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Table of Contents

​

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

​

FORM 10-Q

​

​ | ​
⌧ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
​ | ​
​ | For the quarterly period ended December 31, 2022

​

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

​

(Exact name of registrant as specified in its charter)

​

​ | ​ | ​
Delaware |  | 47-0702918
(State or other jurisdiction | ​ | (I.R.S. Employer
of incorporation or organization) | ​ | Identification No.)
​ | ​ | ​
7405 Irvington Road, Omaha NE | ​ | 68122
(Address of principal executive offices) | ​ | (Zip code)

​

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

​

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

​

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

​

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

​

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ⌧ No ◻

​

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

​

Large accelerated filer ◻ | Accelerated filer ◻ | Non-accelerated filer ⌧ | ​
​ | ​ | ​ | ​

Smaller reporting company ⌧Emerging growth company ◻

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

​

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ◻ No ⌧

​

The Registrant had 611,052 shares of its $.01 par value common stock outstanding as of January 17, 2023.

​

​

​

Table of Contents

Form 10-Q

1st Quarter

​

INDEX

​

​ |
December 31, 2022 | PAGE
​ | ​
PART I — FINANCIAL INFORMATION | ​
​ | ​
Item 1. Financial Statements: | ​
​ | ​
Condensed consolidated balance sheets at December 31, 2022 (unaudited) and September 30, 2022 | 3
​ | ​
Condensed consolidated unaudited statements of operations for the three months ended December 31, 2022 and 2021 | 4
​ | ​
Condensed consolidated unaudited statements of shareholders’ equity for the three months ended December 31, 2022 and 2021 | 5
​ | ​
Condensed consolidated unaudited statements of cash flows for the three months ended December 31, 2022 and 2021 | 6
​ | ​
Notes to condensed consolidated unaudited financial statements | 7
​ | ​
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15
​ | ​
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 21
​ | ​
Item 4. Controls and Procedures | 21
​ | ​
PART II — OTHER INFORMATION | ​
​ | ​
Item 1. Legal Proceedings | 23
​ | ​
Item 1A. Risk Factors | 23
​ | ​
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 23
​ | ​
Item 3. Defaults Upon Senior Securities | 23
​ | ​
Item 4. Mine Safety Disclosures | 23
​ | ​
Item 5. Other Information | 23
​ | ​
Item 6. Exhibits | 24

​

​

​

2

Table of Contents

PART I — FINANCIAL INFORMATIO N

​

Item 1. Financial Statement s

​

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2022 and September 30, 2022

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December | ​ | September
​ |  | 2022 |  | 2022
​ | ​ | (Unaudited) | ​ | ​ | ​
ASSETS | ​ | ​ | ​ | ​ | ​ | ​
Current assets: | ​ | ​ | ​ | ​ | ​ | ​
Cash | ​ | $ | 452,142 | ​ | $ | 431,576
Accounts receivable, less allowance for doubtful accounts of $2.0 million at December 2022 and $2.5 million September 2022 | ​ |  | 54,482,938 | ​ |  | 62,367,888
Inventories, net | ​ |  | 185,213,063 | ​ |  | 134,654,637
Income taxes receivable | ​ | ​ | 660,617 | ​ | ​ | 819,595
Prepaid expenses and other current assets | ​ |  | 12,656,974 | ​ |  | 12,702,084
Total current assets | ​ |  | 253,465,734 | ​ |  | 210,975,780
​ | ​ | ​ | ​ | ​ | ​ | ​
Property and equipment, net | ​ |  | 48,449,099 | ​ |  | 48,085,520
Operating lease right-of-use assets, net | ​ | ​ | 19,078,842 | ​ | ​ | 19,941,009
Goodwill | ​ |  | 5,277,950 | ​ |  | 5,277,950
Other intangible assets, net | ​ |  | 2,050,580 | ​ |  | 2,093,113
Other assets | ​ |  | 2,551,744 | ​ |  | 2,751,155
Total assets | ​ | $ | 330,873,949 | ​ | $ | 289,124,527
​ | ​ | ​ | ​ | ​ | ​ | ​
LIABILITIES AND SHAREHOLDERS’ EQUITY | ​ | ​ | ​ | ​ | ​ | ​
Current liabilities: | ​ | ​ | ​ | ​ | ​ | ​
Accounts payable | ​ | $ | 33,296,105 | ​ | $ | 39,962,363
Accrued expenses | ​ |  | 14,658,185 | ​ |  | 14,446,210
Accrued wages, salaries and bonuses | ​ |  | 3,794,970 | ​ |  | 7,811,207
Current operating lease liabilities | ​ | ​ | 6,426,103 | ​ | ​ | 6,454,473
Current maturities of long-term debt | ​ |  | 1,554,653 | ​ |  | 1,595,309
Current mandatorily redeemable non-controlling interest | ​ | ​ | 1,755,611 | ​ | ​ | 1,712,095
Total current liabilities | ​ |  | 61,485,627 | ​ |  | 71,981,657
​ | ​ | ​ | ​ | ​ | ​ | ​
Credit facilities | ​ |  | 141,488,518 | ​ |  | 91,262,438
Deferred income tax liability, net | ​ |  | 3,474,410 | ​ |  | 2,328,588
Long-term operating lease liabilities | ​ | ​ | 12,989,955 | ​ | ​ | 13,787,721
Long-term debt, less current maturities | ​ |  | 7,222,520 | ​ |  | 7,384,260
Mandatorily redeemable non-controlling interest, less current portion | ​ | ​ | 9,348,028 | ​ | ​ | 9,446,460
Other long-term liabilities | ​ |  | 152,889 | ​ |  | 103,968
​ | ​ | ​ | ​ | ​ | ​ | ​
Shareholders’ equity: | ​ | ​ | ​ | ​ | ​ | ​
Preferred stock, $.01 par value, 1,000,000 shares authorized | ​ |  | — | ​ |  | —
Common stock, $.01 par value, 3,000,000 shares authorized, 611,052 shares outstanding at December 2022 and 584,789 shares outstanding at September 2022 | ​ |  | 9,431 | ​ |  | 9,168
Additional paid-in capital | ​ |  | 29,357,154 | ​ |  | 26,903,201
Retained earnings | ​ |  | 96,212,704 | ​ |  | 96,784,353
Treasury stock at cost | ​ |  | (30,867,287) | ​ |  | (30,867,287)
Total shareholders’ equity | ​ | ​ | 94,712,002 | ​ | ​ | 92,829,435
Total liabilities and shareholders’ equity | ​ | $ | 330,873,949 | ​ | $ | 289,124,527

