UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

	For the quarterly period ended March 31, ~~2019~~2020

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

	For the transition period from ___________to _________

Commission File Number 1-15589

amcon_4c_logo.eps

(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	DIT	NYSE American

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files) Yes ☒ No ☐

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

Large accelerated filer ☐		Accelerated filer ☐		Non-accelerated filer ☒

Smaller reporting company ☒Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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 ☐ No ☒

The Registrant had ~~592,768~~565,526 shares of its $.01 par value common stock outstanding as of April ~~15, 2019.~~17, 2020.

Table of Contents

Form 10-Q

2nd Quarter

INDEX


March 31, 2020	PAGE

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed consolidated balance sheets at March 31, ~~2019~~2020 (unaudited) and September 30, ~~2018~~2019	3

Condensed consolidated unaudited statements of operations for the three and six months ended March 31, ~~2019~~2020 and ~~2018~~2019	4

Condensed consolidated unaudited statements of shareholders’ equity for the three and six months ended March 31, ~~2019~~2020 and ~~2018~~2019	5

Condensed consolidated unaudited statements of cash flows for the six months ended March 31, ~~2019~~2020 and ~~2018~~2019	6

Notes to condensed consolidated unaudited financial statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	1517

Item 3. Quantitative and Qualitative Disclosures About Market Risk	2325

Item 4. Controls and Procedures	2426

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	2527

Item 1A. Risk Factors	2527

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	2527

Item 3. Defaults Upon Senior Securities	2527

Item 4. Mine Safety Disclosures	2527

Item 5. Other Information	2527

Item 6. Exhibits	2628

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

March 31, ~~2019~~2020 and September 30, ~~2018~~2019


		March		September		March		September
	��	2019		2018		2020		2019
		(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash		$	642,116	$	520,644	$	661,957	$	337,704
Accounts receivable, less allowance for doubtful accounts of $0.9 million at March 2019 and September 2018			28,016,243		31,428,845
Accounts receivable, less allowance for doubtful accounts of $1.3 million at March 2020 and $0.9 million at September 2019							27,811,495		24,665,620
Inventories, net			57,650,559		78,869,615		84,912,508		102,343,517
Income taxes receivable			—		272,112		172,365		350,378
Prepaid and other current assets			7,343,497		4,940,775		6,986,997		7,148,459
Total current assets			93,652,415		116,031,991		120,545,322		134,845,678

Property and equipment, net			16,915,409		15,768,484		18,287,881		17,655,415
Operating lease right-of-use assets, net							19,689,507		—
Goodwill			4,436,950		4,436,950		4,436,950		4,436,950
Other intangible assets, net			3,383,686		3,414,936		500,000		500,000
Other assets			293,896		301,793		406,653		273,579
Total assets		$	118,682,356	$	139,954,154	$	163,866,313	$	157,711,622

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	20,570,694	$	20,826,834	$	22,985,979	$	18,647,572
Accrued expenses			7,106,050		8,556,620		6,650,445		8,577,972
Accrued wages, salaries and bonuses			2,683,504		3,965,733		3,107,209		3,828,847
Income taxes payable			1,630		—
Current operating lease liabilities							5,433,800		—
Current maturities of long-term debt			803,612		1,096,306		542,004		532,747
Total current liabilities			31,165,490		34,445,493		38,719,437		31,587,138

Credit facility			17,224,197		35,428,597		43,218,080		60,376,714
Deferred income tax liability, net			2,009,719		1,782,801		1,925,536		1,823,373
Long-term operating lease liabilities							14,597,065		—
Long-term debt, less current maturities			3,394,116		3,658,391		2,852,112		3,125,644
Other long-term liabilities			40,033		38,055		—		42,011

Shareholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized			—		—		—		—
Common stock, $.01 par value, 3,000,000 shares authorized, 592,768 shares outstanding at March 2019 and 615,777 shares outstanding at September 2018			8,561		8,441
Common stock, $.01 par value, 3,000,000 shares authorized, 565,526 shares outstanding at March 2020 and 552,614 shares outstanding at September 2019							8,692		8,561
Additional paid-in capital			23,148,372		22,069,098		24,224,145		23,165,639
Retained earnings			66,203,466		63,848,030		67,184,900		66,414,397
Treasury stock at cost			(24,511,598)		(21,324,752)		(28,863,654)		(28,831,855)
Total shareholders’ equity			64,848,801		64,600,817		62,554,083		60,756,742
Total liabilities and shareholders’ equity		$	118,682,356	$	139,954,154	$	163,866,313	$	157,711,622

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

Table of Contents

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three and six months ended March 31, ~~2019~~2020 and ~~2018~~2019


	For the three months ended March				For the six months ended March				For the three months ended March					For the six months ended March
	2019		2018		2019		2018		2020		2019			2020		2019
Sales (including excise taxes of $82.9 million and $83.1 million, and $175.9 million and $171.7 million respectively)	$	310,715,873	$	295,207,286	$	655,449,793	$	610,720,495
Sales (including excise taxes of $87.5 million and $82.9 million, and $181.5 million and $175.9 million, respectively)									$	337,886,516		$	310,715,873	$	697,987,619	$	655,449,793
Cost of sales		290,126,453		278,141,110		614,228,235		575,462,557		317,193,063			290,126,453		656,449,455		614,228,235
Gross profit		20,589,420		17,066,176		41,221,558		35,257,938		20,693,453			20,589,420		41,538,164		41,221,558
Selling, general and administrative expenses		17,391,681		15,619,420		35,348,896		31,973,028		18,512,890			17,391,681		37,465,626		35,348,896
Depreciation and amortization		641,228		537,903		1,249,236		1,068,908		790,901			641,228		1,516,361		1,249,236
		18,032,909		16,157,323		36,598,132		33,041,936		19,303,791			18,032,909		38,981,987		36,598,132
Operating income		2,556,511		908,853		4,623,426		2,216,002		1,389,662			2,556,511		2,556,177		4,623,426

Other expense (income):
Interest expense		396,576		313,364		719,526		515,555		387,263			396,576		859,686		719,526
Other (income), net		(36,280)		(27,410)		(39,636)		(32,543)		(29,920)			(36,280)		(36,697)		(39,636)
		360,296		285,954		679,890		483,012		357,343			360,296		822,989		679,890
Income from operations before income taxes		2,196,215		622,899		3,943,536		1,732,990		1,032,319			2,196,215		1,733,188		3,943,536
Income tax expense (benefit)		673,000		284,000		1,175,000		(86,000)
Income tax expense										333,000			673,000		582,000		1,175,000
Net income available to common shareholders	$	1,523,215	$	338,899	$	2,768,536	$	1,818,990	$	699,319		$	1,523,215	$	1,151,188	$	2,768,536

Basic earnings per share available to common shareholders	$	2.49	$	0.49	$	4.50	$	2.64	$	1.24		$	2.49	$	2.04	$	4.50
Diluted earnings per share available to common shareholders	$	2.45	$	0.49	$	4.44	$	2.61	$	1.22		$	2.45	$	2.02	$	4.44

Basic weighted average shares outstanding		611,824		689,480		614,874		688,570		565,697			611,824		564,129		614,874
Diluted weighted average shares outstanding		620,769		697,406		623,848		697,563		571,852			620,769		569,856		623,848

Dividends declared and paid per common share	$	0.46	$	0.46	$	0.64	$	0.64	$	0.46		$	0.46	$	0.64	$	0.64

