UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

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

Commission File Number 1-15589

AMCON Distributing Company

(Exact name of registrant as specified in its charter)

Delaware		47-0702918
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7405 Irvington Road, Omaha NE		68122
(Address of principal executive offices)		(Zip code)

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 þ No o

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

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if a smaller reporting company)

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

The Registrant had 575,508 shares of its $.01 par value common stock outstanding as of April 12, 2010.

 

 

Form 10-Q
2nd Quarter

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets at March 31, 2010 (unaudited) and September 30, 2009			3
Condensed consolidated unaudited statements of operations for the three and six months ended March 31, 2010 and 2009			4
Condensed consolidated unaudited statements of cash flows for the six months ended March 31, 2010 and 2009			5
Notes to condensed consolidated unaudited financial statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			31
Item 4. Controls and Procedures			31
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32
Item 3. Defaults Upon Senior Securities			32
Item 4. [Removed and Reserved]			32
Item 5. Other Information			32
Item 6. Exhibits			33
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

Item 1.		Financial Statements

AMCON Distributing Company and Subsidiaries

		March 2010				September 2009
		(Unaudited)
ASSETS
Current assets:
Cash		$	529,408			$	309,914
Accounts receivable, less allowance for doubtful accounts of $1.1 million and $0.9 million, at March 2010 and September 2009			27,723,560				28,393,198
Inventories, net			35,325,691				34,486,027
Deferred income taxes			1,706,641				1,701,568
Prepaid and other current assets			2,243,351				1,728,576
Total current assets			67,528,651				66,619,283
Property and equipment, net			11,863,643				11,256,627
Goodwill			6,149,168				5,848,808
Other intangible assets			4,908,894				3,373,269
Other assets			1,073,482				1,026,395
		$	91,523,838			$	88,124,382
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	16,453,293			$	15,222,689
Accrued expenses			5,706,747				6,768,924
Accrued wages, salaries and bonuses			2,441,473				3,257,832
Income taxes payable			876,919				3,984,258
Current maturities of credit facility			76,267				177,867
Current maturities of long-term debt			965,905				1,470,445
Total current liabilities			26,520,604				30,882,015
Credit facility, less current maturities			25,782,537				22,655,861
Deferred income taxes			1,227,590				1,256,713
Long-term debt, less current maturities			5,637,282				5,066,185
Other long-term liabilities			459,966				—
Series A cumulative, convertible preferred stock, $.01 par value 100,000 shares authorized and issued, liquidation preference $25.00 per share			2,500,000				2,500,000
Series B cumulative, convertible preferred stock, $.01 par value 80,000 shares authorized and issued, liquidation preference $25.00 per share			2,000,000				2,000,000
Shareholders’ equity:
Preferred stock, $0.01 par, 1,000,000 shares authorized, 180,000 shares outstanding and issued in Series A and B referred to above			—				—
Common stock, $0.01 par value, 3,000,000 shares authorized, 575,508 shares outstanding at March 2010 and 573,232 shares outstanding at September 2009			5,755				5,732
Additional paid-in capital			8,084,026				7,617,494
Retained earnings			19,306,078				16,140,382
Total shareholders’ equity			27,395,859				23,763,608
		$	91,523,838			$	88,124,382

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

AMCON Distributing Company and Subsidiaries

		For the three months								For the six months
		ended March								ended March
		2010				2009				2010				2009
Sales (including excise taxes of $76.9 million and $43.3 million, and $158.4 million and $93.6 million, respectively)		$	230,499,129			$	195,442,246			$	474,440,167			$	412,819,608
Cost of sales			213,558,955				178,195,212				440,271,980				379,727,926
Gross profit			16,940,174				17,247,034				34,168,187				33,091,682
Selling, general and administrative expenses			13,365,802				13,027,140				27,144,541				25,824,722
Depreciation and amortization			415,572				300,988				802,841				611,322
			13,781,374				13,328,128				27,947,382				26,436,044
Operating income			3,158,800				3,918,906				6,220,805				6,655,638
Other expense (income):
Interest expense			368,425				408,587				773,670				897,786
Other (income), net			(23,046	)			(26,476	)			(36,426	)			(40,543	)
			345,379				382,111				737,244				857,243
Income from continuing operations before income tax			2,813,421				3,536,795				5,483,561				5,798,395
Income tax expense			1,022,000				1,343,000				1,963,000				2,203,000
Income from continuing operations			1,791,421				2,193,795				3,520,561				3,595,395
Loss from discontinued operations, net of income tax benefit of $0.1 million in each fiscal period			—				(97,437	)			—				(199,475	)
Net income			1,791,421				2,096,358				3,520,561				3,395,920
Preferred stock dividend requirements			(73,239	)			(314,201	)			(148,106	)			(419,734	)
Net income available to common shareholders		$	1,718,182			$	1,782,157			$	3,372,455			$	2,976,186
Basic earnings (loss) per share available to common shareholders:
Continuing operations		$	3.05			$	3.43			$	6.00			$	5.80
Discontinued operations			—				(0.18	)			—				(0.36	)
Net basic earnings per share available to common shareholders		$	3.05			$	3.25			$	6.00			$	5.44
Diluted earnings (loss) per share available to common shareholders:
Continuing operations		$	2.40			$	2.72			$	4.72			$	4.33
Discontinued operations			—				(0.12	)			—				(0.24	)
Net diluted earnings per share available to common shareholders		$	2.40			$	2.60			$	4.72			$	4.09
Weighted average shares outstanding:
Basic			564,216				548,619				562,145				547,089
Diluted			746,873				805,236				745,773				830,923

