Quarterly Report (10-q)

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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 December 31, 2021

◻	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

AMCON_4C_LOGO.EPS

(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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	DIT	NYSE American

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 every Interactive Data File required to be submitted 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 such files) Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ⌧

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 582,789 shares of its $.01 par value common stock outstanding as of January 14, 2022.

Table of Contents

Form 10-Q

1st Quarter

INDEX


December 31, 2021	PAGE

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed consolidated balance sheets at December 31, 2021 (unaudited) and September 30, 2021	3

Condensed consolidated unaudited statements of operations for the three months ended December 31, 2021 and 2020	4

Condensed consolidated unaudited statements of shareholders’ equity for the three months ended December 31, 2021 and 2020	5

Condensed consolidated unaudited statements of cash flows for the three months ended December 31, 2021 and 2020	6

Notes to condensed consolidated unaudited financial statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3. Quantitative and Qualitative Disclosures About Market Risk	21

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	23

Item 6. Exhibits	23

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2021 and September 30, 2021


	December		September
	2021		2021
	(Unaudited)
ASSETS
Current assets:
Cash	$	840,961	$	519,591
Accounts receivable, less allowance for doubtful accounts of $0.8 million at December 2021 and $0.9 million at September 2021		30,861,247		35,844,163
Inventories, net		97,742,318		95,212,085
Prepaid expenses and other current assets		4,830,698		4,999,125
Total current assets		134,275,224		136,574,964

Property and equipment, net		15,449,705		16,012,524
Operating lease right-of-use assets, net		16,942,549		17,846,529
Note receivable, net of current portion		3,325,000		3,325,000
Goodwill		4,436,950		4,436,950
Other intangible assets, net		500,000		500,000
Equity method investment		10,406,708		9,380,343
Other assets		312,635		334,819
Total assets	$	185,648,771	$	188,411,129

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,372,775	$	24,235,042
Accrued expenses		9,686,140		11,468,955
Accrued wages, salaries and bonuses		2,892,772		4,489,852
Income taxes payable		1,194,512		867,160
Current operating lease liabilities		5,555,582		5,513,390
Current maturities of long-term debt		566,624		561,202
Total current liabilities		38,268,405		47,135,601

Credit facility		48,447,738		43,650,865
Deferred income tax liability, net		2,704,876		1,531,228
Long-term operating lease liabilities		11,723,408		12,669,157
Long-term debt, less current maturities		4,910,559		5,054,265
Other long-term liabilities		13,611		757,387

Shareholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized		—		—
Common stock, $.01 par value, 3,000,000 shares authorized, 582,789 shares outstanding at December 2021 and 551,369 shares outstanding at September 2021		9,148		8,834
Additional paid-in capital		26,999,735		24,918,781
Retained earnings		83,438,578		83,552,298
Treasury stock at cost		(30,867,287)		(30,867,287)
Total shareholders’ equity		79,580,174		77,612,626
Total liabilities and shareholders’ equity	$	185,648,771	$	188,411,129

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 months ended December 31, 2021 and 2020


	For the three months ended December
	2021		2020
Sales (including excise taxes of $97.1 million and $100.5 million, respectively)	$	422,571,278	$	404,744,774
Cost of sales		395,638,615		381,282,795
Gross profit		26,932,663		23,461,979
Selling, general and administrative expenses		22,390,740		18,599,816
Depreciation		784,245		774,285
		23,174,985		19,374,101
Operating income		3,757,678		4,087,878

Other expense (income):
Interest expense		322,097		376,430
Other (income), net		(40,109)		(41,823)
		281,988		334,607
Income from operations before income taxes		3,475,690		3,753,271
Income tax expense		1,245,000		1,011,000
Equity method investment earnings, net of tax		770,365		335,339
Net income available to common shareholders	$	3,001,055	$	3,077,610

Basic earnings per share available to common shareholders	$	5.33	$	5.61
Diluted earnings per share available to common shareholders	$	5.18	$	5.57

Basic weighted average shares outstanding		563,546		548,125
Diluted weighted average shares outstanding		578,964		552,059

