[LOGO]

American

Consumers,

Inc.


                                                                          1997

                                                                          Annual

                                                                          Report



<PAGE>


                               TO OUR STOCKHOLDERS


     Sales for the 52-week fiscal year ended May 30, 1998, were $26,920,197. The
Company  operated six stores  during the fiscal years ended May 30, 1998 and May
31,  1997.  Net  profits  for the fiscal  year were  $85,589 as  compared to net
profits of $108,915 for the previous  year.  Earnings per share were 9 cents for
the  current  fiscal  year as  compared  to 12 cents per share for the  previous
fiscal year.  Book value per share at May 30, 1998,  and May 31, 1997, was $2.96
and $2.80, respectively.

     The Board of Directors  elected not to pay dividends  during the year.  The
Company  repurchased  30,910  shares of common stock from  certain  unaffiliated
shareholders in response to several unsolicited requests during the year.

     Entry  into the  Company's  trade area by Winn  Dixie and  Save-A-Lot,  and
further  expansion of Food Lion, a foreign-owned  competitor,  has caused Ingles
and  Bi-Lo to  react  negatively  by  further  reducing  prices  and  increasing
advertising  and  promotional  activity.  These  developments  have  resulted in
further pressures on the Company's sales and profits.

     Despite  intense  competition,  the  Company  has  managed to  sustain  its
profitability  during the year through carefully  controlling costs and managing
prices.

     It is difficult to  anticipate  the effect of current and future events and
actions in the  marketplace,  but management  intends to continue its efforts to
maintain the Company's  profitability  for the  well-being of its  shareholders,
employees, and customers.

     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)
Fleming Meat Director (Retired)
</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 30          MAY 31          JUNE 1            JUNE 3           MAY 28
                                                          1998            1997            1996              1995             1994   
                                                       ----------     ----------        ----------       ----------       ----------
<S>                                                    <C>              <C>              <C>              <C>              <C>     
NET SALES .....................................        $ 26,920         $ 28,005         $ 29,286         $ 28,835         $ 28,542
                                                       --------         --------         --------         --------         --------

COST AND EXPENSES:
    Cost of goods sold ........................          21,015           22,047           22,996           22,896           22,727
    Operating, general and
      administrative expenses .................           5,788            5,802            5,895            5,675            5,467
    Interest expense ..........................              58               72               46               18               14
    Other income, net .........................             (64)             (45)             (27)             (41)             (51)
                                                       --------         --------         --------         --------         --------
      Total ...................................          26,797           27,876           28,910           28,548           28,157
                                                       --------         --------         --------         --------         --------

Income before income taxes ....................             123              129              376              287              385
                                                       --------         --------         --------         --------         --------

INCOME TAXES:
    Federal ...................................              29               14              119               99              123
    State .....................................               8                6               21               16               23
                                                       --------         --------         --------         --------         --------
    Total .....................................              37               20              140              115              146
                                                       --------         --------         --------         --------         --------
 
NET INCOME ....................................        $     86         $    109         $    236         $    172         $    239
                                                       ========         ========         ========         ========         ========

PER SHARE AMOUNTS:
    Net income ................................        $    .09         $    .12         $    .25         $    .18         $    .25
                                                       ========         ========         ========         ========         ========

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

WEIGHTED AVERAGE NUMBER
    OF SHARES OUTSTANDING .....................             907              923              926              933              944
                                                       ========         ========         ========         ========         ========

TOTAL ASSETS ..................................        $  4,257         $  4,301         $  4,503         $  3,737         $  3,808
                                                       ========         ========         ========         ========         ========

OBLIGATIONS UNDER CAPITAL
    LEASE AGREEMENTS ..........................        $    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 30,
1998,  was  945.  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
                                        ----               ---            ----               ---             ---------
1998                                                                                                                  
----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>               <C>                                                         
  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
----------------------------------------------------------------------------------------------------------------------


1997                                                                                                                  
  First Quarter                         $0.50             $0.50           None               None                 None
----------------------------------------------------------------------------------------------------------------------
  Second Quarter                        $0.50             $0.50           None               None                $0.06
----------------------------------------------------------------------------------------------------------------------
  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 30, 1998, are:

         Amro Chicago Corp.                       New York   

         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

         Chicago Corporation                      Chicago         (800) 621-1674

         Knight Securities LP                     New Jersey      (800) 232-3684

         Seidler Companies (THE), Inc.            Los Angeles     (800) 966-7022

         Sharp Capital, Inc.                      New York


                                     - 4 -
<PAGE>


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

                              RESULTS OF OPERATIONS


     The Company  experienced  an after-tax  profit in its fiscal year ended May
30,  1998,  of $85,589 as compared to a profit of $108,915  for the prior fiscal
year. Net sales for the current 52-week fiscal year decreased approximately 3.9%
from net sales for the previous 52-week fiscal year, due to direct competition.

     Management  believes that entry into the Company's trade area by Winn Dixie
and  Save-A-Lot,  and  further  expansion  in the area by Food Lion,  has caused
Ingle's and Bi-Lo to react by further reducing prices and increasing advertising
and promotional activity. These developments have resulted in increased pressure
on the Company's market share, sales and profits during fiscal 1998.

     The  Company's  gross margin  increased  slightly to 21.94% during the past
year versus 21.27% for fiscal year 1997 and 21.48% for fiscal year 1996.

     The amount of Operating, General and Administrative Expenses for the fiscal
year ended May 30, 1998,  decreased from the previous fiscal year. Such expenses
as a percentage of sales  remained  fairly  consistent at 21.50% for fiscal year
1998 as compared to 20.72% for fiscal year 1997 and 20.13% for fiscal 1996.  The
increase in the percentage in fiscal 1998 as compared to fiscal 1997 is due to a
decrease in net sales.

     The decrease in interest  expense is attributable  to interest  expensed on
capitalized  leases in the amount of $44,483  during  fiscal  1998  compared  to
$57,243 in fiscal 1997 and $23,539 in fiscal 1996.

     Other income for the past three (3) fiscal years consists of the following:
                                            1998          1997           1996   
                                        ----------     ----------     ----------

Vendors' compensation                     $ 15,507      $ 15,338       $ 16,752
Loss on sale of assets                       6,510       (28,973)       (21,621)
Interest income                             24,713        40,236         25,364
Other income                                17,544        18,777          7,852
                                          --------      --------       --------

    Totals                                $ 64,274      $ 45,378       $ 28,347
                                          ========      ========       ========


                                  - 5 -<PAGE>


     Price competition remained a significant factor in the Company's results of
operations.  The  Company's  major  competitors  advertise a variety of mainline
items at prices below the Company's cost and sell at everyday low prices several
entire categories of items (pet foods,  cereals,  baby foods,  etc.) at or below
the Company's cost. Accordingly,  the Company seeks to improve its profitability
by  obtaining  the  lowest  cost for its goods  and by  carefully  managing  its
pricing.  The Company's major supplier of staple  groceries is Fleming Co., Inc.
("Fleming") a supplier with its principal  corporate  offices in Oklahoma  City,
Oklahoma.

Income Taxes

     The provision for income taxes for the fiscal year ended May 30, 1998,  was
$36,952 or 30% of income before income taxes. The provision for income taxes for
1997 was 15% of income before  income taxes.  The provision for income taxes for
fiscal 1996 was 37% of income  before  income  taxes.  The  components of income
taxes are detailed in Note 5 of the Company's financial statements.

     Federal and state income taxes are included as a current  liability for the
current fiscal year and as refundable income taxes for fiscal 1997.

Inflation

     The  Company  continues  to seek  ways to cope with the  threat of  renewed
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 May 30,
1998,  and May 31, 1997,  are  unsecured  notes  payable  totaling  $208,945 and
$129,000,  respectively,  to a stockholder and the estate of a former  principal
stockholder.  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 2.65 to 1 at the end
of fiscal  1998,  as compared to 2.64 to 1 at the end of fiscal  1997.  Cash and
temporary  investments  constituted  39.88% of total  current  assets at May 30,
1998, as compared to 38.33% of total current assets at May 31, 1997.

     Accounts receivable increased $28,384 due to an increase in receivables for
advertising  and  merchandise  rebates  and a loan to an  employee as of May 30,
1998.