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

AMCON Distributing Company and Subsidiaries

		2010				2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	3,520,561			$	3,395,920
Deduct: Loss from discontinued operations, net of tax			—				(199,475	)
Income from continuing operations			3,520,561				3,595,395
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities:
Depreciation			678,860				611,322
Amortization			123,981				—
Gain on sale of property and equipment			(16,935	)			(47,700	)
Stock based compensation			267,464				265,800
Net excess tax (benefit) deficiency on equity-based awards			(130,126	)			16,592
Deferred income taxes			(34,196	)			(222,412	)
Provision for losses on doubtful accounts			178,367				346,000
Provision for losses on inventory obsolescence			16,393				327,673
Changes in assets and liabilities:
Accounts receivable			491,271				5,859,370
Inventories			1,125,441				6,480,136
Prepaid and other current assets			(519,415	)			(735,490	)
Other assets			(47,087	)			107,646
Accounts payable			1,144,665				(2,852,021	)
Accrued expenses and accrued wages, salaries and bonuses			(1,878,536	)			2,641,991
Income tax payable			(2,977,213	)			2,045,058
Net cash flows from operating activities — continuing operations			1,943,495				18,439,360
Net cash flows from operating activities — discontinued operations			—				42,692
Net cash flows from operating activities			1,943,495				18,482,052
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(1,102,929	)			(497,401	)
Proceeds from sales of property and equipment			42,905				76,405
Acquisition			(3,099,836	)			—
Net cash flows from investing activities			(4,159,860	)			(420,996	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on bank credit agreements			3,025,076				(15,380,790	)
Principal payments on long-term debt			(433,443	)			(397,410	)
Proceeds from exercise of stock options			68,965				—
Net excess tax benefit (deficiency) on equity-based awards			130,126				(16,592	)
Redemption of Series C convertible preferred stock			—				(2,000,000	)
Dividends paid on preferred stock			(148,106	)			(198,106	)
Dividends on common stock			(206,759	)			(114,079	)
Net cash flows from financing activities			2,435,859				(18,106,977	)
Net change in cash			219,494				(45,921	)
Cash, beginning of period			309,914				457,681
Cash, end of period		$	529,408			$	411,760

		2010				2009
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	760,727			$	968,296
Cash paid during the period for income taxes			4,974,408				264,355
Supplemental disclosure of non-cash information:
Equipment acquisitions classified as accounts payable			85,939				—
Constructive dividends on Series A, B, and C Convertible Preferred Stock			—				221,628
Business acquisition (see Note 2):
Inventory			1,981,498				—
Property and equipment			122,978				—
Customer relationships intangible asset			1,620,000				—
Goodwill			300,360				—
Note payable			500,000				—
Contingent consideration			425,000				—

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

AMCON Distributing Company and Subsidiaries

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 (“ADC”) distributes consumer products in the Central and Rocky Mountain regions of the United States.
	•		Our retail health food segment operates fourteen health food retail stores located throughout the Midwest and Florida.

WHOLESALE DISTRIBUTION SEGMENT

ADC serves approximately 4,200 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. In October 2009, Convenience Store News ranked ADC as the eighth (8th) largest convenience store distributor in the United States based on annual sales.

ADC distributes approximately 14,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery products, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food service products.

RETAIL HEALTH FOOD SEGMENT

The Company’s retail health food stores, which are operated as Chamberlin’s Market & Café (“Chamberlin’s” or “CNF”) and Akin’s Natural Foods Market (“Akin’s” or “ANF”), carry over 30,000 different national and regionally branded and private label products. These products include high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was first established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of eight locations in Oklahoma, Nebraska, Missouri, and Kansas.

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim periods included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2009, 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, 2010 and March 31, 2009 have been referred to throughout this quarterly report as Q2 2010 and Q2 2009, respectively. The fiscal balance sheet dates as of March 31, 2010, March 31, 2009, and September 30, 2009 have been referred to as March 2010, March 2009, and September 2009, respectively.

Adoption of New Accounting Standards

The Company adopted the following accounting standards during Q2 2010, none of which had an impact on our consolidated results of operations or financial condition.

Accounting Standard Update No. 2010-09 “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”) — amended Financial Accounting Standards Board (“FASB”) ASC 855 “Subsequent Events” to remove the requirement that Security and Exchange Commission filers disclose the date through which an entity has evaluated subsequent events. This amendment was made to alleviate potential conflicts with existing Securities and Exchange Commission guidance.

ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements” — requires additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3. The Company adopted this new accounting standards during Q2 2010 except for the provisions of this update which will be effective for fiscal years beginning after December 15, 2010 (fiscal 2012 for the Company).

Recently Issued Accounting Pronouncements

The Company is currently evaluating the impact of implementing the following new accounting standards:

FASB ASC 860 (“Accounting for Transfers of Financial Assets”) — requires additional disclosures regarding the transfer and derecognition of financial assets and eliminates the concept of qualifying special-purpose entities. This pronouncement is effective for fiscal years beginning after November 15, 2009 (fiscal 2011 for the Company).

FASB ASC 810 (“Amendments to FASB Interpretation: Consolidation of Variable Interest Entities”) — eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. Additionally, this pronouncement requires additional disclosures about an enterprise’s involvement in variable interest entities and is effective for fiscal periods beginning after November 15, 2009 (fiscal 2011 for the Company).

2. ACQUISITION

On October 30, 2009, the Company acquired the convenience store distribution assets of Discount Distributors from its parent Harps Food Stores, Inc. (“Harps”). Discount Distributors was a wholesale distributor to convenience stores in Arkansas, Oklahoma, and Missouri with annual sales of approximately $59.8 million. The Company paid $3.1 million cash, issued a $0.5 million note payable in quarterly installments over two years, and could pay an additional $1.0 million in contingent consideration for certain fixed assets, inventory, and customer lists of Discount Distributors. The contingent consideration is based on achieving predetermined two-year revenue targets. This transaction was funded through the Company’s existing credit facility. No significant liabilities were assumed in connection with the transaction and the costs incurred to effect the acquisition were not significant and were expensed as incurred. The acquisition expands the Company’s strategic footprint in the southern portion of the United States and enhances our ability to service customers in that region.

The following table summarizes the consideration paid for the acquired assets and their related acquisition date fair values. The fair value of the assets acquired has been measured in accordance with ASC 805 “Business Combinations.” In valuing identifiable intangible assets, the Company has estimated the fair value using the discounted cash flows methodology. The purchase price allocation reflects various preliminary estimates and analyses and is subject to change during the measurement period (generally one year from the acquisition date). The acquired assets are reported as a component of our wholesale distribution segment.

Total Consideration (in millions):		Amount
Cash		$	3.1
Note payable			0.5
Fair value of contingent consideration			0.4
Fair value of consideration transferred		$	4.0

						Weighted
						Average
						Amortization
Recognized amounts of identifiable assets acquired (in millions):		Amount				Period
Inventory		$	2.0				—
Property and equipment			0.1			5 years
Identifiable intangible assets:
Customer relationships			1.6			8 years
Total identifiable net assets			3.7
Goodwill			0.3
Total identifiable assets and goodwill		$	4.0

The Company has estimated that the undiscounted payments required under the contingent consideration arrangement will approximate $0.7 million ($0.4 million fair value). The $0.3 million of goodwill arising from the acquisition primarily represents synergies and economies of scale generated through reductions in selling, general, and administrative expenses. This goodwill has been assigned to the Company’s wholesale distribution segment and is expected to be deductible for tax purposes. No measurement adjustments related to this transaction were recorded during Q2 2010.

The following table sets forth the unaudited actual revenue and earnings included in the Company’s statement of operations related to the acquisition and the pro forma revenue and earnings of the combined entity had the acquisition occurred as of the beginning of the Company’s prior fiscal year. These pro forma amounts do not purport to be indicative of the actual results that would have been obtained had the acquisition occurred at that time.

			Three months ended								Six months ended
			March								March
(In millions)			2010				2009				2010				2009
Revenue — Actual Results			$	12.9			$	—			$	22.2			$	—
Revenue — Supplemental pro forma results			$	12.9			$	12.9			$	27.2			$	24.5
Net Income — Actual Results			$	0.1			$	—			$	0.2			$	—
Net Income — Supplemental pro forma results			$	0.1			$	0.2			$	0.2			$	0.2

3. CONVERTIBLE PREFERRED STOCK

The Company had two convertible preferred stock series outstanding at March 2010 as identified in the following table:

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

The Series A Convertible Preferred Stock (“Series A”) and Series B Convertible Preferred Stock (“Series B”), (collectively, the “Preferred Stock”), are convertible at any time by the holders into a number of shares of AMCON common stock equal to the number of preferred shares being converted multiplied by a fraction, which is equal to $25.00 divided by the conversion price. The conversion prices for the Preferred Stock are subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Common Stock. Cumulative dividends for the Preferred Stock are payable in arrears, when, and if declared by the Board of Directors, on March 31, June 30, September 30 and December 31 of each year.

In the event of a liquidation of the Company, the holders of the Preferred Stock are entitled to receive the liquidation preference plus any accrued and unpaid dividends prior to the distribution of any amount to the holders of the Common Stock.

