UNITED STATES ~~SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549~~

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

[X]	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)~~	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended November 27, 2010 OR
	For the quarterly period ended August 28, 2010
[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
		For the transition period from _____________ to ______________
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
		Commission File No. 0-5815
	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)
55 Hannah Way, Rossville, GA 30741
(Address of principal executive offices) (Zip Code)
	Registrant’s Telephone Number, including Area Code: (706) 861-3347
	__________________________________________________________________
	(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 o

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)

55 Hannah Way, Rossville, GA 30741
(Address of principal executive offices) (Zip Code)

	Registrant’s Telephone Number, including Area Code: (706) 861-3347

	__________________________________________________________________
	(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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

Large accelerated filer o Accelerated filer o ~~Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company x~~

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Non-accelerated filer o(Do not check if a smaller reporting company	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
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.

o YES x NO

Class			Outstanding at January 7, 2011
COMMON STOCK - $ .10 PAR VALUE			749,475
NON VOTING COMMON STOCK - $ .10 PAR VALUE			----

	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 October 7, 2010
COMMON STOCK - $ .10 PAR VALUE		749,475
NON VOTING COMMON STOCK - $ .10 PAR VALUE		----

ITEM 1. FINANCIAL STATEMENTS

FINANCIAL INFORMATION

AMERICAN CONSUMERS, INC.

CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

(UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS
	THIRTEEN WEEKS ENDED						TWENTY-SIX WEEKS ENDED
FINANCIAL INFORMATION
	November 27,			November 28,			November 27,			November 28,
AMERICAN CONSUMERS, INC.
	2010			2009			2010			2009
CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
NET SALES	$	7,724,696		$	8,138,983		$	15,605,738		$	16,782,881
(UNAUDITED)
COST OF GOODS SOLD		5,921,821			6,171,934			11,888,457			12,783,841
	THIRTEEN WEEKS ENDED
Gross Margin		1,802,875			1,967,049			3,717,281		$	3,999,040
	August 28,				August 29,
OPERATING, GENERAL AND
	2010				2009
ADMINISTRATIVE EXPENSES		2,032,158			2,162,198			4,107,626			4,222,665
NET SALES	$	7,881,042		$	8,643,898
Operating Loss		(229,283	)		(195,149	)		(390,345	)		(223,625	)
COST OF GOODS SOLD		5,966,636			6,611,907
OTHER INCOME (EXPENSE)
Gross Margin		1,914,406			2,031,991
Interest income		1,583			2,013			3,595			3,893
OPERATING, GENERAL AND
Other income		22,642			19,984			42,217			43,151
ADMINISTRATIVE EXPENSES		2,075,468			2,060,467
Loss on disposal of equipment		—			—			(8,708	)		—
Operating Loss		(161,062	)		(28,476	)
Interest expense		(13,579	)		(14,989	)		(30,492	)		(28,391	)
OTHER INCOME (EXPENSE)
Loss Before Income Taxes		(218,637	)		(188,141	)		(383,733	)		(204,972	)
Interest income		2,012			1,880
INCOME TAXES		—			—			—			—
Other income		19,575			23,167
NET LOSS		(218,637	)		(188,141	)		(383,733	)		(204,972	)
Loss on disposal of equipment		(8,708	)		---
RETAINED EARNINGS:
Interest expense		(16,913	)		(13,402	)
Beginning		419,958			1,047,622			585,054			1,064,534
Loss Before Income Taxes		(165,096	)		(16,831	)
Redemption of common stock		—			(551	)		—			(632	)
INCOME TAXES		---			---
Ending	$	201,321		$	858,930		$	201,321		$	858,930
NET LOSS		(165,096	)		(16,831	)
PER SHARE:
RETAINED EARNINGS:
Net Loss	$	(0.292	)	$	(0.248	)	$	(0.512	)	$	(0.268	)
Beginning		585,054			1,064,534
Cash dividends	$	—		$	—		$	—		$	—
Redemption of common stock		---			(81	)
WEIGHTED AVERAGE NUMBER
Ending	$	419,958		$	1,047,622
OF SHARES OUTSTANDING		749,475			759,886			749,475			764,053
PER SHARE:
See Notes to Financial Statements
Net loss	$	(0.220	)	$	(0.022	)
Cash dividends	$	---		$	---
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING		749,475			767,359

See Notes to Financial Statements

FINANCIAL INFORMATION
AMERICAN CONSUMERS, INC.
CONDENSED BALANCE SHEETS
	August 28,				May 29,
	2010				2010
	(Unaudited)
--ASSETS--
CURRENT ASSETS
Cash and cash equivalents	$	347,809		$	824,443
Certificate of deposit		318,509			316,552
Accounts receivable		104,733			117,137
Inventories		2,263,163			2,407,785
Prepaid expenses		48,883			50,433
Total current assets		3,083,097			3,716,350
PROPERTY AND EQUIPMENT - at cost
Leasehold improvements		314,556			314,556
Furniture, fixtures and equipment		3,113,936			3,067,580
		3,428,492			3,382,136
Less accumulated depreciation		(2,891,331	)		(2,860,964	)
		537,161			521,172
TOTAL ASSETS	$	3,620,258		$	4,237,522
--LIABILITIES AND STOCKHOLDERS' EQUITY--
CURRENT LIABILITIES
Accounts payable	$	673,438		$	776,479
Book overdraft		505,849			714,206
Short-term borrowings		679,079			800,541
Current maturities of long-term debt		123,293			107,537
Accrued sales tax		80,625			86,088
Other		213,665			245,199
Total current liabilities		2,275,949			2,730,050
LONG-TERM DEBT		224,400			222,467
STOCKHOLDERS' EQUITY
Nonvoting preferred stock – authorized 5,000,000
shares of no par value; no shares issued		---			---
Nonvoting common stock – authorized 5,000,000
shares-$.10 par value; no shares issued		---			---
Common stock - $.10 par value; authorized 5,000,000
shares; shares issued of 749,475 and 749,475		74,948			74,948
Additional paid-in capital		625,003			625,003
Retained earnings		419,958			585,054
Total Stockholders' Equity		1,119,909			1,285,005
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,620,258		$	4,237,522

FINANCIAL INFORMATION

AMERICAN CONSUMERS, INC.

CONDENSED BALANCE SHEETS

See Notes to Financial Statements

		November 27,			May 29,
		2010			2010

(Unaudited)

--A S S E T S--
CURRENT ASSETS

Cash and cash equivalents	$	404,214		$	824,443
Certificate of deposit		300,000			316,552
Accounts receivable		159,288			117,137
Inventories		2,380,362			2,407,785
Prepaid expenses		57,365			50,433
Total current assets		3,301,229			3,716,350
PROPERTY AND EQUIPMENT - at cost
Leasehold improvements		317,056			314,556
Furniture, fixtures and equipment		3,114,016			3,067,580
		3,431,072			3,382,136
Less accumulated depreciation		(2,920,527	)		(2,860,964	)
		510,545			521,172
TOTAL ASSETS	$	3,811,774		$	4,237,522

--LIABILITIES AND STOCKHOLDERS' EQUITY--
CURRENT LIABILITIES
Accounts payable	$	1,153,357		$	776,479
Book overdraft		613,227			714,206
Short-term borrowings		504,567			800,541
Current maturities of long-term debt		125,163			107,537
Accrued sales tax		87,306			86,088
Other		234,371			245,199
Total current liabilities		2,717,991			2,730,050
LONG-TERM DEBT		192,511			222,467

STOCKHOLDERS' EQUITY
Nonvoting preferred stock – authorized 5,000,000
shares of no par value; no shares issued		—			—
Nonvoting common stock – authorized 5,000,000
shares-$.10 par value; no shares issued		—			—
Common stock - $.10 par value; authorized 5,000,000
shares; shares issued of 749,475		74,948			74,948
Additional paid-in capital		625,003			625,003
Retained earnings		201,321			585,054
Total Stockholders' Equity		901,272			1,285,005
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	3,811,774		$	4,237,522


See Notes to Financial Statements

FINANCIAL INFORMATION AMERICAN CONSUMERS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
		THIRTEEN WEEKS ENDED
		August 28,			August 29,
		2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(165,096	)	$	(16,831	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization		33,464			31,368
Loss on disposal of equipment		8,708			—
Change in operating assets and liabilities:
Accounts receivable		12,404			18,617
Inventories		144,622			(18,797	)
Prepaid expenses		1,550			(9,557	)
Accounts payable		(103,041	)		(24,824	)
Accrued sales tax		(5,463	)		(4,600	)
Other accrued liabilities		(31,534	)		(41,413	)
Book overdraft		(208,357	)		(354,378	)
Net cash used in operating activities		(312,743	)		(420,415	)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in certificate of deposit		(1,957	)		(3,356	)
Purchase of property and equipment		(58,161	)		(5,975	)
Net cash used in investing activities		(60,118	)		(9,331	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings		(121,462	)		203,488
Proceeds from long-term debt		45,000			—
Principal payments on long-term debt		(27,311	)		(29,180	)
Redemption of common stock		—			(1,224	)
Net cash (used in) provided by financing activities		(103,773	)		173,084
Net decrease in cash		(476,634	)		(256,662	)
Cash and cash equivalents at beginning of period		824,443			971,416
Cash and cash equivalents at end of period	$	347,809		$	714,754
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the quarter for: Interest	$	16,263		$	13,402
See Notes to Financial Statements

	FINANCIAL INFORMATION AMERICAN CONSUMERS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

					TWENTY-SIX WEEKS ENDED

		November 27,				November 28,
		2010				2009

CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(383,733	)	$	(204,972	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		66,962			62,417
Loss on disposal of equipment		8,708			—
Change in operating assets and liabilities:
Accounts receivable		(42,151	)		(11,732	)
Inventories		27,423			(155,192	)
Prepaid expenses		(6,932	)		(17,520	)
Accounts payable		376,878			(94,105	)
Book overdraft		(100,979	)		110,613
Accrued sales tax		1,218			(8,119	)
Other accrued liabilities		(10,828	)		(11,564	)

Net cash used in operating activities		(63,434	)		(330,174	)

CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in certificate of deposit		16,552			(5,319	)
Purchase of property and equipment		(65,043	)		(17,704	)
Net cash used in investing activities		(48,491	)		(23,023	)

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings		(295,974	)		15,226
Proceeds from long-term borrowings		45,000			—
Principal payments on long-term debt		(57,330	)		(58,307	)
Redemption of common stock		—			(9,560	)

Net cash used in financing activities		(308,304	)		(52,641	)

Net decrease in cash		(420,229	)		(405,838	)
Cash and cash equivalents at beginning of period		824,443			971,416
Cash and cash equivalents at end of period	$	404,214		$	565,578

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:

Cash paid during the six months for:
Interest	$	30,917		$	28,391


See Notes to Financial Statements

~~AMERICAN~~MERICAN CONSUMERS, INC.

NOTES TO FINANCIAL STATEMENTS

(1) Basis of Presentation.

The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

The interim financial statements have not been audited and should be read in conjunction with the notes to the financial statements presented in the Corporation’s 2010 Annual Report to Shareholders. The quarterly financial statements reflect all adjustments ~~which~~that are, in the opinion of management, necessary for a fair presentation of the results for interim periods. All such adjustments are of a normal recurring nature. The results for the interim periods are not necessarily indicative of the results to be expected for the complete fiscal year.

(2) Commitments and Contingencies.

