UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended May 30, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number 0-5815
AMERICAN CONSUMERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Georgia
(State or other jurisdiction of incorporation or organization)
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58-1033765
(I.R.S. Employer Identification No.)
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55 Hannah Way, Rossville, GA
(Address of principal executive office)
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30741
(Zip Code)
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Registrant’s telephone number, including area code:
(706) 861-3347
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
o
No
x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
o
No
x
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 periods that the registrant was required to file such report(s)) and (2) has been subject to such filing requirements
for the past 90 days.
Yes
x
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x
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. (Check
one):
Large accelerated filer
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Accelerated
filer
o
Non-accelerated filer
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(Do not check if a smaller reporting company) Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o
No
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State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:
As of November 29, 2008 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $392,125. (Calculated for these purposes by multiplying the total number of outstanding shares held by
non-affiliates by the average of available bid and asked price information for such date.)
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
766,352 shares of Common Stock, $0.10 par value, as of August 26, 2009.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The
listed documents should be clearly described for identification purposes:
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(1)
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specified portions of the Registrant’s Annual Report to Shareholders for the fiscal year ended May 30, 2009, incorporated by reference into Part II of this Annual Report on Form 10-K.
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(2)
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specified portions of the Registrant’s Definitive Proxy Statement filed with the Securities and Exchange Commission for the Registrant’s 2009 Annual Meeting of Shareholders, incorporated by reference into Part III of this Annual Report on Form 10-K.
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EXPLANATORY NOTE
American Consumers, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (the “Form 10-K/A”) to the Company’s Annual Report on Form 10-K for the year ended May 30, 2009 (the “Original Filing”), to correct certain errors that occurred in the Original Filing due to a technical problem with
the EDGAR conversion and filing software utilized by the Company’s filing agent, which resulted in certain elements of the final submission file not being properly transmitted to the SEC as part of the Original Filing.
For the convenience of the reader, this Form 10-K/A sets forth the Original Filing in its entirety. However, this form 10-K/A only amends the Original Filing in the following respects, to correct the errors that resulted from the failure of the filing agent’s software to transmit the correct, final version of the submission
file: (i) the cover page of this report has been corrected to replace two required check boxes that were omitted from the Original Filing; (ii) Item 1 of Part I of the Original Filing has been amended to complete one sentence at the end of a paragraph that was rendered incomplete by the errors in transmitting the Original Filing; (iii) Exhibit 10.8 has been amended to correct two typographical errors that were contained in the Original Filing; and (iv) the exhibit numbers have been corrected on Exhibits
10.20, 10.21 and 10.22 (they were erroneously numbered 10.21, 10.22 and 10.23 in the Original Filing). No other information in the Original Filing is amended hereby. In addition, Item 15 of Part IV of the Original Filing has been amended to contain a currently dated consent and certifications from the Company’s Chief Executive Officer and Chief Financial Officer, which are attached to this form 10-K/A as Exhibits 23, 31.1, 31.2, 32.1 and 32.2.
Part I
ITEM 1. BUSINESS
Incorporated in Georgia in 1968, American Consumers, Inc. (which we refer to herein as the
“Company,”
“we”
or
“us,”
and
“ACI”
),
operates eight (8) supermarkets within a compact geographical area that comprises Northwest Georgia, Northeast Alabama, and Southeast Tennessee.
All of the Company’s supermarkets are operated under the name “Shop-Rite.” All of the Company’s supermarkets are self-service and are engaged in the retail selling of groceries including meats, fresh produce, dairy products, frozen foods, bakery products,
tobacco products, and miscellaneous other non-food items. The Company’s supermarkets feature national brand merchandise with only a minor part of sales from controlled-label, private-label or generic merchandise. “Controlled-label” or “private-label” merchandise is merchandise purchased from national or local suppliers under a trade name chosen by the wholesaler supplying the merchandise. The Company’s supermarkets offer milk and certain dairy
products, as well as canned vegetables, frozen vegetables and jellies, under the controlled-labels “Foodland,” “Food Club,” “Ultimate Choice,” “Freshland,” “Price Saver,” “Top Crest,” “Top Care,” “Select” and “Valu Time.” Bread and related bakery items are also offered as controlled-label groceries.
During the fiscal years ended May 30, 2009 and May 31, 2008, the Company’s major supplier of staple groceries was Mitchell Grocery Corporation (
“Mitchell”
), with its principal corporate offices in Albertville, Alabama. For
the fiscal year ended May 30, 2009, approximately 84% of the Company’s total inventory purchases of $25,971,302 were made from Mitchell. For the fiscal year ended May 31, 2008, approximately 82% of the Company’s total inventory purchases of $26,265,102 were made from Mitchell.
Various local suppliers within the geographical area served by the Company’s supermarkets provide the Company with certain perishable items, including produce, and accounted for approximately 16% and 18% of the Company’s total inventory purchases during fiscal years 2009 and 2008,
respectively. The Company believes that there are other adequate and convenient sources of groceries, including several area and local suppliers, which could meet its needs. Accordingly, while the Company has elected to purchase the majority of its inventory from Mitchell for reasons of cost, the Company is not dependent upon any particular supplier for its requirements of groceries.
The supermarket industry is highly competitive and the principal method of competition historically has been the pricing of groceries. The Company’s current major competitors now include various local and four regional chains, as well as one major national retailer (Wal-Mart). The nature of price competition
which the Company encounters from these major competitors includes the sale of selected items at below cost prices as “loss-leaders” or “advertised specials,” the practice of “double couponing” or matching coupon discounts with additional cash discounts, loyalty card programs, as well as the sale of certain main line items at prices below the Company’s wholesale cost. The Company believes that its major competitors have been and are able to obtain preferential
treatment from suppliers in the form of advertising allowances, lower prices and other concessions not available to the Company. These factors allow our competitors to engage in the aggressive pricing and promotional activities described above at a level that the Company cannot match, putting us at a competitive disadvantage. As a result of these competitive conditions, it has been difficult to achieve meaningful sales increases apart from the addition of two new store locations in recent
years.
As discussed in more detail below, these factors also have made it difficult for the Company to sustain consistent improvements in gross profit.
Management believes that, in recent periods, entry into the Company’s trade area by Publix, Save-A-Lot and United Grocery Outlets, and further expansion in the area by Food Lion and Wal-Mart in addition to the presence of Ingle’s and Bi-Lo, have created a situation of ongoing
price competition and increasingly expensive advertising and promotional activities which place an operation the size of the Company at a significant competitive disadvantage. These developments, combined with increased overhead expenses and rising inventory costs, have resulted in constant pressure on the Company’s market share, sales and profits over the past several years, which has made it difficult for the Company to operate at a consistent profit.
The addition of two stores since April of 2001 and the change in our principal inventory supplier in March of 2000 has allowed the Company to better compete in the marketplace. The Company recorded a net profit for the fiscal year ended May 30, 2009 of $60,614. This
represented our third consecutive profitable year after struggling with operating losses for the three prior fiscal years. We recorded a net profit of $132,741 for the fiscal year ended May 31, 2008 and $97,502 for the fiscal year ended June 2, 2007, as compared to net losses sustained for the fiscal years ended June 3, 2006, May 28, 2005 and May 29, 2004 of $167,379, $331,360 and $236,050, respectively. We recorded a net profit of $40,134 for the fiscal year ended May 31, 2003.
Although sales decreased during fiscal 2009 by $71,305 (or 0.21%), management was pleased with the overall net income achieved for the year, as improvements in the gross margin helped to offset the sales decrease and significant increases in operating, general and administrative expenses
(both in absolute terms and as a percentage of the Company’s slightly reduced sales). Sales increased by $709,579 (or 2.10%) during fiscal 2008 as compared to fiscal 2007. Sales increased by $503,124 (or 1.51%) for fiscal 2007 even though fiscal 2006 was a fifty three week year while fiscal 2007 was only a fifty two week year. While this increase was significantly less than those experienced during the prior two fiscal years of 2006 (3.67%) and 2005 (6.96%), adjusting to
eliminate the effects of the extra week of operations during fiscal 2006 would have yielded an annual sales increase of 3.46% for fiscal 2007. Management believes that factors contributing to the small sales decrease during fiscal 2009 included retail price decreases throughout the fiscal year in certain lines such as dairy, as well as a continuation of the trend noted in recent periods of customers switching from national name brand items to private label and generic items which, while typically selling
at lower prices than the national name brand items, also tend to produce a better gross margin as compared to the national brands.
