Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 28, 1998
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 No. 0-5815
AMERICAN CONSUMERS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1033765
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
P.O. Box 2328, 418A Battlefield Pkwy., Fort Oglethorpe, GA 30742
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (706) 861-3347
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 (X) NO ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 8, 1999
COMMON STOCK - $.10 PAR VALUE 890,600
NON VOTING COMMON STOCK - $.00 PAR VALUE 0
NON VOTING PREFERRED STOCK - $.00 PAR VALUE 0
Exhibit Index on Page 11
(1)
<PAGE>
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------------- ----------------------------
November 28, November 29, November 28, November 29,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 6,299,480 $ 6,729,757 $ 12,939,024 $ 13,607,628
COST OF GOODS SOLD 4,867,532 5,313,520 10,117,832 10,702,733
------------ ------------ ------------ ------------
Gross Margin 1,431,948 1,416,237 2,821,192 2,904,895
OPERATING EXPENSES 1,424,102 1,457,509 2,879,352 2,912,632
------------ ------------ ------------ ------------
Operating Income (Loss) 7,846 (41,272) (58,160) (7,737)
OTHER INCOME (EXPENSE)
Interest income 5,834 6,092 13,505 12,943
Other income 18,218 13,138 32,155 26,541
Interest expense (11,727) (14,892) (24,486) (30,237)
------------ ------------ ------------ ------------
Income (Loss) Before Income Tax 20,171 (36,934) (36,986) 1,510
PROVISION (BENEFIT) FOR
INCOME TAXES 8,593 (10,738) (15,913) 357
------------ ------------ ------------ ------------
NET INCOME (LOSS) 11,578 (26,196) (21,073) 1,153
RETAINED EARNINGS:
Beginning 1,770,447 1,746,901 1,803,098 1,719,552
Redemption of common stock (269) (48) (269) (48)
------------ ------------ ------------ ------------
Ending 1,781,765 1,720,657 1,781,756 1,720,657
============ ============ ============ ============
PER SHARE:
Net income (loss) $ 0.013 ($ 0.028) ($ 0.024) $ 0.001
============ ============ ============ ============
Cash dividends $ 0.000 $ 0.000 $ 0.000 $ 0.000
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 890,067 921,437 889,537 921,366
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
(2)
<PAGE>
FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
November 28, May 30,
1998 1998
---------- ----------
<S> <C> <C>
--A S S E T S--
CURRENT ASSETS:
Cash and short-term investments $ 831,857 $ 945,222
Certificate of deposit 405,202 394,792
Accounts receivable 194,911 175,135
Inventories 1,940,918 1,830,003
Prepaid expenses 16,414 14,613
Refundable income taxes 26,376 0
---------- ----------
Total current assets 3,415,678 3,359,765
---------- ----------
PROPERTY - At cost:
Property 2,977,274 2,939,838
Less accumulated depreciation 2,181,843 2,046,381
---------- ----------
Property - Net 795,431 893,457
---------- ----------
OTHER ASSETS 4,000 4,000
---------- ----------
TOTAL ASSETS $4,215,109 $4,257,222
========== ==========
--LIABILITIES AND STOCKHOLDERS' EQUITY--
CURRENT LIABILITIES:
Accounts payable $ 628,684 $ 655,937
Short-term borrowings 352,522 208,945
Obligations under capital leases, current portion 125,272 144,077
Accrued sales tax 62,573 106,239
Accrued income taxes - - - 24,634
Other accrued liabilities 151,028 128,652
---------- ----------
Total Current Liabilities 1,320,079 1,268,484
---------- ----------
DEFERRED INCOME TAX LIABILITY 60,504 62,504
---------- ----------
DEFERRED INCOME 96,949 107,546
---------- ----------
OBLIGATIONS UNDER CAPITALIZED LEASE AGREEMENTS 127,881 183,842
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY:
Non voting preferred stock; authorized 5,000,000
shares of no par value; no shares issued - - - - - -
Non voting common stock; authorized 5,000,000
shares of $.10 par value; no shares issued - - - - - -
Common stock; authorized 5,000,000 shares
of $.10 par value; issued 886,520 and 890,600 88,652 89,060
Additional paid-in capital 739,288 742,688
Retained earnings 1,781,756 1,803,098
---------- ----------
Total Stockholders' Equity 2,609,696 2,634,846
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $4,215,109 $4,257,222
========== ==========
</TABLE>
See Notes to Financial Statements
(3)
<PAGE>
FINANCIAL INFORMATION
AMERICAN CONSUMER, INC.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-------------------------
November 28, November 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1996
----------- ------------
<S> <C> <C>
Net income (loss) $ (21,073) $ 1,153
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 135,462 142,188
Deferred income taxes (2,000) 1,600
Deferred income (10,597) (10,598)
Change in operating assets and liabilities:
Certificate of deposit (10,410) (10,118)
Accounts receivable (19,776) (69,206)
Inventories (110,915) (149,300)
Prepaid expenses (1,801) 1,039
Refundable income taxes (26,376) 79,126
Accounts payable (27,253) (80,954)
Accrued sales tax (43,666) 476
Accrued income taxes (24,634) - - -
Other accrued liabilities 22,377 (9,800)
--------- ---------
Net Cash used in operating activities (140,662) (104,394)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property (37,436) (57,481)
Net cash used in investing activities (37,436) (57,481)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in short-term borrowings 143,577 83,439
Principal payments on obligations under capital leases (74,767) (69,716)
--------- ---------
Redemption of common stock (4,077) (727)
--------- ---------
Net cash provided by financing activities 64,733 12,996
--------- ---------
Net decrease in cash (113,365) (148,879)
Cash and cash equivalents at beginning of period 945,222 860,472
--------- ---------
Cash and cash equivalents at end of period 831,857 711,593
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 39,108 $ 994
========= =========
Interest $ 24,486 $ 30,237
========= =========
</TABLE>
See Notes to Financial Statements
(4)
<PAGE>
AMERICAN CONSUMERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation.