​

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

​

3

Table of Contents

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three months ended December 31, 2022 and 2021

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the three months ended December
​ |  | 2022 |  | 2021
Sales (including excise taxes of $130.3 million and $97.1 million, respectively) | ​ | $ | 565,989,507 | ​ | $ | 422,571,278
Cost of sales | ​ |  | 531,019,924 | ​ |  | 395,638,615
Gross profit | ​ |  | 34,969,583 | ​ |  | 26,932,663
Selling, general and administrative expenses | ​ |  | 28,379,186 | ​ |  | 22,390,740
Depreciation and amortization | ​ |  | 1,070,886 | ​ |  | 784,245
​ | ​ |  | 29,450,072 | ​ |  | 23,174,985
Operating income | ​ |  | 5,519,511 | ​ |  | 3,757,678
​ | ​ | ​ | ​ | ​ | ​ | ​
Other expense (income): | ​ | ​ | ​ | ​ | ​ | ​
Interest expense | ​ |  | 1,694,158 | ​ |  | 322,097
Change in fair value of mandatorily redeemable non-controlling interest | ​ | ​ | (54,916) | ​ | ​ | —
Other (income), net | ​ |  | (53,532) | ​ |  | (40,109)
​ | ​ |  | 1,585,710 | ​ |  | 281,988
Income from operations before income taxes | ​ |  | 3,933,801 | ​ |  | 3,475,690
Income tax expense | ​ |  | 1,304,800 | ​ |  | 1,245,000
Equity method investment earnings, net of tax | ​ |  | — | ​ |  | 770,365
Net income available to common shareholders | ​ | $ | 2,629,001 | ​ | $ | 3,001,055
​ | ​ | ​ | ​ | ​ | ​ | ​
Basic earnings per share available to common shareholders | ​ | $ | 4.52 | ​ | $ | 5.33
Diluted earnings per share available to common shareholders | ​ | $ | 4.46 | ​ | $ | 5.18
​ | ​ | ​ | ​ | ​ | ​ | ​
Basic weighted average shares outstanding | ​ |  | 581,612 | ​ |  | 563,546
Diluted weighted average shares outstanding | ​ |  | 589,881 | ​ |  | 578,964
​ | ​ |  | ​ | ​ | ​ | ​
Dividends paid per common share | ​ | $ | 0.18 | ​ | $ | 5.18

​

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

​

​

4

Table of Contents

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Shareholders’ Equity

for the three months ended December 31, 2022 and 2021

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Additional | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Common Stock | ​ | Treasury Stock | ​ | Paid-in | ​ | Retained | ​ | ​ | ​
​ |  | Shares |  | Amount |  | Shares |  | Amount |  | Capital |  | Earnings |  | Total
THREE MONTHS ENDED DECEMBER 2021 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance, October 1, 2021 | ​ | 883,589 | ​ | $ | 8,834 | ​ | (332,220) | ​ | $ | (30,867,287) | ​ | $ | 24,918,781 | ​ | $ | 83,552,298 | ​ | $ | 77,612,626
Dividends on common stock, $5.18 per share | ​ | — | ​ | ​ | — | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | (3,114,775) | ​ | ​ | (3,114,775)
Compensation expense and settlement of equity-based awards | ​ | 31,420 | ​ | ​ | 314 | ​ | — | ​ | ​ | — | ​ | ​ | 2,080,954 | ​ | ​ | — | ​ | ​ | 2,081,268
Net income available to common shareholders | ​ | — | ​ |  | — | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 3,001,055 | ​ | ​ | 3,001,055
Balance, December 31, 2021 | ​ | 915,009 | ​ | $ | 9,148 | ​ | (332,220) | ​ | $ | (30,867,287) | ​ | $ | 26,999,735 | ​ | $ | 83,438,578 | ​ | $ | 79,580,174
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
THREE MONTHS ENDED DECEMBER 2022 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance, October 1, 2022 | ​ | 917,009 | ​ | $ | 9,168 | ​ | (332,220) | ​ | $ | (30,867,287) | ​ | $ | 26,903,201 | ​ | $ | 96,784,353 | ​ | $ | 92,829,435
Dividends on common stock, $5.18 per share | ​ | — | ​ | ​ | — | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | (3,200,650) | ​ | ​ | (3,200,650)
Compensation expense and settlement of equity-based awards | ​ | 26,263 | ​ | ​ | 263 | ​ | — | ​ | ​ | — | ​ | ​ | 2,453,953 | ​ | ​ | — | ​ | ​ | 2,454,216
Net income available to common shareholders | ​ | — | ​ |  | — | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 2,629,001 | ​ | ​ | 2,629,001
Balance, December 31, 2022 | ​ | 943,272 | ​ | $ | 9,431 | ​ | (332,220) | ​ | $ | (30,867,287) | ​ | $ | 29,357,154 | ​ | $ | 96,212,704 | ​ | $ | 94,712,002

​

​

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

​

​

5

Table of Contents

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the three months ended December 31, 2022 and 2021