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

Table of Contents

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Shareholders’ Equity

for the three and six months ended March 31, ~~2019~~2020 and ~~2018~~

2019


							Additional												Additional
	Common Stock			Treasury Stock			Paid in		Retained				Common Stock			Treasury Stock			Paid in		Retained
	Shares	Amount		Shares	Amount		Capital		Earnings		Total
THREE MONTHS ENDED MARCH 2018
Balance, January 1, 2018	844,089	$	8,441	(153,603)	$	(13,616,477)	$	22,009,620	$	62,086,133	$	70,487,717
Dividends on common stock, $0.18 per share	—		—	—		—		—		(128,990)		(128,990)
Compensation expense and issuance of stock in connection with equity-based awards	—		—	—		—		26,942		—		26,942
Repurchase of common stock	—		—	(6,482)		(629,353)		—		—		(629,353)
Net income	—		—	—		—		—		338,899		338,899
Balance, March 31, 2018	844,089	$	8,441	(160,085)	$	(14,245,830)	$	22,036,562	$	62,296,042	$	70,095,215
													Shares	Amount		Shares	Amount		Capital		Earnings		Total
THREE MONTHS ENDED MARCH 2019
Balance, January 1, 2019	856,039	$	8,561	(238,744)	$	(22,242,837)	$	23,110,713	$	64,796,415	$	65,672,852	856,039	$	8,561	(238,744)	$	(22,242,837)	$	23,110,713	$	64,796,415	$	65,672,852
Dividends on common stock, $0.18 per share	—		—	—		—		—		(116,164)		(116,164)	—		—	—		—		—		(116,164)		(116,164)
Compensation expense and issuance of stock in connection with equity-based awards	—		—	—		—		37,659		—		37,659	—		—	—		—		37,659		—		37,659
Repurchase of common stock	—		—	(24,527)		(2,268,761)		—		—		(2,268,761)	—		—	(24,527)		(2,268,761)		—		—		(2,268,761)
Net income	—		—	—		—		—		1,523,215		1,523,215	—		—	—		—		—		1,523,215		1,523,215
Balance, March 31, 2019	856,039	$	8,561	(263,271)	$	(24,511,598)	$	23,148,372	$	66,203,466	$	64,848,801	856,039	$	8,561	(263,271)	$	(24,511,598)	$	23,148,372	$	66,203,466	$	64,848,801

THREE MONTHS ENDED MARCH 2020
Balance, January 1, 2020													869,367	$	8,692	(303,534)	$	(28,840,011)	$	24,192,954	$	66,592,637	$	61,954,272
Dividends on common stock, $0.18 per share													—		—	—		—		—		(107,056)		(107,056)
Compensation expense and issuance of stock in connection with equity-based awards													—		—	—		—		31,191		—		31,191
Repurchase of common stock													—		—	(307)		(23,643)		—		—		(23,643)
Net income													—		—	—		—		—		699,319		699,319
Balance, March 31, 2020													869,367	$	8,692	(303,841)	$	(28,863,654)	$	24,224,145	$	67,184,900	$	62,554,083


							Additional												Additional
	Common Stock			Treasury Stock			Paid in		Retained				Common Stock			Treasury Stock			Paid in		Retained
	Shares	Amount		Shares	Amount		Capital		Earnings		Total
SIX MONTHS ENDED MARCH 2018
Balance, October 1, 2017	831,438	$	8,314	(153,432)	$	(13,601,302)	$	20,825,919	$	60,935,911	$	68,168,842
Dividends on common stock, $0.64 per share	—		—	—		—		—		(458,859)		(458,859)
Compensation expense and issuance of stock in connection with equity-based awards	12,651		127	—		—		1,210,643		—		1,210,770
Repurchase of common stock	—		—	(6,653)		(644,528)		—		—		(644,528)
Net income	—		—	—		—		—		1,818,990		1,818,990
Balance, March 31, 2018	844,089	$	8,441	(160,085)	$	(14,245,830)	$	22,036,562	$	62,296,042	$	70,095,215
													Shares	Amount		Shares	Amount		Capital		Earnings		Total
SIX MONTHS ENDED MARCH 2019
Balance, October 1, 2018	844,089	$	8,441	(228,312)	$	(21,324,752)	$	22,069,098	$	63,848,030	$	64,600,817	844,089	$	8,441	(228,312)	$	(21,324,752)	$	22,069,098	$	63,848,030	$	64,600,817
Dividends on common stock, $0.64 per share	—		—	—		—		—		(413,100)		(413,100)	—		—	—		—		—		(413,100)		(413,100)
Compensation expense and issuance of stock in connection with equity-based awards	11,950		120	—		—		1,079,274		—		1,079,394	11,950		120	—		—		1,079,274		—		1,079,394
Repurchase of common stock	—		—	(34,959)		(3,186,846)		—		—		(3,186,846)	—		—	(34,959)		(3,186,846)		—		—		(3,186,846)
Net income	—		—	—		—		—		2,768,536		2,768,536	—		—	—		—		—		2,768,536		2,768,536
Balance, March 31, 2019	856,039	$	8,561	(263,271)	$	(24,511,598)	$	23,148,372	$	66,203,466	$	64,848,801	856,039	$	8,561	(263,271)	$	(24,511,598)	$	23,148,372	$	66,203,466	$	64,848,801

SIX MONTHS ENDED MARCH 2020
Balance, October 1, 2019													856,039	$	8,561	(303,425)	$	(28,831,855)	$	23,165,639	$	66,414,397	$	60,756,742
Dividends on common stock, $0.64 per share													—		—	—		—		—		(380,685)		(380,685)
Compensation expense and issuance of stock in connection with equity-based awards													13,328		131	—		—		1,058,506		—		1,058,637
Repurchase of common stock													—		—	(416)		(31,799)		—		—		(31,799)
Net income													—		—	—		—		—		1,151,188		1,151,188
Balance, March 31, 2020													869,367	$	8,692	(303,841)	$	(28,863,654)	$	24,224,145	$	67,184,900	$	62,554,083

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

Table of Contents

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the six months ended March 31, ~~2019~~2020 and ~~2018~~2019


		March		March	March		March
		2019		2018	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,768,536	$	1,818,990	$	1,151,188	$	2,768,536
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Adjustments to reconcile net income from operations to net cash flows from (used in) operating activities:
Depreciation		1,217,986		1,020,783		1,516,361		1,217,986
Amortization		31,250		48,125		—		31,250
Gain on sale of property and equipment		(17,832)		(300)
Loss (Gain) on sales of property and equipment						33,642		(17,832)
Equity-based compensation		622,390		642,785		446,114		622,390
Deferred income taxes		226,918		(423,322)		102,163		226,918
Provision (recovery) for losses on doubtful accounts		59,000		(77,000)
Provision for losses on doubtful accounts						390,000		59,000
Inventory allowance		240,699		(231,625)		55,746		240,699
Other		1,978		1,978		(42,011)		1,978

Changes in assets and liabilities:
Accounts receivable		3,353,602		1,521,705		(3,535,875)		3,353,602
Inventories		20,978,357		(2,951,171)		17,375,263		20,978,357
Prepaid and other current assets		(2,402,722)		1,216,336		(100,883)		(2,402,722)
Other assets		7,897		(19,903)		(133,074)		7,897
Accounts payable		(467,687)		126,012		4,401,077		(467,687)
Accrued expenses and accrued wages, salaries and bonuses		(2,275,795)		(1,059,839)		(1,432,939)		(2,275,795)
Income taxes payable / receivable		273,742		(368,469)
Net cash flows from operating activities		24,618,319		1,265,085
Income taxes receivable						178,013		273,742
Net cash flows from (used in) operating activities						20,404,785		24,618,319

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(2,159,232)		(1,366,767)		(2,245,139)		(2,159,232)
Proceeds from sales of property and equipment		23,700		300		—		23,700
Net cash flows (used in) investing activities		(2,135,532)		(1,366,467)
Net cash flows from (used in) investing activities						(2,245,139)		(2,135,532)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility		642,850,736		623,945,799		680,161,101		642,850,736
Repayments under revolving credit facility		(661,055,136)		(622,433,675)		(697,319,735)		(661,055,136)
Principal payments on long-term debt		(556,969)		(185,753)		(264,275)		(556,969)
Repurchase of common stock		(3,186,846)		(644,528)		(31,799)		(3,186,846)
Dividends on common stock		(413,100)		(458,859)		(380,685)		(413,100)
Withholdings on the exercise of equity-based awards		—		(79,850)
Net cash flows from (used in) financing activities		(22,361,315)		143,134		(17,835,393)		(22,361,315)
Net change in cash		121,472		41,752		324,253		121,472
Cash, beginning of period		520,644		523,065		337,704		520,644
Cash, end of period	$	642,116	$	564,817	$	661,957	$	642,116

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	774,784	$	489,840	$	927,322	$	774,784
Cash paid during the period for income taxes		674,340		705,790		301,824		674,340

Supplemental disclosure of non-cash information:
Equipment acquisitions classified in accounts payable	$	212,800	$	63,962	$	6,583	$	212,800
Issuance of common stock in connection with the vesting and exercise of equity-based awards		1,005,792		1,183,091		990,653		1,005,792

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

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 and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We serve customers in 26 states and primarily operate in the Central, Rocky Mountain, and ~~Southern~~Mid-South regions of the United States.

