UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 31, ~~2010~~2011


o		~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number 1-15589

(Exact name of registrant as specified in its charter)

Delaware
~~Delaware~~		47-0702918

(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

7405 Irvington Road, Omaha NE		68122

(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code:(402) 331-3727

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~Yes~~xþ No Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes ~~Yes~~£ No o Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ~~Yes~~£o No Noþx

The Registrant had 590,232 shares of its $.01 par value common stock outstanding as of ~~January 17,~~April 18, 2011.

Table of Contents

Form 10-Q
~~1st~~

2nd Quarter

INDEX

			PAGE
	~~PAGE~~
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed consolidated balance sheets at ~~December~~March 31, ~~2010~~2011 (unaudited) and September 30, 2010		3

Condensed consolidated unaudited statements of operations for the three and six months ended ~~December~~March 31, ~~2010~~2011 and ~~2009~~2010		4

Condensed consolidated unaudited statements of cash flows for the ~~three~~six months ended ~~December~~March 31, ~~2010~~2011 and ~~2009~~2010		5

Notes to condensed consolidated unaudited financial statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures About Market Risk		23	24

Item 4. Controls and Procedures		23	24

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		24	25

Item 1A. Risk Factors		24	25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		24	25

Item 3. Defaults Upon Senior Securities		24	25

Item 4. (Removed and Reserved)		24	25

Item 5. Other Information		24	25

Item 6. Exhibits		24

~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~
~~Exhibit 32.2~~ 26

Table of Contents
PART I — FINANCIAL INFORMATION
~~Item 1.~~
~~Financial Statements~~
Item 1.     Financial Statements
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Balance Sheets
~~December~~March 31, ~~2010~~2011 and September 30, 2010

December September
2010 2010
(Unaudited)
ASSETS

Current assets:
Cash $ 300,920 $ 356,735
Accounts receivable, less allowance for doubtful accounts of $1.0 million and $1.6 million at December 2010 and September 2010, respectively 22,245,824 27,903,689
Inventories, net 36,060,248 35,005,957
Deferred income taxes 1,542,599 1,905,974
Prepaid and other current assets 4,772,035 3,013,485

Total current assets 64,921,626 68,185,840

Property and equipment, net 11,712,178 11,855,669
Goodwill 6,149,168 6,149,168
Other intangible assets, net 4,757,019 4,807,644
Other assets 1,075,563 1,069,050

$ 88,615,554 $ 92,067,371

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:
Accounts payable $ 14,698,370 $ 16,656,257
Accrued expenses 6,506,609 6,007,900
Accrued wages, salaries and bonuses 2,085,776 3,161,817
Income taxes payable 1,100,779 2,366,667
Current maturities of long-term debt 851,153 893,291

Total current liabilities 25,242,687 29,085,932

Credit facility 17,169,003 18,816,709
Deferred income taxes 1,135,311 1,075,861
Long-term debt, less current maturities 5,018,717 5,226,586
Other long-term liabilities 73,072 587,479
Series A cumulative, convertible preferred stock, $.01 par value 100,000 shares authorized and issued, liquidation preference $25.00 per share 2,500,000 2,500,000
Series B cumulative, convertible preferred stock, $.01 par value 80,000 shares authorized and issued, liquidation preference $25.00 per share 2,000,000 2,000,000

Shareholders’ equity:
Preferred stock, $0.01 par, 1,000,000 shares authorized, 180,000 shares outstanding and issued in Series A and B referred to above — —
Common stock, $.01 par value, 3,000,000 shares authorized, 590,232 shares outstanding at December 2010 and 577,432 shares outstanding at September 2010 5,902 5,774
Additional paid-in capital 9,425,208 8,376,640
Retained earnings 26,045,654 24,392,390

Total shareholders’ equity 35,476,764 32,774,804

$ 88,615,554 $ 92,067,371

March
2011

September
2010

(Unaudited)

ASSETS

Current assets:

Cash

$
398,982

$
356,735

Accounts receivable, less allowance for doubtful accounts of $0.8 million and $1.6 million at March 2011 and September 2010, respectively

24,800,880

27,903,689

Inventories, net

33,939,682

35,005,957

Deferred income taxes

1,518,492

1,905,974

Prepaid and other current assets

4,154,742

3,013,485

Total current assets

64,812,778

68,185,840

Property and equipment, net

11,919,797

11,855,669

Goodwill

6,149,168

6,149,168

Other intangible assets, net

4,706,394

4,807,644

Other assets

1,177,614

1,069,050

$
88,765,751

$
92,067,371

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$
16,307,547

$
16,656,257

Accrued expenses

6,569,164

6,007,900

Accrued wages, salaries and bonuses

2,080,139

3,161,817

Income taxes payable

531,884

2,366,667

Current maturities of long-term debt

745,177

893,291

Total current liabilities

26,233,911

29,085,932

Credit facility

14,980,497

18,816,709

Deferred income taxes

1,145,250

1,075,861

Long-term debt, less current maturities

4,902,732

5,226,586

Other long-term liabilities

71,061

587,479

Series A cumulative, convertible preferred stock, $.01 par value 100,000 shares authorized and issued, liquidation preference $25.00 per share

2,500,000

2,500,000

Series B cumulative, convertible preferred stock, $.01 par value 80,000 shares authorized and issued, liquidation preference $25.00 per share

2,000,000

2,000,000

Shareholders’ equity:

Preferred stock, $0.01 par value, 1,000,000 shares authorized, 180,000 shares outstanding and issued in Series A and B referred to above

—

—

Common stock, $.01 par value, 3,000,000 shares authorized, 590,232 shares outstanding at March 2011 and 577,432 shares outstanding at September 2010

5,902

5,774

Additional paid-in capital

9,482,317

8,376,640

Retained earnings

27,444,081

24,392,390

Total shareholders’ equity

36,932,300

32,774,804

$
88,765,751

$
92,067,371

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

3

Table of Contents
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three and six months ended ~~December~~March 31, ~~2010~~2011 and ~~2009~~2010

2010 2009
Sales (including excise taxes of $81.3 million and $81.6 million, respectively) $ 244,957,161 $ 243,941,038
Cost of sales 227,349,439 226,713,025

Gross profit 17,607,722 17,228,013

Selling, general and administrative expenses 13,687,371 13,778,739
Depreciation and amortization 497,583 387,269

14,184,954 14,166,008

Operating income 3,422,768 3,062,005

Other expense (income):
Interest expense 384,583 405,245
Other (income), net (22,881 ) (13,380 )

361,702 391,865

Income from operations before income taxes 3,061,066 2,670,140
Income tax expense 1,229,000 941,000

Net income 1,832,066 1,729,140
Preferred stock dividend requirements (74,867 ) (74,867 )

Net income available to common shareholders $ 1,757,199 $ 1,654,273

Basic earnings per share available to common shareholders $ 3.04 $ 2.95
Diluted earnings per share available to common shareholders $ 2.41 $ 2.32

Basic weighted average shares outstanding 578,636 560,119
Diluted weighted average shares outstanding 758,692 745,223

For the three months
ended March

For the six months
ended March

2011

2010

2011

2010

Sales (including excise taxes of $70.8 million and $76.9 million, and $152.1 million and $158.4 million, respectively)

$
216,603,039

$
230,499,129

$
461,560,200

$
474,440,167

Cost of sales

200,233,927

213,558,955

427,583,366

440,271,980

Gross profit

16,369,112

16,940,174

33,976,834

34,168,187

Selling, general and administrative expenses

12,909,642

13,365,802

26,597,013

27,144,541

Depreciation and amortization

507,133

415,572

1,004,716

802,841

13,416,775

13,781,374

27,601,729

27,947,382

Operating income

2,952,337

3,158,800

6,375,105

6,220,805

Other expense (income):

Interest expense

263,872

368,425

648,455

773,670

Other (income), net

(45,211
)
(23,046
)
(68,092
)
(36,426
)

218,661

345,379

580,363

737,244

Income from operations before income tax

2,733,676

2,813,421

5,794,742

5,483,561

Income tax expense

1,149,000

1,022,000

2,378,000

1,963,000

Net income

1,584,676

1,791,421

3,416,742

3,520,561

Preferred stock dividend requirements

(73,239
)
(73,239
)
(148,106
)
(148,106
)
Net income available to common shareholders

$
1,511,437

$
1,718,182

$
3,268,636

$
3,372,455

Basic earnings per share available to common shareholders:

$
2.56

$
3.05

$
5.60

$
6.00

Diluted earnings per share available to common shareholders:

$
2.05

$
2.40

$
4.47

$
4.72

Basic weighted average shares outstanding

589,454

564,216

583,986

562,145

Diluted weighted average shares outstanding

771,738

746,873

765,067

745,773

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

4

Table of Contents
AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the ~~three~~six months ended ~~December~~March 31, ~~2010~~2011 and ~~2009~~2010

2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 1,832,066 $ 1,729,140
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Depreciation �� 418,565 338,099
Amortization 79,018 49,170
Gain on sale of property and equipment (2,315 ) (16,935 )
Stock based compensation 1,166,833 163,364
Net excess tax benefit on equity-based awards (79,863 ) (107,048 )
Deferred income taxes 422,825 10,104
Provision for (recoveries) losses on doubtful accounts (625,000 ) 16,426
Provision for losses on inventory obsolescence 81,416 76,703
Other (2,011 ) —

Changes in assets and liabilities:
Accounts receivable 6,282,865 4,695,589
Inventories (1,135,707 ) 3,442,508
Prepaid and other current assets (1,758,550 ) (2,679,354 )
Other assets (6,513 ) 519
Accounts payable (1,949,184 ) (1,329,456 )
Accrued expenses and accrued wages, salaries and bonuses (1,316,121 ) (2,127,887 )
Income tax payable (1,186,025 ) (2,973,111 )

Net cash flows from operating activities 2,222,299 1,287,831

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (293,037 ) (596,612 )
Proceeds from sales of property and equipment 11,575 34,306
Acquisition — (3,099,836 )

Net cash flows from investing activities (281,462 ) (3,662,142 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on bank credit agreements (1,647,706 ) 2,769,851
Principal payments on long-term debt (250,007 ) (182,901 )
Proceeds from exercise of stock options — 66,411
Net excess tax benefit on equity-based awards 79,863 107,048
Dividends paid on convertible preferred stock (74,867 ) (74,867 )
Dividends on common stock (103,935 ) (103,181 )

Net cash flows from financing activities (1,996,652 ) 2,582,361

Net change in cash (55,815 ) 208,050

Cash, beginning of period 356,735 309,914

Cash, end of period $ 300,920 $ 517,964

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$
3,416,742

$
3,520,561

Adjustments to reconcile net income from operations to net cash flows from operating activities:

Depreciation

845,120

678,860

Amortization

159,596

123,981

Gain on sale of property and equipment

(8,722
)
(16,935
)
Stock based compensation

1,514,567

267,464

Net excess tax benefit on equity-based awards

(125,904
)
(130,126
)
Deferred income taxes

456,871

(34,196
)
Provision for (recoveries) losses on doubtful accounts

(843,000
)
178,367

Provision for losses on inventory obsolescence

26,538

16,393

Other

(4,022
)
—

Changes in assets and liabilities:

