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<SEC-DOCUMENT>0000928465-07-000008.txt : 20070129
<SEC-HEADER>0000928465-07-000008.hdr.sgml : 20070129
<ACCEPTANCE-DATETIME>20070129085102
ACCESSION NUMBER:		0000928465-07-000008
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20061231
FILED AS OF DATE:		20070129
DATE AS OF CHANGE:		20070129

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMCON DISTRIBUTING CO
		CENTRAL INDEX KEY:			0000928465
		STANDARD INDUSTRIAL CLASSIFICATION:	WHOLESALE-GROCERIES & GENERAL LINE [5141]
		IRS NUMBER:				470702918
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-15589
		FILM NUMBER:		07558900

	BUSINESS ADDRESS:	
		STREET 1:		7405 IRVINGTON ROAD
		STREET 2:		POST OFFICE BOX 641940 (68164-7940)
		CITY:			OMAHA
		STATE:			NE
		ZIP:			68122
		BUSINESS PHONE:		4023313727

	MAIL ADDRESS:	
		STREET 1:		7405 IRVINGTON ROAD
		STREET 2:		POST OFFICE BOX 641940 (68164-7940)
		CITY:			OMAHA
		STATE:			NE
		ZIP:			68122
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>form10q12312006.txt
<DESCRIPTION>FORM 10-Q DECEMBER 31, 2006
<TEXT>
                              UNITED STATES
                     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 December 31, 2006

                                      OR

/ /  Transition report pursuant to section 13 or 15(d) of the
     Securities Exchange Act of 1934

     For the transition period from          to

                        ------------------------------
                        COMMISSION FILE NUMBER 1-15589
                        ------------------------------

                       AMCON Distributing Company
- -----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)

             Delaware                              47-0702918
- ------------------------------                --------------------
(State or other jurisdiction                  (I.R.S. Employer
of incorporation or organization)             Identification No.)

                   7405 Irvington Road, Omaha NE 68122
- -----------------------------------------------------------------------------
                (Address of principal executive offices)

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

        Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.

                        Yes     X       No
                             -------       -------

        Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.  (Check one):

Large accelerated filer     Accelerated filer      Non-accelerated filer  X
                       ----                  ----                        ----

The Registrant had 527,062 shares of its $.01 par value common stock
outstanding as of January 22, 2007.

                                                                Form 10-Q
                                                               1st Quarter


                                INDEX
                               -------

                                                                        PAGE
                                                                        ----
PART I -  FINANCIAL INFORMATION

Item 1.   Financial Statements:
          --------------------------------------------
          Condensed consolidated balance sheets at
          December 31, 2006 (unaudited) and September 30, 2006            3

          Condensed consolidated unaudited statements of operations
          for the three months ended December 31, 2006 and
          2005                                                            4

          Condensed consolidated unaudited statements of cash flows
          for three months ended December 31, 2006 and
          2005                                                            5

          Notes to condensed consolidated unaudited
          financial statements                                            7

Item 2.   Management's Discussion and Analysis of
          Financial Condition and Results of Operations                  22

Item 3.   Quantitative and Qualitative Disclosures About Market Risk     31

Item 4.   Controls and Procedures                                        31

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings                                              32

Item 1A.  Risk Factors                                                   34

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds    34

Item 3.   Defaults Upon Senior Securities                                34

Item 4.   Submission of Matters to a Vote of Security Holders            34

Item 5.   Other Information                                              34

Item 6.   Exhibits                                                       34




                                   2





PART I -  FINANCIAL INFORMATION
Item 1.   Financial Statements
<TABLE>
<Caption>
                               AMCON Distributing Company and Subsidiaries
                                 Condensed Consolidated Balance Sheets
                               December 31, 2006 and September 30, 2006
- -----------------------------------------------------------------------------------------------------
                                                                     December 2006     September 2006
                                                                      (Unaudited)
                                                                      ------------     --------------
<S>                                                                       <C>                <C>
                      ASSETS
Current assets:
  Cash                                                               $    433,565       $    481,138
  Accounts receivable, less allowance for doubtful
    accounts of $0.9 million and $0.9 million, respectively            28,207,328         27,815,751
  Inventories, net                                                     26,291,459         24,443,063
  Deferred income taxes                                                 1,972,988          1,972,988
  Current assets of discontinued operations                                13,744          1,172,805
  Prepaid and other current assets                                      5,054,447          5,369,154
                                                                     ------------       ------------
     Total current assets                                              61,973,531         61,254,899

Property and equipment, net                                            12,248,355         12,528,539
Goodwill                                                                5,848,808          5,848,808
Other intangible assets                                                 3,429,869          3,439,803
Deferred income taxes                                                   5,857,028          6,772,927
Noncurrent assets from discontinued operations                          2,382,648          3,774,106
Other assets                                                            1,313,750          1,247,464
                                                                     ------------       ------------
                                                                     $ 93,053,989       $ 94,866,546
                                                                     ============       ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Accounts payable                                                   $ 13,830,334       $ 14,633,124
  Accrued expenses                                                      4,483,797          4,687,789
  Accrued wages, salaries and bonuses                                   1,362,488          1,879,699
  Income taxes payable                                                     69,987            168,936
  Current liabilities of discontinued operations                        5,747,896          7,461,549
  Current maturities of credit facility                                 3,896,000          3,896,000
  Current maturities of long-term debt                                    492,816            524,130
                                                                     ------------       ------------
     Total current liabilities                                         29,883,318         33,251,227
                                                                     ------------       ------------
Credit facility, less current maturities                               45,661,073         44,927,429
Long-term debt, less current maturities                                 6,939,204          7,069,357
Noncurrent liabilities of discontinued operations                       4,865,822          5,087,230

Series A cumulative, convertible preferred stock, $.01 par value
   100,000 shares authorized and issued, liquidation preference
   $25.00 per share                                                     2,438,355          2,438,355

Series B cumulative, convertible preferred stock, $.01 par value
   80,000 shares authorized and issued, liquidation preference
   $25.00 per share                                                     1,857,645          1,857,645

Series C cumulative, convertible preferred stock, $.01 par value
   80,000 shares authorized and issued, liquidation preference
   $25.00 per share                                                     1,982,372          1,982,372

Commitments and contingencies (Note 11)

Shareholders' equity (deficiency):
  Preferred stock, $0.01 par, 1,000,000 shares authorized,
    none outstanding                                                            -                  -
  Common stock, $.01 par value, 3,000,000
    shares authorized, 527,062 outstanding                                  5,271              5,271
  Additional paid-in capital                                            6,281,476          6,278,476
  Accumulated deficit                                                  (6,860,547)        (8,030,816)
                                                                     ------------       ------------
     Total shareholders' deficiency                                      (573,800)        (1,747,069)
                                                                     ------------       ------------
                                                                     $ 93,053,989       $ 94,866,546
                                                                     ============       ============
The accompanying notes are an integral part of these condensed consolidated unaudited financial
statements.
</TABLE>
                                   3



<TABLE>
<Caption>
                                 AMCON Distributing Company and Subsidiaries
                          Condensed Consolidated Unaudited Statements of Operations
                            for the three months ended December 31, 2006 and 2005
- ---------------------------------------------------------------------------------------------------------
                                                                               2006             2005
                                                                           -------------    -------------
<S>                                                                            <C>              <C>
Sales (including excise taxes of
 $49.5 million and $48.2 million,
 respectively)                                                             $ 209,366,149    $ 198,217,081

Cost of sales                                                                194,325,018      184,189,751
                                                                           -------------    -------------
Gross profit                                                                  15,041,131       14,027,330
                                                                           -------------    -------------

Selling, general and administrative expenses                                  12,405,083       12,650,217
Depreciation and amortization                                                    457,843          478,725
                                                                           -------------    -------------
                                                                              12,862,926       13,128,942
                                                                           -------------    -------------
Operating income                                                               2,178,205          898,388
                                                                           -------------    -------------
Other expense (income):
   Interest expense                                                            1,268,662        1,157,466
   Other (income), net                                                           (31,081)         (20,782)
                                                                           -------------    -------------
                                                                               1,237,581        1,136,684
                                                                           -------------    -------------
Income (loss) from continuing operations
  before income taxes                                                            940,624         (238,296)

Income tax expense (benefit)                                                     363,000          (79,000)
                                                                           -------------    -------------
Income (loss) from continuing operations                                         577,624         (159,296)
                                                                           -------------    -------------
Discontinued operations (Note 2)

 Gain on disposal of discontinued operations,
  net of income tax expense of $0.7 million                                      895,588                -

 (Loss) from discontinued operations,
  net of income tax (benefit) of ($0.1) million
  and ($0.6) million, respectively                                              (197,410)      (1,027,638)
                                                                           -------------    -------------
Income (loss) on discontinued operations                                         698,178       (1,027,638)
                                                                           -------------    -------------
Net income (loss)                                                              1,275,802       (1,186,934)

Preferred stock dividend requirements                                           (105,533)         (74,867)
                                                                           -------------    -------------
Net income (loss) available to common shareholders                         $   1,170,269    $  (1,261,801)
                                                                           =============    =============
   Basic earnings (loss) per share
     available to common shareholders:
      Continuing operations                                                $        0.90    $       (0.44)
      Discontinued operations                                                       1.32            (1.95)
                                                                           -------------    -------------
   Net basic earnings (loss) per share
     available to common shareholders                                      $        2.22    $       (2.39)
                                                                           =============    =============
   Diluted earnings (loss) per share
     available to common shareholders:
      Continuing operations                                                $        0.68    $       (0.44)
      Discontinued operations                                                       0.81            (1.95)
                                                                           -------------    -------------
   Net diluted earnings (loss) per share
     available to common shareholders                                      $        1.49    $       (2.39)
                                                                           =============    =============

Weighted average shares outstanding:
  Basic                                                                          527,062          527,062
  Diluted                                                                        854,427          527,062


The accompanying notes are an integral part of these condensed consolidated unaudited financial
statements.
</TABLE>
                                 4
<TABLE>
<Caption>
                                    AMCON Distributing Company and Subsidiaries
                             Condensed Consolidated Unaudited Statements of Cash Flows
                            for the three month periods ended December 31, 2006 and 2005
- ----------------------------------------------------------------------------------------------------
                                                                            2006            2005
                                                                       ------------     ------------
<S>                                                                         <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                    $  1,275,802    $  (1,186,934)
  Deduct: income (loss) from discontinued operations, net of tax            698,178       (1,027,638)
                                                                       ------------     ------------
 Income (loss) from continuing operations                                   577,624         (159,296)

  Adjustments to reconcile net income (loss) from
   continuing operations to net cash flows
    from operating activities:
     Depreciation                                                           447,909          468,792
     Amortization                                                             9,934            9,933
     (Gain) loss on sale of property and equipment                          (11,116)           2,035
     Stock based compensation                                                 3,000           15,000
     Deferred income taxes                                                  915,899         (543,423)
     Provision for losses on doubtful accounts                              (76,196)               -
     Provision for losses on inventory obsolescence                         172,503           88,132

  Changes in assets and liabilities:
     Accounts receivable                                                   (315,381)       1,686,986
     Inventories                                                         (2,020,899)      (4,710,930)
     Other current assets                                                   314,707          579,042
     Other assets                                                           (66,286)          (7,836)
     Accounts payable                                                      (802,790)       1,672,707
     Accrued expenses and accrued wages, salaries and bonuses              (721,203)        (935,357)
     Income tax payable and receivable                                      (98,949)        (118,798)
                                                                       ------------     ------------
Net cash flows from operating activities - continuing operations         (1,671,244)      (1,953,013)
Net cash flows from operating activities - discontinued operations       (1,844,710)        (529,260)
                                                                       ------------     ------------
Net cash flows from operating activities                                 (3,515,954)      (2,482,273)

CASH FLOWS FROM INVESTING ACTIVITIES:
     Purchases of property and equipment                                   (170,809)        (133,871)
     Proceeds from sales of property and equipment                           14,200           29,599
                                                                       ------------     ------------
Net cash flows from investing activities - continuing operations           (156,609)        (104,272)
Net cash flows from investing activities - discontinued operations        3,753,394          (17,771)
                                                                       ------------     ------------
Net cash flows from investing activities                                  3,596,785         (122,043)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net borrowings on bank credit agreements                               733,644        3,194,790
     Dividends paid on preferred stock                                     (105,533)         (74,867)
     Principal payments on long-term debt                                  (161,467)        (163,491)
                                                                       ------------     ------------
Net cash flows from financing activities - continuing operations            466,644        2,956,432
Net cash flows from financing activities - discontinued operations         (595,048)         633,543
                                                                       ------------     ------------
Net cash flows from financing activities                                   (128,404)       3,589,975
                                                                       ------------     ------------
Net change in cash                                                          (47,573)         985,659

Cash, beginning of period                                                   481,138          546,273
                                                                       ------------     ------------
Cash, end of period                                                    $    433,565     $  1,531,932
                                                                       ============     ============










                                              5





Supplemental disclosure of cash flow information:
  Cash paid during the period for interest                             $  1,262,202     $  1,162,291
  Cash paid (refunded) during the period for income taxes                    98,949          (26,890)

Supplemental disclosure of non-cash information:
  Buyer's assumption of HNWC lease in connection with
  the sale of HNWC's assets - discontinued operations                       225,502                -


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

</TABLE>


                                   6















































               AMCON Distributing Company and Subsidiaries
         Notes to Condensed Consolidated Unaudited Financial Statements
- ----------------------------------------------------------------------------

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION:

AMCON Distributing Company and Subsidiaries ("AMCON" and "the Company") is
primarily engaged in the wholesale distribution of consumer products in the
Great Plains and Rocky Mountain regions.  In addition, the Company operates
thirteen retail health food stores in Florida and the Midwest.

AMCON's wholesale distribution business ("ADC") includes five distribution
centers that sell approximately 14,000 different consumer products, including
cigarettes and tobacco products, candy and other confectionery, beverages,
groceries, paper products, health and beauty care products, frozen and
chilled products and institutional food service products.  The Company
distributes products primarily to retailers such as convenience stores,
discount and general merchandise stores, grocery stores and supermarkets,
drug stores and gas stations.  In addition, the Company services
institutional customers, including restaurants and bars, schools, sports
complexes and vendors, as well as other wholesalers.

AMCON also operates six retail health food stores in Florida under the name
Chamberlin's Market & Cafe ("Chamberlin's") and seven in the Midwest under
the name Akin's Natural Foods Market ("Akin's").  These stores carry natural
supplements, groceries, health and beauty care products and other food items.

Results for the interim period are not necessarily indicative of results to
be expected for the entire year.

The accompanying condensed consolidated unaudited financial statements
include the accounts of AMCON Distributing Company and its subsidiaries.
The Company continues to consolidate all of Trinity Springs, Inc. ("TSI")
losses in discontinued operations even though it owns 85% of the stock of TSI
because the minority shareholders have not guaranteed any of the debt or
committed additional capital to TSI.  See Note 11 related to ongoing TSI
litigation.

All significant intercompany transactions and balances have been eliminated
in consolidation.  Certain information and footnote disclosures normally
included in our annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
In the opinion of management, the accompanying condensed consolidated
unaudited financial statements contain all adjustments necessary to fairly
present the financial information included therein, such adjustments
consisting of normal recurring items.  The Company believes that although the
disclosures are adequate to prevent the information presented from being
misleading, these condensed consolidated unaudited financial statements
should be read in conjunction with the Company's annual audited consolidated
financial statements for the year ended September 30, 2006, as filed with the
Securities and Exchange Commission on Form 10-K ("2006 Annual Report").

For convenience, the first fiscal quarters of 2007 and 2006 have been
referred to throughout this quarterly report as December 2006 and December
2005, respectively.

                                   7


Stock-based Compensation
- ------------------------
Prior to its expiration in June 2004, AMCON maintained a stock-based
compensation plan under which the Compensation Committee of the Board of
Directors could grant incentive stock options and non-qualified stock
options.  The Company adopted SFAS No. 123 (revised 2004) (SFAS 123R), Share
Based Payment, on October 1, 2005 whereby compensation costs associated with
the unvested portion of previously granted employee stock options have been
recognized in the statement of operations since adoption.  This expense has
been reflected in the consolidated statement of operations under "selling,
general and administrative expenses."  Accordingly, the Company has recorded
compensation expense of $3,000 and $15,000 for three month periods ended
December 2006 and December 2005, respectively.