The financial statements have been prepared in conformity with generally
accepted accounting principles and general practices within the industry.
The interim financial statements should be read in conjunction with the
notes to the financial statements presented in the Corporation's 1998
Annual Report to Shareholders. The quarterly financial statements reflect
all adjustments which are, in the opinion of management, necessary for a
fair presentation of the results for interim periods. The results for
interim periods are not necessarily indicative of results to be expected
for the complete fiscal year.
(2) Commitments and Contingencies.
Capital expenditures are not expected to exceed $100,000 during the current
fiscal year.
The Company adopted a retirement plan effective January 1, 1995. The plan
is a 401(k) plan administered by BISYS Qualified Plan Services.
Participation in the plan is available to all full-time employees after one
year of service and age 19. Any contribution by the Company will be at the
discretion of the Board of Directors. The Board voted to contribute $10,000
to the plan in 1998 and $15,000 in 1997.
None of the Company's employees are represented by a union.
(3) Securities Purchased Under Agreement to Resell.
The Company invests excess funds in U.S. Government or U.S. Government
Agency securities which are purchased under an agreement to resell (reverse
repurchase agreement). The securities are purchased from a bank but do not
constitute deposits at the bank and are not insured by the Federal Deposit
Insurance Corporation. The bank maintains possession of the securities, but
title of ownership passes to the Company according to the terms of the
agreement. The bank repurchases the securities the business day immediately
following the Company's purchase date. The carrying amount of securities
purchased under agreement to resell approximates fair value. Risk of market
value deterioration is mitigated by the short-term nature of the
transaction and the type of securities purchased. No funds were available
to be invested at November 28, 1998 or at November 29, 1997. Funds in the
amount of $161,256 were invested as of year end at May 30, 1998.
(5)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
----------------------------------- ------------------------------------
November 28, November 29, November 28, November 29,
1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 6,299,480 $ 6,729,757 $ 12,939,024 $ 13,607,628
% Sales Increase (Decrease) (6.39) 0.29 (4.91) (2.52)
Gross Margin % 22.73 21.04 21.80 21.35
Operating and Administrative
Expense:
Amount 1,424,102 1,457,509 2,879,352 2,912,632
% of Sales 22.61 21.66 22.25 21.40
Net Income (Loss) (11,578) (26,196) (21,073) 1,153
</TABLE>
Overall sales decreased 6.39% from sales for the same quarter last year.
This decrease is attributable to increased pressure from competition on the
Company's market share and sales, the effects of which are threatening the
profitability of the Company. The Company's competitors are constantly
conducting sales promotions which are expensive for an operation the size of the
Company to match. Management believes that competitive pressures on the Company
will continue to increase over time as a result of its competitors opening more
new stores in the Company's trade area. Management is continuously seeking to
improve the gross margin and increase profitability by obtaining the lowest cost
for the Company's inventory. Actions taken to improve the gross margin may also
be having a reverse effect on sales. However, the increase in the gross margin
did result in a small profit for the quarter.
Operating and administrative expense for the quarter increased from 21.66%
to 22.61% of sales due primarily to the reduction in sales. The amount of such
expense actually decreased for the quarter. Management is currently making
reductions in advertising expense and reviewing other expenses in an effort to
reduce its operating expenses and increase profitability.
Interest expense decrease due to the reduction in debt relating to the
capital leases. Short-term borrowings increased as a result of the reduced cash
flow.
Inventories were up $110,915 from May 30, which is consistent with prior
periods for this time of year. At November 29, 1997 inventories were $1,887,109.
Refundable income taxes at November 28, 1998 are a result of estimated
taxes paid exceeding the liability due. A liability was recorded at May 30, 1998
and was paid subsequent to year end. The provision for income taxes does not
vary significantly from the statutory rate of 34%.
Inflation:
Although not a current significant factor, the Company continues to seek
ways to cope with the threat of renewed inflation. To the extent permitted by
competition, increased costs of goods and services to the Company are reflected
in increased selling prices for the goods sold by the Company.