Accounts receivable

3,945,809

491,271

Inventories

1,039,737

1,125,441

Prepaid and other current assets

(1,141,257
)
(519,415
)
Other assets

(108,564
)
(47,087
)
Accounts payable

(319,457
)
1,144,665

Accrued expenses and accrued wages, salaries and bonuses

(1,625,822
)
(1,878,536
)
Income tax payable

(1,708,879
)
(2,977,213
)
Net cash flows from operating activities

5,519,353

1,943,495

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(957,254
)
(1,102,929
)
Proceeds from sales of property and equipment

27,475

42,905

Acquisition

—

(3,099,836
)
Net cash flows from investing activities

(929,779
)
(4,159,860
)

CASH FLOWS FROM FINANCING ACTIVITIES:

Net (payments) borrowings on bank credit agreements

(3,836,212
)
3,025,076

Principal payments on long-term debt

(471,968
)
(433,443
)
Proceeds from exercise of stock options

—

68,965

Net excess tax benefit on equity-based awards

125,904

130,126

Dividends paid on convertible preferred stock

(148,106
)
(148,106
)
Dividends on common stock

(216,945
)
(206,759
)
Net cash flows from financing activities

(4,547,327
)
2,435,859

Net change in cash

42,247

219,494

Cash, beginning of period

356,735

309,914

Cash, end of period

$
398,982

$
529,408

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

5

Table of Contents

2011

2010

Supplemental disclosure of cash flow information:

Cash paid during the period for interest

$
668,389

$
760,727

Cash paid during the period for income taxes

3,630,007

4,974,408

Supplemental disclosure of non-cash information:

Equipment acquisitions classified as accounts payable

8,953

85,939

Business acquisition:

Inventory

—

1,981,498

Property and equipment

—

122,978

Customer relationships intangible asset

—

1,620,000

Goodwill

—

300,360

Note payable

—

500,000

Contingent consideration

—

425,000

2010 2009
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 372,376 $ 381,746
Cash paid during the period for income taxes 1,992,200 3,903,998

Supplemental disclosure of non-cash information:
Equipment acquisitions classified as accounts payable 29,503 21,512

Business acquisition (see Note 2):
Inventory — 1,981,498
Property and equipment — 122,978
Customer relationships intangible asset — 1,620,000
Goodwill — 300,360
Note payable — 500,000
Contingent consideration — 425,000
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

6

Table of Contents
AMCON Distributing Company and Subsidiaries
Notes to Condensed Consolidated Unaudited Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate two business segments:
~~Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products in the Central, Rocky Mountain, and Southern regions of the United States.~~
~~Our retail health food segment (“Retail Segment”) operates fourteen health food retail stores located throughout the Midwest and Florida.~~
·
Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products in the Central, Rocky Mountain, and Southern regions of the United States.
·
Our retail health food segment (“Retail Segment”) operates fourteen health food retail stores located throughout the Midwest and Florida.
WHOLESALE SEGMENT
Our Wholesale Segment serves approximately 4,300 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. In October 2010, Convenience Store News ranked our Wholesale Segment as the ninth (9th) largest convenience store distributor in the United States based on annual sales.
Our Wholesale Segment distributes approximately 14,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food service products.
RETAIL SEGMENT
The Company’s retail health food stores, which are operated as Chamberlin’s Market & Café and Akin’s Natural Foods Market, carry over 30,000 different national and regionally branded and private label products. These products include high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was first established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of eight locations in Oklahoma, Nebraska, Missouri, and Kansas.
FINANCIAL STATEMENTS
The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2010, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended ~~December~~March 31, ~~2010~~2011 and ~~December~~March 31, ~~2009~~2010 have been referred to throughout this quarterly report as Q1Q2 2011 and Q1Q2 2010, respectively. The fiscal balance sheet dates as of ~~December~~March 31, ~~2010, December~~2011, March 31, ~~2009,~~2010, and September 30, 2010 have been referred to as ~~December~~March 2011, March 2010, ~~December 2009,~~ and September 2010, respectively.

7

~~SIGNIFICANT ACCOUNTING POLICY~~
~~Accounts receivable consist primarily~~Table of amounts due to the Company from its normal business activities. An allowance for doubtful accounts is maintained to reflect the expected uncollectibility of accounts receivable based on past collection history, evaluation of economic conditions as they may impact our customers, and specific risks identified in the portfolio. The Company determines the past due status of trade receivables based on our terms with each customer. Account balances are charged off against the allowance for doubtful accounts when collection efforts have been exhausted and the account receivable is deemed worthless. Any subsequent recoveries of charged off account balances are recorded as income in the period received.
~~ADOPTION OF NEW ACCOUNTING STANDARDS~~
~~The Company adopted the following accounting standards during Q1 2011, none of which had a material impact on our consolidated results of operations or financial condition.~~
FASB ASU 2010-20 (“Disclosures about the Credit Quality of Financing Receivables and Allowance for Credit Losses”) — requires additional information for nonaccrual and past due accounts, the allowance for credit losses, impaired loans, credit quality, and account modifications.
FASB ASC 860 (“Accounting for Transfers of Financial Assets”) — requires additional disclosures regarding the transfer and derecognition of financial assets and eliminates the concept of qualifying special-purpose entities.
FASB ASC 810 (“Amendments to FASB Interpretation: Consolidation of Variable Interest Entities”) — eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.
~~2. ACQUISITION AND DISPOSITIONS~~
~~ACQUISITION~~
In October 2009 (Q1 2010), the Company acquired the convenience store distribution assets of Discount Distributors from its parent Harps Food Stores, Inc. (“Harps”). Discount Distributors was a wholesale distributor to convenience stores in Arkansas, Oklahoma, and Missouri with annual sales of approximately $59.6 million. The Company paid $3.1 million cash, issued a $0.5 million note payable in quarterly installments over two years, and could pay an additional $1.0 million in contingent consideration for certain fixed assets, inventory, and customer lists of Discount Distributors. The contingent consideration is based on achieving predetermined two-year revenue targets. This transaction was funded through the Company’s existing credit facility. No significant liabilities were assumed in connection with the transaction and the costs incurred to effect the acquisition were not significant and were expensed as incurred. The acquisition expands the Company’s strategic footprint in the southern portion of the United States and enhances our ability to service customers in that region.
The following table summarizes the consideration paid or to be paid for the acquired assets and their related acquisition date fair values. The fair value of the assets acquired have been measured in accordance with ASC 805 “Business Combinations.” In valuing identifiable intangible assets, the Company has estimated the fair value using the discounted cash flows methodology. The purchase price allocation reflects various preliminary estimates and analyses and is subject to change during the measurement period (generally one year from the acquisition date). The acquired assets are reported as a component of our Wholesale Segment.

Amount
Total Consideration (in millions)
Cash $ 3.1
Note payable 0.5
Fair value of contingent consideration 0.4

Fair value of total consideration $ 4.0

Contents

8
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)
2. CONVERTIBLE PREFERRED STOCK:
~~Recognized amounts of identifiable assets acquired~~

Weighted
Average
Amount Amortization
(in millions) Period
Inventory $ 2.0 —
Property and equipment 0.1 5 years
Identifiable intangible assets:
Customer relationships 1.6 8 years

Total identifiable net assets 3.7
Goodwill 0.3

Total identifiable assets and goodwill $ 4.0

The Company has estimated that the undiscounted payments required under the contingent consideration arrangement will approximate $0.7 million ($0.4 million fair value at the acquisition date). The $0.3 million of goodwill arising from the acquisition primarily represents synergies and economies of scale generated through reductions in selling, general, and administrative expenses. This goodwill has been assigned to the Company’s Wholesale Segment and is expected to be deductible for tax purposes. No measurement adjustments related to this transaction were recorded during Q1 2011.
The following table sets forth the unaudited actual revenue and earnings included in the Company’s statement of operations related to the acquisition and the pro forma revenue and earnings of the combined entity if the acquisition had occurred as of the beginning of the Company’s prior fiscal year. These pro forma amounts do not purport to be indicative of the actual results that would have been obtained had the acquisition occurred at that time.

Three months ended
December
(In millions) 2010 2009
Revenue — Actual Results $ 16.2 $ 9.2
Revenue — Supplemental pro forma results $ 16.2 $ 14.2
Net Income — Actual Results $ 0.1 $ 0.1
Net Income — Supplemental pro forma results $ 0.1 $ 0.1
~~3. CONVERTIBLE PREFERRED STOCK:~~
~~The Company had~~ two series of convertible preferred stock outstanding at ~~December 2010~~March 2011 as identified in the following table:

Series A Series B
Date of issuance: June 17, 2004 October 8, 2004
Optionally redeemable beginning June 18, 2006 October 9, 2006
Par value (gross proceeds): $ 2,500,000 $ 2,000,000
Number of shares: 100,000 80,000
Liquidation preference per share: $ 25.00 $ 25.00
Conversion price per share: $ 30.31 $ 24.65
Number of common shares in which to be converted: 82,481 81,136
Dividend rate: 6.785 % 6.37 %

Series A

Series B

Date of issuance:

June 17, 2004

October 8, 2004

Optionally redeemable beginning

June 18, 2006

October 9, 2006

Par value (gross proceeds):

$
2,500,000

$
2,000,000

Number of shares:

100,000

80,000

Liquidation preference per share:

$
25.00

$
25.00

Conversion price per share:

$
30.31

$
24.65

Number of common shares in which to be converted:

82,481

81,136

Dividend rate:

6.785
%
6.37
%

9
The Series A Convertible Preferred Stock (“Series A”) and Series B Convertible Preferred Stock (“Series B”), (collectively, the “Preferred Stock”), are convertible at any time by the holders into a number of shares of AMCON common stock equal to the number of preferred shares being converted multiplied by a fraction equal to $25.00 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year.
In the event of a liquidation of the Company, the holders of the Preferred Stock are entitled to receive the liquidation preference plus any accrued and unpaid dividends prior to the distribution of any amount to the holders of the Common Stock. The shares of Preferred Stock are optionally redeemable by the Company beginning on various dates, as listed in the above table, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference, after which date it remains the liquidation preference. The Preferred Stock is redeemable at the liquidation value and at the option of the holder. The Series A Preferred Stock is owned by Mr. Chris Atayan, AMCON’s Chief Executive Officer and Chairman of the ~~Board.~~Board who, under certain conditions, has a right to nominate members of our Board of Directors. The Series B Preferred Stock is owned by an institutional investor which has the right to ~~elect~~nominate one member of our Board of Directors, pursuant to the voting rights in the Certificate of Designation creating the Series B ~~and has designated Mr.~~Preferred Stock. Christopher H. Atayan ~~as its representative on our Board of Directors.~~
was nominated to this seat in 2004.
4.3. INVENTORIES
Inventories consisted of finished goods at ~~December 2010~~March 2011 and September 2010 and are stated at the lower of cost, determined on a first in first out, or FIFO basis, or market. The Wholesale Segment and Retail Segment inventories consist of products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods include total reserves of approximately ~~$0.9~~$0.8 million at ~~December 2010~~both March 2011 and ~~$0.8 million at~~ September 2010. These reserves include the Company’s obsolescence allowance, which reflects estimated unsaleable or non-refundable inventory based on an evaluation of slow moving and discontinued products.
5.4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill by reporting segment of the Company consisted of the following:

March
2011

September
2010

Wholesale Segment

$
4,236,291

$
4,236,291

Retail Segment

1,912,877

1,912,877

$
6,149,168

$
6,149,168

8

December September
2010 2010
Wholesale Segment $ 4,236,291 $ 4,236,291
Retail Segment 1,912,877 1,912,877

$ 6,149,168 $ 6,149,168

Table of Contents
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)
Other intangible assets of the Company consisted of the following:

December September
2010 2010
Trademarks and tradenames $ 3,373,269 $ 3,373,269
Customer relationships (less accumulated amortization of $236,250 and $185,625 at December 2010 and September 2010, respectively) 1,383,750 1,434,375

$ 4,757,019 $ 4,807,644

March
2011

September
2010

Trademarks and tradenames

$
3,373,269

$
3,373,269

Customer relationships (less accumulated amortization of $286,875 and $185,625 at March 2011 and September 2010, respectively)

1,333,125

1,434,375

$
4,706,394

$
4,807,644

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. The Company performs annual impairment testing of goodwill and other intangible assets during the fourth fiscal quarter of each year.

