AMCON DISTRIBUTING CO (Form: 10-Q, Received: 01/19/2021 16:11:45)

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, 2020

◻	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________to _________

Commission File Number 1-15589

AMCON_4C_LOGO.EPS

(Exact name of registrant as specified in its charter)

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

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

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

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


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

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 551,369 shares of its $.01 par value common stock outstanding as of January 15, 2021.

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Form 10-Q

1st Quarter

INDEX


December 31, 2020	PAGE

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements:

Condensed consolidated balance sheets at December 31, 2020 (unaudited) and September 30, 2020	3

Condensed consolidated unaudited statements of operations for the three months ended December 31, 2020 and 2019	4

Condensed consolidated unaudited statements of shareholders’ equity for the three months ended December 31, 2020 and 2019	5

Condensed consolidated unaudited statements of cash flows for the three months ended December 31, 2020 and 2019	6

Notes to condensed consolidated unaudited financial statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3. Quantitative and Qualitative Disclosures About Market Risk	21

Item 4. Controls and Procedures	22

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	23

Item 1A. Risk Factors	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3. Defaults Upon Senior Securities	23

Item 4. Mine Safety Disclosures	23

Item 5. Other Information	23

Item 6. Exhibits	24

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMCON Distributing Company and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2020 and September 30, 2020


	December		September
	2020		2020
	(Unaudited)
ASSETS
Current assets:
Cash	$	515,098	$	661,195
Accounts receivable, less allowance for doubtful accounts of $0.8 million at December 2020 and $0.9 million at September 2020		29,712,850		34,278,429
Inventories, net		67,832,187		98,971,773
Prepaid and other current assets		7,884,267		2,091,645
Total current assets		105,944,402		136,003,042

Property and equipment, net		17,171,501		17,497,274
Operating lease right-of-use assets, net		18,660,239		18,936,126
Note receivable		3,500,000		3,500,000
Goodwill		4,436,950		4,436,950
Other intangible assets, net		500,000		500,000
Equity method investment		7,189,433		6,744,095
Other assets		343,593		383,786
Total assets	$	157,746,118	$	188,001,273

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,054,417	$	22,108,299
Accrued expenses		11,137,468		8,306,160
Accrued wages, salaries and bonuses		2,468,758		4,761,020
Income taxes payable		465,553		567,408
Current operating lease liabilities		5,756,176		5,607,098
Current maturities of long-term debt		512,344		516,850
Total current liabilities		37,394,716		41,866,835

Credit facility		33,051,949		61,971,682
Deferred income tax liability, net		1,939,311		1,806,575
Long-term operating lease liabilities		13,575,388		14,028,606
Long-term debt, less current maturities		5,477,181		2,608,794
Other long-term liabilities		757,387		927,241

Shareholders’ equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized		—		—
Common stock, $.01 par value, 3,000,000 shares authorized, 551,369 shares outstanding at December 2020 and 537,715 shares outstanding at September 2020		8,834		8,697
Additional paid-in capital		25,007,239		24,282,058
Retained earnings		71,401,400		71,362,334
Treasury stock at cost		(30,867,287)		(30,861,549)
Total shareholders’ equity		65,550,186		64,791,540
Total liabilities and shareholders’ equity	$	157,746,118	$	188,001,273

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

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Operations

for the three months ended December 31, 2020 and 2019


	For the three months ended December
	2020		2019
Sales (including excise taxes of $100.5 million and $94.0 million, respectively)	$	404,744,774	$	360,101,103
Cost of sales		381,282,795		339,256,392
Gross profit		23,461,979		20,844,711
Selling, general and administrative expenses		18,599,816		18,952,735
Depreciation and amortization		774,285		725,461
		19,374,101		19,678,196
Operating income		4,087,878		1,166,515

Other expense (income):
Interest expense		376,430		472,423
Other (income), net		(41,823)		(6,778)
		334,607		465,645
Income from operations before income taxes		3,753,271		700,870
Income tax expense		1,011,000		249,000
Equity method investment earnings, net of tax		335,339		—
Net income available to common shareholders	$	3,077,610	$	451,870

Basic earnings per share available to common shareholders	$	5.61	$	0.80
Diluted earnings per share available to common shareholders	$	5.57	$	0.80

Basic weighted average shares outstanding		548,125		562,578
Diluted weighted average shares outstanding		552,059		567,794

Dividends declared and paid per common share	$	0.18	$	0.18

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

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Shareholders’ Equity

for the three months ended December 31, 2020 and 2019


							Additional
	Common Stock			Treasury Stock			Paid-in		Retained
	Shares	Amount		Shares	Amount		Capital		Earnings		Total
THREE MONTHS ENDED DECEMBER 2019
Balance, October 1, 2019	856,039	$	8,561	(303,425)	$	(28,831,855)	$	23,165,639	$	66,414,397	$	60,756,742
Dividends on common stock, $0.46 per share	—		—	—		—		—		(273,630)		(273,630)
Compensation expense and issuance of stock in connection with equity-based awards	13,328		131	—		—		1,027,315		—		1,027,446
Repurchase of common stock	—		—	(109)		(8,156)		—		—		(8,156)
Net income	—		—	—		—		—		451,870		451,870
Balance, December 31, 2019	869,367	$	8,692	(303,534)	$	(28,840,011)	$	24,192,954	$	66,592,637	$	61,954,272

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

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

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AMCON Distributing Company and Subsidiaries

Condensed Consolidated Unaudited Statements of Cash Flows

for the three months ended December 31, 2020 and 2019


	December		December
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,077,610	$	451,870
Adjustments to reconcile net income from operations to net cash flows from (used in) operating activities:
Depreciation		774,285		725,461
Equity method investment earnings, net of tax		(335,339)		—
Loss (gain) on sales of property and equipment		(2,000)		—
Equity-based compensation		346,891		129,931
Deferred income taxes		132,736		154,792
Provision (recovery) for losses on doubtful accounts		(24,000)		371,000
Inventory allowance		172,137		51,587
Other		—		(42,011)

Changes in assets and liabilities:
Accounts receivable		4,589,579		(7,171,661)
Inventories		30,967,449		39,333,140
Prepaid and other current assets		(5,792,622)		(1,578,437)
Other assets		40,193		42,052
Accounts payable		(5,069,889)		(1,623,841)
Accrued expenses and accrued wages, salaries and bonuses		(1,793,704)		(2,509,401)
Other long-term liabilities		(169,854)		—
Income taxes payable and receivable		(211,854)		95,772
Net cash flows from (used in) operating activities		26,701,618		28,430,254

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(432,505)		(1,228,462)
Proceeds from sales of property and equipment		2,000		—
Net cash flows from (used in) investing activities		(430,505)		(1,228,462)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facility		385,943,710		330,596,076
Repayments under revolving credit facility		(414,863,443)		(357,448,761)
Proceeds from borrowings on long-term debt		3,000,000		—
Principal payments on long-term debt		(136,119)		(131,580)
Repurchase of common stock		(5,738)		(8,156)
Dividends on common stock		(105,599)		(107,084)
Settlement and withholdings of equity-based awards		(250,021)		—
Net cash flows from (used in) financing activities		(26,417,210)		(27,099,505)
Net change in cash		(146,097)		102,287
Cash, beginning of period		661,195		337,704
Cash, end of period	$	515,098	$	439,991

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	426,655	$	519,459
Cash paid (refunded) during the period for income taxes		1,090,119		(1,563)

Supplemental disclosure of non-cash information:
Equipment acquisitions classified in accounts payable	$	16,007	$	234,816
Dividends declared, not paid		2,932,945		166,546
Issuance of common stock in connection with the vesting and exercise of equity-based awards		949,812		990,653

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

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AMCON Distributing Company and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

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

●

Our wholesale distribution segment (“Wholesale Segment”) distributes consumer products and provides a full range of programs and services to our customers that are focused on helping them manage their business and increase their profitability. We serve customers in 26 states and primarily operate in the Central, Rocky Mountain, and Mid-South regions of the United States.