We presently estimate that capital expenditures for required replacements of equipment in the ordinary course during the remainder of fiscal 2011 will be $100,000 or less, which we expect to be funded from operating cash flows. Such expenditures would be in addition to $5865,~~161~~043 already expended during the first ~~quarter~~two quarters of fiscal 2011, with the most significant expenditure being $58,161 for new hand-held price scanning guns that the Company had to purchase to replace older refurbished equipment, in order to maintain the necessary compliance with the Payment Card Industry Data Security Standard (“PCI compliance”) for the processing of debit and credit card transactions. The purchase price for this equipment was funded in part through a new $45,000, three-year term loan from Gateway Bank & Trust, with the remainder being funded out of working capital. Additional capital expenditures through the end of the second quarter included leasehold improvements at one of our locations in the amount of $2,500 and the purchase of an electric pallet jack in the amount of $4,382 at another location. If it becomes necessary to replace the Company’s maintenance vehicle in this fiscal year, the estimated cost of replacement will be approximately $3540,000., which would be in addition to the $100,000 estimated expenditures for ordinary course replacements discussed above. Future vehicle replacements, to the extent not paid for in cash, are expected to be funded through either bank or manufacturer financing, whichever option will provide the Company with the most favorable terms. While management is attempting to postpone future store improvements (which would include, among other things, replacement of certain older refrigeration equipment with more modern, attractive and energy-efficient cases), such improvements may be necessary prior to the end of fiscal 2011. We cannot reliably estimate the cost of any such improvements at the present time, but we will attempt to manage the costs and the timing of such improvements in a manner which both contains the Company’s overall costs and allows us to finance these costs on the most favorable terms that we are able to obtain.

The Company has a 401(k) plan that is administered by Frontier Trust Company, which was formally administered by Capital Bank and Trust Company. Participation in the plan is available to all full-time employees after one year of service and age 19. The Company’s annual contributions to the plan are discretionary. The Company’s contribution to the plan was $7,500 in each of fiscal years 2010 and 2009.

(3) Fair Value Disclosures.

Fair Value Measurements:

ASC Topic 820, “Fair Value Measurements and Disclosures”, (ASC Topic 820) defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC Topic 820 applies only to the fair-value measurements that are already required or permitted by other accounting standards and is expected to increase the consistency of those measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

fair value measurements. ASC Topic 820 applies only to fair-value measurements that are already required or permitted by other accounting standards and is expected to increase the consistency of those measurements. The definition of fair value focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not the entry price, i.e., the price that would be paid to acquire the asset or received to assume the liability at the measurement date. The statement emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, the fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.

ASC Topic 820 also establishes a three-tier fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 – Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company has no assets or liabilities whose fair values are measured using levels 1, 2, or 3 inputs.

Fair value of financial instruments:

The carrying values of cash and cash equivalents, the certificate of deposit, accounts receivable, short-term borrowings, accounts payable, accrued expenses and other liabilities are reasonable estimates of their fair values because of the short maturity of these financial instruments. Based on the borrowing rates available to the Company for long-term debt with similar terms and average maturities, the carrying amounts approximate the fair value of such financial instruments.

(45) Cost of Goods Sold.

Cost of goods sold is comprised of the cost of purchasing the Company’s products (such as groceries and other vendor-supplied products) ~~which are~~ sold during the period. Cost of goods sold is equal to the beginning inventory, plus the cost of goods purchased during the period, less the amount comprising ending inventory. The cost of goods sold shown on the Company’s Statement of Income and Retained Earnings is presented net of rebates from suppliers. These rebates represent cash consideration received from suppliers based primarily on the Company’s volume of purchases from such suppliers. These rebates do not include reimbursement of costs incurred to sell the supplier’s products. In accordance with ASC Topic 605, “Customer Payments and Incentives,” the Company applies rebates from suppliers (excluding rebates for advertising costs) as a reduction in cost of goods sold.

(6) Subsequent Events.

on the Company’s Statement of Operations and Retained Earnings is presented net of rebates from suppliers. These rebates represent cash consideration received from suppliers based primarily on the Company’s volume of purchases from such suppliers. These rebates do not include reimbursement of costs incurred to sell the supplier’s products. In accordance with ASC Topic 605, “Customer Payments and Incentives,” the Company applies rebates from suppliers (excluding rebates for advertising costs) as a reduction in cost of goods sold.

(5) Subsequent Events.

The Company has evaluated subsequent events for potential recognition and/or disclosures in the condensed financial statements and accompanying notes included in this Quarterly Report on Form 10-Q.

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

	THIRTEEN WEEKS ENDED	~~THIRTEEN WEEKS ENDED~~			TWENTY-SIX WEEKS ENDED
		August 28,			August 29,
	November 27,		November 28,		November 27,	November 28,
	2010	~~2010~~	2009		~~2009~~2010	2009
Sales	$	7,881,042		$	8,643,898
% Sales Increase (Decrease)		(8.83%)			(1.61%)
Gross Margin %		24.29%			23.51%
Operating, General and Administrative Expenses:
Amount	$	2,075,468			2,060,467
% of Sales		26.33%			23.84%
Net Loss	$	(165,096)		$	(16,831)

Sales	$7,724,696	$8,138,983	$15,605,738	$16,782,881
% Sales Increase (Decrease)	(5.09%)	(6.46%)	(7.01%)	(4.02%)
Gross Margin %	23.34%	24.17%	23.82%	23.83%
Operating, General and Administrative Expenses:
Amount	$2,032,158	$2,162,198	$ 4,107,626	$ 4,222,665
% of Sales	26.31%	26.57%	26.32%	25.16%
Net Loss	$ (218,637)	$ (188,141)	$ (383,733)	$ (204,972)

Overview:

American Consumers, Inc., (the “Company”), operates eight (8) self-service supermarkets within a compact geographical area that comprises Northwest Georgia, Northeast Alabama, and Southeast Tennessee. All of our supermarkets are operated under the name “Shop-Rite,” and are engaged in the retail sale of groceries including meats, fresh produce, dairy products, frozen foods, bakery products, tobacco products, and miscellaneous other non-food items.

~~The~~Although ~~Company’s~~ sales continued to decline during the ~~first~~ quarter ofended ~~2011~~November 27, ~~decreasing~~2010 byat ~~$762~~the rate of 5.09%,~~856~~ orthat decrease was an improvement over the first quarter decrease of 8.83% as compared to the ~~first~~respective ~~quarter~~prior ofyear ~~fiscal 2010~~periods. This decrease led to the net loss of $~~165~~218,~~096~~637 for the quarter. The significant sales decrease experienced for this quarter represents an unfortunate continuation of the trends noted over the past two years of increasing downward pressure on sales due to a number of factors, including retail price decreases in certain lines as well as a continuation of the trend noted in recent periods of customers purchasing more private label and generic merchandise, which normally retails at lower prices than national brands, magnifying the impact on our selling prices of a sharply more competitive environment that is now widespread in the grocery industry. Management also believes the Company is experiencing an ongoing impact from aggressive promotions by other non-grocery competitors for consumers’ food purchase dollars, such as fast food franchises offering entrée items for one dollar,. Both ~~as both~~ these outlets and more full service restaurants ~~cut~~have ~~prices~~continued ~~this~~aggressive ~~year~~pricing and promotions to increase their share of consumers’ purchases, in response to the trend observed in recent periods of customers preparing meals at home to reduce spending. We also believe that the economy itself is affecting retail grocery sales, as individuals are forced to reduce spending, and purchase only what they need on each trip to the grocery store, in an effort to provide other essentials to their families.

Our gross margin ~~improved~~decreased from 2324.5117% of sales to 2423.2934% of sales for the current quarter ended ~~August~~November 2827, 2010 as compared to the same quarter of the prior fiscal year~~. The~~, ~~first~~although ~~quarter~~the gross margin ~~also~~for ~~represented~~the anfirst ~~improvement~~six ~~over~~months ~~the~~of fiscal 2011 held relatively steady at 23.9582% ~~gross~~as ~~margin~~compared ~~realized~~to 23.83% for the ~~full~~first ~~2010~~six months of fiscal ~~year~~2010. Operating, ~~though~~general itand ~~still~~administrative ~~trails~~expenses ~~the~~decreased ~~24.55%~~by ~~gross~~$130,040 ~~margin~~for ~~realized~~the ~~for~~second ~~fiscal~~quarter ~~2009. Given~~as ~~this~~compared ~~increase~~to inthe ~~gross~~prior ~~margin,~~year ~~management~~period ~~estimates~~(decreasing ~~that~~as ~~the~~a ~~Company~~percentage ~~would~~of ~~have~~sales ~~operated~~from at26.57% ato ~~break~~26.31%), ~~even~~and ~~level~~also ~~during~~decreased by $115,039 for the first ~~quarter~~six ~~had~~months ~~sales~~of ~~not~~fiscal ~~decreased~~2011 as ~~discussed~~compared ~~above~~to the prior year (though constituting 26. ~~Management~~32% isof ~~continuing~~sales as compared to ~~work~~25.16% onfor the ~~gross~~first ~~margin~~six inmonths anof ~~attempt~~fiscal to2010, ~~get~~due ~~back~~ to the 24sales decline).~~55%~~ This ~~level~~slight ~~achieved~~decrease ~~for~~was ~~fiscal~~due ~~2009. Operating,~~to ~~general~~Company ~~and~~management ~~administrative~~reducing controllable expenses ~~for~~where ~~the~~possible, ~~first~~ as

well as to the absence of a $96,390 flood loss incurred during the second quarter of fiscal 2010. The changes in operating, general and administrative expenses are discussed in more detail below. Finally, $3,638 of the second quarter loss was offset by net changes in other income (expense) items, interest income and interest expense, while the net effect of such changes increase the loss for the six month period by $3,333, as discussed below under “Interest and Other Income” for each period presented.

The Company operated at a loss of $188,141 for the quarter ended November 28, 2009 of which $96,390 was related to damage that occurred when a storm drain became clogged due to heavy rains in the parking lot of one of our grocery stores on the night of September 20, 2009. Our landlord at the location where the flooding occurred has replaced the old storm drain with a much better system, which is intended to avoid any similar future problems. In addition to the direct expenses related to the flooding, the store was closed for three days during clean up, which affected the Company’s cash flow due to lost sales estimated by management to have been approximately $45,000.

Overall, sales during the quarter ended November 28, 2009 decreased by $561,914, or 6.46%, compared to the same quarter of the prior year, continuing a trend which began in the first quarter of fiscal 2010 when sales decreased by 1.61% compared to the prior year period. This sales decrease was due in part to the lower prices (both wholesale and retail) on milk and other dairy products during the current quarter as compared to the prior year period, as well as to the additional factors discussed below under “Sales” for both the three and six month periods ended November 28, 2009. In addition to the sales decrease, our gross margin was down by 0.55% from the same period of the prior year, impacting net income by approximately $44,800, due to certain pricing changes made in an effort to stimulate sales during the quarter. Operating, general and administrative expenses, which included the flood loss of $96,390, were up by only $29,511 over the prior year, but were up as a percentage of sales by 2.06%. Without the $96,390 flood loss, these expenses would have been down by $66,879, but still would have equaled 25.38% of sales as compared to 24.51% of sales for the same quarter of the previous year, due to the sales decrease. Changes in operating, general and administrative expenses for the period are discussed in more detail below. Both interest income and other income decreased slightly for the second quarter and first six months of fiscal 2010 as compared to fiscal 2009, due, respectively, to lower prevailing interest rates on the Company’s bank deposits and to variations in the level of various revenue generating activities. Interest expense increased for both the three and six month periods, due largely to additional debt incurred since the first quarter of fiscal 2009 to finance the replacement cycle for the Company’s electronic cash registers and scanning equipment that was completed during fiscal 2009.