10
At ~~December 2010,~~March 2011, intangible assets considered to have finite lives represented acquired customer relationships. These customer relationships are being amortized over eight years. Amortization expense related to these assets totaled ~~$50,625 and $33,750 for Q1~~$0.1 million in each of the six month periods ended March 2011 and ~~Q1 2010, respectively.~~March 2010. In addition, these relationships are evaluated for accelerated attrition or amortization adjustments if warranted. Amortization expense for customer relationships for the periods subsequent to ~~December 2010~~March 2011 is as follows:
Customer relationships

March
2011

Fiscal 2011 (1)

$
101,250

Fiscal 2012

202,500

Fiscal 2013

202,500

Fiscal 2014

202,500

Fiscal 2015

202,500

Thereafter

421,875

$
1,333,125

December
Customer relationships 2010
Fiscal 2011 /1/ $ 151,875
Fiscal 2012 202,500
Fiscal 2013 202,500
Fiscal 2014 202,500
Fiscal 2015 202,500
Thereafter 421,875

$ 1,383,750

~~/1/~~ ~~Represents amortization for the remaining nine months of Fiscal 2011.~~
(1)Represents amortization for the remaining six months of Fiscal 2011.
6.5. DIVIDENDS:
The Company paid cash dividends on its common stock and convertible preferred stock issuances totaling ~~approximately~~ $0.2 million ~~during~~and $0.4 million for the three and six months ended, respectively, at both Q1March 2011 and Q1March 2010.
9

Table of Contents
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)
7.6. EARNINGS PER SHARE
Basic earnings per share available to common shareholders is calculated by dividing income from continuing operations less preferred stock dividend requirements by the weighted average common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from continuing operations less preferred stock dividend requirements (when anti-dilutive) by the sum of the weighted average common shares outstanding and the weighted average dilutive options, using the treasury stock method. There were no anti-dilutive stock options or potential common stock options at either ~~December 2010~~March 2011 or ~~December 2009.~~March 2010.

For the three months ended March

2011

2010

Basic

Diluted

Basic

Diluted

Weighted average common shares outstanding

589,454

589,454

564,216

564,216

Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)

—

182,284

—

182,657

Weighted average number of shares outstanding

589,454

771,738

564,216

746,873

Income from operations

$
1,584,676

$
1,584,676

$
1,791,421

$
1,791,421

Deduct: convertible preferred stock dividends (2)

(73,239
)
—

(73,239
)
—

Net income available to common shareholders

1,511,437

1,584,676

1,718,182

1,791,421

Net earnings per share available to common shareholders

$
2.56

$
2.05

$
3.05

$
2.40

For the three months ended December
2010 2009
Basic Diluted Basic Diluted
Weighted average common shares outstanding 578,636 578,636 560,119 560,119
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock /1/ — 180,056 — 185,104

Weighted average number of shares outstanding 578,636 758,692 560,119 745,223

Income from continuing operations $ 1,832,066 $ 1,832,066 $ 1,729,140 $ 1,729,140
Deduct: convertible preferred stock dividends /2/ (74,867 ) — (74,867 ) —

Net income available to common shareholders $ 1,757,199 $ 1,832,066 $ 1,654,273 $ 1,729,140

Net earnings per share available to common shareholders $ 3.04 $ 2.41 $ 2.95 $ 2.32

~~/1/~~ ~~Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock deemed to be dilutive.~~
~~/2/~~ ~~Diluted earnings per share calculation excludes dividends for convertible preferred stock deemed to be dilutive, as those amounts are assumed to have been converted to common stock of the Company.~~
(1)Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock deemed to be dilutive.

11
(2)Diluted earnings per share calculation excludes dividends for convertible preferred stock deemed to be dilutive, as those amounts are assumed to have been converted to common stock of the Company.

For the six months ended March

2011

2010

Basic

Diluted

Basic

Diluted

Weighted average common shares outstanding

583,986

583,986

562,145

562,145

Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)

—

181,081

—

183,628

Weighted average number of shares outstanding

583,986

765,067

562,145

745,773

Income from operations

$
3,416,742

$
3,416,742

$
3,520,561

$
3,520,561

Deduct: convertible preferred stock dividends (2)

(148,106
)
—

(148,106
)
—

3,268,636

3,416,742

3,372,455

3,520,561

Net earnings per share available to common shareholders

$
5.60

$
4.47

$
6.00

$
4.72

(1)Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock deemed to be dilutive.
(2)Diluted earnings per share calculation excludes dividends for convertible preferred stock deemed to be dilutive, as those amounts are assumed to have been converted to common stock of the Company.
10

Table of Contents
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)
8.7. DEBT
~~The~~
At March 2011, the Company ~~has~~had a credit agreement (the “Facility”) with Bank of America which ~~includes~~included the following significant ~~terms:~~
terms.
Significant Terms
·A January 1, 2012 maturity date and a $55.0 million revolving credit limit.
·Contains an evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of the original term of the agreement or the end of any renewal period.
·The Facility bears interest at either the bank’s prime rate or at LIBOR plus 250 basis points, at the election of the Company.
·The Facility provides for an additional $5.0 million of credit advances available for certain inventory purchases. These advances bear interest at the bank’s prime rate plus one-quarter of one-percent (1/4%) per annum and are payable within 45 days of each advance.
·Lending limits subject to accounts receivable and inventory limitations.
·An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.
·Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.
·Provides that the Company may not pay dividends on its common stock in excess of $0.72 per share on an annual basis.
The Facility includes a financial covenant which requires the Company to maintain a ~~minimum debt service ratio of~~ 1.0 to 1.0 fixed charge coverage ratio of as measured by the previous twelve month period then ended. The Company was in compliance with this covenant at ~~December 2010.~~
March 2011.
The amount available for use on the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day based on our collateral and loan limits as defined in the Facility agreement. The Company’s calculated credit limit of the Facility at ~~December~~March 31 was ~~$51.0~~$48.0 million of which ~~$17.2~~$15.0 million was outstanding leaving ~~$33.8~~$33.0 million available.
At ~~December 2010,~~March 2011, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was ~~2.94%~~3.01% at ~~December 2010.~~March 2011. At ~~December 2010,~~March 2011, the Company had ~~$5.9~~$5.6 million in long-term debt outstanding. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of this long-term debt approximated its carrying value at ~~December 2010.~~
March 2011.
As discussed in Note 10, on April 18, 2011 the Company renewed and extended its credit facility through April 2014.
Cross Default and Co-Terminus Provisions
The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, and certain warehouse equipment in the Rapid City, SD warehouse is financed through term loans with Marshall and Ilsley Bank (“M&I”), which is also a participant lender on the Company’s revolving line of credit. The M&I loans contain cross default provisions which cause all loans with M&I to be considered in default if any one of the loans where M&I is a lender, including the revolving credit facility, is in default. There were no such cross defaults at ~~December 2010.~~March 2011. In addition, the M&I loans contain co-terminus provisions which require all loans with M&I to be paid in full if any of the loans are paid in full prior to the end of their specified terms.
11

Table of Contents
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)
Other
AMCON has issued a letter of credit for $0.4 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.

12
9.8. EQUITY-BASED INCENTIVE AWARDS
Omnibus Plan
The Company has an Omnibus Incentive Plan (“the Omnibus Plan”) which provides for equity incentives to employees. The Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company. The Omnibus Plan permits the issuance of up to 150,000 shares of the Company’s common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares, and dividend share awards payable in the form of common stock or cash. The number of shares issuable under the Omnibus Plan is subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. As of ~~December 2010,~~March 2011, a total of 87,900 shares of common stock had been issued pursuant to the Omnibus Plan and another 62,100 shares may be issued ~~pursuant to outstanding awards~~ under the ~~Ominbus Plan.~~
plan.
Stock Options
During the Company’s third fiscal quarter of 2010, the Compensation Committee of the Board of Directors awarded various employees of the Company incentive stock options to purchase 6,000 shares of the Company’s common stock. These awards vest annually in equal installments over a five year service period and have an exercise price of $51.50 per share.
The Company has estimated that the fair value of the incentive stock option awards was approximately $0.1 million using the Black-Scholes option pricing model. This amount is being amortized to compensation expense on a straight-line basis over the five year service period. The following assumptions were used in connection with the Black-Scholes option pricing calculation:
Stock Option Pricing
Assumptions
~~Assumptions~~
Risk-free interest rate
3.04
~~3.04~~
%
Dividend yield
1.30
~~1.30~~
%
Expected volatility
49.30
~~49.30~~
%
Expected life in years
7
7
The stock options issued by the Company expire ten years from the grant date and include graded vesting schedules up to five years in length. Stock options issued and outstanding to management employees at ~~December 2010~~March 2011 are summarized as follows:

Number of
Options Number
Date Exercise Price Outstanding Exercisable
Fiscal 2003 $ 28.80 84 84
Fiscal 2007 $ 18.00 25,000 25,000
Fiscal 2010 $ 51.50 6,000 —

31,084 25,084

Date

Exercise Price

Number of
Options
Outstanding

Number
Exercisable

Fiscal 2003

$
28.80

84

84

Fiscal 2007

$
18.00

25,000

25,000

Fiscal 2010

$
51.50

5,500

—

30,584

25,084

Stock options issued and outstanding to the Company’s outside directors at ~~December 2010~~March 2011 are summarized as follows:
Date

Exercise Price

Number of
Options
Outstanding

Number
Exercisable

Fiscal 2002

$
26.94

834

834

12

Number of
Options Number
Date Exercise Price Outstanding Exercisable
Fiscal 2002 $ 26.94 834 834

Table of Contents
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)
The following summarizes all stock options issued and outstanding at ~~December 2010:~~

