SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2000 OR / / Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------------------------------ COMMISSION FILE NUMBER 0-24708 ------------------------------ AMCON DISTRIBUTING COMPANY (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of Incorporation) 10228 "L" Street Omaha, NE 68127 (Address of principal executive offices) (Zip Code) 47-0702918 (I.R.S. Employer Identification No.) (402) 331-3727 (Registrant's telephone number, including area code) 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 ------- ------- The Registrant had 2,737,337 shares of its $.01 par value common stock outstanding as of April 30, 2000. Form 10-Q 2nd Quarter INDEX ------- PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements: --------------------- Balance sheets at March 31, 2000 and at September 30, 1999 3 Statements of income for the three and six-month periods ended March 31, 2000 and March 31, 1999 4 Statements of cash flows for the six-month periods ended March 31, 2000 and March 31, 1999 5 Notes to unaudited financial statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 PART I - FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> <CAPTION> AMCON Distributing Company Consolidated Balance Sheets March 31, 2000 and September 30, 1999 - --------------------------------------------------------------------------------------- (Unaudited) March 31, September 30, 2000 1999 ------------ ------------- <S> <C> <C> ASSETS Current assets: Cash $ 1,538,861 $ 1,728,042 Accounts receivable, less allowance for doubtful accounts of $878,506 and $676,801 17,674,659 18,345,816 Inventories 23,609,615 23,979,639 Deferred income taxes 761,281 717,022 Other 780,528 1,000,189 ------------ ------------ Total current assets 44,364,944 45,770,708 Fixed assets, net 7,086,087 7,502,927 Investments 495,687 550,691 Other assets 15,156,580 14,764,890 ------------ ------------ $ 67,103,298 $ 68,589,216 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,860,442 $ 11,953,546 Accrued expenses 2,579,176 3,173,231 Accrued wages, salaries and bonuses 410,747 640,933 Income taxes payable 482,178 283,111 Dividends payable 82,120 51,297 Current portion of long-term debt 8,827,828 10,133,393 Current portion of subordinated debt 800,000 800,000 ------------ ------------ Total current liabilities 26,042,491 27,035,511 ------------ ------------ Deferred income taxes 717,919 678,455 Other liabilities 523,279 423,574 Long-term debt, less current portion 15,296,135 17,995,432 Subordinated debt, less current portion 9,200,000 9,200,000 Commitments Shareholders' equity (as restated): Preferred stock, $.01 par value, 1,000,000 shares authorized, none outstanding - - Common stock, $.01 par value, 15,000,000 shares authorized, 2,737,337 and 2,727,656 issued, respectively 27,373 27,276 Additional paid-in capital 4,121,667 4,101,629 Unrealized gain on investments available-for-sale, net of $133,434 and $149,664 tax 219,973 234,299 Retained earnings 10,954,461 8,893,400 ------------ ------------ 15,323,474 13,256,604 Less treasury stock, 0 and 102 shares at cost ( -) (360) ------------ ------------ Total shareholders' equity 15,323,474 13,256,244 ------------ ------------ $ 67,103,298 $ 68,589,216 ============ ============ The accompanying notes are an integral part of these financial statements </TABLE> <TABLE> <CAPTION> AMCON Distributing Company Consolidated Statements of Income for the three and six-months ended March 31, 2000 and 1999 (Unaudited) - ------------------------------------------------------------------------------------ For the three months For the six months ended March 31 ended March 31 -------------------------- --------------------------- 2000 1999 2000 1999 ------------ ----------- ------------- ----------- <S> <C> <C> <C> <C> Sales (including excise taxes of $14.3 million and $12.6 million, and $28.8 million and $25.9 million, respectively) $111,736,115 $90,039,560 $223,779,875 $172,348,320 Cost of sales 97,021,255 80,686,423 195,106,275 152,349,237 ------------ ----------- ------------ ------------ Gross profit 14,714,860 9,353,137 28,673,600 19,999,083 Selling, general and administrative expenses 11,431,108 7,355,628 22,399,094 14,898,029 Depreciation and amortization 679,355 305,253 1,309,179 600,721 ------------ ----------- ------------ ------------ 12,110,463 7,660,881 23,708,273 15,498,750 ------------ ----------- ------------ ------------ Income from operations 2,604,397 1,692,256 4,965,327 4,500,333 Other expense (income): Interest expense 819,069 379,072 1,563,671 825,240 Other expense (income), net (108,241) (111,995) (116,353) (145,260) ------------ ----------- ------------ ------------ 710,828 267,077 1,447,318 679,980 ------------ ----------- ------------ ------------ Income before income taxes 1,893,569 1,425,179 3,518,009 3,820,353 Income tax expense 687,815 563,733 1,300,012 1,515,507 ------------ ----------- ------------ ------------ Net income $ 1,205,754 $ 861,446 $ 2,217,997 $ 2,304,846 ============ =========== ============ ============ Earnings share Basic $ 0.44 $ 0.32 $ 0.81 $ 0.84 ============ =========== ============ ============ Diluted $ 0.42 $ 0.30 $ 0.77 $ 0.82 ============ =========== ============ ============ Weighted average shares outstanding: Basic 2,736,481 2,727,662 2,732,264 2,727,662 ============ =========== ============ ============ Diluted 2,864,775 2,828,387 2,864,526 2,826,769 ============ =========== ============ ============ The accompanying notes are an integral part of these financial statements. </TABLE> <TABLE> <CAPTION> AMCON Distributing Company Consolidated Statements of Cash Flows for the six months ended March 31, 2000 and 1999 (Unaudited) - ------------------------------------------------------------------------------------ 2000 1999 ----------- ----------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,217,997 $ 2,304,846 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,309,179 665,959 Gain on sales of fixed assets and securities (48,466) (39,022) Provision for losses on doubtful accounts 269,705 204,591 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable 991,312 (968,100) Inventories 370,024 (1,037,515) Other current assets (331,465) 14,082 Other assets (784,686) (12,757) Accounts payable 1,170,958 2,129,558 Accrued expenses and accrued wages, salaries, and bonuses (1,253,544) 139,621 Income taxes payable and deferred taxes 212,860 (48,685) ----------- ----------- Net cash provided by operating activities 4,123,874 3,352,578 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (592,337) (378,617) Acquisitions, net of cash acquired - (1,258,836) Proceeds from sales of fixed assets 124,863 38,600 Proceeds from sale of available for sale securities 38,690 - ----------- ----------- Net cash used in investing activities (428,784) (1,598,853) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt - 1,080,000 Net (payments) proceeds on bank credit agreement (3,330,522) (1,939,819) Payments on long-term debt (448,129) (767,501) Dividends paid (125,921) (99,200) Proceeds from exercise of stock options 20,301 - ----------- ----------- Net cash used in financing activities (3,884,271) (1,726,520) ----------- ----------- Net increase (decrease)in cash (189,181) 27,205 Cash, beginning of period 1,728,042 38,369 ----------- ----------- Cash, end of period $ 1,538,861 $ 65,574 =========== =========== The accompanying notes are an integral part of these financial statements. </TABLE> AMCON Distributing Company Notes to Consolidated Financial Statements March 31, 1999 and 1998 - ------------------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accompanying unaudited financial statements of AMCON Distributing Company and subsidiaries ("AMCON" or the "Company") have been prepared on the same basis as the audited financial statements for the year ended September 30, 1999, and, in the opinion of management, contain all adjustments necessary to fairly present the financial information included therein, such adjustments consist of normal recurring items. It is suggested that these financial statements be read in conjunction with the audited financial statements and notes thereto, for the fiscal year ended September 30, 1999, which are included in the Company's Annual Report to Stockholders filed with Form 10-K. Results for the interim period are not necessarily indicative of results to be expected for the entire year. AMCON's fiscal second quarters ended on March 24, 2000 and March 26,1999, respectively. For convenience, the fiscal quarters have been indicated as March 31 and each of AMCON's fiscal first and second quarters were comprised of 13 weeks. 2. INVENTORIES: Inventories consist of finished products purchased in bulk quantities by the wholesale distribution business to be redistributed to the Company's retail customers and finished products purchased by the retail health food stores to be sold to consumer. Effective in fiscal 1999, the Company changed the method of accounting for inventory from the first-in, first-out ("FIFO") method to the last-in, first-out ("LIFO") method. LIFO inventories at March 31, 2000 were approximately $2.1 million less than the amount of such inventories valued on a FIFO basis. 3. STOCK DIVIDEND: In December 1999, the Board of Directors of the Company declared a special 10% stock dividend paid on February 8, 2000 to shareholders of record on January 25, 2000. The effect of the special 10% stock dividend has been reflected retroactively in the earnings per share calculation for the quarter ended March 31, 1999 and the capital accounts at September 30, 1999. 4. EARNINGS PER SHARE: Basic earnings per share is calculated by dividing net income by the weighted average common shares outstanding for each period. Diluted earnings per share is calculated by dividing net income by the sum of the weighted average common shares outstanding and the weighted average dilutive options, using the treasury stock method. <TABLE> <CAPTION> For the three-month period ended March, 31, ------------------------------------------------ 2000 1999 ------------------------- ------------------------- Basic Diluted Basic Diluted ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> 1. Weighted average common shares outstanding 2,736,481 2,736,481 2,727,759 2,727,759 2. Weighted average treasury shares outstanding - - (97) (97) 3. Weighted average of net additional shares outstanding assuming dilutive options and warrants exercised and proceeds used to purchase treasury stock - 128,294 - 100,725 ----------- ----------- ----------- ----------- 4. Weighted average number of shares outstanding 2,736,481 2,864,775 2,727,662 2,828,387 =========== =========== =========== =========== 