The gross margin for fiscal 2009 increased 0.70% from fiscal 2008, to 24.55% which remained relatively consistent with the gross margin of 24.83% realized for the fourth quarter of fiscal 2008. The increase is due in part to the shift in customers’ buying patterns to include
more lower-priced, higher-margin generic brands, as mentioned above. Management also has continued to carefully manage the Company’s overall mix of retail prices in order to maintain the gross margin, which ranged from 23.75% to 24.92% for the four quarters of fiscal 2009. Operating, general and administrative expenses increased by $268,637 (or 3.29%) for fiscal 2009, and also increased 0.83% as a percent of sales. Increases in payroll, utilities and telephone, rent, insurance,
general and office supplies, depreciation, and professional fees were somewhat offset by decreases in advertising and promotion, repairs and maintenance, bank service charges and credit card fees, bad checks and miscellaneous expenses. Management will continue to monitor these expenses and attempt to control costs as much as possible.
Controlling the growth of these expenses has become increasingly challenging in
recent years, however, given the ongoing regulatory and market driven increases in several of these costs -- particularly mandated increases in the Federal minimum wage that are currently phasing in over time and the continuing increases in professional fees resulting from requirements imposed on public companies by the Sarbanes-Oxley Act of 2002 and related regulations.
The Company’s 23.85% gross margin for fiscal 2008 represented an increase of 0.12% from fiscal 2007, but remained a decrease of 0.33% as compared to the 24.18% gross margin achieved for fiscal 2006. The slight increase over fiscal 2007 was attributable to management’s
efforts to manage retail prices to increase gross margin when possible, and due to the Company having refrained from certain sales promotions conducted during fiscal 2007 which had a negative impact on gross margin. However, this slight increase was only achieved during the fourth quarter, as the Company struggled with slight decreases in the gross margin as compared to the comparable period of fiscal 2007 throughout the remainder of the year, due to ongoing increases in the wholesale costs of certain
grocery items as well as gradual increases in suppliers’ fuel surcharges due to increased gasoline prices, that we were not able to immediately recover through adjustments to the Company’s retail prices due to the impacts of competition. Although operating, general and administrative expenses increased by $170,774 (or 2.13%) in fiscal 2008, they remained essentially flat as a percentage of sales. Increases in wages, supplies, rent, utilities, professional fees and bad checks
were offset somewhat by decreases in advertising, depreciation, and bank and credit card fees.
Our 23.73% gross margin for fiscal 2007 represented a decrease of 0.45% from fiscal 2006 and a decrease of 0.16% as compared to fiscal 2005. This reduction reflected the fact that competition prevented us from succeeding until the third quarter of fiscal 2007 in adjusting our retail
prices to recover increases in our wholesale costs for certain items (principally certain private label merchandise) which occurred earlier in the year. The gross margin also was impacted by our introduction of certain lower-priced generic merchandise which carried lower margins during the year, as well as certain targeted merchandise sales and other weekly advertised specials run to stimulate sales. Management’s efforts to control the Company’s operating, general and administrative
expenses helped translate the relatively small sales increase in fiscal 2007 into the Company’s first net profit in four years, despite the slight reduction in our gross margin. We achieved a measure of success in reducing these expenses both in absolute terms (by $260,829) and as a percentage of sales (by 1.15%) during fiscal 2007 as compared to the prior year.
Management actively monitors both the gross margin and the company’s retail pricing structure in an attempt to maximize profitability. Management began working on the Company’s gross margin during the quarter ended August 31, 2002, at which time the gross margin stood
at 22.79% for the trailing fiscal year. While occasional improvements in gross profit have been seen in recent periods, such as the 24.55% gross margin we achieved for fiscal 2009 as compared to the gross margins of 23.85% for fiscal 2008 and 23.73% for fiscal 2007, it is difficult to maintain a trend of consistent improvement in the gross margin due to competitive conditions which often delay the Company’s ability to pass through price increases experienced at the wholesale level. Accordingly,
while management attempts to offset increases in its cost (such as our successes in recovering various wholesale price increases and fuel surcharges added by suppliers in recent periods), further improvements in the gross margin may not be achievable at this time, and further deterioration in the Company’s gross margin is possible.
Management believes that competitive pressures on the Company, which have led to the losses experienced in four out of the last eight fiscal years, will continue to increase over time as a result of larger competitors, which are in a better position than the Company to withstand prolonged
price competition, opening more new stores in the Company’s trade area.
Backlog is not a significant factor in the Company’s business.
The Company employs approximately 86 full-time employees and approximately 132 part-time and seasonal employees.
The Company believes it is in compliance with all federal, state and local laws relating to environmental protection. No capital expenditures for equipment relating to environmental protection are presently anticipated.
The Company is engaged in a single line of business; namely, the retail, self-service grocery business which is not divisible into separate segments. The following table sets forth information for the last three (3) fiscal years as to the total sales and revenue of the Company
contributed by each class of products which contributed a significant percentage of the total retail sales and revenues of the Company in the last three (3) fiscal years.
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Product Class
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Fiscal 2009
(52 Weeks)
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Fiscal 2008
(52 Weeks)
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Fiscal 2007
(52 Weeks)
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Grocery and Non-Food Items
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$22,219,238
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$22,327,217
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$21,627,218
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Meat and Deli
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9,503,268
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9,452,010
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9,419,858
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Produce
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2,698,820
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2,713,404
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2,735,976
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ITEM 1A. RISK FACTORS
The following are certain risk factors that could affect the Company’s business, results of operations and financial condition. These risk factors could cause the Company’s actual results to differ materially from those projected in the forward-looking statements contained
in our Annual Report on Form 10-K. Before investing in the Company, investors should know that making such an investment involves some risks. The risks that are described below are not the only ones the Company faces; there may be other risks and uncertainties not presently known to us, or that we presently deem immaterial, that could affect our business. If any of the following risks occur, the Company’s business, results of operations or financial condition could be negatively
affected. The Company does not undertake any obligation to update forward-looking statements.
For four out of the past eight fiscal years we have been unable to operate profitably due to a high level of competition in the retail grocery store business. This intense competition may be expected to have a negative impact on both the prices we may charge for our products and certain
elements of our overhead and, accordingly, on the Company’s revenues, margins and profitability.
The retail food industry in which the Company operates is extremely competitive and is generally characterized by narrow profit margins and high inventory turnover. We are competing against national, regional and local supermarket chains, independent and specialty grocers, and
nontraditional food stores, such as super-centers and club stores, as well as convenience stores and prepared food retailers. Aggressive super-center expansion, increasing fragmentation of retail formats, entry of non-traditional competitors and market consolidation have further contributed to an increasingly competitive marketplace. Many of our competitors have financial, distribution, purchasing, and marketing resources that are greater than ours. Thus our profitability may
be impacted by the pricing, purchasing, financing, advertising or promotional decisions made by competitors. Our principal competitors compete primarily on the basis of price, quality of products, product assortment, service, and store location and condition.
A historical lack of inflation in food prices and increasingly competitive markets have made it difficult generally for grocery store operators to achieve comparable store sales gains and maintain profitability. Because sales growth has been difficult to attain, competitors have
attempted to maintain market share through increased levels of promotional activities and discount pricing, creating a more difficult environment in which to consistently increase year-over-year-sales. Our responses to these competitive pressures, such as additional promotions and increased advertising, have in the past adversely affected our operating margins and our overall profitability, and may continue to do so in the future. Further, these competitive pressures often delay our ability
to adjust our prices to reflect increases in our costs, such as increases seen in recent periods in employment costs, energy costs, wholesale inventory prices or other elements of our overhead. Accordingly, we may not be able to fully absorb any future cost increases through our efforts to adjust retail prices or increase efficiencies in other areas of operations, which could result in increased losses in future periods. Additionally, we sometimes face the opening of a new or remodeled competitor’s
store in our trade area. Competition also requires us to periodically remodel our existing stores, at ever increasing costs, in order to maintain their appeal.