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | December | ​ | December
​ |  | 2022 |  | 2021
CASH FLOWS FROM OPERATING ACTIVITIES: | ​ | ​ | ​ | ​ | ​ | ​
Net income available to common shareholders | ​ | $ | 2,629,001 | ​ | $ | 3,001,055
Adjustments to reconcile net income available to common shareholders to net cash flows from (used in) operating activities: | ​ | ​ | ​ | ​ | ​ | ​
Depreciation | ​ | ​ | 1,028,353 | ​ | ​ | 784,245
Amortization | ​ | ​ | 42,533 | ​ | ​ | —
Equity method investment earnings, net of tax | ​ | ​ | — | ​ | ​ | (770,365)
(Gain) loss on sales of property and equipment | ​ | ​ | (36,000) | ​ | ​ | (31,000)
Equity-based compensation | ​ | ​ | 390,570 | ​ | ​ | 710,056
Deferred income taxes | ​ | ​ | 1,145,822 | ​ | ​ | 1,173,648
Provision for losses on doubtful accounts | ​ | ​ | (496,332) | ​ | ​ | (102,000)
Inventory allowance | ​ | ​ | 141,087 | ​ | ​ | 99,304
Change in fair value of mandatorily redeemable non-controlling interest | ​ | ​ | (54,916) | ​ | ​ | —
Changes in assets and liabilities: | ​ | ​ | ​ | ​ | ​ | ​
Accounts receivable | ​ | ​ | 8,381,282 | ​ | ​ | 5,084,916
Inventories | ​ | ​ | (50,699,513) | ​ | ​ | (2,629,537)
Prepaid and other current assets | ​ | ​ | 45,110 | ​ | ​ | (6,573)
Other assets | ​ | ​ | 199,411 | ​ | ​ | 22,184
Accounts payable | ​ | ​ | (6,602,785) | ​ | ​ | (5,750,609)
Accrued expenses and accrued wages, salaries and bonuses | ​ | ​ | (4,794,015) | ​ | ​ | (1,519,848)
Other long-term liabilities | ​ | ​ | 48,921 | ​ | ​ | (743,776)
Income taxes payable and receivable | ​ | ​ | 158,978 | ​ | ​ | 71,352
Net cash flows from (used in) operating activities | ​ | ​ | (48,472,493) | ​ | ​ | (606,948)
​ | ​ | ​ | ​ | ​ | ​ | ​
CASH FLOWS FROM INVESTING ACTIVITIES: | ​ | ​ | ​ | ​ | ​ | ​
Purchase of property and equipment | ​ | ​ | (1,455,405) | ​ | ​ | (333,084)
Proceeds from sales of property and equipment | ​ | ​ | 36,000 | ​ | ​ | 31,000
Principal payment received on note receivable | ​ | ​ | — | ​ | ​ | 175,000
Net cash flows from (used in) investing activities | ​ | ​ | (1,419,405) | ​ | ​ | (127,084)
​ | ​ | ​ | ​ | ​ | ​ | ​
CASH FLOWS FROM FINANCING ACTIVITIES: | ​ | ​ | ​ | ​ | ​ | ​
Borrowings under revolving credit facilities | ​ | ​ | 639,488,133 | ​ | ​ | 439,039,482
Repayments under revolving credit facilities | ​ | ​ | (589,262,053) | ​ | ​ | (434,242,609)
Principal payments on long-term debt | ​ | ​ | (202,396) | ​ | ​ | (138,284)
Dividends on common stock | ​ | ​ | (111,220) | ​ | ​ | (3,114,775)
Settlement and withholdings of equity-based awards | ​ | ​ | — | ​ | ​ | (488,412)
Net cash flows from (used in) financing activities | ​ | ​ | 49,912,464 | ​ | ​ | 1,055,402
Net change in cash | ​ | ​ | 20,566 | ​ | ​ | 321,370
Cash, beginning of period | ​ | ​ | 431,576 | ​ | ​ | 519,591
Cash, end of period | ​ | $ | 452,142 | ​ | $ | 840,961
​ | ​ | ​ | ​ | ​ | ​ | ​
Supplemental disclosure of cash flow information: | ​ | ​ | ​ | ​ | ​ | ​
Cash paid during the period for interest | ​ | $ | 1,458,843 | ​ | $ | 333,941
​ | ​ | ​ | ​ | ​ | ​ | ​
Supplemental disclosure of non-cash information: | ​ | ​ | ​ | ​ | ​ | ​
Equipment acquisitions classified in accounts payable | ​ | $ | 28,183 | ​ | $ | 16,591
Dividends declared, not paid | ​ | ​ | 3,089,430 | ​ | ​ | —
Issuance of common stock in connection with the vesting and exercise of equity-based awards | ​ | ​ | 2,044,805 | ​ |  | 2,280,783

​

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

​

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AMCON Distributing Company and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

​

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

​

AMCON Distributing Company and Subsidiaries (“AMCON” or the “Company”) operate two business segments:

​

| ● | Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We serve customers in 30 states and primarily operate in the Central, Rocky Mountain, Mid-South and Mid-Atlantic regions of the United States.

​

| ● | Our retail health food segment (“Retail Segment”) operates nineteen health food retail stores located throughout the Midwest and Florida.

​

WHOLESALE SEGMENT

​

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 5,400 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In December 2022, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.

​

Our Wholesale Segment offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.

​

Our Wholesale Segment operates seven distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia (operated by our Team Sledd, LLC subsidiary). These distribution centers, combined with cross-dock facilities, include approximately 885,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellogg’s, Kraft Heinz, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

​

As previously disclosed, the Company entered into an asset purchase agreement with Henry’s Foods, Inc. (“Henry’s”), under which the Company agreed to purchase substantially all of Henry’s wholesale distribution assets for approximately $30.3 million plus any working capital adjustments. The Company expects to fund the purchase with borrowings from its existing bank group. The transaction is expected to close during the Company’s second fiscal quarter of 2023.

​

RETAIL SEGMENT

​

Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.

​

We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.

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​

Our Retail Segment operates nineteen retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akin’s”), and Earth Origins Market (“EOM”). These stores carry over 35,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise.

​

FINANCIAL STATEMENTS

​

The Company’s fiscal year ends on September 30th, except for one non-wholly owned subsidiary whose fiscal year ends on the last Friday of September. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2022, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its consolidated subsidiaries. Additionally, the three month fiscal periods ended December 31, 2022 and December 31, 2021 have been referred to throughout this Quarterly Report as Q1 2023 and Q1 2022, respectively. The fiscal balance sheet dates as of December 31, 2022 and September 30, 2022 have been referred to as December 2022 and September 2022, respectively.

​

ACCOUNTING PRONOUNCEMENTS

​

Recent Accounting Pronouncements

​

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which introduces a forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information, and reasonable and supportable forecasts. This ASU also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models, and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2022 (fiscal 2024 for the Company) with early adoption permitted. The Company is currently reviewing this ASU and its potential impact on our consolidated financial statements.

​

2. INVENTORIES

​

Inventories in our Wholesale Segment consisted of finished goods and are stated at the lower of cost or net realizable value, determined on a FIFO basis. Inventories in our Retail Segment consisted of finished goods and are stated at the lower of cost or market using the retail method. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $1.2 million at December 2022 and $1.1 million at September 2022. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

​

​

3. GOODWILL AND OTHER INTANGIBLE ASSETS

​

Goodwill at December 2022 and September 2022 was as follows:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | December |  | September
​ | ​ | 2022 | ​ | 2022
Wholesale Segment | ​ | $ | 5,277,950 | ​ | $ | 5,277,950

​

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Other intangible assets at December 2022 and September 2022 consisted of the following:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | December |  | September
​ | ​ | 2022 | ​ | 2022
Customer list (Wholesale Segment) (less accumulated amortization of $0.1 million at December 2022 and less than $0.1 million at September 2022) | ​ | $ | 1,377,912 | ​ | $ | 1,401,945
Non-competition agreement (Wholesale Segment) (less accumulated amortization of less than $0.1 million at both December 2022 and September 2022) | ​ | ​ | 172,668 | ​ | ​ | 191,168
Trademarks and tradenames (Retail Segment) | ​ | ​ | 500,000 | ​ | ​ | 500,000
​ | ​ | $ | 2,050,580 | ​ | $ | 2,093,113

​

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been recorded on these assets. Goodwill recorded on the Company’s consolidated balance sheets represent amounts allocated to its wholesale reporting unit which totaled approximately $5.3 million at both December 2022 and September 2022. The Company performs its annual impairment testing during the fourth fiscal quarter of each year or as circumstances change or necessitate. There have been no material changes to the Company’s impairment assessments since its fiscal year ended September 2022.

