AMCON DISTRIBUTING CO - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended March 31, 2005

OR

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

For the transition period from to

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

AMCON DISTRIBUTING COMPANY
(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of Incorporation)

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

47-0702918
(I.R.S. Employer Identification No.)

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

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

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

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

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

The Registrant had 527,062 shares of its $.01 par value common stock
outstanding as of May 9, 2005.

Form 10-Q
2nd Quarter

INDEX
-------

PAGE
----
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements:
--------------------------------------------
Condensed consolidated unaudited balance sheets at
March 2005 and September 2004 (as restated) 3

Condensed consolidated unaudited statements of operations
for the three and six months ended March 2005 and 2004 4

Condensed consolidated unaudited statements of cash flows
for the six months ended March 2005 and 2004 5

Notes to condensed consolidated unaudited
financial statements 6

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 27

Item 3. Quantitative and Qualitative Disclosures About Market Risk 47

Item 4. Controls and Procedures 47

PART II - OTHER INFORMATION

Item 1. Legal Proceedings 48

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50

Item 3. Defaults Upon Senior Securities 50

Item 4. Submission of Matters to a Vote of Security Holders 50

Item 5. Other Information 51

Item 6. Exhibits 52

2

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Balance Sheets
March 2005 and September 2004
- -------------------------------------------------------------------------------------------------------
March 2005 September 2004
------------ --------------

(As Restated -
See Notes 1 and 9)
ASSETS
Current assets:
Cash $ 575,302 $ 416,073
Accounts receivable, less allowance for doubtful
accounts of $0.6 million, respectively 29,690,797 29,109,826
Inventories 30,304,173 35,088,568
Income tax receivable 957,384 1,162,625
Deferred income taxes 3,729,391 2,548,391
Current assets of discontinued operations 799,600 1,941,950
Other 1,199,903 635,841
------------ ------------
Total current assets 67,256,550 70,903,274

Fixed assets, net 21,023,642 19,951,664
Goodwill 6,915,657 6,449,741
Other intangible assets 12,638,171 13,271,211
Noncurrent assets from discontinued operations 12,508 143,670
Other assets 1,494,754 1,010,303
------------ ------------
$109,341,282 $111,729,863
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 13,173,363 $ 17,180,649
Accrued expenses 4,034,660 3,800,506
Accrued wages, salaries and bonuses 1,432,676 1,365,837
Current liabilities of discontinued operations 1,058,699 2,166,414
Current portion of revolving credit facility 5,000,000 44,809,814
Current portion of long-term debt 5,973,850 5,574,397
Current portion of long-term debt due related party 1,500,000 -
Current portion of subordinated debt 1,076,219 7,876,219
------------ ------------
Total current liabilities 33,249,467 82,773,836
------------ ------------

Revolving credit facility, excluding current portion 44,958,560 -
Deferred income taxes 636,942 593,018
Noncurrent liabilities of discontinued operations 582 3,603
Other long-term liabilities 2,807,000 2,807,000
Long-term debt, less current portion 12,527,541 10,250,154
Minority interest - 97,100

Series A cumulative, convertible preferred stock, $.01 par value
1,000,000 authorized and 100,000 issued, liquidation preference
$25.00 per share 2,438,355 2,438,355
Series B cumulative, convertible preferred stock, $.01 par value
1,000,000 authorized and 80,000 issued, liquidation preference
$25.00 per share 1,857,645 -

Commitments and contingencies

Shareholders' equity:
Common stock, $.01 par value, 3,000,000
shares authorized, 527,062 shares issued 5,271 5,271
Additional paid-in capital 6,218,476 6,218,476
Accumulated other comprehensive income,
net of tax of $0.1 million, respectively 131,566 59,900
Retained earnings 4,509,877 6,483,150
------------ ------------
Total shareholders' equity 10,865,190 12,766,797
------------ ------------
$109,341,282 $111,729,863
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.

3

AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Operations
for the three and six month periods ended March 2005 and 2004
- ---------------------------------------------------------------------------------------------------------
For the three months For the six months
ended March ended March
----------------------------- -----------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------

Sales (including excise taxes of
$45.4 million and $45.6 million, and
$95.0 million and $90.9 million,
respectively) $ 194,047,854 $ 192,971,686 $ 408,434,481 $ 385,543,394

Cost of sales 180,236,017 179,286,827 378,695,256 356,811,791
------------- ------------- ------------- -------------
Gross profit 13,811,837 13,684,859 29,739,225 28,731,603
------------- ------------- ------------- -------------
Selling, general and administrative
expenses 13,727,633 12,610,930 27,551,999 24,785,858
Depreciation and amortization 632,940 554,014 1,295,705 1,106,596
------------- ------------- ------------- -------------
14,360,573 13,164,944 28,847,704 25,892,454
------------- ------------- ------------- -------------
(Loss) income from continuing
operations (548,736) 519,915 891,521 2,839,149
------------- ------------- ------------- -------------
Other expense (income):
Interest expense 897,542 744,012 1,803,743 1,459,638
Other 43,538 (16,649) (15,851) (446,728)
------------- ------------- ------------- -------------
941,080 727,363 1,787,892 1,012,910
------------- ------------- ------------- -------------
(Loss) income from continuing operations
before income taxes (1,489,816) (207,448) (896,371) 1,826,239