●

Our retail health food segment (“Retail Segment”) operates twenty-one health food retail stores located throughout the Midwest and Florida.

WHOLESALE SEGMENT

Our Wholesale Segment is one of the largest wholesale distributors in the United States serving approximately 4,100 retail outlets including convenience stores, grocery stores, liquor stores, drug stores, and tobacco shops. We currently distribute over 17,000 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 2020, Convenience Store News ranked us as the seventh (7th) largest convenience store distributor in the United States based on annual sales.

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

Our Wholesale Segment operates six distribution centers located in Illinois, Missouri, Nebraska, North Dakota, South Dakota, and Tennessee. These distribution centers, combined with cross-dock facilities, include approximately 685,000 square feet of permanent floor space. Our principal suppliers include Altria, RJ Reynolds, ITG Brands, Hershey, Kelloggs, Kraft, and Mars Wrigley. We also market private label lines of water, candy products, batteries, and other products. We do not maintain any long-term purchase contracts with our suppliers.

RETAIL SEGMENT

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

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

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Our Retail Segment operates twenty-one 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 33,000 different national and regionally branded and private label products including high-quality natural, organic, and specialty foods consisting of produce, baked goods, frozen foods, nutritional supplements, personal care items, and general merchandise. Chamberlin’s, which was established in 1935, has a total of seven locations in and around Orlando, Florida. Akin’s, which was also established in 1935, has a total of six locations in Arkansas, Missouri, and Oklahoma. EOM has a total of eight locations in Florida.

FINANCIAL STATEMENTS

The Company’s fiscal year ends on September 30. The results for the interim period included with this Quarterly Report may not be indicative of the results which could be expected for the entire fiscal year. All significant intercompany transactions and balances have been eliminated in consolidation. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated unaudited financial statements (“financial statements”) contain all adjustments necessary to fairly present the financial information included herein. The Company believes that although the disclosures contained herein are adequate to prevent the information presented from being misleading, these financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the fiscal year ended September 30, 2020, as filed with the Securities and Exchange Commission on Form 10-K. For purposes of this report, unless the context indicates otherwise, all references to “we”, “us”, “our”, the “Company”, and “AMCON” shall mean AMCON Distributing Company and its subsidiaries. Additionally, the three month fiscal periods ended December 31, 2020 and December 31, 2019 have been referred to throughout this quarterly report as Q1 2021 and Q1 2020, respectively. The fiscal balance sheet dates as of December 31, 2020 and September 30, 2020 have been referred to as December 2020 and September 2020, respectively.

ACCOUNTING PRONOUNCEMENTS

Recent Accounting Pronouncements

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

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

2. INVENTORIES

Inventories in our wholesale segment consisted of finished goods and are stated at the lower of cost or net realizable value, determined on a FIFO basis. Inventories in our retail segment consisted of finished goods and are stated at the lower of cost or market using the retail method. The wholesale distribution and retail health food segment inventories consist of finished products purchased in bulk quantities to be redistributed to the Company’s customers or sold at retail. Finished goods included total reserves of approximately $0.9 million at December 2020 and $0.7 million at September 2020. These reserves include the Company’s obsolescence allowance, which reflects estimated unsalable or non-refundable inventory based upon an evaluation of slow moving and discontinued products.

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3. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill at December 2020 and September 2020 was as follows:


	December		September
	2020		2020
Wholesale Segment	$	4,436,950	$	4,436,950

Other intangible assets at December 2020 and September 2020 consisted of the following:


	December		September
	2020		2020
Trademarks and tradenames (Retail Segment)	$	500,000	$	500,000

Goodwill, trademarks and tradenames are considered to have indefinite useful lives and therefore no amortization has been taken on these assets. Goodwill recorded on the Company’s consolidated balance sheet represents amounts allocated to its wholesale reporting unit which totaled $4.4 million at both December 2020 and September 2020. 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 2020.

4. EQUITY METHOD INVESTMENT

In April 2020, the Company completed a transaction with Chas. M. Sledd Company (“Sledd”), a West Virginia wholesale distributor serving the convenience store industry, to jointly own and operate a limited liability company (“Team Sledd”) formed for the purpose of owning and operating Sledd’s wholesale distribution business. Sledd contributed substantially all of its assets and stated liabilities to Team Sledd, while the Company contributed $10.0 million in cash, of which $6.5 million was structured as equity and $3.5 million was structured as a secured loan to Team Sledd which is subordinate to the liens of Team Sledd's existing secured lenders.

At December 2020, AMCON owned approximately 44% of Team Sledd’s outstanding equity, with a carrying value of $7.2 million. For the three months ended December 2020, the Company recognized $0.3 million in equity in earnings (net of income taxes) from its investment in Team Sledd. The Company’s secured loan to Team Sledd had a carrying value of $3.5 million as of December 2020. Pursuant to an operating agreement between the Company and Sledd, it is anticipated that certain membership interests in Team Sledd will be redeemed over a period of years, with such redemptions to be funded from the operations of Team Sledd. These redemptions would result in corresponding increases in the percentage of the outstanding equity of Team Sledd owned by AMCON.

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


	For the three months ended December 2020
	(Unaudited)
Sales	$	164,568,084
Gross profit	$	7,847,390
Net income before income taxes	$	1,003,793
Net income attributable to AMCON, net of tax	$	335,339

5. DIVIDENDS

The Company paid a $0.18 per share cash dividend on its common stock totaling $0.1 million in each of the three month periods ended December 2020 and December 2019, respectively. During Q1 2021, the Company also declared a $5.00 per share special dividend totaling approximately $2.9 million. This special dividend will be paid in the Company’s second fiscal quarter.

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6. EARNINGS PER SHARE

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


	For the three months ended December
	2020				2019
	Basic		Diluted		Basic		Diluted
Weighted average common shares outstanding		548,125		548,125		562,578		562,578
Weighted average net additional shares outstanding assuming dilutive options exercised and proceeds used to purchase treasury stock (1)		—		3,934		—		5,216
Weighted average number of shares outstanding		548,125		552,059		562,578		567,794
Net income available to common shareholders	$	3,077,610	$	3,077,610	$	451,870	$	451,870

Net earnings per share available to common shareholders	$	5.61	$	5.57	$	0.80	$	0.80

(1)	Diluted earnings per share calculation includes all stock options and restricted stock units deemed to be dilutive.

7. DEBT

The Company primarily finances its operations through a credit facility agreement (the “Facility”) and long-term debt agreements with banks. The Facility is provided through Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in a loan syndication.

CREDIT FACILITY

The Facility included the following significant terms at December 2020:

●

A March 2025 maturity date without a penalty for prepayment.

●

$110.0 million revolving credit limit.

●

Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

●

A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

●

Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement.

●

The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent successor rate index) plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company. For this purpose, in no event shall LIBOR be less than 50 basis points.

●

Lending limits subject to accounts receivable and inventory limitations.

●

An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.

●

Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.

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●

A financial covenant requiring a fixed charge coverage ratio of at least 1.0 as measured by the previous twelve month period then ended only if excess availability falls below 10% of the maximum loan limit as defined in the credit agreement. The Company’s fixed charge coverage ratio was over 1.0 for the trailing twelve months.