(6)
<PAGE>
FINANCIAL CONDITION
Liquidity and Capital Resources:
The Company finances its working capital requirements principally through
its cash flow from operations and short-term borrowing. Short-term borrowing to
finance inventory purchases is provided by the Company's $800,000 line of credit
with a regional bank. An additional line of credit in the amount of $300,000 is
also available from its principal inventory supplier. Long-term borrowing
generally finances capital expansion.
Short-term borrowings consist of unsecured notes payable to the following:
11/28/98 5/30/98 11/29/97
-------- -------- --------
Estate of Beatrice Richardson $128,867 $158,125 $ 93,222
Richardson Testamentary Trust 52,961 50,820 0
Line of Credit-Wachovia Bank 170,693 0 119,217
-------- -------- --------
Total $352,522 $208,945 $212,439
======== ======== ========
Notes to the Estate and to the Richardson Trust are unsecured, payable on
demand and bear interest at .25% below the base rate charged by the regional
bank which provides the Company with its line of credit.
The ratio of current assets to current liabilities was 2.59 to 1 at the end
of the latest quarter, November 28, 1998 as compared to 2.64 to 1 on November
29, 1997 and 2.65 to 1 at the end of the fiscal year ended May 30, 1998. Cash
and cash equivalents constituted 24.35% of the total current assets at November
28, 1998 as compared to 22.09% at November 29, 1997 and 28.13% at May 30, 1998.
Cash activity is detailed in the Condensed Statements of Cash Flows on page
four.
During the quarter ended November 28, 1998 retained earnings increased as a
result of the Company's net income for the quarter.
Year 2000:
The Year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. As the year 2000
approaches, systems using such programs may be unable to accurately process
certain date-based information. To the extent that the Company's software
applications contain source code that is unable to interpret appropriately the
upcoming calendar year 2000 and beyond, some level of modification or
replacement of such applications will be necessary to avoid system failures and
the temporary inability to process transactions or engage in other normal
business activities.
During fiscal 1998, the Company began evaluating both its information
technology systems and other systems and equipment in order to identify and
adjust date sensitive systems for Year 2000 compliance. The Company's assessment
in its information technology ("IT") area is approximately 33% complete and its
assessment in the non-information technology ("Non-IT") area is approximately 25
% complete. The Company currently expects to complete its primary remediation
efforts (including acquisition and installation of any necessary new equipment
and software by
(7)
<PAGE>
July 31, 1999, leaving approximately five months for testing and verification of
any new systems prior to January 1, 2000.
The total operating expenditures to address the Company's Year 2000 issues
are estimated to be approximately $12,000. Approximately $5,000 of these costs
have been incurred through the second quarter of fiscal 1999. In addition, the
Company expects to incur additional capital expenditures of approximately
$38,000 for new equipment during the remainder of fiscal 1999 and the first
quarter of fiscal 2000.
The Company's IT issues fall into two principal areas: compliance of the
Company's corporate accounting and other record-keeping hardware and software
and compliance of the electronic scanning equipment and related software
utilized for inventory control and the processing of retail customer
transactions in each of the Company's six grocery stores. The Company has
received documentation from the provider of the software utilized in the
Company's corporate accounting and record-keeping functions, certifying the Year
2000 compliant status of all of such software. The Company anticipates replacing
all of the hardware employed in such functions with new hardware that is
certified as Year 2000 compliant by no later than July 31, 1999 at an estimated
cost not to exceed $18,000. Under the terms of the Company's lease of its
electronic scanning equipment from Fleming Companies, Inc., Fleming will be
responsible for testing such equipment for Year 2000 compliance and making any
necessary modifications or replacements. Based on its discussions with Fleming,
the Company also anticipates that this process will be completed by no later
than July 31, 1999.
The risks of Year 2000 issues from a Non-IT standpoint are principally as
follows: electrical outages resulting in breakdown of point of sale systems,
lighting and refrigeration equipment and the loss of utility service. In
addition, certain store equipment may have imbedded chips or microprocessors
that are not Year 2000 compliant. The Company is in the process of identifying
such equipment and either replacing the affected chips or microprocessors or
purchasing new equipment that is compliant. The events noted above could
severely affect Company operations. The Company plans to mitigate the potential
effect of such issues by preparing a contingency plan as discussed below.
Significant risk also arises out of the possible failure of vendors to
respond to Year 2000 issues. The Company's only significant vendor is its
primary inventory supplier, Fleming Companies, Inc. The Company has had
discussions with representatives of Fleming to determine the state if its
readiness and to review its Year 2000 contingency plans. The Company believes
that Fleming is making adequate progress toward Year 2000 compliance for all of
its systems that could impact on Fleming's relationship with the Company, and
does not expect that the Company's business will suffer any material adverse
effects as a result of non-compliance by any of Fleming's systems.
