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

For the quarterly period ended June 30, 2010

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

For the transition period from                      to                     

(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)

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 577,266 shares of its $.01 par value common stock outstanding as of July 12, 2010.

 

 

Form 10-Q
3rd Quarter

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed consolidated balance sheets at June 30, 2010 (unaudited) and September 30, 2009			3
Condensed consolidated unaudited statements of operations for the three and nine months ended June 30, 2010 and 2009			4
Condensed consolidated unaudited statements of cash flows for the three and nine months ended June 30, 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			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			25
Item 4. Controls and Procedures			25
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			25
Item 1A. Risk Factors			26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			26
Item 3. Defaults Upon Senior Securities			26
Item 4. (Removed and Reserved)			26
Item 5. Other Information			26
Item 6. Exhibits			26
Exhibit 10.1
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

		June				September
		2010				2009
		(Unaudited)
ASSETS
Current assets:
Cash		$	365,362			$	309,914
Accounts receivable, less allowance for doubtful accounts of $1.7 million and $0.9 million at June 2010 and September 2009			29,967,877				28,393,198
Inventories, net			41,308,413				34,486,027
Deferred income taxes			1,967,233				1,701,568
Prepaid and other current assets			4,554,137				1,728,576
Total current assets			78,163,022				66,619,283
Property and equipment, net			11,780,603				11,256,627
Goodwill			6,149,168				5,848,808
Other intangible assets			4,858,269				3,373,269
Other assets			1,062,245				1,026,395
		$	102,013,307			$	88,124,382
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	18,647,475			$	15,222,689
Accrued expenses			6,605,525				6,768,924
Accrued wages, salaries and bonuses			3,045,321				3,257,832
Income taxes payable			2,527,497				3,984,258
Current maturities of credit facility			—				177,867
Current maturities of long-term debt			933,256				1,470,445
Total current liabilities			31,759,074				30,882,015
Credit facility, less current maturities			28,480,212				22,655,861
Deferred income taxes			1,141,803				1,256,713
Long-term debt, less current maturities			5,435,769				5,066,185
Other long-term liabilities			562,575				—
Series A cumulative, convertible preferred stock, $.01 par value 100,000 shares authorized and issued, liquidation preference $25.00 per share			2,500,000				2,500,000
Series B cumulative, convertible preferred stock, $.01 par value 80,000 shares authorized and issued, liquidation preference $25.00 per share			2,000,000				2,000,000
Shareholders’ equity:
Preferred stock, $0.01 par, 1,000,000 shares authorized, 180,000 shares outstanding and issued in Series A and B referred to above			—				—
Common stock, $.01 par value, 3,000,000 shares authorized, 577,266 shares outstanding at June 2010 and 573,232 shares outstanding at September 2009			5,773				5,732
Additional paid-in capital			8,250,974				7,617,494
Retained earnings			21,877,127				16,140,382
Total shareholders’ equity			30,133,874				23,763,608
		$	102,013,307			$	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 nine months
		ended June								ended June
		2010				2009				2010				2009
Sales (including excise taxes of $87.9 million and $77.4 million, and $246.3 million and $171.0 million, respectively)		$	267,062,440			$	242,817,927			$	741,502,607			$	655,637,536
Cost of sales			247,932,676				225,753,469				688,204,656				605,481,395
Gross profit			19,129,764				17,064,458				53,297,951				50,156,141
Selling, general and administrative expenses			14,070,483				12,800,612				41,215,024				38,625,335
Depreciation and amortization			440,466				273,650				1,243,307				884,972
			14,510,949				13,074,262				42,458,331				39,510,307
Operating income			4,618,815				3,990,196				10,839,620				10,645,834
Other expense (income):
Interest expense			370,873				368,048				1,144,543				1,265,834
Other (income), net			(32,758	)			(43,600	)			(69,184	)			(84,143	)
			338,115				324,448				1,075,359				1,181,691
Income from continuing operations before income tax			4,280,700				3,665,748				9,764,261				9,464,143
Income tax expense			1,532,000				1,411,000				3,495,000				3,614,000
Income from continuing operations			2,748,700				2,254,748				6,269,261				5,850,143
Discontinued operations (Note 2)
Gain on asset disposal and debt settlement, net of income tax expense of $2.7 million			—				4,666,264				—				4,666,264
Income (loss) from discontinued operations, net of income tax expense (benefit) of $0.01 million and ($0.1) million, respectively			—				13,105				—				(186,370	)
Income on discontinued operations			—				4,679,369				—				4,479,894
Net income			2,748,700				6,934,117				6,269,261				10,330,037
Preferred stock dividend requirements			(74,052	)			(74,052	)			(222,158	)			(493,786	)
Net income available to common shareholders		$	2,674,648			$	6,860,065			$	6,047,103			$	9,836,251
Basic earnings per share available to common shareholders:
Continuing operations		$	4.72			$	3.97			$	10.73			$	9.78
Discontinued operations			—				8.52				—				8.17
Net basic earnings per share available to common shareholders		$	4.72			$	12.49			$	10.73			$	17.95
Diluted earnings per share available to common shareholders:
Continuing operations		$	3.67			$	3.11			$	8.39			$	7.37
Discontinued operations			—				6.46				—				5.65
Net diluted earnings per share available to common shareholders		$	3.67			$	9.57			$	8.39			$	13.02
Weighted average shares outstanding:
Basic			566,224				549,397				563,505				547,859
Diluted			749,350				724,833				747,035				793,610