5. Net income $ 1,205,754 $ 1,205,754 $ 861,446 $ 861,446 =========== =========== =========== =========== 6. Earnings per share $ 0.44 $ 0.42 $ 0.32 $ 0.30 =========== =========== =========== =========== </TABLE> <TABLE> <CAPTION> For the six-month period ended March, 31, ------------------------------------------------ 2000 1999 ------------------------- ------------------------- Basic Diluted Basic Diluted ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> 1. Weighted average common shares outstanding 2,732,310 2,732,310 2,727,759 2,727,759 2. Weighted average treasury shares outstanding (46) (46) (97) (97) 3. Weighted average of net additional shares outstanding assuming dilutive options and warrants exercised and proceeds used to purchase treasury stock - 132,262 - 99,107 ----------- ----------- ----------- ----------- 4. Weighted average number of shares outstanding 2,732,264 2,864,526 2,727,662 2,826,769 =========== =========== =========== =========== 5. Net income $ 2,217,997 $ 2,217,997 $ 2,304,846 $ 2,304,846 =========== =========== =========== =========== 6. Earnings per share $ 0.81 $ 0.77 $ 0.84 $ 0.82 =========== =========== =========== =========== </TABLE> In December 1999 the Board of Directors increased the quarterly cash dividend from $0.02 to $0.03 per share and declared a special 10% stock dividend. 5. COMPREHENSIVE INCOME: The following is a reconciliation of net income per the accompanying consolidated statements of income to comprehensive income for the periods indicated: <TABLE> <CAPTION> For the three months For the six months ended March 31 ended March 31 ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Net income $ 1,205,754 $ 861,446 $ 2,217,997 $ 2,304,846 Other comprehensive income: Unrealized holding gain (losses) from investments arising during the period, net of income taxes of ($22,229), ($32,370), ($6,666) and $20,232, respectively (21,083) (50,631) 4,854 31,643 ----------- ----------- ----------- ----------- Comprehensive income $ 1,184,671 $ 810,815 $ 2,222,851 $ 2,336,489 =========== =========== =========== =========== </TABLE> 6. BUSINESS SEGMENTS: AMCON operates within two business segments; the wholesale distribution of consumer products by AMCON Distributing Company and Food For Health Co., Inc. and the retail sale of health and natural food products by Chamberlin's Natural Food Products, Inc. (d/b/a Chamberlin's Market and Cafe) and Health Food Associates, Inc. (d/b/a Akin's Natural Foods Market). The business units within each segment are evaluated on revenues, operating income and income before taxes and extraordinary items. <TABLE> <CAPTION> Wholesale Distribution Retail Consolidated ------------- ------------ ------------- <S> <C> <C> <C> Quarter ended March 31, 2000: External revenues $ 103,199,185 $ 8,536,930 $ 111,736,115 Intersegment sales 2,228,322 - 2,228,322 Income before taxes 1,519,520 374,049 1,893,569 Total assets 46,396,947 20,706,351 67,103,298 Quarter ended March 31, 1999: External revenues $ 90,039 560 $ - $ 90,039,560 Intersegment sales - - - Income before taxes 1,425,179 - 1,425,179 Total assets 44,747,899 - 44,747,899 Six months ended March 31, 2000: External revenues $ 206,965,436 $ 16,814,439 $ 223,779,875 Intersegment sales 3,566,845 - 3,566,845 Income before taxes 2,804,787 713,222 3,518,009 Total assets 46,396,947 20,706,351 67,103,298 Six months ended March 31, 1999: External revenues $ 172,348,320 $ - $ 172,348,320 Intersegment sales - - - Income before taxes 3,820,353 - 3,820,353 Total assets 44,747,899 - 44,747,899 </TABLE> Intersegment sales are at cost plus a nominal markup and are eliminated in the consolidated statements of income. The retail segment was acquired in the third and fourth quarters of fiscal 1999, therefore no segment information is presented for the retail segment in first six months of fiscal 1999. 8. SUBSEQUENT EVENTS: In April 2000, the Company sold its interest in a condominium in the Cayman Islands and resolved an intellectual property matter associated with a trademark. The gain associated with these events was $1,133,000, net-of-tax and related expenses, or $0.43 per diluted share, and will be reflected in the Company's third quarter results for the three and nine-month periods ending June 30, 2000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Comparison of the three-month and six-month periods ended March 31, 2000 and March 31, 1999 Sales for the three months ended March 31, 2000 increased 24.1% to $111.7 million, compared to $90.0 million for the second quarter in prior fiscal year. Sales increase by business segment is as follows: Wholesale distribution $ 13.2 million Retail health food stores 8.5 million ------ $ 21.7 million ====== Sales from the traditional distribution business increased by $12.6 million during the second quarter over the second quarter in the prior year as follows: Cigarette sales increased approximately $10.7 million over the second quarter in the prior year (approximately $6.7 million was due to significant price increases and approximately $4.0 million was due to increased volume). Sales of tobacco, confectionery and other products increased by $1.9 million primarily due to increased volume. Sales from the natural foods distribution business, Food For Health, Co. Inc. ("FFH") increased by $0.6 million. Sales of $8.5 million from the retail health food stores, Chamberlin's Market & Cafe and Akin's Natural Foods Market, represent new sales for the quarter since the retail segment was purchased in the third and fourth quarters of fiscal 1999. Sales for the six months ended March 31, 2000 increased 29.8% to $223.8 million, compared to $172.3 million for the same period in prior fiscal year. Sales increase by business segment is as follows: Wholesale distribution $ 34.6 million Retail health food stores 16.8 million ------ $ 51.4 million ====== Sales from the traditional distribution business increased by $32.0 million for the six months ended March 31, 2000 as compared to the same period in the prior year as follows: Cigarette sales increased approximately $27.0 million over the prior year (approximately $21.6 million was due to significant price increases and the balance was due to increased volume). Sales of non- cigarette products increased by $5.0 million primarily due to increased volume. Sales from the health and natural foods distribution business increased by $2.6 million. This increase was primarily due to the acquisition of a Florida natural foods distributor in the middle of the first quarter of fiscal 1999. Sales of $16.8 million from the retail health food stores, Chamberlin's Market & Cafe and Akin's Natural Foods Market, represent new sales for the six months ended March 31, 2000 since the retail segment was purchased in the third and fourth quarters of fiscal 1999. Gross profit increased 57.3% to $14.7 million for the three months ended March 31, 2000 from $9.4 million over the same period during the prior year. Gross profit as a percent of sales increased to 13.2% for the quarter ended March 31, 2000 compared to 10.4% for the quarter ended March 31, 1999. Gross profit by business segment for the second quarter is as follows (dollars in millions): Quarter ended March 31, ---------------- Incr/ 2000 1999 (Decr) ------ ------ ------ Wholesale distribution (recurring) $ 10.3 $ 7.8 $ 2.5 Wholesale distribution (nonrecurring) 0.7 1.6 (0.9) Retail health food stores 3.7 n/a 3.7 ------ ------ ------ $ 14.7 $ 9.4 $ 5.3 ====== ====== ====== The increases in gross profit and gross profit percentage were primarily the result of $3.7 million in gross profit generated by the retail health food stores, which were acquired in the third and fourth quarters of fiscal 1999. Profit margins generated by the retail food stores are typically 43-45% compared to profit margins of 10-11% generated by the distribution segment. Gross profit generated by the recurring traditional and natural foods distribution businesses increased by $2.5 million. However, in the second quarter of fiscal 2000, the traditional distribution business experienced a decline of $0.9 million in gross profit, as compared to the same period of the prior year, due to nonrecurring cigarette price increases. Although manufacturers increased the price of cigarette in both fiscal 1999 and 2000, management considers gross profits derived from such increases as nonrecurring since they occur on an irregular basis. Gross profit increased 43.4% to $28.7 million for the six months ended March 31, 2000 from $20.0 million over the same period during the prior year. Gross profit as a percent of sales increased to 12.8% for the period compared to 11.6 % for the six months ended March 31, 1999. Gross profit by business segment for the six months ended march 31, 2000 is as follows (dollars in millions): Six months ended March 31, ---------------- Incr/ 2000 1999 (Decr) ------ ------ ------ Wholesale distribution (recurring) $ 20.6 $ 16.3 $ 4.3 Wholesale distribution (nonrecurring) 0.7 3.7 (3.0) Retail health food stores 7.4 n/a 7.4 ------ ------ ------ $ 28.7 $ 20.0 $ 8.7 ====== ====== ====== The increases in gross profit and gross profit percentage were primarily attributable to $7.4 million in gross profit generated by the retail health food stores, which were acquired in the third and fourth quarters of fiscal 1999. Profit margins generated by the retail food stores are typically 43-45% compared to profit margins of 10-12% generated by the distribution segment. Gross profit generated by the recurring traditional and natural foods distribution businesses increased by $4.3 million due to additional sales generated by the segment. However, for the first six months of fiscal 2000, the traditional distribution business experienced a decline of $3.0 million in gross profit, as compared to the same period of the prior year, due to nonrecurring cigarette price increases. A significant cigarette price increase was implemented by cigarette manufacturers in the first quarter of fiscal 1999 as the result of a settlement that was reached between the major tobacco manufacturers and the various states that had filed liability suits against the industry. Price increases of the magnitude experienced in November 1998 are rare and the profits generated by this event are not expected to recur on a regular basis. Although manufacturers increased the price of cigarettes again in the second quarter of fiscal 2000, management considers gross profits derived from such increases as nonrecurring since they occur on an irregular and unpredictable basis. The Company expects profit margins to remain at current levels for the remainder of the fiscal year. Sales of