Dividends paid per common share	$	5.18	$	0.18

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 Shareholders’ Equity

for the three months ended December 31, 2021 and 2020


							Additional
	Common Stock			Treasury Stock			Paid-in		Retained
	Shares	Amount		Shares	Amount		Capital		Earnings		Total
THREE MONTHS ENDED DECEMBER 2020
Balance, October 1, 2020	869,867	$	8,697	(332,152)	$	(30,861,549)	$	24,282,058	$	71,362,334	$	64,791,540
Dividends on common stock, $5.18 per share	—		—	—		—		—		(3,038,544)		(3,038,544)
Compensation expense and issuance of stock in connection with equity-based awards	13,722		137	—		—		725,181		—		725,318
Repurchase of common stock	—		—	(68)		(5,738)		—		—		(5,738)
Net income	—		—	—		—		—		3,077,610		3,077,610
Balance, December 31, 2020	883,589	$	8,834	(332,220)	$	(30,867,287)	$	25,007,239	$	71,401,400	$	65,550,186

THREE MONTHS ENDED DECEMBER 2021
Balance, October 1, 2021	883,589	$	8,834	(332,220)	$	(30,867,287)	$	24,918,781	$	83,552,298	$	77,612,626
Dividends on common stock, $5.18 per share	—		—	—		—		—		(3,114,775)		(3,114,775)
Compensation expense and issuance of stock in connection with equity-based awards	31,420		314	—		—		2,080,954		—		2,081,268
Repurchase of common stock	—		—	—		—		—		—		—
Net income	—		—	—		—		—		3,001,055		3,001,055
Balance, December 31, 2021	915,009	$	9,148	(332,220)	$	(30,867,287)	$	26,999,735	$	83,438,578	$	79,580,174

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 three months ended December 31, 2021 and 2020


	December		December
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,001,055	$	3,077,610
Adjustments to reconcile net income from operations to net cash flows from (used in) operating activities:
Depreciation		784,245		774,285
Equity method investment earnings, net of tax		(770,365)		(335,339)
(Gain) loss on sales of property and equipment		(31,000)		(2,000)
Equity-based compensation		710,056		346,891
Deferred income taxes		1,173,648		132,736
Provision for losses on doubtful accounts		(102,000)		(24,000)
Inventory allowance		99,304		172,137
Changes in assets and liabilities:
Accounts receivable		5,084,916		4,589,579
Inventories		(2,629,537)		30,967,449
Prepaid and other current assets		(6,573)		(5,792,622)
Other assets		22,184		40,193
Accounts payable		(5,750,609)		(5,069,889)
Accrued expenses and accrued wages, salaries and bonuses		(1,519,848)		(1,793,704)
Other long-term liabilities		(743,776)		(169,854)
Income taxes payable and receivable		71,352		(211,854)
Net cash flows from (used in) operating activities		(606,948)		26,701,618

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(333,084)		(432,505)
Proceeds from sales of property and equipment		31,000		2,000
Principal payment received on note receivable		175,000		—
Net cash flows from (used in) investing activities		(127,084)		(430,505)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility		439,039,482		385,943,710
Repayments under revolving credit facility		(434,242,609)		(414,863,443)
Proceeds from borrowings on long-term debt		—		3,000,000
Principal payments on long-term debt		(138,284)		(136,119)
Repurchase of common stock		—		(5,738)
Dividends on common stock		(3,114,775)		(105,599)
Settlement and withholdings of equity-based awards		(488,412)		(250,021)
Net cash flows from (used in) financing activities		1,055,402		(26,417,210)
Net change in cash		321,370		(146,097)
Cash, beginning of period		519,591		661,195
Cash, end of period	$	840,961	$	515,098

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	333,941	$	426,655
Cash paid during the period for income taxes		—		1,090,119

Supplemental disclosure of non-cash information:
Equipment acquisitions classified in accounts payable	$	16,591	$	16,007
Dividends declared, not paid		—		2,932,945
Issuance of common stock in connection with the vesting and exercise of equity-based awards		2,280,783		949,812

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 serve customers in 26 states and primarily operate in the Central, Rocky Mountain, and Mid-South regions of the United States.