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		$	6,269,261			$	10,330,037
Deduct: Income from discontinued operations, net of tax			—				4,479,894
Income from continuing operations			6,269,261				5,850,143
Adjustments to reconcile net income from continuing operations to net cash flows from operating activities:
Depreciation			1,043,186				884,972
Amortization			200,121				—
(Gain) loss on sale of property and equipment			(31,843	)			26,468
Stock based compensation			376,422				398,700
Net excess tax (benefit) deficiency on equity-based awards			(130,126	)			16,592
Deferred income taxes			(380,575	)			893,851
Provision for losses on doubtful accounts			750,489				489,038
Provision for losses on inventory obsolescence			82,778				331,319
Other			77,094				—
Changes in assets and liabilities:
Accounts receivable			(2,325,168	)			(1,797,340	)
Inventories			(4,923,666	)			1,714,017
Prepaid and other current assets			(2,830,201	)			312,759
Other assets			(35,850	)			59,277
Accounts payable			3,388,920				(365,711	)
Accrued expenses and accrued wages, salaries and bonuses			(375,910	)			2,625,568
Income tax payable			(1,326,635	)			4,713,677
Net cash flows from operating activities — continuing operations			(171,703	)			16,153,330
Net cash flows from operating activities — discontinued operations			—				(2,673,712	)
Net cash flows from operating activities			(171,703	)			13,479,618
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment			(1,423,912	)			(784,221	)
Proceeds from sales of property and equipment			62,406				102,406
Acquisition			(3,099,836	)			—
Net cash flows from investing activities			(4,461,342	)			(681,815	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on bank credit agreements			5,646,484				(8,955,236	)
Principal payments on long-term debt			(682,574	)			(604,975	)
Proceeds from exercise of stock options			126,973				—
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 convertible preferred stock			(222,158	)			(272,158	)
Dividends on common stock			(310,358	)			(171,119	)
Net cash flows from financing activities — continuing operations			4,688,493				(12,020,080	)
Net cash flows from financing activities — discontinued operations			—				(825,000	)
Net cash flows from financing activities			4,688,493				(12,845,080	)
Net change in cash			55,448				(47,277	)
Cash, beginning of period			309,914				457,681
Cash, end of period		$	365,362			$	410,404

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

		2010				2009
Supplemental disclosure of cash flow information:
Cash paid during the period for interest		$	1,141,934			$	1,347,690
Cash paid during the period for income taxes			5,202,208				612,473
Supplemental disclosure of non-cash information:
Equipment acquisitions classified as accounts payable			35,866				108,546
Constructive dividends on Series A, B, and C Convertible Preferred Stock			—				221,628
Acquisition of equipment through capital leases			14,969				12,333
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				—
TSI disposition — discontinued operations
Property and equipment, net			—				(2,032,047	)
Accrued expenses			—				(925,452	)
Long-term debt			—				(6,945,548	)
Deferred gain on CPH Settlement			—				(1,542,312	)

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

AMCON Distributing Company and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate two business segments:

•

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

•

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

WHOLESALE SEGMENT

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

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

RETAIL SEGMENT

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

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 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 June 30, 2010 and June 30, 2009 have been referred to throughout this quarterly report as Q3 2010 and Q3 2009, respectively. The fiscal balance sheet dates as of June 30, 2010, June 30, 2009, and September 30, 2009 have been referred to as June 2010, June 2009, and September 2009, respectively.