Recently Issued Accounting Pronouncements
- -----------------------------------------
On July 13, 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, and
Related Implementation Issues" ("FIN 48"). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in a Company's financial
statements in accordance with Statement of Financial Accounting Standard No.
109, "Accounting for Income Taxes" ("SFAS 109"). FIN 48 prescribes a
recognition threshold and measurement attribute for a tax position taken or
expected to be taken in a tax return.  FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective as of the beginning
of fiscal years that begin after December 15, 2006. The Company is currently
evaluating the effects of implementing this new standard.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157").  SFAS No. 157 clarifies the principle that fair value
should be based on the assumptions market participants would use when pricing
an asset or liability and establishes a fair value hierarchy that prioritizes
the information used to develop those assumptions.  Under the standard, fair
value measurements would be separately disclosed by level within the fair
value hierarchy.  SFAS 157 is effective for the Company's fiscal year
beginning October 1, 2008, with early adoption permitted.  The Company is
currently evaluating the impact of adopting this standard.

2.  DISPOSITIONS

Discontinued operations includes the assets and liabilities of TSI and HNWC
at December 31, 2006 and TBG as of December 2005.  TBG ceased on-going
operations effective March 31, 2005 at which time it was classified as
discontinued operations.  In April 2006, the Company successfully concluded
its wind-down plan of TBG's operations at which time its residual liabilities
were reclassified to continuing operations.  This reclassification has been
reflected throughout this Quarterly Report on Form 10-Q.

Prior to the classification of these businesses as discontinued operations,
the Company allocated interest expense to its wholly-owned subsidiaries using
an invested capital calculation.  As part of the application of discontinued
operations to the disposal groups, the Company classified the interest
expense previously allocated to the disposal groups as part of continuing
operations in accordance with Emerging Issues Task Force ("EITF") 87-24
"Allocation of Interest to Discontinued Operations."

                                   8

Hawaiian Natural Water Company, Inc. (HNWC)
- -------------------------------------------
In September 2006, all of the criteria of SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" were met and the Company
classified HNWC as a component of discontinued operations.  On November 20,
2006, all of the operating assets of HNWC were sold for approximately $3.8
million in cash plus the buyer's assumption of all operating and capital
leases.  The significant operating assets consisted of accounts receivable,
inventory, furniture and fixtures, intellectual property and all of its
bottling equipment.  In connection with the sale, the Company has recorded a
$1.6 million pretax gain on disposal of discontinued operations in the first
quarter of fiscal 2007.  HNWC, which was headquartered in Pearl City, Hawaii,
was part of the Company's former beverage segment.  HNWC bottled, marketed
and distributed Hawaiian natural artesian water, purified water and other
limited production co-packaged products in Hawaii and the mainland.

Trinity Springs, Inc. (TSI)
- ---------------------------
In March 2006, the Company discontinued the operations of TSI due to
recurring losses and a lack of capital resources to sustain operations.
TSI operated a water bottling facility in Idaho and was a component of the
Company's former beverage segment.  TSI has been reflected in the
accompanying condensed consolidated financial statements as a component of
discontinued operations.

The Beverage Group, Inc. (TBG)
- --------------------------------
In March 2005, the Company's subsidiary, TBG, which represented the beverage
marketing and distribution component of the Company's former beverage
segment, also ceased on-going operations due to recurring losses and
accordingly was classified as a component of discontinued operations.  In
April 2006, the Company successfully concluded its wind-down plan of TBG's
operations at which time its residual liabilities were reclassified to
continuing operations.

Summary of Financial Information
- --------------------------------
Discontinued operations include the results from operations for HNWC and TSI
for the three months ended December 2006 and HNWC, TSI and TBG for the three
months ended December 2005.  The effects of the discontinued operations on
net income (loss) available to common shareholders and per share data are
reflected within the consolidated financial statements.  Sales from
discontinued operations, which have been excluded from income from continuing
operations in the accompanying condensed consolidated unaudited statements of
operations, are presented as follows.






                                                9











<Table>
<Caption>
                                                   Three months ended     Three months ended
                                                      December 2006          December 2005
                                                   ------------------     ------------------
<S>                                                       <C>                    <C>
Sales                                                 $  862,647             $ 2,466,117
Operating loss                                          (215,980)             (1,554,157)
Gain on disposal of discontinued operations,
 before income taxes                                   1,562,588                       -
Income tax expense (benefit)                             553,000                (599,000)
Income (loss) from discontinued operations               698,178              (1,027,638)

</Table>

The carrying amounts (net of allowances) of the major classes of assets and
liabilities are as follows (in millions):
<Table>
<Caption>
                                                           December              September
                                                             2006                   2006
                                                          ----------            ----------
<S>                                                          <C>                    <C>
Accounts receivable                                       $        -            $      0.7
Inventories                                                        -                   0.5
                                                          ----------            ----------
Total current assets of discontinued operations           $        -            $      1.2
                                                          ==========            ==========

Fixed assets                                              $      2.4            $      3.8
                                                          ==========            ==========

Accounts payable                                          $      0.9            $      2.0
Accrued expenses                                                 1.0                   1.0
Accrued wages, salaries and bonuses                                -                   0.3
Current portion of long-term debt                                1.0                   1.4
Current portion of long-term debt due related party              2.8                   2.8
                                                          ----------            ----------
Total current liabilities of discontinued operations      $      5.7            $      7.5
                                                          ==========            ==========

Water royalty, in perpetuity                              $      2.8            $      2.8
Long-term debt, less current portion                             2.1                   2.3
                                                          ----------            ----------
Noncurrent liabilities of discontinued operations         $      4.9            $      5.1
                                                          ==========            ==========
</Table>

Included in discontinued operations are debt obligations payable to related
parties from TSI as follows:

   -  TSI owes a director of the Company $1.0 million on a revolving credit
      facility with an interest rate of 8.0% per annum.  The loan is
      secured by a second mortgage on TSI's real property on an equal basis
      with the Company's existing second mortgage on TSI's real property.

   -  TSI owes $0.5 million on a loan due to a related party which is
      wholly-owned by three of the Company's directors (including the
      Chairman and the President) and another significant shareholder.
      The note bears interest at 7.0% per annum.

   -  TSI obtained unsecured, subordinated loans totaling $0.5 million from
      unaffiliated businesses of two of the Company's directors, including a
      Company of which the Chairman of the Board is a partner.  The loan
      bears interest of 7.0% per annum.

                                   10

   -  TSI owes Draupnir, LLC, a private equity firm of which two of the
      Company's directors are Members, $750,000 on a note bearing interest at
      a floating rate of 300 basis points above the ten year treasury note
      yield, compounded annually and adjusted concurrently with any
      adjustments to the yield on the ten year treasury note.

All of the aforementioned notes payable to related parties from TSI are in
default as of December 31, 2006 and are classified in current liabilities of
discontinued operations.

TSI Water Royalty
- ------------------
As part of June 17, 2004 asset purchase agreement in which the Company
purchased the assets to form TSI, TSI became obligated to pay Crystal
Paradise Holdings, Inc. ("CPH"), in perpetuity, an amount equal to the
greater of $0.03 per liter of water extracted from the source or 4.0% of
water revenues (as defined by the purchase agreement).  The agreement is
guaranteed by AMCON up to a maximum of $5.0 million, subject to a floor of
$288,000 annually.   Accordingly, the Company has recorded a $2.8 million
liability related to the present value of the future minimum water royalty
payments and related broker fees to be paid in perpetuity.  This liability is
classified as noncurrent liability of discontinued operations.

The water royalty is secured by a first priority security and mortgage on the
acquired assets, other than inventory and accounts receivable.  CPH retains
the right to receive any water royalty payment for the first five years in
shares of AMCON common stock up to maximum of 41,666 shares.  The water
royalty can be cancelled after ten years have elapsed and the business of TSI
is sold to an unaffiliated third party, in which case CPH would be entitled
to receive the appraised fair market value of the water royalty but not less
than $5.0 million.  The Company's Chairman has in turn guaranteed AMCON in
connection with AMCON's obligation for these payments.  The Company is in
settlement discussions with respect to the TSI litigation discussed in Note
11 to the Condensed Consolidated Unaudited Financial Statements, pursuant to
which it is undertaking to divest substantially all of the assets and
liabilities of TSI as part of a complete settlement of any and all claims
against the Company by CPH.  Management believes that the recorded balances
of the subject assets and liabilities have been recognized at their
respective fair values.

3.  CONVERTIBLE PREFERRED STOCK:

The Company has the following Convertible Preferred Stock outstanding as of
September 2006:
<TABLE>
<Caption>
<S>                                    <C>                <C>                 <C>
                                    Series A           Series B            Series C
                                  -------------     ---------------     ---------------
Date of issuance:                 June 17, 2004     October 8, 2004       March 6, 2006
Optionally redeemable beginning   June 18, 2006     October 9, 2006       March 4, 2008
Par value (gross proceeds):          $2,500,000          $2,000,000          $2,000,000
Number of shares:                       100,000              80,000              80,000
Liquidation preference per share:        $25.00              $25.00              $25.00
Conversion price per share:              $30.31              $24.65              $13.62
Number of common shares in
 which to be converted:                  82,481              81,136             146,842
Dividend rate:                           6.785%              6.370%               6.00%
</TABLE>

                                   11
The Series A Convertible Preferred Stock ("Series A"), Series B Convertible
Preferred Stock ("Series B") and Series C Convertible Preferred Stock
("Series C"), collectively (the "Preferred Stock"), are convertible at any
time by the holders into a number of shares of AMCON common stock equal to
the number of preferred shares being converted times a fraction equal to
$25.00 divided by the conversion price.  The conversion prices for the
Preferred Stock are subject to customary adjustments in the event of stock
splits, stock dividends and certain other distributions on the Common Stock.
Cumulative dividends for the Preferred Stock are payable in arrears, when, as
and if declared by the Board of Directors, on March 31, June 30, September 30
and December 31 of each year.

In the event of a liquidation of the Company, the holders of the Preferred
Stock, are entitled to receive the liquidation preference plus any accrued
and unpaid dividends prior to the distribution of any amount to the holders
of the Common Stock.  The Preferred Stock also contain redemption features
which trigger based on certain circumstances such as a change of control,
minimum thresholds of ownership by the Chairman and his family in AMCON, or
bankruptcy.  The Preferred Stock are optionally redeemable by the Company
beginning on various dates, as listed above, at redemption prices equal to
112% of the liquidation preference.  The redemption prices decrease 1%
annually thereafter until the redemption price equals the liquidation
preference after which date it remains the liquidation preference.  The
Company's credit facility also prohibits the redemption of the Series A
and Series B.  Series C is only redeemable so long as no event of default is
in existence at the time of, or would occur after giving effect to, any such
redemption, and the Company has excess availability under the credit facility
of not less than $2.0 million after giving effect to any such redemption.

The Company believes that redemption of these securities by the holders is
not probable based on the following evaluation.  Our executive officers and
directors as a group own approximately 60% of the outstanding common stock as
of December 31, 2006.  Mr. William Wright, who has been AMCON's Chairman of
the Board since AMCON's founding, beneficially owns 29% of the outstanding
common stock without giving effect to shares owned by his adult children.
There is an identity of interest among AMCON and its officers and directors
for purposes of the determination of whether the triggering redemption events
described above are within the control of AMCON since AMCON can only make
decisions on control or other matters through those persons.  Moreover, the
Preferred Stock is in friendly hands with no expectation that there would be
any effort by the holders of such Preferred Stock to see optional redemption
without the Board being supportive of the events that may trigger that right.
The Series A is owned by Mr. Wright, the Company's Chairman, and a private
equity firm (Draupnir, LLC) of which Mr. Petersen and Mr. Hobbs, both of whom
are directors of the Company, are Members.  The Series B Preferred Stock is
owned by an institutional investor which has elected Mr. Chris Atayan, now
AMCON's Vice Chairman and Chief Executive Officer, to AMCON's Board of
Directors pursuant to voting rights in the Certificate of Designation
creating the Series B Preferred Stock.  The Series C is owned by Draupnir
Capital LLC, which is a subsidiary of Draupnir, LLC (the owner of Series A).
Mr. Petersen and Mr. Hobbs are also Members of Draupnir Capital, LLC.

In view of the foregoing considerations, the Company believes it is
not probable under Rule 5-02.28 of Regulation S-X that the Series A,
Series B or Series C Preferred Stock will become redeemable in the future.


                                   12

4.  INVENTORIES

Inventories consisted of the following at December 2006 and September 2006:

                                December       September
                                  2006            2006
                              ------------    ------------
      Finished goods          $ 31,308,878    $ 29,407,201
      LIFO reserve              (5,017,419)     (4,964,138)
                              ------------    ------------
                              $ 26,291,459    $ 24,443,063
                              ============    ============

The wholesale distribution and retail health food segment inventories consist
of finished products purchased in bulk quantities to be redistributed to the
Company's customers or sold at retail.  The wholesale distribution
inventories are stated at the lower of cost (last-in, first-out or "LIFO"
method) or market and consist of the cost of finished goods.  The retail
health food operation utilizes the retail inventory method of accounting
stated at the lower of cost (LIFO) or market and consists of the costs of
finished goods.  The LIFO reserves at December 2006 and September 2006
represent the amount by which LIFO inventories were less than the amount of
such inventories valued on a first-in, first-out basis, respectively.
Inventory also includes an allowance for obsolescence of $0.4 million at
December 2006 and September 2006.  The Company's obsolescence allowance
reflects estimated unsaleable or non-refundable inventory based upon an
evaluation of slow moving and discontinued products.

5.  GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill by reporting segment for continuing operations of the Company
consisted of the following:

<TABLE>
<Caption>
                                                         December        September
                                                           2006            2006
                                                       ------------    ------------
<S>                                                         <C>            <C>
Wholesale                                              $  3,935,931    $  3,935,931
Retail                                                    1,912,877       1,912,877
                                                       ------------    ------------
                                                       $  5,848,808    $  5,848,808
                                                       ============    ============
</TABLE>

Other intangible assets for continuing operations of the Company at December
2006 and September 2006 consisted of the following:
<TABLE>
<Caption>
                                                         December        September
                                                           2006            2006
                                                       ------------    ------------
<S>                                                        <C>             <C>
Trademarks and tradenames                              $  3,373,269    $  3,373,269
Favorable leases (less accumulated
  amortization of $429,400 and $419,466)                     56,600          66,534
                                                       ------------    ------------
                                                       $  3,429,869    $  3,439,803
                                                       ============    ============
</TABLE>

                                   13
Goodwill, trademarks and tradenames are considered to have indefinite
useful lives and therefore no amortization has been taken on these assets.
The Company performs an annual impairment testing of goodwill and other
intangible assets after the completion of its third fiscal quarter.

Amortization expense for intangible assets that are considered to have finite
lives was $9,934 and $9,933 for the three months ended December 2006 and
2005, respectively.

Amortization expense related to intangible assets held at December 2006 for
each of the five years subsequent to September 30, 2006 is estimated to be as
follows:

<TABLE>
<Caption>
                                Fiscal      Fiscal      Fiscal     Fiscal     Fiscal
                                 2007 /1/    2008        2009       2010       2011
                               ---------   ---------   --------   --------   --------
<S>                               <C>         <C>        <C>        <C>        <C>

Favorable leases                  30,000      27,000          -          -          -
                               =========   =========   ========   ========   ========

/1/ Represents amortization expense of finite life intangible assets for the
    remaining nine months of Fiscal 2007.

</TABLE>

6.  EARNINGS (LOSS) PER SHARE

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

Stock options and potential common stock outstanding at December 2006 and
December 2005 that were anti-dilutive were not included in the computations
of diluted earnings per share.  Such potential common shares totaled 20,245
with an average exercise price of $38.74 for the three months ended December
2006 and 193,742 with an average exercise price of $29.09 for the three
months ended December 2005.