     Inventories   increased   $92,194  over  last  year  due  to  purchases  of
merchandise at a reduced price prior to year-end.


                                     - 6 -
<PAGE>

     The  decrease  in prepaid  expenses  was  caused by a  decrease  in prepaid
insurance premiums and other prepaids for the periods presented.

     Other current liabilities increased due to a increase in accrued bonuses at
May 30, 1998.

     During the fiscal year ended May 30, 1998, retained earnings increased as a
result of the Company's profitability.

Material Commitments

     Capital  expenditures  are not expected to exceed  $100,000 during the next
fiscal 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 $10,000 in 1998 and $15,000 in 1997.

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


                                     - 7 -
<PAGE>


               Report of Independent Certified Public Accountants





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

     We have audited the accompanying balance sheets of American Consumers, Inc.
as of May 30, 1998,  and May 31,  1997,  and the related  statements  of income,
changes in stockholders'  equity,  and cash flows for each of the three years in
the period ended May 30, 1998. 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 30, 1998,  and May 31, 1997,  and the results of its operations and its cash
flows  for  each of the  three  years  in the  period  ended  May 30,  1998,  in
conformity with generally accepted accounting principles.




Chattanooga, Tennessee
June 24, 1998


                                     - 8 -
<PAGE>


                            AMERICAN CONSUMERS, INC.

                              STATEMENTS OF INCOME

     For the Fiscal Years Ended May 30, 1998, May 31, 1997, and June 1, 1996

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                   1998                1997               1996
                                                                                 (52 Weeks)         (52 Weeks)          (52 Weeks) 
                                                                                ------------       ------------        ------------
<S>                                                                            <C>                 <C>                 <C>         
NET SALES ..............................................................       $ 26,920,197        $ 28,004,993        $ 29,285,926

COST OF GOODS SOLD .....................................................         21,014,735          22,047,027          22,996,383
                                                                               ------------        ------------        ------------
      Gross profit .....................................................          5,905,462           5,957,966           6,289,543

OPERATING, GENERAL AND
    ADMINISTRATIVE EXPENSES ............................................          5,788,657           5,802,594           5,895,329
                                                                               ------------        ------------        ------------
      Operating income .................................................            116,805             155,372             394,214
                                                                               ------------        ------------        ------------

OTHER INCOME (EXPENSE)
    Interest expense ...................................................            (58,538)            (72,116)            (46,153)
    Other income .......................................................             64,274              45,378              28,347
                                                                               ------------        ------------        ------------
                                                                                      5,736             (26,738)            (17,806)
                                                                               ------------        ------------        ------------

      Income before income taxes .......................................            122,541             128,634             376,408

FEDERAL AND STATE INCOME
    TAXES (Note 5) .....................................................             36,952              19,719             140,457
                                                                               ------------        ------------        ------------

NET INCOME .............................................................       $     85,589        $    108,915        $    235,951
                                                                               ============        ============        ============

EARNINGS PER SHARE......................................................       $        .09        $        .12        $        .25
                                                                               ============        ============        ============
WEIGHTED AVERAGE NUMBER
    OF SHARES OUTSTANDING ..............................................            906,602             922,977             925,961
                                                                               ============        ============        ============
</TABLE>


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


                                     - 9 -
<PAGE>


                                             AMERICAN CONSUMERS, INC.

                                                  BALANCE SHEETS

                                          May 30, 1998, and May 31, 1997

<TABLE>
<CAPTION>
                                                                                                     1998                     1997  
                                                                                                 ---------------      --------------
         ASSETS

CURRENT ASSETS
<S>                                       <C>                                                    <C>                      <C>       
    Cash and short-term investments (Note 2) .....................................               $  945,222               $  860,472
    Certificate of deposit (Note 3) ..............................................                  394,792                  374,396
    Accounts receivable ..........................................................                  175,135                  146,751
    Inventories (Note 3) .........................................................                1,830,003                1,737,809
    Prepaid expenses .............................................................                   14,613                   21,286
    Refundable income tax ........................................................                        -                   80,953
                                                                                                 ----------               ----------
         Total current assets ....................................................                3,359,765                3,221,667
                                                                                                 ==========               ==========