With respect to contingencies, a program is being developed to identify the
additional resources that will be necessary to fully run the Company when and if
it is affected by the foregoing risk factors. Over the remainder of fiscal 1999
and the first six months of fiscal 2000, the Company will continue to expand its
contingency plans and detailed procedures in order to mitigate the effects of
the Year 2000 issues that might affect the Company.
The Company believes that it has allocated sufficient resources to resolve all
significant Year 2000 issues in a timely manner. Accordingly, the Company plans
to be fully Year 2000 compliant (including the completion of all necessary
testing procedures) by November 1999.
(8)
<PAGE>
Forward Looking Statements:
Information provided by the Company, including written or oral statements
made by its representatives, may contain "forward-looking information" as
defined in Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts, which address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such things as expansion and growth of the Company's
business, the effects of future competition, future capital expenditures and the
Company's business strategy, are forward-looking statements. In reviewing such
information it should be kept in mind that actual results may differ materially
from those projected or suggested in such forward-looking statements. This
forward-looking information is based on various factors and was derived
utilizing numerous assumptions. Many of these factors have previously been
identified in filings or statements made by or on behalf of the Company,
including filings with the Securities and Exchange Commission of Forms 10-Q,
10-K and 8-K. Important assumptions and other important factors that could cause
actual results to differ materially from those set forth in the forward-looking
statements include: changes in the general economy or in the Company's primary
markets, changes in consumer spending, competitive factors, the nature and
extent of continued consolidation in the grocery store industry, changes in the
rate of inflation, changes in state or federal legislation or regulation,
adverse determinations with respect to any litigation or other claims, inability
to develop new stores or complete remodels as rapidly as planned, stability of
product costs, supply or quality control problems with the Company's vendors,
issues and uncertainties related to Year 2000, and other issues detailed from
time-to-time in the Company's filings with the Securities and Exchange
Commission.
AMERICAN CONSUMERS, INC.
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS OF FORM 8-K
(a) The following exhibits are filed as a part of the report.
10(c) Collateral Assignment of Deposit between the Company and
Wachovia Bank of Georgia, N.A., dated November 16, 1998
10(d) Commitment letter dated November 20, 1998 between the
Company and Wachovia Bank of Georgia, N.A.
11 Statement re: computation of per share earnings.
27 Financial Data Schedule (EDGAR version only)
(b) During the most recent quarter, the Company has not filed a report on
Form 8-K.
(9)
<PAGE>
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.
AMERICAN CONSUMERS, INC.
(Registrant)
/s/ MICHAEL A. RICHARDSON
Date: 1/11/99 -----------------------------------------------
Michael A. Richardson
CHAIRMAN
(Principal Executive Officer)
/s/ PAUL R. COOK
Date: 1/11/99 -----------------------------------------------
Paul R. Cook
EXECUTIVE VICE PRESIDENT - TREASURER
(Principal Financial Officer & Chief Accounting
Officer)
(10)
Collateral Assignment of Deposit [WACHOVIA LOGO]
Primary Borrower: American Consumers, Inc. Acct. No.: XX XXX XXX XXX X
The undersigned, American Consumers, Inc. (hereinafter collectively and/or
individually referred to as "Pledgor") for value received and in consideration
of extensions of credit as may from time to time be made by Wachovia Bank, N.A.,
a national banking association (hereinafter referred to as "Lender"), to
Pledgor, either directly or indirectly, and/or American Consumers, Inc.
(hereinafter collectively and/or individually referred to as "Borrower"), and to
secure any existing or future indebtedness, liability or obligation whatsoever
of Pledgor and/or Borrower to Lender, whether absolute or contingent, and
whether incurred as principal, maker, endorser, surety, account party or
otherwise (hereinafter collectively referred to as the "Obligations"), Pledgor
hereby pledges, transfers, sets over, assigns and conveys to Lender, and grants
Lender a security interest in and on Certificate of Deposit account number
XXXXXXX standing in the Pledgor's name on the books of Wachovia Bank, N.A.
(hereinafter referred to as "Financial Institution") and all Pledgor's right,
title, equity and interest therein, including, without limitation, all interest
now or hereafter accruing thereon, together with any renewals, replacements
and/or substitutions thereof, or any portion thereof and any deposits hereafter
made therein or in any renewals, replacements and/or substitutions thereof and
any and all proceeds of the foregoing (hereinafter collectively referred to as
the "Collateral"). Notwithstanding anything to the contrary contained herein,
the Collateral shall not secure such Obligations of Pledgor and Borrower to
Lender that are (i) subject to, the disclosure requirements of the Truth in
Lending Act and Federal Reserve Board Regulation Z or (ii) that are extended for
personal, family or household purposes and are subject to any state consumer
protection laws, or (iii) that are subject to the limitations specified in North
Carolina General Statutes Section 24-11, as amended from time to time, unless
specified to the contrary on the appropriate evidence of the Obligations.
Pledgor hereby irrevocably constitutes and appoints Lender its attorney in fact
to transfer said Collateral on the books of the Financial Institution, with full
power of substitution and transfer, including full power and authority to demand
and receive such Collateral, or to transfer it into Lender's name. As used
herein, the term "Obligor" shall mean any endorser, surety or guarantor of the
Obligations.