the Company's private label cigarettes declined steadily from 1993 through 1999 primarily due to the price differential between premium and major generic brands. The rate of decline in private label cigarette sales has slowed in fiscal 2000 and gross profit derived from such sales increased slightly in both the three and six-months ended March 31, 2000 as compared to the prior year. Management expects the gross profit derived from the sale of its private label cigarettes to remain at current levels for the remainder of fiscal 2000. Total operating expense, which includes selling, general and administrative expenses and depreciation and amortization, increased 58.1% or $4.4 million to $12.1 million for the second quarter ended March 31, 2000 compared to the same period in the prior fiscal year. The increase was primarily due to expenses associated with the retail health food stores which accounted for $3.3 million of the increase in operating expenses. The retail health food stores were acquired in the third and fourth quarters of fiscal 1999; therefore, there were no operating expenses associated with this business segment in the second quarter of the prior year. As a percentage of sales, total operating expense increased to 10.8% from 8.5% during the same period in the prior year. This increase is primarily due to operating costs incurred by the retail health food business during the period. Operating expenses incurred by this business segment are approximately 35% of sales compared to 9% incurred by the wholesale distribution business. For the six-month period ended March 31, 2000, total operating expense increased 53.0% or $8.2 million to $23.7 million compared to the same period in fiscal 1999. The increase was primarily due to expenses associated with the retail health food stores which accounted for $5.9 million of the increase in operating expenses. The retail health food stores were acquired in the third and fourth quarters of fiscal 1999; therefore, there were no operating expenses associated with this business segment in the first six months of the prior fiscal year. As a percentage of sales, total operating expense increased to 10.6% from 9.0% during the same period in the prior year. This increase is primarily due to operating costs incurred by the retail health food business during the period. Operating expenses incurred by this business segment are approximately 35% of sales compared to 9% incurred by the wholesale distribution business. As a result of the above, income from operations for the second quarter ended March 31, 2000 increased by $912,000 or 53.9% to $2,604,000. Income from operations for the six-month period ended March 31, 2000 increased $465,000 to $5.0 million. Interest expense for the three months ended March 31, 2000 increased 116.1% to $819,000 compared to $379,000 during the same period in the prior year. Interest expense for the six-month period ended March 31, 2000 increased 89.5% to $1.6 million compared to $825,000 during the prior year. The increase was primarily due to interest expense attributable to the debt incurred to purchase the retail health food stores in fiscal 1999. Interest expense associated with this acquisition debt was approximately $372,000 and $745,000 for the three and six-months periods ended March 31, 2000, respectively. Other income for the three and six-month periods ended March 31, 2000 of $108,000 and $116,000, respectively, was generated by gains associated with the sale of fixed assets and marketable securities, royalty payments and dividends received on investment securities. Other income for the three months ended March 31, 1999 of $112,000 was generated from royalty payments, rent income, gains on sales of fixed assets and proceeds from miscellaneous industry promotions. Other income for the six months ended March 31, 1999 of $145,000 was generated from similar activities. As a result of the above factors, net income during the three months ended March 31, 2000 was $1,206,000 compared to $861,000 for the three months ended March 31, 1999. Net income during the six months ended March 31, 2000 was $2,218,000 compared to $2,305,000 for the first six months of the prior year. As described in Management's Discussion and Analysis in the Company's Annual Report to Shareholders for the Fiscal Year Ended September 30, 1999, the Company's distribution and retail businesses operate in very competitive markets. Pressure on profit margins continue to affect both large and small distributors and expansion by large natural food retail chains intensifies competition in the Company's natural food retail markets. This business climate subjects operating income to a number of factors which are beyond the control of management, such as competing retail stores opening in close proximity to the Company's retail stores and changes in manufacturers' cigarette pricing which affects the market for generic and private label cigarettes. While the Company sells a diversified product line, it remains dependent upon cigarette sales which represented approximately 63% of its revenue and 32% of its gross margin in the first six months of fiscal 2000. The Company continuously evaluates steps it may take to improve net income in future periods, including further acquisitions of other distributing companies and retail stores in similar business