Remaining Exercisable
Exercise Number Weighted-Average Weighted-Average Number Weighted-Average
Price Outstanding Contractual Life Exercise Price Exercisable Exercise Price
2002 Options $ 26.94 834 1.62 years $ 26.94 834 $ 26.94
2003 Options $ 28.80 84 1.82 years $ 28.80 84 $ 28.80
2007 Options $ 18.00 25,000 5.95 years $ 18.00 25,000 $ 18.00
2010 Options $ 51.50 6,000 9.33 years $ 51.50 — —

31,918 $ 24.56 25,918 $ 18.32

March 2011:

Remaining

Exercisable

Exercise
Price

Number
Outstanding

Weighted-Average
Contractual Life

Weighted-Average
Exercise Price

Number
Exercisable

Weighted-Average
Exercise Price

2002 Options

$
26.94

834

1.37 years

$
26.94

834

$
26.94

2003 Options

$
28.80

84

1.57 years

$
28.80

84

$
28.80

2007 Options

$
18.00

25,000

5.70 years

$
18.00

25,000

$
18.00

2010 Options

$
51.50

5,500

9.08 years

$
51.50

—

—

31,418

$
24.13

25,918

$
18.32

13
The following is a summary of stock options activity for the ~~three~~six months ended ~~December 2010:~~

Weighted
Number Average
of Exercise
Shares Price
Outstanding at September 2010 31,918 $ 24.56
Granted — —
Exercised — —
Forfeited/Expired — —

Outstanding at December 2010 31,918 $ 24.56

March 2011:

Number
of
Shares

Weighted
Average
Exercise
Price

Outstanding at September 2010

31,918

$
24.56

Granted

—

—

Exercised

—

—

Forfeited/Expired

(500
)
$
51.50

Outstanding at March 2011

31,418

$
24.13

At ~~December 2010,~~March 2011, total unamortized compensation expense related to stock options was approximately $0.1 million. This unamortized compensation expense is expected to be amortized over approximately the next 5249 months.
~~Restricted Stock~~
~~At December 2010, the following restricted stock awards were issued and outstanding, pursuant to the provisions of the Company’s Omnibus Plan:~~

Restricted Stock /1/
Date of award: January 29, 2008
Number of shares: 7,500
Service period: 36 months
Estimated fair value of award at grant date /2/: $ 229,000
Intrinsic value of awards outstanding at December 2010: $ 200,000
~~/1/~~ ~~5,000 shares were vested at December 2010. The remaining 2,500 shares will vest January 29, 2011.~~
~~/2/~~ ~~Amount is net of estimated forfeitures.~~
There is no direct cost to the recipients of the restricted stock awards, except for any applicable taxes. The recipients of restricted stock are entitled to full voting rights. All cash dividends and/or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met.
The Company recognizes compensation expense related to restricted stock awards on a straight-line basis over the requisite service period. Accordingly, net income before income taxes included compensation expense of $0.03 million and $0.1 million for Q1 2011 and Q1 2010, respectively. The following summarizes restricted stock activity under the Omnibus Plan for the three months ended December 2010:

Number Weighted Average
of Grant Date
Shares Fair Value
Nonvested restricted stock at September 2010 10,500 $ 40.16
Granted — —
Vested (8,000 ) $ 42.50
Expired — —

Nonvested restricted stock at December 2010 2,500 $ 32.67

14
Restricted Stock Units
During Q1the first fiscal quarter of 2011, the Compensation Committee of the Board of Directors authorized and approved the following restricted stock units awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plan:

Restricted Stock Units (1)

Restricted Stock Units (2)

Date of award:

November 22, 2010

November 22, 2010

Number of shares:

38,400

12,000

Service period:

24 months

36 months

Estimated fair value of award at grant date:

$
2,765,000

$
864,000

Fair value of outstanding (non-vested) awards at March 2011:

$
2,053,000

$
962,000

Restricted Stock Units /1/ Restricted Stock Units /2/
Date of award: November 22, 2010 November 22, 2010
Number of shares: 38,400 12,000
Service period: 24 months 36 months
Estimated fair value of award at grant date: $ 2,765,000 $ 864,000
Fair value of awards outstanding at December 2010: $ 2,048,000 $ 960,000
~~/1/~~ ~~12,800 of the restricted stock unit awards vested during Q1 2011. The remaining 25,600 restricted stock units will vest in equal amounts (12,800 per year) on October 26, 2011 and October 26, 2012.~~
~~/2/~~ ~~The 12,000 restricted stock units will vest in equal amounts (4,000 per year) on November 22, 2011, November 22 2012, and November 22, 2013.~~
(1)12,800 of the restricted stock unit awards were vested at Q2 2011. The remaining 25,600 restricted stock units will vest in equal amounts (12,800 per year) on October 26, 2011 and October 26, 2012.
(2)The 12,000 restricted stock units will vest in equal amounts (4,000 per year) on November 22, 2011, November 22 2012, and November 22, 2013.
There is no direct cost to the recipients of the restricted stock units, except for any applicable taxes. The recipients of the restricted stock units are entitled to the customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. All cash dividends and/or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met.
The restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on these award provisions, the compensation expense recorded in the Company’s Condensed Statement of Operations reflects the straight-line amortized fair value ~~through~~based on the period end closing price.
13

Table of ~~each reporting period.~~
~~During Q1~~Contents
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)
For the three and six months ended March 2011, net income before income taxes included compensation expense of ~~$1.1~~$0.3 million and $1.5 million, respectively, related to the amortization of the Company’s restricted stock unit awards. Total unamortized compensation expense for these awards based on the ~~December 2010~~March 2011 closing price was approximately ~~$2.8~~$2.5 million. This unamortized compensation expense, plus any changes in the fair value of the awards through the settlement date, are expected to be amortized over approximately the next 2623 months (the weighted-average period). The following summarizes restricted stock unit activity under the Omnibus Plan for the ~~three~~six months ended ~~December 2010:~~

Number
of Weighted Average
Shares Fair Value
Nonvested restricted stock units at September 2010 — $ —
Granted 50,400 $ 72.01
Vested (12,800 ) $ 72.50
Expired — $ —

Nonvested restricted stock units at December 2010 37,600 $ 80.01

March 2011:

Number
of
Shares

Weighted Average
Fair Value

Nonvested restricted stock units at September 2010

—

$
—

Granted

50,400

$
72.01

Vested

(12,800
)
$
72.50

Expired

—

$
—

Nonvested restricted stock units at March 2011

37,600

$
80.20

15
~~10.~~9. BUSINESS SEGMENTS
AMCON has two reportable business segments: the wholesale distribution of consumer products and the retail sale of health and natural food products. The retail health food stores’ operations are aggregated to comprise the Retail Segment because such operations have similar economic characteristics, as well as similar characteristics with respect to the nature of products sold, the type and class of customers for the health food products and the methods used to sell the products. Included in the “Other” column are intercompany eliminations, and assets held and charges incurred by our holding company. The segments are evaluated on revenues, gross margins, operating income (loss), and income before taxes.

Wholesale Retail
Segment Segment Other /1/ Consolidated
THREE MONTHS ENDED DECEMBER 2010:

External revenue:
Cigarettes $ 175,772,237 $ — $ — $ 175,772,237
Confectionery 15,869,052 — — 15,869,052
Health food — 9,092,449 — 9,092,449
Tobacco, food service & other 44,223,423 — — 44,223,423

Total external revenue 235,864,712 9,092,449 — 244,957,161
Depreciation 310,232 107,396 937 418,565
Amortization 79,018 — — 79,018
Operating income (loss) 4,936,987 792,089 (2,306,308 ) 3,422,768
Interest expense 111,069 103,550 169,964 384,583
Income (loss) from continuing operations before taxes 4,828,640 694,085 (2,461,659 ) 3,061,066
Total assets 74,723,959 12,939,325 952,270 88,615,554
Capital expenditures 247,747 45,290 — 293,037

THREE MONTHS ENDED DECEMBER 2009:

External revenue:
Cigarettes $ 177,584,045 $ — $ — $ 177,584,045
Confectionery 15,307,821 — — 15,307,821
Health food — 8,926,489 — 8,926,489
Tobacco, food service & other 42,122,683 — — 42,122,683

Total external revenue 235,014,549 8,926,489 — 243,941,038
Depreciation 266,580 70,372 1,147 338,099
Amortization 49,170 — — 49,170
Operating income (loss) 3,998,612 917,307 (1,853,914 ) 3,062,005
Interest expense 122,197 124,624 158,424 405,245
Income (loss) from continuing operations before taxes 3,879,649 802,830 (2,012,339 ) 2,670,140
Total assets 74,327,598 11,729,960 978,068 87,035,626
Capital expenditures 437,315 159,297 — 596,612

Wholesale
Segment

Retail
Segment

Other

Consolidated

THREE MONTHS ENDED MARCH 2011:

External revenue:

Cigarettes

$
154,090,343

$
—

$
—

$
154,090,343

Confectionery

14,258,544

—

—

14,258,544

Health food

—

9,908,134

—

9,908,134

Tobacco, food service & other

38,346,018

—

—

38,346,018

Total external revenue

206,694,905

9,908,134

—

216,603,039

Depreciation

318,398

107,219

938

426,555

Amortization

80,578

—

—

80,578

Operating income (loss)

3,153,065

1,116,996

(1,317,724
)
2,952,337

Interest expense

115,095

96,438

52,339

263,872

Income (loss) from continuing operations before taxes

3,054,200

1,026,304

(1,346,828
)
2,733,676

Total assets

74,636,163

13,098,611

1,030,977

88,765,751

Capital expenditures

602,351

61,866

—

664,217

THREE MONTHS ENDED MARCH 2010:

External revenue:

Cigarettes

$
166,914,751

$
—

$
—

$
166,914,751

Confectionery

14,887,515

—

—

14,887,515

Health food

—

9,492,904

—

9,492,904

Tobacco, food service & other

39,203,959

—

—

39,203,959

Total external revenue

221,006,225

9,492,904

—

230,499,129

Depreciation

271,131

68,483

1,147

340,761

Amortization

74,811

—

—

74,811

Operating income (loss)

3,535,284

1,093,182

(1,469,666
)
3,158,800

Interest expense

124,994

115,666

127,765

368,425

Income (loss) from continuing operations before taxes

3,422,768

987,668

(1,597,015
)
2,813,421

Total assets

78,290,787

12,198,955

1,034,096

91,523,838

Capital expenditures

166,270

340,048

—

506,318

1614

Table of Contents
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)

Wholesale
Segment

Retail
Segment

Other

Consolidated

SIX MONTHS ENDED MARCH 2011:

External revenue:

Cigarettes

$
329,862,580

$
—

$
—

$
329,862,580

Confectionery

30,127,596

—

—

30,127,596

Health food

—

19,000,583

—

19,000,583

Tobacco, food service & other

82,569,441

—

—

82,569,441

Total external revenue

442,559,617

19,000,583

—

461,560,200

Depreciation

628,630

214,615

1,875

845,120

Amortization

159,596

—

—

159,596

Operating income (loss)

8,090,052

1,909,085

(3,624,032
)
6,375,105

Interest expense

226,164

199,988

222,303

648,455

Income (loss) from continuing operations before taxes

7,882,840

1,720,389

(3,808,487
)
5,794,742

Total assets

74,636,163

13,098,611

1,030,977

88,765,751

Capital expenditures

850,098

107,156

—

957,254

SIX MONTHS ENDED MARCH 2010:

External revenue:

Cigarettes

$
344,498,796

$
—

$
—

$
344,498,796

Confectionery

30,195,336

—

—

30,195,336

Health food

—

18,419,393

—

18,419,393

Tobacco, food service & other

81,326,642

—

—

81,326,642

Total external revenue

456,020,774

18,419,393

—

474,440,167

Depreciation

537,711

138,855

2,294

678,860

Amortization

123,981

—

—

123,981

Operating income (loss)

7,533,896

2,010,489

(3,323,580
)
6,220,805

Interest expense

247,191

240,290

286,189

773,670

Income (loss) from continuing operations before taxes

7,302,417

1,790,498

(3,609,354
)
5,483,561

Total assets

78,290,787

12,198,955

1,034,096

91,523,838

Capital expenditures

603,584

499,345

—

1,102,929

10. SUBSEQUENT EVENTS
On April 18, 2011, the Company executed a Second Amended and Restated Revolving Line of Credit Agreement with Bank of America. This new credit agreement replaces the Company’s existing Facility with Bank of America which was scheduled to mature in January 2012. The significant provisions of the new credit agreement include the following:
·April 2014 maturity date and a $55.0 million revolving credit limit.
·Includes a loan accordion allowing the Company to increase the size of the credit facility agreement up to $25.0 million.
·Provides for an additional $5.0 million of credit advances available for certain inventory purchases.
·Contains an evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of the original term of the agreement or the end of any renewal period.
·Includes a prepayment penalty equal to one-half of one percent (½%) if the Company prepays the entire Facility or terminates it in year one of the agreement, and one-quarter of one percent (¼%) if the Company prepays the entire Facility or terminates it in year two of the agreement. The prepayment penalty is calculated based on the maximum loan amount.
15

~~Item 2.~~
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~
Table of Contents
Notes to Condensed Consolidated Unaudited Financial Statements — (Continued)
10. SUBSEQUENT EVENTS (continued)
·The Facility bears interest at either the bank’s prime rate or at LIBOR plus 175 basis points, at the election of the Company.
·Lending limits subject to accounts receivable and inventory limitations.
·An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.
·Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.
·Provides that the Company may not pay dividends on its common stock in excess of $1.00 per share on an annual basis.
·Includes a financial covenant requiring a fixed charge coverage ratio of at least 1.0, measured only if excess credit facility availability falls below $5.5 million.
16

Table of Contents
Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect,” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:
·increases in state and federal excise taxes on cigarette and tobacco products,
·higher commodity prices which could impact food ingredient costs for many of the products we sell,
·regulation of cigarette and tobacco products by the FDA, in addition to existing state and federal regulations by other agencies,
·potential bans imposed by the FDA on the manufacture, distribution, and sale of certain cigarette and tobacco products
such as products including menthol additives,
·increases in manufacturer prices,
·increases in inventory carrying costs and customer credit risk,
·changes in promotional and incentive programs offered by manufacturers,
·decreased availability of capital resources
·demand for the Company’s products, particularly cigarette and tobacco products,
·new business ventures or acquisitions,
·domestic regulatory and legislative risks,
·competition,
·poor weather conditions,
·increases in fuel prices,
·consolidation trends within the convenience store industry,
·other risks over which the Company has little or no control, and any other factors not identified herein.
Changes in these factors could result in significantly different results. Consequently, future results may differ from management’s expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.

17

Table of Contents
CRITICAL ACCOUNTING ESTIMATES
Certain accounting estimates used in the preparation of the Company’s financial statements require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2010, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during the fiscal quarter ended ~~December 2010.~~
March 2011.
~~FIRST~~SECOND FISCAL QUARTER 2011 ~~(Q1~~(Q2 2011)
The following discussion and analysis includes the Company’s results of operations for the three and six months ended ~~December 2010~~March 2011 and ~~December 2009.~~
March 2010.
Wholesale Segment
Our Wholesale Segment serves approximately 4,300 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. In October 2010, Convenience Store News ranked our Wholesale Segment as the ninth (9th) largest convenience store distributor in the United States based on annual sales.
Our Wholesale Segment distributes approximately 14,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food service products.
Retail Segment
The Company’s Retail Segment, which is operated as Chamberlin’s Market & Café and Akin’s Natural Foods Market, carry over 30,000 different national and regionally branded and private label products. These products include high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was first established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of eight locations in Oklahoma, Nebraska, Missouri, and Kansas.
Business Update — General
While the ~~U.S.~~United States economy has shown ~~modest~~ signs of stabilization, consumer demand ~~continues to face considerable headwinds. The national~~has generally remained flat. Higher fuel and food commodity prices, combined with ongoing high unemployment ~~rate still stands at nearly 10%, personal savings~~ rates, ~~have increased,~~has left consumers price sensitive and ~~consumers have been redirecting disposal income to reduce debt levels.~~extremely value conscious. Additionally, many real estate markets remain ~~depressed.~~
~~Notwithstanding the above economic conditions, we have not experienced significantly lower demand in either of our business segments.~~depressed as prices continue to decline. Our businesses have generally remained more resilient than many other distribution and retail formats and have performed comparatively well given the challenging operating environment.
Forward looking, we believe ~~that~~ the ~~ongoing economic malaise,~~possibility of additional regulatory pressures and ~~increasing fuel and food commodity prices, as well as the potential for further increases in excises~~higher excise taxes could adversely affect our sales, gross margins, and operating profits. Additionally, the long-term implications of the new healthcare legislation remains uncertain. We are, however, confident that our conservative strategy of cost containment and maintaining maximum liquidity positions us well to capture market share, execute strategic acquisitions, open new retail stores, and ultimately reward our shareholders.

18
Business Update — Wholesale Segment
The competitive landscape in our wholesale distribution business is intensifying on a number of fronts. Convenience stores, which constitute the largest portion of our customer base, continue to remake their businesses, focusing on food service offerings such as hot on-the-go meals and over-sized beverage and coffee bars. Most recently, higher fuel and food commodity prices have began to stress discretionary consumer spending, squeezing profit margins for our customers. These factors are driving consolidation among convenience stores, as business owners seek to maximize economies of scale. Wholesale ~~Segment customer base. Despite depressed economic conditions, sales in the~~distributors who service convenience ~~store channel remain a vibrant and growing segment in retailing. According to the September 2010 issue of Convenience Distribution (a leading trade publication published~~stores are challenged by the ~~American Wholesale Marketers Association), in-store sales for convenience stores increased 4.9% during~~same structural and macro-economic issues. Declining revenue streams from tobacco products, higher inventory carrying costs, shrinking profit margins, and access to capital have accelerated consolidation among wholesale distributors.
18

Table of Contents
Despite these issues, we believe the ~~2009 calendar year.~~
~~Despite this sales growth, a number~~current market conditions offer some unique opportunities. The ability of ~~significant structural changes loom over~~smaller distributors to compete moving forward will be difficult, presenting our Company with more attractive acquisition opportunities and the ability to expand our geographic reach. Further, the long-term sustainability of the convenience store industry ~~including declining revenue from~~remains strong. According to a January 2011 report by the ~~sale~~National Association of ~~tobacco products, an increasing reliance on technology, and consolidation amongst both~~Convenience Stores (NACS), the total number of convenience stores nation-wide grew to a record high of 146,000 during the 2010 calendar year, more than the total number of other competing retail channel locations (supermarkets, drug stores, and mass merchandiser/dollar stores) in the distributors that serve them. Further, rising fuel prices are increasing carrying costs and reducing retail level fuel margins, making ongoing access to credit and capital essential. These structural changes are rapidly making economies of scale a fundamental necessity for all industry participants.
~~The long-term implications of the above considerations on~~United States combined. Furthermore, the industry ~~are significant. The combined impact~~remains highly fragmented with independent single-store operators still accounting for more than 63% of ~~declining tobacco revenues as well as~~all stores, a market segment our Company specializes in serving. While the ~~availability of credit~~particular products sold by convenience stores may evolve and ~~access to capital~~change over time, we feel the primary value they convey (speedy service for time starved customers) will hinder smaller distributors and likely result in substantial industry consolidation. As one of the nation’s largest wholesale distributors, we believe the Company is well-positioned to capitalize on these trends and broaden our strategic footprint.
not.
Business Update — Retail Segment
~~While natural~~
Natural foods remain one of the fastest growing categories in food ~~retailing, the severity of the economic downturn, particularly in Florida,~~retailing. Our business has ~~slowed sales growth for our retail stores. We believe, however, that~~also benefited from a loyal customer following, ~~and their continuing commitment~~enabling us to ~~healthy lifestyles and environmental sustainability have helped us~~ maintain a strong and profitable business. Both Chamberlin’s Market & Café and Akin’s Natural Foods Market have had a local market presence for over 75 years affording them tremendous brand recognition in the area of natural products.
Forward looking, we will continue to face a highly competitive environment based on the expansion of both regional and national chains. While our stores have recently shown a modest improvement in sales, higher food commodity prices may dampen near term sales growth. We believe, however, that our health food stores continue to offer a unique value proposition, carrying product lines not readily found in other stores, coupled with highly trained store associates. As the economy ~~recovers~~continues to recover and consumer confidence improves, we believe our stores will be well positioned to benefit from the long-term growth trends in natural products retailing.
RESULTS OF OPERATIONS

For the three months ended March

2011

2010

Incr
(Decr)

% Change

CONSOLIDATED:

Sales (1)

$
216,603,039

$
230,499,129

$
(13,896,090
)
(6.0
)
Cost of sales

200,233,927

213,558,955

(13,325,028
)
(6.2
)
Gross profit

16,369,112

16,940,174

(571,062
)
(3.4
)
Gross profit percentage

7.6
%
7.3
%

Operating expense

13,416,775

13,781,374

(364,599
)
(2.6
)
Operating income

2,952,337

3,158,800

(206,463
)
(6.5
)
Interest expense

263,872

368,425

(104,553
)
(28.4
)
Income tax expense

1,149,000

1,022,000

127,000

12.4

Income from continuing operations before income taxes

1,584,676

1,791,421

(206,745
)
(11.5
)

BUSINESS SEGMENTS:

Wholesale

Sales

$
206,694,905

$
221,006,225

$
(14,311,320
)
(6.5
)
Gross profit

12,091,918

12,809,400

(717,482
)
(5.6
)
Gross profit percentage

5.9
%
5.8
%

Retail

Sales

$
9,908,134

$
9,492,904

$
415,230

4.4

Gross profit

4,277,194

4,130,774

146,420

3.5

Gross profit percentage

43.2
%
43.5
%

For the three months ended December
Incr
2010 2009 (Decr) % Change
CONSOLIDATED:
Sales /1/ $ 244,957,161 $ 243,941,038 $ 1,016,123 0.4
Cost of sales 227,349,439 226,713,025 636,414 0.3
Gross profit 17,607,722 17,228,013 379,709 2.2
Gross profit percentage 7.2 % 7.1 %

Operating expense 14,184,954 14,166,008 18,946 0.1
Operating income 3,422,768 3,062,005 360,763 11.8
Interest expense 384,583 405,245 (20,662 ) (5.1 )
Income tax expense 1,229,000 941,000 288,000 30.6
Income from continuing operations before income taxes 1,832,066 1,729,140 102,926 6.0

BUSINESS SEGMENTS:
Wholesale
Sales $ 235,864,712 $ 235,014,549 $ 850,163 0.4
Gross profit 13,708,441 13,386,777 321,664 2.4
Gross profit percentage 5.8 % 5.7 %
Retail
Sales $ 9,092,449 $ 8,926,489 $ 165,960 1.9
Gross profit 3,899,281 3,841,236 58,045 1.5
Gross profit percentage 42.9 % 43.0 %
~~/1/~~ ~~Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $3.8 million in both Q1 2011 and Q1 2010.~~
(1)Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $3.5 million in Q2 2011 and $3.7 million in Q2 2010.