PROPERTY AND EQUIPMENT - at cost (Notes 3 and 4)
    Leasehold improvements .......................................................                  185,831                  180,945
    Furniture, fixtures and equipment ............................................                2,754,007                2,692,069
                                                                                                 ----------               ----------
                                                                                                  2,939,838                2,873,014
    Less accumulated depreciation ................................................                2,046,381                1,803,230
                                                                                                 ----------               ----------
                                                                                                    893,457                1,069,784
                                                                                                 ----------               ----------


OTHER ASSETS .....................................................................                    4,000                   10,000
                                                                                                 ----------               ----------

                                                                                                 $4,257,222               $4,301,451
                                                                                                 ==========               ==========
</TABLE>


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


                                     - 10 -
<PAGE>


--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                                       1998                 1997    
                                                                                                   ------------        ------------
         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
<S>                                                                                                 <C>                   <C>       
    Accounts payable ...................................................................            $  655,937            $  718,216
    Short-term borrowings (Note 3) .....................................................               208,945               129,000
    Obligations under capital leases, current portion (Note 4) .........................               144,077               144,926
    Accrued sales tax ..................................................................               106,239               113,308
    Federal and state income taxes .....................................................                24,634                     -
    Other ..............................................................................               128,652               115,793
                                                                                                    ----------            ----------
         Total current liabilities .....................................................             1,268,484             1,221,243
                                                                                                    ----------            ----------
DEFERRED INCOME TAXES (Note 5) .........................................................                62,504                48,270
                                                                                                    ----------            ----------
OBLIGATIONS UNDER CAPITAL LEASE AGREEMENTS
    (Note 4) ...........................................................................               183,842               326,369
                                                                                                    ----------            ----------
DEFERRED INCOME (Note 6) ...............................................................               107,546               125,403
                                                                                                    ----------            ----------
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 921,507 in 1997 and 924,653
      in 1996 ..........................................................................                89,060                92,150
    Additional paid-in capital .........................................................               742,688               768,464
    Retained earnings ..................................................................             1,803,098             1,719,552
                                                                                                    ----------            ----------

                                                                                                     2,634,846             2,580,166
                                                                                                    ----------            ----------
                                                                                                    $4,257,222            $4,301,451
                                                                                                    ==========            ==========
</TABLE>


                                     - 11 -
<PAGE>


                            AMERICAN CONSUMERS, INC.
     
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

     For the Fiscal Years Ended May 30, 1998, May 31, 1997, and June 1, 1996
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                   Additional
                                                                Common              Paid-in           Retained
                                                                Stock               Capital           Earnings              Total   
                                                            -----------         -----------         -----------         ------ ----
<S>          <C> <C>                                        <C>                 <C>                 <C>                 <C>        
Balance, June 3, 1995 ..............................             92,744             773,415           1,467,651           2,333,810

    Net income for year ............................               --                  --               235,951             235,951

    Cash dividends, $.04 per share .................               --                  --               (37,093)            (37,093)

    Redemption of common stock .....................               (279)             (2,327)               (185)             (2,791)
                                                            -----------         -----------         -----------         -----------

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
                                                            ===========         ===========         ===========         ===========
</TABLE>

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


                                     - 12 -
<PAGE>


                            AMERICAN CONSUMERS, INC.

                            STATEMENTS OF CASH FLOWS

     For the Fiscal Years Ended May 30, 1998, May 31, 1997, and June 1, 1996
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                          1998             1997            1996
                                                                                       (52 Weeks)       (52 Weeks)      (52 Weeks)
                                                                                       ----------       ----------      ----------
<S>                                                                                     <C>              <C>              <C>      