​

At December 2022, identifiable intangible assets considered to have finite lives were represented by a customer list which is being amortized over fifteen years and a non-competition agreement which is being amortized over three years. These intangible assets are evaluated for accelerated attrition or amortization adjustments if warranted. Amortization expense related to these assets was less than $0.1 million for the three month period ended December 2022.

​

Estimated future amortization expense related to identifiable intangible assets with finite lives was as follows at December 2022:

​ | ​ | ​ | ​
​ | ​ | December
​ |  | 2022
Fiscal 2023 (1) | ​ | $ | 127,598
Fiscal 2024 | ​ | ​ | 170,130
Fiscal 2025 | ​ | ​ | 139,303
Fiscal 2026 | ​ | ​ | 96,132
Fiscal 2027 | ​ | ​ | 96,132
Fiscal 2028 and thereafter | ​ | ​ | 921,285
​ | ​ | $ | 1,550,580

(1) | Represents amortization for the remaining nine months of Fiscal 2023.

​

​

4. DIVIDENDS

​

The Company paid a $0.18 per share cash dividend on its common stock totaling $0.1 million in each of the three month periods ended December 2022 and December 2021. During Q1 2023, the Company declared a $5.00 per share special dividend totaling approximately $3.1 million that was included in accrued expenses on the consolidated balance sheet at December 2022 and was paid in Q2 2023. During Q1 2022, the Company declared and paid a $5.00 per share special dividend totaling approximately $3.0 million.

​

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5. EARNINGS PER SHARE

​

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

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the three months ended December
​ | ​ | 2022 | ​ | 2021
​ |  | Basic |  | Diluted |  | Basic |  | Diluted
Weighted average number of common shares outstanding | ​ | ​ | 581,612 | ​ | ​ | 581,612 | ​ | ​ | 563,546 | ​ | ​ | 563,546
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1) | ​ | ​ | — | ​ | ​ | 8,269 | ​ | ​ | — | ​ | ​ | 15,418
Weighted average number of shares outstanding | ​ | ​ | 581,612 | ​ | ​ | 589,881 | ​ | ​ | 563,546 | ​ | ​ | 578,964
Net income available to common shareholders | ​ | $ | 2,629,001 | ​ | $ | 2,629,001 | ​ | $ | 3,001,055 | ​ | $ | 3,001,055
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net earnings per share available to common shareholders | ​ | $ | 4.52 | ​ | $ | 4.46 | ​ | $ | 5.33 | ​ | $ | 5.18

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

​

​

6. DEBT

​

The Company primarily finances its operations through two credit facility agreements (the “AMCON Facility” and the “Team Sledd Facility”, and together “the Facilities”) and long-term debt agreements with banks. At December 2022, the Facilities have a total combined borrowing capacity of $250.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The Team Sledd Facility matures in March 2027 and the AMCON Facility matures in June 2027, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and in the case of the AMCON Facility, certain of the Company’s real estate. The Facilities each feature an unused commitment fee and financial covenants including fixed charge coverage ratios. Borrowings under the Facilities bear interest at either the bank’s prime rate, the Secured Overnight Financing Rate (“SOFR”) or the London Interbank Offered Rate (“LIBOR”), plus any applicable spreads.

​

The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2022 was $230.8 million, of which $141.5 million was outstanding, leaving $89.3 million available.

​

The average interest rate of the Facilities was 6.45% at December 2022. For the three months ended December 2022, the peak borrowings under the Facilities was $150.4 million, and the average borrowings and average availability under the Facilities was $114.3 million and $84.3 million, respectively.

​

Cross Default and Co-Terminus Provisions

​

Team Sledd’s three notes payable and the Team Sledd Facility contain cross default provisions. There were no such cross defaults at December 2022. The Company was in compliance with all of its financial covenants under the Facilities at December 2022.

​

Other

​

The Company has issued a letter of credit for $0.5 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

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​

7. INCOME TAXES

​

The change in the Company’s effective income tax rate for the three month period ended December 2022 as compared to the respective prior year period, was primarily related to non-deductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods.

​

8. MANDATORILY REDEEMABLE NON-CONTROLLING INTEREST

​

Mandatorily redeemable non-controlling interest (“MRNCI”) recorded on the Company’s consolidated balance sheet represents the non-controlling interest in the Company’s strategic investment in Team Sledd, LLC (“Team Sledd”). The Company owned approximately 56% of Team Sledd as of both December 2022 and September 2022. The Company has elected to present the MRNCI liability at fair value under ASC 825 – Financial Instruments (“ASC 825”) as it believes this best represents the potential future liability and cash flows. As such, the MRNCI balance at December 2022 represents the fair value of the remaining future membership interest redemptions and other amounts due noncontrolling interest holders through April 2026. The Company calculates the estimated fair value of the MRNCI based on a discounted cash flow valuation technique using the best information available at the reporting date, and records changes in the fair value of the MRNCI as a component of other expense (income) in the Condensed Consolidated Statements of Operations. The Company estimates the probability and timing of future redemptions and earnings of Team Sledd based on management’s knowledge and assumptions of certain events as of each reporting date, including the timing of any future redemptions and an appropriate discount rate. At December 2022, the difference between the contractual amount due under the MRNCI and the fair value was approximately $0.5 million. The MRNCI is classified as Level 3 because of the Company’s reliance on unobservable assumptions. The following table presents changes in the fair value of the MRNCI since September 2022:

​

​ | ​ | ​ | ​
Fair value of MRNCI as of September 2022 |  | $ | 11,158,555
Distributions to non-controlling interest | ​ | ​ | —
Change in fair value | ​ | ​ | (54,916)
Fair value of MRNCI as of December 2022 | ​ | $ | 11,103,639
Less current portion at fair value | ​ | ​ | (1,755,611)
​ | ​ | $ | 9,348,028

​

​

9. EQUITY-BASED INCENTIVE AWARDS

​

The Company has three equity-based incentive plans, the 2014 Omnibus Incentive Plan, the 2018 Omnibus Incentive Plan, and the 2022 Omnibus Incentive Plan (collectively “the Omnibus Plans”), which provide for equity incentives to employees. Each Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company. The Omnibus Plans together permit the issuance of up to 195,000 shares of the Company’s common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares, and dividend share awards payable in the form of common stock or cash. The number of shares issuable under the Omnibus Plans is subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. At December 2022, awards with respect to a total of 125,998 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 69,002 shares may be awarded under the Omnibus Plans.