●

Our retail health food segment (“Retail Segment”) operates twenty 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 4,100 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,700 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In December 2021, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.

Our Wholesale Segment 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, inventory optimization and 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 685,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars Wrigley. 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, through our Healthy Edge, Inc. subsidiary, 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.

Table of Contents

Our Retail Segment operates twenty retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akin’s”), and Earth Origins Market (“EOM”). These stores carry over 35,000 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, has a total of seven locations in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of six locations in Arkansas, Missouri, and Oklahoma. EOM has a total of seven locations in Florida.

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. 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, 2021, 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 December 31, 2021 and December 31, 2020 have been referred to throughout this quarterly report as Q1 2022 and Q1 2021, respectively. The fiscal balance sheet dates as of December 31, 2021 and September 30, 2021 have been referred to as December 2021 and September 2021, respectively.

ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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, 2022 (fiscal 2024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The amendments in this update were effective upon issuance for all entities through December 31, 2022. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.

2. INVENTORIES

Inventories in our wholesale segment consisted of finished goods and are stated at the lower of cost or net realizable value, determined on a FIFO basis. Inventories in our retail segment consisted of finished goods and are stated at the lower of cost or market using the retail method. 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 $0.9 million at December 2021 and $0.8 million at September 2021. 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 at December 2021 and September 2021 was as follows:


	December		September
	2021		2021
Wholesale Segment	$	4,436,950	$	4,436,950

Other intangible assets at December 2021 and September 2021 consisted of the following:


	December		September
	2021		2021
Trademarks and tradenames (Retail Segment)	$	500,000	$	500,000

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting unit which totaled $4.4 million at both December 2021 and September 2021. The Company performs its annual impairment testing during the fourth fiscal quarter of each year or as circumstances change or necessitate. There have been no material changes to the Company’s impairment assessments since its fiscal year ended September 2021.

4. EQUITY METHOD INVESTMENT

The Company and Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale distributor serving the convenience store industry, jointly own and operate Team Sledd, LLC (“Team Sledd”), a limited liability company which owns and operates Sledd’s wholesale distribution business. Sledd contributed substantially all of its assets and stated liabilities to Team Sledd, while the Company contributed $10.0 million in cash, of which $6.5 million was structured as equity and $3.5 million was structured as a secured loan to Team Sledd which is subordinate to the liens of Team Sledd's existing secured lenders.

At December 2021, AMCON owned approximately 49% of Team Sledd’s outstanding equity, with a carrying value of $10.4 million. For the three months ended December 2021 and December 2020, the Company recognized $0.8 million and $0.3 million, respectively, in equity in earnings (net of income taxes) from its investment in Team Sledd. The Company’s secured loan to Team Sledd had a carrying value of $3.3 million and $3.5 million as of December 2021 and September 2021, respectively. As of September 2021, approximately $0.2 million of the secured loan balance was recorded as a component of prepaid expenses and other current assets on the consolidated balance sheet. During Q1 2022, Team Sledd repaid the approximately $0.2 million current balance of the secured loan. Pursuant to an operating agreement between the Company and Sledd, certain membership interests in Team Sledd may be redeemed over a period of years, with such redemptions being funded from the operations of Team Sledd. Any such redemptions would result in a corresponding increase in the percentage of the outstanding equity of Team Sledd owned by AMCON.

Team Sledd’s summarized unaudited financial data for the three months ended December 2021 and December 2020 was as follows:


	For the three months ended December 2021		For the three months ended December 2020
Sales	$	181,417,094	$	164,568,084
Gross profit		9,817,979		7,847,390
Net income before income taxes		2,074,836		1,003,793
Net income attributable to AMCON, net of tax		770,365		335,339

5. DIVIDENDS

The Company paid a $0.18 per share cash dividend on its common stock totaling $0.1 million in each of the three month periods ended December 2021 and December 2020, respectively. During Q1 2022, the Company declared and paid a $5.00 per share special dividend totaling approximately $3.0 million. During Q1 2021, the Company declared a $5.00 per share special dividend totaling approximately $2.9 million that was paid in Q2 2021.