                                   14








<TABLE>
<CAPTION>
                                                  For the three months ended December
                                      ------------------------------------------------------
                                                2006                           2005
                                      -------------------------     ------------------------
                                         Basic        Diluted          Basic        Diluted
                                      -----------   -----------     -----------   ----------
<S>                                        <C>           <C>             <C>          <C>
1.  Weighted average common
     shares outstanding                   527,062       527,062         527,062      527,062

2.  Weighted average of net
     additional shares outstanding
     assuming dilutive options
     exercised and proceeds
     used to purchase treasury
     stock and conversion of
     preferred stock /1/                        -       327,365               -            -
                                      -----------   -----------     -----------  -----------
3.  Weighted average number of
     shares outstanding                   527,062       854,427         527,062      527,062
                                      ===========   ===========     ===========  ===========
4.  Income (loss) from continuing
     operations                       $   577,624   $   577,624     $  (159,296)  $ (159,296)
     Deduct: preferred stock
     dividend requirements /2/           (105,533)            -         (74,867)     (74,867)
                                      -----------   -----------     -----------  -----------
                                          472,091       577,624        (234,163)    (234,163)
                                      ===========   ===========     ===========  ===========
5.  Income (loss) from discontinued
     operations                       $   698,178   $   698,178     $(1,027,638) $(1,027,638)
                                      ===========   ===========     ===========  ===========

6.  Net income (loss) available
     to common shareholders           $ 1,170,269   $ 1,275,802     $(1,261,801) $(1,261,801)
                                      ===========   ===========     ===========  ===========
7.  Earnings (loss) per share
     from continuing operations       $      0.90   $      0.68     $     (0.44) $     (0.44)
                                      ===========   ===========     ===========  ===========
8.  Earning (loss) per share from
     discontinued operations          $      1.32   $      0.81     $     (1.95) $     (1.95)
                                      ===========   ===========     ===========  ===========
9.  Net earnings (loss) per share
     available to common shareholders $      2.22   $      1.49     $     (2.39) $     (2.39)
                                      ===========   ===========     ===========  ===========


/1/ Dilutive shares includes stock options and Series A, B and C Convertible
    Preferred Stock outstanding at December 2006.  All stock options and convertible
    securities were anti-dilutive and are accordingly not a component of the diluted weighted
    average number of shares outstanding at December 2005.

/2/ Series A, B & C Convertible Preferred Stock were dilutive at December 2006.  Accordingly,
    the December 2006 dilutive earnings calculation includes no convertible securities dividend
    payments as all convertible securities were assumed to have been converted to common stock
    of the Company.  All stock options and convertible securities were anti-dilutive at
    December 2005.

</TABLE>

7.  COMPREHENSIVE INCOME (LOSS)

The following is a reconciliation of net income (loss) per the accompanying
condensed consolidated unaudited statements of operations to comprehensive
income (loss) for first three months of fiscal 2006.  There were no such
reconciling items to net income, or accumulated other comprehensive income
(loss) balances, during the first three months of fiscal 2007.

                                   15

<TABLE>
<CAPTION>
                                                   December 2005
                                                   -------------
<S>                                                     <C>

Net loss                                            $(1,186,934)

 Interest rate swap valuation
   adjustment, net of income tax
   benefit (expense) of $11,000
   for the three months ended
   December 31, 2005                                    (18,129)
                                                    -----------
Comprehensive loss                                  $(1,205,063)
                                                    ===========

</TABLE>

8.  DEBT

Credit Agreement
- ----------------

In December 2006, the Company amended its credit agreement with LaSalle Bank
(the "Facility").  The significant terms of the Facility at December 31, 2006
include:

   - A $55.0 million revolving credit limit, plus the outstanding balances
     on two term notes ("Term Note A" and "Term Note B") which totaled
     approximately $2.0 million at December 31, 2006 for a total credit
     facility limit of $57.0 million at December 31, 2006.

   - Bears interest at the bank's prime interest rate.

   - Maturity and expiration dates for the Facility and Term Note A
     of April 2009 and March 2008 for Term Note B.

   - Lending limits subject to accounts receivable and inventory
     limitations, an unused commitment fee equal to 0.25% per annum on the
     difference between the maximum loan limit and average monthly borrowings
     and financial covenants.

   - Includes a prepayment penalty of two percent (2%) and one percent
     (1%) of the prepayment loan limit of $55.0 million if prepayment occurs
     on or before April 30, 2007 and April 30, 2008, respectively.

The December 2006 Facility amendment replaced all prior financial covenants
with quarterly cumulative earnings before interest, taxes, depreciation and
amortization ("EBITDA") covenants in addition to a quarterly minimum debt
service ratio financial covenant of 1.0 to 1.0 beginning with the fiscal
quarter ending September 30, 2007 for the twelve month period then ended. The
cumulative minimum EBITDA requirements are as follows (a) $1,000,000 for the
three months ending December 31, 2006, December 31, 2007 and December 31,
2008 (b) $2,000,000 for the six months ending March 31, 2007, March 31, 2008,
and March 31, 2009, (c) $4,500,000 for the nine months ending June 30, 2007,
June 30, 2008 and $7,000,000 for the twelve months ending September 30, 2007
and September 30, 2008.  The Company is in compliance with the covenants at
December 31, 2006.

                                   16

Additionally, the Facility provides that the Company may not pay dividends on
its common stock in excess of $0.72 per share on an annual basis.  The
Facility also contains an event of default if AMCON or its subsidiaries makes
any payment (in cash or other property) or a judgment is entered against
AMCON or its subsidiaries requiring a payment (in cash or other property) to
be made under or in connection with the guaranty by AMCON of the TSI
acquisition notes or the water royalty under the asset purchase agreement for
the purported sale of TSI assets.

The Facility also provides for a "springing" lock-box arrangement, under
which, the Company maintains a lock-box from which it may apply cash receipts
to any corporate purpose so long as it is not in default under the Facility.
The bank maintains a security interest in the Company's lock-box and upon the
occurrence of default may redirect funds from the lock-box to a loan account
in the name of the lenders on a daily basis and apply the funds against the
revolving loan balance.

At December 31, 2006, the available credit on the revolving portion of the
Facility, including accounts receivable and inventory limitations, was $50.7
million and the outstanding balance was $47.6 million.  The Facility bears
interest at the bank's prime rate, which was 8.25% as of December 31, 2006
and is collateralized by all of the Company's equipment, intangibles,
inventories, and accounts receivable.

As a component of the credit agreement, the Company also has two term notes,
Term Note A and Term Note B, with LaSalle Bank.  Term Note A bears interest
at the bank's prime rate (8.25% at December 31, 2006) and is payable in
monthly installments of $16,333.  Term Note B bears interest at the bank's
prime rate plus 2% (10.25% at December 31, 2006) and is payable in monthly
installments of $100,000.  The outstanding balances on Term Note A and Term
Note B were $0.7 million and $1.3 million, respectively, as of December 31,
2006.

The Company's Chairman has personally guaranteed repayment of the Facility
and the term loans.  However, the amount of his guaranty is capped at $10.0
million and is automatically reduced by the amount of the repayment on Term
Loan B, which resulted in the guaranteed principal outstanding being reduced
to $6.3 million as of December 31, 2006. AMCON pays the Company's Chairman an
annual fee equal to 2% of the guaranteed principal in return for the personal
guarantee.  This guarantee is secured by a pledge of the shares of
Chamberlin's Natural Foods Inc., Health Food Associates Inc., HNWC and TSI.

Cross Default and Co-Terminus Provisions
- -----------------------------------------
The Company's owned real estate in Bismarck, ND, Quincy, IL, and Rapid City,
SD, and certain warehouse equipment in the Rapid City, SD warehouse is
financed through term loans with Marshall and Ilsley Bank ("M&I"), who is
also a participant lender on the Company's revolving line of credit.  The M&I
loans contain cross default provisions which cause all loans with M&I to be
considered in default if any one of the loans where M&I is a lender,
including the revolving credit facility is in default.  In addition, the M&I
loans contain co-terminus provisions which require all loans with M&I to be
paid in full if any of the loans are paid in full prior to the end of their
specified terms.


                                   17


OTHER
- -----
AMCON has issued a letter of credit in the amount of approximately $1.0
million to its workers' compensation insurance carrier as part of its self-
insured loss control program.

9.  STOCK PLANS

Prior to its expiration in June 2004, AMCON maintained a stock-based
compensation plan ("the Plan") which provided that the Compensation Committee
of the Board of Directors granted incentive stock options and non-qualified
stock options pursuant to the Stock Option Plan of up to 550,000 shares.

The Company accounted for the stock option grants in accordance with
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees" using the intrinsic value method under which
compensation cost was measured by the excess, if any, of the fair market
value of its common stock on the date of grant over the exercise price of the
stock option using the Black-Scholes option pricing model.  Accordingly,
stock-based compensation costs related to stock option grants was not
reflected in income or loss as all options granted under the plan had an
exercise price equal to or above the market value of the underlying stock on
the date of grant.  Options are generally granted at the stock's fair market
value at date of grant.  Options issued to shareholders holding 10% or more
of the Company's stock are generally issued at 110% of the stock's fair
market value at date of grant.

On October 1, 2005, the Company adopted SFAS No. 123R, Shared Based Payment
(SFAS 123R).  The Company chose to apply the modified prospective transition
method as permitted by SFAS 123R and therefore has not restated prior
periods.  Under this transition method, compensation cost associated with
employee stock options recognized for the three months ended December 31,
2006, includes amortization related to the remaining unvested portion of
stock options granted prior to September 30, 2005.  The Company's only stock
option grant since fiscal 2003 was a non-qualified option to purchase 25,000
shares of the Company's common stock awarded to the Company's Chief Executive
Officer.  Because the Company's stock option plan terminated in 2004, the
option is subject to approval by the stockholders of the Company at the next
annual meeting.  If such stockholder approval is not obtained at the meeting,
the option will be automatically terminated.

As a result of adopting SFAS 123R, net income (loss) before taxes included
share-based compensation expense of $3,000 for the three months ended
December 31, 2006.  At December 31, 2006, there were 29,635 options fully
vested and exercisable under the Stock Option Plan and unamortized
compensation expense totaled approximately $10,000.  Options issued and
outstanding to management employees pursuant to the Stock Option Plan are
summarized below:




                                   18






                                       Number of         Number
         Date        Exercise Price   Options Outstanding   Exercisable
     ------------------------------------------------------------------
     Fiscal  1998       $ 15.68               9,171            9,171
     Fiscal  1999   $ 36.82 - $ 51.14         6,683            6,683
     Fiscal  2000       $ 34.50               3,165            3,165
     Fiscal  2003       $ 28.80               4,046            2,428
                                             ------           ------
                                             23,065           21,447
                                             ======           ======

At December 31, 2006, there were 8,188 options fully vested and exercisable
issued to outside directors outside the Stock Option Plan as summarized as
follows:

                                           Number of           Number
         Date        Exercise Price   Options Outstanding   Exercisable
     ------------------------------------------------------------------
     Fiscal  1998       $ 15.68               1,834            1,834
     Fiscal  1999   $ 36.82 - $ 49.09         3,852            3,852
     Fiscal  2002       $ 26.94               1,668            1,668
     Fiscal  2003       $ 28.26                 834              834
                                             ------           ------
                                              8,188            8,188
                                             ======           ======

The stock options have varying vesting schedules ranging up to five years and
expire ten years after the date of grant.

The following is a summary of stock option activity during the three months
ended December 31, 2006.

<TABLE>
<Caption>
                                         December 2006
                                      -----------------
                                               Weighted
                                       Number  Average
                                         of    Exercise
                                       Shares   Price
                                      -----------------
<S>                                      <C>      <C>
Outstanding at beginning of period      31,253   $30.62
   Granted                                   -        -
   Exercised                                 -        -
   Forfeited/Expired                         -        -
                                      -----------------
Outstanding at end of period            31,253   $30.62
                                      =================


Options exercisable at end of period    29,635
                                      ========

</TABLE>






                                                19








The following summarizes all stock options outstanding at December 31, 2006:
<TABLE>
<Caption>
                                                                                        Exercisable
                                             Remaining                        ----------------------------
                Exercise       Number     Weighted-Average  Weighted-Average    Number    Weighted-Average
                  Price      Outstanding  Contractual Life   Exercise Price   Exercisable   Exercise Price
              -------------  -----------  ----------------  ----------------  ----------- ----------------
<S>                <C>           <C>           <C>               <C>             <C>             <C>
1998 Options     $15.68        11,005        1.1 years          $15.68          11,005         $15.68
1999 Options  $36.82-$51.14    10,535        2.6 years          $46.53          10,535         $46.53
2000 Options     $34.50         3,165        3.7 years          $34.50           3,165         $34.50
2002 Options     $26.94         1,668        5.9 years          $26.94           1,668         $26.94
2003 Options  $28.26-$28.80     4,880        6.2 years          $28.71           3,262         $28.66
                               ------                           ------          ------         ------
                               31,253                           $30.62          29,635         $30.72
                               ======                           ======          ======         ======
</TABLE>

10. BUSINESS SEGMENTS

AMCON has two reportable business segments: the wholesale distribution of
consumer products and the retail sale of health and natural food products.
The retail health food stores' operations are aggregated to comprise the
retail segment because such operations have similar economic characteristics,
as well as similar characteristics with respect to the nature of products
sold, the type and class of customers for the health food products, and the
methods used to sell the products.  Also included in the "Other" column are
the charges incurred by the AMCON's holding company.  The segments are
evaluated on revenues, gross margins, operating income (loss) and income
before taxes.

<TABLE>
<CAPTION>
                                Wholesale
                               Distribution       Retail        Other /1/    Consolidated
                               -------------    -----------    ----------    -------------
<S>                                 <C>            <C>            <C>             <C>
QUARTER ENDED DECEMBER 2006:
External revenue:
 Cigarettes                    $ 150,858,196    $         -    $        -    $ 150,858,196
 Confectionery                    13,438,708              -             -       13,438,708
 Health food                               -      9,078,710             -        9,078,710
 Tobacco, food service & other    35,990,535              -             -       35,990,535
                               -------------    -----------    ----------    -------------
Total external revenue           200,287,439      9,078,710             -      209,366,149
Depreciation                         306,072        141,837             -          447,909
Amortization                               -          9,934             -            9,934
Operating income (loss)            2,589,566        501,568      (912,929)       2,178,205
Interest expense                     299,080        386,555       583,027        1,268,662
Income (loss) from continuing
 operations before taxes           1,925,950         77,237    (1,425,563)         577,624
Total assets                      72,061,055     12,093,238     8,899,696       93,053,989
Capital expenditures                  90,505         80,304             -          170,809

QUARTER ENDED DECEMBER 2005:
External revenue:
 Cigarettes                    $ 144,438,366    $         -    $        -    $ 144,438,366
 Confectionery                    12,205,743              -             -       12,205,743
 Health food                               -      9,014,559             -        9,014,559
 Tobacco, food service & other    32,558,413              -             -       32,558,413
                               -------------    -----------    ----------    -------------
  Total external revenue         189,202,522      9,014,559             -      198,217,081
Depreciation                         304,536        164,256             -          468,792
Amortization                               -          9,933             -            9,933
Operating income (loss)            1,213,141        501,311      (816,064)         898,388
Interest expense                     374,244        408,687       374,535        1,157,466
1ncome (loss) from continuing
 operations before taxes             850,680        101,623    (1,190,599)        (238,296)
Total assets                      67,678,831     13,721,007    16,744,380       98,144,218
Capital expenditures                 102,755         31,116             -          133,871

</TABLE>
                                      20

/1/ Includes interest expense previously allocated to TBG, TSI and HNWC which
    are classified as components of discontinued operations.  Also includes
    intercompany eliminations, assets related to discontinued operations and
    charges incurred by the holding company.

11.  CONTINGENCIES

As described in the Company's 2006 Annual Report on Form 10-K, the Company
is involved in litigation regarding the ownership of the assets of TSI, which
is a discontinued consolidated subsidiary of AMCON.  The dispute, which began
in June 2004, arose over the sale of substantially all of the assets of
Trinity Springs, Ltd. (which later changed its name to Crystal Paradise
Holdings, Inc. ("CPH").  The Plaintiffs in the lawsuit are a group of
minority shareholders, and the Defendants are AMCON, TSL Acquisition Corp
(which later became TSI), CPH, and the former directors of CPH.