Our retail health food segment (“Retail Segment”) operates ~~twenty-two~~twenty-one health food retail stores located throughout the Midwest and Florida.

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately ~~4,000~~4,100 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and ~~chilled~~refrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In November ~~2018,~~2019, Convenience Store News ranked us as the eighth (8th) largest convenience store distributor in the United States based on annual sales.

Our ~~wholesale business~~Wholesale Segment offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, ~~optimizing~~ inventory optimization and merchandising expertise, information systems, and ~~accessing~~access to trade credit.

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross-dock facilities, include approximately ~~689,000~~685,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

RETAIL SEGMENT

Our Retail Segment, through our Healthy Edge, Inc. subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.

~~Table of Contents~~

We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.

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Our Retail Segment operates ~~twenty-two~~twenty-one retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akins”), and Earth Origins Market (“EOM”). These stores carry over ~~32,000~~33,000 different national and regionally branded and private label products including 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 established in 1935, ~~operates~~has a total of seven ~~stores~~locations in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of ~~seven~~six locations in Arkansas, Missouri, and Oklahoma. Earth Origins Market has a total of eight locations in Florida.

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.~~herein. 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, ~~2018,~~2019, 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 March 31, ~~2019~~2020 and March 31, ~~2018~~2019 have been referred to throughout this quarterly report as Q2 ~~2019~~2020 and Q2 ~~2018,~~2019, respectively. The fiscal balance sheet dates as of March 31, ~~2019~~2020 and September 30, ~~2018~~2019 have been referred to as March ~~2019~~2020 and September ~~2018,~~2019, respectively.

ACCOUNTING PRONOUNCEMENTS

Accounting Pronouncement Adopted

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“~~ASU��~~ASU”) No. ~~2014-09, “Revenue from Contracts with Customers~~2016-02 “Leases (Topic ~~606)~~842)”.” Accounting Standards Codification Topic (“ASC”) ~~606~~842 supersedes the ~~revenue recognition~~lease accounting requirements in “ASC ~~605~~840 - ~~Revenue Recognition”~~Leases”. The most significant among the changes in ASU 2016-02 is the recognition of right-of-use (“ROU”) assets and ~~most industry-specific guidance.~~corresponding lease liabilities for leases classified as operating leases. The ~~standard requires that entities recognize revenue~~accounting for finance leases, which were classified as capital leases under historical GAAP, remains substantially unchanged. The lease liabilities are equal to ~~depict~~ the ~~transfer~~present value of ~~promised goods or services to customers in an~~the remaining lease payments while the ROU asset is determined based on the amount ~~that reflects~~of the ~~consideration to which a company expects to be entitled in exchange for those goods or services.~~lease liability, plus initial direct costs incurred less lease incentives. The Company ~~adopted~~elected the ~~new standard using the modified retrospective approach effective October 1, 2018.~~optional transition method to apply ASU 2016-02 prospectively at adoption during Q1 2020, which resulted in recognition of ROU assets of approximately $21.9 million, lease liabilities of $22.2 million, and a decrease of deferred rent recorded under ASC 840 of $0.3 million. The adoption of ASC ~~606~~842 did not have a material effect on the Company’s consolidated statements of operations or cash flows. Comparative periods presented in the financial statements prior to Q1 2020 continue to be presented under ASC 840. The adoption of ASC 842 did not have a material impact on the Company’s debt-covenant compliance under its revolving credit facility.

In accordance with an accounting policy election under ASC 842, the Company does not recognize assets or liabilities for leases with an initial term of twelve months or less; these short-term lease payments are recognized in the consolidated ~~balance sheet or consolidated results~~statements of operations on a straight-line basis over the lease term. The Company elected the package of practical expedients within ASC 842 that allows an entity to not reassess, prior to the effective date, (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, or (iii) initial direct costs for any existing leases. The Company also elected the practical expedient to account for non-lease components as part of the ~~adoption date or~~lease for ~~the three and six months ended March 31, 2019. Significant areas of consideration in regards to the Company’s adoption of ASC 606 were as follows:~~

~~Revenue Recognition~~

The Company recognizes revenues when the performance obligation is satisfied, which is the point at which control of the promised goods or services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. For the majority of the Company’s customer arrangements, control transfers to customers at a point-in-time when goods have been delivered, as that is generally when legal title, physical possession and risks and rewards of goods/services transfers to the customer. The timing of satisfaction of the performance obligation is not subject to significant judgment. See Footnote 8 “Business Segments” for the disaggregation of net sales for each of our business segments.all asset classes.

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~~Customers’ Sales Incentives~~

The Company provides consideration to customers, such as sales allowances or discounts to its customers on a regular basis. Under ASC 606, these customers’ sales incentives will continue to be recorded as a reduction to net sales as the sales incentive is earned by the customer.

~~Excise Taxes~~

As part of the implementation of ASC 606, the Company determined that it is primarily responsible for excise taxes levied on cigarette and other tobacco products and continues to present excise taxes as a component of revenue.

~~Contract Costs~~

~~Based on the nature of the Company’s business, the costs to obtain and fulfill customer contracts are not material.~~

New Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02 “Leases”. This ASU and its related amendments requires lessees to recognize right-of-use assets and corresponding lease liabilities for all leases greater than one year in duration that had been classified as operating leases under previous GAAP. This ASU is effective for fiscal years beginning after December 15, 2018 (fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently in the data aggregation and quantification phase of its review of this new standard and continues to evaluate its impact on the consolidated financial statements, including the potential capitalization of all operating leases on the Company’s balance sheet.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, ~~2019~~2022 (fiscal ~~2021~~2024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.

2. INVENTORIES

Inventories consisted of finished goods and are stated at the lower of cost (determined on a FIFO basis for our wholesale segment and using the retail method for our retail segment) or net realizable value. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately ~~$0.7~~$1.1 million at March ~~2019~~2020 and ~~$0.5~~$1.0 million at September ~~2018.~~2019. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

3. LEASES

The Company’s wholesale segment leases certain warehouse facilities, office space, vehicles and office equipment. The Company’s retail segment leases store space in various shopping center complexes. Certain of the warehouse and retail store leases include one or more options to renew or terminate the applicable lease agreement, with the exercise of such options at the Company’s discretion. The Company’s leases do not contain any significant residual value guarantees nor do they impose any significant restrictions or covenants other than those customarily found in similar types of leases.

The operating right-of-use (ROU) lease assets and liabilities recorded on the Company’s consolidated balance sheet consist of fixed lease payments. Leases with an initial term of twelve months or less are not recorded on the consolidated balance sheet and are expensed on a straight-line basis over the lease term. Additionally, certain leases contain variable payments such as vehicle leases with per-mile charges or retail leases with an additional rent payment based on store performance. These variable payments are expensed as incurred. The Company combines lease components and non-lease components for all asset classes for purposes of recognizing lease assets and liabilities. The Company determines its incremental borrowing rates based on information available at the lease commencement date in calculating the present value of lease payments.

