10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2018

OR

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________to _________

Commission File Number 1-15589

(Exact name of registrant as specified in its charter)

Delaware	47-0702918
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)
7405 Irvington Road, Omaha NE	68122
(Address of principal executive offices)	(Zip code)

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

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

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

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

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

Smaller reporting company ☒Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The Registrant had 615,988 shares of its $.01 par value common stock outstanding as of  July 16, 2018.

Form 10-Q

3rd Quarter

INDEX

	PAGE
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at June 30, 2018 (unaudited) and September 30, 2017	3
Condensed consolidated unaudited statements of operations for the three and nine months ended June 30, 2018 and 2017	4
Condensed consolidated unaudited statements of cash flows for the nine months ended June 30, 2018 and 2017	5
Notes to condensed consolidated unaudited financial statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	22
Item 4. Controls and Procedures	22
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	23
Item 1A. Risk Factors	23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3. Defaults Upon Senior Securities	23
Item 4. Mine Safety Disclosures	23
Item 5. Other Information	24
Item 6. Exhibits	24

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PART I — FINANCIAL INFORMATION

Item 1.      Financial Statements  

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

June 30, 2018 and September 30, 2017

	June		September
	2018		2017
	(Unaudited)
ASSETS
Current assets:
Cash	$	275,320	$	523,065
Accounts receivable, less allowance for doubtful accounts of $0.8 million at both June 2018 and September 2017		33,943,794		30,690,403
Inventories, net		51,009,431		72,909,996
Prepaid and other current assets		10,062,688		4,218,811
Total current assets		95,291,233		108,342,275
Property and equipment, net		13,715,318		13,307,986
Goodwill		6,349,827		6,349,827
Other intangible assets, net		3,430,561		3,494,311
Other assets		315,416		310,488
Total assets	$	119,102,355	$	131,804,887
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	19,122,752	$	17,631,552
Accrued expenses		8,127,663		7,553,089
Accrued wages, salaries and bonuses		2,669,243		3,477,966
Income taxes payable		555,820		544,069
Current maturities of long-term debt		382,209		373,645
Total current liabilities		30,857,687		29,580,321
Credit facility		20,485,436		29,037,182
Deferred income tax liability, net		1,663,832		2,336,263
Long-term debt, less current maturities		2,360,276		2,648,179
Other long-term liabilities		37,067		34,100
Shareholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized		—		—
Common stock, $.01 par value, 3,000,000 shares authorized, 615,988 shares outstanding at June 2018 and 678,006 shares outstanding at September 2017		8,441		8,314
Additional paid-in capital		22,042,155		20,825,919
Retained earnings		62,953,155		60,935,911
Treasury stock at cost		(21,305,694)		(13,601,302)
Total shareholders’ equity		63,698,057		68,168,842
Total liabilities and shareholders' equity	$	119,102,355	$	131,804,887

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

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three and nine months ended June 30, 2018 and 2017

	For the three months ended June				For the nine months ended June
	2018		2017		2018		2017
Sales (including excise taxes of $96.2 million and $95.1 million, and $267.9 million and $271.8 million, respectively)	$	349,043,200	$	332,842,200	$	959,763,695	$	936,994,299
Cost of sales		329,930,190		314,818,453		905,392,747		883,180,664
Gross profit		19,113,010		18,023,747		54,370,948		53,813,635
Selling, general and administrative expenses		17,008,355		16,587,055		48,981,383		48,105,878
Depreciation and amortization		614,710		474,890		1,683,618		1,531,292
		17,623,065		17,061,945		50,665,001		49,637,170
Operating income		1,489,945		961,802		3,705,947		4,176,465
Other expense (income):
Interest expense		261,510		180,266		777,065		545,719
Other (income), net		(18,615)		(16,513)		(51,158)		(37,250)
		242,895		163,753		725,907		508,469
Income from operations before income tax expense		1,247,050		798,049		2,980,040		3,667,996
Income tax expense		462,000		413,000		376,000		1,748,000
Net income available to common shareholders	$	785,050	$	385,049	$	2,604,040	$	1,919,996
Basic earnings per share available to common shareholders	$	1.21	$	0.57	$	3.85	$	2.82
Diluted earnings per share available to common shareholders	$	1.18	$	0.56	$	3.79	$	2.78
Basic weighted average shares outstanding		651,170		678,938		676,103		679,858
Diluted weighted average shares outstanding		664,688		691,701		686,576		690,840
Dividends declared and paid per common share	$	0.18	$	0.18	$	0.82	$	0.82

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

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the nine months ended June 30, 2018 and 2017

		June		June
		2018		2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,604,040	$	1,919,996
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Depreciation		1,619,868		1,332,542
Amortization		63,750		198,750
Gain on sale of property and equipment		(5,300)		(30,854)
Equity-based compensation		957,656		1,193,005
Deferred income taxes		(672,431)		120,367
Provision for losses on doubtful accounts		23,000		42,000
Inventory allowance		(267,389)		4,852
Other		2,967		2,296
Changes in assets and liabilities:
Accounts receivable		(3,276,391)		(1,044,423)
Inventories		22,167,954		(701,279)
Prepaid and other current assets		(5,843,877)		771,870
Other assets		(4,928)		(38,358)
Accounts payable		1,584,358		322,325
Accrued expenses and accrued wages, salaries and bonuses		125,758		(659,813)
Income taxes payable		11,751		7,059
Net cash flows from operating activities		19,090,786		3,440,335
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(2,120,358)		(1,761,431)
Proceeds from sales of property and equipment		5,300		42,655
Net cash flows from investing activities		(2,115,058)		(1,718,776)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility		1,043,415,401		950,104,143
Repayments under revolving credit facility		(1,051,967,147)		(950,313,271)
Principal payments on long-term debt		(279,339)		(271,031)
Repurchase of common stock		(7,704,392)		(1,038,060)
Dividends on common stock		(586,796)		(579,848)
Withholdings on the exercise of equity-based awards		(101,200)		(107,082)
Net cash flows from financing activities		(17,223,473)		(2,205,149)
Net change in cash		(247,745)		(483,590)
Cash, beginning of period		523,065		605,380
Cash, end of period	$	275,320	$	121,790
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	764,557	$	545,719
Cash paid during the period for income taxes		1,036,680		1,620,574
Supplemental disclosure of non-cash information:
Equipment acquisitions classified in accounts payable		8,203		9,881
Issuance of common stock in connection with the vesting and exercise of equity-based awards		1,183,091		1,262,763

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

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AMCON Distributing Company and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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

· Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We primarily operate in the Central, Rocky Mountain, and Southern regions of the United States.

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

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products. Convenience stores represent our largest customer category. In November 2017, Convenience Store News ranked us as the seventh (7th) largest convenience store distributor in the United States based on annual sales.

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

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross dock facilities, include approximately 641,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

RETAIL SEGMENT

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

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

Our Retail Segment operates fourteen retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. These stores carry over 32,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates seven stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of seven locations in Arkansas, Missouri, Nebraska, and Oklahoma.

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2017, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended June 30, 2018 and June 30, 2017 have been referred to throughout this quarterly report as Q3 2018 and Q3 2017, respectively. The fiscal balance sheet dates as of June 30, 2018 and September 30, 2017 have been referred to as June 2018 and September 2017, respectively.

ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers." This ASU and related amendments supersedes the revenue recognition requirements in "Accounting Standard Codification 605 - Revenue Recognition" and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning after December 15, 2017 (Fiscal 2019 for the Company), and for interim periods within that fiscal year. The Company is in the data aggregation and quantification phase of its review of this new standard, and is working to assess the impact and our approach towards adopting this ASU.

In February 2016, FASB issued ASU No. 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (Fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements including the potential capitalization of all operating leases on the Company’s balance sheet.

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

In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.  ASU 2017-04 requires prospective application and is effective for annual periods beginning after December 15, 2019 (Fiscal 2021 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

2. INVENTORIES

Inventories consisted of finished goods and are stated at the lower of cost (determined on a FIFO basis for our wholesale segment and using the retail method for our retail segment) or net realizable value. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $0.5 million at June 2018 and $0.8 million at September 2017. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

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3. GOODWILL AND OTHER INTANGIBLE ASSETS

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

	June		September
	2018		2017
Wholesale Segment	$	4,436,950	$	4,436,950
Retail Segment		1,912,877		1,912,877
	$	6,349,827	$	6,349,827

Other intangible assets of the Company consisted of the following:

	June		September
	2018		2017
Trademarks and tradenames (Retail Segment)	$	3,373,269	$	3,373,269
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $2.1 million and $2.0 million at June 2018 and September 2017, respectively)		57,292		121,042
	$	3,430,561	$	3,494,311

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At June 2018, identifiable intangible assets considered to have finite lives were represented by customer relationships which are being amortized over eight years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted.