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6. EARNINGS PER SHARE

Basic earnings per share available to common shareholders is calculated by dividing net income by the weighted average number of common shares outstanding for each period. Diluted earnings per share available to common shareholders is calculated by dividing income from operations by the sum of the weighted average number of common shares outstanding and the weighted average dilutive equity awards.


	For the three months ended December
	2021				2020
	Basic		Diluted		Basic		Diluted
Weighted average number of common shares outstanding		563,546		563,546		548,125		548,125
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1)		—		15,418		—		3,934
Weighted average number of shares outstanding		563,546		578,964		548,125		552,059
Net income available to common shareholders	$	3,001,055	$	3,001,055	$	3,077,610	$	3,077,610

Net earnings per share available to common shareholders	$	5.33	$	5.18	$	5.61	$	5.57

(1)	Diluted earnings per share calculation includes all equity-based awards deemed to be dilutive.

7. 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 (“BMO”) participating in a loan syndication.

CREDIT FACILITY

The Facility included the following significant terms at December 2021:

●

A March 2025 maturity date without a penalty for prepayment.

●

$110.0 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 (or equivalent successor rate index) plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company. For this purpose, in no event shall LIBOR be less than zero basis points.

●

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.

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●

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 fixed charge coverage ratio was over 1.0 for the trailing twelve months.

●

Provides that the Company may use up to $5.0 million annually, on a collective basis, for the payment of dividends on its common stock, or other distributions or investments, provided the Company is not in default before or after such dividends, distributions or investments. Additionally, the Company may pay dividends on its common stock, or make other distributions or investments in excess of $5.0 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after such dividends, distributions or investments.

The amount available for use from 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 December 2021 was $109.5 million, of which $48.4 million was outstanding, leaving $61.1 million available.

At December 2021, 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 1.40% at December 2021. For the three months ended December 2021, our peak borrowings under the Facility were $64.3 million, and our average borrowings and average availability under the Facility were $43.9 million and $55.4 million, respectively.

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 (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 would cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, were in default. There were no such cross defaults at December 2021. 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

The Company has issued a letter of credit for $0.6 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

8. EQUITY-BASED INCENTIVE AWARDS

Omnibus Plans

The Company has two equity-based incentive plans, the 2014 Omnibus Incentive Plan and 2018 Omnibus Incentive Plan (collectively the “Omnibus Plans”), which provide for equity incentives to employees. Each Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company. The Omnibus Plans together permit the issuance of up to 135,000 shares of the Company’s common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares, and dividend share awards payable in the form of common stock or cash. The number of shares issuable under the Omnibus Plans is subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. At December 2021, awards with respect to a total of 123,970 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 11,030 shares may be awarded under the Omnibus Plans.

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Stock Options

The following is a summary of stock option activity during Q1 2022:


		Weighted
	Number	Average
	of	Exercise
	Shares	Price
Outstanding at September 2021	22,250	$	86.76
Granted	—		—
Exercised	(7,700)		86.57
Forfeited/Expired	—		—
Outstanding at December 2021	14,550	$	86.86

Restricted Stock Units

At December 2021, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock unit awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:


	Restricted Stock Units(1)		Restricted Stock Units(2)
Date of award:		October 2019		October 2020
Original number of awards issued:		14,550		20,500
Service period:		36 months		36 months
Estimated fair value of award at grant date:	$	1,007,000	$	1,415,000
Non-vested awards outstanding at December 31, 2021:		4,851		13,668
Fair value of non-vested awards at December 31, 2021 of approximately:	$	968,000	$	2,727,000

(1)	9,699 of the restricted stock units were vested as of December 2021. The remaining 4,851 restricted stock units will vest in October 2022.

(2)	6,832 of the restricted stock units were vested as of December 2021. 6,834 restricted stock units will vest in October 2022 and 6,834 will vest in October 2023.

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

The restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on these award provisions, the compensation expense recorded in the Company’s Statement of Operations reflects the straight-line amortized fair value based on the liability method.