Management actively monitors both the gross margin and the Company’s retail pricing structure in an attempt to maximize profitability. Management began working on the Company’s gross margin during the quarter ended August 31, 2002, at which time the gross margin stood at 22.79% for the fiscal year ended June 1, 2002. While occasional improvements in gross profit have been seen in recent periods, such as the 24.55% gross margin we achieved for fiscal 2009 as compared to the gross margins of 23.85% for fiscal 2008 and 23.73% for fiscal 2007, it is difficult to maintain a trend of consistent improvement in the gross margin-as evidenced by the 23.95% gross margin realized for fiscal 2010 – due to competitive conditions which often delay the Company’s ability to pass through price increases experienced at the wholesale level. The gross margin for the current quarter fell to 23.34% as compared to 24.17% for the same quarter of the prior year, due to certain pricing adjustments made in an effort to stimulate sales, while remaining relatively steady at 23.82% for the first six months of fiscal 2011 as compared to

~~quarter increased by only $15,001 as compared to the prior year period, but increased as a percentage of sales from~~ 23.8483% tofor ~~26.33%, due largely to~~ the ~~decrease~~same inperiod ~~sales. The~~of ~~changes~~fiscal ~~in operating, general and administrative expenses are discussed in more detail below~~2010. ~~Finally,~~While ~~$4,034~~management ofattempts ~~the first quarter loss was due~~ to aoffset ~~slight~~increases ~~($132) increase~~ in ~~interest~~its ~~income~~cost onthrough ~~the~~pricing ~~Company’s~~adjustments ~~certificate~~as ofcompetition ~~deposit~~allows, ~~being~~further ~~more~~improvements ~~than offset by a decline of $3,592~~ in ~~other income as compared to~~ the ~~first~~gross ~~quarter~~margin ofmay ~~fiscal~~not ~~2010~~be ~~(due~~achievable ~~mainly~~at tothis ~~variations in activity levels~~time, asand ~~discussed~~further ~~below),~~deterioration ~~as well as by a $3,511 increase~~ in ~~interest expense (due to a slightly higher fixed interest rate on~~ the Company’s ~~newest~~gross ~~equipment~~margin ~~loan,~~is ~~partially offset by slightly lower balances on other debt compared to the prior year period) and a $8,708 loss on disposal of the obsolete scanning guns that were replaced during the quarter~~possible.

~~The~~Management ~~Company~~believes ~~lost~~that ~~$16,831~~competitive ~~during~~pressures on the ~~quarter ended August 29~~Company, ~~2009. Sales~~which ~~decreased~~have byled ~~1.61%, from $8,785,280~~ to ~~$8,643,898. This~~the ~~$141,382~~losses ~~decrease~~experienced in ~~sales~~three ~~was~~out ~~due~~the inlast ~~part~~six tofiscal ~~the~~years, ~~lower~~will ~~prices~~continue ~~(both~~to ~~wholesale~~increase ~~and~~over ~~retail)~~time onas ~~milk~~a ~~and~~result ~~other~~of ~~dairy~~the ~~products~~increased ~~during~~presence ~~the~~of ~~first~~larger ~~quarter~~competitors ofoperating ~~fiscal~~in ~~2010~~the asCompany’s ~~compared~~trade toarea. These ~~the~~competitors ~~prior~~have ~~year~~greater ~~period,~~financial asresources ~~well~~than asthose toof ~~our~~the ~~customers~~Company, ~~continuing~~and tomay ~~alter~~be ~~their~~able ~~buying~~to ~~habits~~obtain bypreferential ~~switching~~treatment from ~~national~~suppliers ~~brands~~in tothe ~~private~~form ~~label~~of ~~brands~~advertising ~~which~~allowances, ~~carry~~ lower ~~retail~~ prices~~. The~~ ~~gross~~and ~~margin~~other ~~was~~concessions ~~down~~not ~~slightly,~~available ~~from 23.75%~~ to 23the Company.~~51%,~~ These ~~impacting~~factors ~~net~~allow ~~income~~our bycompetitors ~~approximately~~to ~~$21,000. Another~~engage ~~factor~~in ~~contributing~~aggressive topricing ~~the~~and ~~net~~promotional ~~loss~~activities ~~for~~that the ~~quarter~~Company ~~was~~cannot ~~a $5~~match,~~555~~ ~~increase~~putting inus ~~interest~~at ~~expense,~~a ~~due~~competitive ~~largely~~disadvantage. toIn ~~additional~~response ~~debt~~to ~~incurred~~these ~~since~~developments, ~~the~~management ~~first~~will ~~quarter~~continue ofseeking ~~fiscal 2009~~ to ~~finance~~manage the ~~replacement cycle for the~~ Company’s ~~electronic~~pricing ~~cash~~structure ~~registers~~to ~~and~~produce ~~scanning~~the ~~equipment~~most ~~that~~favorable ~~was~~balance ~~completed~~between ~~during~~increases ~~fiscal 2009. The decrease~~ in sales ~~and gross margin~~, ~~and~~which ~~the~~help ~~increased~~to ~~interest expense, were partially~~ offset byour afixed ~~net~~operating ~~decrease~~expenses, ofand ~~$48,663~~the ingross ~~operating~~margin, ~~general~~which ~~and~~determines ~~administrative~~the ~~expenses~~profitability ~~(as~~of ~~detailed~~the ~~below)~~additional sales. ~~Interest~~We ~~income~~will ~~for~~attempt ~~the~~to ~~first~~improve ~~quarter~~the ofgross ~~fiscal~~margin ~~2010~~and ~~(principally~~increase ~~comprised~~profitability ofby ~~interest~~working onto ~~our~~obtain ~~certificate~~the oflowest ~~deposit)~~cost ~~decreased~~for ~~from~~the $2Company’s inventory,~~651~~ toand ~~$1,880~~as ~~due~~competition ~~primarily~~permits, toby aperiodically ~~decrease~~implementing adjustments in the ~~interest~~Company’s ~~rate~~overall ~~upon~~mix ~~its~~of ~~annual~~retail ~~renewal~~prices.

Management actively monitors both the gross margin and the Company’s retail pricing structure in an attempt to maximize profitability. Management began working on the Company’s gross margin during the quarter ended August 31, 2002, at which time the gross margin stood at 22.79% for the fiscal year ended June 1, 2002. While occasional improvements in gross profit have been seen in recent periods, such as the 24.55% gross margin we achieved for fiscal 2009 as compared to the gross margins of 23.85% for fiscal 2008 and 23.73% for fiscal 2007, it is difficult to maintain a trend of consistent improvement in the gross margin – as evidenced by the 23.95% gross margin realized for fiscal 2010 – due to competitive conditions which often delay the Company’s ability to pass through price increases experienced at the wholesale level. The 24.29% gross margin realized for the first quarter of fiscal 2011 as compared to a gross margin of 23.51% for the first quarter of the prior year reflects the impact of retail pricing adjustments made during the quarter. While management attempts to offset increases in its costs through pricing adjustments as competition allows, further improvements in the gross margin may not be achievable at this time, and further deterioration in the Company’s gross margin is possible.

Management believes that competitive pressures on the Company, which have led to the losses experienced in three out of the last six fiscal years, will continue to increase over time as a result of the increased presence of larger competitors operating in the Company’s trade area. These competitors have greater financial resources than those of the Company, and may be able to obtain preferential treatment from suppliers in the form of advertising allowances, lower prices and other concessions not available to the Company. These factors allow our competitors to engage in aggressive pricing and promotional activities that the Company cannot match, putting

us at a competitive disadvantage. In response to these developments, management will continue seeking to manage the Company’s pricing structure to produce the most favorable balance between increases in sales, which help to offset our fixed operating expenses, and the gross margin, which determines the profitability of the additional sales. We will attempt to improve the gross margin and increase profitability by working to obtain the lowest cost for the Company’s inventory, and as competition permits, by periodically implementing adjustments in the Company’s overall mix of retail prices.

Our gross margins may not be directly comparable to those of our larger competitors, since some of those companies may include the costs of their internal distribution networks in cost of goods sold – thus impacting the gross margin – while others reflect such costs elsewhere (such as in operating, general and administrative expenses). Unlike many of the larger grocery store chains with which we compete, the Company does not have an internal distribution network. Inventory is delivered directly to our individual store locations by our wholesale supplier, which recovers its distribution costs through the markup that it charges to the Company. Accordingly, our cost of goods sold as reflected in the Company’s financial statements is comprised principally of our direct wholesale cost for the acquisition of such inventory, net of applicable rebates and allowances as discussed under “Inventories” in Note 1 of the financial statements presented in the Company’s 2010 Annual Report to Shareholders.

~~While~~Management ~~management~~ has been working to contain ~~increases in~~ operating, general and administrative expenses as much as possible. Operating, ~~they~~general ~~have~~and ~~continued~~administrative toexpenses ~~rise~~decreased in ~~recent~~the ~~periods,~~second ~~including first~~ quarter ofas ~~fiscal~~compared ~~2011, when they increased $15,001 due mainly~~ to ~~utilities, repairs and services, as well as an unfavorable variance in bad checks expense, as detailed below. We achieved a small measure of success in these efforts for~~ the ~~first~~same quarter of fiscal 2010, ~~with~~due ~~such~~to ~~expenses~~the ~~decreasing~~management ~~by $48,663, or 0.17% as a percentage~~ of ~~sales,~~the asCompany ~~compared~~continuing to ~~the~~work ~~first~~on ~~quarter~~reducing ofcontrollable ~~fiscal 2009~~expenses. While payroll, which comprises approximately 50% of our operating, general and administrative expenses, ~~actually~~ declined for the ~~first~~second quarter of fiscal 2011 as compared to the prior year period, amanagement ~~series of government-mandated increases in the minimum wage in recent years have pushed these costs steadily upward. Management~~ continues to monitor these expenses and continues to evaluate the performance of each of our grocery store locations to determine their long-term value to the Company. Cost increases, combined with the relatively fixed nature of certain of our expenses, mean that whenever sales decrease, due to the effects of ongoing competition or otherwise, prior improvements experienced in these expenses as a percentage of sales will be eroded. As demonstrated by the results for the current quarter and first six months of fiscal 2011, this directly and adversely affects the Company’s operating profits. A more detailed discussion of these expenses and related changes for the periods presented is set forth below under the caption “Operating, General and Administrative Expenses.”

Three Months Ended November 27, 2010 Compared to Three Months Ended November 28, 2009:

Sales:

Sales decreased by $~~762~~414,~~856~~287 (or 85.8309%) for the ~~first~~second quarter of fiscal 2011 as compared to the ~~first~~second quarter of the prior year. ~~All~~Six of the Company’s eight stores experienced sales decreases, ranging from 3.33% to 26.96%, while two stores experienced sales increases ranging from 0.3992% to 281.2322%. The current quarter also continued the recent trend of customers purchasing more private label merchandise, which normally retails at lower prices than national brands, as well as ongoing price competition from non-grocery competitors for consumers’ food expenditures (as discussed above). Management further believes that the economy itself is affecting retail grocery sales, as individuals are forced to reduce spending in an effort to provide other essentials to their families. The location with the largest decrease continues to be adversely impacted by another tenant having moved out of the shopping center where it is located during the fiscal 2006 and been replaced by a tenant which does not generate as much traffic, as well as by generally unfavorable traffic patterns at that location and by the recent opening of another significant grocery chain in its trade area. The situation is further complicated by the fact that this store’s trade area currently has the highest unemployment rate of any of the Company’s eight markets. We will continue to attempt to maintain overall sales levels through active management of the Company’s advertising programs, product selection and overall mix of retail prices throughout the year. We believe that offering a broader selection of generic and private label merchandise than some of our competitors may help to bolster sales, as customers seek out more of these goods to economize on their grocery spending. It is hoped that these trends in consumer preferences will continue and, together with the availability of our check cashing program for customers, will assist us in maintaining sales and thereby offsetting some of the Company’s own increased costs.