Our level of outstanding indebtedness, coupled with the losses we have experienced in four of the last eight years and increasing interest expense and other bank charges, could impair our financial flexibility and negatively impact our business.
As of May 30, 2009, our aggregate outstanding indebtedness stood at $2,549,519 as compared to total assets for the Company of $4,330,909 at such date. Our level of indebtedness could:
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make it difficult for us to satisfy our obligations, including making interest payments;
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limit our ability to obtain additional financing to fund both working capital and capital spending requirements;
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limit our financial flexibility in planning for, and reacting to, industry changes;
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place us at a competitive disadvantage as compared to less leveraged companies;
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increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates; and
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require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing the availability of our cash flow for other purposes.
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Additionally, the terms of our debt agreements with our senior lender contain negative covenants which prohibit us, without the lender’s written consent, from taking any of the following actions which we might otherwise deem to be in the interest of the Company and its shareholders:
(i) subject to certain exceptions, incur additional indebtedness or guaranty obligations; (ii) subject to certain exceptions, sell Company assets; (iii) purchase or acquire any interest in, or loan money to, any other enterprise or entity; (iv) engage in any merger or sale of the Company’s assets, or in any business activity substantially different from our current business; or (v) pay any dividends on our stock.
Historically, we have financed our working capital requirements principally through cash flow from operations. During the past six years, however, we have increased our reliance on both bank and vendor financing due to periodic losses which coincided with increased inventory and
capital spending requirements beginning in fiscal 2004 related to the establishment of our eighth grocery store location. While we believe that our cash flows and existing financing arrangements will continue to supply our working capital needs, if we are unable to recover future cost increases due to competitive conditions, our operating losses could increase relative to depreciation and other non-cash charges, which could require us to seek additional financing through bank loans, or other sources,
in order to meet our working capital needs. If we could not obtain such additional financing, or could not do so on commercially reasonable terms, we could be required to reduce our current level of operations. We also could be forced to delay or cancel future planned equipment upgrades and other capital spending if we are not able to obtain appropriate financing for such projects on commercially reasonable terms. Further, increased interest expense resulting from higher debt
levels and rising interest rates, as well as increased bank service charges related to both temporary overdrafts in our accounts and fees for processing larger numbers of credit and debit card transactions required to maintain sales, have placed significant pressure on our operating results in recent periods and may continue to adversely impact our future performance.
We are subject to the requirements of Section 404 of the Sarbanes-Oxley Act. If we are unable to timely comply with Section 404 or if the costs related to compliance are significant, our profitability, stock price and results of operations and financial condition could be materially adversely
affected.
We are required to comply with the provisions of Section 404 of the Sarbanes-Oxley Act of 2002, which require us to maintain an ongoing evaluation and documentation of the internal controls over financial reporting related to our business. We were required to document and test
our internal controls and certify that we are responsible for maintaining an adequate system of internal control procedures beginning with our fiscal year ended May 31, 2008. Beginning with our 2010 fiscal year and in subsequent years, our independent registered public accounting firm will be required to opine on those internal controls. In the process, we may identify areas requiring improvement, and we may have to design enhanced processes and controls to address issues identified through
such reviews.
During fiscal year 2008, we incurred additional professional fees in the amount of $40,968 directly related to preparations for management’s initial assessment of internal control over financial reporting pursuant to these rules, in addition to having to devote significant internal
management effort and resources to these activities. We have incurred additional professional fees in the amount of $12,200 during fiscal year 2009 and $3,500 thus far during the first quarter of fiscal 2010 related to (i) the completion of management’s initial annual assessment as of fiscal 2008 year end, (ii) the execution and testing of management’s remediation plan for the material weaknesses in internal controls that were detected in management’s initial assessment and (iii)
the completion of management’s second annual assessment as of fiscal 2009 year end. We expect ongoing compliance costs to complete management’s required assessments of internal control over financial reporting to average at least $10,000 per year, not counting the value of internal management time and resources devoted to these efforts.
Further, we believe that the out-of-pocket costs, the diversion of management’s attention from running the day-to-day operations and operational changes caused by the need to comply with the requirements of Section 404 of the Sarbanes-Oxley Act have been, and will continue to be, significant. As
noted above, we will be required to begin including an annual attestation report by our independent auditors addressing the effectiveness of such internal controls with our annual report for fiscal 2010. While we cannot precisely estimate the additional professional fees that will be incurred in conjunction with satisfying this requirement for fiscal 2010 and future years, we currently project that such additional fees will amount to at least $45,000 for the completion of our auditors’ initial
fiscal 2010 report during fiscal 2011. If the time and costs associated with such compliance exceed our current expectations, our results of operations could be adversely affected.
We could experience material weaknesses in our internal control over financial reporting, which could impact negatively our ability to report our results of operations and financial condition accurately and in a timely manner.
As required by Section 404 of the Sarbanes-Oxley Act of 2002, we have conducted an evaluation of the effectiveness of our internal control over financial reporting as of May 30, 2009. As of May 30, 2009 we believe that we have remediated all past material weaknesses
but we can provide no assurance that we will not experience material weaknesses in the future.
As we have previously disclosed, as of May 31, 2008, material weaknesses existed related to, among other things, our internal controls over financial reporting with respect to the segregation of duties in our finance and accounting functions, including a lack of segregation of the CFO’s
duties or independent review or verification of the primary spreadsheets used by the CFO in the preparation of financial statements and related disclosures, and a lack of meaningful review of the bank statements used by the CFO to perform reconciliations. We completed a number of remedial actions during fiscal 2009 to correct these weaknesses, and we believe that no additional remedial efforts are required with respect to these weaknesses.
Nevertheless, there is a risk of additional errors not being prevented or detected, which could result in the identification of material weaknesses in our internal controls in the future.
There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected, which may adversely impact our business and operating results.
Effective internal control over financial reporting is necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot provide reasonable assurance with respect to our financial reports and effectively prevent
fraud, our business and operating results could be harmed. Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, projections of any evaluation of
effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we
could fail to meet our reporting obligations.
Our common stock is not actively traded and is not traded on an established exchange, and a majority of our stock is held by insiders, which may be expected to result in limited liquidity and stock price volatility for investors.
Our common stock is quoted on the Pink Sheets under the symbol “ANCS.PK”. The Pink Sheets is not an established exchange, and we do not have enough shareholders or outstanding shares to support an active trading market. Accordingly, the market for our common
stock is not liquid and the historical prices at which our stock has traded may not provide a reliable indication of future market prices. For those reasons, the trading price of our common stock could fluctuate significantly. Volatility in our stock price could also result from the following factors, among others:
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the fact that we are presently unable to pay dividends to our stockholders due to covenants in the debt agreements with our senior lender, as well as the losses experienced in several of our recent fiscal years;
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the fact that a majority of our outstanding common stock (approximately 64.74%) is controlled by the Company’s officers and directors, principally by Michael A. Richardson, our Chief Executive Officer, and his wife, Diana K. Richardson;
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quarterly variations in the Company’s operating results;
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changes in governmental regulations;
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the operating and stock price performance of other companies in our industry; and
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general stock market and economic conditions.
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Unfavorable changes in governmental regulation may impose additional costs and administrative burdens on the Company that could have an adverse effect on our results of operations and financial condition
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Our stores are subject to various federal, state and local laws, and regulations affecting our business. We must comply with numerous provisions regulating, among other things, health and sanitation standards, food labeling, land use and zoning, community right-to-know laws, equal
employment opportunity, workplace safety, minimum wages and other employment practices, licensing for the sale of food, age requirements for the sale of tobacco products, and fire safety regulations. We cannot predict the nature of future laws, regulations, interpretations or their application, or determine what effect additional government regulations or administrative orders, when and if promulgated, or disparate federal, state or local schemes would have on our future business. They could,
however, require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or substantiation. Any or all of such requirements, to the extent they either raise the wholesale prices for our inventory or impose direct costs on the Company, could have an adverse effect on our results of operations and
financial condition.