​

​

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Restricted Stock Units

​

At December 2022, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock unit awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:

​

​ | ​ | ​ | ​
​ |  | Restricted Stock Units (1)
Date of award: |  | ​ | October 2020
Original number of awards issued: |  | ​ | 20,500
Service period: |  | ​ | 36 months
Estimated fair value of award at grant date: | ​ | $ | 1,415,000
Non-vested awards outstanding at December 2022: | ​ | ​ | 6,834
Fair value of non-vested awards at December 2022 of approximately: | ​ | $ | 1,237,000

(1) | 13,666 of the restricted stock units were vested as of December 2022. The remaining 6,834 restricted stock units will vest in October 2023.

​

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

​

The restricted stock units provide that the recipients can elect, at their option, to receive either common stock in the Company, or a cash settlement based upon the closing price of the Company’s shares, at the time of vesting. Based on these award provisions, the compensation expense recorded in the Company’s Statement of Operations reflects the straight line amortized fair value based on the liability method under “ASC 718 – Compensation – Stock Compensation”.

​

The following summarizes restricted stock unit activity under the Omnibus Plans during Q1 2023:

​

​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Number | ​ | Weighted
​ | ​ | of | ​ | Average
​ |  | Shares |  | Fair Value
Nonvested restricted stock units at September 2022 |  | 18,519 | ​ | $ | 210.00
Granted |  | — | ​ | ​ | —
Vested |  | (11,685) | ​ | ​ | 181.92
Expired |  | — | ​ | ​ | —
Nonvested restricted stock units at December 2022 |  | 6,834 | ​ | $ | 181.00

​

Restricted Stock Awards

​

At December 2022, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:

​

​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Restricted Stock Awards (1) | ​ | Restricted Stock Awards (2)
Date of award: |  | ​ | October 2021 | ​ | ​ | October 2022
Original number of awards issued: |  | ​ | 15,100 | ​ | ​ | 15,100
Service period: |  | ​ | 36 months | ​ | ​ | 36 months
Estimated fair value of award at grant date: | ​ | $ | 2,089,000 | ​ | ​ | 2,824,000
Non-vested awards outstanding at December 2022: | ​ | ​ | 10,067 | ​ | ​ | 15,100
Fair value of non-vested awards at December 2022 of approximately: | ​ | $ | 1,822,000 | ​ | ​ | 2,733,000

(1) | 5,033 of the restricted stock awards were vested as of December 2022. 5,033 restricted stock awards will vest in October 2023 and 5,034 will vest in October 2024.

(2) | The 15,100 restricted stock awards will vest in equal amounts in October 2023, October 2024 and October 2025.

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​

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

​

The following summarizes restricted stock award activity under the Omnibus Plans during Q1 2023:

​

​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Number | ​ | Weighted
​ | ​ | of | ​ | Average
​ |  | Shares |  | Fair Value
Nonvested restricted stock awards at September 2022 |  | 15,100 | ​ | $ | 210.00
Granted |  | 15,100 | ​ | ​ | 187.02
Vested |  | (5,033) | ​ | ​ | 186.26
Expired |  | — | ​ | ​ | —
Nonvested restricted stock awards at December 2022 |  | 25,167 | ​ | $ | 181.00

​

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

​

Net income before income taxes included compensation expense of approximately $0.4 million and $0.7 million during Q1 2023 and Q1 2022, respectively, related to the amortization of all equity-based compensation awards. Total unamortized compensation expense related to these awards at December 2022 and September 2022 was approximately $4.7 million and $2.8 million, respectively.

​

10. BUSINESS SEGMENTS

​

The Company has two reportable business segments: the wholesale distribution of consumer products which includes Team Sledd, and the retail sale of health and natural food products. The aggregation of the Company’s business operations into these business segments was based on a range of considerations including but not limited to the characteristics of each business, similarities in the nature and type of products sold, customer classes, methods used to sell the products and economic profiles. Included in the “Other” column are intercompany eliminations, equity method investment earnings, net of tax and assets held and charges incurred and income earned by our holding company. The segments are evaluated on revenues, gross margins, operating income (loss), and income (loss) from operations before taxes.

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Wholesale | ​ | Retail | ​ | ​ | ​ | ​
​ |  | Segment |  | Segment |  | Other |  | Consolidated
THREE MONTHS ENDED DECEMBER 2022 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
External revenue: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cigarettes | ​ | $ | 367,689,677 | ​ | $ | — | ​ | $ | — | ​ | $ | 367,689,677
Tobacco | ​ | ​ | 104,039,120 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 104,039,120
Confectionery | ​ | ​ | 32,558,996 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 32,558,996
Health food | ​ | ​ | — | ​ | ​ | 10,261,873 | ​ | ​ | — | ​ | ​ | 10,261,873
Foodservice & other | ​ | ​ | 51,439,841 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 51,439,841
Total external revenue | ​ | ​ | 555,727,634 | ​ | ​ | 10,261,873 | ​ | ​ | — | ​ | ​ | 565,989,507
Depreciation | ​ | ​ | 750,130 | ​ | ​ | 278,223 | ​ | ​ | — | ​ | ​ | 1,028,353
Amortization | ​ | ​ | 42,533 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 42,533
Operating income (loss) | ​ | ​ | 8,240,495 | ​ | ​ | (266,616) | ​ | ​ | (2,454,368) | ​ | ​ | 5,519,511
Interest expense | ​ | ​ | 886,148 | ​ | ​ | — | ​ | ​ | 808,010 | ​ | ​ | 1,694,158
Income (loss) from operations before taxes | ​ | ​ | 7,327,399 | ​ | ​ | (242,500) | ​ | ​ | (3,151,098) | ​ | ​ | 3,933,801
Total assets | ​ | ​ | 313,505,013 | ​ | ​ | 16,681,645 | ​ | ​ | 687,291 | ​ | ​ | 330,873,949
Capital expenditures | ​ | ​ | 1,248,067 | ​ | ​ | 143,865 | ​ | ​ | — | ​ | ​ | 1,391,932

​

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

​

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

​

BUSINESS UPDATE

​

Our businesses continue to be impacted by a number of macro-economic factors including ongoing disruptions to global supply chains and product availability. These factors, combined with a highly inflationary operating environment have resulted in cost pressures across our business segments as product, labor, fuel, interest and other costs have all increased markedly, while at the same time pressuring consumer discretionary spending and impacting retail demand trends.