Leases consist of the following:


Assets	Classification	March 2020
Operating	Operating lease right-of-use assets	$	19,689,507

Liabilities
Current:
Operating	Operating lease liabilities	$	5,433,800
Non-current:
Operating	Long-term operating lease liabilities		14,597,065
Total lease liabilities		$	20,030,865

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3.The components of lease costs were as follows:



	Total
THREE MONTHS ENDED MARCH 2020
Operating lease cost	$	1,660,850
Short-term lease cost		83,936
Variable lease cost		79,954
Net lease cost	$	1,824,740



	Total
SIX MONTHS ENDED MARCH 2020
Operating lease cost	$	3,331,624
Short-term lease cost		167,441
Variable lease cost		169,227
Net lease cost	$	3,668,292

Maturities of lease liabilities as of March 2020 were as follows:


	Operating Leases
2020	$	6,124,577
2021		5,236,472
2022		3,882,209
2023		3,222,946
2024		1,873,836
2025 and thereafter		1,505,992
Total lease payments		21,846,032
Less: interest		(1,815,167)
Present value of lease liabilities	$	20,030,865

Weighted-average remaining lease term and weighted-average discount rate information regarding the Company’s leases were as follows:


Lease Term	March 2020
Weighted-average remaining lease term (years):
Operating	4.4
Discount Rate
Weighted-average discount rate:
Operating	4.04	%

Other information regarding the Company’s leases were as follows:


	For the six months ended March 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used by operating leases	$	3,304,184
Lease liabilities arising from obtaining new ROU assets:
Operating leases	$	732,287

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Future minimum operating lease payments as of September 2019, as reported in the 2019 Form 10-K under ASC 840, were as follows:


	Operating
Fiscal Year Ending	Leases
2020	$	6,468,837
2021		5,418,617
2022		4,299,261
2023		3,216,671
2024		2,456,810
Thereafter		2,387,618
Total minimum lease payments	$	24,247,814

4. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill by reporting segment of the Company consisted of the following:

March

September

2019

2018
Wholesale Segment

$
4,436,950

$
4,436,950


	March		September
	2020		2019
Wholesale Segment	$	4,436,950	$	4,436,950

Other intangible assets of the Company consisted of the following:

March

September

2019

2018
Trademarks and tradenames (Retail Segment)

$
3,373,269

$
3,373,269
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $2.1 million at both March 2019 and September 2018)

10,417

41,667

$
3,383,686

$
3,414,936


	March		September
	2020		2019
Trademarks and tradenames (Retail Segment)	$	500,000	$	500,000

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At March 2019 identifiable intangible assets considered to have finite lives were represented by customer relationships which are being amortized over eight years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted.

~~At March 2019, goodwill~~Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to ~~our~~its wholesale reporting unit which totaled $4.4 ~~million. In conjunction with the Company’s~~million at both March 2020 and September 2019. The Company performs its annual impairment testing ~~for~~during the fourth fiscal quarter of each year ~~ended September 30, 2018, the Company determined that the estimated fair value of this reporting unit exceeded its carrying value at September 30, 2018.~~or as circumstances change or necessitate. There ~~has~~have been no material changes to ~~this assessment by~~ the ~~Company through March~~Company’s impairment assessments since its fiscal year ended September 2019.

4.5. DIVIDENDS

The Company paid cash dividends on its common stock totaling $0.3 million and $0.4 million for the three and six month periods ended March ~~2019,~~2020, respectively, and $0.3 million and ~~$0.5~~$0.4 million for the three and six month periods ended March ~~2018,~~2019, respectively.

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5.6. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing net income 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 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.~~equity awards.


	For the three months ended March								For the three months ended March
	2019				2018				2020				2019
	Basic		Diluted		Basic		Diluted		Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		611,824		611,824		689,480		689,480		565,697		565,697		611,824		611,824
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		8,945		—		7,926		—		6,155		—		8,945
Weighted average number of shares outstanding		611,824		620,769		689,480		697,406		565,697		571,852		611,824		620,769
Net income available to common shareholders	$	1,523,215	$	1,523,215	$	338,899	$	338,899	$	699,319	$	699,319	$	1,523,215	$	1,523,215

Net earnings per share available to common shareholders	$	2.49	$	2.45	$	0.49	$	0.49	$	1.24	$	1.22	$	2.49	$	2.45

(1)

Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive.

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	For the six months ended March								For the six months ended March
	2019				2018				2020				2019
	Basic		Diluted		Basic		Diluted		Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		614,874		614,874		688,570		688,570		564,129		564,129		614,874		614,874
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		8,974		—		8,993		—		5,727		—		8,974
Weighted average number of shares outstanding		614,874		623,848		688,570		697,563		564,129		569,856		614,874		623,848
Net income available to common shareholders	$	2,768,536	$	2,768,536	$	1,818,990	$	1,818,990	$	1,151,188	$	1,151,188	$	2,768,536	$	2,768,536

Net earnings per share available to common shareholders	$	4.50	$	4.44	$	2.64	$	2.61	$	2.04	$	2.02	$	4.50	$	4.44

(1)

Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive.

7. DEBT

The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank participating in a loan syndication.

~~The~~On March 20, 2020, the Company amended the Facility ~~included the following~~which was set to expire in November 2022. The significant terms of the newly amended Facility at March ~~2019:~~2020 are as follows:

A ~~November 2022~~March 2025 maturity date without a penalty for prepayment.

$~~70.0~~110.0 million revolving credit limit.

Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

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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 any original or renewal term of the agreement.

The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent successor rate index) plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company. In no event shall LIBOR be less than 100 basis points.

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.

A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement. The Company’s ~~availability has not fallen below 10% of the maximum loan limit and the Company’s~~ fixed charge coverage ratio iswas over 1.0 for the trailing twelve months.

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Provides that the Company may ~~pay~~use up to ~~$2.0~~$3.5 million annually, on a collective basis, for the payment of dividends on its common stock, ~~annually~~or other distributions or investments, provided the Company is not in default before or after ~~the dividend.~~such dividends, distributions or investments. Additionally, the Company may pay dividends on its common stock, or make other distributions or investments in excess of ~~$2.0~~$3.5 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after ~~the dividend.~~such dividends, distributions or investments.

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 credit limit of the Facility at March ~~2019~~2020 was ~~$68.4~~$89.6 million, of which ~~$17.2~~$43.2 million was outstanding, leaving ~~$51.2~~$46.4 million available.

At March ~~2019,~~2020, 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 ~~3.87%~~2.63% at March ~~2019.~~2020. For the six months ended March ~~2019,~~2020, our peak borrowings under the Facility were ~~$46.8~~$71.6 million, and our average borrowings and average availability under the Facility were ~~$28.9~~$42.9 million and ~~$40.2~~$30.0 million, respectively.

Cross Default and Co-Terminus Provisions

The Company owns ~~certain~~ real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, are in default. There were no such cross defaults at March ~~2019.~~2020. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Other

~~AMCON~~The Company has issued a ~~$0.5 million~~ letter of credit for $0.5 million to its workers’ compensation insurance carrier as part of its self‑insured loss control program.

~~7. INCOME TAXES~~

The Company’s results of operations for the six months ended March 2019 and March 2018 were impacted by the enactment of the Tax Cuts and Jobs Act (“Tax Reform”) which was signed into law on December 22, 2017. Among the numerous provisions included in the new law was a reduction in the corporate federal income tax rate from 35% to 21% which resulted in a $0.8 million income tax benefit to the Company as reflected in our Statement of Operations for the six months ended March 2018 and a lower federal income tax rate for the six months ended March 2019. The $0.8 million tax benefit recognized in the prior fiscal year period (six months ended March 2018) primarily resulted from applying the new lower federal income tax rates to the Company’s net long term deferred tax liabilities recorded on its Consolidated Balance Sheet.

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8. BUSINESS SEGMENTS

The Company 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 (loss) before taxes.