Pledgor agrees that all or any part of the Collateral, including any
interest accrued thereon, may be redeemed, appropriated and applied to the
payment of the Obligations (even if such application and redemption shall result
in a penalty for early withdrawal), whether or not the Obligations or any part
thereof is due or payable.
In the event a Borrower is named in the first paragraph, Pledgor consents
that, at any time, and from time to time, either with or without consideration,
the whole or any part of any security now or hereafter held for any Obligations
may be exchanged, compromised, or surrendered; the time or place of payment of
any Obligations or of any security thereof may be changed or extended, in whole
or in part, to a time certain or otherwise, and may be renewed or accelerated,
in whole or in part; Borrower may be granted indulgences generally; any of the
provisions of any note or other instrument evidencing any Obligations or any
security therefor may be modified or waived; any party liable for the payment
thereof may be granted indulgences or released; the death, termination of
existence, bankruptcy, insolvency, incapacity, lack of authority or disability
of Borrower or any Obligor shall not affect the obligations of Pledgor hereunder
and no claim need be asserted against the personal representative, guardian,
custodian, trustee or debtor in bankruptcy or receiver of any deceased,
incompetent, bankrupt or insolvent Borrower or Obligor; any deposit balance to
the credit of Borrower, Obligor or any party liable upon any security therefor
may be released, in whole or in part, at, before and/or after the stated,
extended or accelerated maturity of any Obligations; and Lender may release,
discharge, compromise or enter into any accord and satisfaction with respect to
any collateral for the Obligations, or the liability of Borrower or Obligor, all
without notice to or further assent by Pledgor, who shall remain bound hereon,
notwithstanding any such exchange, compromise, surrender, extension, renewal,
acceleration, modification, indulgence, release, discharge or accord and
satisfaction. Further, Pledgor expressly waives: (i) notice of acceptance of
this Agreement and all extensions or renewals of credit or other financial
accommodations to Borrower; (ii) presentment and demand for payment of any of
the Obligations; (iii) protest and notice of dishonor or of default to Borrower,
Obligor or to any other party with respect to any of the Obligations or with
respect to any security therefor; (iv) any invalidity or disability in whole or
in part at the time of the acceptance of, or at any time with respect to, any
security for the Obligations or with respect to any party primarily or
secondarily liable for the payment of the Obligations to Lender; (v) the fact
that any security for the Obligations may at any time or from time to time be in
default or be inaccurately estimated or may deteriorate in value for any cause
whatsoever; (vi) any diligence in the creation or perfection of a security
interest or collection or protection of or realization upon the Obligations or
any security therefor, any liability hereunder, or any party primarily or
secondarily liable for the Obligations or any lack of commercial reasonableness
in dealing with any security for the Obligations; (vii) any duty or obligation
on the part of Lender to ascertain the extent or nature of any security for the
Obligations, or any insurance or other rights respecting such security, or the
liability of any party primarily or secondarily liable for the Obligations, or
to take any steps or action to safeguard, protect, handle, obtain or convey
information respecting, or otherwise follow in any manner, any such security,
insurance or other rights; (viii) any duty or obligation of Lender to proceed to
collect the Obligations
<PAGE>
from, or to commence an action against, Borrower, Obligor, or any other person,
or to resort to any security or to any balance of any deposit account or credit
on the books of Lender in favor of Borrower, Obligor, or any other person,
despite any notice or request of Pledgor to do so; (ix) any rights of Pledgor,
if any, pursuant to Official Code of Georgia Section 10-7-24 if Georgia law is
applicable to this Agreement or North Carolina General Statutes Section 26-7 if
North Carolina law is applicable to this Agreement or any similar or subsequent
law or Sections 49-25 and 49-26 of the Code of Virginia (1950) if Virginia law
is applicable to this Agreement or any similar or subsequent law; (x) to the
extent not prohibited by law, all rights of redemption, stay, appraisal, or
rights which would deny Lender a deficiency judgment which Pledgor now has or
may at any time in the future have under any rule of law or statute now existing
or hereafter enacted; (xi) except as otherwise expressly provided herein, all
other notices to which Pledgor might otherwise be entitled; (xii) any defense as
to invalidity or unenforceability of any Obligation; (xiii) all rights of
subrogation, indemnity, reimbursement or other claims against Borrower and all
rights of recourse against any property of Borrower arising out of or related to
any application of the proceeds of the Collateral to reduce the amount owing by
Borrower under the Obligations; and (xiv) any other legal or equitable defenses
whatsoever to which Pledgor might otherwise be entitled. In addition, Pledgor
hereby agrees and acknowledges that Lender, Borrower and Obligor have not made
any representations or warranties with respect to: (i) Borrower or Obligor or
the financial condition or solvency of Borrower or Obligor, or (ii) the value or
nature of any collateral in which the Lender may have been granted a security
interest.