​

We continue to closely monitor proposals from governmental and regulatory bodies including the United States Food and Drug Administration (“FDA”) which are evaluating the prohibition and/or limitations on the sale of certain cigarette (menthol flavored) tobacco and vaping products. If such regulations were to be implemented, they would have a negative impact on the Company’s financial results.

​

As previously disclosed, the Company entered into an asset purchase agreement with Henry’s Foods, Inc. (“Henry’s”), under which the Company agreed to purchase substantially all of Henry’s wholesale distribution assets for approximately $30.3 million plus any working capital adjustments. The Company expects to fund the purchase with borrowings from its existing bank group. The transaction is expected to close during the Company’s second fiscal quarter of 2023.

​

FORWARD-LOOKING STATEMENTS

​

This Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections, contains forward-looking statements that are subject to risks and uncertainties and which reflect management’s current beliefs and estimates of future economic circumstances, industry conditions, Company performance and financial results. Forward-looking statements include information concerning the possible or assumed future results of operations of the Company and those statements preceded by, followed by or that include the words “future,” “position,” “anticipate(s),” “expect(s),” “believe(s),” “see,” “plan,” “further improve,” “outlook,” “should” or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions.

​

It should be understood that the following important factors, in addition to those discussed elsewhere in this document, could affect the future results of the Company and could cause those results to differ materially from those expressed in our forward-looking statements:

​

● | risks associated with an inflationary operating environment, particularly as it relates to wages, fuel, interest and commodity prices which impact our operating cost structure and could impact food ingredient costs and demand for many of the products we sell,

​

● | regulations, potential bans and/or litigation related to the manufacturing, distribution, and sale of certain cigarette, tobacco, and vaping products by the FDA, state or local governmental agencies, or other parties, including proposed forthcoming regulations around the manufacture and distribution of certain menthol and flavored tobacco products,

​

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

​

● | risks associated with the imposition of governmental orders restricting our operations and the operations of our suppliers and customers, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to labor shortages in our warehouse operations,

​

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

​

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

​

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

​

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

​

● | risks associated with opening new retail stores,

​

● | if online shopping formats such as Amazon™ continue to grow in popularity and further disrupt traditional sales channels, it may present a significant direct risk to our brick and mortar retail business and potentially to our wholesale distribution business,

​

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

​

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

​

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

​

● | risks associated with disruptions to our technology systems or those of third parties upon which we rely, including security breaches, cyber-attacks, malware, or other methods by which such information systems could be compromised,

​

● | increases in inventory carrying costs and customer credit risks,

​

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

​

● | changing demand for the Company’s products, particularly cigarette, tobacco and vaping products,

​

● | risks that product manufacturers may begin selling directly to convenience stores and bypass wholesale distributors,

​

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

​

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

​

● | decreased availability of capital resources,

​

● | domestic regulatory and legislative risks,

​

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

​

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

​

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

​

● | other risks over which the Company has little or no control, and any other factors not identified herein.

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​

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

​

CRITICAL ACCOUNTING ESTIMATES

​

Certain accounting estimates used in the preparation of the Company’s condensed consolidated unaudited financial statements (“financial statements”) require us to make judgments and estimates and the financial results we report may vary depending on how we make these judgments and estimates. Our critical accounting estimates are set forth in our annual report on Form 10-K for the fiscal year ended September 30, 2022, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these estimates and related policies during the three months ended December 2022.

​

FIRST FISCAL QUARTER 2023 (Q1 2023)

​

The following discussion and analysis includes the Company’s results of operations for the three months ended December 2022 and December 2021:

​

Wholesale Segment

​

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 5,400 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,000 different consumer products, including cigarettes and tobacco products, candy and other confectionery, beverages, groceries, paper products, health and beauty care products, frozen and refrigerated products and institutional foodservice products. Convenience stores represent our largest customer category. In December 2022, Convenience Store News ranked us as the sixth (6th) largest convenience store distributor in the United States based on annual sales.

​

Our Wholesale Segment offers retailers the ability to take advantage of manufacturer and Company sponsored sales and marketing programs, merchandising and product category management services, and the use of information systems and data services that are focused on minimizing retailers’ investment in inventory, while seeking to maximize their sales and profits. In addition, our wholesale distributing capabilities provide valuable services to both manufacturers of consumer products and convenience retailers. Manufacturers benefit from our broad retail coverage, inventory management, efficiency in processing small orders, and frequency of deliveries. Convenience retailers benefit from our distribution capabilities by gaining access to a broad product line, inventory optimization and merchandising expertise, information systems, and accessing trade credit.

​

Our Wholesale Segment operates seven distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, Tennessee and West Virginia (operated by our Team Sledd, LLC subsidiary). These distribution centers, combined with cross-dock facilities, include approximately 885,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kellogg’s, Kraft Heinz, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

​

Retail Segment

​

Our Retail Segment, through our Healthy Edge Retail Group subsidiary, is a specialty retailer of natural/organic groceries and dietary supplements which focuses on providing high quality products at affordable prices, with an exceptional level of customer service and nutritional consultation. All of the products carried in our stores must meet strict quality and ingredient guidelines, and include offerings such as gluten-free and antibiotic-free groceries and meat products, as well as products containing no artificial colors, flavors, preservatives, or partially hydrogenated oils. We design our retail sites in an efficient and flexible small-store format, which emphasizes a high energy and shopper-friendly environment.

​

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We operate within the natural products retail industry, which is a subset of the U.S. grocery industry. This industry includes conventional, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, health food stores, dietary supplement retailers, drug stores, farmers markets, mail order and online retailers, and multi-level marketers.

​

Our Retail Segment operates nineteen retail health food stores as Chamberlin’s Natural Foods (“Chamberlin’s”), Akin’s Natural Foods (“Akin’s”), and Earth Origins Market (“EOM”). These stores carry over 35,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise.