The shares of Preferred Stock are optionally redeemable by the Company beginning on various dates, as listed in the above table, at redemption prices equal to 112% of the liquidation preference. The redemption prices decrease 1% annually thereafter until the redemption price equals the liquidation preference, after which date it remains the liquidation preference. The Preferred Stock is redeemable at the liquidation value at the option of the holder. The Series A Preferred Stock is owned by Mr. Chris Atayan, AMCON’s Chief Executive Officer and Chairman of the Board. The Series B Preferred Stock is owned by an institutional investor which has elected Mr. Atayan, pursuant to the voting rights in the Certificate of Designation creating the Series B, as its representative on our Board of Directors.

4. INVENTORIES

Inventories consisted of finished goods at March 2010 and September 2009 and are stated at the lower of cost, determined on a first in first out, or FIFO basis, or market. The wholesale distribution and retail health food segment inventories consist of products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods include total reserves of approximately $0.9 million at both March 2010 and September 2009. These reserves include the Company’s obsolescence allowance, which reflects estimated unsaleable or non-refundable inventory based on an evaluation of slow moving and discontinued products.

5. GOODWILL AND OTHER INTANGIBLE ASSETS

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

		March				September
		2010				2009
Wholesale Distribution Segment		$	4,236,291			$	3,935,931
Retail Health Food Segment			1,912,877				1,912,877
		$	6,149,168			$	5,848,808

Other intangible assets of the Company consisted of the following:

		March				September
		2010				2009
Trademarks and tradenames		$	3,373,269			$	3,373,269
Customer relationships (less accumulated amortization of $84,375)			1,535,625				—
		$	4,908,894			$	3,373,269

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

At March 2010, identifiable intangible assets considered to have finite lives represented acquired customer relationships. These customer relationships are being amortized over eight years. Amortization expense related to these assets totaled $50,625 and $84,375, respectively, for the three and six month periods ended March 2010. Amortization expense for customer relationships for the periods subsequent to March 2010 is estimated as follows:

		Fiscal				Fiscal				Fiscal				Fiscal
		2010/1/				2011				2012				2013				Thereafter
Customer relationships			101,250				202,500				202,500				202,500				826,875

6. DIVIDENDS:

On January 26, 2010, the Company declared a cash dividend of $0.18 per common share payable on March 2, 2010 to shareholders of record as of February 9, 2010. Cash dividends paid to common shareholders for the three and six months ended March 2010 totaled $103,578 and $206,759, respectively.

7. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share available to common shareholders is calculated by dividing income (loss) from continuing operations less preferred stock dividend requirements and income (loss) from discontinued operations, by the weighted average common shares outstanding for each period. Diluted earnings (loss) per share available to common shareholders is calculated by dividing income (loss) from continuing operations less preferred stock dividend requirements (when anti-dilutive) and income (loss) from discontinued operations, by the sum of the weighted average common shares outstanding and the weighted average dilutive options, using the treasury stock method. There were no anti-dilutive stock options or potential common stock excluded from the computation of diluted earnings per share for the three and six months ended March 2010.

		For the three months ended March
		2010								2009
		Basic				Diluted				Basic				Diluted
Weighted average common shares outstanding			564,216				564,216				548,619				548,619
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock /1/			—				182,657				—				256,617
Weighted average number of shares outstanding			564,216				746,873				548,619				805,236
Income from continuing operations		$	1,791,421			$	1,791,421			$	2,193,795			$	2,193,795
Deduct: convertible preferred stock dividends /2/			(73,239	)			—				(314,201	)			—
			1,718,182				1,791,421				1,879,594				2,193,795
Loss from discontinued operations		$	—			$	—			$	(97,437	)		$	(97,437	)
Net income available to common shareholders		$	1,718,182			$	1,791,421			$	1,782,157			$	2,096,358
Income per share from continuing operations		$	3.05			$	2.40			$	3.43			$	2.72
Loss per share from discontinued operations		$	—			$	—			$	(0.18	)		$	(0.12	)
Net earnings per share available to common shareholders		$	3.05			$	2.40			$	3.25			$	2.60

		For the six months ended March
		2010								2009
		Basic				Diluted				Basic				Diluted
Weighted average common shares outstanding			562,145				562,145				547,089				547,089
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock /1/			—				183,628				—				283,834
Weighted average number of shares outstanding			562,145				745,773				547,089				830,923
Income from continuing operations		$	3,520,561			$	3,520,561			$	3,595,395			$	3,595,395
Deduct: convertible preferred stock dividends /2/			(148,106	)			—				(419,734	)			—
			3,372,455				3,520,561				3,175,661				3,595,395
Loss from discontinued operations		$	—			$	—			$	(199,475	)		$	(199,475	)
Net income available to common shareholders		$	3,372,455			$	3,520,561			$	2,976,186			$	3,395,920
Income per share from continuing operations		$	6.00			$	4.72			$	5.80			$	4.33
Loss per share from discontinued operations		$	—			$	—			$	(0.36	)		$	(0.24	)
Net earnings per share available to common shareholders		$	6.00			$	4.72			$	5.44			$	4.09