Further, the Sarbanes-Oxley Act of 2002 includes provisions addressing audits, financial reporting and disclosure, conflicts of interest and corporate governance at public companies. We have already incurred increased professional fees during fiscal years 2005 through 2008 related
to compliance with these provisions. As discussed above, compliance with the provisions of Section 404 of this Act, which deals with management’s report on internal controls and an auditor’s examination of internal controls, already has imposed, and may continue to impose, significant additional costs on the Company. We expect these costs to include additional significant increases in accounting and consulting fees, as well as additional internal personnel costs and the
indirect costs imposed by the diversion of scarce management resources to deal with regulatory compliance matters as opposed to operational issues. These increased costs are likely to adversely affect our financial condition and results of operations because, as discussed above, the intensely competitive nature of our business makes it difficult for the Company to recover cost increases through adjustments to our retail prices.
The majority of our operating, general and administrative expenses is composed of personnel costs, so that increases in prevailing wages, benefits and other associated costs, such as recent legislation mandating increases in the federal minimum wage, could have a material adverse effect on our results
of operations and financial condition.
The majority of our operating, general and administrative expenses is composed of employee payroll and related insurance and benefits expense. Accordingly, our financial performance may be greatly influenced by increases in wage and benefit costs. We compete with other
businesses in our markets in attracting and retaining employees. Tight labor markets, increased overtime, government
mandated increases in the minimum wage and a higher proportion of full−time employees could all result in an increase in our labor costs. We have a substantial number of employees who are paid wage rates at or slightly above the minimum wage. As federal and state minimum wage rates increase, we may be required
to increase not only the wages of our minimum wage employees but also the wages paid to employees whose wage rates are above minimum wage. A shortage of qualified employees also could require us to increase our wage and benefit offerings in order to compete effectively in the hiring and retention of qualified employees or to retain more expensive temporary employees. Additionally, various proposals that would require employers to provide health insurance for all of their employees are being
considered from time-to-time in Congress and various states. The imposition of any requirement that we provide health insurance to all employees on terms materially different from our existing programs could also significantly increase our costs. Due to competitive conditions in our business, any such increases in labor and benefits costs would be difficult for us to recover through contemporaneous price increases, and there can be no assurance that we would be able to absorb such cost increases
through efforts to increase efficiencies in other areas of our operations. Accordingly, increased labor and benefits costs could have a material adverse effect on our financial condition and results of operations.
If competitive conditions prevent us from being able to recover increases in our costs through adjustments to our retail prices, our results of operations and financial condition will be adversely affected.
In recent periods, we have experienced increases in transportation cost and in the cost of products we sell in our stores. The increases in our costs are attributed to increases in fuel, plastic, grain and other commodity costs. As inflation has increased expenses, we
have recovered, to the extent permitted by competition, the increase in expenses by increasing prices over time. However, the economic and competitive environment in our trade area continues to challenge us to become more cost efficient as our ability to recover increases in expenses through price increases is often limited, or at least delayed, by the effects of competition. Our future results of operations will depend upon our ability to adapt to the current economic environment as well
as current and future competitive conditions.
We are vulnerable to adverse changes in economic conditions in the concentrated geographic region in which we operate, as well as changes affecting the national economy, and negative economic developments either locally or nationally could have a material adverse impact on our business.
Our operations are concentrated within a compact geographical area that comprises Northwest Georgia, Northeast Alabama, and Southeast Tennessee. We are therefore vulnerable to regional economic downturns as well as to natural and other catastrophic events that may impact our local
region, in addition to being vulnerable to any such events that may affect the national economy as a whole. Economic conditions such as the recent disruptions experienced in both commercial and consumer credit markets, inflation, adverse changes in interest rates, rising energy costs and rising unemployment rates may adversely affect both our sales and our cost structure, which could lead to losses, and may also adversely affect our future growth and expansion. Further, since our operations
are concentrated in a single, relatively compact geographical area, opportunities for future store expansion may be limited, which may adversely affect our business and results of operations.
The loss of any of our key employees could have a material adverse effect on our business.
We are heavily dependent upon the services of Michael A. Richardson, our President and Chief Executive Officer, and Paul R. Cook, our Executive Vice President and Chief Financial Officer, as well as certain other key personnel. If Mr. Richardson, Mr. Cook or any of our other key
personnel were to unexpectedly leave our Company, our business, financial condition and results of operations could be materially and adversely affected. In addition, we must continue to attract, retain and motivate a significant number of qualified management and operating personnel, including replacement of senior management upon retirement. Individuals of this caliber are historically in short supply and this shortage may limit our ability to hire and retain qualified personnel, and thus,
may hinder our ability to operative effectively.
Changes in the terms on which suppliers require the Company to pay for store merchandise could have an adverse effect on the Company’s business, financial condition and results of operations.
Similar to many retailers, the Company has payment terms with most of its suppliers that extend payment for up to 30 days beyond the date the product is purchased. Those payment terms are subject to change at any time. If the Company’s suppliers change their payment
terms for whatever reason and require faster payment by the Company, it could have a material adverse effect on the Company’s business, financial condition and results of operations.
A change in supplier rebates could adversely affect our results.
We receive allowances, credits and income from suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. Certain of these funds are based on volume of net sales or purchases, growth rate of net sales or purchases and
marketing programs. If we do not grow our net sales over prior periods or if we are not in compliance with the terms of these programs, there could be a material negative effect on the amount of incentives offered or paid to us by our suppliers.
Additionally, suppliers routinely change the requirements for, and the amount of, funds available. No assurance can be given that we will continue to receive such incentives or that we will be able to collect outstanding amounts relating to these incentives in a timely manner,
or at all. A reduction in, the discontinuance of, or a significant delay in receiving such incentives, as well as the inability to collect such incentives, could have a material adverse effect on our business, results of operations and financial condition.
We depend on one principal supplier for a substantial portion of our merchandise inventory. A disruption in supply or a change in our relationship could have a material adverse effect on our business.
We purchase approximately 84% of our merchandise including grocery, meat and produce items, from a single wholesale grocer, Mitchell Grocery Corporation. Mitchell has been a supplier of ours since 2000. We do not have a written contract with Mitchell but a change of
merchandise suppliers, a disruption in supply or a significant change in our relationship with Mitchell could have a material adverse effect on our business and results of operations and ability to service our outstanding indebtedness.
As a result of selling food products, we may be exposed to product liability claims and adverse publicity that could have a material adverse effect on our profitability and business operations.
The packaging, marketing, distribution and sale of food products purchased from others entail an inherent risk of product liability, product recall and adverse publicity resulting from such events. Any such products may contain contaminants that we may inadvertently redistribute. These
contaminants may, in certain cases, result in illness, injury or death if processing at the foodservice or consumer level does not eliminate the contaminants. Even an inadvertent shipment of adulterated products may violate the law and may lead to an increased risk of exposure to product liability claims. There can be no assurance that such claims will not be asserted against us or that we will not be obligated to perform such a recall in the future. If a product liability claim
is successful, our insurance may not be adequate to cover all liabilities that we may incur, and we may not be able to continue to maintain such insurance, or obtain comparable insurance at a reasonable cost, if at all. If we do not have adequate insurance or contractual indemnification available from the producer of the product or others in the supply chain, product liability claims relating to defective products could have a material adverse effect on our business, financial condition and results
of operations. In addition, adverse publicity about these types of claims and concerns, whether or not valid, may discourage consumers from buying our products or cause production and delivery disruptions, which also could have a material adverse effect on our business, financial condition and results of operations.
Threats or potential threats to security or the occurrence of a widespread health epidemic may adversely affect the Company’s financial condition and results of operations.