The following summarizes restricted stock unit activity under the Omnibus Plans during Q1 2022:


	Number	Weighted
	of	Average
	Shares	Fair Value
Nonvested restricted stock units at September 2021	35,220	$	148.98
Granted	—		—
Vested	(16,701)		139.32
Expired	—		—
Nonvested restricted stock units at December 2021	18,519	$	199.51

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Restricted Stock Awards

At December 2021, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:


	Restricted Stock Awards(1)
Date of award:		October 2021
Original number of awards issued:		15,100
Service period:		36 months
Estimated fair value of award at grant date:	$	2,088,934
Non-vested awards outstanding at December 31, 2021:		15,100
Fair value of non-vested awards at December 31, 2021 of approximately:	$	3,013,000

(1)	The 15,100 restricted stock awards will vest in equal amounts in October 2022, October 2023 and October 2024.

There is no direct cost to the recipients of the restricted stock awards, except for any applicable taxes. The restricted stock awards provide that the recipients receive common stock in the Company, subject to certain restrictions until such time as the awards vest. The recipients of the restricted stock awards are entitled to the customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. All cash dividends and/or distributions payable to restricted stock recipients will be held in escrow until all the conditions of vesting have been met. The compensation expense recorded in the Company’s Statement of Operations reflects the straight-line amortized fair value.

The following summarizes restricted stock award activity under the Omnibus Plans during Q1 2022:


	Number	Weighted
	of	Average
	Shares	Fair Value
Nonvested restricted stock awards at September 2021	—	$	—
Granted	15,100		138.34
Vested	—		—
Expired	—		—
Nonvested restricted stock awards at December 2021	15,100	$	199.51

All Equity-Based Awards (stock options, restricted stock units, and restricted stock awards)

Net income before income taxes included compensation expense of approximately $0.7 million and $0.3 million during Q1 2022 and Q1 2021, respectively, related to the amortization of all equity-based compensation awards. Total unamortized compensation expense related to these awards at December 2021 and September 2021 was approximately $5.0 million and $2.9 million, respectively.

9. 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, equity method investment earnings, net of tax and assets held and charges incurred and income earned by our holding company. The segments are evaluated on revenues, gross margins, operating income (loss), and income (loss) before taxes.

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	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED DECEMBER 2021
External revenues:
Cigarettes	$	279,366,392	$	—	$	—	$	279,366,392
Tobacco		69,068,234		—		—		69,068,234
Confectionery		24,479,036		—		—		24,479,036
Health food		—		11,925,205		—		11,925,205
Foodservice & other		37,732,411		—		—		37,732,411
Total external revenue		410,646,073		11,925,205		—		422,571,278
Depreciation		486,765		297,480		—		784,245
Operating income (loss)		7,438,666		461,585		(4,142,573)		3,757,678
Interest expense		55,495		—		266,602		322,097
Income (loss) from operations before taxes		7,391,732		464,742		(4,380,784)		3,475,690
Equity method investment earnings, net of tax		—		—		770,365		770,365
Total assets		153,998,433		17,710,816		13,939,522		185,648,771
Capital expenditures		176,981		44,445		—		221,426


	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED DECEMBER 2020
External revenue:
Cigarettes	$	276,589,707	$	—	$	—	$	276,589,707
Tobacco		64,845,544		—		—		64,845,544
Confectionery		20,164,577		—		—		20,164,577
Health food		—		11,147,098		—		11,147,098
Foodservice & other		31,997,848		—		—		31,997,848
Total external revenue		393,597,676		11,147,098		—		404,744,774
Depreciation		472,693		301,592		—		774,285
Operating income (loss)		5,788,239		(114,987)		(1,585,374)		4,087,878
Interest expense		29,536		—		346,894		376,430
Income (loss) from operations before taxes		5,769,260		(112,159)		(1,903,830)		3,753,271
Equity method investment earnings, net of tax		—		—		335,339		335,339
Total assets		128,232,076		18,583,221		10,930,821		157,746,118
Capital expenditures		406,440		42,072		—		448,512

10. COMMON STOCK REPURCHASES

The Company did not repurchase any shares of its common stock during the three months ended December 2021. The Company repurchased 68 shares of its common stock during the three months ended December 2020 for cash totaling less than $0.1 million. All repurchased shares were recorded in treasury stock at cost.