At June 2018, goodwill allocated to our wholesale and retail reporting units totaled $4.4 million and $1.9 million, respectively. In conjunction with the Company’s annual impairment testing for the fiscal year ended September 30, 2017, the Company determined that the estimated fair value of these reporting units exceeded their carrying value at September 30, 2017. There has been no material changes to this assessment by the Company through June 2018.

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at June 2018:

	June
	2018
Fiscal 2018  (1)	$	15,625
Fiscal 2019		41,667
	$	57,292

(1) Represents amortization for the remaining three months of Fiscal 2018.

4. DIVIDENDS

The Company paid cash dividends on its common stock during each of the three and nine month periods ended June 2017 and June 2018 of $0.1 million and $0.6 million, respectively. 

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5. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing net income less preferred stock dividend requirements by the weighted average common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations less preferred stock dividend requirements (when anti-dilutive) by the sum of the weighted average common shares outstanding and the weighted average dilutive options.

	For the three months ended June
	2018				2017
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		651,170		651,170		678,938		678,938
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		13,518		—		12,763
Weighted average number of shares outstanding		651,170		664,688		678,938		691,701
Net income available to common shareholders	$	785,050	$	785,050	$	385,049	$	385,049
Net earnings per share available to common shareholders	$	1.21	$	1.18	$	0.57	$	0.56

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

	For the nine months ended June
	2018				2017
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		676,103		676,103		679,858		679,858
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		10,473		—		10,982
Weighted average number of shares outstanding		676,103		686,576		679,858		690,840
Net income available to common shareholders	$	2,604,040	$	2,604,040	$	1,919,996	$	1,919,996
Net earnings per share available to common shareholders	$	3.85	$	3.79	$	2.82	$	2.78

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

6. DEBT

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

The Facility included the following significant terms at June 2018:

· A November 2022 maturity date without a penalty for prepayment.

· $70.0 million revolving credit limit.

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

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

· Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement.

· The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company.

· Lending limits subject to accounts receivable and inventory limitations.

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

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

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

· Provides that the Company may pay up to $2.0 million of dividends on its common stock provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after the dividend.       

Cross Default and Co-Terminus Provisions

The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause it to be considered in default if the loans where BMO is a lender, including the revolving credit facility, is in default. There were no such cross defaults at June 2018. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Other

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

7. INCOME TAXES

The Company’s results of operations for the nine months ended June 2018 included the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Reform”) which was signed into law on December 22, 2017. Among numerous provisions included in the new law was a reduction in the corporate federal income tax rate from 35% to 21% which resulted in a $0.9 million income tax benefit to the Company as reflected in our Statement of Operations for the nine months ended June 2018. This tax benefit primarily resulted from applying the new lower federal income tax rates to the Company’s net long term deferred tax liabilities recorded on its Consolidated Balance Sheet. Because of the effective date of the new tax law in relation to the Company’s fiscal year (October 1st - September 30th), the Company’s fiscal 2018 results from operations will be taxed at a lower blended federal rate of approximately 24% for fiscal 2018, which reflects a portion of fiscal 2018 at the old federal tax rate and a portion of fiscal 2018 at the new federal tax rate. The final impact of Tax Reform may differ due to and among other things, changes in interpretations, assumptions made by the Company, the issuance of additional guidance, and actions Company may take as a result of Tax Reform.

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8. BUSINESS SEGMENTS

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

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED JUNE 2018
External revenues:
Cigarettes	$	248,357,752	$	—	$	—	$	248,357,752
Tobacco		44,598,270		—		—		44,598,270
Confectionery		21,437,432		—		—		21,437,432
Health food		—		6,246,691		—		6,246,691
Foodservice & other		28,403,055		—		—		28,403,055
Total external revenue		342,796,509		6,246,691		—		349,043,200
Depreciation		284,609		314,476		—		599,085
Amortization		15,625		—		—		15,625
Operating income (loss)		4,245,654		(1,078,191)		(1,677,518)		1,489,945
Interest expense		22,585		—		238,925		261,510
Income (loss) from operations before taxes		4,239,525		(1,076,032)		(1,916,443)		1,247,050
Total assets		104,905,403		13,994,013		202,939		119,102,355
Capital expenditures		468,995		284,596		—		753,591
THREE MONTHS ENDED JUNE 2017
External revenue:
Cigarettes	$	236,433,449	$	—	$	—	$	236,433,449
Tobacco		41,478,941		—		—		41,478,941
Confectionery		22,024,887		—		—		22,024,887
Health food		—		6,376,725		—		6,376,725
Foodservice & other		26,528,198		—		—		26,528,198
Total external revenue		326,465,475		6,376,725		—		332,842,200
Depreciation		292,294		116,345		—		408,639
Amortization		66,251		—		—		66,251
Operating income (loss)		3,096,128		(615,276)		(1,519,050)		961,802
Interest expense		25,279		—		154,987		180,266
Income (loss) from operations before taxes		3,082,982		(610,896)		(1,674,037)		798,049
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		109,648		813,888		—		923,536

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	Wholesale		Retail
	Segment		Segment		Other		Consolidated
NINE MONTHS ENDED  JUNE 2018
External revenue:
Cigarettes	$	679,812,016	$	—	$	—	$	679,812,016
Tobacco		125,776,543		—		—		125,776,543
Confectionery		57,210,816		—		—		57,210,816
Health food		—		19,349,676		—		19,349,676
Foodservice & other		77,614,644		—		—		77,614,644
Total external revenue		940,414,019		19,349,676		—		959,763,695
Depreciation		919,236		700,632		—		1,619,868
Amortization		63,750		—		—		63,750
Operating income (loss)		9,966,031		(1,744,717)		(4,515,367)		3,705,947
Interest expense		69,107		—		707,958		777,065
Income (loss) from operations before taxes		9,938,081		(1,737,416)		(5,220,625)		2,980,040
Total assets		104,905,403		13,994,013		202,939		119,102,355
Capital expenditures		1,137,117		983,241		—		2,120,358
NINE MONTHS ENDED  JUNE 2017
External revenue:
Cigarettes	$	667,849,390	$	—	$	—	$	667,849,390
Tobacco		117,535,875		—		—		117,535,875
Confectionery		58,606,239		—		—		58,606,239
Health food		—		19,334,087		—		19,334,087
Foodservice & other		73,668,708		—		—		73,668,708
Total external revenue		917,660,212		19,334,087		—		936,994,299
Depreciation		981,232		351,310		—		1,332,542
Amortization		198,750		—		—		198,750
Operating income (loss)		9,802,019		(1,122,951)		(4,502,603)		4,176,465
Interest expense		77,100		—		468,619		545,719
Income (loss) from operations before taxes		9,749,503		(1,110,284)		(4,971,223)		3,667,996
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		429,892		1,331,539		—		1,761,431

9. COMMON STOCK REPURCHASE

The Company repurchased a total of 68,016 and 74,669 common shares during the three and nine month periods ended June 30, 2018, respectively, for cash totaling approximately $7.1 million and $7.7 million, respectively, and 11,104 common shares during the nine month period ended June 30, 2017 for cash totaling approximately $1.0 million. The Company made no share repurchases during Q3 2017. All repurchased shares were recorded in treasury stock at cost.

10. SUBSEQUENT EVENT

In July 2018, the Company’s wholly owned subsidiary, The Healthy Edge, Inc., through its newly formed wholly owned subsidiary, EOM Acquisition Corp, closed a transaction to acquire and operate eight leased retail health food stores located in Florida. In this transaction, EOM Acquisition Corp. will pay approximately $0.7 million in four installments through July 2019.  The transaction will be funded through the Company’s existing credit facility. The acquisition expands the Company’s strategic footprint in the Florida market and enhances its ability to service customers in that region. 

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

FORWARD-LOOKING STATEMENTS

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

You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:

· increasing competition in our wholesale and retail health food businesses and any associated impact on the carrying value of intangible assets within those businesses,

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

· risks associated with opening or acquiring new retail stores,

· Challenges experienced in relation to the Company’s recent acquisition of eight retail health food stores in Florida, including but not limited to lease renewals, employee integration, product acquisition and distribution, and customer retention during and after the full integration of the eight stores into the Company’s Retail Health Food Segment. 