	Wholesale		Retail						Wholesale		Retail
	Segment		Segment		Other		Consolidated		Segment		Segment		Other		Consolidated
THREE MONTHS ENDED MARCH 2019
THREE MONTHS ENDED MARCH 2020
External revenues:
Cigarettes	$	211,572,049	$	—	$	—	$	211,572,049	$	228,865,603	$	—	$	—	$	228,865,603
Tobacco		44,665,339		—		—		44,665,339		51,639,145		—		—		51,639,145
Confectionery		18,092,990		—		—		18,092,990		18,027,050		—		—		18,027,050
Health food		—		11,973,455		—		11,973,455		—		12,994,651		—		12,994,651
Foodservice & other		24,412,040		—		—		24,412,040		26,360,067		—		—		26,360,067
Total external revenue		298,742,418		11,973,455		—		310,715,873		324,891,865		12,994,651		—		337,886,516
Depreciation		378,172		247,431		—		625,603		443,143		347,758		—		790,901
Amortization		15,625		—		—		15,625		—		—		—		—
Operating income (loss)		3,797,109		259,043		(1,499,641)		2,556,511		2,907,818		85,521		(1,603,677)		1,389,662
Interest expense		36,823		—		359,753		396,576		32,590		—		354,673		387,263
Income (loss) from operations before taxes		3,793,759		261,849		(1,859,393)		2,196,215		2,902,907		87,760		(1,958,348)		1,032,319
Total assets		100,479,809		17,961,404		241,143		118,682,356		142,552,270		20,835,266		478,777		163,866,313
Capital expenditures		824,557		389,717		—		1,214,274		439,019		349,425		—		788,444

THREE MONTHS ENDED MARCH 2018
THREE MONTHS ENDED MARCH 2019
External revenue:
Cigarettes	$	208,188,686	$	—	$	—	$	208,188,686	$	211,572,049	$	—	$	—	$	211,572,049
Tobacco		39,536,595		—		—		39,536,595		44,665,339		—		—		44,665,339
Confectionery		17,257,066		—		—		17,257,066		18,092,990		—		—		18,092,990
Health food		—		6,813,088		—		6,813,088		—		11,973,455		—		11,973,455
Foodservice & other		23,411,851		—		—		23,411,851		24,412,040		—		—		24,412,040
Total external revenue		288,394,198		6,813,088		—		295,207,286		298,742,418		11,973,455		—		310,715,873
Depreciation		324,142		198,136		—		522,278		378,172		247,431		—		625,603
Amortization		15,625		—		—		15,625		15,625		—		—		15,625
Operating income (loss)		2,531,394		(193,545)		(1,428,996)		908,853		3,797,109		259,043		(1,499,641)		2,556,511
Interest expense		22,814		—		290,550		313,364		36,823		—		359,753		396,576
Income (loss) from operations before taxes		2,530,624		(190,879)		(1,716,846)		622,899		3,793,759		261,849		(1,859,393)		2,196,215
Total assets		118,169,883		14,358,012		120,862		132,648,757		100,479,809		17,961,404		241,143		118,682,356
Capital expenditures		654,964		468,982		—		1,123,946		824,557		389,717		—		1,214,274

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	Wholesale		Retail						Wholesale		Retail
									Segment		Segment		Other		Consolidated
SIX MONTHS ENDED MARCH 2020
External revenue:
Cigarettes									$	473,915,657	$	—	$	—	$	473,915,657
Tobacco										105,956,693		—		—		105,956,693
Confectionery										38,863,912		—		—		38,863,912
Health food										—		23,091,146		—		23,091,146
Foodservice & other										56,160,211		—		—		56,160,211
Total external revenue										674,896,473		23,091,146		—		697,987,619
Depreciation										875,405		640,956		—		1,516,361
Amortization										—		—		—		—
Operating income (loss)										6,556,832		(1,056,785)		(2,943,870)		2,556,177
Interest expense										66,564		—		793,122		859,686
Income (loss) from operations before taxes										6,522,571		(1,052,392)		(3,736,991)		1,733,188
Total assets										142,552,270		20,835,266		478,777		163,866,313
Capital expenditures										1,232,700		949,769		—		2,182,469
	Segment		Segment		Other		Consolidated
SIX MONTHS ENDED MARCH 2019
External revenue:
Cigarettes	$	449,933,631	$	—	$	—	$	449,933,631	$	449,933,631	$	—	$	—	$	449,933,631
Tobacco		92,860,385		—		—		92,860,385		92,860,385		—		—		92,860,385
Confectionery		37,810,656		—		—		37,810,656		37,810,656		—		—		37,810,656
Health food		—		22,964,078		—		22,964,078		—		22,964,078		—		22,964,078
Foodservice & other		51,881,043		—		—		51,881,043		51,881,043		—		—		51,881,043
Total external revenue		632,485,715		22,964,078		—		655,449,793		632,485,715		22,964,078		—		655,449,793
Depreciation		742,304		475,682		—		1,217,986		742,304		475,682		—		1,217,986
Amortization		31,250		—		—		31,250		31,250		—		—		31,250
Operating income (loss)		7,500,992		213,600		(3,091,166)		4,623,426		7,500,992		213,600		(3,091,166)		4,623,426
Interest expense		74,597		—		644,929		719,526		74,597		—		644,929		719,526
Income (loss) from operations before taxes		7,461,683		217,948		(3,736,095)		3,943,536		7,461,683		217,948		(3,736,095)		3,943,536
Total assets		100,479,809		17,961,404		241,143		118,682,356		100,479,809		17,961,404		241,143		118,682,356
Capital expenditures		1,608,673		762,106		—		2,370,779		1,608,673		762,106		—		2,370,779

SIX MONTHS ENDED MARCH 2018
External revenue:
Cigarettes	$	431,454,264	$	—	$	—	$	431,454,264
Tobacco		81,178,273		—		—		81,178,273
Confectionery		35,773,384		—		—		35,773,384
Health food		—		13,102,985		—		13,102,985
Foodservice & other		49,211,589		—		—		49,211,589
Total external revenue		597,617,510		13,102,985		—		610,720,495
Depreciation		634,627		386,156		—		1,020,783
Amortization		48,125		—		—		48,125
Operating income (loss)		5,720,377		(666,526)		(2,837,849)		2,216,002
Interest expense		46,522		—		469,033		515,555
Income (loss) from operations before taxes		5,698,556		(661,384)		(3,304,182)		1,732,990
Total assets		118,169,883		14,358,012		120,862		132,648,757
Capital expenditures		706,493		622,875		—		1,329,368

9. COMMON STOCK REPURCHASE

The Company repurchased a total of ~~24,527~~307 and ~~34,959~~416 shares of its common stock during the three and six ~~month periods~~months ended March ~~2019,~~2020, respectively, for cash totaling ~~$2.3~~less than $0.1 million ~~and $3.2 million, respectively.~~in each respective period. For the three and six month periods ~~ending~~ended March ~~2018,~~2019, respectively, the Company repurchased ~~a total of 6,482~~24,527 and ~~6,653~~34,959 shares of its common stock for cash totaling ~~$0.6~~approximately $2.3 million ~~during each respective period.~~and $3.2 million, respectively. All repurchased shares were recorded in treasury stock at cost.

10. IMPACT OF COVID-19

In March 2020 the World Health Organization (WHO) declared the novel strain of coronavirus (COVID-19) a global pandemic. The Company is designated by the Cybersecurity and Infrastructure Security Agency (CISA) of the Department of Homeland Security as a critical infrastructure supplier to the Convenience Store Industry. Both of the Company’s business segments have continued to operate during the pandemic as vital suppliers of goods and services and the Company has taken certain proactive and precautionary steps to ensure the safety of its employees, customers and suppliers, including frequent cleaning and disinfection of workspaces, property and equipment, instituting social distancing measures and mandating remote working environments for certain employees. We cannot, however, predict the long-term effects on our business, including our financial position or results of operations, if governmental restrictions such as Stay-At-Home Orders or other such directives continue for a prolonged period of time and materially disrupt our supply chain or our ability to procure products or fulfill orders due to disruptions in our warehouse operations.

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11. SUBSEQUENT EVENT

In April 2020, the Company completed its previously announced transaction with Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale distributor serving the convenience store industry, to jointly own and operate a limited liability company (“Team Sledd”) formed for the purpose of owning and operating Sledd’s wholesale distribution business. In conjunction with the transaction, Sledd contributed substantially all of its assets and stated liabilities to Team Sledd, while the Company contributed $10.0 million in cash, of which $6.5 million was structured as equity and $3.5 million was structured as a secured loan to Team Sledd and subordinate to the liens of Team Sledd's existing secured lenders.