In December 2005, the District Court of the Fifth Judicial District of the
State of Idaho ("the Court") issued a ruling granting the minority
shareholder plaintiffs' motion for partial summary judgment declaring that
the stockholders CPH did not validly approve the sale of its assets to TSI
(AMCON's consolidated subsidiary) because the vote of certain shares issued
as a dividend should not have been counted in the vote.  The Court did not
rule on the appropriate relief to be granted as a result of the lack of
shareholder approval for the asset sale transaction, nor did it rule on the
appropriate remedy for any other claim asserted by the parties in this case.
However, based on a legal opinion obtained by management from independent
legal counsel, to the extent that TSI owned the assets immediately prior to
the ruling by the Court discussed above, and has not otherwise transferred
the assets, TSI continues to own the assets.  Accordingly, AMCON has
continued to account for the operations of TSI as a consolidated subsidiary
because the Court has not taken any action to divest TSI of its ownership of
the assets.

Since the Court's December 2005 ruling, several events have taken place.
The minority shareholder plaintiffs have filed notice with the District Court
that they agree that rescission is not feasible.  During approximately the
same time frame, the entire CPH Board of Directors resigned.  Upon their
resignation, the Court appointed a custodian to manage and direct the affairs
of CPH.  Additionally, the custodian was designated by the Court as CPH's
investigative panel to determine whether the maintenance of a derivative
proceeding is in the best interest of CPH.

During the last several months, the parties have been engaged in settlement
discussions.  Recently, a settlement agreement was reached between the
parties.  The settlement, resolved all disputes between the minority
shareholders plaintiffs, CPH, AMCON, TSI and the Defendant Directors, with
two exceptions.  The settlement did not resolve claims that CPH may have
against AMCON and TSI or that AMCON and TSI may have against CPH.  The
settlement also did not initially resolve the claims of a single minority
shareholder plaintiff, who, at the time, declined to sign on to the
settlement.  On October 16, 2006, the Court approved the parties' settlement
and ordered the dismissal with prejudice of the lawsuit, except for the
claims of the single minority shareholder plaintiff which were subsequently
settled.

                                   21



In December 21, 2006, CPH filed a first amended complaint in the Fourth
Judicial District of the State of Idaho (Elmore County) against AMCON and TSI
and other defendants relating to AMCON and TSI's purchase of the assets of
CPH and operation of the business.  In its amended complaint, CPH re-asserts
claims of foreclosure; breach of the asset purchase agreement, promissory
notes and water royalty obligations; quantum meruit; unjust enrichment; and
collection and enforcement of its security interest.  In addition, CPH again
seeks a declaratory judgement that: (i) AMCON and TSI are obligated to
perform under the asset purchase agreement and other agreements related to
the asset purchase transaction; (ii) the actions of AMCON and TSI constitute
events of default; (iii) TSI has not cured the events of default; (iv) TSI's
obligations are accelerated under certain promissory notes; and (v) AMCON is
liable to CPH under a guaranty and suretyship agreement for all amounts owing
to CPH under the asset purchase agreement and related agreements.  Finally,
CPH seeks its costs and attorney fees.  CPH has not served its amended
complaint on AMCON or TSI.

AMCON disagrees with the assertions made by CPH and intends to vigorously
defend against CPH's claims and to pursue its own claims against CPH.

With respect to the remaining claims in the original lawsuit and the claims
asserted by CPH in its recently filed complaint, AMCON's management, after
consulting with the trial counsel, is unable at this time to state that any
outcome unfavorable to AMCON is either probable or remote and therefore
cannot estimate the amount or range of any potential loss, if any because
substantial discovery is needed, several unresolved legal issues exist, and
other pretrial work is yet to be completed.

The Company is in settlement discussions with respect to this litigation,
pursuant to which the Company is undertaking to divest substantially all of
the assets of TSI as part of a complete settlement of any and all claims by
CPH against the Company.  Management believes that the recorded balance of
the subject assets and liabilities have been
recognized at their respective fair values.

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

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the Management's Discussion and
Analysis and other sections, contains forward looking statements that are
subject to risks and uncertainties and which reflect management's current
beliefs and estimates of future economic circumstances, industry conditions,
company performance and financial results.  Forward looking statements
include information concerning the possible or assumed future results of
operations of the Company and those statements preceded by, followed by or
that include the words "future," "position," "anticipate(s)," "expect,"
"believe(s)," "see," "plan," "further improve," "outlook," "should" or
similar expressions.  For these statements, we claim the protection of the
safe harbor for forward looking statements contained in the Private
Securities Litigation Reform Act of 1995.  Forward-looking statements are not
guarantees of future performance or results.  They involve risks,
uncertainties and assumptions.  You should understand that the following
important factors, in addition to those discussed elsewhere in this document,
could affect the future results of the Company and could cause those results
to differ materially from those expressed in our forward looking statements:

                                   22

   - treatment of TSI transaction and litigation,
   - changing market conditions with regard to cigarettes,
   - changes in promotional and incentive programs offered by cigarette
     manufacturers,
   - the demand for the Company's products,
   - new business ventures,
   - domestic regulatory risks,
   - competition,
   - poor weather conditions,
   - increases in fuel prices,
   - collection of guaranteed amounts,
   - other risks over which the Company has little or no control, and
   - any other factors not identified herein could also have such an effect.

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

CRITICAL ACCOUNTING ESTIMATES

Certain accounting estimates used in the preparation of the Company's
financial statements require us to make judgments and estimates and the
financial results we report may vary depending on how we make these
judgments and estimates.  Our critical accounting estimates are set forth in
our 2006 Annual Report to Shareholders on Form 10-K for the fiscal year ended
September 30, 2006 filed with the Securities and Exchange Commission.  There
have been no significant changes with respect to these policies during the
first three months of fiscal 2007.

DISCONTINUED OPERATIONS

Discontinued operations included the disposal groups of HNWC and TSI as of
December 2006 and HNWC, TSI and TBG as of December 2005.  TBG ceased on-going
operations effective March 31, 2005 at which time it was classified as
discontinued operations.  In April 2006, the Company successfully concluded
its wind-down plan of TBG's operations at which time its residual liabilities
were reclassified to continuing operations.  This reclassification has been
reflected throughout this Quarterly Report on Form 10-Q.

COMPANY OVERVIEW - FIRST FISCAL QUARTER 2007

The following discussion and analysis includes the results of operations for
the three months ended December 2006 and December 2005, which is comprised of
our wholesale distribution and retail health food segments.  A separate
discussion of our discontinued operations has been presented following our
analysis of continuing operations.  Accordingly, the sales, gross profit
(loss), selling, general and administrative, depreciation and amortization,
direct interest, other expenses and income tax benefit from our discontinued
operations have been aggregated and reported as income (loss) from
discontinued operations and are not a component of the aforementioned
continuing operations discussion.

                                   23
AMCON Distributing Company ("AMCON" or the "Company") is primarily engaged in
the wholesale distribution business in the Great Plains and Rocky Mountain
regions of the United States.  In addition, AMCON operates thirteen retail
health food stores in Florida and the Midwest.  As used herein, unless the
context indicates otherwise, the term "ADC" means the wholesale distribution
segment and "AMCON" or the "Company" means AMCON Distributing Company and its
consolidated subsidiaries.  AMCON's fiscal first quarters ended on December
31, 2006 and December 31, 2005.  For ease of discussion, these fiscal
quarters are referred to herein as December 2006 and 2005, respectively or
Q1 2007 and Q1 2006, respectively.

During the first quarter of fiscal 2007, the Company:

- - amended its credit facility agreement ("Facility").  The amendment was
  completed in December 2006 and extended the Facility's maturity date to
  April 2009.  The amended Facility bears interest at the bank's prime
  interest rate and includes a $55.0 million revolving credit limit plus the
  outstanding balance on two term notes which totaled approximately $2.0
  million for a total credit facility of $57.0 million at December 31, 2006.
  See further discussion in Item 7 "Liquidity and Capital Resources."

- - sold all the operating assets of HNWC for approximately $3.8 million in
  cash plus the buyer's assumption of all operating and capital leases, which
  resulted in a gain on sale before income taxes of approximately $1.6
  million.

- - experienced a 5.6% increase in sales compared to the first quarter of
  fiscal 2006.

- - recognized income from continuing operations of $0.90 per basic share
  for Q1 2007 compared to a loss from continuing operations per basic share
  of $(0.44) in Q1 2006.

- - recognized income from discontinued operations of $1.32 per basic share
  for Q1 2007 compared to a loss from discontinued operations per basic
  share of $(1.95) in Q1 2006.

INDUSTRY SEGMENT OVERVIEWS

Wholesale Distribution Segment
- -----------------------------
The wholesale distribution business represents approximately 96% of our
consolidated sales.  ADC has significant alliances with the major cigarette
manufacturers that comprise over 90% of the cigarette industry volume.  While
some of our competitors have focused on the lower priced cigarette brands,
ADC has made a conscious decision to support and grow our national brand
segment and align our business with the major players in the industry.  We
believe that it is important not to compete against the major cigarette
manufacturers because of their commitment to growing their market share in a
declining category.  Additionally, we believe that the consumer's preference
for premium brands currently drives the category volume.


                                   24




ADC is ranked as a top ten convenience store supplier.  We provide our
retailers with a broad selection of merchandise in all product categories.
Non cigarette categories grew by approximately 9% in the first quarter of
fiscal 2007 as compared to fiscal 2006.

The Company has adopted a number of operating strategies which management
believes provide the Company with distinctive competitive advantages within
this customer segment.  One key operating strategy is our commitment to
provide market leading customer service.  In a continuing effort to provide
superior customer service, ADC offers a complete point-of-sale (POS) program
to assist customers with image management, product promotions, private label
and custom food service programs and overall profit maximization.
Additionally, ADC has a policy of next-day delivery and sells products in
cut-case quantities or "by the each" (i.e. individual units).  The Company
also offers planograms to convenience store customers to assist in the design
of stores and the display of products within the store.  In addition,
customers are able to use our web site to order products and promotions,
manage inventory and retail prices, as well as obtain periodic velocity
management reports.

Management has also worked to improve ADC's operating efficiency by investing
in information technology systems to help automate our buying and financial
control functions as well as minimize inventory costs.  By offering superior
customer service and aggressively managing operating costs, management
believes ADC is better positioned to compete with both smaller and larger
distributors.

Increases in fuel prices, in addition to increases in other operating costs,
are having a significant impact on all distributors in the United States.
We expect that competition and the pressure on profit margins will continue
to affect both large and small distributors resulting in additional industry
consolidation in order to become more efficient.

Retail Health Food Segment
- --------------------------
The retail health food industry is experiencing an increase in sales and
gross profit driven primarily by the demand for natural products and more
health conscious consumers.  Our retail health food segment has benefitted
from this trend, experiencing sales growth in many product categories
including grocery and supplements.  Management continues to closely review
all store locations for opportunities to close or relocate marginally
performing stores, remodel and expand strong performing stores, and identify
locations for additional stores.

AMCON's retail health food stores are managed collectively through a main
office in Tulsa, Oklahoma.  The Company strives to maintain the local
identity of each store while leveraging the operating synergies of
centralized management operations.



                                   25








RESULTS OF OPERATIONS - Continuing Operations

SALES

Changes in sales are driven by two primary components as follows:

      (i)  changes to selling prices largely controlled by the manufacturers
           of the products that we sell, and excise taxes imposed on
           cigarettes and tobacco products by various states; and

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

Sales by business segment for the three month periods ended December 2006 and
December 2005 are as follows (dollars in millions):

<TABLE>
<CAPTION>
                                                Three months
                                               ended December
                                            -----------------------
                                             2006     2005    Incr
                                            ------   ------  ------
 <S>                                          <C>     <C>     <C>
Wholesale distribution segment              $200.3   $189.2  $ 11.1
Retail health food stores segment              9.1      9.0     0.1
                                            ------   ------  ------
                                            $209.4   $198.2  $ 11.2
                                            ======   ======  ======
</TABLE>

Three months ended December 2006 comparison - Continuing Operations
- -------------------------------------------------------------------
Sales for Q1 2007 increased 5.6%, or $11.2 million, compared to the same
period in the prior year.  Sales are reported net of costs associated with
sales incentives provided to retailers, totaling $3.9 million and $3.6
million, for Q1 2007 and Q1 2006, respectively.

The sales of cigarettes in the wholesale distribution segment increased by
$6.4 million and the sales of tobacco, confectionary, food service and other
products in our wholesale distribution segment increased $4.7 million in Q1
2007 compared to Q1 2006.  Of the increase in cigarette sales, $0.6 million
related to price increases on certain brands of cigarettes in December 2006
and $5.8 million was attributable to a 2.8% increase in the volume of
cigarette carton sales.  The increase in tobacco, confectionary, food service
and other product sales was primarily due to higher sales volumes.

Sales from our retail health food segment increased slightly to $9.1 million
in Q1 2007 compared to $9.0 million in Q1 2006.  Sales in this segment
continue to remain strong, benefitting from the overall growth in the natural
foods industry and the Company's continued marketing efforts.


                                   26



GROSS PROFIT

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

Gross profit by business segment for the three month periods ended December
2006 and December 2005 are as follows (dollars in millions):

<TABLE>
<CAPTION>
                                     Three Months ended
                                          December
                                  -----------------------

                                   2006     2005   Incr
                                  ------   ------  ------
<S>                                  <C>     <C>     <C>
Wholesale distribution segment    $ 11.5   $ 10.5  $  1.0
Retail health food stores segment    3.5      3.5       -
                                  ------   ------  ------
                                  $ 15.0   $ 14.0  $  1.0
                                  ======   ======  ======
</TABLE>

Three months ended December 2006 comparison - Continuing Operations
- -------------------------------------------------------------------
During Q1 2007, gross profit increased $1.0 million to $15.0 million compared
to $14.0 million in Q1 2006.  This represents a 7.2% increase in gross profit
compared to the same period in the prior year.  Gross profit as a percent of
sales increased slightly to 7.2% in Q1 2007 compared to 7.1% in Q1 2006.

Gross profit from our wholesale distribution segment increased $1.0 million
in Q1 2007 as compared to Q1 2006.  Of this increase, $0.4 million was
related to additional promotional activity, $0.4 million was due to higher
sales volumes, $0.1 million was attributable to a smaller quarterly LIFO
charge in Q1 2007 as compared to Q1 2006, and $0.1 million was attributable
to the benefit of a cigarette price increase in December 2006.

Gross profit for the retail health food segment remained flat in Q1 2007 at
$3.5 million, or 39.0% of sales as compared to the same period in the prior
year.

OPERATING EXPENSE

Operating expense includes selling, general and administrative expenses and
depreciation and amortization.  Selling, general and administrative include
costs related to our sales, warehouse, delivery and administrative
departments for all segments.  Specifically, purchasing and receiving costs,
warehousing costs and costs of picking and loading customer orders are all
classified as selling, general and administrative expenses.  Our most
significant expenses relate to employee costs, facility and equipment leases,
transportation costs, fuel costs, insurance and professional fees.

                                   27
In Q1 2007, operating expenses decreased 2.0% or approximately $0.3 million,
as compared to Q1 2006.  This decrease was primarily related to a reduction
in professional fees, partially offset by higher compensation costs in our
wholesale segment.

INTEREST EXPENSE

Interest expense for the three months ended December 31, 2006 increased 9.6%
or $0.1 million compared to the same period in fiscal 2006.  This increase
was primarily related to increases in the prime interest rate, as compared to
Q1 2006, which is the rate at which the Company primarily borrows, and the
expiration of an interest rate swap in fiscal 2006 which had the effect of
converting $10.0 million of Facility borrowings to a fixed interest rate of
4.87%.  On average, the Company's borrowing rates on variable rate debt were
1.28% higher and the average borrowings on variable rate debt were $2.3
million lower in Q1 2007 as compared to Q1 2006.

DISCONTINUED OPERATIONS

Discontinued operations consist of our TSI and HNWC subsidiaries for the
three month periods ended December 2006 and December 2005, and TBG for three
months ended December 2005.  As previously discussed, TBG's residual balances
were reclassified to continuing operations in April 2006 and the assets of
HNWC were sold in November 2006.

Income from discontinued operations increased approximately $1.7 million
during Q1 2007 as compared to the same period in the prior year.  This change
was primarily the result a $1.6 million gain before income taxes recorded on
the sale of HNWC.  Additionally, TSI's operations were closed in March 2006
which stemmed further operating losses.