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

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

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

· higher commodity prices which could impact food ingredient costs for many of the products we sell,

· regulation of cigarette, tobacco, and e-cigarette/vaping products by the United States Food and Drug Administration (“FDA”), in addition to existing state and federal regulations by other agencies,

· potential bans or restrictions imposed by the FDA, states, or local municipalities on the manufacture, distribution, and sale of certain cigarette, tobacco, and e-cigarette/vaping products,

· increases in manufacturer prices,

· increases in inventory carrying costs and customer credit risk,

· changes in promotional and incentive programs offered by manufacturers,

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

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

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

· increasing health care costs for consumers and the potential impact on discretionary consumer spending,

· the ongoing trend of higher health care costs in our business which has impacted profitability,

· decreased availability of capital resources,

· domestic regulatory and legislative risks,

· poor weather conditions,

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

· natural disasters and domestic or political unrest,

· the impact on the Company’s financial statements as it relates to the accounting treatment and disclosure requirements under the new tax law (Tax Cut and Jobs Act) and the issuance of any new interpretive guidance,

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

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

CRITICAL ACCOUNTING ESTIMATES

Certain accounting estimates used in the preparation of the Company’s financial statements require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2017, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during the nine months ended June 2018.

THIRD FISCAL QUARTER 2018 (Q3 2018)

The following discussion and analysis includes the Company’s results of operations for the three and nine months ended June 2018 and June 2017:

Wholesale Segment

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products. Convenience stores represent our largest customer category. In November 2017, Convenience Store News ranked us as the seventh (7th) largest convenience store distributor in the United States based on annual sales.

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

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross dock facilities, include approximately 641,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

Retail Segment

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

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

Our Retail Segment operates fourteen retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. These stores carry over 32,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates seven stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of seven locations in Arkansas, Missouri, Nebraska, and Oklahoma.

As previously disclosed, the Company has implemented a multi-year strategic plan to reposition its Retail Segment. In conjunction with this competitive repositioning plan, the Company opened one new retail health food store in its Florida market during its first fiscal quarter of fiscal 2018 (Q1 2018) and closed two non-performing stores in its Midwestern market during Q3 2018.      

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RESULTS OF OPERATIONS – THREE MONTHS ENDED JUNE 2018:

	For the three months ended June
	2018			2017			Incr (Decr)		% Change
CONSOLIDATED:
Sales(1)	$	349,043,200		$	332,842,200		$	16,201,000	4.9
Cost of sales		329,930,190			314,818,453			15,111,737	4.8
Gross profit		19,113,010			18,023,747			1,089,263	6.0
Gross profit percentage		5.5	%		5.4	%
Operating expense	$	17,623,065		$	17,061,945		$	561,120	3.3
Operating income		1,489,945			961,802			528,143	54.9
Interest expense		261,510			180,266			81,244	45.1
Income tax expense (benefit)		462,000			413,000			49,000	11.9
Net income		785,050			385,049			400,001	103.9
BUSINESS SEGMENTS:
Wholesale
Sales	$	342,796,509		$	326,465,475		$	16,331,034	5.0
Gross profit		16,744,182			15,412,958			1,331,224	8.6
Gross profit percentage		4.9	%		4.7	%
Retail
Sales	$	6,246,691		$	6,376,725		$	(130,034)	(2.0)
Gross profit		2,368,828			2,610,789			(241,961)	(9.3)
Gross profit percentage		37.9	%		40.9	%

(1) Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $6.0 million in Q3 2018 and $6.1 million in Q3 2017.

SALES

Changes in sales are driven by two primary components:

(i) changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and

(ii) changes in the volume of products sold to our customers, either due to a change in purchasing patterns resulting from consumer preferences or the fluctuation in the comparable number of business days in our reporting period.

SALES – Q3 2018 vs. Q3 2017

Sales in our Wholesale Segment increased $16.3 million during Q3 2018 as compared to Q3 2017. Significant items impacting sales during Q3 2018 included a $8.3 million increase in sales related to price increases implemented by cigarette manufacturers, a $4.4 million increase in sales related to higher sales volumes in our tobacco, beverage, snacks, candy, grocery, health & beauty products, automotive, foodservice, and store supplies categories (“Other Products”) and a $3.6 million increase in sales related to the volume and mix of cigarette cartons sold.

Sales in our Retail Segment decreased $0.1 million for Q3 2018 as compared to Q3 2017. Significant items impacting sales in our Retail Segment for the three months ended June 2018 included a $0.4 million increase in sales related to the opening of a new store in our Florida market, offset by a $0.5 million decrease in sales related to the closure of two non-performing stores in our Midwest market and lower sales volumes in our existing stores which have experienced increased competition.

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GROSS PROFIT – Q3 2018 vs. Q3 2017

Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.

Gross profit in our Wholesale Segment increased $1.3 million during Q3 2018 as compared to Q3 2017. Significant items impacting gross profit during the period included a $0.8 million benefit related to cigarette manufacturer price increases, a $0.4 million increase in gross profit related to higher sales volumes in our Other Product category, and a $0.1 million increase in gross profit related to the volume and mix of cigarette cartons sold during the current period.

Q3 2018 gross profit in our Retail Segment decreased $0.2 million as compared to Q3 2017. Significant items impacting our Q3 2018 Retail Segment gross profit included a $0.2 million increase in gross profit related to the opening of our new Florida market store, offset by a $0.4 million decrease in gross profit related to the closure of two non-performing stores in our Midwest market and lower sales volumes and gross profits in our existing stores.

OPERATING EXPENSE – Q3 2018 vs. Q3 2017

Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, fuel costs, and insurance costs. Our Q3 2018 operating expenses increased $0.6 million as compared to Q3 2017. Significant items impacting operating expenses during the current period included a $0.4 million increase in employee compensation and benefit costs, a $0.4 million increase in insurance and other costs, a $0.2 million increase in fuel costs, and a $0.2 million increase in expenses in our Retail Segment. These increases were partially offset by a $0.6 million decrease in health insurance costs.

INCOME TAX EXPENSE – Q3 2018 vs. Q3 2017

Significant items impacting the Company’s Q3 2018 income tax expense included the impact of nondeductible compensation expense, partially offset by a decrease in the Company’s federal income tax rate related to the enactment of the Tax Cuts and Jobs Act (“Tax Reform”) which was signed into law on December 22, 2017 and which reduced the corporate federal income tax rate from 35% to 21%.

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RESULTS OF OPERATIONS – NINE MONTHS ENDED JUNE 2018:

	For the nine months ended June
	2018			2017			Incr (Decr)		% Change
CONSOLIDATED:
Sales(1)	$	959,763,695		$	936,994,299		$	22,769,396	2.4
Cost of sales		905,392,747			883,180,664			22,212,083	2.5
Gross profit		54,370,948			53,813,635			557,313	1.0
Gross profit percentage		5.7	%		5.7	%
Operating expenses		50,665,001			49,637,170			1,027,831	2.1
Operating income		3,705,947			4,176,465			(470,518)	(11.3)
Interest expense		777,065			545,719			231,346	42.4
Income tax expense (benefit)		376,000			1,748,000			(1,372,000)	(78.5)
Net income		2,604,040			1,919,996			684,044	35.6
BUSINESS SEGMENTS:
Wholesale
Sales	$	940,414,019		$	917,660,212		$	22,753,807	2.5
Gross profit		46,416,619			45,573,362			843,257	1.9
Gross profit percentage		4.9	%		5.0	%
Retail
Sales	$	19,349,676		$	19,334,087		$	15,589	0.1
Gross profit		7,954,329			8,240,273			(285,944)	(3.5)
Gross profit percentage		41.1	%		42.6	%

(1) Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $17.7 million for the nine month period ended June 2018 and $17.4 million for the nine month period ended June 2017.

SALES — Nine months Ended June 2018

Sales in our Wholesale Segment increased $22.8 million for the nine months ended June 2018 as compared to the same prior year period. Significant items impacting sales during the period included a $24.0 million increase in sales related to price increases implemented by cigarette manufacturers and a $10.8 million increase in sales in our Other Products categories. These increases were partially offset by a $12.0 million decrease in sales related to the volume and mix of cigarette cartons sold.