This Collateral Assignment shall be in full force and effect until all of
the Obligations to Lender have been indefeasibly paid in full and such payments
are no longer subject to rescission, recovery or repayment upon the bankruptcy,
insolvency, reorganization, moratorium, receivership or similar proceeding
affecting Pledgor, Borrower or Obligor, and Lender shall not be obligated to
extend any further Obligations and has terminated this Assignment in writing.
This Collateral Assignment shall be governed by and construed and
interpreted in accordance with the laws of the State of Georgia and any
applicable federal law.
IN WITNESS WHEREOF, the Pledgor has caused this Collateral Assignment to be
executed under seal this 16th day of November, 1998.
If Pledgor is a corporation: American Consumers. Inc.
---------------------------------
Name of Corporation
(Corporate Seal to be affixed here)
Attest: ----------------------------- By: /s/ Michael A. Richardson
Secretary/Assistant Secretary ---------------------------------
Michael A. Richardson
Title: President
-------------------------
If Pledgor is a partnership: (SEAL)
---------------------------
Name of Partnership
By:
-----------------------------
General Partner
By:
-----------------------------
General Partner
If Pledgor is an individual/sole proprietor:
(SEAL)
- -------------------------------------- ---------------------------------
PLEDGOR'S Social Security Number Signature
(SEAL)
- -------------------------------------- ---------------------------------
PLEDGOR'S Social Security Number Signature
<PAGE>
ACKNOWLEDGEMENT OF ASSIGNMENT
The Undersigned consents to, acknowledges and accepts service of the above
and foregoing assignment, and agrees to make payments to Wachovia Bank, N.A., in
accordance with the terms of said assignment, and the undersigned recognizes and
accepts the above assignment as valid and binding upon the undersigned
notwithstanding any term or language to the contrary specified on or governing
the Collateral including, but not limited to, any statement of
non-transferability. In addition, the undersigned (if other than Wachovia Bank,
N.A.) waives all claims, charges and or rights it has or may hereafter have
against the Collateral, including, but not limited to, any statutory or
contractual right or claim of offset or lien resulting from any transaction
which involves the Collateral or which arises out of any relationship that the
undersigned has or may hereafter have with any owner of the Collateral.
The value of said account on the undersigned's books as of
_____________________________________, is $_____________________________ and
there have been no withdrawals since that date. The undersigned's records do not
disclose any liens or claims of any kind against said account except
__________________________________. This __________ day of
________________________, ____________.
By: _____________________________________(SEAL)
Title:_____________________________________
By: _____________________________________(SEAL)
Title:_____________________________________
RELEASE OF ASSIGNMENT
The foregoing assignment is hereby released as of the ________ day of
___________________, ________.
Wachovia Bank, N.A.
By:____________________________________________
Title:_________________________________________
<PAGE>
Collateral Substitution [WACHOVIA LOGO]
Agreement
Date November 16, 1998
For the purposes of this Agreement, the term "Pledgor," shall mean the party or
parties who own and have pledged the collateral referenced herein to secure the
indebtedness referenced below. If Pledgor is not the Borrower, then the Borrower
must also evidence this Agreement through his signature below.
This Collateral Substitution Agreement entered into by and between American
Consumers, Inc. (hereinafter the "Pledgor") and Wachovia Bank, N.A. (hereinafter
the "Lender").
WHEREAS, Pledgor and/or Borrower did on the 5th day of December, 1997,
execute and deliver to Lender a promissory note in the original Principal amount
of Eight Hundred Thousand and 00/100 -- dollars, maturing on _________________
(hereinafter the "Note") secured by certain collateral, a portion of which is as
follows:
Certificate of Deposit #XXXXXXX
(hereinafter the "Collateral"); and
WHEREAS, Pledgor and Borrower now request that Lender release said
Collateral and that the following property be substituted in its place:
Certificate of Deposit #XXXXXXX (hereinafter the "New Collateral").
NOW THEREFORE, in consideration of $1.00 in hand paid by the Pledgor to the
Lender, receipt of which is hereby acknowledged, and in further consideration of
the mutual covenants and agreements between the parties hereto, it is agreed
that:
1. The Collateral will be released upon delivery by Pledgor to Lender of
the New Collateral, which is substituted in the place and stead of the
originally pledged collateral.
2. The New Collateral is the Pledgor's property and title to it is vested
in Pledgor and Pledgor makes the same representations as to the New Collateral
as if it had been originally pledged as security for payment of the Note and the
New Collateral is and shall be subject to each and every term and condition of
the Note and of any security agreement executed in connection therewith, if
applicable, as if the New Collateral had been pledged had been pledged as
security for the payment of the Note at the time of its execution and delivery.