●

Provides that the Company may use up to $3.5 million annually, on a collective basis, for the payment of dividends on its common stock, or other distributions or investments, provided the Company is not in default before or after such dividends, distributions or investments. Additionally, the Company may pay dividends on its common stock, or make other distributions or investments in excess of $3.5 million annually provided the Company meets certain excess availability and proforma fixed charge coverage ratios and is not in default before or after such dividends, distributions or investments.

The amount available for use on the Facility at any given time is subject to a number of factors including eligible accounts receivable and inventory balances that fluctuate day-to-day. Based on our collateral and loan limits as defined in the Facility agreement, the credit limit of the Facility at December 2020 was $87.7 million, of which $33.1 million was outstanding, leaving $54.6 million available.

At December 2020, the revolving portion of the Company’s Facility balance bore interest based on the bank’s prime rate and various short-term LIBOR rate elections made by the Company. The average interest rate was 2.13% at December 2020. For the three months ended December 2020, our peak borrowings under the Facility were $71.7 million, and our average borrowings and average availability under the Facility were $49.5 million and $43.1 million, respectively.

LONG-TERM DEBT

In addition to the Facility, the Company also had the following long term obligations at December 2020.


	December 2020		September 2020
Real Estate Loan, interest payable at a fixed rate of 3.625% with monthly installments of principal and interest of $47,399 through February 2025 with remaining principal due March 2025, collateralized by three distribution facilities	$	4,765,058	$	1,866,231
Note payable, interest payable at a fixed rate of 4.50% with quarterly installments of principal and interest of $49,114 through June 2023 with remaining principal due September 2023		1,224,467		1,259,413
		5,989,525		3,125,644
Less current maturities		(512,344)		(516,850)
	$	5,477,181	$	2,608,794

Cross Default and Co-Terminus Provisions

The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term Real Estate Loan with BMO which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, are in default. There were no such cross defaults at December 2020. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Other

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

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8. EQUITY-BASED INCENTIVE AWARDS

Omnibus Plans

The Company has two equity-based incentive plans, the 2014 Omnibus Incentive Plan and 2018 Omnibus Incentive Plan (collectively “the Omnibus Plans”), which provide for equity incentives to employees. Each Omnibus Plan was designed with the intent of encouraging employees to acquire a vested interest in the growth and performance of the Company. The Omnibus Plans together permit the issuance of up to 135,000 shares of the Company’s common stock in the form of stock options, restricted stock awards, restricted stock units, performance share awards as well as awards such as stock appreciation rights, performance units, performance shares, bonus shares, and dividend share awards payable in the form of common stock or cash. The number of shares issuable under the Omnibus Plans is subject to customary adjustments in the event of stock splits, stock dividends, and certain other distributions on the Company’s common stock. At December 2020, awards with respect to a total of 120,751 shares, net of forfeitures, had been awarded pursuant to the Omnibus Plans and awards with respect to another 14,249 shares may be awarded under the Omnibus Plans.

Stock Options

The following is a summary of stock option activity during Q1 2021:


		Weighted
	Number	Average
	of	Exercise
	Shares	Price
Outstanding at September 2020	34,350	$	80.33
Granted	—		—
Exercised	(7,300)		59.19
Forfeited/Expired	(500)		84.00
Outstanding at December 2020	26,550	$	86.07

Restricted Stock Units

At December 2020, the Compensation Committee of the Board of Directors had authorized and approved the following restricted stock unit awards to members of the Company’s management team pursuant to the provisions of the Company’s Omnibus Plans:


	Restricted Stock Units(1)		Restricted Stock Units(2)		Restricted Stock Units(3)
Date of award:		October 2018		October 2019		October 2020
Original number of awards issued:		15,050		14,550		20,500
Service period:		36 months		36 months		36 months
Estimated fair value of award at grant date:	$	1,264,000	$	1,007,000	$	1,415,000
Non-vested awards outstanding at December 31, 2020:		5,019		9,701		20,500
Fair value of non-vested awards at December 31, 2020 of approximately:	$	597,000	$	1,154,000	$	2,438,000

(1)	10,031 of the restricted stock units were vested as of December 2020. The remaining 5,019 restricted stock units will vest in October 2021.

(2)	4,849 of the restricted stock units were vested as of December 2020. 4,850 restricted stock units will vest in October 2021 and 4,851 will vest in October 2022.

(3)	The 20,500 restricted stock units will vest in equal amounts in October 2021, October 2022, and October 2023.

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

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

The following summarizes restricted stock unit activity under the Omnibus Plans during Q1 2021:


	Number	Weighted
	of	Average
	Shares	Fair Value
Nonvested restricted stocks units at September 2020	28,971	$	64.59
Granted	20,500		69.01
Vested	(14,251)		68.65
Expired	—		—
Nonvested restricted stocks units at December 2020	35,220	$	118.95

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

Net income before income taxes included compensation expense of approximately $0.3 million and $0.1 million during Q1 2021 and Q1 2020, respectively, related to the amortization of all equity-based compensation awards. Total unamortized compensation expense related to these awards at December 2020 and September 2020 was approximately $3.9 million and $1.3 million, respectively.

9. BUSINESS SEGMENTS

The Company has two reportable business segments: the wholesale distribution of consumer products and the retail sale of health and natural food products. The retail health food stores’ operations are aggregated to comprise the Retail Segment because such operations have similar economic characteristics, as well as similar characteristics with respect to the nature of products sold, the type and class of customers for the health food products and the methods used to sell the products. Included in the “Other” column are intercompany eliminations, and assets held and charges incurred and income earned by our holding company. The segments are evaluated on revenues, gross margins, operating income (loss), and income (loss) before taxes.


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

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	Wholesale		Retail
	Segment		Segment		Other		Consolidated
THREE MONTHS ENDED DECEMBER 2019
External revenue:
Cigarettes	$	245,050,054	$	—	$	—	$	245,050,054
Tobacco		54,317,548		—		—		54,317,548
Confectionery		20,836,862		—		—		20,836,862
Health food		—		10,096,495		—		10,096,495
Foodservice & other		29,800,144		—		—		29,800,144
Total external revenue		350,004,608		10,096,495		—		360,101,103
Depreciation		432,263		293,198		—		725,461
Operating income (loss)		3,649,014		(1,142,306)		(1,340,193)		1,166,515
Interest expense		33,974		—		438,449		472,423
Income (loss) from operations before taxes		3,619,664		(1,140,152)		(1,778,642)		700,870
Total assets		125,529,755		21,947,811		122,891		147,600,457
Capital expenditures		793,681		600,344		—		1,394,025

10. COMMON STOCK REPURCHASES

The Company repurchased a total of 68 and 109 shares of its common stock during the three months ended December 2020 and December 2019, respectively, for cash totaling less than $0.1 million in each respective period. All repurchased shares were recorded in treasury stock at cost.

11. IMPACT OF COVID-19

In March 2020, the World Health Organization (WHO) declared the novel strain of coronavirus (COVID-19) a global pandemic. The Company is designated as a critical infrastructure supplier to the Convenience Store Industry. Both of the Company’s business segments have continued to operate during the pandemic as essential suppliers of goods and services and the Company has taken certain proactive and precautionary steps to ensure the safety of its employees, customers and suppliers, including frequent cleaning and disinfection of workspaces, property and equipment, instituting social distancing measures and mandating remote working environments for certain employees.

The Company continues to monitor medical, regulatory and consumer developments, and community-based regulations, however, we cannot predict the long-term effects on our business, including our financial position or results of operations, if governmental restrictions such as Stay-At-Home orders or other such directives continue or are reinstated for a prolonged period of time and materially disrupt consumer demand, our supply chain or our ability to procure products or fulfill orders due to disruptions in our warehouse operations.