lines and further sales of assets that are no longer essential to its primary business activities such as investments in equity securities. Investments in equity securities at March 31, 2000 and September 30, 1999, respectively, consisted primarily of 77,000 and 83,000 shares of Consolidated Water Company Limited ("CWC"), a public company which is listed on NASDAQ,. During the second quarter ended March 31, 2000, the Company sold 6,000 shares of CWC and realized a gain of $27,800. The Company's basis in the remaining securities is $140,000 and the fair market value of the securities was $496,000 and $540,000 on March 31, 2000 and September 30, 1999, respectively. The unrealized gain on CWC shares was approximately $356,000 and $389,000 on March 31, 2000 and September 30, 1999, respectively. In April 2000, the Company sold an additional 2,000 shares of CWC. The realized gain associated with the sale was approximately $10,000. The fair market value of the CWC shares held on April 30, 2000 was $469,000. In April 2000, the Company sold its interest in a condominium in the Cayman Islands and resolved an intellectual property matter associated with a trademark. The gain associated with these events was $1,133,000, net-of-tax and related expenses, and will be reflected in the Company's third quarter results for the three and nine-month periods ending June 30, 2000. LIQUIDITY AND CAPITAL RESOURCES During the six months ended March 31, 2000, the Company utilized cash flow in operating activities to pay bonuses and satisfy other accrued expenses. Cash was provided by operating activities through reductions in accounts receivable and inventories as business typically slows during the winter months. Cash was utilized in investing activities during the six-month period ended March 31, 2000 primarily to fund purchases of fixed assets. Cash was utilized in financing activities to reduce borrowings on the Company's revolving lines of credit and to satisfy current long-term debt obligations. The Company had working capital of approximately $18.3 million as of March 31, 2000 compared to $18.7 million as of September 30, 1999. The Company's debt to equity ratio was 3.38 to 1 at March 31, 2000 compared to 4.17 at September 30, 1999. The decrease was due to a reduction in the amount borrowed under the Company's revolving credit facility. The Company maintains two revolving credit facilities, the AMCON Distributing Company revolving credit facility (the "Facility") and the FFH revolving credit facility (the "FFH Facility"). The Facility was amended in September 1999 to increase the primary borrowing limit from $20 million to $25 million and remove the additional $10 million facility which was collateralized by specific inventory. The Facility allows the Company to borrow up to $25 million at any time, subject to eligible accounts receivable and inventory requirements, and provides for an additional $1.5 million facility to be used for transportation equipment purchases. The Facility bears interest at the bank's base rate ("Prime") less 0.5% or LIBOR plus 1.75%, as selected by the Company. As of March 31, 2000, the Company had borrowed approximately $14.6 million under the Facility. The Facility is collateralized by all equipment, general intangibles, inventories and accounts receivable, and with a first mortgage on the owned distribution center. The Facility expires on February 25, 2002. The FFH Facility was amended in November 1999 to increase the amount provided for maximum borrowings from $6 million to $8 million. Borrowings under the FFH Facility are collateralized by the assets of FFH and are guaranteed by the Company. Amounts under the FFH Facility bear interest at Prime less 0.5% or LIBOR plus 2.0%, as selected by FFH. A commitment fee of .25% of the annual average unutilized amount of the commitment is required. As of March 31, 2000, FFH had borrowed approximately $5.6 million under the FFH Facility. The FFH Facility expires on February 25, 2002. The FFH Facility contains covenants which, among other things, set forth certain financial ratios and net worth requirements which adjust semiannually or annually as specified in the FFH Facility. As of March 31, 2000, FFH was not in compliance with several of its financial ratios due to the acquisition of Health Food Associates, Inc. ("HFA")in September 1999. The Company has an outstanding term loan from a bank which was used to finance the purchase of the common stock of FFH (the "Acquisition Loan"). The Acquisition Loan has a term of five years, bears interest at Prime less 0.5% or LIBOR plus 1.75%, as selected by the Company and requires monthly payments equal to accrued interest plus principal payments of $85,096, which began in August 1998. As of March 31, 2000, the outstanding balance of the Acquisition Loan was $2.7 million. FFH has an outstanding term loan from a bank which was used to finance the purchase of a Florida natural foods distributor in November 1998 (the "Term Loan"). The Term Loan bears interest at Prime less 0.5%, required payments of interest only for the first six months and monthly principal payments for the term of the loan. The Term Loan is collateralized by the assets of FFH. As of March 31, 2000, the outstanding balance of the Term Loan was $900,000. In September, 1999, FFH utilized borrowings under an 8% Convertible