In connection with the closing of the transaction, the Company and Sledd entered into an Operating Agreement for Team Sledd which sets forth each party’s respective ownership interests in and capital contributions to Team Sledd and provides for the management of the business and affairs of Team Sledd. At the transaction closing date, Sledd and AMCON owned approximately 55% and 45% of Team Sledd’s outstanding equity, respectively. As contemplated by the Operating Agreement, it is anticipated that certain membership interests in Team Sledd will be redeemed over a six year period, or potentially longer, with such redemptions funded from the operations of Team Sledd. These redemptions would result in corresponding increases in the percentage of the outstanding equity of Team Sledd owned by AMCON.

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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 of Financial Condition and Results of Operations 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(s),” “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~~It should ~~understand~~be understood 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:

risks associated with the threat or occurrence of epidemics or pandemics (such as the recent COVID-19, or coronavirus outbreak) or other public health issues, including the imposition of governmental orders restricting our operations and the activities of our employees, suppliers and customers and the reduced demand for our goods and services, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to disruptions in our warehouse operations,

increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses,

that our repositioning strategy for our retail business will not be successful,

risks associated with opening new retail stores,

risks associated with the acquisition of assets or new businesses by either of our business segments including, but not limited to, risks associated with purchase price and business valuation risks, vendor and customer retention risks, employee and technology integration risks, and risks related to the assumption of certain liabilities or obligations,

if online shopping formats such as Amazon continue to grow in popularity and further disrupt traditional sales channels, it may present a significant direct risk to our brick and mortar retail business and potentially to our wholesale distribution business,

the potential impact of ongoing trade tariffs may have on our product costs or on consumer disposable income and demand,

increases in fuel costs and expenses associated with operating a refrigerated trucking fleet,

the risks associated with a highly competitive labor market, particularly for truck drivers and warehouse workers, which may impact our ability to recruit and retain employees and result in higher employee compensation costs,

increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand,

higher commodity prices and general inflation which could impact food ingredient costs and demand for many of the products we sell,

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~~regulation~~regulations, potential bans and/or ~~potential ban~~litigation related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and e-cigarette/vaping products by the United States Food and Drug Administration (“FDA”), state or local governmental agencies, or other ~~governmental agencies (state/local) related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and e-cigarette/vaping products,~~parties,

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increases in manufacturer prices,

increases in inventory carrying costs and customer credit ~~risk,~~risks,

changes in promotional and incentive programs offered by manufacturers,

demand for the Company’s products, particularly cigarette, tobacco and e-cigarette/vaping products,

·��

risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors,

changes in laws and regulations and ongoing compliance related to health care and associated insurance,

increasing health care costs for both the Company and consumers and ~~the~~its potential impact on discretionary consumer spending,

~~the ongoing trend of higher health care costs,~~

decreased availability of capital resources,

domestic regulatory and legislative risks,

poor weather conditions, and the adverse effects of climate change,

consolidation trends within the convenience store, wholesale distribution, and retail health food industries,

natural disasters and domestic or political unrest,

other risks over which the Company has little or no control, and any other factors not identified ~~herein~~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.

IMPACT OF COVID-19 (CORONAVIRUS) ON OUR BUSINESS

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CRITICAL ACCOUNTING ESTIMATES

Certain accounting estimates used in the preparation of the Company’s condensed consolidated unaudited financial statements (“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, ~~2018,~~2019, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during the six months ended March ~~2019~~2020 other than the adoption of ASC ~~606~~842 which did ~~not~~ have a material impact on the Company’s consolidated ~~financial statements.~~balance sheet.

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SECOND FISCAL QUARTER ~~2019~~2020 (Q2 ~~2019)~~2020)

The following discussion and analysis includes the Company’s results of operations for the three and six months ended March ~~2019~~2020 and March ~~2018:~~2019:

Wholesale Segment

Retail Segment

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produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, ~~operates~~has a total of seven ~~stores~~locations in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of ~~seven~~six locations in Arkansas, Missouri, and Oklahoma. Earth Origins Market has a total of eight locations in Florida.

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RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH ~~2019:~~2020:


	For the three months ended March									2020			2019			Incr (Decr)		% Change
(In millions)	2019			2018			Incr (Decr)		% Change
CONSOLIDATED:
Sales(1)	$	310,715,873		$	295,207,286		$	15,508,587	5.3	$	337,886,516		$	310,715,873		$	27,170,643	8.7
Cost of sales		290,126,453			278,141,110			11,985,343	4.3		317,193,063			290,126,453			27,066,610	9.3
Gross profit		20,589,420			17,066,176			3,523,244	20.6		20,693,453			20,589,420			104,033	0.5
Gross profit percentage		6.6	%		5.8	%					6.1	%		6.6	%

Operating expense	$	18,032,909		$	16,157,323		$	1,875,586	11.6	$	19,303,791		$	18,032,909		$	1,270,882	7.0
Operating income		2,556,511			908,853			1,647,658	181.3		1,389,662			2,556,511			(1,166,849)	(45.6)
Interest expense		396,576			313,364			83,212	26.6		387,263			396,576			(9,313)	(2.3)
Income tax expense		673,000			284,000			389,000	137.0		333,000			673,000			(340,000)	(50.5)
Net income		1,523,215			338,899			1,184,316	349.5		699,319			1,523,215			(823,896)	(54.1)

BUSINESS SEGMENTS:
Wholesale
Sales	$	298,742,418		$	288,394,198		$	10,348,220	3.6	$	324,891,865		$	298,742,418		$	26,149,447	8.8
Gross profit		15,878,750			14,194,141			1,684,609	11.9		16,159,058			15,878,750			280,308	1.8
Gross profit percentage		5.3	%		4.9	%					5.0	%		5.3	%
Retail
Sales	$	11,973,455		$	6,813,088		$	5,160,367	75.7	$	12,994,651		$	11,973,455		$	1,021,196	8.5
Gross profit		4,710,670			2,872,035			1,838,635	64.0		4,534,395			4,710,670			(176,275)	(3.7)
Gross profit percentage		39.3	%		42.2	%					34.9	%		39.3	%

(1)

Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $6.9 million in Q2 2020 and $6.3 million in Q2 ~~2019 and $6.0 million in Q2 2018.~~2019.

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.

SALES – Q2 ~~2019~~2020 vs. Q2 ~~2018~~2019

Sales in our Wholesale Segment increased ~~$10.3~~$26.1 million during Q2 ~~2019~~2020 as compared to Q2 ~~2018.~~2019. Significant items impacting sales during Q2 ~~2019~~2020 included a ~~$9.6~~$9.3 million increase in sales related to price increases implemented by cigarette manufacturers, a ~~$6.9~~$8.9 million increase in sales related to higher sales volumes in our tobacco, confectionery, foodservice, and other categories (“Other Products”) ~~and~~, a ~~$2.9~~$4.4 million increase ~~in sales related to an increase in cigarette excise taxes. These increases were partially offset by a $9.1 million decrease~~ in sales related to the volume and mix of cigarette cartons ~~sold.~~

sold and a $3.5 million increase in sales related to an increase in cigarette state excise taxes. Sales in our Retail Segment increased ~~$5.2~~$1.0 million for Q2 ~~2019~~2020 as compared to Q2 ~~2018. Significant items impacting~~2019. Of this increase, approximately $1.2 million related to higher sales ~~during the current period included~~volumes in our existing stores which experienced a ~~$6.1 million~~temporary increase in ~~sales related~~demand as customers restocked their home pantries in response to ~~our EOM stores located in Florida which were acquired at~~ the ~~end of fiscal 2018.~~COVID-19 pandemic. This increase was partially offset by a ~~$0.4~~$0.2 million decrease in sales related to the closure of two non-performing stores in our Midwest market during the prior year fiscal period, and a $0.5 million decrease in sales related to lower sales volumes in our existing stores.