A summary of discontinued operations is as follows:

<Table>
<Caption>
                                                   Three months ended     Three months ended
                                                      December 2006          December 2005
                                                   ------------------     ------------------
<S>                                                       <C>                    <C>
Sales                                                 $  862,647             $ 2,466,117
Operating loss                                          (215,980)             (1,554,157)
Gain on disposal of discontinued operations,
 before income taxes                                   1,562,588                       -
Income tax expense (benefit)                             553,000                (599,000)
Income (loss) from discontinued operations               698,178              (1,027,638)

</Table>




                                   28










LIQUIDITY AND CAPITAL RESOURCES

Overview
- ----------
Operating Activities.  The Company requires cash to pay its operating
expenses, purchase inventory and make capital investments.  In general, the
Company finances these cash needs from the cash flow generated by its
operating activities and from borrowings and preferred stock issuances, as
necessary.  During Q1 2007, the Company used approximately $3.5 million of
cash from operating activities, primarily related to inventory purchases by
our wholesale distribution segment and the pay down of accounts payable and
accrued expenses in both our continuing and discontinued operations.
Our variability in cash flows from operating activities is heavily dependent
on the timing of inventory purchases and seasonal fluctuations.  For example,
in the circumstance where we are "buying-in" to obtain favorable terms on
particular product or to maintain our LIFO layers, we may have to retain the
inventory for a period longer than the payment terms.  This generates cash
outflow from operating activities that we expect to reverse in a later
period. Additionally, during the warm weather months, which is our peak time
of the year operationally, we generally carry larger inventory back stock to
ensure high fill rates to maintain customer satisfaction.

Investing Activities.  The Company generated approximately $3.6 million in
cash from investing activities during the first three months of fiscal 2007.
Of the cash generated, approximately $3.8 million resulted from the sale of
HNWC's assets, which was partially offset by $0.2 million in capital
expenditures for property, plant and equipment.

Financing Activities.  The Company used net cash of $0.1 million for
financing activities during the first quarter of fiscal 2007.  Of the net
change in cash, the Company used cash of $0.7 million for continuing and
discontinued operations long-term debt payments and $0.1 million for the
payment of preferred stock dividend payments.  These uses of cash were offset
by $0.7 million generated from additional borrowings on the Company's credit
facility.

Cash on Hand/Working Capital.  As of December 31, 2006, the Company had cash
on hand of $0.4 million and working capital (current assets less current
liabilities) of $32.1 million.  This compares to cash on hand of $0.5 million
and a working capital of $28.0 million as of September 30, 2006.

Contractual Obligations
- -----------------------
There have been no significant changes to the Company's contractual
obligations as set forth in the Company's Annual Report on Form 10-K for
the fiscal period ended September 30, 2006.

CREDIT AGREEMENT
- ----------------
The Company's primary source of borrowing for liquidity purposes is its
revolving credit facility.  In December 2006, the Company amended its
credit agreement (the "Facility") with LaSalle Bank. The significant terms
of the Facility at December 31, 2006 include:



                                   29


   - A $55.0 million revolving credit limit plus the outstanding balances
     on two term notes ("Term Note A" and "Term Note B"), which totaled
     approximately $2.0 million, for a total credit facility limit of $57.0
     million as of December 31, 2006.

   - Extension of credit to the Company at the bank's prime interest rate.

   - Maturity and expiration dates for the Facility and Term Note A
     of April 2009 and March 2008 for Term Note B.

   - Lending limits subject to accounts receivable and inventory
     limitations, an unused commitment fee equal to 0.25% per annum on the
     difference between the maximum loan limit and average monthly borrowings
     for the month and financial covenants.

   - Includes a prepayment penalty of two percent (2%) and one percent
     (1%) of the prepayment loan limit of $55.0 million if prepayment occurs
     on or before April 30, 2007 and April 30, 2008, respectively.

The December 2006 Facility amendment replaced all prior financial covenants
with quarterly cumulative earnings before interest, taxes, depreciation and
amortization ("EBITDA") covenants in addition to a quarterly minimum debt
service ratio financial covenant of one to one beginning with the fiscal
quarter ending September 30, 2007 for the twelve month period then ended. The
cumulative minimum EBITDA requirements are as follows (a) $1,000,000 for the
three months ending December 31, 2006, December 31, 2007 and December 31,
2008 (b) $2,000,000 for the six months ending March 31, 2007, March 31, 2008,
and March 31, 2009, (c) $4,500,000 for the nine months ending June 30, 2007,
June 30, 2008 and $7,000,000 for the twelve months ending September 30, 2007
and September 30, 2008.  The Company is in compliance with the covenants at
December 31, 2006.

The Company's maximum available credit limit under the Facility was $50.7
million at December 31, 2006, however, the amount available for use at any
given time is subject to many factors including eligible accounts receivable
and inventory balances that are evaluated on a daily basis.  On December 31,
2006, the outstanding balance on the revolving portion of the Facility was
$47.6 million.  The Facility bears interest at a variable rate equal to the
bank's prime rate, which was 8.25% at December 31, 2006.  Based on our
collateral and loan limits, the Company's excess availability under the
Facility at December 31, 2006 was approximately $3.1 million.

During Q1 2007, our peak borrowings under the Facility were $52.4 million and
our average borrowings and average availability were $47.7 and $2.6 million,
respectively.  Our availability to borrow under the Facility generally
decreases as inventory and accounts receivable levels go up because of the
borrowing limitations that are placed on the collateralized assets.

As a component of the credit agreement, the Company also has two term notes,
Term Note A and Term Note B, with LaSalle Bank.  Term Note A bears interest
at the bank's prime rate (8.25% at December 31, 2006) and is payable in
monthly installments of $16,333.  Term Note B bears interest at the bank's
prime rate plus 2% (10.25% at December 31, 2006) and is payable in monthly
installments of $100,000.  The outstanding balances on Term Note A and Term
Note B were $0.7 million and $1.3 million, respectively, as of December 31,
2006.

                                   30

The Company's Chairman has personally guaranteed repayment of the Facility
and the term loans.  However, the amount of his guaranty is capped at
$10.0 million and is automatically reduced by the amount of the repayment on
Term Loan B, which resulted in the guaranteed principal outstanding being
reduced to $6.3 million as of December 31, 2006. AMCON pays the Company's
Chairman an annual fee equal to 2% of the guaranteed principal in return for
the personal guarantee.  This guarantee is secured by a pledge of the shares
of Chamberlin's Natural Foods Inc., Health Food Associates Inc., HNWC and
TSI.

Cross Default and Co-Terminus Provisions
- -----------------------------------------
The Company's owned real estate in Bismarck, ND, Quincy, IL, and Rapid City,
SD, and certain warehouse equipment in the Rapid City, SD warehouse is
financed through term loans with Marshall and Ilsley Bank ("M&I"), which is
also a participant lender on the Company's revolving line of credit.  The
M&I loans contain cross default provisions which cause all loans with M&I to
be considered in default if any one of the loans where M&I is a lender,
including the revolving credit facility, is in default.  In addition, the M&I
loans contain co-terminus provisions which require all loans with M&I to be
paid in full if any of the loans are paid in full prior to the end of their
specified terms.

OTHER
- -----
AMCON has issued a letter of credit for approximately $1.0 million to its
workers' compensation insurance carrier as part of its self-insured loss
control program.

Off-Balance Sheet Arrangements
- ------------------------------
The Company does not have any off-balance sheet arrangements.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to interest rate risk on its variable rate debt.
At December 31, 2006, the Company had $49.6 million of variable rate debt
outstanding with maturities through April 2009.  The interest rate on this
debt ranged from 8.25% to 10.25% at December 2006.  We estimate that our
annual cash flow exposure relating to interest rate risk based on our current
borrowings is approximately $0.3 million for each 1% change in our lender's
prime interest rate.

We do not utilize financial instruments for trading purposes and hold no
derivative financial instruments which could expose us to significant market
risk.

Item 4.   Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules
13a-15(f) and 15d-15(e) under the Exchange Act of 1934, as amended (the
"Exchange Act")), that are designed to ensure that information required to be
disclosed in the Company's reports filed or furnished under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the Exchange Act related rules and forms of the SEC.


                                   31

Such information is accumulated and communicated to the Company's management,
including its Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"), as appropriate, to allow timely decisions regarding required
disclosures.  Any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance of achieving
the desired control objectives.

The Company carried out the evaluation required by paragraph (b) of the
Exchange Act Rules 13a-15 and 15d-15, under the supervision and with the
participation of our management, including the CEO and CFO, of the
effectiveness of our disclosure controls and procedures.  Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that, as of the end of the period covered by this report on Form 10-Q, the
Company's disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by the Company
in the reports the Company files or submits under the Securities Exchange Act
of 1934 is (1) accumulated and communicated to management, including the
Company's Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosures and (2) recorded, processed,
summarized and reported, within the time periods specified in the
Commission's rules and forms.  There have been no changes in the Company's
internal controls over financial reporting during the quarter covered by this
report that have materially affected, or are reasonably likely to materially
affect, such internal controls.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is involved in litigation regarding the ownership of the assets
of TSI, which is a consolidated subsidiary of AMCON.  The dispute, which
began in June 2004, arose over the sale of substantially all of the assets of
Trinity Springs, Ltd. (which later changed its name to Crystal Paradise
Holdings, Inc. ("CPH").  The Plaintiffs in the lawsuit are a group of
minority shareholders, and the Defendants are AMCON, TSL Acquisition Corp
(which later became TSI), CPH, and the former directors of CPH.

In December 2005, the District Court of the Fifth Judicial District of the
State of Idaho ("the Court") issued a ruling granting the minority
shareholder plaintiffs' motion for partial summary judgment declaring that
the stockholders of CPH did not validly approve the sale of its business and
assets to TSI (AMCON's consolidated subsidiary) because the vote of certain
shares issued as a dividend should not have been counted in the vote.  The
Court did not rule on the appropriate relief to be granted as a result of the
lack of shareholder approval for the asset sale transaction, nor did it rule
on the appropriate remedy for any other claim asserted by the parties in this
case.

However, based on a legal opinion obtained by management from independent
legal counsel, to the extent that TSI owned the assets immediately prior to
the ruling by the Court discussed above, and has not otherwise transferred
the assets, TSI continues to own the assets.  Accordingly, AMCON has
continued to account for the operations of TSI as a consolidated subsidiary
because the Court has not taken any action to divest TSI of its ownership of
the assets.

                                   32


Since the Court's December 2005 ruling, several events have taken place.
The minority shareholder plaintiffs have filed notice with the District Court
that they agree that rescission is not feasible.  During approximately the
same time frame, the entire CPH Board of Directors resigned.  Upon their
resignation, the Court appointed a custodian to manage and direct the affairs
of CPH.  Additionally, the custodian was designated by the Court as CPH's
investigative panel to determine whether the maintenance of a derivative
proceeding is in the best interest of CPH.

During the last several months, the parties have been engaged in settlement
discussions.  Recently, a settlement agreement was reached between the
parties.  The settlement resolved all disputes between the shareholders
plaintiffs, CPH, AMCON, TSI and the Defendant Directors, with two exceptions
that relate to AMCON.   The settlement did not resolve claims that CPH may
have against AMCON and TSI or that AMCON and TSI may have against CPH.  The
settlement also did not initially resolve the claims of a single minority
shareholder plaintiff, who, at the time, declined to sign on to the
settlement.  On October 16, 2006, the Court approved the parties' settlement
and ordered the dismissal with prejudice of the lawsuit, except for the
claims of the single minority shareholder plaintiff which were subsequently
settled.

On December 21, 2006, CPH filed a first amended complaint in the Fourth
Judicial District of the State of Idaho (Elmore County) against AMCON and TSI
and other defendants relating to AMCON and TSI's purchase of the assets of
CPH and operation of the business.  In its amended complaint, CPH re-asserts
claims of foreclosure; breach of the asset purchase agreement, promissory
notes and water royalty obligations; quantum merit; unjust enrichment; and
collection and enforcement of its security interest.  In addition, CPH again
seeks a declaratory judgement that: (i) AMCON and TSI are obligated to
perform under the asset purchase agreement and other agreements related to
the asset purchase transaction; (ii) the actions of AMCON and TSI constituted
events of default; (iii) TSI has not cured the events of default; (iv) TSI's
obligations are accelerated under certain promissory notes; and (v) AMCON is
liable to CPH under a guaranty and suretyship agreement for all amounts owing
to CPH under the asset purchase agreement and related agreements.  Finally,
CPH seeks its costs and attorney fees.  CPH has not served its amended
complaint on AMCON or TSI.

AMCON disagrees with the assertions made by CPH and intends to vigorously
defend against CPH's claims and to pursue its own claims against CPH.

With respect to the remaining claims in the original lawsuit and the claims
asserted by CPH in its recently filed complaint, AMCON's management, after
consulting with the trial counsel, is unable at this time to state that any
outcome unfavorable to AMCON is either probable or remote and therefore
cannot estimate the amount or range of any potential loss, if any, because
substantial discovery is needed, several unresolved legal issues exist, and
other pretrial work is yet to be completed.

The Company is in settlement discussions with respect to this litigation,
pursuant to which the Company is undertaking to divest substantially all of
the assets of TSI as part of a complete settlement of any and all claims by
CPH against the Company.

                                   33



Item 1A.  Risk Factors

There have been no material changes to the Company's risk factors as
previously disclosed in Item 1A "Risk Factors" in our 2006 Annual Report to
Shareholders on Form 10-K for the fiscal year ended September 30, 2006.

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

The LaSalle Bank credit facility provides that the Company may not pay
dividends on its common stock in excess of $0.72 per share on an annual
basis.

Item 3.  Defaults Upon Senior Securities

There have been no defaults in the payment of principal and interest with
respect to any indebtedness of the Company or any of it subsidiaries
exceeding five percent of total asset of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

There were no submissions of matters to a vote of security holders to be
reported during the three month fiscal period ended December 31, 2006.

Item 5.  Other Information

Not applicable.

Item 6.   Exhibits

(a) Exhibits

10.42 Asset Purchase Agreement - Hawaiian Natural Water Company, Inc.
      dated November 20, 2006.

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

31.2  Certification by Andrew C. Plummer, Vice President and Chief
      Financial Officer, furnished pursuant to section 302 of the Sarbanes-
      Oxley Act

32.1  Certification by Christopher H. Atayan, Chief Executive Officer and
      Vice Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley
      Act

32.2  Certification by Andrew C. Plummer, Vice President and Chief
      Financial Officer, furnished pursuant to section 906 of the Sarbanes-
      Oxley Act




                                   34





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:     January 23, 2007         /s/ Christopher H. Atayan
          ------------------       -----------------------------
                                   Christopher H. Atayan,
                                   Chief Executive Officer and
                                    Vice Chairman


Date:     January 23, 2007         /s/ Andrew C. Plummer
          ------------------       -----------------------------
                                   Andrew C. Plummer,
                                   Chief Financial Officer and Principal
                                    Financial and Accounting Officer



                                   35




































</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>ex1042hnwcapa.txt
<DESCRIPTION>EXHIBIT 10.42 HNWC APA
<TEXT>
                           EXHIBIT 10.42
                         -------------

ASSET PURCHASE AGREEMENT

by and between

HAWAIIAN NATURAL WATER COMPANY, INC.,
a Delaware corporation
as Seller

and

HAWAIIAN SPRINGS, LLC
a Delaware limited liability company
as Purchaser




                    ASSET PURCHASE AGREEMENT


This asset purchase agreement ("Agreement") is dated November 20,
2006, and is between Hawaiian Natural Water Company, Inc., a Delaware
corporation ("Seller"), and Hawaiian Springs, LLC, a Delaware limited
liability company ("Purchaser").  Seller and Purchaser may be referred
to herein collectively as the "Parties," and each individually as a
"Party."

Seller is in the business of bottling, packing, and handling of water
in the State of Hawaii (the "Business"), and Seller owns or holds
certain assets and properties in connection therewith, necessary for,
or material to the business and operations thereof (the "Property" as
further defined in Section 1.29).