​

RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER:

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | 2022 |  | 2021 |  | Incr (Decr) |  | % Change
CONSOLIDATED: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Sales (1) | ​ | $ | 565,989,507 | ​ | $ | 422,571,278 | ​ | $ | 143,418,229 |  | 33.9
Cost of sales | ​ |  | 531,019,924 | ​ |  | 395,638,615 | ​ |  | 135,381,309 |  | 34.2
Gross profit | ​ |  | 34,969,583 | ​ |  | 26,932,663 | ​ |  | 8,036,920 |  | 29.8
Gross profit percentage | ​ |  | 6.2 | % |  | 6.4 | % |  | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Operating expense | ​ | $ | 29,450,072 | ​ | $ | 23,174,985 | ​ | $ | 6,275,087 |  | 27.1
Operating income | ​ |  | 5,519,511 | ​ |  | 3,757,678 | ​ |  | 1,761,833 |  | 46.9
Interest expense | ​ |  | 1,694,158 | ​ |  | 322,097 | ​ |  | 1,372,061 |  | 426.0
Change in fair value of mandatorily redeemable non-controlling interest | ​ | ​ | (54,916) | ​ | ​ | — | ​ | ​ | (54,916) | ​ | N/A
Income tax expense | ​ |  | 1,304,800 | ​ |  | 1,245,000 | ​ |  | 59,800 |  | 4.8
Equity method investment earnings, net of tax | ​ | ​ | — | ​ | ​ | 770,365 | ​ | ​ | (770,365) | ​ | (100.0)
Net income available to common shareholders | ​ |  | 2,629,001 | ​ |  | 3,001,055 | ​ |  | (372,054) |  | (12.4)
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
BUSINESS SEGMENTS: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Wholesale | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Sales | ​ | $ | 555,727,634 | ​ | $ | 410,646,073 | ​ | $ | 145,081,561 |  | 35.3
Gross profit | ​ |  | 31,275,260 | ​ |  | 22,378,803 | ​ |  | 8,896,457 |  | 39.8
Gross profit percentage | ​ |  | 5.6 | % |  | 5.4 | % |  | ​ | ​ | ​
Retail | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Sales | ​ | $ | 10,261,873 | ​ | $ | 11,925,205 | ​ | $ | (1,663,332) |  | (13.9)
Gross profit | ​ |  | 3,694,323 | ​ |  | 4,553,860 | ​ |  | (859,537) |  | (18.9)
Gross profit percentage | ​ |  | 36.0 | % |  | 38.2 | % |  | ​ | ​ | ​

(1) | Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $8.9 million in Q1 2023 and $7.0 million in Q1 2022.

​

​

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SALES

​

Changes in sales are driven by two primary components:

​

| (i) | changes to selling prices, which are largely controlled by our product suppliers, and excise taxes imposed on cigarettes and tobacco products by various states; and

​

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

​

SALES – Q1 2023 vs. Q1 2022

​

Sales in our Wholesale Segment increased $145.1 million during Q1 2023 as compared to Q1 2022. Significant items impacting sales during Q1 2023 included a $159.9 million increase in sales related to the acquisition of Team Sledd, LLC (“Team Sledd”) during Q3 2022, a $20.6 million increase in sales related to price increases implemented by cigarette manufacturers, and a $6.4 million increase in sales related to higher sales volumes in our tobacco, confectionery, foodservice, and other categories (“Other Products”), partially offset by a $41.8 million decrease in sales related to the volume and mix of cigarette cartons sold. Sales in our Retail Segment decreased $1.7 million during Q1 2023 as compared to Q1 2022. This decrease was due to approximately $0.8 million related to the temporary closure of our Port Charlotte store due to damage from Hurricane Ian, $0.4 million related to lower sales volumes in our existing stores and approximately $0.5 million related to the closure of a store in our Florida market during the prior year.

​

GROSS PROFIT – Q1 2023 vs. Q1 2022

​

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

​

Gross profit in our Wholesale Segment increased $8.9 million during Q1 2023 as compared to Q1 2022. Significant items impacting gross profit during Q1 2023 included a $9.0 million increase in gross profit related to the acquisition of Team Sledd during Q3 2022, a $0.9 million increase in gross profit related to higher sales volumes and promotions in our Other Products category, partially offset by a $0.2 million decrease in gross profit due to the timing and related benefits of cigarette manufacturer price increases between the comparative periods and a $0.8 million decrease in gross profit related to net impact of cigarette manufacturer promotions and the volume and mix of cigarette cartons sold. Gross profit in our Retail Segment decreased $0.9 million during Q1 2023 as compared to Q1 2022. This change was primarily related to a $0.4 million decrease in realized margins in our existing stores, a $0.3 decrease related to the temporary closure of our Port Charlotte store due to damage from Hurricane Ian, and a $0.2 million decrease related to the closure of a store in our Florida market during the prior year.

​

OPERATING EXPENSE – Q1 2023 vs. Q1 2022

​

Operating expense includes selling, general and administrative expenses and depreciation. Selling, general, and administrative expenses primarily consist of costs related to our sales, warehouse, delivery and administrative departments, including purchasing and receiving costs, warehousing costs and costs of picking and loading customer orders. Our most significant expenses relate to costs associated with employees, facility and equipment leases, transportation, fuel, and insurance. Our Q1 2023 operating expenses increased $6.3 million as compared to Q1 2022. Significant items impacting operating expenses during Q1 2023 included a $6.9 million increase in operating expenses related to the acquisition of Team Sledd during Q3 2022 and a $0.5 million increase in fuel costs primarily related to higher diesel fuel prices, partially offset by a $0.7 million decrease in other Wholesale Segment operating expenses primarily driven by a decrease in employee compensation and benefit costs, a $0.3 million decrease in our customer bad debt expense and a $0.1 million decrease in operating expenses in our Retail Segment. The decrease in our Retail Segment was related to a $0.2 million decrease related to the closure of a store in the prior year and a $0.1 million decrease related to the temporary closure of

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our Port Charlotte store due to damage from Hurricane Ian, partially offset by a $0.2 million increase in operating expenses at our existing stores.

​

INCOME TAX EXPENSE – Q1 2023 vs. Q1 2022

​

The change in the Q1 2023 income tax rate as compared to Q1 2022 was primarily related non-deductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods.