19

Table of Contents
SALES:
~~SALES:~~
Changes in sales are driven by two primary components:
~~(i)~~ ~~changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and~~
~~(ii)~~ changes in the volume of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period.
(i)changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and
(ii)changes in the volume of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period.
SALES — Q1Q2 2011 vs. Q1Q2 2010
Sales in our Wholesale Segment ~~increased $0.9~~decreased $14.3 million during Q1Q2 2011 as compared to Q1Q2 2010. Significant items impacting sales during Q1Q2 2011 included ~~the following:~~
~~$5.4~~a $5.9 million increase in sales due to cigarette price increases implemented by ~~manufacturers.~~
~~$7.2~~manufacturers, a $18.7 million decrease in sales primarily related to the volume and mix of cigarette cartons ~~sold.~~
~~$2.7~~sold, and a $1.5 million ~~increase~~decrease in sales in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive, food service, and store supplies categories (“Other Products”)
.
Sales in our Retail Segment increased approximately ~~$0.2~~$0.4 million in Q1Q2 2011 as compared to Q1Q2 2010. ~~This~~The increase in sales is primarily related to the addition of our new retail store in Tulsa, Oklahoma which opened during our third fiscal quarter of ~~2010.~~
2010, as well as higher overall sales in our Florida market stores.
GROSS PROFIT — Q1Q2 2011 vs. Q1Q2 2010
Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.
Gross profit in our Wholesale Segment ~~increased $0.3~~decreased $0.7 million in Q1Q2 2011 as compared to Q1Q2 2010. ~~During Q1 2011, our gross profit benefited approximately $0.2 million due~~This decrease is primarily related to ~~higher~~lower overall sales in our cigarette and Other Products ~~categories, and approximately $0.1 million due to changes in cigarette sales volume and promotional allowances.~~
categories.
Gross profit for the Retail Segment increased $0.1 million in Q1Q2 2011 as compared to Q1Q2 2010. This increase was primarily related to the ~~addition of~~additional sales generated by our new retail store in Tulsa, ~~Oklahoma.~~
Oklahoma, as well as improved sales in our Florida market retail stores
OPERATING EXPENSE — Q1Q2 2011 vs. Q1Q2 2010
Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, fuel costs, insurance, and professional fees.
Q1
Q2 2011 operating expenses ~~were even~~decreased $0.4 million as compared to Q1Q2 2010. Significant items impacting operating expenses during Q1Q2 2011 included a $0.4 million reduction in bad debt expense and a $0.1 million decrease in compensation costs. These decreases were partially offset by a $0.1 million increase in depreciation and other operating expenses.
INTEREST EXPENSE — Q2 2011 vs. Q2 2010
Q2 2011 interest expense decreased $0.1 million as compared to Q2 2010. This change was primarily related to a $12.0 million reduction in average borrowings during Q2 2011 as compared to Q2 2010.
20

Table of Contents
RESULTS OF OPERATIONS — SIX MONTHS ENDED MARCH 2011:

For the six months

ended March

Incr

2011

2010

(Decr)

% Change

CONSOLIDATED:

Sales

$
461,560,200

$
474,440,167

$
(12,879,967
)
(2.7
)
Cost of sales

427,583,366

440,271,980

(12,688,614
)
(2.9
)
Gross profit

33,976,834

34,168,187

(191,353
)
(0.6
)
Gross profit percentage

7.4
%
7.2
%

Operating expenses

27,601,729

27,947,382

(345,653
)
(1.2
)
Operating income

6,375,105

6,220,805

154,300

2.5

Interest expense

648,455

773,670

(125,215
)
(16.2
)
Income tax expense

2,378,000

1,963,000

415,000

21.1

Income from continuing operations before income taxes

3,416,742

3,520,561

(103,819
)
(2.9
)

BUSINESS SEGMENTS:

Wholesale

Sales

$
442,559,617

$
456,020,774

$
(13,461,157
)
(3.0
)
Gross profit

25,800,359

26,196,176

(395,817
)
(1.5
)
Gross profit percentage

5.8
%
5.7
%

Retail

Sales

$
19,000,583

$
18,419,393

$
581,190

3.2

Gross profit

8,176,475

7,972,011

204,464

2.6

Gross profit percentage

43.0
%
43.3
%

(1)Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $7.3 million for the six months ended March 2011 and $7.5 million for the six months ended March 2010.
SALES — Six Months Ended March 2011
Sales in our Wholesale Segment decreased $13.5 million for the six months ended March 2011 as compared to the same prior year period. Significant items impacting our Wholesale Segment sales for the six months ended March 2011 included a $11.3 million increase in sales due to cigarette price increases implemented by manufacturers, a $26.0 million decrease in sales primarily related to the volume and mix of cigarette cartons sold, and a $1.2 million increase in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive, food service, and store supplies categories (“Other Products”).
Sales in our Retail Segment for the six months ended March 2011 increased approximately $0.6 million as compared to the same prior year period. Of this increase, approximately $0.4 million related to the addition of our new retail store in Tulsa, Oklahoma and $0.2 million related to higher overall sales in our existing retail stores.
GROSS PROFIT — Six Months Ended March 2011
Gross profit in our Wholesale Segment decreased $0.4 million for the six month period ended March 2011 as compared to the same prior year period. This decrease is primarily related to lower overall sales in our cigarette category.
Gross profit for the Retail Segment increased $0.2 million for the six month period ended March 2011 as compared to the same period year period. This increase was primarily related to the additional sales generated by our new Tulsa, Oklahoma retail store, as well as higher overall sales in our existing stores.
OPERATING EXPENSE — Six Months Ended March 2011
Operating expenses decreased $0.3 million for the six months ended March 2011 as compared to the same prior year period. Significant items impacting operating expenses during the current period included a $1.0 million reduction in bad debt expense, and a $0.2 million ~~decrease in insurance expense. These decreases were partially offset by a $0.5 million~~ increase in ~~compensation expense,~~fuel expenses, a ~~$0.1 million~~$0.2 increase in depreciation expense, and a ~~$0.2 million~~$0.3 increase in compensation and other operating expenses.

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Table of Contents
INTEREST EXPENSE — Q1Six Months Ended March 2011 ~~vs. Q1 2010~~
Q1
Interest expense for the six months ended March 2011 ~~interest expense was slightly lower~~decreased $0.1 million as compared to ~~Q1 2010.~~the same prior year period. This change ~~was~~in interest expense primarily ~~related to~~resulted from a ~~$2.3 million~~$12.0 reduction in average credit facility borrowings during ~~Q1 2011 as compared to Q1 2010.~~
our second fiscal quarter (Q2 2011).
LIQUIDITY AND CAPITAL RESOURCES
Overview
General.  The Company requires cash to pay operating expenses, purchase inventory, and make capital investments. In general, the Company finances its cash flow requirements with cash generated from operating activities and credit facility borrowings.
Operating Activities.  ~~During Q1 2011, the~~The Company generated cash of approximately ~~$2.2~~$5.5 million from operating ~~activities.~~activities during the six months ended March 2011. The cash generated primarily resulted from ~~higher overall earnings and~~ a decrease in accounts receivable and inventory, partially offset by higher ~~inventory and~~ prepaid assets, as well as a decrease in ~~accounts~~accrued compensation expenses and income tax payable.
Our variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy-in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later periods. Additionally, during the warm weather months, which is our peak time of operations, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.
Our variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy-in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later periods. Additionally, during the warm weather months, which is our peak time of operations, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.
Investing Activities.  The Company used approximately ~~$0.3~~$0.9 million of cash during Q1the six month period ended March 2011 for investing activities, primarily related to capital expenditures for property and equipment.
Financing Activities.  The Company used cash of ~~$2.0~~$4.5 million for financing activities during Q1the six months ended March 2011. Of this amount, ~~$1.6~~$3.8 million related to net payments on the Company’s credit facility, and ~~$0.3~~$0.5 million related to payments on long-term debt, and ~~$0.2~~$0.3 million related to dividends on the Company’s common and preferred stock. Offsetting these items was $0.1 million related to equity-based awards.
Cash on Hand/Working Capital.   At ~~December 2010,~~March 2011, the Company had cash on hand of ~~$0.3~~$0.4 million and working capital (current assets less current liabilities) of ~~$39.7~~$38.6 million. This compares to cash on hand of $0.4 million and working capital of $39.1 million at September 2010.
CREDIT AGREEMENT
~~The~~
On April 18, 2011, the Company ~~has~~executed a Second Amended and Restated Revolving Line of Credit Agreement with Bank of America. This new credit agreement ~~(the “Facility”)~~replaces the Company’s existing Facility with Bank of America which ~~includes~~was scheduled to mature in January 2012. The significant provisions of the ~~following significant terms:~~
~~A January 1, 2012~~new credit agreement include the following:
·April 2014 maturity date and a $55.0 million revolving credit limit.
·Includes a loan accordion allowing the Company to increase the size of the credit facility agreement up to $25.0 million.
·Provides for an additional $5.0 million of credit advances available for certain inventory purchases.
·Contains an evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of the original term of the agreement or the end of any renewal period.
·Includes a prepayment penalty equal to one-half of one percent (½%) if the Company prepays the entire Facility or terminates it in year one of the agreement, and one-quarter of one percent (¼%) if the Company prepays the entire Facility or terminates it in year two of the agreement. The prepayment penalty is calculated based on the maximum loan amount.
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Table of Contents
CREDIT AGREEMENT (continued)
·The Facility bears interest at either the bank’s prime rate or at LIBOR plus ~~250~~175 basis points, at the election of the Company.
The Facility provides for an additional $5.0 million of credit available for certain inventory purchases. These advances bear interest at the bank’s prime rate plus one-quarter of one-percent (1/4%) per annum and are payable within 45 days of each advance.
·Lending limits ~~that are~~ subject to accounts receivable and inventory ~~limitations,~~
limitations.
·An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.
·Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.
·Provides that the Company may not pay dividends on its common stock in excess of ~~$0.72~~$1.00 per share on an annual basis.