3. Pledgor will sign such financing statement or statements or other
documents, in form satisfactory to Lender, which Lender may at any time wish to
file in order to perfect or maintain perfection of its security interest in the
New Collateral or any other property at any time hereafter pledged by Pledgor to
Lender and shall reimburse Lender for the costs of filing same. Pledgor will
execute and/or deliver to Lender any instrument, invoice, document, assignment,
receipt or other writing or do such other acts which may be necessary or
appropriate, in the sole judgement of Lender, to carry out the terms of this
Agreement, and to perfect its security interest in and facilitate the collection
of the New Collateral, the proceeds thereof, and any other property constituting
security to Lender.
IN WITNESS WHEREOF, Pledgor, Borrower (if Pledgor and Borrower are not one
and the same) and Lender have caused this Agreement to be signed and sealed, as
of the day and year first above written.
Execution continues on reverse side.
<PAGE>
Pledgor: /s/ Michael A. Richardson, President (SEAL)
------------------------------------
American Consumers, Inc.
Pledgor: (SEAL)
----------------------------------------
Borrower: (SEAL)
----------------------------------------
Borrower: (SEAL)
----------------------------------------
Wachovia Bank, N.A.
By: /s/ Gary E. Brown (SEAL)
--------------------------------------------
Gary E. Brown
Title: Assistant Vice President (SEAL)
--------------------------------------------
For Bank Use Only:
Please Print:
Bank Name Gary E. Brown Banker Phone Number 706-275-8222
---------------------------- --------------------
Banker Number XXXXX Banker Fax Number 706-272-7029
------------------------ --------------------
Account Number XXX XXX XXX XXX X Decisioning Lender Number
------------------------ (VA Only)
Borrower(s) American Consumers, Inc. ---------------
------------------------
Wachovia Bank, N.A. [WACHOVIA LOGO]
Northwest Georgia Division
Post Office Box 1088
Dalton, Georgia 30722-1088
November 20, 1998
Mr. Michael A. Richardson, President
American Consumers, Inc.
P.O. Box 2328
Ft. Oglethorpe, Ga. 30742
Dear Mike,
Wachovia Bank, N.A. ("Bank"), is pleased to make available to American
Consumers, Inc. (the "Borrower") an Eight Hundred Thousand Dollar ($800,000)
line of credit. This revolving line of credit will become effective upon your
acceptance of this commitment letter, your return of the executed copy of same
to the Bank along with any required deposit or fees, and, subject to the
conditions set forth herein and the satisfaction and compliance with all terms
and conditions herein and in any other instrument, agreement or document and a
closing of the transaction in a manner satisfactory to the Bank. "Closing",
"close", or "Closed", as used herein, shall mean the execution, recordation
where necessary, and delivery to the Bank of all documentation required by this
commitment letter. After closing, this line of credit will expire on October 1,
1999 (or on demand, whichever is earlier). This line of credit commitment is
subject to the maintenance by Borrower of a condition satisfactory to the Bank
and the following terms and conditions. As used herein, the term "loan" shall
include loan, line of credit, advance, drawing, debit, liability, and any other
obligation of Borrower to the Bank arising out of this commitment.
1. Interest Rate: The rate of interest is the Bank's Prime Rate, presently
7.75%, subject to change by the Bank from time to time. The rate of interest
shall be calculated on the basis of a 360 day year for the actual number of days
in each interest period. Interest shall be due and payable monthly in arrears
commencing on December 1, 1998. As used herein, the "Prime Rate" refers to that
interest rate so denominated and set by the Bank from time to time as an
interest rate basis for borrowings. The Prime Rate is one of several interest
rate bases used by the
1
<PAGE>
Bank. The Bank lends at interest rates above and below the Prime Rate.
2. Use Of Proceeds: The line of credit will be used by Borrower for general
short term working capital purposes.
3. Principal Repayment: The principal of the line of credit will be payable on
demand, and if no demand is made, then on October 1, 1999. The line of credit
shall be paid down to the minimum amount of $405,200.00 for 30 consecutive days
during the term of this commitment.
4. Collateral: The commitment will be secured by a Wachovia Bank, N.A.
certificate of deposit in a minimum amount of $405,200.
5. Loan Documents: At or prior to closing Borrower shall furnish to Bank such
loan documents as the Bank shall deem necessary for its protection. Such
documents shall be duly executed and delivered by your company and all
applicable other parties. All loan documents as well as all questions relating
to the validity shall be determined by and shall be satisfactory to the Bank and
the Bank's counsel. The loan documents which will be in a form satisfactory to
Bank will include, standard corporation documents, evidence of corporate
authority for execution and delivery of all loan documents, promissory note, and
warranties and other documents which the Bank deems necessary in order to
document the loan and assure compliance with the terms hereof. Loan advances,
payments and investments shall be governed by the Wachovia Financial Management
Account Investment/ Line of Credit Agreements previously executed in conjunction
with this commitment.
6. Cross-Default: In addition to any other defaults normally specified in the
Bank's loan documents, Borrower agrees that a default under this Loan will also
cause a default under any other loan or obligation of the Borrower and that a
default under any other loan or obligation of the Borrower to the Bank will
cause a default under this Loan.