11. IMPACT OF COVID-19

The Company continues to monitor a wide range of health, safety, and regulatory matters related to the continuing COVID-19 pandemic including its impact on our business operations. In particular, ongoing supply chain disruptions at consumer packaged goods (CPG) companies and the transportation companies that deliver their products have impacted product availability and costs across all markets including the convenience distribution industry in which our company operates. Additionally, the United States is experiencing an acute workforce shortage and increasing inflation which has created a hyper-competitive wage environment and has increased the Company’s operating costs and impacted its operations. Further, workplace mask, testing, and/or vaccine mandates similar to the recently proposed Emergency Temporary Standard from the Occupational Safety and Health Administration (OSHA) increase workforce complexities in addition to placing additional stress on the supply chain. We believe such measures, whether federal, state, or local, would have a material adverse impact on the Company’s ability to retain employees and staff both of its business segments and increase cost structures. Accordingly, ongoing or future disruptions to consumer demand, our supply chain, product pricing inflation, our ability to attract and retain employees, or our ability to procure products and fulfill orders, could negatively impact the Company’s operations and financial results in a substantially material manner.

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

BUSINESS UPDATE AND IMPACT OF COVID-19

While the Company reported strong Q1 2022 operating results, we remain cautious based on a highly challenging operating environment and a range of other considerations including, but not limited to, those described below.

First, the rapid spread of the Omicron variant of COVID-19 has impacted both of our business segments. The variant’s surge has only amplified the already acute workforce shortage, which has particularly impacted the Company as it relates to staffing warehouse and transportation roles. Further, workplace mask, testing, and/or vaccine mandates similar to the recently proposed Emergency Temporary Standard from the Occupational Safety and Health Administration (OSHA) increase workforce complexities in addition to placing additional stress on the supply chain. We believe such measures, whether federal, state, or local, would have a material adverse impact on the Company’s ability to retain employees and staff both of its business segments, increase cost structures and could negatively impact the Company’s operations and financial results in a substantially material manner.

Secondly, since the onset of the COVID-19 pandemic, both of our business segments experienced an increase in demand and sales across a broad range of products. It remains unclear, however, if these demand trends will remain intact or if they will eventually revert back to more historical levels over time.

Lastly, worldwide supply chains continue to remain highly disrupted, which has impacted product availability and resulted in product pricing inflation and may impact long term demand trends.

All of these factors have contributed to an inflationary environment resulting in higher labor costs and an overall increase in the Company’s cost structure.

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(s),” “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.

It should be understood 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:

●

risks associated with the threat or occurrence of epidemics or pandemics (such as COVID-19 or its variants) or other public health issues, including the continued health of our employees and management, the reduced demand for our goods and services or increased credit risk from customer credit defaults resulting from an economic downturn,

●

risks associated with the imposition of governmental orders (such as the recently proposed OSHA ETS vaccine and testing mandate) restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations,

●	risks associated with the Company’s business model which since the onset of the COVID-19 pandemic has experienced both higher sales volumes and labor costs, and the related risk of sales returning to more historical levels without the Company being able to offset increases in its cost structure,

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●

risks associated with the acquisition of assets or new businesses or investments in equity investees by either of our business segments including, but not limited to, risks associated with purchase price and business valuation risks, vendor and customer retention risks, employee and technology integration risks, and risks related to the assumption of certain liabilities or obligations,

●	increasing competition and market conditions in our wholesale and retail health food businesses and any associated impact on the carrying value and any potential impairment of assets (including intangible assets) within those businesses,

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

●	risks associated with opening new retail stores,

●	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 our brick and mortar retail business and potentially to our wholesale distribution business,

●	the potential impact that ongoing, decreasing, or changing trade tariff and trade policies may have on our product costs or on consumer disposable income and demand,