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 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.

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

●

risks associated with the threat or occurrence of epidemics or pandemics (such as the recent COVID-19 or coronavirus outbreak) or other public health issues, including the continued health of our employees and management, the imposition of governmental orders restricting our operations and the activities of our employees, suppliers and customers and the reduced demand for our goods and services, in particular, disruptions to our supply chain or our ability to procure products or fulfill orders due to disruptions in our warehouse operations, or increased credit risk from customer credit defaults resulting from an economic downturn,

●

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

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

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

●	risks associated with opening new retail stores,

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

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

●	increases in operational costs, including the cost of maintaining a refrigerated trucking fleet and general business insurance costs,

●	the risks associated with a competitive labor market, particularly for truck drivers and warehouse workers, which may impact our ability to recruit and retain employees and result in higher employee compensation costs,

●	increases in state and federal excise taxes on cigarette and tobacco products and the potential impact on demand,

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

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

●	increases in inventory carrying costs and customer credit risks,

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

●	demand for the Company’s products, particularly cigarette, tobacco and e-cigarette/vaping products,

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

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

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●	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,

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

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

IMPACT OF COVID-19 (CORONAVIRUS) ON OUR BUSINESS

The Company continues to monitor medical, regulatory and consumer developments, and community-based regulations, however, we cannot predict the long-term effects on our business, including our financial position or results of operations, if governmental restrictions such as Stay-At-Home orders or other such directives continue or are reinstated for a prolonged period of time and materially disrupt comsumer demand, our supply chain or our ability to procure products or fulfill orders due to disruptions in our warehouse operations.

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, 2020, as filed with the Securities and Exchange Commission. There have been no significant changes with respect to these policies during the three months ended December 2020.

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FIRST FISCAL QUARTER 2021 (Q1 2021)

The following discussion and analysis includes the Company’s results of operations for the three months ended December 2020 and December 2019:

Wholesale Segment

Retail Segment

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RESULTS OF OPERATIONS – THREE MONTHS ENDED DECEMBER:


	2020			2019			Incr (Decr)		% Change
CONSOLIDATED:
Sales(1)	$	404,744,774		$	360,101,103		$	44,643,671	12.4
Cost of sales		381,282,795			339,256,392			42,026,403	12.4
Gross profit		23,461,979			20,844,711			2,617,268	12.6
Gross profit percentage		5.8	%		5.8	%

Operating expense	$	19,374,101		$	19,678,196		$	(304,095)	(1.5)
Operating income		4,087,878			1,166,515			2,921,363	250.4
Interest expense		376,430			472,423			(95,993)	(20.3)
Income tax expense		1,011,000			249,000			762,000	306.0
Net income		3,077,610			451,870			2,625,740	581.1

BUSINESS SEGMENTS:
Wholesale
Sales	$	393,597,676		$	350,004,608		$	43,593,068	12.5
Gross profit		19,367,341			17,586,795			1,780,546	10.1
Gross profit percentage		4.9	%		5.0	%
Retail
Sales	$	11,147,098		$	10,096,495		$	1,050,603	10.4
Gross profit		4,094,638			3,257,916			836,722	25.7
Gross profit percentage		36.7	%		32.3	%

(1)	Sales are reported net of costs associated with incentives provided to retailers. These incentives totaled $6.8 million in Q1 2021 and $6.1 million in Q1 2020.

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 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 2021 vs. Q1 2020

Sales in our Wholesale Segment increased $43.6 million during Q1 2021 as compared to Q1 2020. Significant items impacting sales during Q1 2021 included a $14.4 million increase in sales related to price increases implemented by cigarette manufacturers, a $17.1 million increase in sales related to the volume and mix of cigarette cartons sold, and a $12.1 million increase in sales related to higher sales volumes in our tobacco, confectionery, foodservice, and other categories (“Other Products”). Sales in our Retail Segment increased $1.1 million during Q1 2021 as compared to Q1 2020. Of this increase, approximately $1.3 million related to higher sales volumes in our existing stores, partially offset by a $0.2 million decrease in sales volume related to the closure of one non-performing store in our Midwest market during the prior fiscal period which was nearing the end of its lease term.

GROSS PROFIT – Q1 2021 vs. Q1 2020

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.

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Gross profit in our Wholesale Segment increased $1.8 million during Q1 2021 as compared to Q1 2020. Significant items impacting gross profit during Q1 2021 included a $1.3 million increase in gross profit related to higher sales volumes and promotions in our Other Products category and a $0.5 million increase in gross profit due to the timing and related benefits of cigarette manufacturer price increases between the comparative periods. Gross profit in our Retail Segment increased $0.8 million during Q1 2021 as compared to Q1 2020. This change was primarily related to higher sales and gross margins in our existing stores resulting from variations in volume and product mix between the comparative periods, partially offset by the closure of one non-performing store in our Midwest market during the prior year period.

OPERATING EXPENSE – Q1 2021 vs. Q1 2020

Operating expense includes selling, general and administrative expenses and depreciation and amortization. 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 2021 operating expenses decreased $0.3 million as compared to Q1 2020. Significant items impacting operating expenses during Q1 2021 included a $0.4 million decrease in bad debt expense and a $0.2 million decrease in our Retail Segment expenses primarily related to the closure of one non-performing store in our Midwest market during the prior fiscal period. These decreases were partially offset by a $0.3 million increase in employee compensation and benefit costs.

INCOME TAX EXPENSE – Q1 2021 vs. Q1 2020

The change in the Q1 2021 income tax rate as compared to Q1 2020, was primarily related to nondeductible compensation expense in relation to the amount of income from operations before income tax expense between the comparative periods.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

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

In general, the Company finances its operations through a credit facility agreement (the “Facility”) with Bank of America acting as the senior agent and with BMO Harris Bank (“BMO”) participating in the loan syndication. The Facility included the following significant terms at December 2020:

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

●	$110.0 million revolving credit limit.

●	Loan accordion allowing the Company to increase the size of the credit facility agreement by $25.0 million.

●	A provision providing an additional $10.0 million of credit advances for certain inventory purchases.

●	Evergreen renewal clause automatically renewing the agreement for one year unless either the borrower or lender provides written notice terminating the agreement at least 90 days prior to the end of any original or renewal term of the agreement.

●	The Facility bears interest at either the bank’s prime rate, or at LIBOR (or equivalent rate index) plus 125 - 150 basis points depending on certain credit facility utilization measures, at the election of the Company. For this purpose, in no event shall LIBOR be less than 50 basis points.

●	Lending limits subject to accounts receivable and inventory limitations.

●	An unused commitment fee equal to one-quarter of one percent (1/4%) per annum on the difference between the maximum loan limit and average monthly borrowings.

●	Secured by collateral including all of the Company’s equipment, intangibles, inventories, and accounts receivable.

●

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Cross Default and Co-Terminus Provisions

The Company owns real estate in Bismarck, ND, Quincy, IL, and Rapid City, SD, which is financed through a single term loan with BMO (the “Real Estate Loan”) which is also a participant lender on the Company’s revolving line of credit. The Real Estate Loan contains cross default provisions which cause the loan to be considered in default if the loans where BMO is a lender, including the revolving credit facility, are in default. There were no such cross defaults at December 2020. In addition, the Real Estate Loan contains co-terminus provisions which require all loans with BMO to be paid in full if any of the loans are paid in full prior to the end of their specified terms.

Dividend Payments

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 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 operatioins, a precipitous change in operating environment could materially impact the Company’s future revenue streams as well as its ability to collect on customer accounts receivable or secure bank credit.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s 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, 2020 was made under the supervision and with the participation of our senior management, including our principal executive officer and principal financial officer. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Limitations on Effectiveness of Controls

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

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

Other

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

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 2020, 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, 2020.