8. DEBT

The Company has a credit agreement with Bank of America (the “Facility”), which includes the following significant terms:

	•		A June 2011 maturity date.
	•		A $55.0 million revolving credit limit, plus the outstanding balance on Term Note A. Term Note A had an outstanding balance of $0.1 million at March 2010.
	•		The Facility bears interest at either the bank’s prime rate or at LIBOR plus 250 basis points, at the election of the Company.
	•		The Facility provides for an additional $5.0 million of credit advances available for certain inventory purchases. These advances bear interest at the bank’s prime rate plus one-quarter of one-percent (1/4%) per annum and are payable within 45 days of each advance.
	•		Lending limits that are subject to accounts receivable and inventory limitations.
	•		An unused commitment fee for the facility is payable equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.
	•		Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.
	•		Provides that the Company may not pay dividends on its common stock in excess of $0.72 per share on an annual basis.
	•		The Facility includes a prepayment penalty equal to one-half of one percent (1/2%) of the original maximum loan limit ($60.4 million) if the Company prepays the entire Facility or terminates the credit agreement on or before June 30, 2010.

The Facility includes a financial covenant which requires the Company to maintain a minimum debt service ratio of 1.0 to 1.0 as measured by the previous twelve month period then ended. The Company was in compliance with this covenant at March 2010.

The amount available for use on the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement. The calculated credit limit of the Facility at March 2010 was $50.9 million, of which $25.9 million was outstanding, leaving $25.0 million available.

At March 2010, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was 2.99% at March 2010.

At March 2010, the Company had $6.6 million in long-term debt outstanding. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of this long-term debt approximated its carrying value at March 2010.

Cross Default and Co-Terminus Provisions

The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, and certain warehouse equipment in the Rapid City, SD warehouse is financed through term loans with Marshall and Ilsley Bank (“M&I”), which is also a participant lender on the Company’s revolving line of credit. The M&I loans contain cross default provisions which cause all loans with M&I to be considered in default if any one of the loans where M&I is a lender, including the revolving credit facility, is in default. There were no such cross defaults at March 2010. In addition, the M&I loans contain co-terminus provisions which require all loans with M&I to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

OTHER

AMCON 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.

9. EQUITY-BASED INCENTIVE AWARDS

Stock Options

The Company’s stock options have varying vesting schedules ranging up to five years and expire ten years from the grant date. Stock options issued and outstanding to management employees at March 2010 are summarized as follows:

							Number of
							Options				Number
Date			Exercise Price				Outstanding				Exercisable
Fiscal 2000			$	34.50				1,380				1,380
Fiscal 2003			$	28.80				627				627
Fiscal 2007			$	18.00				25,000				25,000
								27,007				27,007

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

Number of

Options

Number

Date

Exercise Price

Outstanding

Exercisable

Fiscal 2002

$

26.94

834

834

The following summarizes all stock options outstanding at March 2010:

										Remaining								Exercisable
										Weighted				Weighted								Weighted
										Average				Average								Average
		Exercise				Number				Contractual				Exercise				Number				Exercise
		Price				Outstanding				Life				Price				Exercisable				Price
2000 Options		$	34.50				1,380			0.20 years				$	34.50				1,380			$	34.50
2002 Options		$	26.94				834			2.37 years				$	26.94				834			$	26.94
2003 Options		$	28.80				627			2.56 years				$	28.80				627			$	28.80
2007 Options		$	18.00				25,000			6.70 years				$	18.00				25,000			$	18.00
							27,841							$	19.33				27,841			$	19.33

The following is a summary of the activity of the stock plans for the six months ended March 2010:

						Weighted
		Number				Average
		of				Exercise
		Shares				Price
Outstanding at September 2009			30,117			$	20.16
Granted			—				—
Exercised			(2,276	)		$	30.24
Forfeited/Expired			—				—
Outstanding at March 2010			27,841			$	19.33

Net income before income taxes included compensation expense related to stock options of approximately $0.1 million for the six months ended March 2010, and approximately $0.03 million and $0.1 million for the three and six months ended March 2009. At March 2010 there was no unamortized compensation expense related to stock options. Additionally, no amortization expense related to stock options was recorded during Q2 2010. The aggregate intrinsic value of stock options outstanding and exercisable at March 2010 was approximately $1.1 million.

Omnibus Plan

The Company has an Omnibus Incentive Plan (“the Omnibus Plan”) which provides for equity incentives to employees. The Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company. The Omnibus Plan permits the issuance of up to 150,000 shares of the Company’s common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares, and dividend share awards payable in the form of common stock or cash.