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volume related to the closure of one non-performing store in our Midwest market which was nearing the end of its lease term.

GROSS PROFIT – Q2 ~~2019~~2020 vs. Q2 ~~2018~~2019

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 ~~$1.7~~$0.3 million during Q2 ~~2019~~2020 as compared to Q2 ~~2018.~~2019. Significant items impacting gross profit during ~~the period~~Q2 2020 included a ~~$1.5~~$0.9 million increase in gross profit related to higher sales volumes and promotions in our Other ~~Product~~Products category, and a $0.7 million benefit related to the timing of cigarette manufacturer price increases. During the prior fiscal year (fiscal 2018), manufacturers increased prices late in the second fiscal quarter (Q2 2018) which resulted in a timing difference between comparative quarters. These increases were partially offset by a ~~$0.5~~$0.3 million decrease in gross profit related to the volume and mix of cigarette cartons ~~sold.~~

sold and a $0.3 million decrease in gross profit due to the timing and related benefits of cigarette manufacturer price increases between the comparative periods. Gross profit in our Retail Segment ~~increased $1.8~~decreased $0.2 million during Q2 ~~2019~~2020 as compared to Q2 ~~2018. Significant items impacting gross profit during the current period included a $2.4 million increase in gross profit~~2019 primarily related to lower gross margins in our ~~EOM~~existing stores ~~which were acquired at~~as a result of variations in volume and product mix between the ~~end of fiscal 2018, partially offset by a $0.2 million decrease in gross profit related to~~comparative periods and the closure of ~~two~~one non-performing ~~stores~~store in our Midwest ~~market during the prior fiscal year, and a $0.4 million decrease in gross profit related to lower sales volumes and gross profits in our existing stores.~~market.

OPERATING EXPENSE – Q2 ~~2019~~2020 vs. Q2 ~~2018~~2019

Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses ~~include~~primarily consist of costs related to our sales, warehouse, delivery and administrative departments, ~~for all segments. Specifically,~~including purchasing and receiving costs, warehousing costs and costs of picking and loading customer ~~orders are all classified as selling, general and administrative expenses.~~orders. Our most significant expenses relate to ~~employee~~ costs associated with employees, facility and equipment leases, transportation, ~~costs,~~ fuel, ~~costs,~~ and ~~insurance costs.~~insurance. Our Q2 ~~2019~~2020 operating expenses increased ~~$1.9~~$1.3 million as compared to Q2 ~~2018.~~2019. Significant items impacting operating expenses during ~~the current period~~Q2 2020 included a ~~$0.3~~$0.6 million increase in employee compensation and benefit costs, a ~~$0.2~~$0.3 million increase in insurance costs, and a $0.4 million increase in other operating costs, and a $1.4 million increase in expenses in our Retail Segment. The change in our Retail Segment operating expenses was primarily related to a $1.8 million increase in expenses related to our EOM retail stores which were acquired at the end of fiscal 2018, partially offset by a $0.4 million decrease in expenses related to the closure of non-performing stores in the prior fiscal period and a decrease in other operatingoperational expenses.

INCOME TAX EXPENSE – Q2 ~~2019~~2020 vs. Q2 ~~2018~~2019

The change in the Q2 ~~2019~~2020 income tax rate as compared to Q2 ~~2018,~~2019, was primarily related to nondeductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods. On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. While the Company continues to evaluate the impact of the CARES Act, it does not currently believe it will have a material impact on the Company’s consolidated financial statements or related disclosures.

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RESULTS OF OPERATIONS – SIX MONTHS ENDED MARCH ~~2019:~~2020


	For the six months ended March									2020			2019			Incr (Decr)		% Change
(In millions)	2019			2018			Incr (Decr)		% Change
CONSOLIDATED:
Sales(1)	$	655,449,793		$	610,720,495		$	44,729,298	7.3	$	697,987,619		$	655,449,793		$	42,537,826	6.5
Cost of sales		614,228,235			575,462,557			38,765,678	6.7		656,449,455			614,228,235			42,221,220	6.9
Gross profit		41,221,558			35,257,938			5,963,620	16.9		41,538,164			41,221,558			316,606	0.8
Gross profit percentage		6.3	%		5.8	%					6.0	%		6.3	%

Operating expenses		36,598,132			33,041,936			3,556,196	10.8		38,981,987			36,598,132			2,383,855	6.5
Operating income		4,623,426			2,216,002			2,407,424	108.6		2,556,177			4,623,426			(2,067,249)	(44.7)
Interest expense		719,526			515,555			203,971	39.6		859,686			719,526			140,160	19.5
Income tax expense (benefit)		1,175,000			(86,000)			1,261,000	(1,466.3)
Income tax expense											582,000			1,175,000			(593,000)	(50.5)
Net income		2,768,536			1,818,990			949,546	52.2		1,151,188			2,768,536			(1,617,348)	(58.4)

BUSINESS SEGMENTS:
Wholesale
Sales	$	632,485,715		$	597,617,510		$	34,868,205	5.8	$	674,896,473		$	632,485,715		$	42,410,758	6.7
Gross profit		31,950,084			29,672,436			2,277,648	7.7		33,745,852			31,950,084			1,795,768	5.6
Gross profit percentage		5.1	%		5.0	%					5.0	%		5.1	%
Retail
Sales	$	22,964,078		$	13,102,985		$	9,861,093	75.3	$	23,091,146		$	22,964,078		$	127,068	0.6
Gross profit		9,271,474			5,585,502			3,685,972	66.0		7,792,312			9,271,474			(1,479,162)	(16.0)
Gross profit percentage		40.4	%		42.6	%					33.7	%		40.4	%

(1)

Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $13.0 million in Q2 2020 and $12.3 million ~~for the six month period ended March 2019 and $11.7 million for the six month period ended March 2018.~~in Q2 2019.

SALES —– Six ~~months~~Months Ended March ~~2019~~2020

Sales in our Wholesale Segment increased ~~$34.9~~$42.4 million for the six months ended March ~~2019~~2020 as compared to the same prior year period. Significant items impacting sales during the period included a ~~$18.1~~$18.8 million increase in sales related to price increases implemented by cigarette manufacturers, a ~~$16.4~~$18.4 million increase in sales related to higher sales volumes in our Other Products categories and a ~~$6.0~~$7.3 million increase in sales related to an increase in cigarette state excise taxes. These increases were partially offset by a ~~$5.6~~$2.1 million decrease in sales related to the volume and mix of cigarette cartons sold.

Sales in our Retail Segment increased ~~$9.9~~$0.1 million for the six months ended March ~~2019~~2020 as compared to the same prior year period. ~~Significant items impacting~~Of this increase, approximately $0.4 million related to higher sales ~~during the current period included~~volumes in our existing stores which experienced a ~~$11.6 million~~temporary increase in ~~sales related~~demand as customers restocked their home pantries in response to ~~our EOM stores located in Florida which were acquired at~~ the ~~end of fiscal 2018.~~COVID-19 pandemic. This increase was partially offset by a ~~$0.8~~$0.3 million decrease in sales volume related to the closure of ~~two~~one non-performing ~~stores~~store in our Midwest market ~~during~~which was nearing the ~~prior fiscal year, and a $0.9 million decrease in sales related to lower sales volumes and gross profits in our existing stores.~~end of its lease term.

GROSS PROFIT —– Six ~~months~~Months Ended March ~~2019~~ 2020

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Gross profit in our Wholesale Segment increased $1.8 million for the six ~~month period ending~~months ended March ~~2019 increased $2.3 million~~2020 as compared to the same prior year period. Significant items impacting gross profit during the ~~current~~ period included a ~~$0.7 million increase in gross profit related to the timing of price increases implemented by cigarette manufacturers between the comparative fiscal periods as previously discussed, and a $2.3~~$2.0 million increase in gross profit related to higher sales volumes and promotions in our Other Products ~~categories. These increases were partially~~category, offset by a ~~$0.7~~$0.2 million decrease in gross profit related to the volume and mix of cigarette cartons sold.