Purchaser wishes to purchase from Seller, and Seller wishes to sell,
assign, and transfer to Purchaser, substantially all of the Property.
Purchaser has agreed to assume certain liabilities of Seller relating
to the Business created after the Closing Date (defined below) and
Seller shall pay off or assume responsibility for all liabilities
related to the Business created prior to the Closing Date, all for the
Purchase Price and upon the terms and subject to the conditions
hereinafter set forth.

The Parties therefore agree as follows:


                              ARTICLE I.

                             DEFINITIONS

The definitions in Article I apply equally to both the singular and
plural forms of the terms defined.  Whenever the context requires, any
pronoun includes the corresponding masculine, feminine, and neuter
forms. The words "include," "includes," and "including" are deemed to
be followed by the phrase "without limitation." All references to
Articles, Sections, Schedules, and Exhibits are references to
Articles, Schedules, and Sections of, and Exhibits to, this Agreement
unless the context otherwise requires.  The word "or" is inclusive
(i.e., "A or B" means "A, B, or A and B"), thereby avoiding the
compound conjunction "and/or."

All accounting terms used herein are to be interpreted, and all
accounting determinations to be made under this Agreement, in all
material respects using general accepted accounting principles applied
on a basis consistent with the accounting practices of Seller
concerning the Property as of the Closing Date.  Unless the context
otherwise specifies or requires, for this Agreement the following
terms has the meanings in this Section 1:

1.1 "Accounts Receivable" means all of the accounts receivable of
Seller as of the Closing Date to be sold to Purchaser as part of the
Property as set forth on Schedule 1.1.

1.2 "Bill of Sale" means a bill of sale duly executed by Seller
conveying to Purchaser all of Seller's right, title, and interest in
and to the Property on the Closing Date, in the form set forth in
Exhibit A.

1.3 "Book Value" means the value at which an asset is carried on
Seller's balance sheet; i.e., the cost of an asset minus any
accumulated depreciation.

1.4 "Books and Records" means all financial and other books and
records maintained by or for the benefit of Seller solely in
connection with the operation of the Property and other documents
prepared solely in connection with the Property within the possession
or control of Seller, including customer and distribution lists,
supply contracts, private label contracts, employment and tax records
along with any and all computer files, software, materials or
correspondence related thereto.

1.5 "Closing" means, concerning the purchase and sale of the Property,
consummation of its purchase by Purchaser as contemplated by this
Agreement.

1.6 "Closing Date" means the date on which the Closing occurs, set by
the Parties after necessary documents have been prepared and are ready
for execution.  The Closing Date is November 20, 2006.

1.7 "Code" means the Internal Revenue Code of 1986, as amended, and
the relevant rules and regulations promulgated thereunder.

1.8 "Agreement Date" means the date specified above in the first
paragraph of this Agreement.


1.9 "Contracts" means all customer, distributor, or co-pack contracts
plus any other material contracts Seller holds in relation to its
bottling or administrative operations as specified in Schedule 1.9.

1.10 "Equipment Leases" means the equipment leases specified on
Schedule 1.10.

1.11 "Facilities" collectively means all of Seller's facilities,
including at the Kea'au Facility, the Kapolei Facility, and the Pearl
City Facility.

1.12 "FF&E" means any and all furniture, fixtures, equipment (or
equipage), tools, machinery, leasehold improvements, plant and other
tangible personal property related to or used in connection with
Seller's operations or located at the Facilities, including:  (a)
bottling, packing, and handling equipment; (b) office equipment,
furniture, fixtures, furnishings, and computers (and related computer
equipment and software); (c) telecommunications equipment; and (d)
forklifts, if any, as specified in Schedule 1.12.

1.13 "General Assignment" means an assignment, duly executed and
acknowledged by Seller and Purchaser, assigning to Purchaser (to the
extent assignable) all of Seller's right, title, and interest in and
to intangible personal property of the Seller as of the Closing Date,
in the form set forth in Exhibit B.

1.14 "Governmental Authorities" means the federal government, the
applicable governmental authority of the State of Hawaii, and any
governmental agency connected with any of them that has jurisdiction
over the construction, reconstruction, operation, or use of the
Property.

1.15 "Ground Leases" means the ground leases specified on Schedule
1.15.

1.16 "Intellectual Property" means of the following only as it
pertains to Seller: (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof; (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names
(whether or not registered), together with all translations,
adaptations, derivations, and combinations thereof and including all
goodwill associated therewith, and all applications, registrations,
and renewals in connection therewith; (c) all copyrightable works, all
copyrights, and all applications, registrations, and renewals in
connections herewith; (d) all mask works and all applications,
registrations, and renewals in connection herewith; (e) all trade
secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data,
designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and
proposals); (f) all computer software (including data and related
documentation); (g) all other proprietary rights; and (h) all copies
and tangible embodiments thereof (in whatever form or medium), all as
specified in Schedule 1.16.

1.17 "Inventory" means Seller's inventory located at the Facilities,
consisting of good and saleable inventory with a fair market value to
be determined by mutual agreement of the Parties on or about the
Closing Date, including:  (a) raw materials that are not obsolete, and
(b) finished goods that are not obsolete.

1.18 "IRS" means the Internal Revenue Service.

1.19 "Kapolei Facility" means Seller's facility located at 91-291
Kalaeloa Blvd., Kapolei, HI 96707.

1.20 "Kea'au Facility" means Seller's facility located at 16-305 Old
Volcano Rd., Kea'au, HI 96749.

1.21 "Leases" collectively means the Equipment Leases, the Ground
Leases, and the Vehicle Leases.

1.22 "Liabilities" means and is limited strictly and solely to the
following liabilities of Seller:  (a) the post-Closing obligations of
Seller under the Leases, and (b) liabilities of the Business created
after the Closing Date.

1.23 "Liens" means lien and/or other security interests against the
Property as specified in Schedule 1.23.

1.24 "Non-Foreign Status Certificate" means a certificate, to be
executed by Seller, in the form set forth in Exhibit C.

1.25 "Other Liabilities" means all other liabilities which relate
directly or indirectly to the Business and/or the Property, including
all liabilities in connection with the Settlement Agreement, dated
April 29, 2003, among Seller, AMCON Distributing Company (Seller's
parent company), and Hawaii Brewery Development Co., Inc.

1.26 "Pearl City Facility" means Seller's facility located at 98-746
Kuahao Pl., Pearl City, HI 96782.

1.27 "Permits" means all of the permits and licenses required by
Governmental Authorities required for Seller to conduct the Business
as specified in Schedule 1.27.

1.28 "Person" means any natural person, partnership, corporation,
limited liability company, association, trust or trustee, or any other
legal entity.

1.29 "Property" means substantially all of the tangible and intangible
assets currently used by Seller to conduct its current business and
operations at the Facilities, including:  Accounts Receivable, Books
and Records, Contracts, FF&E, goodwill associated with Seller's
business, Inventory, Intellectual Property, Leases, Vehicles, and
Webpage.  "Property" excludes the items specified in Section 2.4.

1.30 "Purchase Price" has the meaning set forth in Section 2.2.

1.31 "Purchaser's Documents" has the meaning set forth in Section 6.2.

1.32 "Seller's Documents" has the meaning set forth in Section 6.1.

1.33 "Separate Agreement" has the meaning set forth in Section 2.2.2.

1.34 "Transaction" collectively means the transactions contemplated in
this Agreement.

1.35 "Vehicles" means the vehicles described in Schedule 1.32.

1.36 "Vehicle Leases" means the leases specified in Schedule 1.33.

1.37 "Webpage" means the web pages located at the uniform recourse
locator address http://www.hawaiianspring.com/, and any e-mail address
used by Seller using the suffix "@hawaiianspring.com."


                            ARTICLE II.

                  PURCHASE AND SALE OF PROPERTY

2.1  Purchase and Sale.  On the terms and subject to the conditions of
this Agreement, Seller hereby agrees to sell, transfer, convey, and
deliver the Property to Purchaser; and Purchaser hereby agrees to
purchase the Property from Seller and to assume the Liabilities, as
hereinafter provided.

2.2  Consideration for Purchase.

2.2.1  Purchase Consideration.  The total "Purchase Consideration" for
the Property includes (a) through (c):

     (a)  Fair Market Value, and not less than Book Value, for the
Inventory.  "Fair Market Value" means the actual amount paid by Seller
for raw materials still in new and undamaged condition, and the
variable cost incurred by Seller in the production of all finished
goods found to be in new and shippable condition.  Seller and
Purchaser will jointly survey and assess the Inventory before Closing,
to determine the quantities thereof and amounts paid therefor.

     (b)  Book Value for the Accounts Receivable set forth in Schedule
1.1, less any valid customer credits given by Seller before the
Closing Date.

     (c)  Two and one-half million dollars ($2,500,000.00).

     (d)  Assumption of the Liabilities in Section 2.3.

2.2.2  Wire Transfer.  Purchase Consideration to be paid in cash shall
be in the form of a wire transfer to the parties and accounts
identified in Schedule 2.2.1.  To the extent a recipient party is
other than Seller, such payment shall be for the benefit and account
of Seller.

2.3  Liabilities Assumed by Purchaser; Limitation on Liabilities
Assumed by Purchaser.

2.3.1  Purchaser must assume the Liabilities created after the Closing
Date.

2.3.2  Except for the Liabilities, Purchaser is assuming no Other
Liabilities.  Seller instead remains solely responsible for all Other
Liabilities except the Liabilities, including as illustrative and not
exhaustive the following (a) through (f):

     (a)  Income Taxes.  Any liability or obligation for federal,
state, local or foreign income taxes (and all other taxes) concerning
the operation of the Property before the Closing Date, including any
such taxes arising from the sale of the Property.

     (b)  Other Tax Obligations.  Any other tax obligations incurred
by Seller up to the Closing Date, including the Hawaii State Bottle
Tax, General Excise Tax, corporate income tax, and any and all
employee taxes or obligations incurred up to that point (employee
withholding, workers compensation, etc.).

     (c)  Payables.  Any and all payables up to the Closing Date.
Seller remains solely responsible to pay all obligations of whatever
nature related to Seller's operations up to the Closing Date.

     (d)  Transactional Expenses.  Any liability or obligation
incurred by Seller to Purchaser or any third party in connection with
the negotiation, execution, or performance by Seller of this
Agreement, including any legal, accounting, and other professional
fees and expenses.

     (e)  Fines and Penalties.  Any present, past or future costs,
assessments, fines, penalties, or related contingencies assessed or
assessable under any environmental law, labor, employee safety, wage
and hour, health and safety, or other statute, rule, or obligation
arising from or related to any act or omission before the Closing Date
by Seller or any officer, director, or employee thereof.

     (f)  Dragnet Clause.  Any other debts, liabilities, and taxes
incurred by Seller up to the Closing Date; and any employee salaries,
employee benefits, and employee-related taxes incurred by Seller up to
the Closing Date.

Seller promptly must pay, discharge, and perform all Other
Liabilities, when and as they become due; provided, however, that
Seller may refuse to pay or perform any Other Liabilities that Seller
contests in good faith and by proper proceedings diligently pursued to
completion; provided Purchaser is indemnified pursuant to Section
5.3.3 below.

2.4  Assets Retained by Seller.
Seller will retain all the items in Sections 2.4.1 through 2.4.2:

2.4.1  Any cash (or cash equivalents) on hand, and any and all
"internal debt" owed to AMCON Distributing Company.

2.4.2  Any tax credits including net operating loss tax benefits.

2.5  Allocation of the Purchase Consideration.  Purchaser and Seller
agree to allocate the Purchase Consideration as specified in Schedule
2.5.  After the Closing Date, the Parties will make consistent use of
the allocation for all tax purposes and in all filings, declarations,
and reports with the IRS in respect thereof, including the reports
required to be filed under Section 1060 of the Code.  Purchaser will
prepare and deliver IRS Form 8594 to Seller within forty-five (45)
days after the Closing Date to be filed with the IRS.  In any
litigation related to the determination of any tax, Purchaser and
Seller must not contend to represent that such allocation is not a
correct allocation.


                            ARTICLE III.

                            CLOSING DATE

3.1  Closing Procedures.  This Agreement constitutes the agreement for
the transfer of substantially all of the Property from Seller to
Purchaser.

3.2  Closing Date.

3.2.1. The Transaction will close on the Closing Date, or such later
date as the parties mutually agree.

3.2.2.  Provided that neither Party has received written notice of the
failure of any condition precedent specified in Article VII to the
obligations of such Party, then, when Purchaser and Seller are each
prepared to execute the documents and instruments and transfer the
funds required thereof by this Agreement, they must:

     (a)  insert the Closing Date as the date of any document to be
delivered but not theretofore dated;

     (b)  deliver to Purchaser:  the Bill of Sale, General Assignment,
Non-Foreign Status Certificate, and any other document required to be
delivered to Purchaser; and

     (c)  deliver to Seller:  all sums to be received by Seller from
Purchaser; the General Assignment executed, in counterpart, by
Purchaser; and any other document required to be delivered to Seller
at the Closing Date.

3.3  Costs.  Each Party must pay all of its own legal, accounting, and
consulting fees and all other costs and expenses incurred in
connection with the Transaction.


                              ARTICLE IV.

        ASSIGNMENT AND ASSUMPTION OF LEASES AND OTHER CONTRACTS

4.1  Assumption of Ground Leases.  Seller is to assign to Purchaser,
and Purchaser is to accept assignment of and assume the obligations
under, the Ground Leases.  Seller and Purchaser will, on the Closing
Date, execute agreements assigning and assuming the Ground Leases from
Seller to Purchaser.  Those Lease Agreements must be substantially in
the form of Exhibit D, unless otherwise agreed or waived by the
Parties.  Seller and Purchaser will cooperate and jointly be
responsible, before or on the Closing Date, to obtain the lessor's
consent (and estoppel certificate) concerning that assignment for the
Ground Leases.  Purchaser assumes liability for all rents and other
charges owing under the Ground Leases after the Closing Date, and
Purchaser must indemnify Seller for all such amounts owing under the
Ground Leases after the Closing Date.  Purchaser must pay Seller for
any lease deposits associated with any Ground Lease.  Seller
indemnifies Purchaser for all rents and other charges owing under the
Ground Leases prior to and on the Closing Date.

4.2  Assumption of Equipment Leases.  Seller is to assign to
Purchaser, and Purchaser is to accept assignment of and assume the
obligations under, the Equipment Leases.  Seller and Purchaser must,
on the Closing Date, execute agreements assigning and assuming the
Equipment Leases from Seller to Purchaser.  Those agreements must be
substantially in the form of Exhibit E, unless otherwise agreed or
waived by the Parties.  Seller and Purchaser will cooperate and
jointly be responsible, before or on the Closing Date, to obtain the
lessor's consent (or estoppel certificate) concerning that assignment
of the Equipment Leases.  Purchaser assumes liability for all rents
and other charges owing under the Equipment Leases after the Closing
Date, and Purchaser must indemnify Seller for all such amounts owing
under the Equipment Leases after the Closing Date.  Seller indemnifies
Purchaser for all amounts owed or owing under the Equipment Leases
prior to or on the Closing Date.  If Purchaser assumes the Equipment
Leases instead of paying them off at Closing and Seller has continuing
liability after the Closing Date under the Equipment Leases, then
Purchaser must arrange an irrevocable letter of credit (or similar
irrevocable financial device reasonably acceptable to Seller) to
insure all lease payments to the lessor under the Equipment Leases.
Purchaser must pay Seller for any lease deposits associated with any
Equipment Lease.

4.3  Assumption of Vehicle Leases.  Seller is to assign to Purchaser,
and Purchaser is to accept assignment of and assume the obligations
under, the Vehicle Leases.  Seller and Purchaser will, on the Closing
Date, execute an assignment and assumption of lease assigning the
Vehicle Leases from Seller to Purchaser.  The Vehicle Lease Agreements
must be substantially in the form of Exhibit F, unless otherwise
agreed or waived by the Parties.  Seller and Purchaser will cooperate
and jointly be responsible, before or on the Closing Date, to obtain
the lessor's consent (or estoppel certificate) concerning that
assignment for the Vehicle Leases.  Purchaser assumes liability for
all rents and other charges owing under the Vehicle Leases after the
Closing Date, and Purchaser must indemnify Seller for all such amounts
owing under the Vehicle Leases after the Closing Date.  Purchaser must
pay Seller for any lease deposits associated with any Vehicle Lease.