Sales decreased $561,914 during the quarter ended November 28, 2009 compared to the quarter ended November 29, 2008. One of the Company’s stores experienced an increase in sales of 0.01%, while the other seven stores experienced sales decreases ranging from 1.87% to 15.41%. Having to close one store for the flood for three days contributed to the $561,914 decrease. A reduction in the retail sales prices of dairy items was one factor contributing to the overall sales decrease. The quarter also continued the recent trend of customers purchasing more private label merchandise, which normally retails at lower prices than national brands. The Company also experienced increased competition from specials being promoted by the restaurant and fast food businesses, which are reducing their retail prices in an effort to increase their share of consumers’ food purchases in response to the trend observed in recent periods of customers preparing more meals at home to reduce spending.

We will continue to attempt to maintain overall sales levels through active management of the Company’s advertising programs, product selection and overall mix of retail prices throughout the year. We believe that offering a broader selection of generic and private label merchandise than some of our competitors may have helped bolster sales in recent periods, prior to the declines experienced for the first half of fiscal 2010, as customers seek out more of these goods to economize on their grocery spending. It is hoped that these trends in consumer preferences will continue and, together with the availability of our check cashing program for customers, will assist us in bolstering sales and thereby offsetting some of the Company’s own increased costs. Of course, as also demonstrated by the current period’s results, pricing adjustments made to

asstimulate ~~well~~sales ascan bycontribute generally unfavorable traffic patterns at that location and by the recent opening of another significant grocery chain in its trade area. The situation is further complicated by the fact that this store’s trade area currently has the highest unemployment rate of any of the Company’s eight markets. A new tenant is currently trying to ~~open~~erosion ~~in the same shopping center as this store, but it is not yet known whether this will have an impact on the performance~~ of ~~our store. Another one of our stores also was affected by~~ the ~~closing~~gross ~~during the quarter of a manufacturing plant that was one of the largest employers in its trade area. We will continue to closely monitor the performance of each of our individual stores~~margin, ~~and~~as ~~will attempt to maintain overall sales levels through active management of~~ the Company’s ~~advertising~~has ~~programs,~~experienced product selection and overall mix of retail prices throughout the year. We believe that offering a broader selection of generic and private label merchandise than some of our competitors may help to bolster sales, as customers seek out more of these goods to economize on their grocery spending. It is hoped that these trends in ~~consumer~~prior ~~preferences will continue and~~years, ~~together~~so ~~with~~maintaining ~~the~~profitable ~~availability~~increases ~~of our check cashing program for customers, will assist us~~ in ~~maintaining~~ sales ~~and~~over ~~thereby~~time ~~offsetting~~may ~~some~~not ofbe ~~the Company’s own increased costs~~achievable.

Sales decreased by $141,382 (or 1.61%) for the first quarter of fiscal 2010 from the same quarter of fiscal 2009. Six of the Company’s stores experienced sales decreases, ranging from 0.11% to 7.00%. The two remaining stores showed increased sales for the current quarter of 0.19% and 2.15%, respectively. A reduction in the retail sales prices of dairy items was one factor contributing to the overall sales decrease. The trend of customers purchasing more private label merchandise, which normally retails at lower prices than national brands, also was reflected in this quarter’s sales. As noted above, one location continued to be adversely impacted by another tenant having moved out of the shopping center where it is located during fiscal 2006 and been replaced by another tenant which does not generate as much traffic.

Gross Margin:

~~Due~~Management towas ~~retail~~unable ~~pricing~~to ~~adjustments~~maintain ~~implemented during~~ the ~~quarter~~gross ~~ended~~margin onof ~~August~~24.29% ~~28,~~achieved ~~2010,~~during the ~~Company’s~~first ~~gross~~quarter ~~margin~~of ~~increased~~fiscal ~~by 0~~2011.~~78%~~ However tothe ~~24.29%~~gross ~~from~~margin ~~23.51%~~ for the ~~same~~six ~~quarter~~month aperiod ~~year~~ended ~~ago~~November 27, ~~which~~2010 ~~also~~is ~~represented~~essentially anthe ~~increase~~same ofas ~~0.34%~~for ~~from~~ the ~~23.95%~~six ~~gross~~months ~~margin~~ended weNovember ~~achieved~~28, ~~for fiscal 2010~~2009. Management is attempting to keep the gross margin in line through strategic pricing adjustments while competing with larger chains with more resources available to them to reduce the impact of lower gross margins. IfWhen management is forced to reduce the gross margin in order to remain competitive, ~~such~~as aoccurred ~~decrease~~during ~~would~~the ~~have~~most recent quarter, the reduction has an unfavorable ~~effects~~effect on the Company’s net income. ~~While~~The wereduction ~~achieved~~in angross ~~increase~~margin infrom 24.29% for the ~~gross~~first ~~margin~~quarter and the 23.34% for the ~~current~~second quarter, inis not the norm for the Company. In recent years, the gross margin for the first quarter ofor our fiscal year has been lower than the level typically achieved for the other three quarters, due to sales mix and seasonal Fourth of July promotions. Management will continue its efforts to keep the gross margin in line through strategic pricing adjustments. However, improved margins may be difficult to achieve if sales continue to decrease.

~~The~~Our ~~Company’s~~ gross margin for the second quarter ~~ended~~of ~~August~~fiscal ~~29,~~2010 ~~2009~~increased ~~decreased~~over bythe ~~0.24%,~~gross tomargin ~~23.51%~~achieved ~~from 23.75%~~ for the first quarter ~~of fiscal 2009~~, ~~which~~from ~~also represented a decrease of 1~~23.0451% ~~from~~to ~~the~~ 24.5517%, ~~gross~~although ~~margin~~it wedid ~~achieved~~not ~~for~~reach ~~fiscal~~the ~~2009~~24. As72% ~~noted~~level ~~above,~~achieved ~~while~~for ~~this illustrates~~ the ~~difficulty~~quarter ofended ~~maintaining~~November ~~consistent improvements in the gross margin~~29, ~~management strives to keep the gross margin in line through strategic pricing adjustments balanced with periodic promotions to stimulate sales~~2008.

Operating, General and Administrative Expenses:

The Company’s ~~ongoing~~ operating, general and administrative expenses are comprised mainly of personnel salary and related payroll costs, utilities and telephone expenses, rental payments for leased locations, insurance expense, advertising and promotion expense, general and office supplies expense, repairs and maintenance, depreciation expense, bank service charges and credit card fees, bad checks expense, professional fees, vehicle expenses and other minor miscellaneous expenses. In accordance with ASC Topic 605, ~~“Customer Payments and Incentives,”~~ advertising rebates received from suppliers are deducted from advertising expense within this category.

The ~~following~~ table set forth beginning at the top of the next page details the components of operating, general and administrative expenses, both in absolute terms and as a percentage of the total of all such expenses, for the quarters ended ~~August~~November 2827, 2010 and ~~August~~November 2928, 2009:

Expense Item	First Quarter 2011 Amount	% of First Qtr. 2011 Total	First Quarter 2010 Amount	% of First Qtr. 2010 Total
Payroll	$1,036,760	49.9	$1,055,600	51.3
Utilities & telephone expense	214,176	10.3	202,606	9.8
Rent	167,482	8.1	168,500	8.2
Insurance	154,483	7.4	151,361	7.3
Advertising & promotion	121,198	5.8	125,768	6.1
General & office supplies	82,025	4.0	99,631	4.8
Repairs & maintenance	84,723	4.1	58,712	2.8
Depreciation	33,463	1.6	31,368	1.5
Bank service charges and credit card fees	38,754	1.9	32,680	1.6
Bad checks	19,765	1.0	9,499	0.5
Professional fees	71,869	3.5	63,919	3.1
All other misc.	50,770	2.4	60,823	3.0
TOTAL	$2,075,468	100.0	$2,060,467	100.0

~~Overall,~~Expense ~~operating,~~Item ~~general~~Second ~~and~~Quarter ~~administrative~~2011 ~~expenses~~Amount ~~for~~% ~~the first quarter~~ of ~~fiscal~~Second ~~2011 increased by $15,001 (or 0~~Qtr.~~7%)~~ as2011 ~~compared~~Total toSecond ~~the~~Quarter ~~first quarter of fiscal~~ 2010, asAmount ~~increases~~% ~~totaling~~of ~~$67,088~~Second inQtr. ~~utilities~~2010 and telephone expense, insurance, repairs and maintenance, depreciation, bank service charges and credit card fees, bad checks expense and professional fees were offset by decreases totaling $52,087 in payroll, rent, advertising and promotion expense, general & office supplies expense and all other miscellaneous expenses.Total

Utilities increased by $11,570 (or 5.7%) due to one of the hottest summers on record. Insurance increased by $3,122 (or 2.1%) due to the increase in the Company’s group health, disability and life insurance premiums which took effect January 1, 2010 and the additional cost incurred to purchase “key man” life insurance on our chief executive officer, partially offset by a reduction in the Company’s other insurance premiums. Repairs and maintenance increased by $26,011 (or 44.3%) due to additional repairs required on aging equipment during the quarter. Depreciation expense increased by $2,095 (or 6.7%), reflecting the impact of the new cash registers, scanning

Payroll	$ 1,025,190	50.5	$ 1,074,753	49.7

Utilities & telephone expense	204,365	10.1	199,454	9.2

Rent	167,685	8.3	166,563	7.8

Insurance	148,154	7.3	148,957	6.9

Advertising & promotion	107,797	5.3	123,741	5.7

General & office supplies	88,717	4.4	89,545	4.1

Repairs & maintenance	84,225	4.1	78,507	3.6

Depreciation	33,500	1.6	31,049	1.4

Bank service charges and credit card fees	37,495	1.8	31,386	1.5

Bad checks	8,022	0.4	13,307	0.6

Professional fees	69,997	3.4	52,084	2.4

Flood loss	—	—	96,390	4.5

All other miscellaneous	57,011	2.8	56,462	2.6

TOTAL	$2,032,158	100.0	$2,162,198	100.0

Overall, operating, general and administrative expenses for the second quarter of fiscal 2011 decreased by $130,040 (or 6.0%) as compared to the second quarter of fiscal 2010, as decreases totaling $72,423 in payroll, insurance, advertising and promotion, general and office supplies, bad checks, plus elimination of the $96,390 flood loss, were partially offset by increases totaling $38,773 in utilities and telephone, rent, repairs and maintenance, depreciation, bank service charges and credit card fees, professional fees and all other miscellaneous expenses.

Payroll decreased by $49,563 (or 4.6%), reflecting changes to officers’ pay following the managerial realignment that occurred after the death of our former Chairman and CEO last year, as well as management’s efforts to reduce payroll to help offset the reduction in sales. Insurance decreased $803 (or 0.5%), due to the reduction in the Company’s commercial premiums, including our workmen’s compensation audit, offset by an increase in the Company’s group health premiums which took effect January 1, 2010 and additional cost incurred to purchase “key man” life insurance payable to the Company on our Chief Executive Officer. Advertising and promotion expense decreased $15,944 (or 12.9%), as a result of a decrease in the cost of one of our promotional programs due to the decreased sales levels, as well as management’s efforts to reduce amounts spent on advertising. The reduction of $828 (or 0.9%) in general and office supplies expense is due primarily to a reduction in supplies ordered due to the decrease in sales. Bad checks decreased by $5,285 (or 39.7%) as a result of additional measures to increase employee awareness of, and screening for, bad checks, as well as improved collections of bad checks with the Company’s current service provider. The $96,390 flood loss during the second quarter of last year did not recur, resulting in the elimination of that item.