The Company’s businesses may be severely impacted by wartime activities, threats or acts of terror or a widespread regional, national or global health epidemic, such as pandemic flu. Such activities, threats or epidemics may adversely impact the Company’s businesses
by disrupting production and delivery of products to its stores, by affecting the Company’s ability to appropriately staff its stores and by causing customers to avoid public gathering places or otherwise change their shopping behaviors.
Additionally, data theft, information espionage or other criminal activity directed at the grocery store industry, the transportation industry, or computer or communications systems may adversely affect the Company’s businesses by causing the Company to implement costly security measures
in recognition of actual or potential threats, by requiring the Company to expend significant time and expense developing, maintaining or upgrading its information technology systems and by causing the Company to incur significant costs to reimburse third parties for damages. Such activities may also adversely affect the Company’s financial condition and results of operations by reducing consumer confidence in the marketplace and by modifying consumer spending habits.
If we were held liable for any future environmental damages or cleanup costs, our business and financial condition could be adversely impacted.
Our operations subject us to various laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous materials and the cleanup of contaminated sites. Under some environmental laws, such as the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund law, and similar state statues, responsibility for the entire cost of cleanup of a contaminated site can be imposed upon any current or former site owners or operators, or upon any party who sent waste to the site, regardless of the lawfulness
of the original activities that lead to the contamination. We believe we are currently in substantial compliance with all applicable environmental requirements. However, future developments such as more aggressive enforcement policies, new laws or discoveries of unknown conditions may require expenditures that could have a material adverse effect on our business and financial condition.
Adverse outcomes in any future legal proceedings could have a material adverse effect on our financial condition and results of operations.
From time to time, we may be made a party to legal proceedings, including matters involving personnel and employment issues, personal injury, intellectual property and other proceedings arising in the ordinary course of business. We are not presently a party to any material legal
proceedings, and we estimate our exposure to any such claims and litigation arising in the normal course of business and currently believe we have made adequate provisions for such exposure. Unexpected future outcomes in any such matters, however, could result in a material adverse effect on our financial condition and results of operations.
Any disruptions to the operation of, or breaches in the security of data maintained in, the information technology systems on which our business increasingly depends could adversely affect the Company.
Our business is increasingly dependent on information technology systems that are complex and vital to continuing operations. If we were to experience difficulties maintaining existing systems or implementing new systems, we could incur significant losses due to disruptions in
our operations. Additionally, these systems contain valuable proprietary data that if breached, as noted above, would have an adverse effect on the Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES
The executive offices of the Company are located in a 4,000 square-foot office building on Hannah Way, just off Battlefield Parkway in Rossville, Georgia, which the Company holds under a lease for a term of three years, expiring in September 2009 with one two-year renewal option.
The Company’s supermarkets are located in Ringgold, LaFayette, Chatsworth, Chickamauga and Tunnel Hill, Georgia; Stevenson, Alabama; and Dayton and Jasper, Tennessee. All of the eight locations are leased from unaffiliated landlords. Summary information concerning
these leases is presented below:
|
Location
|
Square
Footage
|
Current Lease
Term
|
Renewal
Options
|
|
|
|
|
|
|
Ringgold, GA
|
14,400
|
12/01/08 - 11/30/09
|
3-1 yr. terms
|
|
LaFayette, GA
|
20,500
|
02/01/07 - 01/31/12
|
1-5 yr. terms
|
|
Chatsworth, GA
|
24,360
|
05/01/08 - 04/30/13
|
—
|
|
Chickamauga, GA
|
13,840
|
01/01/05 - 12/31/09
|
1-5 yr. term
|
|
Tunnel Hill, GA
|
18,900
|
09/01/07 - 08/31/12
|
2-5 yr. terms
|
|
Stevenson, AL
|
23,860
|
06/01/09 - 05/31/14
|
—
|
|
Dayton, TN
|
23,004
|
08/01/07 - 07/31/12
|
—
|
|
Jasper, TN
|
|
05/01/06 – 04/30/14
|
2-5 yr. terms
|
|
|
163,864
|
|
|
|
|
|
|
|
The supermarkets in Ringgold, LaFayette, Chatsworth and Tunnel Hill, Georgia; Stevenson, Alabama; and Dayton, Tennessee, are located in strip shopping centers. The stores in Chickamauga, Georgia and Jasper, Tennessee are free-standing.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a party, or to which any of its property is subject, nor have any material legal proceedings been terminated during the fourth quarter of the Company’s fiscal year.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
The Company’s Board of Directors appoints the Company’s Executive Officers for a term of one year. The names, ages, offices held with the Company, business experience during the past five years, and certain directorships held by each of the Company’s Executive
Officers are set forth in the following table:
|
Name and Year
First Elected as
Executive Officer
|
|
Office(s) Presently
Held, Business Experience
and Certain Directorships
|
|
Age
|
|
|
|
|
|
|
|
Michael A. Richardson
1977
|
|
Chairman of the Board of
Directors, President, Chief
Executive Officer, member of
the Executive Committee of
the Board of Directors.
|
|
63
|
|
|
|
|
|
|
|
Paul R. Cook
1987
|
|
Executive Vice-President,
Treasurer, Chief Financial
Officer, Director, member of
the Executive Committee of
the Board of Directors.
Director of Capital Bank,
Fort Oglethorpe, Georgia
since May 1993.
|
|
59
|
|
|
|
|
|
|
|
Reba S. Southern
1991
|
|
Secretary, member of the
Executive Committee (ex-officio).
|
|
56
|
PART II
|
ITEM 5.
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
(a) The approximate number of record holders of the Company’s common stock at May 30, 2009, was 752. The Company does not have any equity compensation plans. The remaining information required by paragraph (a) of this Item 5 is incorporated herein
by reference to page 4 of the Company’s Annual Report to security holders for the fiscal year ended May 30, 2009, a copy of relevant portions of which is filed as Exhibit 13 to this Report.
(b) Not applicable.
(c)
Issuer Repurchases
:
The following table presents information with respect to repurchases of common stock made by the Company during the fourth quarter of the fiscal year covered by this report:
|
Period
|
|
Total Number
of Shares
Purchased (1)
|
|
Average
Price
Paid per
Share
|
|
Total Number of
Shares Purchased as
Part of a Publicly
Announced Plan
|
|
Maximum Number of
Shares that May Yet
Be Purchased
Under the Plan
|
|
|
|
|
|
|
|
|
|
|
|
March 1 – March 28, 2009
|
|
220
|
|
$1.00
|
|
—
|
|
—
|
|
March 29 – April 25, 2009
|
|
_____
|
|
$1.00
|
|
—
|
|
—
|
|
April 26 – May 30, 2009
|
|
_____
|
|
$1.00
|
|
—
|
|
—
|
|
Total
|
|
220
|
|
$1.00
|
|
—
|
|
—
|
|
(1)
|
Represents shares repurchased at $1.00 per share in response to unsolicited requests from unaffiliated shareholders during the quarter.
|
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by reference to page 3 of the Company’s Annual Report to security holders for the fiscal year ended May 30, 2009, a copy of relevant portions of which is filed as Exhibit 13 to this Report.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The information required by this Item is incorporated herein by reference to pages 5 through 20 of the Company’s Annual Report to security holders for the fiscal year ended May 30, 2009, a copy of relevant portions of which is filed as Exhibit 13 to this Report.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated herein by reference to pages 21 through 37 of the Company’s Annual Report to security holders for the fiscal year ended May 30, 2009, a copy of relevant portions of which is filed as Exhibit 13 to this Report.
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
|
ITEM 9A(T).
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
In connection with the preparation of this Annual Report on Form 10-K, our management, with the participation of our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of
May 30, 2009. Based on that evaluation, our CEO and CFO concluded that, as of that date, the Company’s disclosure controls and procedures, were effective at a reasonable assurance level. In reaching such conclusion, management considered, among other factors, the current status of the additional controls and procedures implemented during fiscal 2009 to remediate the material weaknesses in internal control over financial reporting identified in Item 9A(T) of our Annual Report on
Form 10-K for the fiscal year ended May 31, 2008, as discussed further below under Management’s Report on Internal Control over Financial Reporting.