●

increasing product and operational costs resulting from ongoing COVID-19 related supply chain disruptions, an intensely competitive labor market with a limited pool of qualified workers, and higher incremental costs associated with the handling and transportation of certain product categories such as foodservice,

●	increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand, particularly as it relates to current legislation under consideration which could significantly increase such taxes,

●	higher commodity prices and general inflation which could impact food ingredient costs and demand for many of the products we sell,

●	regulations, potential bans and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and e-cigarette/vaping products by the United States Food and Drug Administration (“FDA”), state or local governmental agencies, or other parties,

●	increases in inventory carrying costs and customer credit risks,

●	changes in pricing strategies and/or promotional/incentive programs offered by cigarette and tobacco 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,

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

●	increasing health care costs for both the Company and consumers and its potential impact on discretionary consumer spending,

●	decreased availability of capital resources,

●	domestic regulatory and legislative risks,

●	poor weather conditions, and the adverse effects of climate change,

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

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●	natural disasters, and domestic or political unrest, or any restrictions, regulations, or security measures implemented by governmental bodies in response to these items,

●	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 condensed consolidated unaudited financial statements (“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, 2021, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during the three months ended December 2021.

FIRST FISCAL QUARTER 2022 (Q1 2022)

The following discussion and analysis includes the Company’s results of operations for the three months ended December 2021 and December 2020:

Wholesale Segment

Retail Segment

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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.

RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER:


	2021			2020			Incr (Decr)		% Change
CONSOLIDATED:
Sales(1)	$	422,571,278		$	404,744,774		$	17,826,504	4.4
Cost of sales		395,638,615			381,282,795			14,355,820	3.8
Gross profit		26,932,663			23,461,979			3,470,684	14.8
Gross profit percentage		6.4	%		5.8	%

Operating expense	$	23,174,985		$	19,374,101		$	3,800,884	19.6
Operating income		3,757,678			4,087,878			(330,200)	(8.1)
Interest expense		322,097			376,430			(54,333)	(14.4)
Income tax expense		1,245,000			1,011,000			234,000	23.1
Equity method investment earnings, net of tax		770,365			335,339			435,026	129.7
Net income available to common shareholders		3,001,055			3,077,610			(76,555)	(2.5)

BUSINESS SEGMENTS:
Wholesale
Sales	$	410,646,073		$	393,597,676		$	17,048,397	4.3
Gross profit		22,378,803			19,367,341			3,011,462	15.5
Gross profit percentage		5.4	%		4.9	%
Retail
Sales	$	11,925,205		$	11,147,098		$	778,107	7.0
Gross profit		4,553,860			4,094,638			459,222	11.2
Gross profit percentage		38.2	%		36.7	%

(1)	Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $7.0 million in Q1 2022 and $6.8 million in Q1 2021.

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 and mix 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.

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SALES – Q1 2022 vs. Q1 2021

Sales in our Wholesale Segment increased $17.0 million during Q1 2022 as compared to Q1 2021. Significant items impacting sales during Q1 2022 included a $18.9 million increase in sales related to price increases implemented by cigarette manufacturers, a $14.2 million increase in sales related to higher sales volumes in our tobacco, confectionery, foodservice, and other categories (“Other Products”), partially offset by a $16.1 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment increased $0.8 million during Q1 2022 as compared to Q1 2021. Of this increase, approximately $1.1 million related to higher sales volumes in our existing stores, partially offset by a $0.3 million decrease in sales volume related to the closure of a non-performing store in our Florida market in the comparative period. Sales in both of our business segments continue to benefit from higher consumer demand across a range of product categories.

GROSS PROFIT – Q1 2022 vs. Q1 2021

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 $3.0 million during Q1 2022 as compared to Q1 2021. Significant items impacting gross profit during Q1 2022 included a $3.1 million increase in gross profit related to higher sales volumes and promotions in our Other Products category, offset by a $0.1 million decrease in gross profit related to cigarette manufacturer price increases and the volume and mix of cigarette cartons sold. Gross profit in our Retail Segment increased $0.5 million during Q1 2022 as compared to Q1 2021. This change was primarily related to a $0.6 million increase in gross margin in our existing stores which have benefited from higher sales volume and improved product mix, partially offset by a $0.1 million decrease in gross margin related to the closure of a non-performing store in our Florida market in the comparative period.