Sales in our Retail Segment for the nine months ended June 2018 were even as compared to the same prior year period. Significant items impacting sales during the current period included a $1.3 million increase in sales related to the opening of a new store in our Florida market which was offset by a $1.3 million decrease in sales related to the closure of two non-performing stores in our Midwest market and lower sales volumes in our existing stores.

GROSS PROFIT — Nine months Ended June 2018

Our gross profit does not include fulfillment costs and costs related to the distribution network which are included in selling, general and administrative costs, and may not be comparable to those of other entities. Some entities may classify such costs as a component of cost of sales. Cost of sales, a component used in determining gross profit, for the wholesale and retail segments includes the cost of products purchased from manufacturers, less incentives we receive which are netted against such costs.

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Gross profit in our Wholesale Segment for the nine month period ending June 2018 increased $0.8 million as compared to the same prior year period, primarily related to higher sales in our Other Products categories. Gross profit in our Retail Segment decreased $0.3 million for the nine month period ended June 2018 as compared to the same prior year period. Significant items impacting gross profit during the current period included a $0.7 million increase in gross profit related to the opening of our new Florida market store, offset by a $1.0 million decrease in gross profit related to the closure of two non-performing stores in our Midwest market and lower sales volumes and gross profits in our existing stores.

OPERATING EXPENSE — Nine months Ended June 2018

Operating expense includes selling, general and administrative expenses and depreciation and amortization. Selling, general, and administrative expenses include costs related to our sales, warehouse, delivery and administrative departments for all segments. Specifically, purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders are all classified as selling, general and administrative expenses. Our most significant expenses relate to employee costs, facility and equipment leases, transportation costs, fuel costs, and insurance costs. Operating expenses increased $1.0 million during the nine months ended June 2018 as compared to the same prior year period. Significant items impacting operating expenses during the nine months ended June 2018 included a $0.7 million increase in employee compensation and benefit costs, a $0.6 million increase in fuel costs, a $0.3 million increase in insurance and other costs, and a $0.3 million increase in expenses in our Retail Segment. These increases were partially offset by a $0.9 million decrease in health insurance costs.

INCOME TAX EXPENSE – Nine months Ended June 2018

Significant items impacting the Company’s income tax expense for the nine months ended June 2018 included the impact of the Tax Cuts and Jobs Act (“Tax Reform”) which was signed into law on December 22, 2017 and reduced the corporate federal income tax rate from 35% to 21% resulting in a $0.9 million income tax benefit to the Company as reflected in our Statement of Operations for the nine months ended June 2018. This decrease in income tax expense was partially offset by the impact of nondeductible compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The Company’s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy‑in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later periods. Additionally, during the warm weather months which is our peak time of operations, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.

In general, the Company finances its operations through a credit agreement (the “Facility”) with Bank of America acting as the senior agent and with BMO Harris Bank participating in the loan syndication. The Facility included the following significant terms at June 2018:

· A November 2022 maturity date without a penalty for prepayment.

· $70.0 million revolving credit limit.

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

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

· Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement.

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· The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company.

· Lending limits subject to accounts receivable and inventory limitations.

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

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

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

· Provides that the Company may pay up to $2.0 million of dividends on its common stock provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after the dividend.

The amount available for use on the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at June 2018 was $69.6 million, of which $20.5 million was outstanding, leaving $49.1 million available.

At June 2018, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was 3.98% at June 2018. For the nine months ended June 2018, our peak borrowings under the Facility were $48.9 million, and our average borrowings and average availability under the Facility were $23.5 million and $45.1 million, respectively.

Cross Default and Co-Terminus Provisions

The Company’s owned real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, is in default. There were no such cross defaults at June 2018. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Dividends Payments

The Company paid cash dividends on its common stock during each of the three and nine month periods ended June 2017 and June 2018 of $0.1 million and $0.6 million, respectively.

Contractual Obligations

There have been no significant changes to the Company’s contractual obligations as set forth in the Company’s annual report on Form 10-K for the fiscal period ended September 30, 2017.

Other

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

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Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Liquidity Risk

The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.

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

The Company believes its liquidity position going forward will be adequate to sustain operations. However, a precipitous change in operating environment could materially impact the Company’s future revenue stream as well as its ability to collect on customer accounts receivable or secure bank credit.

Item 3.      Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.      Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

As required by Rules 13a-15(e) and 15d-15(e) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of June 2018 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.

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The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control that occurred during the fiscal quarter ended June 30, 2018, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.      Legal Proceedings

None.

Item 1A.      Risk Factors

There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2017.

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

The following table summarizes the purchases made by or on behalf of our Company or certain affiliated purchasers of shares of our common stock during the quarterly period ended June 2018:

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs*
April 1 - 30, 2018	45	$	90.36	45	49,955
May 1 - 31, 2018	67,677	$	103.87	67,677	7,323
June 1 - 30, 2018	294	$	86.71	294	7,029
Total	68,016	$	103.79	68,016	7,029

*In April 2018, the Company’s Board of Directors (“Board”) replenished the existing share repurchase authority to provide for the purchase of up to 50,000 shares of the Company’s common stock in open market or negotiated transactions.  In May 2018, the Board replenished and expanded the share repurchase authority to provide for the purchase of up to 75,000 shares of the Company’s common stock in open market or negotiated transactions.  In each case, management was given discretion to determine the number and pricing of the shares to be purchased, as well as the timing of any such purchases.

Item 3.      Defaults Upon Senior Securities

Not applicable.

Item 4.      Mine Safety Disclosures

Not applicable.

23

Item 5.      Other Information

In July 2018, the Company’s wholly owned subsidiary, The Healthy Edge, Inc., through its newly formed wholly owned subsidiary, EOM Acquisition Corp, closed a transaction to acquire and operate eight leased retail health food stores located in Florida. In this transaction, EOM Acquisition Corp. will pay approximately $0.7 million in four installments through July 2019. The transaction will be funded through the Company’s existing credit facility. The acquisition expands the Company’s strategic footprint in the Florida market and enhances its ability to service customers in that region. 

Item 6.      Exhibits

(a) Exhibits

31.1	Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, filed pursuant to section 302 of the Sarbanes-Oxley Act
31.2	Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer filed pursuant to section 302 of the Sarbanes-Oxley Act
32.1	Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley Act
32.2	Certification by Andrew C. Plummer, Vice President, Chief Financial Officer, and Principal Financial Officer furnished pursuant to section 906 of the Sarbanes-Oxley Act
101	Interactive Data File (filed herewith electronically)

24

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMCON DISTRIBUTING COMPANY
	(registrant)
Date: July 18, 2018	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman
Date: July 18, 2018	/s/ Andrew C. Plummer
	Andrew C. Plummer,
	Vice President, Chief Financial Officer
	(Principal Financial and Accounting Officer)

25

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Christopher H. Atayan, certify that:

1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fiscal fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

July
Date:  July 18, 2018	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Andrew C. Plummer, certify that:

1. I have reviewed this report on Form 10-Q of AMCON Distributing Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrants’ fiscal fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  July 18, 2018	/s/ Andrew C. Plummer
	Andrew C. Plummer, Vice President,
	Chief Financial Officer and Secretary

EX-32.1

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended June  30, 2018, I, Christopher H. Atayan, Chief Executive Officer and Principal Executive Officer of the Company, hereby certify that, to the best of my knowledge and belief:

1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Ju
Date:  July 18, 2018	/s/ Christopher H. Atayan
	Christopher H. Atayan
	Title: Chief Executive Officer and Chairman

A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q (the “Report”) of AMCON Distributing Company (the “Company”) for the fiscal quarter ended June  30, 2018, I, Andrew C. Plummer, Vice President and Chief Financial Officer of the Company, hereby certify that, to the best of my knowledge and belief:

1.the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  July  18, 2018	/s/ Andrew C. Plummer
	Andrew C. Plummer
	Title: Vice President,
	Chief Financial Officer and Secretary