Subordinated Note (the "Convertible Note") and under a Collateralized Subordinated Promissory Note (the "Collateralized Note"), in addition to borrowing under the Facility, to purchase all of the common stock of HFA. Funding for the acquisition was provided as follows: $4.0 million through borrowings under the Facility; $2.0 million through borrowings under the Convertible Note; and $8.0 million through borrowings under the Collateralized Note. Both the Convertible Note and the Collateralized Note have five-year terms and bear interest at 8% per annum. Principal on the Convertible Note is due in a single payment at maturity. Principal on the Collateralized Note is payable in installments of $800,000 per year with the balance due at maturity. The Collateralized Note is collateralized by a pledge of the stock of HFA. The principal balance of the Convertible Note may be converted into stock of FFH under circumstances set forth in the Convertible Note. As of March 31, 2000, the outstanding balances of the Convertible Note and the Collateralized Note were $2.0 million and $8.0 million, respectively. The Company believes that funds generated from operations, supplemented as necessary with funds available under the Facility and the FFH Facility, will provide sufficient liquidity to cover its debt service and any reasonably foreseeable future working capital and capital expenditure requirements. CONCERNING FORWARD LOOKING STATEMENTS This Quarterly Report, including the Management's Discussion and Analysis and other sections, contains forward looking statements that are subject to risks and uncertainties and which reflect management's current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or include the words "future," "position," "anticipate(s)," "expect," "believe(s)," "see," "plan," "further improve," "outlook," "should" or similar expressions. For these statements, we claim the protection of the safe harbor for forward looking statements contained in the Private Securities Litigation Reform Act of 1995. You should understand that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward looking statements: changing market conditions with regard to cigarettes and the demand for the Company's products, domestic regulatory risks, competitive and other risks over which the Company has little or no control. Any changes in such factors could result in significantly different results. Consequently, future results may differ from management's expectations. Moreover, past financial performance should not be considered a reliable indicator of future performance. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company does not utilize financial instruments for trading purposes and holds no derivative financial instruments which could expose the Company to significant market risk. The Company's exposure to market risk relates primarily to its investment in the common stock of Consolidated Water Company (formerly Cayman Water Company), a public company traded on the Nasdaq National Market system, and for changes in interest rates to its long-term obligations. At March 31, 2000, the Company held 77,000 shares of common stock of Consolidated Water Company valued at $496,000. The Company values this investment at market and records price fluctuations in equity as unrealized gain or loss on investments. At March 31, 2000, the Company had $23.8 million of variable rate debt outstanding, with maturities through May 2004. The interest rates on this debt ranged from 7.69% to 8.50% at March 31, 2000. The Company has the ability to select the base on which its variable interest rates are calculated and may select an interest rate based on its lender's prime interest rate or based on LIBOR. This provides management with some control of the Company's variable interest rate risk. The Company estimates that its annual cash flow exposure relating to interest rate risk based on its current borrowings is approximately $150,000 for each 1% change in its lender's prime interest rate or LIBOR, as applicable. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) EXHIBITS 2.1 Stock Purchase Agreement dated November 3, 1997, between the Company and FFH Holdings, Inc. (incorporated by reference to Exhibit 2.1 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 2.2 Stock Purchase Agreement dated February 24, 1999, between Food For Health Company, Inc. ("FFH"), an Arizona corporation and a wholly-owned subsidiary of AMCON, Chamberlin Natural Foods, Inc.("Chamberlin"), a Florida corporation, Dale C. Bennett, Dale C. Bennett as Trustee of the Alice M. Bennett Irrevocable Trust Dated August 8, 1991, Dale C. Bennett as Trustee of the Dale C. Bennett Revocable Trust dated August 8, 1991, Kirk D. Bennett and Chad W. Bennett as Trustees of the Dale C. Bennett Irrevocable Trust No. 1, Chad W. Bennett and Kirk D. Bennett (incorporated by reference to Exhibit 2.2 of AMCON's Quarterly Report on Form 10-Q filed on May 10, 1999) 2.3 Stock Purchase Agreement dated August 30, 1999, by and among Food For Health Company, Inc., a wholly-owned subsidiary of AMCON Distributing and Health Food Associates, Inc. (incorporated by reference to Exhibit 2.1 of AMCON's Current Report of Form 8-K filed on September 30, 1999) 3.1 Restated Certificate of Incorporation of the Company, as amended March 19, 1998 (incorporated by reference