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

The following table summarizes the purchases made by or on behalf of our Company or certain affiliated purchasers of shares of our common stock during the quarterly period ended December 2020:


Period	Total Number of Shares (or Units) Purchased	Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs*
October 1 - 31, 2020	—	$	—	—	75,000
November 1 - 30, 2020	68	$	82.91	68	74,932
December 1 - 31, 2020	—	$	—	—	74,932
Total	68	$	82.91	68	74,932

In October 2020, the Company’s Board of Directors replenished the existing share repurchase authority to authorize purchases of up to 75,000 shares of the Company’s common stock in open market or negotiated transactions. Management was given discretion to determine the number and pricing of the shares to be purchased, as well as the timing of any such purchases.

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	Second Amended and Restated Term Real Estate Promissory Note, dated December 22, 2020, issued by AMCON Distributing Company to BMO Harris, NA

	10.2	Fifth Amendment to Second Amended and Restated Loan and Security Agreement, dated December 22, 2020, between AMCON Distributing Company and Bank of America

	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)

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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 19, 2021	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman

Date: January 19, 2021	/s/ Charles J. Schmaderer
	Charles J. Schmaderer,
	Vice President, Chief Financial Officer and Secretary
	(Principal Financial and Accounting Officer)

Exhibit 10.1

Second AMENDED AND RESTATED PROMISSORY NOTE

Borrower:	Amcon Distributing Company 7405 Irvington Road Omaha, NE 68122	Lender:		BMO Harris Bank N.A. 111 W. Monroe Street Chicago, IL 60603 4095
Principal Amount: $4,765,058.22			Date: December 22, 2020

Promise To Pay. Amcon Distributing Company (“Borrower”) promises to pay to BMO Harris Bank N.A. (“Lender”), or order, in lawful money of the United States of America, the principal amount of Four Million Seven Hundred Sixty-Five Thousand Fifty-Eight and 22/100 Dollars ($4,765,058.22), together with interest at the rate of 3.625% per annum on the unpaid principal balance until paid in full.

Payment. Borrower will pay this loan in regular principal and interest payments of $47,399.00 each payment and one irregular last payment of all remaining outstanding principal and interest outstanding hereunder. Borrower's first principal payment is due on February 1, 2021, and all subsequent principal and interest payments are due on the same day of each month after that. Borrower's final payment will be due on the earlier of (i) March 20, 2025 or (ii) the date on which Lender is no longer a participating lender under any loan facility, other than the loan facility evidenced by this Note (the “Other Loan Facilities”), provided that if Lender is no longer a participant in the Other Loan Facilities due to Lender’s assignment of its participating interest(s) in all Other Loan Facilities, then the final payment date shall not be accelerated and shall be March 20, 2025. Such final payment, on whichever date it occurs, will be for all principal and all accrued interest not yet paid. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Payments received by Lender shall be applied first to accrued interest then due and then to the outstanding principal balance of this Note unless otherwise directed, provided that after an Event of Default (as defined below) all payments received shall be applied in such order and manner as Lender shall determine. If any payment from Borrower under this Note becomes due on a day that is not a Business Day (as defined below), such payment shall be made on the next Business Day and any such extension shall be included in computing interest under this Note.

Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law.

Computation of Interest. All interest on this Note shall be computed on a 365/360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual numbers of days the principal balance is outstanding. All interest payable under this Note is computed using this method. This calculation method results in a higher effective interest rate than the numeric interest rate stated in this Note.

Prepayment. Borrower may pay all or a portion of the amount owed earlier than it is due at any time without penalty or fee.

Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments under the payment schedule. Rather, early payments will reduce the principal balance due and may result in Borrower's making fewer payments. Borrower agrees not to send Lender payments marked “paid in full”, “without recourse”, or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender. All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes “payment in full” of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to: BMO Harris Bank N.A., 111 W. Monroe Street, Chicago, IL 60603 4095.

Late Charge. If a payment is 10 days or more late, Borrower will be charged 5.000% of the regularly scheduled payment or $15.00, whichever is greater.

Default. Each of the following shall constitute an event of default (“Event of Default”) under this Note:

Payment Default. Borrower fails to make any payment when due under this Note.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower, including, without limitation, the Other Loan Facilities.

Default in Favor of Third Parties. Borrower, or any other party thereto, defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the related documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment of the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits

with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any guarantor, endorser, surety, or accommodation party of any of the indebtedness or any guarantor, endorser, surety, or accommodation party dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any guaranty of the indebtedness evidenced by this Note.

Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired.

Insecurity. Lender in good faith believes itself insecure.

Lender's Rights. Upon the occurrence of any Event of Default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. Also in any such event Lender shall have the right to exercise any other action, right, power or remedy provided for in any other instrument or agreement with Lender or as otherwise permitted by applicable law.

Attorneys' Fees; Expenses. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law.

Jury Waiver. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other.

Governing Law. This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Illinois without regard to its conflicts of law provisions. This Note has been accepted by Lender in the State of Illinois.

Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Cook County, State of Illinois.

Right of Setoff. To the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the debt against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.

Collateral. Borrower acknowledges this Note is secured by among other things, that certain Amended and Restated Mortgage and Security Agreement with Assignment of Rents, dated as of September, 2016, on real property located at 2517 Ellington Road, Quincy, IL 62305 and recorded in the public records of Adams County, Illinois, as such mortgage is amended as of the date hereof, that certain Amended and Restated Mortgage and Security Agreement with Assignment of Rents, dated as of September, 2016, on real property located at 1511 Turbine Drive, Rapid City, SD, and recorded in the public records of Pennington County. South Dakota, as such mortgage is amended as of the date hereof and that certain Amended and Restated Mortgage and Security Agreement with Assignment of Rents, dated as of September, 2016, on real property located at 3125 East Thayer Avenue, Bismarck, ND 58501 and recorded in the public records of Burleigh County, North Dakota, as such mortgage is amended as of the date hereof.

Payment Amount after Default. Whenever increases occur in the interest rate due to an event of default, Lender, at its option, may do one or more of the following: (A) increase Borrower's payments to ensure Borrower's loan will pay off by its original final maturity date, (B) increase Borrower's payments to cover accruing interest, (C) increase the number of Borrower's payments, and (D) continue Borrower's payments at the same amount and increase Borrower's final payment.

Amended and Restated. This is a restatement of the indebtedness evidenced by, and is a replacement of, that certain Amended and Restated Promissory Note of the undersigned dated September 30, 2016 in the face principal amount of $3,384,319.00 payable to the order of the Lender, and nothing contained herein shall be construed (i) to deem paid or forgiven the unpaid principal amount of, or unpaid accrued interest on, said Promissory Note outstanding at the time of its replacement by this Note or (ii) to release, cancel, terminate or otherwise adversely affect all or any part of any lien, security interest or other encumbrance heretofore granted to or for the benefit of the payee of said Promissory Note which has not otherwise been expressly released.

Amendments and/or Modifications. Lender shall not be deemed to have waived any rights under this Note unless such waiver is given in writing and signed by the Lender. Notwithstanding any provision in this Note to the contrary, this Note may be modified by mutual consent of the Lender and Borrower.

Successor Interests. The terms of this Note shall be binding upon Borrower, and upon Borrower's successors and assigns, and shall inure to the benefit of Lender and its successors and assigns.

General Provisions. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties

also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made.

* * *

(Signature Page to Promissory Note-BMO Harris Bank N.A.)

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

Executed by the undersigned as of the date first written above.