7. Financial Information: So long as the commitment is available or any
obligation is outstanding to Bank, Borrower will furnish to Bank quarterly
(within 60 days after the end of each calendar quarter) a balance sheet and
income statement, certified as to their authenticity by your Company's Chief
Financial Officer, and an annual audit (within 90 days after the end of each
fiscal year) certified without material qualification by a
2
<PAGE>
certified public accounting firm acceptable to the Bank and prepared in
accordance with generally accepted accounting principles and practices applied
consistently throughout the period and prior periods.
8. Costs: Borrower agrees to pay all of the costs, expenses, and fees ($200.00)
incurred in connection with the negotiation, preparation for, and closing of the
loan herein committed, whether or not the committed loan is closed.
9. Survival: This commitment and all terms and provisions hereof shall survive
the closing and shall not be merged into any of the loan documents.
10. Non-Assignability: This commitment is not assignable and no party other than
Borrower is entitled to rely on this commitment.
11. Consequential Damages: In no event shall either Borrower or the Bank be
liable to the other for indirect, special, or consequential damages, including
the loss of anticipated profits which may arise out of or are in any way
connected with the issuance of this commitment.
12. Modifications: No condition or other term of this commitment may be waived
or modified except by a writing signed by Borrower and the Bank. This
requirement of a writing to waive or modify provisions of this commitment cannot
itself be waived or otherwise negated by any agreement or other conduct of the
parties, express or implied, other than by a writing to that effect signed by
both parties.
13. Termination Of Commitment: Bank may terminate this commitment prior to the
closing of the transactions contemplated hereby by notice in writing to
Borrower, in the event that: (a) Borrower shall fail or refuse to comply in a
timely manner with any of the terms, provisions or conditions of this
commitment; (b) Bank determines in its sole discretion that a material adverse
change has occurred in the financial condition of Borrower or any Guarantor; (c)
any of the information, data, representations, exhibits and other materials
submitted to Bank by Borrower or any Guarantor shall contain any inaccuracy or
misrepresentation or shall omit to set forth any information that is material to
the completeness and accuracy of such information, data, representations,
exhibits and other materials or to the Bank's decision to issue this commitment;
(d) any default by Borrower or any Guarantor under
3
<PAGE>
any obligation to Bank or any third party shall occur or exist. Upon giving of
such notice by Bank, the obligations and liabilities of the Bank under this
commitment shall cease and terminate.
14. Applicable Law: This commitment shall be interpreted, construed, enforced,
and governed by the laws of the State of Georgia.
Upon return by Borrower to the Bank of a fully-executed copy of this commitment
by December 1, 1998, this commitment will be considered accepted and will
constitute an agreement obligating the Bank to make and Borrower to accept the
loan subject to compliance with and satisfaction of the terms and conditions set
forth above and in the other loan documents. If the executed copy is not
received by the Bank by the date noted above, this commitment shall be
considered null and void. If this commitment is accepted by Borrower, it must be
closed by December 1, 1998 or it will be considered null and void.
Very truly yours,
/s/ GARY E. BROWN
Gary E. Brown
Assistant Vice President
Accepted this 23rd day of November, 1998
American Consumers, Inc.
By: /s/ MICHAEL A. RICHARDSON
Title: PRESIDENT
By: /s/ REBA S. SOUTHERN
Title: SECRETARY
4
AMERICAN CONSUMERS, INC.
NET INCOME PER COMMON SHARE
EXHIBIT 11
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------------ --------------------------------
November 28, November 29, November 28, November 29,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) for computing
earnings per common share $ 11,578 ($ 26,196) ($ 21,073) $ 1,153
========== ========== ========== ========
Weighted average number of
common shares outstanding
during each period 890,067 921,437 889,537 921,366
========== ========== ========== ========
Net income per common share $ 0.013 ($ 0.028) ($ 0.024) $ 0.001
========== ========== ========== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN CONSUMERS, INC. FOR THE FISCAL QUARTER ENDED
NOVEMBER 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-30-1998
<PERIOD-END> NOV-28-1998
<CASH> 1,237,059
<SECURITIES> 0
<RECEIVABLES> 194,911
<ALLOWANCES> 0
<INVENTORY> 1,940,918
<CURRENT-ASSETS> 3,415,678
<PP&E> 2,977,274
<DEPRECIATION> 2,181,843
<TOTAL-ASSETS> 4,215,109
<CURRENT-LIABILITIES> 1,320,079
<BONDS> 0
0
0
<COMMON> 88,652
<OTHER-SE> 2,521,044
<TOTAL-LIABILITY-AND-EQUITY> 4,215,109
<SALES> 12,939,024
<TOTAL-REVENUES> 12,939,024
<CGS> 10,117,832
<TOTAL-COSTS> 10,117,832
<OTHER-EXPENSES> 2,879,352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,486
<INCOME-PRETAX> (36,986)
<INCOME-TAX> (15,913)
<INCOME-CONTINUING> (21,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,073)
<EPS-PRIMARY> (0.024)
<EPS-DILUTED> (0.024)
</TABLE>