Utilities increased by $4,911 (or 2.5%) due to rates being raised by the utility company. Rent increased by $1,122 (or 0.7%) due to a rent increase at one of our locations. Repairs and maintenance increased by $5,718 (or 7.3%) due to additional repairs required on aging equipment during the quarter. Depreciation expense increased by $2,451 (or 7.9%), reflecting

~~equipment~~the ~~and~~impact ~~other~~of ~~assets~~purchasing ~~purchased~~new equipment since fiscal 2009. Bank service charges and credit card fees increased by $6,~~074~~109 (or 1819.65%) due to volume driven increases in charges billed to the Company by its service provider for credit and debit card processing. ~~Bad~~Professional ~~checks~~fees increased by $1017,~~266~~913 (or ~~108~~34.14%) ~~for the quarter,~~ as wecompared ~~experienced~~to athe ~~significant~~second ~~upswing~~quarter inof ~~individuals~~fiscal ~~attempting~~2010, ~~to pass bad checks~~ due to ~~the~~increased ~~current~~utilization ~~economic~~of ~~conditions~~services. ~~Professional~~All other miscellaneous fees increased by $~~7,950~~549 (or 121.40%) ~~as compared to the first quarter of fiscal 2010, due to increased utilization of services~~.

~~Payroll~~Overall, ~~expense~~operating, ~~decreased~~general and administrative expenses increased by $1829,~~840~~511 (or 1.838%), ~~reflecting~~for ~~changes~~the tosecond ~~officers’~~quarter ~~pay~~of ~~following~~fiscal 2010 as compared to the ~~management~~comparable ~~realignment~~period ~~that~~of ~~occurred~~fiscal ~~after~~2009. These expenses would have actually decreased if not for the ~~death~~flood loss experienced at one of ~~our~~the ~~former~~Company’s ~~Chairman~~retail ~~and~~stores ~~CEO~~in ~~last~~September ~~year~~2009. Apart from the flood loss, asthe ~~well~~Company achieved a net decrease of $66,879 in these expenses as compared to the second quarter of fiscal 2009, reflecting management’s ongoing efforts to ~~reduce~~control ~~payroll~~costs. Utilities and telephone expense decreased by $14,885 (or 6.94%), due to ~~help~~decreases ~~offset~~in utility rates as well as a mild period of weather experienced during the ~~reduction~~quarter. Insurance expense decreased slightly, due primarily to refunds recognized during the quarter ended November 28, 2009 in ~~sales~~connection with audits of liability policies. ~~Rent~~While essentially flat, advertising and promotion expense decreased slightly, by $1,~~018~~540 (or 01.623%) ~~due~~as compared to the ~~reduction~~same inperiod ~~percentage~~of ~~rents~~fiscal ~~overages~~2009. General ~~related~~and tooffice supplies decreased $15,728 (or 14.94%) due to reduced sales resulting in reduced usage of certain operating supplies, such as grocery bags. ~~The~~Bank service charges and credit card fees decreased by $43,~~570~~620 (or 310.634%), ~~decrease~~as incosts ~~advertising~~continued ~~and~~to ~~promotion~~decline due to a new service provider for credit/debit card transactions. Bad checks expense ~~resulted~~decreased ~~from~~by a$14,306 ~~decrease~~(or in51.81%), reflecting the ~~cost~~continuing favorable impact of ~~one~~having switched all of our ~~promotional~~stores ~~programs~~to ~~due~~a tonew provider for bad check collection and control services during fiscal 2009. Vehicle expense decreased ~~sales~~by ~~levels~~$4,356 as(or ~~well~~32.02%), asdue ~~management~~to expenditures required for several repairs to the Company’s ~~efforts~~aging fleet during the second quarter of fiscal 2009 as compared to ~~reduce~~the ~~amounts~~absence ~~spent~~of onsuch ~~advertising~~expenses in the second quarter of fiscal 2010. ~~The~~All ~~reduction~~other ofmiscellaneous expenses decreased by $1716,~~606~~575 (or 1726.715%), due to a reduction in various miscellaneous expenses not otherwise classified. These reductions were partially offset by increases in certain operating, general and ~~office~~administrative ~~supplies~~expenses, ~~expense~~including isan ~~due~~increase ~~primarily~~in topayroll aexpenses ~~reduction~~of $4,887 (or 0.46%) as the last of the federally mandated increases in ~~supplies~~the ~~ordered~~minimum ~~due~~wage took effect on July 25, 2009, partially offset by management efforts to contain these cost increases through the ~~decrease~~use inof ~~sales.~~more ~~All~~efficient ~~other~~employee ~~miscellaneous~~scheduling. Repairs ~~expenses~~and ~~decreased~~maintenance increased by $102,~~053~~249 (or 162.595%) due to ~~decreased~~additional ~~sales~~work ~~and~~required ~~management~~on the Company’s ~~efforts~~aging equipment during the quarter. Depreciation remained fairly consistent, actually decreasing by $1,435 (or 4.4%) as compared to ~~reduce~~the ~~overall~~second ~~expenses~~quarter of fiscal 2009, while rent expense and professional fees also remained fairly stable.

~~Operating,~~Interest ~~general~~ and ~~administrative~~Other expenses for the first quarter of fiscal 2010 decreased by $48,663 (or 2.3%) as compared to the first quarter of fiscal 2009, as increases totaling $30,037 in payroll, utilities and telephone expense, rent, insurance, depreciation and other miscellaneous expenses were more than offset by decreases totaling $78,700 in advertising and promotion expense, general & office supplies expense, repairs and maintenance, bank service charges and credit card fees, professional fees, and bad checks expense.Income:

~~Payroll~~Other ~~expense~~income ~~increased~~(not byincluding ~~$11,513~~interest ~~(or 1.1%~~income), ~~reflecting~~increased ~~the~~from ~~impact~~$19,984 offor the ~~third~~quarter inended aNovember ~~series of Federally mandated increases in the minimum wage~~28, ~~partially~~2009 ~~offset by management efforts~~ to ~~contain~~$22,642 ~~these~~for ~~cost increases through~~ the ~~use~~quarter ofended ~~more~~November ~~efficient employee scheduling. Utilities and telephone expense increased by $6~~27,~~746~~ ~~(or 3~~2010.~~4%),~~ The ~~primarily~~increase ~~due~~in tocheck ~~increased~~cashing ~~energy~~fees ~~costs. Insurance~~for ~~expense~~the ~~increased~~second byquarter ~~$4,385~~of ~~(or~~fiscal ~~3.0%),~~2011 ~~due~~reflects to an increase in the ~~Company’s~~activity ~~group~~of ~~life,~~check ~~health and disability insurance premiums that took effect January 1~~cashing, ~~2009,~~as ~~partially~~well ~~offset~~as byimproved atraining ~~reduction~~of instore-level ~~the~~employees ~~Company’s other insurance premiums. Rent increased by $2,719 (or 1.6%) due~~ to ~~the~~make ~~renewal~~sure ofthis ~~leases~~fee atis ~~certain~~collected ofon ~~the~~a ~~Company’s~~consistent ~~stores~~basis. ~~Depreciation~~The ~~expense~~increase ~~increased~~of by $~~3,442~~864 ~~(or~~for ~~12.3%), reflecting~~ the ~~impact~~quarter ofended ~~the~~November ~~new cash registers~~27, ~~scanning~~2010 ~~equipment and other assets purchased during fiscal 2009. Other expenses increased by $1,232 (or 2.1%), due to increases~~ in ~~various~~funds ~~miscellaneous~~received ~~expenses~~for ~~not~~handling ~~otherwise~~money ~~classified.~~orders ~~The $5,061 (or 3.9%) decrease in advertising~~ and ~~promotion~~money ~~expense~~transfers ~~resulted from a decrease~~ in the ~~cost~~stores ofwas adue ~~promotional~~to ~~program~~an ~~tied~~increase toin the ~~cost~~volume of ~~milk,~~these ~~which~~transactions ~~also~~as ~~decreased during the first quarter of 2010~~ compared to the ~~same~~prior ~~quarter~~year ~~of fiscal 2009, as well as management’s efforts to reduce amounts spent on advertising~~period. The ~~reduction~~increase of $~~3,775~~906 ~~(or~~for ~~3.7%)~~the inquarter ~~general~~ended ~~and~~November ~~office~~27, ~~supplies~~2010 ~~expense is due primarily to a reduction~~ in ~~supplies~~returned ~~ordered~~check ~~due~~fees toresulted ~~the~~mainly ~~decrease in sales. The first quarter benefited~~ from aenhanced ~~large~~employee ~~reduction~~training inat ~~repairs~~certain ~~and~~of ~~maintenance expense ($25,350, or 30.2% as compared to~~ the ~~prior~~Company’s ~~year~~locations ~~period), as we experienced significantly fewer repairs and maintenance issues as compared~~ to ~~the~~improve ~~first~~consistency ~~quarter~~in ofcollecting ~~fiscal~~these ~~2009~~fees. AsChanges ~~demonstrated~~in by the ~~first~~other ~~quarter~~components of ~~fiscal~~other ~~2011,~~income ~~however,~~presented webelow ~~are~~relate ~~unable~~primarily to ~~reliably~~variations ~~forecast future fluctuations~~ in ~~this expense due to~~ the ~~age~~volume of ~~most of our equipment (apart from~~ the ~~recently~~associated ~~replaced~~activity ~~registers~~or ~~and scanning equipment), and the inability to predict major equipment failures. Bank~~ service ~~charges~~provided ~~and credit card fees decreased~~ by ~~$4,422 (or 11.9%), due mainly to~~ the Company ~~changing~~ during

~~service~~each ~~providers for the handling~~ of ~~credit card activity. Professional fees were down by $6,530 (or 9.3%) for~~ the ~~first quarter of~~ fiscal ~~2010,~~periods ~~due to a slight reduction as compared to the fiscal 2009 period in our ongoing costs to comply with the Sarbanes-Oxley Act of 2002 (which remain elevated overall)~~presented. ~~Finally,~~The ~~the~~components ~~quarter also benefited from a very significant reduction~~ of ~~$33,562~~other ~~(or~~income ~~77.9%)~~for inthe ~~bad~~quarters ~~checks~~ended ~~expense,~~November ~~which more than offset $8~~27,~~358~~ of2010 ~~professional fees associated with switching all of our stores to a new provider for bad check collection~~ and ~~control~~November ~~services~~28, ~~during~~2009 ~~fiscal~~were ~~2009.~~as follows:

THIRTEEN WEEKS ENDED

Description

November 27, 2010

November 28, 2009


Check cashing fees	$14,771	$13,386

Funds received for handling money orders	2,007	1,143

Vendor’s compensation from the States of
Alabama and Georgia for collecting and
remitting sales taxes on a timely basis	3,413	3,501

Returned check fees	2,232	1,326

Revenue related to Fed-Ex shipments/other	219	628

TOTAL	$22,642	$19,984

Interest income decreased by $430 as compared to the second quarter of fiscal 2010, due to the re-pricing of the interest rate on the Company’s certificate of deposit at the latest renewal date. Interest expense decreased by $1,410 due to reductions in long term debt and interest paid on our line of credit.

Six Months Ended November 27, 2010 Compared to Six Months Ended November 28, 2009:

Sales:

Sales for the six months ended November 27, 2010 decreased $1,177,143 (or 7.01%) compared to the same six-month period last year. Seven of the Company’s eight stores experienced sales decreases, ranging from 3.69% to 27.63%, with sales at the other store remaining essentially flat as compared to the first six months of fiscal 2010. As discussed in more detail above in relation to the three month period, competition for consumers’ food dollars both from larger grocery retailers and from the restaurant industry, continuing weakness of the overall economy and retail price reductions on items such as milk and dairy products all contributed to this decrease. Management is continuing to adjust the Company’s retail pricing structure, in response to competitive conditions, in an effort to improve sales levels and maintain a loyal customer base.

Sales for the six months ended November 28, 2009 decreased $703,296 (or 4.02%) compared to the same six-month period of the prior year. Six of the Company’s eight stores experienced sales decreases, ranging from 2.61% to 11.21%, with sales at the other two stores remaining essentially flat as compared to the first six months of fiscal 2009. As discussed in more detail above in relation to the three month period, competition, the economy and retail price reductions on items such as milk and dairy products all contributed to this decrease, as well as the effects of the unscheduled closing in September 2009 due to a flood at one location.