AMCON DISTRIBUTING COMPANY

By: /s/ Charles J. Schmaderer
Name: Charles J. Schmaderer

Title:

Vice President and Chief Financial Officer

Exhibit 10.2

FIFTH AMENDMENT TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS FIFTH AMENDMENT TO SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Amendment”) is dated as of December 22, 2020 among each of AMCON Distributing Company, a Delaware corporation, having its principal place of business at 7405 Irvington Road, Omaha, Nebraska 68122 (“AMCON”), Chamberlin Natural Foods, Inc., a Florida corporation, having its principal place of business at 3711 Oleander Way, Suite 1309, Casselberry, Florida 32707 (“Chamberlin Natural”), Health Food Associates, Inc., an Oklahoma corporation, having its principal place of business at 7807 East 51st Street, Tulsa, Oklahoma 74145 (“Health Food”), AMCON ACQUISITION CORP., a Delaware corporation, having its principal place of business at 7405 Irvington Road, Omaha, Nebraska 68122 (“AMCON Acquisition”); and EOM ACQUISITION CORP., a Delaware corporation, having its principal place of business at 7807 East 51st Street, Tulsa, Oklahoma 74145 (“EOM Acquisition”; AMCON, Chamberlin Natural, Health Food, AMCON Acquisition and EOM Acquisition are each referred to as a “Borrower” and are collectively referred to as “Borrowers”), and BANK OF AMERICA, N.A., a national banking association (in its individual capacity, “BofA”), as agent (in such capacity as agent, “Agent”) for itself and all other lenders from time to time a party to the Credit Agreement (as defined below) (“Lenders”), 135 South LaSalle Street, Chicago, Illinois 60603-4105.

W I T N E S S E T H:

WHEREAS, the Borrowers, the Lenders and Agent have entered into that certain Second Amended and Restated Loan and Security Agreement dated as of April 18, 2011, as amended by that certain Consent and First Amendment to Second Amended and Restated Loan and Security Agreement dated as of May 27, 2011, that certain Second Amendment to Second Amended and Restated Loan and Security Agreement dated as of July 16, 2013, that certain Third Amendment to Second Amended and Restated Loan and Security Agreement dated as of November 6, 2017 and that certain Fourth Amendment to Second Amended and Restated Loan and Security Agreement dated as of March 20, 2020 (as may be further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) pursuant to which the Lenders agreed to provide certain credit facilities to the Borrowers;

WHEREAS, the Borrowers have requested that the Agent and the Lenders amend the Credit Agreement in order to, among other things, (i) decrease the LIBOR floor, (ii) modify certain covenants affected by the payment of dividends, (iii) increase certain baskets related to permitted indebtedness, and (iv) effectuate such other amendments as provided herein; and

WHEREAS, the Agent and the Lenders are willing to accommodate the Borrowers’ requests on the terms and conditions set forth below.

NOW, THEREFORE, for and in consideration of the premises and mutual agreements herein contained and for the purposes of setting forth the terms and conditions of this Amendment, the parties, intending to be bound, hereby agree as follows:

1.Defined Terms; Incorporation of the Credit Agreement. All capitalized terms which are not defined hereunder shall have the same meanings as set forth in the Credit Agreement, and the Credit Agreement, to the extent not inconsistent with this Amendment, is incorporated

herein by this reference as though the same were set forth in its entirety. To the extent any terms and provisions of the Credit Agreement are inconsistent with the amendments set forth in paragraph 2 below, such terms and provisions shall be deemed superseded hereby. Except as specifically set forth herein, the Credit Agreement shall remain in full force and effect and its provisions shall be binding on the parties hereto.

2.Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows:

(a)The following definitions are hereby added to Section 1.1 of the Credit Agreement to read as follows:

“ISDA Definitions”: 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.

“LIBOR Replacement Date”: as defined in Section 4(e).

“LIBOR Successor Rate”: as defined in Section 4(e).

“Pre-Adjustment Successor Rate”: as defined in Section 4(e).

“Related Adjustment”: in determining any LIBOR Successor Rate, the first relevant available alternative set forth in the order below that can be determined by Agent applicable to such LIBOR Successor Rate: (a) the spread adjustment, or method for calculating or determining such spread adjustment, that has been selected or recommended by the Relevant Governmental Body for the relevant Pre-Adjustment Successor Rate (taking into account the interest period, interest payment date or payment period for interest calculated and/or tenor thereto) and which adjustment or method (i) is published on an information service as selected by Agent from time to time in its discretion or (ii) solely with respect to Term SOFR, if not currently published, which was previously so recommended for Term SOFR and published on an information service acceptable to Agent; or (b) the spread adjustment that would apply (or has previously been applied) to the fallback rate for a derivative transaction referencing the ISDA Definitions (taking into account the interest period, interest payment date or payment period for interest calculated and/or tenor thereto).

“2021 Special Dividend” shall mean a dividend to equityholders in an amount not to exceed $3,000,000 on or before February 28, 2021.

(b)The last sentence of the definition of the term “LIBOR Rate” appearing in Section 1.1 is hereby amended in its entirety as follows:

Notwithstanding the foregoing, the LIBOR Rate shall not be less than one-half of one percent (0.50%).

(c)The definition of “Fixed Charge Coverage Ratio” appearing in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“Fixed Charge Coverage Ratio” means for any period of determination for the Borrowers, the ratio of EBITDA to Fixed Charges determined in accordance with GAAP. Notwithstanding the foregoing, the (i) $6,500,000 investment and $3,500,000 loan made by AMCON in Team Sledd, LLC, a Delaware limited liability company, pursuant to its January 3, 2020 Contribution Agreement, and (ii) 2021 Special Dividend shall each be excluded from the calculation of Fixed Charge Coverage Ratio.

(d)Section 4(e) of Credit Agreement is hereby amended and restated to read as follows:

(e)Notwithstanding anything to the contrary in this Agreement or any of the Other Agreements, if the Agent determines (which determination shall be conclusive absent manifest error), or the Requisite Lenders notify the Agent (with, in the case of the Requisite Lenders, a copy to the Borrowers) that Requisite Lenders have determined, that:

(i)adequate and reasonable means do not exist for ascertaining LIBOR for any requested Interest Period hereunder or any other tenors of LIBOR, including, without limitation, because the LIBOR Screen Rate is not available or published on a current basis and such circumstances are unlikely to be temporary; or

(ii)the administrator of the LIBOR Screen Rate or a Governmental Authority having jurisdiction over the Agent or such administrator has made a public statement identifying a specific date after which LIBOR or the LIBOR Screen Rate shall no longer be made available, or used for determining the interest rate of loans, provided that, at the time of such statement, there is no successor administrator that is satisfactory to the Agent that will continue to provide LIBOR after such specific date (such specific date, the “Scheduled Unavailability Date”);

(iii)the administrator of the LIBOR Screen Rate or a Governmental Authority having jurisdiction over such administrator has made a public statement announcing that all Interest Periods and other tenors of LIBOR are no longer representative;

(iv)syndicated loans currently being executed, or that include language similar to that contained in this Section 4, are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR;

then, in the case of clauses (i) through (iii) above, on a date and time determined by the Agent (any such date, “LIBOR Replacement Date”), which date shall be at the end of an Interest Period or on the relevant interest payment date, as applicable, for interest calculated and shall occur reasonably promptly upon the occurrence of any of the events or circumstances under clauses (i), (ii) or (iii) above and, solely with respect to clause (ii) above, no later than the Scheduled Unavailability Date, LIBOR will be replaced hereunder and under the Other Agreements with, subject to the proviso below, the first available alternative set forth in the order below for any payment period for interest calculated that can be determined by Agent, in each case, without any amendment to, or further action or consent of any other party to, this Agreement or any Other Agreement (“LIBOR Successor Rate”; and any such rate before giving effect to the Related Adjustment, “Pre-Adjustment Successor Rate”):