A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Jun. 30, 2018	Jul. 16, 2018
Document and Entity Information
Entity Registrant Name	AMCON DISTRIBUTING CO
Entity Central Index Key	0000928465
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		615,988
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 30, 2018	Sep. 30, 2017
Current assets:
Cash	$ 275,320	$ 523,065
Accounts receivable, less allowance for doubtful accounts of $0.8 million at both June 2018 and September 2017	33,943,794	30,690,403
Inventories, net	51,009,431	72,909,996
Prepaid and other current assets	10,062,688	4,218,811
Total current assets	95,291,233	108,342,275
Property and equipment, net	13,715,318	13,307,986
Goodwill	6,349,827	6,349,827
Other intangible assets, net	3,430,561	3,494,311
Other assets	315,416	310,488
Total assets	119,102,355	131,804,887
Current liabilities:
Accounts payable	19,122,752	17,631,552
Accrued expenses	8,127,663	7,553,089
Accrued wages, salaries and bonuses	2,669,243	3,477,966
Income taxes payable	555,820	544,069
Current maturities of long-term debt	382,209	373,645
Total current liabilities	30,857,687	29,580,321
Credit facility	20,485,436	29,037,182
Deferred income tax liability, net	1,663,832	2,336,263
Long-term debt, less current maturities	2,360,276	2,648,179
Other long-term liabilities	37,067	34,100
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized
Common stock, $.01 par value, 3,000,000 shares authorized, 615,988 shares outstanding at June 2018 and 678,006 shares outstanding at September 2017	8,441	8,314
Additional paid-in capital	22,042,155	20,825,919
Retained earnings	62,953,155	60,935,911
Treasury stock at cost	(21,305,694)	(13,601,302)
Total shareholders' equity	63,698,057	68,168,842
Total liabilities and shareholders' equity	$ 119,102,355	$ 131,804,887

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Jun. 30, 2018	Sep. 30, 2017
Condensed Consolidated Balance Sheets
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 0.8	$ 0.8
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	3,000,000	3,000,000
Common stock, shares outstanding	615,988	678,006

XML

Condensed Consolidated Unaudited Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Condensed Consolidated Unaudited Statements of Operations
Sales (including excise taxes of $96.2 million and $95.1 million, and $267.9 million and $271.8 million, respectively)	$ 349,043,200	$ 332,842,200	$ 959,763,695	$ 936,994,299
Cost of sales	329,930,190	314,818,453	905,392,747	883,180,664
Gross profit	19,113,010	18,023,747	54,370,948	53,813,635
Selling, general and administrative expenses	17,008,355	16,587,055	48,981,383	48,105,878
Depreciation and amortization	614,710	474,890	1,683,618	1,531,292
Total operating expenses	17,623,065	17,061,945	50,665,001	49,637,170
Operating income	1,489,945	961,802	3,705,947	4,176,465
Other expense (income):
Interest expense	261,510	180,266	777,065	545,719
Other (income), net	(18,615)	(16,513)	(51,158)	(37,250)
Total other expenses (income)	242,895	163,753	725,907	508,469
Income from operations before income tax expense	1,247,050	798,049	2,980,040	3,667,996
Income tax expense	462,000	413,000	376,000	1,748,000
Net income available to common shareholders	$ 785,050	$ 385,049	$ 2,604,040	$ 1,919,996
Basic earnings per share available to common shareholders (in dollars per share)	$ 1.21	$ 0.57	$ 3.85	$ 2.82
Diluted earnings per share available to common shareholders (in dollars per share)	$ 1.18	$ 0.56	$ 3.79	$ 2.78
Basic weighted average shares outstanding (in shares)	651,170	678,938	676,103	679,858
Diluted weighted average shares outstanding (in shares)	664,688	691,701	686,576	690,840
Dividends declared per common share	$ 0.18	$ 0.18	$ 0.82	$ 0.82
Dividends paid per common share	$ 0.18	$ 0.18	$ 0.82	$ 0.82

XML

Condensed Consolidated Unaudited Statements of Operations (Parenthetical) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Condensed Consolidated Unaudited Statements of Operations
Sales, excise taxes	$ 96.2	$ 95.1	$ 267.9	$ 271.8

XML

Condensed Consolidated Unaudited Statements of Cash Flows - USD ($)	9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,604,040	$ 1,919,996
Adjustments to reconcile net income from operations to net cash flows from operating activities:
Depreciation	1,619,868	1,332,542
Amortization	63,750	198,750
Gain on sale of property and equipment	(5,300)	(30,854)
Equity-based compensation	957,656	1,193,005
Deferred income taxes	(672,431)	120,367
Provision for losses on doubtful accounts	23,000	42,000
Inventory allowance	(267,389)	4,852
Other	2,967	2,296
Changes in assets and liabilities:
Accounts receivable	(3,276,391)	(1,044,423)
Inventories	22,167,954	(701,279)
Prepaid and other current assets	(5,843,877)	771,870
Other assets	(4,928)	(38,358)
Accounts payable	1,584,358	322,325
Accrued expenses and accrued wages, salaries and bonuses	125,758	(659,813)
Income taxes payable	11,751	7,059
Net cash flows from operating activities	19,090,786	3,440,335
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	(2,120,358)	(1,761,431)
Proceeds from sales of property and equipment	5,300	42,655
Net cash flows from investing activities	(2,115,058)	(1,718,776)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility	1,043,415,401	950,104,143
Repayments under revolving credit facility	(1,051,967,147)	(950,313,271)
Principal payments on long-term debt	(279,339)	(271,031)
Repurchase of common stock	(7,704,392)	(1,038,060)
Dividends on common stock	(586,796)	(579,848)
Withholdings on the exercise of equity-based awards	(101,200)	(107,082)
Net cash flows from financing activities	(17,223,473)	(2,205,149)
Net change in cash	(247,745)	(483,590)
Cash, beginning of period	523,065	605,380
Cash, end of period	275,320	121,790
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	764,557	545,719
Cash paid during the period for income taxes	1,036,680	1,620,574
Supplemental disclosure of non-cash information:
Equipment acquisitions classified in accounts payable	8,203	9,881
Issuance of common stock in connection with the vesting and exercise of equity-based awards	$ 1,183,091	$ 1,262,763

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

9 Months Ended

Jun. 30, 2018

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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

· Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We primarily operate in the Central, Rocky Mountain, and Southern regions of the United States.

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

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products. Convenience stores represent our largest customer category. In November 2017, Convenience Store News ranked us as the seventh (7th) largest convenience store distributor in the United States based on annual sales.

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

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross dock facilities, include approximately 641,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

RETAIL SEGMENT

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

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

Our Retail Segment operates fourteen retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. These stores carry over 32,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates seven stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of seven locations in Arkansas, Missouri, Nebraska, and Oklahoma.

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2017, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended June 30, 2018 and June 30, 2017 have been referred to throughout this quarterly report as Q3 2018 and Q3 2017, respectively. The fiscal balance sheet dates as of June 30, 2018 and September 30, 2017 have been referred to as June 2018 and September 2017, respectively.

ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers." This ASU and related amendments supersedes the revenue recognition requirements in "Accounting Standard Codification 605 - Revenue Recognition" and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning after December 15, 2017 (Fiscal 2019 for the Company), and for interim periods within that fiscal year. The Company is in the data aggregation and quantification phase of its review of this new standard, and is working to assess the impact and our approach towards adopting this ASU.

In February 2016, FASB issued ASU No. 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (Fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements including the potential capitalization of all operating leases on the Company’s balance sheet.

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

In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.  ASU 2017-04 requires prospective application and is effective for annual periods beginning after December 15, 2019 (Fiscal 2021 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

XML

INVENTORIES

9 Months Ended

Jun. 30, 2018

INVENTORIES

INVENTORIES

2. INVENTORIES

Inventories consisted of finished goods and are stated at the lower of cost (determined on a FIFO basis for our wholesale segment and using the retail method for our retail segment) or net realizable value. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $0.5 million at June 2018 and $0.8 million at September 2017. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Jun. 30, 2018

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

3. GOODWILL AND OTHER INTANGIBLE ASSETS

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

	June		September
	2018		2017
Wholesale Segment	$	4,436,950	$	4,436,950
Retail Segment		1,912,877		1,912,877
	$	6,349,827	$	6,349,827

Other intangible assets of the Company consisted of the following:

	June		September
	2018		2017
Trademarks and tradenames (Retail Segment)	$	3,373,269	$	3,373,269
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $2.1 million and $2.0 million at June 2018 and September 2017, respectively)		57,292		121,042
	$	3,430,561	$	3,494,311

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. At June 2018, identifiable intangible assets considered to have finite lives were represented by customer relationships which are being amortized over eight years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted.

At June 2018, goodwill allocated to our wholesale and retail reporting units totaled $4.4 million and $1.9 million, respectively. In conjunction with the Company’s annual impairment testing for the fiscal year ended September 30, 2017, the Company determined that the estimated fair value of these reporting units exceeded their carrying value at September 30, 2017. There has been no material changes to this assessment by the Company through June 2018.