4.4  Insurance Polices.  Seller will assign to Purchaser, and
Purchaser will accept that assignment of and assume the obligations
under, all of Seller's business insurance policies that are reasonably
assumable by Purchaser.  All such insurance policies (or replacements
thereof) or any applicable portion thereof will be kept in full force
and effect and Purchaser will assume the obligation to pay all
premiums under those insurance policies as of the Closing Date.  The
Seller will notify all insurance companies of this Agreement and the
sale of the Property to the Purchaser.  Seller also actively will
assist Purchaser, before or on the Closing Date, to obtain the
insurer's consent concerning that assignment and assumption of those
insurance policies of Seller.

4.5  Sale Contracts.  Seller is to assign to Purchaser, and Purchaser
is to accept assignment of and assume the future obligations under,
the Contracts.  (Seller must not enter into any new Contract after
accepting the Parties' letter of intent dated September 22, 2006.)


                             ARTICLE V.

             REPRESENTATIONS, WARRANTIES, AND COVENANTS

5.1  Purchaser's Representations and Warranties.  Purchaser hereby
represents and warrants to Seller as follows:

5.1.1  Power and Authority.  Purchaser is a limited liability company,
duly incorporated, validly existing, and in good standing under the
laws of the State of Delaware. Purchaser has the power and authority
to enter into this Agreement and the "other documents" required to be
executed by Purchaser under Section 7.2, to perform its obligations
hereunder and to consummate the Transaction; neither the execution and
delivery hereof by Purchaser nor the performance by Purchaser of
Purchaser's obligations hereunder will violate or constitute an event
of default under any material terms or material provisions of any
material agreement, document, instrument judgment, order, or decree to
which Purchaser is a party or by which Purchaser is bound.

5.1.2  Authorization; Valid Obligation.  All actions required to be
taken by or on behalf of Purchaser to authorize Purchaser to make,
deliver, and carry out the terms of this Agreement have been or will
be duly taken before the Closing Date.  No consent to the execution,
delivery, and performance of this Agreement by Purchaser is required
from any partner, member, manager, board of directors, shareholder,
creditor, investor, judicial or administrative body, Governmental
Authority, or other Person, other than any such consent that already
has been unconditionally given.

5.1.3  As Is Purchase.

     (a)  Before the execution of this Agreement and within forty-five
(45) days of the Closing Date, Purchaser has been afforded access to
books and records of Seller relating to the operation of the Property,
and to other information available to Seller with respect thereto.
Seller has made no representations or warranties to Purchaser as to
the accuracy or completeness of that information.

     (b)  To the extent deemed necessary or desirable by Purchaser,
Purchaser (i) has conducted its own investigation of the Property; and
(ii) has made its own inspections, tests, audits, studies, and
investigations conducted in connection with, and on Purchaser's own
judgment concerning, its purchase of the Property.

5.2  Purchaser's Covenants.  Purchaser covenants with Seller that
Purchaser must indemnify, defend, and hold harmless Seller from and
against any and all loss, damage, claim, cost, and expense and any
other liability whatsoever (including reasonable attorney's fees,
charges and costs) incurred by Seller by reason of any claim, demand,
or litigation relating to the Property and arising from acts,
omissions, occurrences, or matters that take place after the Closing
Date, except to the extent arising from any act, negligence, willful
misconduct, or omission of Seller.

5.3  Seller's Representations and Warranties.  Seller represents and
warrants to Purchaser as follows:

5.3.1  Power and Authority.  Seller is a corporation, duly
incorporated, validly existing, and in good standing under the laws of
the State of Delaware.  Seller has the power and authority to enter
into this Agreement, and other documents required to be executed by
Seller at Closing under Section 6.3, to perform its obligations under
this Agreement, and to consummate the Transaction.

5.3.2  Title to Assets.  Seller has good and marketable title to, or a
valid leasehold interest in, the Property free and clear of any
security interests therein or restrictions on transfer except for: (a)
each respective lessor's interests in each of the Leases; (b) required
consents to assignment of the Leases; and (c) the Liens.  Seller makes
no warranties or representations to Purchaser, express or implied, as
to the condition of any of the Property transferred to Purchaser as
part of the Transaction or the suitability of any of the Property for
any particular purpose, except as expressly provided in this Section
5.3.2 as to Seller's good and marketable title thereto and except as
expressly provided herein.  All Property is sold to Purchaser "as is"
and in its condition and at its location as of the Closing Date.



5.3.3  Seller's Covenants.  Seller hereby covenants with Purchaser
that Seller (and its successors and assigns) must indemnify, defend,
and hold harmless Purchaser from and against any and all loss, damage,
claim, cost, and expense and any other liability whatsoever (including
reasonable attorney's fees, charges and costs) incurred by Purchaser
by reason of any claim, demand, or litigation relating to the Other
Liabilities, Property and/or the Business and arising from acts,
omissions, occurrences, or matters that take place on or before the
Closing Date, except to the extent arising from any act, negligence,
willful misconduct, or omission of Purchaser.

     (a)  Modifications of Contracts and Leases.  Seller must not
amend the Contracts and the Leases (and any agreements set forth in
the exhibits attached hereto), and Seller must not  enter into any
other leases of or concerning the Property or other agreements
affecting the Property, without the prior written consent of
Purchaser.

     (b)  Insurance Policies.  All existing insurance policies (or
replacements thereof) affecting the Property or any portion thereof
will be kept in full force and effect, subject to Section 4.4.

5.4  Survival.  Purchaser and Seller each hereby covenants and agrees
with the other that the representations, warranties, covenants, and
indemnities of Purchaser and Seller (as the case may be) set forth,
respectively, in Articles V, X, and XIV survive the Closing without
limitation as to duration; provided, however, the representations and
warranties made by Purchaser and Seller (Section 5.1, as to Purchaser
and Sections 5.3.1 and 5.3.2 only as to Seller) survive the Closing
for a twelve (12) month period commencing upon the Closing Date.

5.5  No Warranty Concerning Future Business Prospects.  Seller makes
no warranties, express or implied, concerning the future business
prospects of Purchaser, as a result of or following the Transaction.
Seller has supplied Purchaser with certain financial information
concerning Seller and its operations; provided, however, Seller
supplied that financial information to Purchaser without any warranty,
express or implied, that might reflect Purchaser's business prospects.
Purchaser acknowledges such information supplied by Seller was not, is
not, and must not be deemed to be any commitment or guarantee by
Seller concerning what Purchaser's future business prospects might be
upon consummation of the Transaction.


                              ARTICLE VI.

                        PRE-CLOSING COVENANTS

The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:

6.1  General.  Each of the Parties will use commercially reasonable
efforts to take all action and to do all things necessary, proper or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement.  Without limiting the generality of
the foregoing, both Parties will cooperate in all reasonable respects
to obtain all required consents to the assignment and transfer of the
Property and the assumption of the Liabilities; provided, however,
that Purchaser shall not be required to agree to any commercially
significant amendment of any agreement as a condition of obtaining
such consent; however, Purchaser acknowledges that a personal guaranty
or letter of credit may be required in order to assume and have
assigned the Equipment Lease with General Electric.

6.2  Notices and Consents.  Seller will give any required notices to
third parties and will use commercially reasonable efforts to obtain
any third party consents that Purchaser reasonably may request.

6.3  Operation of Business Negative Covenants.  Except as expressly
contemplated in this Agreement, Seller will not, without the consent
of Purchaser, engage in any practice, take any action, or enter into
any transaction outside the ordinary course of the Business.  Without
limiting the generality of the foregoing, Seller will not take any
action that may, directly or indirectly, impair or materially
adversely affect the Property or result in any adverse change in the
Liabilities.

6.4  Operation of the Business Affirmative Covenants.  Unless
Purchaser otherwise agrees:

6.4.1  Seller will (A) conduct the Business diligently and in the
ordinary course of the Business of Seller in substantially the same
manner as heretofore conducted and in material conformity with all
applicable laws, rules and regulations, and (B) exercise all
commercially reasonable efforts to preserve the Business intact, to
preserve present commercially significant relationships with suppliers
and customers and others having business relations with it and to keep
in full force and effect its corporate existence and all material
rights and intellectual property relating to the Business.

6.4.2  Seller will in all material respects maintain the Property in
its present or better condition, ordinary wear and tear excepted.

6.4.3  Seller will conduct the Business in accordance, in all
commercially significant respects, with all applicable governmental
rules and regulations and any licenses, permits and other
authorizations issued to it by any governmental or regulatory
authority, federal, state or local.

6.4.4  Seller will comply in all commercially significant respects
with all applicable laws, rules and regulations to which it is
subject.  Upon receipt of notice of violation of any of such laws,
rules and regulations, Seller will use its best efforts to contest in
good faith or to cure such violation prior to the Closing.

6.4.5  Seller will maintain or cause to be maintained in force the
existing hazard and liability insurance policies, or comparable
coverage, relating to the Property and the Business.


6.5  Notice of Developments.  Seller will give prompt written notice
to Purchaser of any material adverse change in the Business or
financial condition of Seller.

6.6  Exclusivity.  Seller will not, and will not cause or permit
Seller's representatives, employees or agents to, solicit, initiate,
or encourage the submission of any proposal or offer from any person
relating to the acquisition of all or substantially all of the capital
stock or assets of Seller (including any acquisition structured as a
merger, consolidation, or share exchange).

6.7  Employee Matters.  Seller shall take all action necessary to
terminate substantially all of its employees prior to or on the date
of the Closing.  Seller acknowledges that Purchaser is under no
obligation to offer employment to any such terminated employee or to
extend any benefit or to assume any liability in respect of any such
employee although subject to a review of all personnel files and to
certain personal interviews, Purchaser intends to offer employment to
substantially all existing employees on existing terms.  Seller does
not believe it is subject to the provisions of the Worker Adjustment
and Retraining Notification Act (the "WARN Act"), if any, or under any
other applicable Law with respect to such termination but that Seller
shall give all required notices and other information required to be
given to the employees of Seller, any collective bargaining unit
representing any group of employees of Seller (if any) and any
applicable government authority under the WARN Act (if any) and under
any other applicable Law in connection with the transactions
contemplated by this Agreement.   Seller agrees to hold Purchaser
harmless from all obligations with regard to the WARN Act and any
other applicable Law in respect of Seller's employees whenever
arising.

                            ARTICLE VII.

                       DELIVERY OF DOCUMENTS

7.1  Closing Documents to be Delivered by Seller to Purchaser.  Seller
must deliver the following original documents to Purchaser on the
Closing Date, each of which must be executed, and, where appropriate,
acknowledged by Seller, and dated as of the Closing Date:

7.1.1  Two counterparts of the Assignment and Assumption of Interest
in each Lease (Exhibits D, E, F);

7.1.2  Consents to the assignment of each Lease along with landlord
estoppel certificates reasonably required by Purchaser;

7.1.3  Two counterparts of the General Assignment (Exhibit B);

7.1.4  Two counterparts of the Bill of Sale (Exhibit A);

7.1.5  All documents necessary to transfer title to Purchaser of the
Vehicles;

7.1.6  Bulk Sales Report, to be filed under Haw. Rev. Stat. 237-45;

7.1.7  Assignment of Intellectual Property (Exhibit G);

7.1.8  Executed Non-Foreign Status Certificate (Exhibit C);

7.1.9  Executed Intellectual Property conveyancing documents
(including but not limited to the Webpage) reasonably required by
Purchaser;

7.1.10  Evidence as reasonably required by Purchaser that all Liens
have been released and Other Liabilities satisfied; and,

7.1.11  Any other documents, reasonably required by Purchaser to
consummate the purchase and sale of the Property.

7.2  Closing Documents and Funds to be Delivered by Purchaser to
Seller.  Purchaser must deliver to Seller on the Closing Date the
following funds and original documents, each of which must be
executed, and, where appropriate, acknowledged by Seller, and dated as
of the Closing Date:

7.2.1  The Purchase Price, in cash or other immediately available
federal funds, in the form and amount required by Section 2.2;

7.2.2  Two counterparts of the Assignment and Assumption of Interest
in each of the Leases (Exhibits D, E, F);

7.2.3  Two counterparts of the General Assignment (Exhibit B);

7.2.4  Any other documents, reasonably required by Seller to
consummate the purchase and sale of the Property.

7.3  Seller's Deliveries to Purchaser at Closing.  Seller must deliver
to Purchaser contemporaneously with the Closing original counterparts
of the following documents together with, to the extent obtainable by
Seller through its reasonable efforts, appropriate consents:

7.3.1  Leases;

7.3.2  Contracts, FF&E, and Inventory.

7.3.3  Books and Records;

7.3.4  Permits, if any; and

7.3.5  Keys to all entrance doors, offices, storerooms, FF&E, and
Vehicles.

The documents and keys described in this Section 7.3 are deemed to be
delivered properly, if left in the property in possession of an
authorized representative of Purchaser.



                              ARTICLE VIII.

                    CONDITIONS PRECEDENT TO CLOSING

8.1  Conditions Precedent to Purchaser's Obligations.  The obligation
of Purchaser to purchase the Property is subject to the satisfaction,
not later than the Closing Date, of the following conditions:

8.1.1  Representations and Warranties of Seller.  There has been no
material breach of any of Seller's representations, warranties, and
covenants in this Agreement set forth in Section 5.3 and Section 5.4
as of the Closing Date.

8.1.2  No Material Changes.  There has been no casualty or
condemnation of which Purchaser has elected to terminate this
Agreement under Article XII (Casualty).

8.1.3  Seller's Deliveries.  Seller has delivered the items described
in Section 7.1, and Purchaser has acknowledged that Seller is prepared
to deliver the items described in Section 7.3.  The foregoing
notwithstanding, if the consents for any Lease is not delivered to
Purchaser before the Closing Date, it may be delivered as soon as
Seller is able after the Closing Date.  If the consent to a Lease is
not delivered before the Closing Date, then Seller must indemnify,
defend, and hold harmless Purchaser from and against any and all loss,
damage, claim, cost, and expense and any other liability whatsoever
(including reasonable attorney's fees, charges, and costs) incurred by
Purchaser by reason of any claim, demand, or litigation relating to
the consent to the Lease not being delivered before the Closing Date
except to the extent arising from any act, negligence, willful
misconduct, or omission of Purchaser.

8.2  Conditions Precedent to Seller's Obligations.  The Closing and
Seller's obligations concerning the Transaction are subject to the
satisfaction, not later than the Closing Date of the following
conditions:

8.2.1  Funds.  Purchaser has delivered to Seller on the Closing Date,
all cash or other immediately available funds due from Purchaser in
accordance with Section 2.2 of this Agreement.

8.2.2  Representations, Warranties, and Covenants of Purchaser.  There
is no material breach of any of Purchaser's representations,
warranties, and covenants in this Agreement including, but not limited
to, those set forth in Sections 5.1 and 5.2 as of the Closing Date.

8.2.3  Purchaser's Deliveries.  Purchaser has delivered to Seller the
items described in Section 7.2.

The conditions set forth in this Section 8.2 are solely for the
benefit of Seller and may be waived only by Seller.  Seller at all
times has the right to waive any condition.  Any such waiver or
waivers must be in writing and delivered to Purchaser.  Purchaser and
Seller each must not act or fail to act for the purpose of permitting
or causing any condition of this Agreement to fail.

8.3  Failure of Condition.  Except as otherwise provided in this
Agreement, if the Transaction fails to close on or before the Closing
Date for any reason whatsoever (other than a reason for which
Purchaser or Seller has the express right to postpone Closing),
including a failure of a condition precedent set forth in this Article
VIII, either Purchaser or Seller, if not then in default hereunder,
may terminate this Agreement in accordance with the provisions of
Section 9.1 or 9.2, as the case may be; and, thereupon:

8.3.1.  each Party must pay its own costs and expenses; and

8.3.2.  each Party is released from all obligations under this
Agreement, except for the provisions that expressly survive
termination of this Agreement.


                            ARTICLE IX.

            PRE-CLOSING/CLOSING DEFAULTS AND REMEDIES

9.1  Seller's Defaults.  Seller is considered to be in default
hereunder if Seller fails to meet, comply with, or perform any
material covenant agreement, representation, warranty or obligation on
its part required within the time limits and in the manner required in
this Agreement, and such failure was not caused by Purchaser's
default.