Gross Margin:

The Company’s gross margin percentage for the six months ended November 27, 2010 essentially remained flat, with the margin going from 23.83% to 23.82% as compared to the six months ended November 28, 2009. The gross margin percentage is dependent on our ability to

keep pace with increases in wholesale prices, and our ability to pass those increases on to the customer based on competition. Management is constantly working to strategically adjust the retail prices of our merchandise to recover increases in our wholesale costs, to the extent permitted by competition.

The Company’s gross margin percentage for the six months ended November 28, 2009 decreased from 24.23% to 23.83% as compared to the six months ended November 29, 2008. As noted above, while this illustrates the difficulty of maintaining consistent improvements in the gross margin, management strives to keep the gross margin in line through strategic pricing adjustments balanced with periodic promotions to stimulate sales.

Operating, General and Administrative Expenses:

The following table details the components of operating, general and administrative expenses, both in absolute terms and as a percentage of the total of all such expenses, for the six month fiscal periods ended November 27, 2010 and November 28, 2009:

Expense Item

FY 2011 Six

Month Amount

% of FY 2011 Six

Month Total

FY 2010 Six

Month Amount

% of FY 2010

Six Month Total

Payroll	$2,061,950	50.2	$2,130,353	50.4

Utilities & telephone expense	418,540	10.1	402,060	9.5

Rent	335,167	8.2	336,048	7.9

Insurance	302,637	7.4	300,318	7.1

Advertising & promotion	228,996	5.6	249,508	5.9

General & office supplies	170,742	4.2	189,177	4.5

Repairs & maintenance	168,948	4.1	137,219	3.3

Depreciation	66,963	1.6	62,417	1.5

Bank service charges and credit card fees	76,249	1.9	64,066	1.5

Bad checks	27,788	0.7	22,805	0.5

Professional fees	141,867	3.4	116,003	2.8

Flood loss	—	—	96,390	2.3

All other miscellaneous	107,779	2.6	116,301	2.8

TOTAL	$4,107,626	100.0	$4,222,665	100.0

Overall, the Company’s operating, general and administrative expenses decreased by $115,039 (or 2.7%) for the first six months of fiscal 2011 as compared to the same period last year, reflecting management’s ongoing efforts to control costs. Payroll decreased by $68,403 (or 3.2%), which reflects management’s ongoing efforts to control payroll costs in response to sales decreases. Rent decreased slightly by $881 (or 0.3%) compared to the first half of fiscal 2010 due to a reduction in percentage rent overages related to decreased sales at one store location, partially offset by an increase in base rent at another store location. Advertising and promotion expense decreased by $20,512 (or 8.2%) due to reductions in sales promotions as a result of decreased sales, as well as reductions in advertising programs. General and office supplies decreased $18,435 (or 9.7%), due to reduced sales decreasing the Company’s use of certain operating supplies. Miscellaneous expenses were down $8,522 (or 7.3%), due to several

reductions in various miscellaneous expenses not otherwise classified. The remaining reduction in expenses results from the absence of last year’s $96,390 flood loss.

These reductions were partially offset by increases in other categories of operating, general and administrative expenses. Utilities and telephone expense increased by $16,480 (or 4.1%) due to rising utility rates. Insurance increased by $2,319 (or 0.8%), due to an increase in the group insurance coverage at our last renewal, partially offset by reductions in the annual premium for our commercial coverage. Repairs and maintenance increased $31,729 (or 23.1%) due to the increasing repairs of aging equipment. Depreciation increased by $4,546 (or 7.3%), reflecting the impact of the new cash registers, scanning equipment and other assets purchased since fiscal 2009. Bank service charges and credit card fees increased by $12,183 (or 19.0%), due to increased utilization as customers increase their use of these payment systems. Bad checks increased by $4,983 (or 21.9%) as we experienced a significant upswing in individuals attempting to pass bad checks due to the current economic conditions during the first quarter of fiscal 2011, partially offset by the Company’s efforts to combat this problem through improved screening of checks during the second quarter. Professional fees increased $25,864 (or 22.3%) due to the increased use of services during the period.

In spite of the flood loss experienced in the second quarter, the Company’s operating, general and administrative expenses decreased by $19,152 (or 0.45%) for the first six months of fiscal 2010 as compared to the same period of fiscal 2009, reflecting management’s ongoing efforts to control costs. Without the flood loss, the decrease would have been $115,542 (or 2.72%). Utilities and telephone expense decreased by $8,139 (or 1.98%), for the reasons discussed above in relation to the second quarter. Advertising and promotion decreased by $6,602 (or 2.58%), due to reductions in sales promotions as a result of decreased sales, as well as reductions in advertising programs. General and office supplies expense declined by $19,502 (or 9.35%), due to reduced sales decreasing the Company’s use of certain operating supplies such as grocery bags. Repairs and maintenance declined by $23,101 (or 14.41%), due in part to fewer equipment repairs being required during the first six months of fiscal 2010 as compared to the same period of fiscal 2009. The drop in maintenance expenses also reflected the fact that the maintenance agreements entered into in connection with the new cash registers and scanning equipment purchased during fiscal 2009 initially cost the Company significantly less per year than the comparable agreements covering the equipment that was replaced. During the second quarter of fiscal 2010, however, the first annual increases were triggered on those stores that passed their first anniversary date under these agreements, so these expenses will gradually increase again over time. Bank service charges and credit card fees decreased by $8,042 (or 11.15%), reflecting ongoing cost savings from changing of the Company’s service provider for processing credit and debit card transactions. Bad checks expense decreased by $47,869 (or 67.73%), also due to the change of the Company’s service provider handling bad checks. Professional fees were down $7,456 (or 6.04%) during the first six months of fiscal 2010 as compared to the prior year period, reflecting heavier utilization of professional services during the prior fiscal year in connection with the Company’s first year of compliance with the internal controls provisions of Section 404 of the Sarbanes-Oxley Act of 2002. Vehicle expense decreased by $7,838 (or 32.39%), due to repairs having been required on several vehicles during the first six months of fiscal 2009 as compared to far fewer repairs during the same period of fiscal 2010. Miscellaneous expenses were down $11,922 (or 10.66%), due to several reductions in various miscellaneous expenses not otherwise classified. These reductions were partially offset by increases in certain operating, general and administrative expenses, including an increase in payroll expenses of $16,401 (or 0.78%) due to the scheduled final increase in the minimum wage. Insurance increased $2,981 (or 1.00%), due to an increase in the group insurance premiums, partially offset by reductions in

the annual premium for our commercial coverage. Depreciation increased by $2,007 (or 3.32%), due to items that were placed in service subsequent to November 29, 2008 and subject to depreciation during the period (primarily the remainder of the new cash registers, scanning equipment and other assets purchased during fiscal 2009). Rent remained relatively consistent, increasing by only $3,540 (or 1.06%) due to a lease renewal. Management is continually working to reduce these costs, but the continued reduction is subject to sales levels, the economy, the continued aging of the Company’s equipment, government regulation and many other factors.

Interest and Other Income:

Other income (not including interest income) decreased from $343,~~592~~151 ~~(or~~for ~~15.5%)~~the six months ended November 28, 2009 to $42,217 for the ~~quarter~~six months ended ~~August~~November 2827, 2010, asdue ~~compared~~primarily to variations in the ~~quarter~~volume ~~ended~~of ~~August~~the 29associated activity or service provided by the Company during each of the fiscal periods presented. Returned check fees are down for the first six months of fiscal 2011 but were up for the most recent quarter, ~~2009~~due to employee training at certain locations to increase consistency in collecting these fees. The components of other income for the ~~quarters~~six months ended ~~August~~November 2827, 2010 and ~~August~~November 2928, 2009, ~~apart from interest income,~~ were as follows:

	THIRTEEN WEEKS ENDED
Description	August 28, 2010	August 29, 2009
Check cashing fees	$13,865	$15,008
Funds for handling money orders/transfers	598	1,447
Vendor’s compensation from the States of Alabama and Georgia for collecting and remitting sales taxes on a timely basis	3,489	3,616
Returned check fees	1,212	3,029
Revenue related to Fed-Ex shipments/other	411	67
TOTAL	$19,575	$23,167

TWENTY-SIX WEEKS ENDED

~~The~~Description ~~decrease~~November ~~in check cashing fees for the first quarter of 2011 reflects a reduction in the activity of cash checking~~27, as2010 ~~management~~November ~~attempts to more closely monitor the acceptance of bad checks. A new system was in place at all of the Company’s stores as of the end of the quarter ended August 29~~28, 2009, and the new system scans checks when presented and rejects any checks not deemed good by the system’s database. Other changes in the components of other income presented above relate primarily to variations in the volume of the associated activity or service provided by the Company during each of the fiscal quarters presented. Interest income increased by $132 as compared to the first quarter of fiscal 2010, due primarily to the re-pricing of the interest rate on the Company’s certificate of deposit at the latest renewal date.


Check cashing fees	$28,636	$28,394

Funds received for handling money orders	2,605	2,590

Vendor’s compensation from the States of Alabama and Georgia for collecting and remitting sales taxes on a timely basis	6,902	7,117
Returned check fees	3,445	4,355

	Revenue related to Fed-Ex shipments/other		629		695
	TOTAL		$42,217		$43,151

Interest income decreased by $298 for the first six months of fiscal 2011 as compared to the first six months of fiscal 2010, due to the re-pricing of the interest rate on the Company’s certificate of deposit at the latest renewal date. Interest expense increased by $2,101 for the first six months of fiscal 2011 as compared to the prior year period, due to a slightly higher fixed interest rate on the Company’s newest equipment loan, partially offset by slightly lower balances on the Company’s line of credit and other debt compared to the prior year period.

Income Taxes:

The Company accounts for income taxes in accordance with the provisions of ASC Topic 740, “Income Taxes,” which requires that deferred income taxes be determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. Valuation allowances are used to reduce deferred tax assets to the amount considered likely to be realized.

No amounts have been provided for current and deferred federal and state tax expense in the statements of income for the ~~thirteen~~six ~~weeks~~months ended ~~August~~November 2827, 2010 or ~~August~~November 2928, 2009, as a

1417

result of a continued net operating loss carry-forward and the related full valuation of the Company’s net deferred tax assets.

Inflation:

The Company continues to seek ways to cope with the threat of inflation. To the extent permitted by competition, increased costs of goods and services to the Company are reflected in increased selling prices for the Company’s goods. However, competitive conditions often delay our ability to pass through price increases experienced at the wholesale level. When the Company is forced to raise overall prices of its goods, ~~the~~we ~~Company~~attempt ~~attempts~~ to preserve ~~its~~the Company’s market share bythrough competitive pricing strategies that emphasize weekly-advertised specials.