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 AND DISPOSITIONS

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

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

Recognized amounts of identifiable assets acquired

						Weighted
						Average
						Amortization
		Amount				Period
		(in millions)
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 Segment and is expected to be deductible for tax purposes. No measurement adjustments related to this transaction were recorded during Q3 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								Nine months ended
		June								June
(In millions)		2010				2009				2010				2009
Revenue — Actual Results		$	16.1			$	—			$	38.3			$	—
Revenue — Supplemental pro forma results		$	16.1			$	14.9			$	43.3			$	39.4
Net Income — Actual Results		$	0.1			$	—			$	0.3			$	—
Net Income — Supplemental pro forma results		$	0.1			$	(0.1	)		$	0.3			$	0.2

DISPOSITION — DISCONTINUED OPERATIONS

In Q3 2009 the Company completed a transaction in which it disposed of assets held by Trinity Springs’, Inc. (“TSI”), a wholly owned subsidiary of the Company, and completed a related debt settlement. The income from discontinued operations as summarized below primarily relates to the gain on this transaction.

		Three months ended								Nine months ended
		June								June
		2010				2009				2010				2009
Operating income (loss)		$	—			$	20,105			$	—				(65,458	)
Interest expense			—				—				—				(230,012	)
Gain on asset disposal and debt settlement			—				7,381,264				—				7,381,264
Income tax expense			—				2,722,000				—				2,606,000
Income from discontinued operations			—				4,679,369				—				4,479,894

3. CONVERTIBLE PREFERRED STOCK:

The Company had two series of convertible preferred stock outstanding at June 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 and at the option of the holder. The Series A Preferred Stock is owned by Mr. Chris Atayan, AMCON’s Chief Executive Officer and Chairman of the Board. 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 June 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 Segment and Retail Segment inventories consist of products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods include total reserves of approximately $1.0 million at June 2010 and $0.9 million at 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:

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

Other intangible assets of the Company consisted of the following:

		June				September
		2010				2009
Trademarks and tradenames		$	3,373,269			$	3,373,269
Customer relationships (less accumulated amortization of $135,000)			1,485,000				—
		$	4,858,269			$	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 June 2010, 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 $135,000, respectively, for the three and nine month periods ended June 2010. The Company had no amortization expense related to intangible assets during the comparable prior year periods. Amortization expense for customer relationships for the periods subsequent to June 2010 is as follows:

		Fiscal				Fiscal				Fiscal				Fiscal
		2010/1/				2011				2012				2013				Thereafter
Customer relationships			50,625				202,500				202,500				202,500				826,875

6. DIVIDENDS:

On April 30, 2010, the Company declared a cash dividend of $0.18 per common share payable on June 1, 2010 to shareholders of record as of May 11, 2010. Cash dividends paid to common shareholders for the three and nine months ended June 2010 totaled $103,599 and $310,358, respectively.

7. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing income from continuing operations less preferred stock dividend requirements and income from discontinued operations by the weighted average common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from continuing operations less preferred stock dividend requirements (when anti-dilutive) and income 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 and potential common stock options at June 2010. Stock options and potential common stock outstanding at June 2009 that were anti-dilutive were not included in the computations of diluted earnings per share. Such potential common shares totaled 917 and 8,878 for the three and nine months ended June 2009. The average exercise price of anti-dilutive options and potential common stock was $45.68 and $32.32 for the three and nine months ended June 2009.

		For the three months ended June
		2010								2009
		Basic				Diluted				Basic				Diluted
Weighted average common shares outstanding			566,224				566,224				549,397				549,397
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock /1/			—				183,126				—				175,436
Weighted average number of shares outstanding			566,224				749,350				549,397				724,833
Income from continuing operations		$	2,748,700			$	2,748,700			$	2,254,748			$	2,254,748
Deduct: convertible preferred stock dividends /2/			(74,052	)			—				(74,052	)			—
			2,674,648				2,748,700				2,180,696				2,254,748
Income from discontinued operations		$	—			$	—			$	4,679,369			$	4,679,369
Net income available to common shareholders		$	2,674,648			$	2,748,700			$	6,860,065			$	6,934,117
Income per share from continuing operations		$	4.72			$	3.67			$	3.97			$	3.11
Income per share from discontinued operations		$	—			$	—			$	8.52			$	6.46
Net earnings per share available to common shareholders		$	4.72			$	3.67			$	12.49			$	9.57