(x)Term SOFR plus the Related Adjustment; and

(y) SOFR plus the Related Adjustment;

and in the case of clause (iv) above, the Agent and the Borrowers may amend this Agreement solely for the purpose of replacing LIBOR under this Agreement and the Other Agreements in accordance with the definition of “LIBOR Successor Rate” and such amendment will become effective at 5:00 p.m. on the fifth Business Day after the Agent shall have notified Lenders and the Borrowers of the occurrence of the circumstances described in clause (iv) above unless, prior to such time, Requisite Lenders have delivered to the Agent written notice that such Requisite Lenders object to the implementation of a LIBOR Successor Rate pursuant to such clause; provided, that if the Agent determines that Term SOFR has become available, is administratively feasible for the Agent and would have been identified as the Pre-Adjustment Successor Rate in accordance with the foregoing if it had been so available at the time that the LIBOR Successor Rate then in effect was so identified, and notifies the Borrowers and Lenders of such availability, then from and after the beginning of the Interest Period, relevant interest payment date or payment period for interest calculated, in each case, commencing no less than 30 days after the date of such notice, the Pre-Adjustment Successor Rate shall be Term SOFR and the LIBOR Successor Rate shall be Term SOFR plus the relevant Related Adjustment.

The Agent will promptly (in one or more notices) notify the Borrowers and Lenders of (x) any occurrence of any of the events, periods or circumstances under clauses (i) through (iii) above, (y) a LIBOR Replacement Date, and (z) the LIBOR Successor Rate. Any

LIBOR Successor Rate shall be applied in a manner consistent with market practice; provided, that to the extent such market practice is not administratively feasible for the Agent, such LIBOR Successor Rate shall be applied in a manner as otherwise reasonably determined by the Agent. Notwithstanding anything else herein, if at any time any LIBOR Successor Rate as so determined would otherwise be less than 0.5%, the LIBOR Successor Rate will be deemed to be 0.5% for the purposes of this Agreement and the Other Agreements.

In connection with the implementation of a LIBOR Successor Rate, the Agent will have the right to make LIBOR Successor Rate Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any Other Agreement, any amendments implementing such LIBOR Successor Rate Conforming Changes will become effective without any further action or consent of any other party to this Agreement; provided, that with respect to any such amendment effected, the Agent shall post each such amendment implementing such LIBOR Successor Rate Conforming Changes to the Borrowers and Lenders reasonably promptly after such amendment becomes effective.

If events or circumstances of the type described in clauses (i) through (iii) above have occurred with respect to the LIBOR Successor Rate then in effect, then the successor rate thereto shall be determined in accordance with the definition of “LIBOR Successor Rate.”

(e)New Sections 4(f) and 4(g) are hereby added to the Credit Agreement to read as follows:

(f)Notwithstanding anything to the contrary herein, (i) after any such determination by the Agent or receipt by the Agent of any such notice described under Section 4(e)(i) through (iv), as applicable, if the Agent determines that none of the LIBOR Successor Rates is available on or prior to the LIBOR Replacement Date, (ii) if the events or circumstances described in Section 4(e)(iv) have occurred but none of the LIBOR Successor Rates is available, or (iii) if the events or circumstances of the type described in Section 4(e)(i) through (iii) have occurred with respect to the LIBOR Successor Rate then in effect and the Agent determines that none of the LIBOR Successor Rates is available, then in each case, the Agent and the Borrowers may amend this Agreement solely for the purpose of replacing LIBOR or any then current LIBOR Successor Rate in accordance with this Section at the end of any Interest Period, relevant interest payment date or payment period for interest calculated, as applicable, with one or more SOFR-Based Rates or

another alternate benchmark rate giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such alternative benchmarks and, in each case, including any Related Adjustments and any other mathematical or other adjustments to such benchmark giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such benchmarks, which adjustment or method for calculating such adjustment shall be published on an information service as selected by the Agent from time to time in its reasonable discretion and may be periodically updated. For the avoidance of doubt, any such proposed rate and adjustments shall constitute a LIBOR Successor Rate. Any such amendment shall become effective at 5:00 p.m. on the fifth Business Day after the Agent shall have posted such proposed amendment to all Lenders and the Borrowers unless, prior to such time, Requisite Lenders have delivered to the Agent written notice that such Requisite Lenders object to such amendment.

(g)If, at the end of any Interest Period, relevant interest payment date or payment period for interest calculated, no LIBOR Successor Rate has been determined and the circumstances under Section 4(e)(i) or (iii) above exist or the Scheduled Unavailability Date has occurred (as applicable), the Agent will promptly so notify the Borrowers and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain LIBOR Rate Loans shall be suspended (to the extent of the affected LIBOR Rate Loans, Interest Periods, interest payment dates or payment periods), and (y) the LIBOR component shall no longer be utilized in determining the Base Rate, until the LIBOR Successor Rate has been determined in accordance with the terms herein. Upon receipt of such notice, the Borrowers may revoke any pending request for a Borrowing of, conversion to or continuation of LIBOR Rate Loans (to the extent of the affected LIBOR Rate Loans, Interest Periods, interest payment dates or payment periods) or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans (subject to the foregoing clause (y)) in the amount specified therein.

(f)Section 13(b) of the Credit Agreement is hereby amended and restated to read as follows:

(b)Indebtedness. No Borrower shall create, incur, assume or become obligated (directly or indirectly), for any loans or other indebtedness for borrowed money other than the Loans, except that a Borrower may (i) borrow money from a Person other than Agent and Lenders on an unsecured and subordinated basis if a subordination agreement in favor of Agent for its benefit and the benefit of the other Lenders and in form and substance satisfactory

to the Agent is executed and delivered to Agent relative thereto; (ii) maintain its present indebtedness listed on Schedule 11(n) hereto; (iii) incur unsecured indebtedness to trade creditors in the ordinary course of business; (iv) incur purchase money indebtedness or capitalized lease obligations in connection with Capital Expenditures; (v) together with each other Borrower, incur operating lease obligations requiring payments not to exceed Six Million and No/100 Dollars ($6,000,000.00) in the aggregate for all Borrowers during any Fiscal Year of Borrowers; (vi) incur Rate Hedging Obligations; (vii) incur other indebtedness not to exceed $2,500,000 in the aggregate at any time; and (viii) incur additional indebtedness secured solely by real property owned by the Borrower located at 2517 Ellington Road, Quincy, Illinois, 3125 East Thayer Avenue, Bismarck, North Dakota, 3205 E. Thayer Avenue, Bismarck, North Dakota and 1511 Turbine Drive, Rapid City, South Dakota in an aggregate amount not to exceed $6,500,000 at any time.

(g)Section 13(e) of the Credit Agreement is hereby amended by adding the following new paragraph at the end thereof:

Notwithstanding the foregoing, provided that (i) each such dividend payment is permitted under all applicable laws; (ii) no Event of Default shall have occurred prior to, or would occur as a result of, any such dividend payment, the 2021 Special Dividend shall be excluded from the Dividend Limit for the Fiscal Year ended 2021 and not for any other period.