Estimated future amortization expense related to identifiable intangible assets with finite lives is as follows at June 2018:

	June
	2018
Fiscal 2018  (1)	$	15,625
Fiscal 2019		41,667
	$	57,292

(1) Represents amortization for the remaining three months of Fiscal 2018.

XML

DIVIDENDS

9 Months Ended

Jun. 30, 2018

DIVIDENDS

DIVIDENDS

4. DIVIDENDS

The Company paid cash dividends on its common stock during each of the three and nine month periods ended June 2017 and June 2018 of $0.1 million and $0.6 million, respectively. 

XML

EARNINGS PER SHARE

9 Months Ended

Jun. 30, 2018

EARNINGS PER SHARE

EARNINGS PER SHARE

5. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing net income less preferred stock dividend requirements by the weighted average common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations less preferred stock dividend requirements (when anti-dilutive) by the sum of the weighted average common shares outstanding and the weighted average dilutive options.

	For the three months ended June
	2018				2017
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		651,170		651,170		678,938		678,938
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		13,518		—		12,763
Weighted average number of shares outstanding		651,170		664,688		678,938		691,701
Net income available to common shareholders	$	785,050	$	785,050	$	385,049	$	385,049
Net earnings per share available to common shareholders	$	1.21	$	1.18	$	0.57	$	0.56

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

	For the nine months ended June
	2018				2017
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		676,103		676,103		679,858		679,858
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		10,473		—		10,982
Weighted average number of shares outstanding		676,103		686,576		679,858		690,840
Net income available to common shareholders	$	2,604,040	$	2,604,040	$	1,919,996	$	1,919,996
Net earnings per share available to common shareholders	$	3.85	$	3.79	$	2.82	$	2.78

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

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DEBT

9 Months Ended

Jun. 30, 2018

DEBT

DEBT

6. DEBT

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

The Facility included the following significant terms at June 2018:

· A November 2022 maturity date without a penalty for prepayment.

· $70.0 million revolving credit limit.

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

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

· Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement.

· The Facility bears interest at either the bank’s prime rate, or at LIBOR plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company.

· Lending limits subject to accounts receivable and inventory limitations.

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

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

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

· Provides that the Company may pay up to $2.0 million of dividends on its common stock provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after the dividend.       

Cross Default and Co-Terminus Provisions

The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO Harris Bank (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause it to be considered in default if the loans where BMO is a lender, including the revolving credit facility, is in default. There were no such cross defaults at June 2018. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Other

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

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INCOME TAXES

9 Months Ended

Jun. 30, 2018

INCOME TAXES

INCOME TAXES

7. INCOME TAXES

The Company’s results of operations for the nine months ended June 2018 included the impact of the enactment of the Tax Cuts and Jobs Act (“Tax Reform”) which was signed into law on December 22, 2017. Among numerous provisions included in the new law was a reduction in the corporate federal income tax rate from 35% to 21% which resulted in a $0.9 million income tax benefit to the Company as reflected in our Statement of Operations for the nine months ended June 2018. This tax benefit primarily resulted from applying the new lower federal income tax rates to the Company’s net long term deferred tax liabilities recorded on its Consolidated Balance Sheet. Because of the effective date of the new tax law in relation to the Company’s fiscal year (October 1st - September 30th), the Company’s fiscal 2018 results from operations will be taxed at a lower blended federal rate of approximately 24% for fiscal 2018, which reflects a portion of fiscal 2018 at the old federal tax rate and a portion of fiscal 2018 at the new federal tax rate. The final impact of Tax Reform may differ due to and among other things, changes in interpretations, assumptions made by the Company, the issuance of additional guidance, and actions Company may take as a result of Tax Reform.

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BUSINESS SEGMENTS

9 Months Ended

Jun. 30, 2018

BUSINESS SEGMENTS

BUSINESS SEGMENTS

8. BUSINESS SEGMENTS

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

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED JUNE 2018
External revenues:
Cigarettes	$	248,357,752	$	—	$	—	$	248,357,752
Tobacco		44,598,270		—		—		44,598,270
Confectionery		21,437,432		—		—		21,437,432
Health food		—		6,246,691		—		6,246,691
Foodservice & other		28,403,055		—		—		28,403,055
Total external revenue		342,796,509		6,246,691		—		349,043,200
Depreciation		284,609		314,476		—		599,085
Amortization		15,625		—		—		15,625
Operating income (loss)		4,245,654		(1,078,191)		(1,677,518)		1,489,945
Interest expense		22,585		—		238,925		261,510
Income (loss) from operations before taxes		4,239,525		(1,076,032)		(1,916,443)		1,247,050
Total assets		104,905,403		13,994,013		202,939		119,102,355
Capital expenditures		468,995		284,596		—		753,591
THREE MONTHS ENDED JUNE 2017
External revenue:
Cigarettes	$	236,433,449	$	—	$	—	$	236,433,449
Tobacco		41,478,941		—		—		41,478,941
Confectionery		22,024,887		—		—		22,024,887
Health food		—		6,376,725		—		6,376,725
Foodservice & other		26,528,198		—		—		26,528,198
Total external revenue		326,465,475		6,376,725		—		332,842,200
Depreciation		292,294		116,345		—		408,639
Amortization		66,251		—		—		66,251
Operating income (loss)		3,096,128		(615,276)		(1,519,050)		961,802
Interest expense		25,279		—		154,987		180,266
Income (loss) from operations before taxes		3,082,982		(610,896)		(1,674,037)		798,049
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		109,648		813,888		—		923,536

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
NINE MONTHS ENDED  JUNE 2018
External revenue:
Cigarettes	$	679,812,016	$	—	$	—	$	679,812,016
Tobacco		125,776,543		—		—		125,776,543
Confectionery		57,210,816		—		—		57,210,816
Health food		—		19,349,676		—		19,349,676
Foodservice & other		77,614,644		—		—		77,614,644
Total external revenue		940,414,019		19,349,676		—		959,763,695
Depreciation		919,236		700,632		—		1,619,868
Amortization		63,750		—		—		63,750
Operating income (loss)		9,966,031		(1,744,717)		(4,515,367)		3,705,947
Interest expense		69,107		—		707,958		777,065
Income (loss) from operations before taxes		9,938,081		(1,737,416)		(5,220,625)		2,980,040
Total assets		104,905,403		13,994,013		202,939		119,102,355
Capital expenditures		1,137,117		983,241		—		2,120,358
NINE MONTHS ENDED  JUNE 2017
External revenue:
Cigarettes	$	667,849,390	$	—	$	—	$	667,849,390
Tobacco		117,535,875		—		—		117,535,875
Confectionery		58,606,239		—		—		58,606,239
Health food		—		19,334,087		—		19,334,087
Foodservice & other		73,668,708		—		—		73,668,708
Total external revenue		917,660,212		19,334,087		—		936,994,299
Depreciation		981,232		351,310		—		1,332,542
Amortization		198,750		—		—		198,750
Operating income (loss)		9,802,019		(1,122,951)		(4,502,603)		4,176,465
Interest expense		77,100		—		468,619		545,719
Income (loss) from operations before taxes		9,749,503		(1,110,284)		(4,971,223)		3,667,996
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		429,892		1,331,539		—		1,761,431

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COMMON STOCK REPURCHASE

9 Months Ended

Jun. 30, 2018

COMMON STOCK REPURCHASE

COMMON STOCK REPURCHASE

9. COMMON STOCK REPURCHASE

The Company repurchased a total of 68,016 and 74,669 common shares during the three and nine month periods ended June 30, 2018, respectively, for cash totaling approximately $7.1 million and $7.7 million, respectively, and 11,104 common shares during the nine month period ended June 30, 2017 for cash totaling approximately $1.0 million. The Company made no share repurchases during Q3 2017. All repurchased shares were recorded in treasury stock at cost.

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SUBSEQUENT EVENT

9 Months Ended

Jun. 30, 2018

SUBSEQUENT EVENT

SUBSEQUENT EVENT

10. SUBSEQUENT EVENT

In July 2018, the Company’s wholly owned subsidiary, The Healthy Edge, Inc., through its newly formed wholly owned subsidiary, EOM Acquisition Corp, closed a transaction to acquire and operate eight leased retail health food stores located in Florida. In this transaction, EOM Acquisition Corp. will pay approximately $0.7 million in four installments through July 2019. The transaction will be funded through the Company’s existing credit facility. The acquisition expands the Company’s strategic footprint in the Florida market and enhances its ability to service customers in that region. 