		For the nine months ended June
		2010								2009
		Basic				Diluted				Basic				Diluted
Weighted average common shares outstanding			563,505				563,505				547,859				547,859
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock /1/			—				183,530				—				245,751
Weighted average number of shares outstanding			563,505				747,035				547,859				793,610
Income from continuing operations		$	6,269,261			$	6,269,261			$	5,850,143			$	5,850,143
Deduct: convertible preferred stock dividends /2/			(222,158	)			—				(493,786	)			—
			6,047,103				6,269,261				5,356,357				5,850,143
Income from discontinued operations		$	—			$	—			$	4,479,894			$	4,479,894
Net income available to common shareholders		$	6,047,103			$	6,269,261			$	9,836,251			$	10,330,037
Income per share from continuing operations		$	10.73			$	8.39			$	9.78			$	7.37
Income per share from discontinued operations		$	—			$	—			$	8.17			$	5.65
Net earnings per share available to common shareholders		$	10.73			$	8.39			$	17.95			$	13.02

8. DEBT

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

•

A January 1, 2012 maturity date and a $55.0 million revolving credit limit.

•

The Facility bears interest at either the bank’s prime rate or at LIBOR plus 250 basis points, at the election of the Company.

•		The Facility provides for an additional $5.0 million of credit advances available for certain inventory purchases. These advances bear interest at the bank’s prime rate plus one-quarter of one-percent (1/4%) per annum and are payable within 45 days of each advance.
•		Lending limits subject to accounts receivable and inventory limitations.

•

An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.

•

Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.

•

Provides that the Company may not pay dividends on its common stock in excess of $0.72 per share on an annual basis.

•

The Facility includes a 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 January 1, 2011.

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 June 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 Company’s calculated credit limit of the Facility at June 30 was $54.5 million of which $28.5 million was outstanding leaving $26.0 million available.

At June 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 3.06% at June 2010. At June 2010, the Company had $6.4 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 June 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 June 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

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.

Stock Options

In April 2010, the Compensation Committee of the Board of Directors awarded various employees of the Company incentive stock options to purchase 6,000 shares of the Company’s common stock. These awards vest in equal installments over a five year service period and have an exercise price of $51.50 per share.

The Company has estimated that the fair value of the incentive stock option awards was approximately $0.1 million using the Black-Scholes option pricing model. This amount will be amortized to compensation expense on a straight-line basis over the five year service period. The following assumptions were used in connection with the Black-Scholes option pricing calculation:

		Stock Option Pricing Assumptions
Risk-free interest rate			3.04	%
Dividend yield			1.30	%
Expected volatility			49.3	%
Expected life in years			7

The stock options issued by the Company expire ten years from the grant date and include graded vesting schedules up to five years in length. Stock options issued and outstanding to management employees at June 2010 are summarized as follows:

						Number of
						Options				Number
Date		Exercise Price				Outstanding				Exercisable
Fiscal 2003		$	28.80				251				251
Fiscal 2007		$	18.00				25,000				25,000
Fiscal 2010		$	51.50				6,000				—
							31,251				25,251

Stock options issued and outstanding to the Company’s outside directors at June 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 issued and outstanding at June 2010:

										Remaining								Exercisable
		Exercise				Number				Weighted-Average				Weighted-Average				Number				Weighted-Average
		Price				Outstanding				Contractual Life				Exercise Price				Exercisable				Exercise Price
2002 Options		$	26.94				834			2.12 years				$	26.94				834			$	26.94
2003 Options		$	28.80				251			2.30 years				$	28.80				251			$	28.80
2007 Options		$	18.00				25,000			6.45 years				$	18.00				25,000			$	18.00
2010 Options		$	51.50				6,000			9.83 years				$	51.50				—				—
							32,085							$	24.58				26,085			$	18.39

The following is a summary of the activity of the stock options for the nine months ended June 2010:

						Weighted
		Number				Average
		of				Exercise
		Shares				Price
Outstanding at September 2009			30,117			$	20.16
Granted			6,000			$	51.50
Exercised			(4,032	)		$	31.56
Forfeited/Expired			—				—
Outstanding at June 2010			32,085			$	24.58

Net income before income taxes included compensation expense related to stock options of approximately $0.01 million and $0.1 million for the three and nine months ended June 2010, respectively, and $0.03 million and $0.1 million for the three and nine months ended June 2009, respectively. At June 2010, total unamortized compensation expense related to stock options was approximately $0.1 million. This unamortized compensation expense is expected to be amortized over approximately the next 58 months.