FINANCIAL CONDITION

Liquidity and Capital Resources:

Changes in the Company’s liquidity and capital resources during the periods presented resulted primarily from the following:

Cash Flows from Operating Activities

During the ~~thirteen~~twenty-six ~~week~~weeks ~~quarter~~ ended ~~August~~November 2827, 2010, the Company used a net amount of $~~312~~63,~~743~~434 in cash ~~flow~~flows from operating activities. In addition to the Company’s net loss of $~~165~~383,~~096~~733 for the ~~quarter~~period, other uses of operating cash flow included: aan ~~decrease~~increase of $~~208~~42,~~357~~151 in ~~the~~accounts ~~book~~receivable ~~overdraft~~(due asprimarily ~~compared~~ to ~~fiscal~~an ~~2010~~increase ~~year~~in ~~end~~advertising ~~(resulting~~and ~~from~~volume-based ~~the~~rebates ~~timing~~from ~~impact~~vendors); ofa ~~draws~~$6,932 ~~and~~increase ~~repayments~~in onprepaid ~~our~~expenses ~~revolving~~(due ~~line~~to ofan ~~credit~~increase in ~~conjunction~~prepaid ~~with~~maintenance ~~the~~charges ~~associated~~as ~~cash~~we ~~management~~entered ~~feature),~~the athird ~~$5,463~~year ~~reduction~~of inthe ~~sales~~Company’s ~~taxes~~maintenance ~~owed~~contract ~~(resulting~~for ~~mainly~~its ~~from~~new ~~decreased~~registers ~~sales~~in some stores),; a decrease in ~~accounts~~the ~~payable~~book overdraft of $~~103~~100,~~041~~979 (~~representing~~resulting afrom ~~reduction~~the intiming ~~trade~~impact ~~payables~~of ~~owed~~draws ~~due~~and repayments on our revolving line of credit in ~~part~~conjunction towith ~~decreased~~the ~~sales~~associated ~~and~~cash ~~decreased~~management ~~inventory~~feature),; and a $3110,~~534~~828 ~~reduction~~decrease in other accrued liabilities (due to the differences in the timing of payments on certain other liabilities in comparing the two periods presented). Offsetting sources of operating cash flow included the impact of non-cash depreciation charges in the amount of $3366,~~464~~962 and the $8,708 book loss on equipment disposed of during the ~~quarter~~six month period, as well as a decrease ~~in accounts receivable~~ of $1227,~~404,~~423 ~~a decrease of $144,622~~ in inventories (due to purchasing adjustments made in response to decreased sales), ~~and~~ a ~~decrease~~$376,878 increase in ~~prepaid~~accounts ~~expenses~~payable (due to timing of $1payments,~~550~~ aswhich resulted in a ~~result~~higher ofbalance aowed ~~decrease~~to inACI’s ~~prepaid~~principal ~~maintenance~~grocery supplier at ~~the~~period end) and an increase of $1,218 in accrued sales tax as sales in November increased relative to earlier months during the ~~quarter~~period.

During the ~~thirteen~~twenty-six ~~week~~weeks ~~quarter~~ ended ~~August~~November 2928, 2009, the Company used a net amount of $~~420~~330,~~415~~174 in cash ~~flow~~flows from operating activities. In addition to the Company’s net loss of $16204,~~831~~972 for the ~~quarter~~period, other uses of operating cash flow included: aan ~~decrease~~increase of $~~354~~11,~~378~~732 in ~~the~~accounts ~~book~~receivable ~~overdraft~~(due asprimarily ~~compared~~ to ~~fiscal~~an ~~2009~~increase ~~year~~in ~~end~~the ~~(resulting~~advertising ~~from~~and ~~the~~volume-based ~~timing~~rebates ~~impact~~from ofvendors ~~draws~~partially ~~and~~offset ~~repayments~~by ona ~~our~~decrease ~~revolving~~in ~~line~~coupons ofreceivable ~~credit~~due into ~~conjunction~~timing ~~with~~of ~~the~~mailing ~~associated~~coupons ~~cash~~for ~~management feature~~redemption),; a $18155,~~797~~192 increase in inventories (due ~~primarily~~ to ~~continued~~seasonal ~~increases~~requirements infor ~~wholesale~~increased ~~costs,~~inventory ~~but also reflecting increases in certain orders from our supplier~~ to ~~mitigate~~meet ~~cost~~customer ~~increases~~demand byduring ~~taking~~the ~~advantage~~holiday ofperiods ~~certain~~in ~~promotional~~November ~~programs~~and December),; a $917,~~557~~520 increase in prepaid expenses as(due ato ~~result~~an ofincrease ~~the~~in ~~timing~~prepaid ofmaintenance ~~payments~~charges ofas ~~insurance~~we ~~premiums~~entered ~~during~~ the ~~current~~second ~~quarter,~~year aof ~~$24,824~~the ~~decrease~~Company’s inmaintenance ~~accounts~~contract ~~payable~~for ~~due~~its tonew aregisters ~~reduction~~ in ~~trade~~some ~~payables~~stores); ~~owed as a result of decreased sales, a~~ $494,~~600~~105 reduction ~~in sales taxes owed as a result~~ of ~~decreased~~accounts ~~sales~~payable, ~~and~~as aamounts ~~$41,413~~owed ~~reduction in other accrued liabilities due~~ to ~~a reduction in accrued management bonuses in current quarter as~~ vendors

1518

were down from the total at the end of fiscal 2009; a decrease of $8,119 in accrued sales tax as sales continue to decrease; and a $11,564 decrease in other accrued liabilities (due to a reduction in accrued management bonuses in current quarter as compared to the prior year period, as well as to differences in the timing of payments on certain other liabilities in comparing the two periods presented. ~~Offsetting~~These ~~sources~~uses of ~~operating~~ cash ~~flow~~were ~~during~~partially ~~the~~offset ~~quarter~~by ~~included~~ the impact of $62,417 of non-cash depreciation ~~charges~~expense, inas ~~the~~well ~~amount~~as ofan $31110,~~368~~613 ~~and~~increase ~~a $18,617 decrease~~ in ~~accounts~~the ~~receivable~~book ~~(due~~overdraft related to acarrying ~~decrease in~~ the ~~amount~~increased ofinventory ~~supplier~~during ~~rebates owed to~~ the ~~Company~~period at(resulting ~~the~~from ~~end of~~ the ~~quarter,~~timing asimpact ~~a result~~ of ~~changes~~draws inand ~~available~~repayments ~~supplier~~on ~~rebate~~our ~~promotions~~revolving inline ~~relation to the mix~~ of ~~merchandise~~credit ~~ordered~~in byconjunction ~~the~~with ~~Company during~~ the ~~two~~associated ~~periods~~cash ~~presented~~management feature).

Cash Flows from Investing Activities

Investing activities used $6048,~~118~~491 of cash flow during the ~~thirteen~~twenty-six weeks ended ~~August~~November 2827, 2010,. Such ~~due~~amount toincluded $5865,~~161~~043 of expenditures for equipment purchases during the ~~purchase~~period, ofas ~~equipment~~described ~~consisting~~above ofin ~~updates~~Note 2 to ~~hand~~the ~~held~~Company’s ~~price~~financial ~~scanning~~statements ~~guns~~for ~~necessitated~~the bysix ~~requirements~~months toended ~~remain~~November ~~PCI~~27, ~~compliant~~2010. This aswas ~~discussed~~partially ~~above~~offset ~~and~~by ana ~~increase~~decrease in the ~~Company’s~~ certificate of deposit inby $16,552, due to the ~~amount~~balance in excess of $1300,~~957~~000 (including accrued interest) being deposited into the Company’s main account at maturity.

Investing activities used $923,~~331~~023 of cash flow during the ~~thirteen~~twenty-six weeks ended ~~August 29~~November 28, 2009,. Such ~~due~~amount toincluded $517,~~975~~704 of expenditures for equipment purchases during the ~~purchase~~period, ofas ~~equipment~~described ~~consisting~~above ofin aNote ~~computer,~~2 ~~two~~to ~~scales~~the ~~and~~Company’s afinancial ~~freezer~~statements ~~door~~for ~~and~~the ansix ~~increase~~months inended ~~the~~November 28, 2009. The balance on Company’s bank certificate of deposit also increased in the amount of $35,~~356~~319 during the period.

Cash Flows from Financing Activities

Financing activities used $~~103~~308,~~773~~304 of additional cash flow during the ~~thirteen~~twenty-six weeks ended ~~August~~November 2827, 2010, as a net decrease of $~~121~~295,~~462~~974 in short-term debt (primarily outstanding borrowings under our line of credit) and payments on long-term debt in the amount of $2757,~~311~~330 were partially offset by proceeds from new term debt in the amount of $45,000 used to assist in the purchase of the hand held ~~price~~ scanning guns that were purchased in the first quarter of fiscal 2011.

Financing activities ~~provided~~used $~~173~~52,~~084~~641 of additional cash flow during the ~~thirteen~~twenty-six weeks ended ~~August~~November 2928, 2009,. Principal ~~as a net increase of $203,488 in short-term debt (primarily outstanding borrowings under our line of credit) was partially offset by~~ payments on long-term debt in the amount of $2958,~~180~~307 and the redemption of common stock in the amount of $19,~~224. The~~560 ~~outstanding~~were ~~balance~~partially onoffset ~~our~~by ~~line of credit fluctuates throughout each quarter, as amounts are continuously drawn and repaid, based on~~ the ~~timing~~increase ofin ~~expenditures~~short-term ~~and~~borrowings ~~revenues, under the terms~~ of ~~the cash management facility with our lender~~$15,226.

Overall, the Company’s cash and cash equivalents decreased by $~~476~~420,~~634~~229 during the ~~first~~twenty-six ~~quarter~~weeks ofended ~~fiscal~~November ~~2011~~27, as2010, ~~compared~~versus to a decrease in cash and cash equivalents of $~~256~~405,~~662~~838 ~~for~~during the ~~first~~twenty-six ~~quarter~~weeks ofended ~~fiscal~~November ~~2010~~28, 2009.

The ratio of current assets to current liabilities was 1.3521 to 1 at the end of the latest quarter, ~~August~~November 2827, 2010 compared to 1.7457 to 1 on ~~August~~November 2928, 2009 and 1.36 to 1 at the end of the fiscal year ended on May 29, 2010. Cash, cash equivalents and the certificate of deposit constituted 21.6133% of the total current assets at ~~August~~November 2827, 2010, as compared to 2925.5107% of ~~the~~ total current assets at ~~August~~November 2928, 2009 and 30.70% of total current assets at May 29, 2010. As previously reported, the Company has increased its reliance on bank financing and working capital management, and has limited additional capital spending where possible, to maintain adequate liquidity to fund operations in connection with the operating losses experienced in five out of the last ten years. As employment and inventory costs increase, management will continue to attempt to compensate

1619

liquidity to fund operations in connection with the operating losses experienced in five out of the last ten years. As employment and inventory costs increase, management will continue to attempt to compensate for the increases through operational efficiencies (including both efficient working capital management and seeking to reduce other expenses where possible), and through seeking to continue the favorable cash management arrangements with our primary lender.

Historically, the Company has financed its working capital requirements principally through its cash flow from operations. Short-term borrowing to finance inventory purchases is currently provided by the Company’s $800,000 line of credit with Gateway Bank & Trust and through borrowings from related parties, as discussed below. The bank line of credit has a 12 month term which requires that it be renewed in May of each year and contains a borrowing base provision that limits the maximum outstanding indebtedness to forty percent (40%) of the value of the Company’s inventory, as measured on a quarterly basis. As of ~~August~~November 2827, 2010, we had $~~121~~295,~~470~~990 available to be borrowed under the line of credit. The bank line of credit is secured by the Company’s certificate of deposit, as well as by a security interest in substantially ~~all of~~ our entire accounts receivable, inventory, machines and equipment, furniture and fixtures and by the personal guarantee of Paul R. Cook, the Company’s Chairman of the Board, Chief Executive Officer and Chief Financial Officer. While we believe that these sources will continue to provide us with adequate liquidity to supply the Company’s working capital needs, if the Company’s operating losses were to increase relative to depreciation and other non-cash charges, our operating cash flows could be adversely affected. If this happens, we could be required to seek additional financing through bank loans, or other sources, in order to meet our working capital needs. If we were required to seek such additional financing and were not able to obtain it, or were unable to do so on commercially reasonable terms, we could be required to reduce the Company’s current level of operations in order to lower our working capital requirements to a level that our present financing arrangements would support.

