day immediately  following the
          Company's  purchase date. The carrying amount of securities  purchased
          under  agreement  to resell  approximates  fair value.  Risk of market
          value  deterioration  is  mitigated  by the  short-term  nature of the
          transaction  and  the  type of  securities  purchased.  There  were no
          amounts  outstanding  under the  agreement  at May 29,  1999.  Amounts
          outstanding under the agreement were $161,256 at May 30, 1998.

Note 3.   Short-Term Borrowings

          The  Company  had  line-of-credit  agreements  with a bank and a major
          supplier totaling $1,100,000 at May 29, 1999, and May 30, 1998. During
          1999 and 1998, only the bank line of credit was used.

          Amounts  outstanding  under the bank  agreement  bear  interest at the
          bank's base rate,  and the maximum amount  available is $800,000.  The
          line of credit is collateralized by a $414,520  certificate of deposit
          owned by the Company.  At May 29, 2999, $156,790 was outstanding under
          this line of credit. There were no amounts outstanding under this line
          of credit at May 30, 1998.

          Amounts  outstanding  under the agreement with the major supplier bear
          interest at the prime rate plus 3%, and the maximum  amount  available
          is   $300,000.   Any   outstanding   debt  under  this   agreement  is
          collateralized by inventory, equipment, and trade fixtures. The credit
          agreement contains  restrictions  regarding the maintenance of minimum
          inventory and net worth levels.

          Short-term  borrowings at May 29, 1999, and May 30, 1998, consisted of
          unsecured notes payable totaling $150,165 and $208,945,  respectively,
          to  Michael  and  Diana  Richardson,  principal  shareholders  of  the
          Company,  and to a trust for the  benefit  of their son.  These  notes
          provide  for  interest  at .25%  below  the  bank's  base rate and are
          payable  on  demand.  The  carrying  amount of  short-term  borrowings
          approximates fair value.

          The  weighted  average  interest  rate on  amounts  outstanding  under
          short-term borrowings was 7.84% and 8.25% at May 29, 1999, and May 30,
          1998, respectively.

Note 4.   Lease Commitments

          Capital leases:

          The  Company  leases  cash  registers  and  scanning  equipment  under
          agreements which are classified as capital leases.  The leased capital
          assets  included  in  property  and  equipment  totaled  $154,703  and
          $290,101 net of accumulated  depreciation  of $492,511 and $357,113 at
          May 29, 1999, and May 30, 1998, respectively. Depreciation expense for
          leased capital assets is included in total  depreciation  expense as a
          part  of  operating,   general  and  administrative  expenses  in  the
          statements of income.


                                      -17-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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


Note 4.   Lease Commitments (continued)

          Capital leases: (continued)

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

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

              2000                                                    $131,865
              2001                                                      66,824
              2002                                                       3,947
                                                                      --------
                                                                       202,636
              Less amount representing interest                        (17,324)
                                                                      --------

                  Total obligation under capital leases                185,312

              Less current maturities of obligation under
                capital leases                                        (117,414)
                                                                      --------

                                                                      $ 67,898
                                                                      ========

          Operating leases:

          The  Company  leases  the  facilities  in  which  its  retail  grocery
          operations  are located  under  noncancelable  operating  leases which
          expire at various dates through  December 2004.  Substantially  all of
          the leases  include  renewal  options.  The following is a schedule by
          years of future  minimum  rental  payments  required  under  operating
          leases that have  initial or  remaining  noncancelable  lease terms in
          excess of one year as of May 29, 1999:

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

                    2000                                 $  440,626
                    2001                                    435,826
                    2002                                    415,326
                    2003                                    263,034
                    2004                                    136,960
                 After 2004                                  24,220
                                                         ----------
                    Total                                $1,715,992
                                                         ==========


                                      -18-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

Note 4.   Lease Commitments (continued)

          Operating leases: (continued)

          Rental  expense for the fiscal years ended May 29, 1999, May 30, 1998,
          and May 31, 1997, is as follows:

                                           1999       1998       1997
                                         --------   --------   --------

     Minimum rentals                     $445,426   $433,594   $429,994
     Contingent rentals based on sales      4,963     11,985     20,160
                                         --------   --------   --------

         Total                           $450,389   $445,579   $450,154
                                         ========   ========   ========

Note 5.   Federal and State Income Taxes

          The  components  of income tax expense for the fiscal  years ended May
          29, 1999, May 30, 1998, and May 31, 1997, are as follows:

                                              1999        1998       1997
                                            --------    --------   --------
     Current tax expense:
        Federal                             $ (7,704)   $ 15,729   $  8,545
        State                                 (2,231)      6,989      3,237
                                            --------    --------   --------

                                              (9,935)     22,718     11,782
                                            --------    --------   --------
     Deferred tax expense:
        Federal                              (18,369)     13,466      5,397
        State                                 (3,800)        768      2,540
                                            --------    --------   --------

                                             (22,169)     14,234      7,937
                                            --------    --------   --------

          Total income tax expense          $(32,104)   $ 36,952   $ 19,719
                                            ========    ========   ========

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

                                             1999        1998       1997
                                           --------    --------   --------
     Federal income tax expense
        computed at the statutory rate     $(18,500)   $ 31,000   $ 33,400
     State income tax, net of federal
        income tax benefit                   (4,500)      5,900      4,600
     Other                                   (9,104)         52    (18,281)
                                           --------    --------   --------

        Total income tax expense           $(32,104)   $ 36,952   $ 19,719
                                           ========    ========   ========


                                      -19-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

Note 5.   Federal and State Income Taxes (continued)

          The tax effects of significant  temporary  differences  which comprise
          the deferred tax assets and  liabilities  at May 29, 1999, and May 30,
          1998, are as follows:

                                                        1999        1998
                                                      --------    --------

     Assets:
        Deferred income                               $(23,708)   $(29,761)
        Other                                           (7,311)     (1,909)

     Liabilities:
        Depreciable basis of property and equipment     66,925      94,174
       Other                                             4,429        --
                                                      --------    --------

                                                      $ 40,335    $ 62,504
                                                      ========    ========


Note 6.   Sale of Assets and Deferred Income

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

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

Note 7.   Employee Benefit Plan

          Effective  January  1, 1995,  the  Company  adopted a 401(k)  employee
          benefit plan covering substantially all employees who have met minimum
          service and age  requirements.  The service and age requirements  were
          waived for the initial plan  participants to encourage  participation.
          The Company's  annual  contribution  is  discretionary.  The Company's
          contribution to the plan was $7,500 in 1999 and $10,000 in 1998.



                                      -20-
<PAGE>

                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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



Note 8.   Concentration of Credit Risk

          The Company  maintains  a  certificate  of deposit  and other  deposit
          accounts at financial institutions in amounts which exceed the Federal
          Deposit  Insurance  Corporation  (FDIC)  insurance limit. The total of
          deposits which  exceeded the FDIC insurance  limit was $707,070 at May
          29, 1999.  The Company  believes  that  maintaining  deposits in these
          financial  institutions  does not represent a significant  credit risk
          and that the Company benefits from favorable banking  relationships as
          a result of maintaining deposits with these institutions.


Note 9.   Related Party Transactions

          As described in greater detail in Note 3 above, the Company finances a
          portion  of  its  working  capital   requirements  through  borrowings
          consisting  of two  unsecured  notes,  payable  to  Michael  and Diana
          Richardson,  principal shareholders of the Company, and to a trust for
          the  benefit of their son.  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.





                                      -21-