21
~~The Facility includes~~·Includes a financial covenant ~~which requires the Company to maintain~~requiring a ~~minimum debt service~~fixed charge coverage ratio of at least 1.0, ~~to 1.0 as~~ measured ~~by the previous twelve month period then ended. The Company was in compliance with this covenant at December 2010.~~
only if excess credit facility availability falls below $5.5 million.
The amount available for use on the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the calculated credit limit of the Facility at ~~December 2010~~March 2011 was ~~$51.0~~$48.0 million, of which ~~$17.2~~$15.0 million was outstanding, leaving ~~$33.8~~$33.0 million available.
At ~~December 2010,~~March 2011, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was ~~2.94%~~3.01% at ~~December 2010.~~
March 2011.
At ~~December 2010,~~March 2011, the Company had ~~$5.9~~$5.6 million in long-term debt outstanding. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of this long-term debt approximated its carrying value at ~~December 2010.~~
~~During Q1~~March 2011.
For the six months ended March 2011, our peak borrowings under the Facility were $40.7 ~~million. Our~~million and our average borrowings and average availability were ~~$33.9~~$26.3 million and ~~$20.6~~$24.4 million, respectively. Our availability to borrow under the Facility generally decreases as inventory and accounts receivable levels increase because of the borrowing limitations that are placed on collateralized assets.
Cross Default and Co-Terminus Provisions
The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, and certain warehouse equipment in the Rapid City, SD warehouse is financed through term loans with Marshall and Ilsley Bank (“M&I”), which is also a participant lender on the Company’s revolving line of credit. The M&I loans contain cross default provisions which cause all loans with M&I to be considered in default if any one of the loans where M&I is a lender, including the revolving credit facility, is in default. There were no such cross defaults at ~~December 2010.~~March 2011. In addition, the M&I loans contain co-terminus provisions which require all loans with M&I to be paid in full if any of the loans are paid in full prior to the end of their specified terms.
Dividends Payments
The Company paid cash dividends on its common stock and convertible preferred stock issuances totaling ~~approximately~~ $0.2 million ~~during~~and $0.4 million for the three and six months ended, respectively, at both Q1March 2011 and Q1March 2010.
Contractual Obligations
There have been no significant changes to the Company’s contractual obligations as set forth in the Company’s annual report on Form 10-K for the fiscal period ended September 30, 2010.
OTHER
The Company has issued a letter of credit for $0.4 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.
23

Table of Contents
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.

22
Liquidity Risk
The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.
The Company’s credit facility with Bank of America expires January 1, 2012. We believe the Company continues to have a strong working relationship with Bank of America and has maintained compliance with all related debt covenants. However, no assurances can be given that our credit facility with Bank of America will be renewed on acceptable terms, if at all.
The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company’s profitability.
The Company believes its liquidity position going forward will be adequate to sustain operations. However, a precipitous change in market conditions could materially impact the Company’s future revenue stream as well as its ability to collect on customer accounts receivable or secure bank credit.
Item 3.      Quantitative and Qualitative Disclosures About Market Risk.
~~Item 3.~~
~~Quantitative and Qualitative Disclosures About Market Risk.~~
Not applicable.
Item 4.      Controls and Procedures
~~Item 4.~~
~~Controls and Procedures~~
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~December~~March 31, ~~2010~~2011 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

2324

Table of Contents
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control that occurred during the fiscal quarter ended ~~December~~March 31, ~~2010,~~2011, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
~~Item 1.~~
Item 1.      Legal Proceedings
~~None.~~
~~Item 1A.~~
~~Risk Factors~~
None.
Item 1A.      Risk Factors
There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2010.
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3.      Defaults Upon Senior Securities
Not Applicable
Item 4.      (Removed and Reserved)
Item 5.      Other Information
Not applicable.
25

Table of Contents
Item 6.      Exhibits
(a) Exhibits
10.1
Second Amended and Restated Revolving Line of Credit Agreement, dated April 18, 2011, between the Company and Bank of America, as agent.
~~Item 2.~~
~~Unregistered Sales of Equity Securities and Use of Proceeds~~
~~Not applicable.~~
~~Item 3.~~
10.2
~~Defaults Upon Senior Securities~~
~~Not Applicable~~
Form of Stock Option Award Agreement under the 2007 Omnibus Incentive Plan, together with a schedule identifying individual award recipients and the related terms.
~~Item 4.~~
~~(Removed and Reserved)~~
~~Item 5.~~
10.3
~~Other Information~~
~~Not applicable.~~
Form of Restricted Stock Unit Award Agreement under the 2007 Omnibus Incentive Plan, together with a schedule identifying individual award recipients and the related terms.
~~Item 6.~~
~~Exhibits~~
~~(a) Exhibits~~
31.1
~~31.1~~
Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 302 of the Sarbanes-Oxley Act
31.2
~~31.2~~
Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer furnished pursuant to section 302 of the Sarbanes-Oxley Act
32.1
~~32.1~~
Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley Act
32.2
~~32.2~~
Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer furnished pursuant to section 906 of the Sarbanes-Oxley Act

2426

Table of Contents
SIGNATURES
~~SIGNATURES~~
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AMCON DISTRIBUTING COMPANY
~~(registrant)~~
(registrant)
Date: ~~January~~April 19, 2011
/s/ Christopher H. Atayan
Christopher H. Atayan,
Chief Executive Officer and Chairman
Date: ~~January~~April 19, 2011
/s/ Andrew C. Plummer
Andrew C. Plummer,
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)

2527


	December		September
	2010		2010
	(Unaudited)
ASSETS
Current assets:
Cash	$	300,920	$	356,735
Accounts receivable, less allowance for doubtful accounts of $1.0 million and $1.6 million at December 2010 and September 2010, respectively		22,245,824		27,903,689
Inventories, net		36,060,248		35,005,957
Deferred income taxes		1,542,599		1,905,974
Prepaid and other current assets		4,772,035		3,013,485

Total current assets		64,921,626		68,185,840

Property and equipment, net		11,712,178		11,855,669
Goodwill		6,149,168		6,149,168
Other intangible assets, net		4,757,019		4,807,644
Other assets		1,075,563		1,069,050

	$	88,615,554	$	92,067,371

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,698,370	$	16,656,257
Accrued expenses		6,506,609		6,007,900
Accrued wages, salaries and bonuses		2,085,776		3,161,817
Income taxes payable		1,100,779		2,366,667
Current maturities of long-term debt		851,153		893,291

Total current liabilities		25,242,687		29,085,932

Credit facility		17,169,003		18,816,709
Deferred income taxes		1,135,311		1,075,861
Long-term debt, less current maturities		5,018,717		5,226,586
Other long-term liabilities		73,072		587,479
Series A cumulative, convertible preferred stock, $.01 par value 100,000 shares authorized and issued, liquidation preference $25.00 per share		2,500,000		2,500,000
Series B cumulative, convertible preferred stock, $.01 par value 80,000 shares authorized and issued, liquidation preference $25.00 per share		2,000,000		2,000,000

Shareholders’ equity:
Preferred stock, $0.01 par, 1,000,000 shares authorized, 180,000 shares outstanding and issued in Series A and B referred to above		—		—
Common stock, $.01 par value, 3,000,000 shares authorized, 590,232 shares outstanding at December 2010 and 577,432 shares outstanding at September 2010		5,902		5,774
Additional paid-in capital		9,425,208		8,376,640
Retained earnings		26,045,654		24,392,390

Total shareholders’ equity		35,476,764		32,774,804

	$	88,615,554	$	92,067,371

	March 2011		September 2010
	(Unaudited)
ASSETS
Current assets:
Cash	$	398,982	$	356,735
Accounts receivable, less allowance for doubtful accounts of $0.8 million and $1.6 million at March 2011 and September 2010, respectively	24,800,880		27,903,689
Inventories, net	33,939,682		35,005,957
Deferred income taxes	1,518,492		1,905,974
Prepaid and other current assets	4,154,742		3,013,485
Total current assets	64,812,778		68,185,840

Property and equipment, net	11,919,797		11,855,669
Goodwill	6,149,168		6,149,168
Other intangible assets, net	4,706,394		4,807,644
Other assets	1,177,614		1,069,050
	$	88,765,751	$	92,067,371
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,307,547	$	16,656,257
Accrued expenses	6,569,164		6,007,900
Accrued wages, salaries and bonuses	2,080,139		3,161,817
Income taxes payable	531,884		2,366,667
Current maturities of long-term debt	745,177		893,291
Total current liabilities	26,233,911		29,085,932

Credit facility	14,980,497		18,816,709
Deferred income taxes	1,145,250		1,075,861
Long-term debt, less current maturities	4,902,732		5,226,586
Other long-term liabilities	71,061		587,479
Series A cumulative, convertible preferred stock, $.01 par value 100,000 shares authorized and issued, liquidation preference $25.00 per share	2,500,000		2,500,000
Series B cumulative, convertible preferred stock, $.01 par value 80,000 shares authorized and issued, liquidation preference $25.00 per share	2,000,000		2,000,000

Shareholders’ equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, 180,000 shares outstanding and issued in Series A and B referred to above	—		—
Common stock, $.01 par value, 3,000,000 shares authorized, 590,232 shares outstanding at March 2011 and 577,432 shares outstanding at September 2010	5,902		5,774
Additional paid-in capital	9,482,317		8,376,640
Retained earnings	27,444,081		24,392,390
Total shareholders’ equity	36,932,300		32,774,804
	$	88,765,751	$	92,067,371


	2010			2009
Sales (including excise taxes of $81.3 million and $81.6 million, respectively)	$	244,957,161		$	243,941,038
Cost of sales		227,349,439			226,713,025

Gross profit		17,607,722			17,228,013


Selling, general and administrative expenses		13,687,371			13,778,739
Depreciation and amortization		497,583			387,269

		14,184,954			14,166,008

Operating income		3,422,768			3,062,005

Other expense (income):
Interest expense		384,583			405,245
Other (income), net		(22,881	)		(13,380	)

		361,702			391,865

Income from operations before income taxes		3,061,066			2,670,140
Income tax expense		1,229,000			941,000

Net income		1,832,066			1,729,140
Preferred stock dividend requirements		(74,867	)		(74,867	)

Net income available to common shareholders	$	1,757,199		$	1,654,273


Basic earnings per share available to common shareholders	$	3.04		$	2.95
Diluted earnings per share available to common shareholders	$	2.41		$	2.32

Basic weighted average shares outstanding		578,636			560,119
Diluted weighted average shares outstanding		758,692			745,223

	For the three months ended March						For the six months ended March
	2011			2010			2011			2010
Sales (including excise taxes of $70.8 million and $76.9 million, and $152.1 million and $158.4 million, respectively)	$	216,603,039		$	230,499,129		$	461,560,200		$	474,440,167
Cost of sales	200,233,927			213,558,955			427,583,366			440,271,980
Gross profit	16,369,112			16,940,174			33,976,834			34,168,187

Selling, general and administrative expenses	12,909,642			13,365,802			26,597,013			27,144,541
Depreciation and amortization	507,133			415,572			1,004,716			802,841
	13,416,775			13,781,374			27,601,729			27,947,382
Operating income	2,952,337			3,158,800			6,375,105			6,220,805