Pursuant to the Omnibus Plan, the Compensation Committee of the Board of Directors has authorized and approved the restricted stock awards as summarized below:

		Restricted Stock /1/				Restricted Stock /2/
Date of award:		December 6, 2007				January 29, 2008
Number of shares:			24,000				7,500
Service period:		34 months				36 months
Estimated fair value of award at grant date /3/:		$	963,000			$	229,000
Intrinsic value of awards outstanding at March 2010:		$	477,000			$	149,000

There is no direct cost to the recipients of the restricted stock awards, except for any applicable taxes. The recipients of restricted stock are entitled to full voting rights and the customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. All cash dividends and/or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met.

The Company recognizes compensation expense related to restricted stock awards on a straight-line basis over the requisite service period. Accordingly, net income before income taxes included compensation expense of $0.1 million and $0.2 million in each of the three and six month fiscal periods ended March 2010 and March 2009, respectively. Total unamortized compensation expense related to restricted stock awards at March 2010 was approximately $0.2 million. This unamortized compensation expense is expected to be amortized over approximately the next seven months (the expected weighted-average period).

The following summarizes restricted stock activity under the Omnibus Plan for the six months ended March 2010:

		Number				Weighted Average
		of				Grant Date
		Shares				Fair Value
Nonvested restricted stock at September 2009			21,000			$	40.16
Granted			—				—
Vested			(10,500	)		$	40.16
Expired			—				—
Nonvested restricted stock at March 2010			10,500			$	40.16

10. BUSINESS SEGMENTS

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

		Wholesale
		Distribution				Retail				Other /1/				Consolidated
THREE MONTHS ENDED MARCH 2010:
External revenue:
Cigarettes		$	166,914,751			$	—			$	—			$	166,914,751
Confectionery			14,887,515				—				—				14,887,515
Health food			—				9,492,904				—				9,492,904
Tobacco, food service & other			39,203,959				—				—				39,203,959
Total external revenue			221,006,225				9,492,904				—				230,499,129
Depreciation			271,131				68,483				1,147				340,761
Amortization			74,811				—				—				74,811
Operating income (loss)			3,535,284				1,093,182				(1,469,666	)			3,158,800
Interest expense			124,994				115,666				127,765				368,425
Income (loss) from continuing operations before taxes			3,422,768				987,668				(1,597,015	)			2,813,421
Total assets			78,290,787				12,198,955				1,034,096				91,523,838
Capital expenditures			166,270				340,048				—				506,318
THREE MONTHS ENDED MARCH 2009:
External revenue:
Cigarettes		$	136,018,967			$	—			$	—			$	136,018,967
Confectionery			14,667,301				—				—				14,667,301
Health food			—				9,564,810				—				9,564,810
Tobacco, food service & other			35,191,168				—				—				35,191,168
Total external revenue			185,877,436				9,564,810				—				195,442,246
Depreciation			244,988				54,854				1,146				300,988
Amortization			—				—				—				—
Operating income (loss)			4,180,906				1,076,330				(1,338,330	)			3,918,906
Interest expense			126,365				140,313				141,909				408,587
Income (loss) from continuing operations before taxes			4,070,742				946,290				(1,480,237	)			3,536,795
Total assets			65,160,730				11,416,692				4,366,108				80,943,530
Capital expenditures			174,540				56,890				—				231,430

		Wholesale
		Distribution				Retail				Other /1/				Consolidated
SIX MONTHS ENDED MARCH 2010:
External revenue:
Cigarettes		$	344,498,796			$	—			$	—			$	344,498,796
Confectionery			30,195,336				—				—				30,195,336
Health food			—				18,419,393				—				18,419,393
Tobacco, food service & other			81,326,642				—				—				81,326,642
Total external revenue			456,020,774				18,419,393				—				474,440,167
Depreciation			537,711				138,855				2,294				678,860
Amortization			123,981				—				—				123,981
Operating income (loss)			7,533,896				2,010,489				(3,323,580	)			6,220,805
Interest expense			247,191				240,290				286,189				773,670
Income (loss) from continuing operations before taxes			7,302,417				1,790,498				(3,609,354	)			5,483,561
Total assets			78,290,787				12,198,955				1,034,096				91,523,838
Capital expenditures			603,584				499,345				—				1,102,929
SIX MONTHS ENDED MARCH 2009:
External revenue:
Cigarettes		$	288,281,912			$	—			$	—			$	288,281,912
Confectionery			30,128,997				—				—				30,128,997
Health food			—				18,545,603				—				18,545,603
Tobacco, food service & other			75,863,096				—				—				75,863,096
Total external revenue			394,274,005				18,545,603				—				412,819,608
Depreciation			493,152				115,877				2,293				611,322
Amortization			—				—				—				—
Operating income (loss)			7,468,983				1,664,169				(2,477,514	)			6,655,638
Interest expense			259,044				309,858				328,884				897,786
Income (loss) from continuing operations before taxes			7,229,893				1,374,899				(2,806,397	)			5,798,395
Total assets			65,160,730				11,416,692				4,366,108				80,943,530
Capital expenditures			303,030				194,371				—				497,401

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect,” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:

	•		increases in state and federal excise taxes on cigarette and tobacco products, including recent increases in federal excise taxes imposed in connection with the State Children’s Health Insurance Program (“SCHIP”) law,
	•		regulation of cigarette and tobacco products by the U.S. Food and Drug Administration (“FDA”), in addition to existing state and federal regulations by other agencies,
	•		increases in manufacturer prices,
	•		increases in inventory carrying costs and customer credit risk,
	•		changes in promotional and incentive programs offered by manufacturers,
	•		decreased availability of capital resources
	•		demand for the Company’s products, particularly cigarette and tobacco products,
	•		new business ventures or acquisitions,
	•		domestic regulatory and legislative risks,
	•		competition,
	•		poor weather conditions,
	•		increases in fuel prices,
	•		consolidation within the convenience store industry,
	•		other risks over which the Company has little or no control, and
	•		any other factors not identified herein.

Changes in these factors could result in significantly different results. Consequently, future results may differ from management’s expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Any forward-looking statement contained herein is made as of the date of this document. Except as required by law, the Company undertakes no obligation to publicly update or correct any of these forward-looking statements in the future to reflect changed assumptions, the occurrence of material events or changes in future operating results, financial conditions or business over time.

CRITICAL ACCOUNTING ESTIMATES

Certain accounting estimates used in the preparation of the Company’s financial statements require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our Form 10-K for the fiscal year ended September 30, 2009, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during the fiscal quarter ended March 2010.

SECOND FISCAL QUARTER 2010 (Q2 2010)

The following discussion and analysis includes the Company’s results of operations from continuing operations for the three and six months ended March 2010 and March 2009. Continuing operations are comprised of our wholesale distribution and retail health food segments. A separate discussion of our discontinued operations has been presented following our analysis of continuing operations.

During Q2 2010, the Company:

•		opened a new Akin’s Natural Foods Market store in Tulsa, OK.
•		recorded net income available to common shareholders of $1.7 million.
•		paid a $0.18 dividend per common share.

Wholesale Distribution Segment (ADC)

ADC serves approximately 4,200 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. In October 2009, Convenience Store News ranked ADC as the eighth (8th) largest convenience store distributor in the United States based on annual sales.

ADC distributes approximately 14,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery products, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional food service products.

RETAIL HEALTH FOOD SEGMENT

The Company’s retail health food stores, which are operated as Chamberlin’s Market & Café (“Chamberlin’s” or “CNF”) and Akin’s Natural Foods Market (“Akin’s” or “ANF”), carry over 30,000 different national and regionally branded and private label products. These products include high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was first established in 1935, operates six stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of eight locations in Oklahoma, Nebraska, Missouri, and Kansas.

Business Update — General

Economic conditions continue to impact consumer confidence and discretionary spending patterns across the states in which we operate. Customers in both of our businesses are increasingly value-conscious and price-sensitive. Accordingly, we have undertaken a number of initiatives designed to highlight the value propositions we offer customers in a number of areas such as exclusive product offerings and the delivery of customized technology solutions at competitive prices.

Looking forward, we believe that a combination of economic and regulatory factors and the potential of higher fuel prices could adversely affect our sales, gross margins, and operating profits into the foreseeable future. However, we anticipate that our conservative strategy of cost containment, aggressively targeting new business, and maintaining maximum liquidity, will position us well to capture market share, execute strategic acquisitions, open new retail stores, and ultimately create shareholder value.

Business Update — Wholesale Distribution Segment

The wholesale distribution industry is mature and highly competitive. Historically, cigarette and tobacco products have represented one of the largest sales categories for convenience stores and their distributors alike. Legislative actions such as excise tax increases and smoking bans, however, have decreased the demand for these products. The FDA has now been granted regulatory authority over the manufacturing, distribution, and sale of cigarette and tobacco products. We believe FDA actions impacting these products could further accelerate decreasing demand trends.

The long-term implications of the above considerations are far reaching. A combination of declining revenue streams and limited access to credit and/or new capital may force many smaller distributors from the market, resulting in substantial industry consolidation. As one of the nation’s largest wholesale distributors, we believe the Company is well-positioned to capitalize on these trends and expand our strategic footprint.

Business Update — Retail Health Food Segment

Sales in our retail health food segment have been negatively impacted by weakness in both of our geographic markets. In particular, sales in our Florida stores have been hurt by the severe economic downturn in that state, in addition to increased competition from other natural food chains.

In the near term, our retail segment faces a challenging operating environment as consumer behavior has been adversely impacted by the recession. In response, we have worked to better align our cost structure to demand, while reemphasizing the value choices found throughout our stores, such as our private label offerings and other product lines unique to our stores.

Despite the impact of the recession, we believe the long-term prospects for this segment remain attractive and continue to pursue growth through ongoing evaluations of potential new locations. Accordingly, we successfully opened a new store in Tulsa, OK during Q2 2010. We believe if health food retailers can demonstrate value and provide consumers with affordable choices, overall demand for natural food products will rebound as the current economic conditions begin to dissipate.