Short-term borrowings as of specific dates are presented below:

		August 28, 2010			May 29, 2010		August 29, 2009
	November 27, 2010		May 29, 2010	November 28, 2009
Matthew Richardson	$ 557	$	~~549~~$ 541	$ 526	$	~~541~~	$	~~518~~
Line of Credit	504,010		~~678~~800,~~530~~000	611,360		~~800,000~~		~~799,630~~
TOTAL	$504,567	$	~~679~~$800,~~079~~541	$611,886	$	~~800,541~~	$	~~800,148~~

During the ~~quarter~~first ~~ended~~six ~~August~~months ~~28,~~of ~~2010~~fiscal 2011, we increased the Company’s borrowings from related parties by ~~a net amount of~~ $816 (reflecting additional ~~interest~~ accrued interest), and also decreased the outstanding balance under the line of credit by a net amount of $~~121~~295,~~470~~990. We paid a total of $109,~~686~~414 and $614,~~317~~378 in interest on the Company’s outstanding borrowings under its bank line of credit during the first ~~quarter~~six months of fiscal years 2011 and 2010, respectively.

The Company’s line of credit with Gateway Bank & Trust bears interest at the prime rate as published in The Wall Street Journal, subject to a 6.0% floor. The note to Matthew Richardson is unsecured, payable on demand and bear interest at .25% below the base rate charged by Gateway Bank & Trust on the line of credit. Matthew Richardson is a son of principal stockholder Diana Richardson, and is the brother of Todd Richardson, the Company’s Executive Vice President and Chief Operating Officer.

Long-Term Debt:

At ~~August~~November 2827, 2010, long-term debt consisted of (A) a note payable to Gateway Bank & Trust of $6353,~~911~~787 used to pay off Northwest Georgia Bank on a note which financed, in December 2003, the addition of the Company’s eighth grocery store; (B) six notes with an aggregate balance of $223,451 as of November 27, 2010, executed during fiscal 2009 with Gateway Bank & Trust to finance the replacement of cash registers and related equipment at six of the Company’s retail outlets; (C) a note payable to Gateway Bank & Trust of $40,436 which financed, in July 2010, the purchase of hand-held price scanning guns. Long-term debt as of specific dates is presented below:

17November 27, 2010 May 29, 2010 November 28, 2009

the addition of the Company’s eighth grocery store; (B) six notes with an aggregate balance of $239,911 as of August 28, 2010, executed during fiscal 2009 with Gateway Bank & Trust to finance the replacement of cash registers and related equipment at six of the Company’s retail outlets; (C) a note payable to Gateway Bank & Trust of $43,871 which financed, in July 2010, the purchase of hand held price scanning guns. Long-term debt as of specific dates is presented below:

Six notes payable to Gateway Bank & Trust; principal and interest due in monthly installments aggregating $6,685; interest at prime rate plus 0.5%with 6.00% floor, and maturities ranging from August 2013 through March 2014; collateralized by equipment, inventory and personal guarantee of the Company’s CEO	$ 223,451	$ 256,122	$ 287,941

Note payable to Gateway Bank & Trust; principal and interest due in monthly installments of $3,684, through April 2012; interest at prime rate with 6.00% floor; collateralized by equipment, inventory, and personal guarantee of the Company’s CEO	53,787	73,882	93,412

Note payable to Gateway Bank & Trust; principal and interest due in monthly installments of $1,381, through July 2013; interest fixed at 6.50%; collateralized by inventory and personal guarantee of the Company’s CEO	40,436	—	—

Three vehicle installment loans; principal and interest due in monthly installments aggregating $1,591; maturities ranging from January 2010 through July 2010; collateralized by automobiles	—	—	9,399
	$ 317,674	$ 330,004	$ 390,752
Less current maturities	125,163	107,537	113,769
	$ 192,511	$ 222,467	$ 276,983

	August 28, 2010	May 29, 2010	August 29, 2009
Six notes payable to Gateway Bank & Trust; principal and interest due in monthly installments aggregating $6,685; interest at prime rate plus 0.5%with 6.00% floor, and maturities ranging from August 2013 through March 2014; collateralized by equipment, inventory and personal guarantees of the Company’s CEO and CFO	$ 239,911	$ 256,122	$ 303,423
Note payable to Gateway Bank & Trust; principal and interest due in monthly installments of $3,684, through April 2012; interest at prime rate with 6.00% floor; collateralized by equipment, inventory, and personal guarantees of the Company’s CEO and CFO	63,911	73,882	102,936
Note payable to Gateway Bank & Trust; principal and interest due in monthly installments of $1,381, through July 2013; interest fixed at 6.50%; collateralized by equipment, inventory, and personal guarantees of the Company’s CEO and CFO	43,871	—	—
Three vehicle installment loans; principal and interest due in monthly installments aggregating $1,591; maturities ranging from January 2010 through July 2010; collateralized by automobiles	—	—	13,520
	$347,693	$330,004	$419,879
Less current maturities	123,293	107,537	116,348
	$224,400	$222,467	$303,531

The following is a schedule by years of the amount of maturities of all long-term debt subsequent to November 27, 2010:

The following is a schedule by years of the amount of maturities of all long-term debt subsequent to August 28, 2010:

	Twelve Months Ending November		Amount
	2011		$ 125,163
	2012		99,884
	2013		79,309
	2014		13,318

Twelve Months Ending August		Amount
2011	$	123,293
2012		109,309
2013		90,775
2014		24,316
2015		—

During the quarter ended November 27, 2010 retained earnings decreased as a result of the Company’s net loss for the quarter.

1821

During the quarter ended August 28, 2010 retained earnings decreased as a result of the Company’s net loss for the quarter.

Critical Accounting Policies:

Critical accounting policies are those policies that management believes are important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Management believes it has chosen accounting policies that are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our significant accounting policies are summarized in Note 1 to the Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended May 29, 2010.

We believe that the following accounting policies are the most critical in the preparation of our financial statements because they involve the most difficult, subjective or complex judgments about the effect of matters that are inherently uncertain.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting ~~principles~~principals requires management to make estimates and assumptions that affect the reported ~~amounts~~amount of assets, liabilities, revenues, and expenses, and related disclosures of contingent assets and liabilities. Management determines its estimates based on historical experience and other factors believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Inventories:

All inventories are valued at the lower of average cost or market, following the Average Cost-to-Retail Method. Under this method, inventory is stated at average cost, which is determined by applying an average cost-to-retail ratio to each similar merchandise category’s ending retail value. If average cost is determined to exceed market value, the impacted merchandise’s carrying value is reduced to market value, with the reduction flowing through current period earnings. Management recognizes inventory shortages throughout the year based on actual physical counts, which are performed on a quarterly basis at each store location.

Vendor Allowances:

The Company receives funds for a variety of merchandising activities from vendors whose products the Company buys for resale in its stores. These incentives and allowances include volume or purchase based incentives, advertising allowances, and promotional discounts. The purpose of these incentives and allowances is generally to aid in the reduction of the costs incurred by the Company for stocking, advertising, promoting and selling the vendor’s products. ~~These~~The allowances generally relate to short-term arrangements with vendors, often relating to a period of one month or less, and are typically negotiated on a purchase-by-purchase basis. Due to system constraints and the nature of certain allowances, these allowances are applied as a reduction of inventory costs using a rational and systematic methodology, which results in the recognition of these incentives when the inventory related to the initial purchase is sold. Management recognized vendor allowances of $87,019 and $190,550, respectively, as a reduction in inventory costs for the thirteen and twenty-six week periods ended November 27, 2010, and recognized vendor allowances of $90,874 and $196,486, respectively, as a reduction in

1922

~~Management recognized approximately $103,531 and $105,612 of vendor allowances as a reduction in~~ inventory costs for the thirteen ~~weeks~~and ~~ended~~twenty-six ~~August~~week ~~28,~~periods ~~2010~~ended ~~and~~November ~~August 29~~28, 2009~~, respectively~~. Amounts that represent a reimbursement of specific identifiable incremental costs, such as advertising, are recorded as a reduction to the related expense in the period that the related expense is incurred. Management recognized approximately $1419,~~700~~061 and $1933,~~320~~761, respectively, in advertising allowances recorded as a reduction of advertising expense for the thirteen ~~weeks~~and twenty-six week periods ended ~~August~~November 2827, 2010, and ~~August~~recognized 29approximately $14,650 ~~2009~~and $33,970, respectively, in advertising allowances recorded as a reduction of advertising expense for the thirteen and twenty-six week periods ended November 28, 2009.

Asset Impairments:

Management accounts for any impairment of its long-lived assets in accordance with ASC Topic 360, “Property, Plant and Equipment.” Management monitors the carrying value of its long-lived assets for potential impairment each quarter based on whether any indicators of impairment have occurred. As of ~~August~~November 2827, 2010 and ~~August~~November 2928, 2009, no long-lived assets have been identified by management as impaired.

Off-Balance Sheet Arrangements:

The Company had no significant off-balance sheet arrangements as of ~~August~~November 2827, 2010.

Related Party Transactions:

Except as discussed above under “Liquidity and Capital Resources,” there were no material related party transactions during the ~~thirteen~~twenty-six week period ended ~~August~~November 2827, 2010.

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 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 previously have been identified in filings or statements made on behalf of the Company, including filings with the Securities and Exchange Commission on 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 the following (in addition to those matters discussed in the Risk Factors included in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 29, 2010): changes in the general economy or in the Company’s primary markets, the effects of ongoing price competition from competitors ~~(some~~with ~~of which have~~ greater financial resources than those of the Company), changes in consumer spending, 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~~

2023

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, and other issues and uncertainties detailed from time-to-time in the Company’s filings with the Securities and Exchange Commission.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T4. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) designed to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in its reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management of the Company also is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Section 13a-15(f) of the Securities Exchange Act of 1934, as amended). Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s CEO and CFO to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in conformity with U.S. generally accepted accounting principles and include those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Our management, including our CEO (who also serves as our CFO), does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These ~~inherent limitations include the realities that judgments in decision-making can be faulty, and~~

2124

inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

The Company’s management, with the participation of its CEO (who also serves as its CFO), evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as of ~~August 28~~November 27, 2010. Based on that evaluation, the Company’s ~~Chief~~CEO ~~Executive Officer~~ (and ~~Chief Financial Officer~~CFO) concluded that the Company’s disclosure controls and procedures were effective as of such date.

There have been no changes in our internal control over financial reporting during ~~our~~ most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2225

AMERICAN CONSUMERS, INC.

PART II — OTHER INFORMATION

ITEM 1A.

RISK FACTORS

Information regarding risk factors appears under the caption “Forward-Looking Statements” in Part I, Item 2 of this Form 10-Q and in Part I, Item 1A offor our Annual Report on Form 10-K for the fiscal year ended May 29, 2010. There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K.

ITEM 6

EXHIBITS

The Exhibit Index attached to this report is incorporated by reference into this Item 6.

2326

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.~~	AMERICAN CONSUMERS, INC.
	~~(Registrant)~~	(Registrant)
Date: October 12, 2010	/s/ Paul R. Cook
Date:	January 11, 2011	/s/ Paul R. Cook
	~~Paul R. Cook~~	Paul R. Cook
	CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (Principal Executive Officer)
		CHAIRMAN OF THE BOARD AND
	CHIEF FINANCIAL OFFICER AND TREASURER (Principal Financial Officer & Chief Accounting Officer)
		CHIEF EXECUTIVE OFFICER
		(Principal Executive Officer)
		CHIEF FINANCIAL OFFICER AND TREASURER
		(Principal Financial Officer & Chief
		Accounting Officer)

AMERICAN CONSUMERS, INC.

EXHIBIT INDEX

The following exhibits are ~~incorporated by reference or~~ filed with this report, as noted below:

Exhibit No.	Description
11	Statement re: computation of per share earnings.*
31	CEO and CFO Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).*
32	CEO and CFO Certification pursuant to Exchange Act Rules 13a-14(b) and 15d-14(b).*

Exhibit No.

Description

11		Statement re: computation of per share earnings.*

31		CEO and CFO Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).*

32		CEO and CFO Certification pursuant to Exchange Act Rules 13a-14(b) and 15d-14(b).*

* Filed herewith.

Filing Compare · AMERICAN CONSUMERS INC