Restricted Stock

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 June 2010:		$	454,000			$	142,000

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 for the three months ended June 2010 and June 2009, and $0.3 million for the nine months ended June 2010 and June 2009. Total unamortized compensation expense related to restricted stock awards at June 2010 was approximately $0.1 million. This unamortized compensation expense is expected to be amortized over approximately the next four months (the expected weighted-average period).

The following summarizes restricted stock activity under the Omnibus Plan for the nine months ended June 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 June 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 and charges incurred by our holding company. The segments are evaluated on revenues, gross margins, operating income (loss), and income before taxes.

		Wholesale				Retail
		Segment				Segment				Other /1/				Consolidated
THREE MONTHS ENDED JUNE 2010:
External revenue:
Cigarettes		$	192,819,138			$	—			$	—			$	192,819,138
Confectionery			18,276,797				—				—				18,276,797
Health food			—				9,220,081				—				9,220,081
Tobacco, food service & other			46,746,424				—				—				46,746,424
Total external revenue			257,842,359				9,220,081				—				267,062,440
Depreciation			270,627				92,763				936				364,326
Amortization			76,140				—				—				76,140
Operating income (loss)			4,820,946				911,760				(1,113,891	)			4,618,815
Interest expense			119,356				111,322				140,195				370,873
Income (loss) from continuing operations before taxes			4,708,303				811,190				(1,238,793	)			4,280,700
Total assets			88,755,030				12,238,486				1,019,791				102,013,307
Capital expenditures			136,591				184,392				—				320,983
THREE MONTHS ENDED JUNE 2009:
External revenue:
Cigarettes		$	175,859,941			$	—			$	—			$	175,859,941
Confectionery			17,248,948				—				—				17,248,948
Health food			—				9,059,300				—				9,059,300
Tobacco, food service & other			40,649,738				—				—				40,649,738
Total external revenue			233,758,627				9,059,300				—				242,817,927
Depreciation			223,275				49,228				1,147				273,650
Amortization			—				—				—				—
Operating income (loss)			4,661,114				888,437				(1,559,355	)			3,990,196
Interest expense			132,192				133,692				102,164				368,048
Income (loss) from continuing operations before taxes			4,536,746				765,176				(1,636,174	)			3,665,748
Total assets			77,693,924				11,517,275				989,112				90,200,311
Capital expenditures			223,251				63,569				—				286,820

10. BUSINESS SEGMENTS (continued)

		Wholesale				Retail
		Segment				Segment				Other /1/				Consolidated
NINE MONTHS ENDED JUNE 2010:
External revenue:
Cigarettes		$	537,317,934			$	—			$	—			$	537,317,934
Confectionery			48,472,133				—				—				48,472,133
Health food			—				27,639,474				—				27,639,474
Tobacco, food service & other			128,073,066				—				—				128,073,066
Total external revenue			713,863,133				27,639,474				—				741,502,607
Depreciation			808,338				231,618				3,230				1,043,186
Amortization			200,121				—				—				200,121
Operating income (loss)			12,354,842				2,922,249				(4,437,471	)			10,839,620
Interest expense			366,547				351,612				426,384				1,144,543
Income (loss) from continuing operations before taxes			12,010,720				2,601,688				(4,848,147	)			9,764,261
Total assets			88,755,030				12,238,486				1,019,791				102,013,307
Capital expenditures			740,175				683,737				—				1,423,912
NINE MONTHS ENDED JUNE 2009:
External revenue:
Cigarettes		$	464,141,853			$	—			$	—			$	464,141,853
Confectionery			47,377,945				—				—				47,377,945
Health food			—				27,604,903				—				27,604,903
Tobacco, food service & other			116,512,835				—				—				116,512,835
Total external revenue			628,032,633				27,604,903				—				655,637,536
Depreciation			716,427				165,105				3,440				884,972
Amortization			—				—				—				—
Operating income (loss)			12,130,097				2,552,606				(4,036,869	)			10,645,834
Interest expense			391,236				443,550				431,048				1,265,834
Income (loss) from continuing operations before taxes			11,766,639				2,140,075				(4,442,571	)			9,464,143
Total assets			77,693,924				11,517,275				989,112				90,200,311
Capital expenditures			526,281				257,940				—				784,221

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

•

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 trends within the convenience store industry,
•		other risks over which the Company has little or no control, and
•		any other factors not identified herein.