Management’s Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Section 13a-15(f) of the Securities
Exchange Act of 1934, as amended). Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting
purposes in conformity with U.S. generally accepted accounting principles and include those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of
the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As of May 30, 2009, management, with the participation of the Company’s CEO and CFO, conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in
Internal
Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the criteria established by COSO, and considering the matters discussed further below under “Remediation of Material Weaknesses,” management (including our CEO and CFO) concluded that the Company’s internal control over financial reporting was effective as of May 30, 2009.
This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered
public accounting firm pursuant to temporary rules of the Securities Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Remediation of Material Weaknesses
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
In connection with the preparation of last year’s Annual Report on Form 10-K, including our financial statements for the year ended May 31, 2008, management identified certain significant deficiencies in the Company’s internal control over financial reporting that, individually
and in the aggregate, represented material weaknesses, including, insufficient segregation of duties in our finance and accounting functions due to limited personnel. Specifically, management determined that a material weakness existed due to a lack of any independent review of the spreadsheets used to aggregate, summate and calculate the amounts used in the preparation of the financial statements and related disclosures and a lack of segregation of duties due to the concentration of many responsibilities
with the CFO without any independent review or verification. Additionally, meaningful reviews of the Company’s bank statements used by the CFO to perform reconciliations were not being performed, and it was determined that these control deficiencies could result in material misstatement to our interim or annual financial statements that would not be prevented or detected in a timely manner. Management believes that each of these material weaknesses could have a pervasive impact on
our internal control over financial reporting.
During the Company’s fiscal year ended May 30, 2009, we implemented a number of remediation measures to address the material weaknesses described above. As described in our Form 10-K for fiscal year 2008, the Company’s remediation plans included:
|
|
·
|
Hiring additional staff to (A) have the responsibility of independently reviewing the spreadsheets maintained by the Chief Financial Officer to verify the amounts, calculations, and formulas used to compile the amounts used in the preparation of the financial statements and related disclosures and (B) assist in further segregation of duties within the Company’s accounting and financial reporting functions,
including reducing the degree of duties and responsibilities concentrated with the Chief Financial Officer without any independent review or verification; and
|
|
|
·
|
Having the CEO perform a detailed review of the bank statements, including examination of individual items, used by the CFO in the preparation of reconciliations.
|
The Company completed its remediation plans as described below:
|
|
·
|
During the first two quarters of fiscal 2009, we added additional staff to segregate and provide additional backup for certain of the CFO’s duties. Such staff, along with designated members of the existing staff, were given the responsibility of independently reviewing the spreadsheets maintained by the CFO to verify the amounts, calculations, and formulas used to compile the amounts used in the
preparation of the financial statements and related disclosures. As of the end of the second quarter, the Company had completed the initial testing and verification of all of the major calculational spreadsheets used by the CFO in preparation of the financial statements.
|
|
|
·
|
We implemented procedures pursuant to which the CEO performs a detailed review of all bank statements for unusual items or transactions, prior to their use by the CFO in the preparation of reconciliations. The CEO documents his review and any questions arising from the review, and then works with the CFO to oversee the investigation and resolution of any unusual items. If any item is not satisfactorily
resolved as a result of management’s initial investigation, the CEO will report the matter to the Audit Committee of the Board of Directors for further follow-up in accordance with the Audit Committee’s directions.
|
|
|
·
|
We implemented additional steps to enhance segregation of duties within the Company’s accounting and financial reporting functions, including (A) requiring that the employee responsible for keying vendor invoices into the Company’s accounts payable system not be the same employee responsible for the manual reconciliations of vendor invoices and (B) requiring that each employee will only be able to access
those modules of the Company’s accounting software utilized for performing his or her duties with the employee’s personal password and, if one employee is required to perform duties normally performed by a second employee in such employee’s absence, a different, temporary password must be utilized.
|
|
|
·
|
Throughout the third and fourth quarters of fiscal 2009, the Company continued to monitor the effectiveness of these remediation measures, and we completed the final testing and evaluation of their effectiveness to remediate the material weaknesses in internal controls discussed above during the fourth quarter of fiscal 2009.
|
Changes in Internal Control over Financial Reporting
While the remediation steps described above were designed and in place by the end of the second quarter of fiscal 2009, management continued to evaluate their operating effectiveness through the end of fiscal year 2009, when it was concluded that the Company’s internal control over
financial reporting was sufficiently mature to support an assessment that the controls were effective. There were no changes in our internal control over financial reporting during the quarter ended May 30, 2009 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
|
ITEM 9B.
|
OTHER INFORMATION
|
None.
PART III
|
ITEM 10.
|
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
|
Executive Officers
Information concerning the Company’s Executive Officers is set forth in Part I of this report on Form 10-K under the caption “Executive Officers of the Company.”
Audit Committee Financial Expert
All three of the Company’s independent directors currently serve on the Audit Committee, and each is an experienced business professional. Thomas L. Richardson is the retired chief executive officer of Learning Labs, Inc., a position he held for 27 years. He has had over 33 years of experience in reviewing the
Company’s financial reporting process through service as an independent director. Danny R. Skates has 14 years of senior management experience as Vice President and General Manager of Jackson Chevrolet Pontiac Buick GMC, Inc., and Andrew V. Douglas has had extensive experience with the business of independent grocery retailers such as the Company through his service as a retail counselor for Fleming Companies, Inc., our former principal supplier. Accordingly, in light of their backgrounds
and their understanding of the Company’s business, the Board of Directors believes that the members of the Audit Committee will be able to provide effective oversight for the Company’s financial reporting process and its relationship with its independent accountants. Nevertheless, the Company’s Board of Directors has not determined that any member of the Company’s Audit Committee qualifies as an “audit committee financial expert” under the SEC’s detailed, technical
definition of that term.
Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) which applies to its principal executive officer, principal financial officer and principal accounting officer or controller, and any persons performing similar functions. A copy of the Code of Ethics is filed as Exhibit 14 to this
Report.
The remaining information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company’s 2009 Annual Meeting of Shareholders, under the headings “INFORMATION ABOUT NOMINEES FOR DIRECTOR”
and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.”
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company’s 2009 Annual Meeting of Shareholders, under the headings “DIRECTOR COMPENSATION” and “EXECUTIVE
COMPENSATION.”
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
Securities Authorized for Issuance Under Equity Compensation Plans
The Company has not adopted any equity compensation plans.
The remaining information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company’s 2009 Annual Meeting of Shareholders, under the headings “PRINCIPAL SHAREHOLDERS” and “INFORMATION
ABOUT NOMINEES FOR DIRECTOR.”
|
ITEM 13.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
The information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company’s 2009 Annual Meeting of Shareholders, under the headings “CERTAIN TRANSACTIONS” and “DIRECTOR NOMINATION
PROCESS AND INDEPENDENCE DETERMINATIONS.”
|
ITEM 14.
|
PRINCIPAL ACCOUNTING FEES AND SERVICES
|
The information required by this Item is incorporated herein by reference to the Company’s definitive proxy statement filed with the Securities and Exchange Commission pursuant to Regulation 14A for the Company’s 2009 Annual Meeting of Shareholders, under the heading “AUDIT FEES.”
PART IV
|
ITEM 15.
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
|
|
1.
|
The following Financial Statements in the Company’s 2009 Annual Report to the security holders for the fiscal year ended May 30, 2009, are incorporated by reference in Item 8 hereof:
|
|
|
-
|
Report of Independent Registered Public Accounting Firm
|
|
|
-
|
Balance Sheets – May 30, 2009 and May 31, 2008
|
|
|
-
|
Statements of Income and Changes in Stockholders’ Equity - Fiscal Years Ended May 30, 2009 and May 31, 2008
|
|
|
-
|
Statements of Cash Flows - Fiscal Years Ended May 30, 2009 and May 31, 2008
|
|
|
-
|
Notes to Financial Statements
|
|
|
2.
|
None of the schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are required under the related instructions, or else are inapplicable to the Company, and therefore no such schedules have been filed.
|
|
|
3.
|
The Exhibit Index attached to this report is incorporated by reference into this Item 15(a)(3).