9.2  Purchaser's Remedies.  If Seller is in default hereunder,
Purchaser may exercise either one of the following as its sole and
exclusive remedies:

9.2.1  Terminate this Agreement by written notice delivered to Seller
on or before the Closing Date; or

9.2.2  Enforce specific performance of this Agreement against Seller,
in which event Purchaser is deemed to have accepted Seller's title to
the Property and waived any breach by Seller of any of its
representations and warranties made hereunder, except for any matters
or breaches caused by an act or omission of Seller in violation of
this Agreement or curable by Seller.

Purchaser hereby waives any right to any damages (whether actual,
incidental, consequential, punitive or otherwise and whether or not
the remedy of specific performance is available) or any other legal or
equitable remedies (other than those specified in Section 9.2.1 and
Section 9.2.2), which it may otherwise have for Seller's default prior
to the Closing.

9.3  Purchaser's Defaults.  Purchaser is considered to be in default
hereunder if Purchaser fails to meet, comply with, or perform any
material covenant, agreement, representation, warranty, or obligation
on its part required within the time limits and in the manner required
in this Agreement, and such failure was not caused by Seller's
default.

9.4  Seller's Remedy.  If Purchaser is in default hereunder, Seller
may exercise the following as its sole and exclusive remedy:  Enforce
specific performance of this Agreement against Purchaser, in which
event Seller is deemed to have delivered Seller's title to the
Property and waived any breach by Purchaser of any of its
representations and warranties made hereunder, except for any matters
or breaches caused by an act or omission of Purchaser in violation of
this Agreement or curable by Purchaser.  Seller hereby waives any
right to any damages (whether actual, incidental, consequential,
punitive, or otherwise and whether or not the remedy of specific
performance is available) or any other legal or equitable remedies
(other than that specified in the preceding sentence), which it may
otherwise have for Purchaser's default.

9.5  Applicability.  The provisions of this Article IX only apply if a
default occurs and the Closing does not occur.  The provisions do not
apply in the case of a claim under Section 5.3.3.


                              ARTICLE X.

                                BROKER

Seller and Purchaser mutually represent and warrant to each other that
neither Seller nor Purchaser knows of any broker or other Person who
has claimed or may have the right to claim a commission, finder's fee,
brokerage fee, or other fee or payment in connection with the
Transaction.


                             ARTICLE XI.

                            POST-CLOSING

11.1 Books and Records.  For the period of six (6) months after the
Closing Date, Seller or its authorized representative shall, at its
sole cost and expense, and during normal business hours shall have
access to all Books and Records relating to the conduct of Business by
Seller, provided that it gives Purchaser two (2) business days prior
notice and such access does not interfere with Purchaser's conduct of
the Business. Additionally, during the period from 60 calendar days
after Closing Date to six (6) months after Closing Date, Purchaser
will use good faith efforts to protect, gather and arrange shipping to
Seller or Seller designated storage facility, at Seller's expense, any
accounting or financial records relating to the conduct of Business by
Seller requested in writing by Seller.

11.2  Covenant Not To Compete.  For a period of three (3) years
following the Closing Date, Seller shall not compete with Purchaser in
the Business in the State of Hawaii.

11.3  President.  Purchaser has advised that it currently intends to
retain Seller's current president as an employee post-Closing and
Seller consents to such retention without objection.

11.4  Confidentiality.  No information concerning one party that has
been furnished to or obtained by the other party in connection with
this Agreement may be disclosed to any person other than in confidence
to employees, legal counsel, financial advisers or independent public
accountants who reasonably need to know such information in connection
with the transactions contemplated by this Agreement and who agree to
be bound by this Section 11.4.  Notwithstanding the foregoing, this
obligation shall not apply to information that (a) is, or becomes,
publicly available from a source other than the other party; (b) was
known and can be shown to have been known by the other party at the
time of its receipt; (c) is received by the other party from a third
party without breach of this Agreement; (d) is required by law or
court order to be disclosed; or (e) is disclosed in accordance with
the written consent of the other party.


                              ARTICLE XII.

                               CASUALTY

If any substantial damage to the Property occurs before the Closing
Date by reason of fire, earthquake, lava flow, or other casualty,
Seller must give Purchaser immediate notice of such event.  If the
cost to repair and restore the Property exceeds the sum of (i) the
insurance proceeds available for restoration plus (ii) the deductible
amount on the applicable insurance policy, then Purchaser has the
right to terminate this Agreement by giving written notice to Seller
to such effect by the earlier to occur of (a) the Closing Date, or (b)
five (5) days after Seller has notified Purchaser of the casualty.  If
Purchaser does not elect to terminate this Agreement, then the closing
of the Transaction will take place as herein provided with abatement
of the Purchase Price in an amount equal to the cost to repair or
restore the Property that exceeds the amount of proceeds from casualty
insurance paid or payable concerning the casualty, and at the Closing,
Seller must pay or assign to Purchaser (by written instrument in the
case of any assignment, but without recourse) any proceeds from all
fire and other casualty insurance paid or payable concerning the
casualty (less sums theretofore expended, if any, by Seller for
temporary repairs or barricades), and Seller has no liability or
obligation concerning the condition of the Property as the result of
such casualty.  Despite any foregoing language to the contrary, Seller
will pay any deductible amount on the applicable insurance policy up
to and including the Closing Date; Purchaser will pay any such
deductible amount after the Closing Date.






                                ARTICLE XIII.

                                  NOTICES

13.1  Notices in Writing.  Whenever any notice, demand, or request is
required or permitted hereunder, such notice, demand, or request must
be made in writing and must be personally delivered to the individuals
listed below, sent via prepaid courier or overnight courier or
telecopier, or deposited in the United States mail, registered or
certified, return receipt requested, postage prepaid, addressed to the
addresses (and individuals) set forth below:

To Seller:

Hawaiian Natural Water Co., Inc.
C/O AMCON Distributing Co.
Andy Plummer
7405 Irvington Road
Omaha, NE 68122

Telephone Number:  402.331.3727
Telecopier Number:  402.331.4834
Email: aplummer@amcon.com

To Purchaser:

Richard B. Hadley
Managing Member
Hawaiian Springs, LLC
3197-A Airport Loop Drive
Costa Mesa, California 92626-3424

Telephone Number:  714.545.4959
Telecopier Number:  714.545.5668
Email:  rbhadley@sbcglobal.net

13.2  Receipt.  Any notice, demand, or request to be served upon any
Party is deemed sufficiently given to and received by that Party for
all purposes hereunder:  (a) if sent via courier, at the time such
notice, demand, or request is delivered, to the address specified by
the Party to receive such notice; (b) if sent via telecopier, at the
time of receipt by such Party; or (c) if sent via registered or
certified mail, three (3) days after it is deposited in the United
States mail.

13.3  Deemed Delivery.  The inability to deliver any notice, demand or
request because the individual to whom it is properly addressed in
accordance with this Article XIII refused delivery thereof or no
longer can be located at that address constitutes delivery thereof to
such individual.




13.4  Change of Address.  Each Party has the right from time to time
to designate by written notice to the other Party such other person or
persons and such other place or places as the Party may desire written
notices to be delivered or sent in accordance herewith.


                              ARTICLE XIV.

                        SUCCESSORS AND ASSIGNS

14.1  Transfers by Seller.  [Intentionally omitted.]

14.2  Transfers by Purchaser.  Purchaser has the right to assign or
partially assign all of its right, title, and interest in this
Agreement to a subsidiary to be formed without the prior written
consent of Seller.  Any other transfer or assignment requires the
written consent of Seller which consent may be withheld in Seller's
sold and absolute discretion.  No assignment or transfer made by
Purchaser has any force or effect whatsoever unless and until
Purchaser delivers to Seller a counterpart of that assignment, duly
executed by Purchaser and the assignee, and an assumption agreement
with the respect thereto in favor of Seller, duly executed by
Purchaser and the assignee, both of which documents must be in form
and substance satisfactory to Seller.  Notwithstanding anything to the
contrary contained herein, such assignment does not relieve the
assigning Party from its liability under this Agreement.  Any
assignment made in violation hereof or that does not comply with the
provisions hereof is null and void.


                            ARTICLE XV.

                           MISCELLANEOUS

15.1  Approvals.  Whenever the approval or consent of either Purchaser
or Seller is called for under the terms of this Agreement, such
approval or consent must not be unreasonably withheld and must be
given or denied within three (3) business days of receipt of a request
by Purchaser or Seller, as the case may be, for such approval or
consent (unless a different period for such approval or consent is
expressly provided for in this Agreement).  The failure by Purchaser
or Seller to notify the other Party of its denial of approval or
consent before 5:00 p.m. (Hawaii time) on the third business day (or
such different period for such approval or consent as is expressly
provided for in this Agreement) after the day on which that request is
received by the Party from whom approval or consent is sought is
deemed to be approval or consent, as of the end of said third business
day, by the Party from whom approval or consent is sought.

15.2  Amendment.  No provision of this Agreement or of any documents
or instrument entered into, given or made under this Agreement may be
amended, changed, waived, discharged, or terminated except by an
instrument in writing signed by the Party against whom enforcement of
the amendment, change, waiver, discharge, or termination is sought.

15.3  Entire Contract.  This Agreement together with the Schedules and
Exhibits attached hereto embodies the entire agreement between the
Parties concerning the Transaction.  There have been and are no
covenants, agreements, representations, warranties, or restrictions
between the Parties hereto with regard thereto other than those set
forth herein.  This Agreement and supersedes all prior and
contemporaneous agreements, representations, and undertakings by or
between the Parties.

15.4  Time is of the Essence.  Time is strictly of the essence
concerning each and every term, condition, obligation, and provision
of this Agreement.

15.5  Succession and Assignment.  This Agreement is binding upon and
inures to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the other Party.

15.6  Number and Gender of Words.  Words of any gender used in this
Agreement are to be held and construed to include any other gender,
and words of a singular number are to be held to include the plural
and vice versa, unless the context requires otherwise.

15.7  Third Parties.  Nothing in this Agreement, express or implied,
is intended to confer upon any person, other than the Parties and
their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.  Nor is anything in this Agreement
intended to relieve or discharge the obligation or liability of any
third person to any Party, nor is any provision herein to be construed
to give any third person any right of subrogation or action over
against any Party.

15.8  Further Assurances.  Each of Seller and Purchaser will, at any
time and from time to time after the Closing Date, upon the request of
the other, execute, acknowledge and deliver, or will cause to be done,
executed, acknowledged and delivered all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney, and
assurances as may reasonably be required to consummate the
Transaction.

15.9  Governing Law.  This Agreement is to be construed under and be
governed by the internal laws of the State of Hawaii (without regard
to otherwise applicable conflict of law principles), and all
obligations of the Parties created under this Agreement are to be
deemed performed in Hawaii County, Hawaii.

15.10  Counterparts.  This Agreement may be executed in any number of
counterparts, each of which is an original, but such counterparts
together constitute one and the same instrument, binding on the
Parties.



15.11  Exhibits and Schedules.  All exhibits and schedules described
in this Agreement and attached hereto are by this reference
incorporated fully herein.  The term "this Agreement" includes all
such exhibits and schedules.

15.12  Invalid Provisions.  If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future laws,
then those provisions are fully severable; the Agreement is to be
construed and enforced as if that illegal, invalid, or unenforceable
provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement remain in full force and effect
and are not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Agreement.  Furthermore, in
lieu of that illegal, invalid, or unenforceable provision, there is to
be added automatically as a part of this Agreement, a provision as
similar in terms to such illegal, invalid, or unenforceable provision
as may be possible and be legal, valid, or enforceable.

15.13  Attorney's Fees.  If any dispute between Seller and Purchaser,
relating to the Transaction, should result in litigation, the
prevailing party (or more prevailing party) is to be reimbursed for
all reasonable costs incurred in connection therewith, including
reasonable attorney's fees and court costs (and expert witness fees
and costs, if any).  The prevailing party (or most prevailing party)
is to be determined by the court based upon an assessment of which
party's major arguments or positions taken in the proceedings could
fairly be said to have prevailed over the other party's major
arguments or positions on major disputed issues.
15.14  Interpretation.  The Parties agree that each Party and its
counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be
resolved against the drafting party is not to be employed in the
interpretation of this Agreement or any amendments or exhibits
thereto.

15.15  No Waiver.  No failure of any Party to exercise any power given
such Party hereunder or to insist upon strict compliance by the other
Party with its obligations hereunder does constitute a waiver of any
Party's right to demand strict compliance with the terms of this
Agreement.

15.16  Representation by Counsel.  Each Party acknowledges to the
other that it has been represented at all times by competent legal
counsel in connection with this Agreement and the Transaction.

15.17  Termination.  Anything contained in this Agreement to the
contrary notwithstanding, this Agreement may be terminated before the
Closing Date:  (a) by mutual written consent of Seller and Purchaser;
or (b) by either Purchaser or Seller (by written notice to the other)
if the Closing does not have occur on or before November 20, 2006, or
on whatever later date as the parties may agree to in writing.

Signature page follows; remainder page intentionally left blank.


The Parties are signing this Agreement on the date in the introductory
paragraph.


PURCHASER:

HAWAIIAN SPRINGS, LLC


By: /s/ Richard B. Hadley
Title:  Managing Member
Date Executed: November 20, 2006




SELLER:

HAWAIIAN NATURAL WATER COMPANY, INC.


By: /s/ Thomas J. Van Dixhorn
Title:  President
Date Executed: November 20, 2006

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>ex311cha302cert.txt
<DESCRIPTION>EXHIBIT 31.1 CHA 302 CERTIFICATION
<TEXT>

                                   EXHIBIT 31.1
                                   ------------

                                  CERTIFICATION

I, Christopher H. Atayan, certify that:

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

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

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

    4.   The registrant's other certifying officer and I are responsible
         for establishing and maintaining disclosure controls and procedures
         (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

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

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

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

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

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

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



Date: January 23, 2007          /s/ Christopher, H. Atayan
                                --------------------------------
                                Christopher H. Atayan, Chief Executive Officer
                                 and Vice Chairman




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>4
<FILENAME>ex312acp302cert.txt
<DESCRIPTION>EXHIBIT 31.2 ACP 302 CERTIFICATION
<TEXT>
                                    EXHIBIT 31.2
                                    ------------

                                   CERTIFICATION

I, Andrew C. Plummer, certify that:

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

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

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

    4.   The registrant's other certifying officer and I are responsible
         for establishing and maintaining disclosure controls and procedures
         (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
         registrant and have:

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

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

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

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

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

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



Date: January 23, 2007           /s/ Andrew C. Plummer
                                 ---------------------------------
                                 Andrew C. Plummer, Vice President
                                  and Chief Financial Officer




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>5
<FILENAME>ex321cha906cert.txt
<DESCRIPTION>EXHIBIT 32.1 CHA 906 CERTIFICATION
<TEXT>

                             EXHIBIT 32.1
                             ------------
                            CERTIFICATION
                PURSUANT TO 18 U.S.C. SECTION 1350

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

In connection with the accompanying Quarterly Report on Form 10-Q (the
"Report") of AMCON Distributing Company (the "Company") for the fiscal quarter
ended December 31, 2006, I, Christopher H. Atayan, Chief Executive Officer and
Vice Chairman of the Company, hereby certify pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to
my knowledge, that:

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

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


Date: January 23, 2007          /s/ Christopher H. Atayan
                                -------------------------
                                Title: Chief Executive Officer
                                        and Vice Chairman





</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>6
<FILENAME>ex322acp906cert.txt
<DESCRIPTION>EXHIBIT 32.2 ACP 906 CERTIFICATION
<TEXT>

                             EXHIBIT 32.2
                             ------------

                            CERTIFICATION
                PURSUANT TO 18 U.S.C. SECTION 1350

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

In connection with the accompanying Quarterly Report on Form 10-Q (the
"Report") of AMCON Distributing Company (the "Company") for the fiscal quarter
ended December 31, 2006, I, Andrew C. Plummer, Vice President and Chief
Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to
my knowledge, that:

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

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

Date: January 23, 2007           /s/ Andrew C. Plummer
                                 -------------------------
                                 Title: Vice President and
                                  Chief Financial Officer







</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