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

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 June 2010.

THIRD FISCAL QUARTER 2010 (Q3 2010)

The following discussion and analysis includes the Company’s results of operations from continuing operations for the three months and nine months ended June 2010 and 2009. Continuing operations are comprised of our Wholesale Segment and our Retail Segment. A separate discussion of discontinued operations has been presented following our analysis of continuing operations.

Wholesale Segment

Our Wholesale Segment 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 our Wholesale Segment as the eighth (8th) largest convenience store distributor in the United States based on annual sales.

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

Retail Segment

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

Business Update — Wholesale Segment

The wholesale distribution industry is mature and intensely competitive. The revenue streams in this segment have historically been very dependent on the sale of cigarettes. Legislative actions such as excise tax increases, smoking bans, and diminishing social acceptance, however, have decreased the demand for cigarettes. Most recently, the manufacturing, distribution, marketing, and sale of cigarette and tobacco products was placed under the authority of the FDA. To date, the regulatory actions undertaken by the FDA have been primarily targeted at cigarette manufacturers and retailers. However, future regulatory actions by the FDA could further depress consumer demand for this product.

In the area of merchandising, industry research suggests that the convenience store industry is moving towards fresh and healthier foods offerings. These products tend to earn higher margins than the cigarette and tobacco categories we distribute and can enhance customer loyalty at the retail level. Accordingly, we are focused on expanding our products, sales, and training services offered to our customers in this area.

The long-term implications of the above considerations on the industry are significant. The combined impact of declining cigarette revenues as well as the overall availability of credit and access to capital will hinder smaller distributors and likely result in substantial industry consolidation. As one of the nation’s largest wholesale distributors, we believe the Company is well-positioned to capitalize on these trends and broaden our strategic footprint.

Business Update — Retail Segment

The health food retailing industry is highly competitive. Our competitors include local, regional, and national supermarkets as well as specialty natural foods stores. While natural food is one of the fastest growing categories in food retailing today, macro-economic conditions have negatively impacted sales growth industry-wide. We also face increased competition from other natural food chains looking to grow their market share.

Despite a challenging operating environment, we believe our health food stores continue to offer a unique value proposition. One of our core operating strategies is to carry product lines not readily found in other stores, coupled with highly trained sales associates who are passionate about the products we carry. These core operating principles have allowed us to develop a loyal customer following.

As the economy and consumer confidence improves, we believe consumer preferences towards more health conscious lifestyles combined with aging demographic trends will continue to make this a growth category for our Company and an attractive portion of our consolidated operations.

Business Update — General

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. Additionally, the Company is evaluating the impact that the new healthcare legislation might have on our business. Currently, however, the ultimate impact of this new legislation is uncertain.

While the above considerations present challenges industry-wide, we believe 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.

RESULTS OF OPERATIONS

		For the three months ended June
										Incr
		2010				2009				(Decr)				% Change
CONSOLIDATED:
Sales /1/		$	267,062,440			$	242,817,927			$	24,244,513				10.0
Cost of sales			247,932,676				225,753,469				22,179,207				9.8
Gross profit			19,129,764				17,064,458				2,065,306				12.1
Gross profit percentage			7.2	%			7.0	%
Operating expense			14,510,949				13,074,262				1,436,687				11.0
Operating income			4,618,815				3,990,196				628,619				15.8
Interest expense			370,873				368,048				2,825				0.8
Income tax expense			1,532,000				1,411,000				121,000				8.6
Income from continuing operations before income taxes			2,748,700				2,254,748				493,952				21.9
BUSINESS SEGMENTS:
Wholesale
Sales		$	257,842,359			$	233,758,627			$	24,083,732				10.3
Gross profit			15,054,498				13,311,241				1,743,257				13.1
Gross profit percentage			5.8	%			5.7	%
Retail
Sales		$	9,220,081			$	9,059,300			$	160,781				1.8
Gross profit			4,075,266				3,753,217				322,049				8.6
Gross profit percentage			44.2	%			41.4	%

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