CASH FLOWS FROM OPERATING ACTIVITIES
    Net income ..................................................................       $  85,589        $ 108,915        $ 235,951
    Adjustments to reconcile net income to net cash
      provided by operating activities:
        Depreciation and amortization ...........................................         271,792          278,659          183,974
        Deferred income taxes ...................................................          14,234            7,937           13,574
        Loss on sale of property and equipment ..................................          (6,510)          28,973           21,621
        Change in operating assets and liabilities:
          Accounts receivable ...................................................         (28,384)          43,474           48,298
          Inventories ...........................................................         (92,194)         (74,505)         (63,869)
          Prepaid expenses and other assets .....................................          12,673           42,469           46,311
          Refundable income taxes ...............................................          80,953          (80,953)            --
          Accounts payable and accrued liabilities ..............................         (56,489)        (115,730)          52,774
          Federal and state income taxes ........................................          24,634          (24,067)          24,067
                                                                                        ---------        ---------        ---------
            Net cash provided by operating activities ...........................         306,298          215,082          562,701
                                                                                        ---------        ---------        ---------
CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of certificate of deposit ..........................................        (394,792)        (374,396)        (355,932)
    Proceeds from maturity of certificate of deposit ............................         374,396          355,932          337,021
    Purchase of property and equipment ..........................................        (113,762)         (70,690)         (88,411)
    Proceeds from disposal of property and equipment ............................           6,950           13,700            4,648
                                                                                        ---------        ---------        ---------
            Net cash used in investing activities ...............................        (127,208)         (75,454)        (102,674)
                                                                                        ---------        ---------        ---------
CASH FLOWS FROM FINANCING ACTIVITIES
    Net increase (decrease) in short-term borrowings ............................          79,945          (72,000)           3,000
    Principal payments on obligations under capital leases ......................        (143,376)        (126,169)         (49,750)
    Cash dividends ..............................................................            --            (55,480)         (37,093)
    Redemption of common stock ..................................................         (30,909)          (3,146)          (2,791)
                                                                                        ---------        ---------        ---------
            Net cash used in financing activities ...............................         (94,340)        (256,795)         (86,634)
                                                                                        ---------        ---------        ---------
Net increase (decrease) in cash
  and cash equivalents ..........................................................          84,750         (117,077)         373,393

Cash and cash equivalents, beginning of year ....................................         860,472          977,549          604,156
                                                                                        ---------        ---------        ---------
Cash and cash equivalents, end of year ..........................................       $ 945,222        $ 860,472        $ 977,549
                                                                                        =========        =========        =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
      Cash paid during the year for:
        Income taxes ............................................................       $ (78,370)       $ 121,102        $  92,496
        Interest ................................................................          59,551           72,532           46,361
                                                                                        =========        =========        =========
NONCASH FINANCING ACTIVITIES
    Capital lease obligations incurred for use of equipment$ ....................            --          $  99,716        $ 547,498
                                                                                        =========        =========        =========
</TABLE>

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


<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 $454,847,  $442,522,  and $485,156 in
          1998, 1997, and 1996, 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


                                     - 14 -
<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.  Amounts outstanding
          under the agreement were $161,256 at May 30, 1998, and $190,878 at May
          31, 1997.

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 30, 1998, and May 31, 1997. During
          1998 and 1997, 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 $394,792  certificate of deposit
          owned by the Company.  There were no amounts  outstanding on this line
          of credit at May 30, 1998, or May 31, 1997.

          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 30, 1998, and May 31, 1997, consisted of
          unsecured notes payable totaling $208,945 and $129,000,  respectively,
          to a  stockholder  and the estate of a former  principal  stockholder.
          These notes  provide  for  interest at .25% below the bank's base rate
          and  are  payable  on  demand.   The  carrying  amount  of  short-term
          borrowings approximates fair value.

          The  weighted  average  interest  rate on  amounts  outstanding  under
          short-term borrowings was 8.25% and 8.25% at May 30, 1998, and May 31,
          1997, 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  $290,101  and
          $439,426 net of accumulated  depreciation  of $357,113 and $207,788 at
          May 30, 1998, and May 31, 1997, respectively. Depreciation expense for
          leased capital assets is included in total  depreciation  expense as a
          part  of  operating,   general  and  administrative  expenses  in  the
          statements of income.