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
AMERICAN CONSUMERS, INC.
|
|
|
|
|
|
|
|
Date: August 28, 2009
|
By:
|
/s/ Michael A. Richardson
|
|
|
|
|
Michael A. Richardson
|
|
|
|
|
Chairman of the Board,
President and Chief
Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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Signature
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Title
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Date
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/s/ Michael A. Richardson
Michael A. Richardson
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Chairman of the Board,
President and Chief
Executive Officer
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August 28, 2009
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/s/ Paul R. Cook
Paul R. Cook
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Executive Vice-
President, Chief
Financial Officer,
Treasurer (Chief
Accounting Officer) and
Director
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August 28, 2009
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/s/ Virgil E. Bishop
Virgil E. Bishop
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Director
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August 28, 2009
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/s/ Danny R. Skates
Danny R. Skates
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Director
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August 28, 2009
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/s/ Thomas L. Richardson
Thomas L. Richardson
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Director
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August 28, 2009
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/s/ Andrew V. Douglas
Andrew V. Douglas
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Director
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August 28, 2009
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EXHIBIT INDEX
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Exhibit 3
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Articles of Incorporation and By-Laws. Incorporated by reference to Exhibit 3 to Form 10-K for the year ended May 29, 1993.
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Lease for the Company’s Ringgold, Georgia location, as amended through the Fifth Amendment thereto dated February 18, 2008. Incorporated by reference to Exhibit 10.1 to Form 10-Q for quarterly period ended March 1, 2008.
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Exhibit 10.2
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Lease Agreement for the Company’s LaFayette, Georgia location. Incorporated by reference to Exhibit 10(f) to Form 10-K for the year ended May 29, 1993.
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Exhibit 10.3
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Lease Agreement for the Company’s Chatsworth, Georgia location. Incorporated by reference to Exhibit 10(g) to Form 10-K for the year ended May 29, 1993.
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First Lease Amendment Agreement for the Company’s Chatsworth, Georgia location, dated March 19, 2003. Incorporated by reference to Exhibit 10.15 to Form 10-K for the year ended May 31, 2003.
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Second Lease Amendment Agreement for the Company’s Chatsworth, Georgia location, dated November 30, 2007. Incorporated by reference to Exhibit 10.28 to Current Report on Form 8-K dated November 30, 2007.
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Lease Agreement for the Company’s Chickamauga, Georgia location. Incorporated by reference to Exhibit 10(h) to Form 10-K for the year ended May 29, 1993.
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Exhibit
10.7
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Letter Agreement, dated August 3, 1994, concerning three 5-year extension options for the Company’s Chickamauga, Georgia location. Incorporated by reference to Exhibit 10 to Form 10-Q for quarterly period ended August 27, 1994.
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Renewal Lease Agreement for the Company’s Stevenson, Alabama location, as further supplemented by Renewal and Extension Agreement, dated April 24, 2009, for such lease. Filed herewith.
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Exhibit 10.9
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Lease Agreement for the Company’s Dayton, Tennessee location. Incorporated by reference to Exhibit 10(j) to Form 10-K for the year ended May 29, 1993.
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All references incorporating exhibits from
documents previously filed by the Company
with the SEC are to SEC File No. 0-5815
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Exhibit 10.10
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Lease Agreement for the Company’s Executive Offices. Incorporated by reference to Exhibit 10.3 to Form 10-Q for the quarterly period ended September 1, 2001.
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Exhibit 10.11
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Lease Agreement for the Company’s Jasper, Tennessee location. Incorporated by reference to Exhibit 10.19 to Form 10-K for the year ended June 2, 2001.
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Exhibit 10.12
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Lease Agreement for the Company’s Tunnel Hill, Georgia location, dated December 20, 2003 between the Company and Tunnel Properties, LLC. Incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarterly period ended February 28, 2004.
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Exhibit 10.13
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Demand Note with Variable Interest Rate between the Company and Michael A. and Diana K. Richardson. Incorporated by reference to Exhibit 10.21 to Form 10-K for the year ended May 29, 2004.
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Exhibit 10.14
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Demand Note with Variable Interest Rate between the Company and Matthew A. Richardson. Incorporated by reference to Exhibit 10.22 to Form 10-K for the year ended May 29, 2004.
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Exhibit 10.15
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Commitment Letter between the Company and Gateway Bank and Trust Company, dated as of March 16, 2007. Incorporated by reference to Exhibit 10.17 to Form 10-K for the year ended June 2, 2007.
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Exhibit 10.16
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Business Loan Agreement and Promissory Note between the Company and Gateway Bank and Trust Company, dated as of May 3, 2007, for $180,000 Term Loan. Incorporated by reference to Exhibit 10.18 to Form 10-K for the year ended June 2, 2007.
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Exhibit 10.17
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Commercial Security Agreement between the Company and Gateway Bank and Trust Company for $180,000 Term Loan, dated as of May 3, 2007. Incorporated by reference to Exhibit 10.19 to Form 10-K for the year ended June 2, 2007.
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All references incorporating exhibits from
documents previously filed by the Company
with the SEC are to SEC File No. 0-5815
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Exhibit 10.18
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Assignment of Deposit Account between the Company and Gateway Bank and Trust Company for $180,000 Term Loan, dated as of May 3, 2007. Incorporated by reference to Exhibit 10.20 to Form 10-K for the year ended June 2, 2007.
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Exhibit 10.19
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Letter Agreement, dated as of May 3, 2007, between the Company and Gateway Bank and Trust Company. Incorporated by reference to Exhibit 10.24 to Form 10-K for the year ended June 2, 2007.
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Exhibit 10.20*
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Narrative Summary of the Company’s Named Executive Officer Base Salaries for Fiscal 2010. Filed herewith.
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Exhibit 10.21*
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Narrative Summary of the Company’s Cash Bonus Plan for Fiscal 2010. Filed herewith.
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Exhibit 10.22*
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Narrative Summary of Director Compensation Arrangements for the Company for Fiscal 2009 and 2010. Filed herewith.
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Exhibit 10.23
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Cash Register Purchase Agreement for the Company’s LaFayette, Georgia location, dated February 5, 2008. Incorporated by reference to Exhibit 10.29 to Current Report on Form 8-K dated February 5, 2008.
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Exhibit 10.24
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Business Loan Agreement and Promissory Note between the Company and Gateway Bank and Trust Company, dated as of April 25, 2008, for $800,000 Revolving Line of Credit. Incorporated by reference to Exhibit 10.30 to Current Report on Form 8-K dated May 5, 2008.
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Exhibit 10.25
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Commercial Security Agreement between the Company and Gateway Bank and Trust Company for $800,000 Revolving Line of Credit, dated as of April 25, 2008. Incorporated by reference to Exhibit 10.31 to Current Report on Form 8-K dated May 5, 2008.
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Exhibit 10.26
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Assignment of Deposit Account between the Company and Gateway Bank and Trust Company for $800,000 Revolving Line of Credit, dated as of April 25, 2008. Incorporated by reference to Exhibit 10.32 to Current Report on Form 8-K dated May 5, 2008.
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Exhibit 10.27
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Letter Agreement, dated as of May 8, 2008, between the Company and Gateway Bank and Trust Company. Incorporated by reference to Exhibit 10.33 to Current Report on Form 8-K dated May 5, 2008.
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All references incorporating exhibits from
documents previously filed by the Company
with the SEC are to SEC File No. 0-5815
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Exhibit 10.28
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Cash Register Purchase Agreement for the Company’s Tunnel Hill, Georgia location, dated May 22, 2008. Incorporated by reference to Exhibit 10.34 to Current Report on Form 8-K dated May 22, 2008.
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Exhibit 10.29
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Cash Register Purchase Agreement for the Company’s Chickamauga, Georgia location, dated July 18, 2008. Incorporated by reference to Exhibit 10.35 to Current Report on Form 8-K dated July 18, 2008.