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Policies)

9 Months Ended

Jun. 30, 2018

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

WHOLESALE SEGMENT AND RETAIL SEGMENT

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,000 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 16,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and chilled products and institutional foodservice products. Convenience stores represent our largest customer category. In November 2017, Convenience Store News ranked us as the seventh (7th) largest convenience store distributor in the United States based on annual sales.

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

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross dock facilities, include approximately 641,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

RETAIL SEGMENT

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

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

Our Retail Segment operates fourteen retail health food stores as Chamberlin’s Market & Café and Akin’s Natural Foods Market. These stores carry over 32,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, operates seven stores in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of seven locations in Arkansas, Missouri, Nebraska, and Oklahoma.

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein, such as adjustments consisting of normal recurring items. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2017, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended June 30, 2018 and June 30, 2017 have been referred to throughout this quarterly report as Q3 2018 and Q3 2017, respectively. The fiscal balance sheet dates as of June 30, 2018 and September 30, 2017 have been referred to as June 2018 and September 2017, respectively.

ACCOUNTING PRONOUNCEMENTS

ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers." This ASU and related amendments supersedes the revenue recognition requirements in "Accounting Standard Codification 605 - Revenue Recognition" and most industry-specific guidance. The standard requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This ASU is effective for fiscal years beginning after December 15, 2017 (Fiscal 2019 for the Company), and for interim periods within that fiscal year. The Company is in the data aggregation and quantification phase of its review of this new standard, and is working to assess the impact and our approach towards adopting this ASU.

In February 2016, FASB issued ASU No. 2016-02 "Leases” ("ASU 2016-02"). ASU 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under previous GAAP. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (Fiscal 2020 for the Company), and for interim periods within that fiscal year. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements including the potential capitalization of all operating leases on the Company’s balance sheet.

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

In January 2017, FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test.  ASU 2017-04 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.  ASU 2017-04 requires prospective application and is effective for annual periods beginning after December 15, 2019 (Fiscal 2021 for the Company) with early adoption permitted. The Company is currently evaluating this ASU and its potential impact on our consolidated financial statements.

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Jun. 30, 2018

GOODWILL AND OTHER INTANGIBLE ASSETS

Schedule of goodwill by reporting segment

	June		September
	2018		2017
Wholesale Segment	$	4,436,950	$	4,436,950
Retail Segment		1,912,877		1,912,877
	$	6,349,827	$	6,349,827

Schedule of other intangible assets

	June		September
	2018		2017
Trademarks and tradenames (Retail Segment)	$	3,373,269	$	3,373,269
Customer relationships (Wholesale Segment) (less accumulated amortization of approximately $2.1 million and $2.0 million at June 2018 and September 2017, respectively)		57,292		121,042
	$	3,430,561	$	3,494,311

Schedule of estimated future amortization expense related to identifiable intangible assets with finite lives

	June
	2018
Fiscal 2018  (1)	$	15,625
Fiscal 2019		41,667
	$	57,292

(1) Represents amortization for the remaining three months of Fiscal 2018.

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EARNINGS PER SHARE (Tables)

9 Months Ended

Jun. 30, 2018

EARNINGS PER SHARE

Schedule of net earnings per share available to common shareholders

	For the three months ended June
	2018				2017
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		651,170		651,170		678,938		678,938
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		13,518		—		12,763
Weighted average number of shares outstanding		651,170		664,688		678,938		691,701
Net income available to common shareholders	$	785,050	$	785,050	$	385,049	$	385,049
Net earnings per share available to common shareholders	$	1.21	$	1.18	$	0.57	$	0.56

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

	For the nine months ended June
	2018				2017
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		676,103		676,103		679,858		679,858
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock (1)		—		10,473		—		10,982
Weighted average number of shares outstanding		676,103		686,576		679,858		690,840
Net income available to common shareholders	$	2,604,040	$	2,604,040	$	1,919,996	$	1,919,996
Net earnings per share available to common shareholders	$	3.85	$	3.79	$	2.82	$	2.78

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

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BUSINESS SEGMENTS (Tables)

9 Months Ended

Jun. 30, 2018

BUSINESS SEGMENTS

Schedule of segment information

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED JUNE 2018
External revenues:
Cigarettes	$	248,357,752	$	—	$	—	$	248,357,752
Tobacco		44,598,270		—		—		44,598,270
Confectionery		21,437,432		—		—		21,437,432
Health food		—		6,246,691		—		6,246,691
Foodservice & other		28,403,055		—		—		28,403,055
Total external revenue		342,796,509		6,246,691		—		349,043,200
Depreciation		284,609		314,476		—		599,085
Amortization		15,625		—		—		15,625
Operating income (loss)		4,245,654		(1,078,191)		(1,677,518)		1,489,945
Interest expense		22,585		—		238,925		261,510
Income (loss) from operations before taxes		4,239,525		(1,076,032)		(1,916,443)		1,247,050
Total assets		104,905,403		13,994,013		202,939		119,102,355
Capital expenditures		468,995		284,596		—		753,591
THREE MONTHS ENDED JUNE 2017
External revenue:
Cigarettes	$	236,433,449	$	—	$	—	$	236,433,449
Tobacco		41,478,941		—		—		41,478,941
Confectionery		22,024,887		—		—		22,024,887
Health food		—		6,376,725		—		6,376,725
Foodservice & other		26,528,198		—		—		26,528,198
Total external revenue		326,465,475		6,376,725		—		332,842,200
Depreciation		292,294		116,345		—		408,639
Amortization		66,251		—		—		66,251
Operating income (loss)		3,096,128		(615,276)		(1,519,050)		961,802
Interest expense		25,279		—		154,987		180,266
Income (loss) from operations before taxes		3,082,982		(610,896)		(1,674,037)		798,049
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		109,648		813,888		—		923,536

	Wholesale		Retail
	Segment		Segment		Other		Consolidated
NINE MONTHS ENDED  JUNE 2018
External revenue:
Cigarettes	$	679,812,016	$	—	$	—	$	679,812,016
Tobacco		125,776,543		—		—		125,776,543
Confectionery		57,210,816		—		—		57,210,816
Health food		—		19,349,676		—		19,349,676
Foodservice & other		77,614,644		—		—		77,614,644
Total external revenue		940,414,019		19,349,676		—		959,763,695
Depreciation		919,236		700,632		—		1,619,868
Amortization		63,750		—		—		63,750
Operating income (loss)		9,966,031		(1,744,717)		(4,515,367)		3,705,947
Interest expense		69,107		—		707,958		777,065
Income (loss) from operations before taxes		9,938,081		(1,737,416)		(5,220,625)		2,980,040
Total assets		104,905,403		13,994,013		202,939		119,102,355
Capital expenditures		1,137,117		983,241		—		2,120,358
NINE MONTHS ENDED  JUNE 2017
External revenue:
Cigarettes	$	667,849,390	$	—	$	—	$	667,849,390
Tobacco		117,535,875		—		—		117,535,875
Confectionery		58,606,239		—		—		58,606,239
Health food		—		19,334,087		—		19,334,087
Foodservice & other		73,668,708		—		—		73,668,708
Total external revenue		917,660,212		19,334,087		—		936,994,299
Depreciation		981,232		351,310		—		1,332,542
Amortization		198,750		—		—		198,750
Operating income (loss)		9,802,019		(1,122,951)		(4,502,603)		4,176,465
Interest expense		77,100		—		468,619		545,719
Income (loss) from operations before taxes		9,749,503		(1,110,284)		(4,971,223)		3,667,996
Total assets		98,406,083		14,135,564		167,671		112,709,318
Capital expenditures		429,892		1,331,539		—		1,761,431

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details)	1 Months Ended	9 Months Ended
	Nov. 30, 2017 item	Jun. 30, 2018 ft² item
Company operations
Number of business segments		2
Wholesale Segment
Company operations
Number of retail outlets served		4,000
Number of products sold or distributed		16,000
Rank assigned by Convenience Store News	7
Number of distribution centers		6
Floor space occupied by distribution centers (in square feet) | ft²		641,000
Retail Segment
Company operations
Number of operating health food retail stores		14
Number of products sold or distributed		32,000
Retail Segment | Florida
Company operations
Number of operating health food retail stores		7
Retail Segment | Midwest
Company operations
Number of operating health food retail stores		7