                                     -15 -
<PAGE>


                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


Note 4.   Lease Commitments (continued)

          Capital leases: (continued)

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

              Fiscal
            Year Ending
            -----------
              1999                                                    $172,465
              2000                                                     130,365
              2001                                                      66,824
              2002                                                       3,588
                                                                     ----------
                                                                       373,242
              Less amount representing interest                        (45,323)
                                                                     ----------

                  Total obligation under capital leases                327,919

              Less current maturities of obligation under
                capital leases                                        (144,077)
                                                                     ----------

                                                                      $183,842
                                                                      =========
          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  November 2003.  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 30, 1998:

                                Fiscal
                              Year Ending
                              -----------
                                  1999                                $  416,475
                                  2000                                   394,306
                                  2001                                   394,306
                                  2002                                   373,806
                                  2003                                   122,440
                                After 2003                               194,514
                                                                      ----------

                                  Total                               $1,895,847
                                                                      ==========


                                     - 16 -
<PAGE>


                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

Note 4.   Lease Commitments (continued)

          Operating leases: (continued)
<TABLE>
<CAPTION>

          Rental  expense for the fiscal years ended May 30, 1998, May 31, 1997,     
          and June 1, 1996, is as follows:                                      1998                   1997                   1996
                                                                              --------               --------             ---------
<S>                                                                           <C>                    <C>                    <C>     
Minimum rentals ...............................................               $433,594               $429,994               $433,050
Contingent rentals based on sales .............................                 11,985                 20,160                 48,529
                                                                              --------               --------               --------
    Total .....................................................               $445,579               $450,154               $481,579
                                                                              ========               ========               ========
                                                                          

Note 5.   Federal and State Income Taxes
<CAPTION>
           The  components  of income tax expense for the fiscal years ended May
           30, 1998, May 31, 1997, and June 1, 1996, are as follows:
                                                                                1998                   1997                   1996  
                                                                               -------                -------               --------
<S>                                                                            <C>                    <C>                   <C>
               Current tax expense:
                   Federal......................................               $15,729                $ 8,545               $107,697
                   State........................................                 6,989                  3,237                 19,186
                                                                               -------                -------               --------
                                                                                22,718                 11,782                 26,883
                Deferred tax expense:                                          -------                -------               --------
                   Federal......................................                13,466                  5,397                 11,284
                   State........................................                   768                  2,540                  2,290
                                                                               -------                -------               --------
                                                                                14,234                  7,937                 13,574
                                                                               -------                -------               --------
                     Total income tax expense                                  $36,952                $19,719               $140,457
                                                                               =======                =======               ========

                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:
<CAPTION>
                                                                              1998                  1997                     1996  
                                                                         -----------             ----------               ---------
<S>                                                                        <C>                    <C>                     <C>      
Federal income tax expense
   computed at the statutory rate ...........................              $  31,000              $  33,400               $ 128,000
State income tax, net of federal
   income tax benefit .......................................                  5,900                  4,600                  14,000
Other .......................................................                     52                (18,281)                 (1,543)
                                                                           ---------              ---------               ---------

   Total income tax expense .................................              $  36,952              $  19,719               $ 140,457
                                                                           =========              =========               =========
</TABLE>


                                     - 17 -
<PAGE>


                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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

Note 5.   Federal and State Income Taxes (continued)

     The tax effects of significant  temporary  differences  which comprise
     the deferred tax assets and  liabilities  at May 30, 1998, and May 31,
     1997, are as follows:
                                            
                                                       1998              1997  
                                                   ------------      -----------
Assets:
   Deferred income ...........................       $ (29,761)       $ (37,621)
   Other .....................................          (1,909)         (15,283)

Liabilities:
   Depreciable basis of property and
     equipment ...............................          94,174          101,174
                                                     ---------        ---------
                                                     $  62,504        $  48,270
                                                     =========        =========


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 was leased to others and
          approximately  24,360  square  feet  was 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 $10,000 in 1998 and $15,000 in 1997.


                                     -18 -

<PAGE>



                            AMERICAN CONSUMERS, INC.

                          NOTES TO FINANCIAL STATEMENTS

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




Note 8.   Concentration of Credit Risk

          The Company  maintains  a  certificate  of deposit  and other  deposit
          accounts at financial institutions in amounts which exceed the Federal
          Deposit  Insurance  Corporation  (FDIC)  insurance limit. The total of
          deposits which  exceeded the FDIC insurance  limit was $579,814 at May
          30, 1998.  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.


                                     - 19 -