(h)Section 13(f) of the Credit Agreement is hereby amended and restated to read as follows:

(f) Investments; Loans; Transfers. No Borrower shall purchase or otherwise acquire, or contract to purchase or otherwise acquire, the obligations or stock of any Person, other than direct obligations of the United States; nor shall a Borrower lend or otherwise advance funds or transfer any assets to any Person (including, but not limited to, any Subsidiary which is not a Subsidiary Borrower hereunder) (collectively, “Investments”) except for advances made to employees, officers and directors for travel and other expenses arising in the ordinary course of business; provided however, (i) so long as no Event of Default exists or would be caused thereby and (ii) (x) Borrowers have Excess Availability greater than or equal to seventeen and one-half percent (17.5%) of the Maximum Loan Limit on a pro forma basis for the thirty day period immediately prior to and after making any such Investment, or (y) Borrowers have Excess Availability greater than or equal to twelve and one-half percent (12.5%) of the Maximum Loan Limit on a pro forma

basis for the thirty day period immediately prior to and after making such Investment and a pro-forma Fixed Charge Coverage Ratio of 1.00:1.0 prior to and immediately after giving effect to making such Investment, Borrowers may make additional Investments in an amount not to exceed the Dividend Limit less the amount of all regularly scheduled dividends paid during such Fiscal Year, it being understood and agreed that (i) the $3,500,000 loan made by AMCON in Team Sledd, LLC, a Delaware limited liability company, pursuant to its January 3, 2020 Contribution Agreement, shall be excluded for purposes of determining the cap on Borrowers’ ability to make additional Investments, and (ii) the 2021 Special Dividend, shall be excluded from the Dividend Limit for purposes of determining the cap on Borrowers’ ability to make additional Investments.

3.Representations, Covenants and Warranties; No Default. Except for the representations and warranties of the Borrowers made as of a particular date, the representations, covenants and warranties set forth in Sections 11, 12 and 13 of the Credit Agreement shall be deemed remade as of the date hereof by the Borrowers; provided, however, that any and all references to the Credit Agreement in such representations and warranties shall be deemed to include this Amendment. The Borrowers hereby represent, warrant and covenant that after giving effect to the amendments contained in this Amendment, no Default or Event of Default has occurred and is continuing. The Borrowers represent and warrant to Agent and the Lenders that the execution and delivery by each Borrower of this Amendment and the performance by it of the transactions herein contemplated (i) are and will be within its organizational powers, (ii) have been authorized by all necessary organizational action, and (iii) are not and will not be in contravention of any order of any court or other agency of government, of law or any other indenture, agreement or undertaking to which such Borrower is a party or by which the property of such Borrower is bound, or be in conflict with, result in a breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement or undertaking, which conflict could reasonably be expected to have a Material Adverse Effect or result in the imposition of any lien, charge or encumbrance of any nature on any of the properties of such Borrower.

4.Affirmation. Except as specifically amended pursuant to the terms hereof, the Credit Agreement and the Other Agreements (and all covenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by the Borrowers. The Borrowers covenant and agree to comply with all of the terms, covenants and conditions of the Credit Agreement, as amended hereby, notwithstanding any prior course of conduct, waivers, releases or other actions or inactions on Agent’s or any Lender’s part which might otherwise constitute or be construed as a waiver of or amendment to such terms, covenants and conditions. The Borrowers hereby represent and warrant to Agent and Lenders that as of the date hereof, there are no claims, counterclaims, offsets or defenses arising out of or with respect to the Liabilities. Each Borrower hereby confirms its existing grant to Agent of a Lien on and security interest in the Collateral. Each Borrower hereby confirms that all Liens and security interests at any time granted by it to Agent continue in full force and effect and secure and shall continue to secure the Liabilities. Nothing herein contained is intended to in any manner impair

or limit the validity, priority and extent of Agent’s existing security interest in and Liens upon the Collateral.

5.Fees and Expenses. The Borrowers agree to pay on demand all costs and expenses incurred by Agent and the Lenders in connection with the drafting, negotiation, execution and implementation of this Amendment including, but not limited to, the expenses and reasonable fees of counsel for Agent and the Lenders.

6.Closing Documents. This Amendment shall be deemed effective as of the date hereof provided that Borrowers shall deliver to Agent the following documents and/or complete the following requirements (collectively, the “Closing Requirements”) upon execution hereof (in each case in form and substance satisfactory to Agent and the Lenders):

(a)this Amendment executed by the Borrowers and the Agent;

(b)the documents, instruments and agreements set forth on the Closing Checklist attached hereto as Annex 1;

(c)such other documents, instruments, agreements, opinions or certificates as required by Agent.

7.Continuing Effect. Except as otherwise specifically set forth herein, the provisions of the Credit Agreement shall remain in full force and effect.

8.Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Receipt of an executed signature page to this Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof and shall be deemed an original signature hereunder.

9.Organizational Information. The Borrowers hereby represent and warrant to the Agent that, except as otherwise provided in the Secretary’s Certificates of the respective Borrowers delivered to the Agent in partial satisfaction of the Closing Requirements, (a) the formation and organizational documents of each Borrower attached to the Secretary’s Certificate of each Borrower and previously delivered by each such Borrower to the Agent have not been modified or altered in any way (the “Original Certificates”), (b) the officers, members or managers, as applicable, for each such Borrower set forth in the Original Certificates that are authorized to execute documents on behalf of each such Borrower remain duly authorized officers, members or managers of each such Borrower, and (c) the resolutions attached to each such Original Certificate have not been modified, rescinded or altered in any way and are sufficient to authorize the execution and delivery of this Fifth Amendment and the other agreements, documents and instruments executed and delivered in connection herewith.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have duly executed this Fifth Amendment to Second Amended and Restated Loan and Security Agreement as of the date first above written.

BORROWERS:	AMCON DISTRIBUTING COMPANY By: /s/ Charles J. Schmaderer Title: Vice President and Chief Financial Officer
	CHAMBERLIN NATURAL FOODS, INC. By: /s/ Andrew C. Plummer Title: Secretary
	HEALTH FOOD ASSOCIATES, INC. By: /s/ Andrew C. Plummer Title: Secretary
	AMCON ACQUISITION CORP. By: /s/ Andrew C. Plummer Title: President
	EOM ACQUISITION CORP. By: /s/ Andrew C. Plummer Title: Secretary

LENDERS:

BANK OF AMERICA, N.A., as Agent and a Lender

By: /s/ Charles Fairchild
Title: Senior Vice President

Revolving Loan Commitment: $73,333,333.33

BMO HARRIS BANK N.A., as a Lender

By: /s/ Steve Teufel
Title: Vice President

Revolving Loan Commitment: $36,666,666.67

Exhibit 31.1

CERTIFICATION

I, Christopher H. Atayan, certify that:

1. I have reviewed this 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 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:

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;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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 registrants’ fiscal fourth 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):

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

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.

July
Date: January 19, 2021	/s/ Christopher H. Atayan
	Christopher H. Atayan,
	Chief Executive Officer and Chairman

Exhibit 31.2

CERTIFICATION

I, Charles J. Schmaderer, certify that:

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

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 19, 2021

/s/ Charles J. Schmaderer

Charles J. Schmaderer,

Vice President, Chief Financial Officer and Secretary

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, 2020, I, Christopher H. Atayan, Chief Executive Officer and Principal Executive Officer of the Company, hereby certify that, to the best of my knowledge and belief:

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

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

Ju
Date: January 19, 2021	/s/ Christopher H. Atayan
	Christopher H. Atayan
	Title: Chief Executive Officer and Chairman

A signed original of this written statement required by Section 906 has been provided to AMCON Distributing Company and will be retained by AMCON Distributing Company and furnished to the Securities and Exchange Commission or its staff upon request.

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, 2020, I, Charles J. Schmaderer, Vice President, Chief Financial Officer and Secretary of the Company, hereby certify that, to the best of my knowledge and belief:

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

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

Date: January 19, 2021	/s/ Charles J. Schmaderer
	Charles J. Schmaderer
	Title: Vice President, Chief Financial Officer and Secretary