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INVENTORIES (Details) - USD ($) $ in Millions	Jun. 30, 2018	Sep. 30, 2017
INVENTORIES
Total reserves on finished goods	$ 0.5	$ 0.8

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GOODWILL AND OTHER INTANGIBLE ASSETS - Goodwill (Details) - USD ($)	Jun. 30, 2018	Sep. 30, 2017
Goodwill by reporting segment
Goodwill	$ 6,349,827	$ 6,349,827
Wholesale Segment
Goodwill by reporting segment
Goodwill	4,436,950	4,436,950
Retail Segment
Goodwill by reporting segment
Goodwill	$ 1,912,877	$ 1,912,877

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GOODWILL AND OTHER INTANGIBLE ASSETS - Other Intangible Assets (Details) - USD ($)	9 Months Ended
	Jun. 30, 2018	Sep. 30, 2017
Other intangible assets
Other intangible assets, net	$ 3,430,561	$ 3,494,311
Customer relationships
Other intangible assets
Other intangible assets, net	57,292	121,042
Accumulated amortization	$ 2,100,000	2,000,000
Amortization period	8 years
Trademarks and tradenames
Other intangible assets
Other intangible assets, net	$ 3,373,269	$ 3,373,269

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GOODWILL AND OTHER INTANGIBLE ASSETS - Amortization Expense (Details)	Jun. 30, 2018 USD ($)
Estimated future amortization expense related to identifiable intangible assets with finite lives
Fiscal 2018	$ 15,625
Fiscal 2019	41,667
Total	$ 57,292

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DIVIDENDS (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
DIVIDENDS
Cash dividends paid on common stock	$ 100,000	$ 100,000	$ 586,796	$ 579,848

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EARNINGS PER SHARE (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
EARNINGS PER SHARE
Weighted average common shares outstanding, Basic	651,170	678,938	676,103	679,858
Weighted average of net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock and conversion of preferred stock	13,518	12,763	10,473	10,982
Weighted average number of shares outstanding, Diluted	664,688	691,701	686,576	690,840
Net income available to common shareholders	$ 785,050	$ 385,049	$ 2,604,040	$ 1,919,996
Net income available to common shareholders, diluted	$ 785,050	$ 385,049	$ 2,604,040	$ 1,919,996
Net earnings per share available to common shareholders, Basic (in dollars per share)	$ 1.21	$ 0.57	$ 3.85	$ 2.82
Net earnings per share available to common shareholders, Diluted (in dollars per share)	$ 1.18	$ 0.56	$ 3.79	$ 2.78

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DEBT (Details) $ in Millions	9 Months Ended
	Jun. 30, 2018 USD ($) item
Other
Letter of credit issued for worker's compensation insurance carrier as part of the entity's self-insured loss control program	$ 0.5
Real Estate Loan
Revolving credit facility
Number of cross defaults | item	0
Facility
Revolving credit facility
Revolving credit limit	$ 70.0
Increase in borrowing capacity available under loan accordion	25.0
Additional credit advances for certain inventory purchases	$ 10.0
Automatic renewal period of agreement unless terminated	1 year
Unused commitment fee (as a percent)	0.25%
Period considered for computing fixed charge coverage ratio	12 months
Threshold of excess availability of credit as a percentage of maximum loan limit, required for financial covenant compliance	10.00%
Restricted amount of dividends on common stock	$ 2.0
Facility | LIBOR
Revolving credit facility
Variable rate basis	LIBOR
Facility | Prime rate
Revolving credit facility
Variable rate basis	prime rate
Facility | Minimum
Revolving credit facility
Notice period prior to the end of any original or renewal term of the agreement required for terminating the agreement either by the borrower or lender	90 days
Fixed charge coverage ratio	1.0
Facility | Minimum | LIBOR
Revolving credit facility
Basis points added to reference rate (as a percent)	1.25%
Facility | Maximum | LIBOR
Revolving credit facility
Basis points added to reference rate (as a percent)	1.50%

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INCOME TAXES (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2018
INCOME TAXES
Statutory income tax rate (as a percent)	21.00%	35.00%
Income tax benefit resulting from Tax Reform			$ 0.9
Blended federal rate (as a percent)			24.00%

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BUSINESS SEGMENTS (Details)	3 Months Ended		9 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) item	Jun. 30, 2017 USD ($)	Sep. 30, 2017 USD ($)
Information by business segments
Number of reportable business segments | item			2
Total external revenues	$ 349,043,200	$ 332,842,200	$ 959,763,695	$ 936,994,299
Depreciation	599,085	408,639	1,619,868	1,332,542
Amortization	15,625	66,251	63,750	198,750
Operating income (loss)	1,489,945	961,802	3,705,947	4,176,465
Interest expense	261,510	180,266	777,065	545,719
Income (loss) from operations before taxes	1,247,050	798,049	2,980,040	3,667,996
Total assets	119,102,355	112,709,318	119,102,355	112,709,318	$ 131,804,887
Capital expenditures	753,591	923,536	2,120,358	1,761,431
Cigarettes
Information by business segments
Total external revenues	248,357,752	236,433,449	679,812,016	667,849,390
Tobacco
Information by business segments
Total external revenues	44,598,270	41,478,941	125,776,543	117,535,875
Confectionery
Information by business segments
Total external revenues	21,437,432	22,024,887	57,210,816	58,606,239
Health food
Information by business segments
Total external revenues	6,246,691	6,376,725	19,349,676	19,334,087
Foodservice & other
Information by business segments
Total external revenues	28,403,055	26,528,198	77,614,644	73,668,708
Other
Information by business segments
Operating income (loss)	(1,677,518)	(1,519,050)	(4,515,367)	(4,502,603)
Interest expense	238,925	154,987	707,958	468,619
Income (loss) from operations before taxes	(1,916,443)	(1,674,037)	(5,220,625)	(4,971,223)
Total assets	202,939	167,671	202,939	167,671
Wholesale Segment
Information by business segments
Total external revenues	342,796,509	326,465,475	940,414,019	917,660,212
Depreciation	284,609	292,294	919,236	981,232
Amortization	15,625	66,251	63,750	198,750
Operating income (loss)	4,245,654	3,096,128	9,966,031	9,802,019
Interest expense	22,585	25,279	69,107	77,100
Income (loss) from operations before taxes	4,239,525	3,082,982	9,938,081	9,749,503
Total assets	104,905,403	98,406,083	104,905,403	98,406,083
Capital expenditures	468,995	109,648	1,137,117	429,892
Wholesale Segment | Cigarettes
Information by business segments
Total external revenues	248,357,752	236,433,449	679,812,016	667,849,390
Wholesale Segment | Tobacco
Information by business segments
Total external revenues	44,598,270	41,478,941	125,776,543	117,535,875
Wholesale Segment | Confectionery
Information by business segments
Total external revenues	21,437,432	22,024,887	57,210,816	58,606,239
Wholesale Segment | Foodservice & other
Information by business segments
Total external revenues	28,403,055	26,528,198	77,614,644	73,668,708
Retail Segment
Information by business segments
Total external revenues	6,246,691	6,376,725	19,349,676	19,334,087
Depreciation	314,476	116,345	700,632	351,310
Operating income (loss)	(1,078,191)	(615,276)	(1,744,717)	(1,122,951)
Income (loss) from operations before taxes	(1,076,032)	(610,896)	(1,737,416)	(1,110,284)
Total assets	13,994,013	14,135,564	13,994,013	14,135,564
Capital expenditures	284,596	813,888	983,241	1,331,539
Retail Segment | Health food
Information by business segments
Total external revenues	$ 6,246,691	$ 6,376,725	$ 19,349,676	$ 19,334,087

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COMMON STOCK REPURCHASE (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
COMMON STOCK REPURCHASE
Number of shares of common stock repurchased	68,016	0	74,669	11,104
Value of shares of common stock repurchased	$ 7.1		$ 7.7	$ 1.0

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SUBSEQUENT EVENT (Details) - Subsequent events - Acquisition of retail health food stores located in Florida - EOM Acquisition Corp $ in Millions	1 Months Ended
	Jul. 31, 2018 USD ($) store installment
SUBSEQUENT EVENT
Number of stores acquired | store	8
Payments to acquire stores | $	$ 0.7
Number of payment installments | installment	4