OPERATING EXPENSE – Q1 2022 vs. Q1 2021

Operating expense includes selling, general and administrative expenses and depreciation. Selling, general, and administrative expenses primarily consist of costs related to our sales, warehouse, delivery and administrative departments, including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders. Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. Our Q1 2022 operating expenses increased $3.8 million as compared to Q1 2021. Significant items impacting operating expenses during Q1 2022 included a $2.9 million increase in employee compensation and benefit costs largely due to a highly competitive labor market which has increased wage levels across all functional areas of the Company, particularly for warehouse associates and transportation roles. In addition, the Company experienced a $0.7 million increase in health and other insurance costs, and a $0.4 million increase in fuel costs primarily related to higher diesel fuel prices. These increases were partially offset by a $0.1 million decrease in other Wholesale Segment operating expenses and a $0.1 million decrease in our Retail Segment expenses primarily related to closure of a non-performing store in our Florida market in the comparative period.

INCOME TAX EXPENSE – Q1 2022 vs. Q1 2021

The change in the Q1 2022 income tax rate as compared to Q1 2021 was primarily related to increased nondeductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods and may result in a higher income tax rate during fiscal 2022 as compared to fiscal 2021.

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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 our peak time of operations in the warm weather months, 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 facility agreement (the “Facility”) with Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in the loan syndication. The Facility included the following significant terms at December 2021:

●	A March 2025 maturity date without a penalty for prepayment.

●	$110.0 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 (or equivalent rate index) plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company. For this purpose, in no event shall LIBOR be less than zero basis points.

●	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.

●

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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 Real Estate Loan with BMO which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which would cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, were in default. There were no such cross defaults at December 2021. 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.

Dividend Payments

The Company paid a $0.18 per share cash dividend on its common stock totaling $0.1 million in each of the three month periods ended December 2021 and December 2020, respectively. During Q1 2022, the Company declared and paid a $5.00 per share special dividend totalling approximately $3.0 million. During Q1 2021, the Company declared a $5.00 per share special dividend totalling approximately $2.9 million that was paid in Q2 2021.

Other

The Company has issued a letter of credit for $0.6 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

Off-Balance Sheet Arrangements

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

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.

While the Company believes its liquidity position going forward will be adequate to sustain operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company’s future revenue streams 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.

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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 (“SEC”) 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(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2021 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.

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.

Other

As permitted by the SEC, our assessment of internal control over financial reporting excludes (i) internal control over financial reporting of equity method investees and (ii) internal control over the preparation of any financial statement schedules which would be required by Article 12 of Regulation S-X. However, our assessment of internal control over financial reporting with respect to equity method investees did include controls over the recording of amounts related to our investment that are recorded in the consolidated financial statements, including controls over the selection of accounting methods for our investments, the recognition of equity method earnings and losses and the determination, valuation and recording of our investment account balances.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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, 2021.

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

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

(a) Exhibits



	10.1	Sixth Amendment to Second Amended and Restated Loan and Security Agreement, dated December 21, 2021, between AMCON Distributing Company and Bank of America

	10.2	Form of Restricted Stock Award Agreement under the 2014 Omnibus Incentive Plan

	10.3	Form of Restricted Stock Award Agreement under the 2018 Omnibus Incentive Plan

	31.1	Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, pursuant to section 302 of the Sarbanes-Oxley Act

	31.2	Certification by Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary, 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 Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary, furnished pursuant to section 906 of the Sarbanes-Oxley Act

	101	Interactive Data File (filed herewith electronically)

	104	Cover Page Interactive Data File – formatted in Inline XBRL and included as Exhibit 101

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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: January 18, 2022	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman

Date: January 18, 2022	/s/ Charles J. Schmaderer
	Charles J. Schmaderer,
	Vice President, Chief Financial Officer and Secretary
	(Principal Financial and Accounting Officer)

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