Gross profit in our Retail Segment ~~increased $3.7~~decreased $1.5 million ~~during~~ for the six ~~month period~~months ended March ~~2019~~2020 as compared to the same prior year ~~period. Significant items impacting gross profit during the current~~ period ~~included a $5.0 million increase in gross profit~~primarily related to lower gross margins in our ~~EOM~~existing stores ~~which were acquired at~~as a result of variations in volume and product mix between the ~~end of fiscal 2018, partially offset by a $0.4 million decrease in gross profit related to~~comparative periods and the closure of ~~two~~one non-performing ~~stores~~store in our Midwest ~~market during the prior fiscal year, and a $0.9 million decrease in gross profit related to lower sales volumes and gross profits in our existing stores.~~ market.

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OPERATING EXPENSE —– Six ~~months~~Months Ended March ~~2019~~2020

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, and insurance costs. Operating expenses increased ~~$3.6~~$2.4 million during the six months ended March ~~2019~~2020 as compared to the same prior year period. Significant items impacting operating expenses during the ~~six months ended March 2019~~period included a ~~$0.4~~$1.3 million increase in employee compensation and benefit costs, a ~~$0.4~~$0.5 million increase in insurance costs, a $0.3 million increase in our provision for doubtful accounts, and a $0.5 million increase in other ~~costs, and~~operational expenses, partially offset by a ~~$2.8~~$0.2 million ~~increase~~decrease in expenses in our Retail Segment. The change in our Retail Segment operating expenses was primarily related to ~~a $3.6 million increase in expenses related to our EOM retail stores which were acquired at the end of fiscal 2018, partially offset by a $0.8 million decrease in expenses related to~~reduced payroll and compensation costs and the closure of one non-performing ~~stores~~store in ~~the prior fiscal period and a decrease in other operating expenses.~~our Midwest market.

INCOME TAX EXPENSE – Six ~~months~~Months Ended March ~~2019~~2020

The ~~Company’s~~ change in the income tax rate ~~and results of operations in~~for the ~~prior year fiscal year (six~~six months ended March ~~2018)~~2020 as compared to the same prior year period was impacted by the enactment of the Tax Cuts and Jobs Act (“Tax Reform Act”), which was signed into law on December 22, 2017. Among the numerous provisions included in the Tax Reform Act was a reduction in the corporate federal income tax rate from 35% to 21%. The Company applied the newly enacted corporate federal income tax rate during the first quarter of fiscal 2018 resulting in an income tax benefit of approximately $0.8 million for the six month period ending March 2018, primarily related to the application of the new lower income tax rates to net long term deferred tax liabilities recorded on the Company’s Consolidated Balance Sheet. In addition, the Company’s income tax rate between the comparative fiscal periods was also impacted by nondeductible compensation expense in relation to the amount of income from operations ~~during~~before income tax expense between the ~~applicable~~comparative periods. On March 27, 2020, the U.S. federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act is an emergency economic stimulus package in response to the coronavirus outbreak which, among other things, contains numerous income tax provisions. While the Company continues to evaluate the impact of the CARES Act, it does not currently believe it will have a material impact on the Company’s consolidated financial statements or related disclosures.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

The Company’s 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 in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.

In general, the Company finances its operations through a credit facility agreement (the “Facility”) with Bank of America acting as the senior agent and with BMO Harris Bank participating in the loan syndication. ~~The~~On March 20, 2020, the Company amended the Facility ~~included the following~~which was set to expire in November 2022. The significant terms of the newly amended Facility at March ~~2019:~~2020 are as follows:

A ~~November 2022~~March 2025 maturity date without a penalty for prepayment.

$~~70.0~~110.0 million revolving credit limit.

Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent rate index) plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company. In no event shall LIBOR be less than 100 basis points.

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.

A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement. The Company’s ~~availability has not fallen below 10% of the maximum loan limit and the Company’s~~ fixed charge ratio iswas over 1.0 for the trailing twelve months.

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Cross Default and Co-Terminus Provisions

Dividends Payments

~~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, 2018.~~

Other

The Company has issued a letter of credit for $0.5 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.

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 recent COVID-19 pandemic has fundamentally changed the operating environment for the foreseeable future. While both of our businesses are considered essential services and remain open, the Company cannot predict the long term impact on its workforce, supply chain, or customer base, particularly as it relates to trade credit risk and customer liquidity/solvency.

Additionally, the Company does not currently hedge its exposure to interest rate risk or fuel ~~costs. Accordingly,~~costs and significant price movements in these areas can and do impact the Company’s profitability.

~~While the~~The Company believes ~~its~~it has sufficient liquidity ~~position going forward~~and access to capital. The operating environment, however, is fluid and changing on a daily basis and it remains unclear how costs, revenues, profitability, or cash flows in future periods will be ~~adequate to sustain operations,~~impacted. Accordingly, a ~~precipitous change~~further deterioration in ~~operating environment~~economic conditions could materially impact the Company’s future revenue ~~stream~~streams as well as its ability to collect on customer accounts receivable or secure bank credit.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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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(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, ~~2019~~2020 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.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March ~~2019,~~2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

A Major Epidemic or Pandemic or other Widespread Public Health Issue Could Adversely Affect Our Results of Operations and Financial Condition.

The emergence and spread of a major epidemic or pandemic (such as the recent COVID-19, or coronavirus) or other widespread public health issue could affect our employees, suppliers and/or customers and cause disruption in our operations including, but not limited to, travel restrictions, temporary closing of one or more of our distribution warehouses or retail stores, labor shortages, business shutdowns, or regional quarantines. These disruptions could negatively affect our ability to service our customers, could contribute to adverse economic conditions including decreases in demand for the products we distribute, resulting in lower sales and profitability, or could present increased credit risk to the Company from customer credit defaults resulting from an economic downturn. In addition to the potential operational risks described above, disruptions caused by a widespread public health issue could present increased reputational risk to the Company or result in legal claims or costly response measures.

There have been no other 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, ~~2018.~~2019.

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

The following table summarizes the purchases made by or on behalf of our Company or certain affiliated purchasers of shares of our common stock during the quarterly period ended March ~~2019:~~2020:

Period

Total Number of Shares (or Units) Purchased

Average Price Paid per Share (or Unit)

Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs

Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs*

January 1 - 31, 2019

—

$
—

—

75,000

February 1 - 28, 2019

70

$
91.27

70

74,930

March 1 - 31, 2019

24,457

$
92.50

24,457

50,473

Total

24,527

$
92.50

24,527

50,473


Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs*
January 1 - 31, 2020	13	$	78.17	13	74,987
February 1 - 29, 2020	195	$	76.24	195	74,792
March 1 - 31, 2020	99	$	72.84	99	74,693
Total	307	$	75.22	307	74,693

* In December ~~2018,~~2019, the Company’s Board of Directors replenished the existing share repurchase authority to authorize purchases of up to 75,000 shares of the Company’s common stock in open market or negotiated transactions. Management was given discretion to determine the number and pricing of the shares to be purchased, as well as the timing of any such purchases.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~Not applicable.~~

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Not applicable.

Item 6. Exhibits

(a) Exhibits



	10.1	Fourth Amendment to Second Amended and Restated Loan and Security Agreement, dated March 20, 2020, between AMCON Distributing Company and Bank of America (incorporatd by reference to Exhibit 10.1 of AMCON’s From 8-K filed on March 24, 2020)

	31.1	Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, pursuant to section 302 of the Sarbanes-Oxley Act

	31.2	Certification by Andrew C. Plummer, President and Chief Financial Officer, pursuant to section 302 of the Sarbanes-Oxley Act

	32.1	Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley Act

	32.2	Certification by Andrew C. Plummer, President and Chief Financial Officer, furnished pursuant to section 906 of the Sarbanes-Oxley Act

	101	Interactive Data File (filed herewith electronically)

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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)

Date: April ~~18, 2019~~20, 2020	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman

Date: April ~~18, 2019~~20, 2020	/s/ Andrew C. Plummer
	Andrew C. Plummer,
	President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

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