​

LIQUIDITY AND CAPITAL RESOURCES

​

Overview

​

The Company’s variability in cash flows from operating activities is dependent on the timing of inventory purchases and seasonal fluctuations. For example, periodically we have inventory “buy-in” opportunities which offer more favorable pricing terms. As a result, we may have to hold inventory for a period longer than the payment terms. This generates a cash outflow from operating activities which we expect to reverse in later periods. Additionally, during our peak time of operations in the warm weather months, we generally carry higher amounts of inventory to ensure high fill rates and customer satisfaction.

​

The Company primarily finances its operations through two credit facility agreements (the “AMCON Facility” and the “Team Sledd Facility”, and together “the Facilities”) and long-term debt agreements with banks. At December 2022, the Facilities have a total combined borrowing capacity of $250.0 million, which includes provisions for up to $30.0 million in credit advances for certain inventory purchases, which are limited by accounts receivable and inventory qualifications, and the value of certain real estate collateral. The Team Sledd Facility matures in March 2027 and the AMCON Facility matures in June 2027, each without a penalty for prepayment. Obligations under the Facilities are collateralized by substantially all of the Company’s respective equipment, intangibles, inventories, accounts receivable, and in the case of the AMCON Facility, certain of the Company’s real estate. The Facilities each feature an unused commitment fee and financial covenants including fixed charge coverage ratios. Borrowings under the Facilities bear interest at either the bank’s prime rate, the Secured Overnight Financing Rate (“SOFR”) or the London Interbank Offered Rate (“LIBOR”), plus any applicable spreads.

​

The amount available for use from the Facilities at any given time is subject to a number of factors, including eligible accounts receivable and inventory balances that fluctuate day-to-day, as well as the value of certain real estate collateral. Based on the collateral and loan limits as defined in the Facility agreements, the credit limit of the combined Facilities at December 2022 was $230.8 million, of which $141.5 million was outstanding, leaving $89.3 million available.

​

The average interest rate of the Facilities was 6.45% at December 2022. For the three months ended December 2022, the peak borrowings under the Facilities was $150.4 million, and the average borrowings and average availability under the Facilities was $114.3 million and $84.3 million, respectively.

​

As discussed in the Business Update section above, the Company intends to fund the purchase price of the Henry’s transaction with borrowings from its existing banking group.

​

Cross Default and Co-Terminus Provisions

​

Team Sledd’s three notes payable and the Team Sledd Facility contain cross default provisions. There were no such cross defaults at December 2022. The Company was in compliance with all of its financial covenants under the Facilities at December 2022.

​

Dividend Payments

​

The Company paid a $0.18 per share cash dividend on its common stock totaling $0.1 million in each of the three month periods ended December 2022 and December 2021. During Q1 2023, the Company declared a $5.00 per share special dividend totaling approximately $3.1 million that was paid in Q2 2023. During Q1 2022, the Company declared and paid a $5.00 per share special dividend totaling approximately $3.0 million.

​

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Other

​

The Company has issued a letter of credit for $0.5 million to its workers’ compensation insurance carrier as part of its self-insured loss control program.

​

Off-Balance Sheet Arrangements

​

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

​

Liquidity Risk

​

The Company’s liquidity position is significantly influenced by its ability to maintain sufficient levels of working capital. For our Company and our industry in general, customer credit risk and ongoing access to bank credit heavily influence liquidity positions.

​

The Company does not currently hedge its exposure to interest rate risk or fuel costs. Accordingly, significant price movements in these areas can and do impact the Company’s profitability.

​

While the Company believes its liquidity position going forward will be adequate to sustain operations in both the short- and long-term, a precipitous change in operating environment could materially impact the Company’s future revenue streams as well as its ability to collect on customer accounts receivable or secure bank credit.

​

Item 3. Quantitative and Qualitative Disclosures About Market Risk

​

Not applicable.

​

Item 4. Controls and Procedures

​

Evaluation of Disclosure Controls and Procedures

​

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

​

As required by Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2022 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

​

Limitations on Effectiveness of Controls

​

Our management, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all errors and fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Further, the design of a control system must reflect the fact that there are resource constraints, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

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Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management’s override of the control.

​

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

​

Other

​

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

​

Changes in Internal Control Over Financial Reporting

​

Other than changes implemented to enhance internal controls over the accounting for certain complex financial instruments as described in Item 9A of our most recently filed Form 10-K for the fiscal year ended September 30, 2022, there were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 2022, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

​

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PART II — OTHER INFORMATION

​

Item 1. Legal Proceedings

​

None.

​

Item 1A. Risk Factors

​

There have been no material changes to the Company’s risk factors as previously disclosed in Item 1A “Risk Factors” of the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2022.

​

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

​

The Company issued unregistered securities to certain members of the Company’s management team during the quarterly period ended December 31, 2022, in relation to the vesting and granting of equity awards as described in Note 9 of Part I, Item 1 of this quarterly report on Form 10-Q. These issuances were exempt from registration under Section 4(a)(2) of the Securities Act of 1933.

​

Item 3. Defaults Upon Senior Securities

​

Not applicable.

​

Item 4. Mine Safety Disclosures

​

Not applicable.

​

Item 5. Other Information

​

Not applicable.

​

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Item 6. Exhibits

​

(a) Exhibits

​ |  |
​ | ​ | ​
​ | 10.1 | Asset Purchase Agreement dated December 7, 2022
​ | ​ | ​
​ | 31.1 | Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, pursuant to section 302 of the Sarbanes-Oxley Act
​ | ​ | ​
​ | 31.2 | Certification by Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary, pursuant to section 302 of the Sarbanes-Oxley Act
​ | ​ | ​
​ | 32.1 | Certification by Christopher H. Atayan, Chief Executive Officer and Chairman, furnished pursuant to section 906 of the Sarbanes-Oxley Act
​ | ​ | ​
​ | 32.2 | Certification by Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary, furnished pursuant to section 906 of the Sarbanes-Oxley Act
​ | ​ | ​
​ | 101 | Interactive Data File (filed herewith electronically)
​ | ​ | ​
​ | 104 | Cover Page Interactive Data File – formatted in Inline XBRL and included as Exhibit 101

​

​

​

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SIGNATURES

​

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

​

​ | AMCON DISTRIBUTING COMPANY
​ | (registrant)
​ | ​
Date: January 18, 2023 | /s/ Christopher H. Atayan
​ | Christopher H. Atayan,
​ | Chief Executive Officer and Chairman
​ | ​
Date: January 18, 2023 | /s/ Charles J. Schmaderer
​ | Charles J. Schmaderer,
​ | Vice President, Chief Financial Officer and Secretary
​ | (Principal Financial and Accounting Officer)

​

​

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