RESULTS OF OPERATIONS — Continuing Operations

		For the three months
		ended March
										Incr
		2010				2009				(Decr)				% Change
CONSOLIDATED:
Sales /1/		$	230,499,129			$	195,442,246			$	35,056,883				17.9
Cost of sales			213,558,955				178,195,212				35,363,743				19.8
Gross profit			16,940,174				17,247,034				(306,860	)			(1.8	)
Gross profit percentage			7.3	%			8.8	%
Operating expense			13,781,374				13,328,128				453,246				3.4
Operating income			3,158,800				3,918,906				(760,106	)			(19.4	)
Interest expense			368,425				408,587				(40,162	)			(9.8	)
Income tax expense			1,022,000				1,343,000				(321,000	)			(23.9	)
Income from continuing operations			1,791,421				2,193,795				(402,374	)			(18.3	)
BUSINESS SEGMENTS:
Wholesale
Sales		$	221,006,225			$	185,877,436			$	35,128,789				18.9
Gross profit			12,809,400				13,241,596				(432,196	)			(3.3	)
Gross profit percentage			5.8	%			7.1	%
Retail
Sales		$	9,492,904			$	9,564,810			$	(71,906	)			(0.8	)
Gross profit			4,130,774				4,005,438				125,336				3.1
Gross profit percentage			43.5	%			41.9	%

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 2010 vs. Q2 2009

Sales in our wholesale distribution segment (“wholesale”) increased $35.1 million during Q2 2010 as compared to the same prior year period. Significant items impacting sales during Q2 2010 included the following:

•		$12.9 million increase related to our acquisition of Discount Distributors.
•		$21.2 million increase due to cigarette price increases implemented by manufacturers.
•		$0.8 million decrease, primarily related to a reduction in cigarette cartons sold.
•		$1.8 million increase in our tobacco, beverages, snacks, candy, grocery, health & beauty products, automotive, food service, and store supplies categories (“Other Products”).

Sales in our retail health food segment decreased approximately $0.1 million in Q2 2010 as compared to Q2 2009. This decrease was primarily related to our Florida retail stores which have been impacted by depressed economic conditions in that region as well as increased competition from other natural food chains.

GROSS PROFIT — Q2 2010 vs. Q2 2009

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 decreased $0.4 million in Q2 2010 as compared to Q2 2009. During Q2 2009, our gross profit included a benefit of $2.6 million due to price increases implemented by cigarette and tobacco manufacturers. In Q2 2010, the decrease was partially offset by $0.6 million in gross profit generated by Discount Distributors, $0.5 million in gross profit due to higher gross margins in our cigarette and tobacco categories, and $1.1 million in gross profit related to higher overall sales volume and changes in promotional allowances.

Gross profit for the retail health food segment increased $0.1 million in Q2 2010 as compared to Q2 2009. This increase was primarily related to lower throw-out costs and improved gross margins.

OPERATING EXPENSE — Q2 2010 vs. Q2 2009

Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, fuel costs, insurance and professional fees.

Operating expenses increased approximately $0.5 million in Q2 2010 as compared to Q2 2009. This increase is primarily attributable to operating costs in connection with our Discount Distributors acquisition including compensation, fuel, and amortization costs, partially offset by lower insurance expense.

INTEREST EXPENSE — Q2 2010 vs. Q2 2009

Q2 2010 interest expense decreased $0.04 million as compared to Q2 2009. This change was principally related to lower interest rates and average borrowings on the Company’s credit facility. In Q2 2010, average interest rates and borrowings on the Company’s revolving credit facility were 0.24% and $2.9 million lower, respectively, as compared to Q2 2009.

RESULTS OF OPERATIONS — SIX MONTHS ENDED MARCH 2010:

		For the six months
		ended March
										Incr
		2010				2009				(Decr)				% Change
CONSOLIDATED:
Sales /1/		$	474,440,167			$	412,819,608			$	61,620,559				14.9
Cost of sales			440,271,980				379,727,926				60,544,054				15.9
Gross profit			34,168,187				33,091,682				1,076,505				3.3
Gross profit percentage			7.2	%			8.0	%
Operating expenses			27,947,382				26,436,044				1,511,338				5.7
Operating income			6,220,805				6,655,638				(434,833	)			(6.5	)
Interest expense			773,670				897,786				(124,116	)			(13.8	)
Income tax expense			1,963,000				2,203,000				(240,000	)			(10.9	)
Income from continuing operations			3,520,561				3,595,395				(74,834	)			(2.1	)
BUSINESS SEGMENTS:
Wholesale
Sales		$	456,020,774			$	394,274,005			$	61,746,769				15.7
Gross profit			26,196,176				25,438,624				757,552				3.0
Gross profit percentage			5.7	%			6.5	%
Retail
Sales		$	18,419,393			$	18,545,603			$	(126,210	)			(0.7	)
Gross profit			7,972,011				7,653,058				318,953				4.2
Gross profit percentage			43.3	%			41.3	%