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Exhibit 10.30
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Cash Register Purchase Agreement for the Company’s Stevenson, Alabama location, dated July 18, 2008. Incorporated by reference to Exhibit 10.36 to Current Report on Form 8-K dated July 18, 2008.
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Exhibit 10.31
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Terms Sheet Letter between the Company and Gateway Bank & Trust Company, dated as of February 7, 2008, regarding commitment under which first borrowing was initiated July 25, 2008. Incorporated by reference to Exhibit 10.37 to Current Report on Form 8-K dated July 25, 2008.
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Exhibit 10.32
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Two Promissory Notes for $56,000 each between the Company and Gateway Bank & Trust Company, dated as of July 25, 2008. Incorporated by reference to Exhibit 10.38 to Current Report on Form 8-K dated July 25, 2008.
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Exhibit 10.33
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Commercial Security Agreements between the Company and Gateway Bank & Trust Company related to Two $56,000 Promissory Notes dated as of July 25, 2008. Incorporated by reference to Exhibit 10.39 to Current Report on Form 8-K dated July 25, 2008.
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Exhibit 10.34
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Assignments of Deposit Account between the Company and Gateway Bank & Trust Company related to Two $56,000 Promissory Notes dated as of July 25, 2008. Incorporated by reference to Exhibit 10.40 to Current Report on Form 8-K dated July 25, 2008.
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Exhibit 10.35
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Cash Register Purchase Agreement for the Company’s Dayton, Tennessee location, dated September 2, 2008. Incorporated by reference to Exhibit 10.41 to Current Report on Form 8-K dated September 2, 2008.
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All references incorporating exhibits from
documents previously filed by the Company
with the SEC are to SEC File No. 0-5815
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Exhibit 10.36
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Promissory Note for $56,000 between the Company and Gateway Bank & Trust Company, dated as of September 2, 2008. Incorporated by reference to Exhibit 10.42 to Current Report on Form 8-K dated September 2, 2008.
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Exhibit 10.37
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Commercial Security Agreement between the Company and Gateway Bank & Trust Company related to $56,000 Promissory Note dated as of September 2, 2008. Incorporated by reference to Exhibit 10.43 to Current Report on Form 8-K dated September 2, 2008.
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Exhibit 10.38
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Assignment of Deposit Account between the Company and Gateway Bank & Trust Company related to $56,000 Promissory Note dated as of September 2, 2008. Incorporated by reference to Exhibit 10.44 to Current Report on Form 8-K dated September 2, 2008.
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Exhibit 10.39
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Cash Register Purchase Agreement for the Company’s Chatsworth, Georgia location, dated February 20, 2009. Incorporated by reference to Exhibit 10.45 to Current Report on Form 8-K dated February 20, 2009.
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Exhibit 10.40
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Cash Register Purchase Agreement for the Company’s Jasper, Tennessee location, dated March 5, 2009. Incorporated by reference to Exhibit 10.46 to Current Report on Form 8-K dated March 5, 2009.
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Exhibit 10.41
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Cash Register Purchase Agreement for the Company’s Ringgold, Georgia location, dated March 5, 2009. Incorporated by reference to Exhibit 10.47 to Current Report on Form 8-K dated March 5, 2009.
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Exhibit 10.42
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Promissory Note for $60,470 between the Company and Gateway Bank & Trust Company, dated as of February 24, 2009. Incorporated by reference to Exhibit 10.48 to Form 10-Q for the quarter ended February 28, 2009.
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Exhibit 10.43
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Commercial Security Agreement between the Company and Gateway Bank & Trust Company related to $60,470 Promissory Note dated as of February 24, 2009. Incorporated by reference to Exhibit 10.49 to Form 10-Q for the quarter ended February 28, 2009.
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All references incorporating exhibits from
documents previously filed by the Company
with the SEC are to SEC File No. 0-5815
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Exhibit 10.44
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Assignment of Deposit Account between the Company and Gateway Bank & Trust Company related to $60,470 Promissory Note dated as of February 24, 2009. Incorporated by reference to Exhibit 10.50 to Form 10-Q for the quarter ended February 28, 2009.
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Exhibit 10.45
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Promissory Note for $60,470 between the Company and Gateway Bank & Trust Company, dated as of March 5, 2009. Incorporated by reference to Exhibit 10.51 to Form 10-Q for the quarter ended February 28, 2009.
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Exhibit 10.46
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Commercial Security Agreement between the Company and Gateway Bank & Trust Company related to $60,470 Promissory Note dated as of March 5, 2009. Incorporated by reference to Exhibit 10.52 to Form 10-Q for the quarter ended February 28, 2009.
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Exhibit 10.47
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Assignment of Deposit Account between the Company and Gateway Bank & Trust Company related to $60,470 Promissory Note dated as of March 5, 2009. Incorporated by reference to Exhibit 10.53 to Form 10-Q for the quarter ended February 28, 2009.
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Exhibit 10.48
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Promissory Note for $55,470 between the Company and Gateway Bank & Trust Company, dated as of March 5, 2009. Incorporated by reference to Exhibit 10.54 to Form 10-Q for the quarter ended February 28, 2009.
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Exhibit 10.49
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Commercial Security Agreement between the Company and Gateway Bank & Trust Company related to $55,470 Promissory Note dated as of March 5, 2009. Incorporated by reference to Exhibit 10.55 to Form 10-Q for the quarter ended February 28, 2009.
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Exhibit 10.50
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Assignment of Deposit Account between the Company and Gateway Bank & Trust Company related to $55,470 Promissory Note dated as of March 5, 2009. Incorporated by reference to Exhibit 10.56 to Form 10-Q for the quarter ended February 28, 2009.
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Exhibit 10.51
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Promissory Note between the Company and Gateway Bank and Trust Company, dated as of April 20, 2009, for renewal of $800,000 Revolving Line of Credit. Incorporated by reference to Exhibit 10.57 to Current Report on Form 8-K dated April 20, 2009.
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All references incorporating exhibits from
documents previously filed by the Company
with the SEC are to SEC File No. 0-5815
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Exhibit 10.52
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Commercial Security Agreement between the Company and Gateway Bank & Trust Company for renewal of $800,000 Revolving Line of Credit, dated as of April 20, 2009. Incorporated by reference to Exhibit 10.58 to Current Report on Form 8-K dated April 20, 2009.
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Exhibit 10.53
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Assignment of Deposit Account between the Company and Gateway Bank & Trust Company for renewal of $800,000 Revolving Line of Credit, dated as of April 20, 2009. Incorporated by reference to Exhibit 10.59 to Current Report on Form 8-K dated April 20, 2009.
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Exhibit 10.54
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Letter Agreement, dated as of April 24, 2009, between the Company and Gateway Bank and Trust Company, related to Promissory Note dated April 20, 2009. Incorporated by reference to Exhibit 10.60 to Current Report on Form 8-K dated April 20, 2009.
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Exhibit 13
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Information Incorporated by Reference from Annual Report to Shareholders for the Fiscal Year ended May 30, 2009. Filed herewith.
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Exhibit 14
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Code of Business Conduct and Ethics. Incorporated by reference to Exhibit 14 to Form 10-K for the year ended May 29, 2004.
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Exhibit 23
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Consent of Hazlett, Lewis & Bieter, PLLC. Filed herewith.
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Exhibit 31.1
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C.E.O. Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a). Filed herewith.
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Exhibit 31.2
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C.F.O. Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a). Filed herewith.
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Exhibit 32.1
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C.E.O. Certification pursuant to Exchange Act Rules 13a-14(b) and 15d-14(b). Filed herewith.
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Exhibit 32.2
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C.F.O. Certification pursuant to Exchange Act Rules 13a-14(b) and 15d-14(b). Filed herewith.
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* Indicates a management contract or compensatory plan or arrangement.
All references incorporating exhibits from
documents previously filed by the Company
with the SEC are to SEC File No. 0-5815
(USOTC:ANCSQ)
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