Other expense (income):
Interest expense	263,872			368,425			648,455			773,670
Other (income), net	(45,211		)	(23,046		)	(68,092		)	(36,426		)
	218,661			345,379			580,363			737,244
Income from operations before income tax	2,733,676			2,813,421			5,794,742			5,483,561
Income tax expense	1,149,000			1,022,000			2,378,000			1,963,000
Net income	1,584,676			1,791,421			3,416,742			3,520,561
Preferred stock dividend requirements	(73,239		)	(73,239		)	(148,106		)	(148,106		)
Net income available to common shareholders	$	1,511,437		$	1,718,182		$	3,268,636		$	3,372,455

Basic earnings per share available to common shareholders:	$	2.56		$	3.05		$	5.60		$	6.00
Diluted earnings per share available to common shareholders:	$	2.05		$	2.40		$	4.47		$	4.72

Basic weighted average shares outstanding	589,454			564,216			583,986			562,145
Diluted weighted average shares outstanding	771,738			746,873			765,067			745,773


	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,832,066		$	1,729,140
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Depreciation	��	418,565			338,099
Amortization		79,018			49,170
Gain on sale of property and equipment		(2,315	)		(16,935	)
Stock based compensation		1,166,833			163,364
Net excess tax benefit on equity-based awards		(79,863	)		(107,048	)
Deferred income taxes		422,825			10,104
Provision for (recoveries) losses on doubtful accounts		(625,000	)		16,426
Provision for losses on inventory obsolescence		81,416			76,703
Other		(2,011	)		—

Changes in assets and liabilities:
Accounts receivable		6,282,865			4,695,589
Inventories		(1,135,707	)		3,442,508
Prepaid and other current assets		(1,758,550	)		(2,679,354	)
Other assets		(6,513	)		519
Accounts payable		(1,949,184	)		(1,329,456	)
Accrued expenses and accrued wages, salaries and bonuses		(1,316,121	)		(2,127,887	)
Income tax payable		(1,186,025	)		(2,973,111	)

Net cash flows from operating activities		2,222,299			1,287,831

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(293,037	)		(596,612	)
Proceeds from sales of property and equipment		11,575			34,306
Acquisition		—			(3,099,836	)

Net cash flows from investing activities		(281,462	)		(3,662,142	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on bank credit agreements		(1,647,706	)		2,769,851
Principal payments on long-term debt		(250,007	)		(182,901	)
Proceeds from exercise of stock options		—			66,411
Net excess tax benefit on equity-based awards		79,863			107,048
Dividends paid on convertible preferred stock		(74,867	)		(74,867	)
Dividends on common stock		(103,935	)		(103,181	)

Net cash flows from financing activities		(1,996,652	)		2,582,361

Net change in cash		(55,815	)		208,050

Cash, beginning of period		356,735			309,914

Cash, end of period	$	300,920		$	517,964

	2011		2010
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	668,389	$	760,727
Cash paid during the period for income taxes	3,630,007		4,974,408

Supplemental disclosure of non-cash information:
Equipment acquisitions classified as accounts payable	8,953		85,939

Business acquisition:
Inventory	—		1,981,498
Property and equipment	—		122,978
Customer relationships intangible asset	—		1,620,000
Goodwill	—		300,360
Note payable	—		500,000
Contingent consideration	—		425,000

·	Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products in the Central, Rocky Mountain, and Southern regions of the United States.

·	Our retail health food segment (“Retail Segment”) operates fourteen health food retail stores located throughout the Midwest and Florida.


	Amount
Total Consideration	(in millions)
Cash	$	3.1
Note payable		0.5
Fair value of contingent consideration		0.4

Fair value of total consideration	$	4.0


			Weighted
			Average
	Amount		Amortization
	(in millions)		Period
Inventory	$	2.0		—
Property and equipment		0.1		5 years
Identifiable intangible assets:
Customer relationships		1.6		8 years

Total identifiable net assets		3.7
Goodwill		0.3

Total identifiable assets and goodwill	$	4.0


	Three months ended
	December
(In millions)	2010		2009
Revenue — Actual Results	$	16.2	$	9.2
Revenue — Supplemental pro forma results	$	16.2	$	14.2
Net Income — Actual Results	$	0.1	$	0.1
Net Income — Supplemental pro forma results	$	0.1	$	0.1


	Series A			Series B
Date of issuance:		June 17, 2004			October 8, 2004
Optionally redeemable beginning		June 18, 2006			October 9, 2006
Par value (gross proceeds):	$	2,500,000		$	2,000,000
Number of shares:		100,000			80,000
Liquidation preference per share:	$	25.00		$	25.00
Conversion price per share:	$	30.31		$	24.65
Number of common shares in which to be converted:		82,481			81,136
Dividend rate:		6.785	%		6.37	%

	Series A			Series B
Date of issuance:	June 17, 2004			October 8, 2004
Optionally redeemable beginning	June 18, 2006			October 9, 2006
Par value (gross proceeds):	$	2,500,000		$	2,000,000
Number of shares:	100,000			80,000
Liquidation preference per share:	$	25.00		$	25.00
Conversion price per share:	$	30.31		$	24.65
Number of common shares in which to be converted:	82,481			81,136
Dividend rate:	6.785		%	6.37		%

	March 2011		September 2010
Wholesale Segment	$	4,236,291	$	4,236,291
Retail Segment	1,912,877		1,912,877
	$	6,149,168	$	6,149,168

	March 2011		September 2010
Trademarks and tradenames	$	3,373,269	$	3,373,269
Customer relationships (less accumulated amortization of $286,875 and $185,625 at March 2011 and September 2010, respectively)	1,333,125		1,434,375
	$	4,706,394	$	4,807,644

Customer relationships	March 2011
Fiscal 2011 (1)	$	101,250
Fiscal 2012	202,500
Fiscal 2013	202,500
Fiscal 2014	202,500
Fiscal 2015	202,500
Thereafter	421,875
	$	1,333,125


~~/1/~~		~~Represents amortization for the remaining nine months of Fiscal 2011.~~

	For the three months ended March
	2011					2010
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding	589,454			589,454		564,216			564,216
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)	—			182,284		—			182,657
Weighted average number of shares outstanding	589,454			771,738		564,216			746,873
Income from operations	$	1,584,676		$	1,584,676	$	1,791,421		$	1,791,421
Deduct: convertible preferred stock dividends (2)	(73,239		)	—		(73,239		)	—
Net income available to common shareholders	1,511,437			1,584,676		1,718,182			1,791,421

Net earnings per share available to common shareholders	$	2.56		$	2.05	$	3.05		$	2.40


	For the three months ended December
	2010					2009
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding		578,636			578,636		560,119			560,119
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock /1/		—			180,056		—			185,104

Weighted average number of shares outstanding		578,636			758,692		560,119			745,223

Income from continuing operations	$	1,832,066		$	1,832,066	$	1,729,140		$	1,729,140
Deduct: convertible preferred stock dividends /2/		(74,867	)		—		(74,867	)		—

Net income available to common shareholders	$	1,757,199		$	1,832,066	$	1,654,273		$	1,729,140


Net earnings per share available to common shareholders	$	3.04		$	2.41	$	2.95		$	2.32


~~/1/~~		~~Diluted earnings per share calculation includes all stock options, convertible preferred stock, and restricted stock deemed to be dilutive.~~

~~/2/~~		~~Diluted earnings per share calculation excludes dividends for convertible preferred stock deemed to be dilutive, as those amounts are assumed to have been converted to common stock of the Company.~~

	For the six months ended March
	2011					2010
	Basic			Diluted		Basic			Diluted
Weighted average common shares outstanding	583,986			583,986		562,145			562,145
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)	—			181,081		—			183,628
Weighted average number of shares outstanding	583,986			765,067		562,145			745,773
Income from operations	$	3,416,742		$	3,416,742	$	3,520,561		$	3,520,561
Deduct: convertible preferred stock dividends (2)	(148,106		)	—		(148,106		)	—
	3,268,636			3,416,742		3,372,455			3,520,561

Net earnings per share available to common shareholders	$	5.60		$	4.47	$	6.00		$	4.72


	Stock Option Pricing Assumptions
	~~Assumptions~~

Risk-free interest rate	3.04	~~3.04~~	%
Dividend yield	1.30	~~1.30~~	%
Expected volatility	49.30	~~49.30~~	%
Expected life in years	7	7


			Number of
			Options		Number
Date	Exercise Price		Outstanding		Exercisable
Fiscal 2003	$	28.80		84		84
Fiscal 2007	$	18.00		25,000		25,000
Fiscal 2010	$	51.50		6,000		—

				31,084		25,084

Date	Exercise Price		Number of Options Outstanding	Number Exercisable
Fiscal 2003	$	28.80	84	84
Fiscal 2007	$	18.00	25,000	25,000
Fiscal 2010	$	51.50	5,500	—
			30,584	25,084


					Remaining				Exercisable
	Exercise		Number		Weighted-Average		Weighted-Average		Number		Weighted-Average
	Price		Outstanding		Contractual Life		Exercise Price		Exercisable		Exercise Price
2002 Options	$	26.94		834		1.62 years	$	26.94		834	$	26.94
2003 Options	$	28.80		84		1.82 years	$	28.80		84	$	28.80
2007 Options	$	18.00		25,000		5.95 years	$	18.00		25,000	$	18.00
2010 Options	$	51.50		6,000		9.33 years	$	51.50		—		—

				31,918			$	24.56		25,918	$	18.32

				Remaining			Exercisable
	Exercise Price		Number Outstanding	Weighted-Average Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
2002 Options	$	26.94	834	1.37 years	$	26.94	834	$	26.94
2003 Options	$	28.80	84	1.57 years	$	28.80	84	$	28.80
2007 Options	$	18.00	25,000	5.70 years	$	18.00	25,000	$	18.00
2010 Options	$	51.50	5,500	9.08 years	$	51.50	—	—
			31,418		$	24.13	25,918	$	18.32

	Number of Shares		Weighted Average Exercise Price
Outstanding at September 2010	31,918		$	24.56
Granted	—		—
Exercised	—		—
Forfeited/Expired	(500	)	$	51.50
Outstanding at March 2011	31,418		$	24.13


	Restricted Stock /1/
Date of award:		January 29, 2008
Number of shares:		7,500
Service period:		36 months
Estimated fair value of award at grant date /2/:	$	229,000
Intrinsic value of awards outstanding at December 2010:	$	200,000


~~/1/~~		~~5,000 shares were vested at December 2010. The remaining 2,500 shares will vest January 29, 2011.~~

~~/2/~~		~~Amount is net of estimated forfeitures.~~


	Number			Weighted Average
	of			Grant Date
	Shares			Fair Value
Nonvested restricted stock at September 2010		10,500		$	40.16
Granted		—			—
Vested		(8,000	)	$	42.50
Expired		—			—

Nonvested restricted stock at December 2010		2,500		$	32.67

	Restricted Stock Units (1)		Restricted Stock Units (2)
Date of award:	November 22, 2010		November 22, 2010
Number of shares:	38,400		12,000
Service period:	24 months		36 months
Estimated fair value of award at grant date:	$	2,765,000	$	864,000
Fair value of outstanding (non-vested) awards at March 2011:	$	2,053,000	$	962,000

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