to Exhibit 3.1 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 3.3 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 10.1 Grant of Exclusive Manufacturing Rights, dated October 1, 1993, between the Company and Famous Value Brands, a division of Philip Morris Incorporated, including Private Label Manufacturing Agreement and Amended and Restated Trademark License Agreement (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to AMCON's Registration Statement on Form S-1 (Registration No. 33-82848) filed on November 8, 1994) 10.2 Amendment No. 1 to Grant of Exclusive Manufacturing Rights, dated October 1, 1998, between the Company and Famous Value Brands, a division of Philip Morris Incorporated, including Amendment No. 1 To Private Label Manufacturing Agreement and Amendment No. 1 to Amended and Restated Trademark License Agreement (incorporated by reference to Exhibit 10.2 of AMCON's Annual Report on Form 10-K filed on December 24, 1998) 10.3 Loan Agreement, dated November 10, 1997, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.1 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 10.4 Amended Loan Agreement, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.5 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.5 Note, dated November 10, 1997, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.2 of AMCON's Current Report on Form 8-K filed on November 25, 1997) 10.6 First Allonge to Note, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.7 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.7 Loan and Security Agreement, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.8 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.8 Promissory Note, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.9 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.9 Loan and Security Agreement, dated February 25, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.10 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.10 Promissory Note, dated February 25, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.11 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.11 First Amendment to Loan and Security Agreement, dated November 18, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.11 of AMCON's Quarterly Report on Form 10-Q/A filed on August 5, 1999) 10.12 First Amendment and Allonge to Promissory Note, dated November 18, 1998, between Food For Health Co., Inc. and LaSalle National Bank (incorporated by reference to Exhibit 10.12 of AMCON's Quarterly Report on Form 10-Q/A filed on August 5, 1999) 10.13 Unconditional Guarantee, dated February 25, 1998, between the Company and LaSalle National Bank (incorporated by reference to Exhibit 10.12 of AMCON's Quarterly Report on Form 10-Q filed on May 11, 1998) 10.14 8% Convertible Subordinated Note, dated September 15, 1999 by and between Food For Health Company Inc. and Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.1 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.15 Secured Promissory Note, dated September 15, 1999, by and between Food For Health Company, Inc. and James C. Hinkefent and Marilyn M. Hinkefent, as trustees of the James C. Hinkefent Trust dated July 11, 1994, as amended, Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.2 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.16 Pledge Agreement, dated September 15, 1999, by and between Food For Health Company, Inc. and James C. Hinkefent and Marilyn M. Hinkefent, as trustees of the James C. Hinkefent Trust dated July 11, 1994, as amended, Eric Hinkefent, Mary Ann O'Dell, Sally Sobol, and Amy Laminsky (incorporated by reference to Exhibit 10.3 of AMCON's Current Report on Form 8-K filed on September 30, 1999) 10.17 AMCON Distributing Company 1994 Stock Option Plan (incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1 (Registration No. 33-82848) filed on August 15, 1994) 10.18 AMCON Distributing Company Profit Sharing Plan (incorporated by reference to Exhibit 10.8 of Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-82848) filed on November 8, 1994) 10.19 Employment Agreement, dated May 22, 1998, between the Company and William F. Wright (incorporated by reference to Exhibit 10.14 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 10.20 Employment Agreement, dated May 22, 1998, between the Company and Kathleen M. Evans (incorporated by reference to Exhibit 10.15 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 10.21 Employment Agreement, dated May 22, 1998, between the Food For Health Co., Inc. and Jerry Fleming (incorporated by reference to Exhibit 10.16 of the Company's Quarterly Report on Form 10-Q filed on August 6, 1998) 11.1 Statement re: computation of per share earnings (incorporated by reference to footnote 4 to the financial statements included in Item 1 of Part I herein) 27.0 Financial Data Schedules (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the quarter ended March 31, 2000. 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, hereunto duly authorized. AMCON DISTRIBUTING COMPANY (registrant) Date: May 8, 2000 Kathleen M. Evans ----------------- ------------------------- Kathleen M. Evans President & Principal Executive Officer Date: May 8, 2000 Michael D. James ----------------- ------------------------- Michael D. James Treasurer & CFO and Principal Financial and Accounting Officer