Income tax (benefit) expense (565,000) (82,000) (341,000) 662,000

Minority interest in loss, net of tax - - (97,100) -
------------- ------------- ------------ -------------
(Loss) income from continuing operations (924,816) (125,448) (458,271) 1,164,239

Preferred stock dividend requirements (73,239) - (145,720) -
------------- ------------- ------------ -------------
(Loss) income from continuing operations
available to common shareholders (998,055) (125,448) (603,991) 1,164,239

Loss from discontinued operations, net of
income tax benefit of $0.5 million,
$0.6 million, $0.8 million and $1.1 million,
respectively (889,619) (976,301) (1,369,282) (1,751,744)
------------- ------------- ------------- -------------
Net loss available to common shareholders $ (1,887,674) $ (1,101,749) $ (1,973,273) $ (587,505)
============= ============= ============= =============
Basic earnings (loss) per share
available to common shareholders:
Continuing operations $ (1.89) $ (0.24) $ (1.14) $ 2.20
Discontinued operations (1.69) (1.85) (2.60) (3.31)
------------- ------------- ------------- -------------
Basic loss per share available
to common shareholders $ (3.58) $ (2.09) $ (3.74) $ (1.11)
============= ============= ============= =============
Diluted earnings (loss) per share
available to common shareholders:
Continuing operations $ (1.89) $ (0.24) $ (1.14) $ 2.20
Discontinued operations (1.69) (1.85) (2.60) (3.31)
------------- ------------- ------------- -------------
Diluted loss per share available
to common shareholders $ (3.58) $ (2.09) $ (3.74) $ (1.11)
============= ============= ============= =============
Weighted average shares outstanding:

Basic 527,062 528,192 527,062 528,179
Diluted 527,062 528,192 527,062 528,179

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

4

AMCON Distributing Company and Subsidiaries
Condensed Consolidated Unaudited Statements of Cash Flows
for the six month periods ended March 2005 and 2004
- -------------------------------------------------------------------------------
2005 2004
------------ ------------

Cash flows from operating activities:
Net income (loss) from continuing operations
available to common shareholders $ (603,991) $ 1,164,239
Preferred stock dividend requirements 145,720 -
------------ ------------
Net loss before preferred stock dividend requirements (458,271) 1,164,239
Adjustments to reconcile net loss
to net cash flows from operating activities:
Depreciation 1,246,577 1,072,462
Amortization 158,054 90,158
(Gain) loss on sale of fixed assets (5,006) (1,508)
(Gain) loss on sale of securities - (411,643)
Deferred income taxes (1,137,076) (143,515)
Provision for losses on doubtful accounts 253,750 (875)
Provision for losses on inventory obsolescence 144,852 370,677
Minority interest (97,100) -
Changes in assets and liabilities,
net of effect of acquisitions:
Accounts receivable (834,721) 2,257,403
Inventories 4,639,543 3,783,557
Other current assets (492,396) 194,517
Other assets (37,810) 79,004
Accounts payable (4,007,286) 1,812,226
Accrued expenses and accrued wages, salaries and bonuses 300,993 (712,439)
Income tax receivable 205,241 (1,485,036)
------------ ------------
Net cash flows from operating activities - continuing operations (120,656) 8,069,227
Net cash flows from operating activities - discontinued operations (347,156) (2,620,105)
------------ ------------
Net cash flows from operating activities (467,812) 5,449,122

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (2,290,583) (921,108)
Proceeds from sales of fixed assets 77,447 55,700
Proceeds from sale of available-for-sale securities - 457,053
------------ ------------
Net cash flows from investing activities - continuing operations (2,213,136) (408,355)
Net cash flows from investing activities - discontinued operations (21,568) (33,011)
------------ ------------
Net cash flows from investing activities (2,234,704) (441,366)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on bank credit agreements 11,231,414 (4,838,883)
Net proceeds from preferred stock issuance 1,857,645 -
Proceeds from borrowings of long-term debt 2,295,988 -
Payments on long-term debt and subordinated debt (11,593,158) (295,365)
Dividends paid on common stock - (95,044)
Dividends paid on preferred stock (145,720) -
Proceeds from short-term debt 500,000 -
Proceeds from exercise of stock options - 523
Debt issuance costs (446,643) -
------------ ------------
Net cash flows from financing activities - continuing operations 3,699,526 (5,228,769)
Net cash flows from financing activities - discontinued operations (837,781) (1,514)
------------ ------------
Net cash flows from financing activities 2,861,745 (5,230,283)
------------ ------------
Net change in cash 159,229 (222,527)
Cash, beginning of period 416,073 668,073
------------ ------------
Cash, end of period $ 575,302 $ 445,546
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,748,264 $ 1,431,417
Cash paid (refunded) during the period for income taxes (197,425) 1,131,242
Supplemental disclosure of non-cash information:
Acquisition of equipment through capital lease $ 91,343 $ -

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

5

AMCON Distributing Company and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
March 2005 and 2004
- ----------------------------------------------------------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

As more fully described in Note 9, the Company has restated its September
2004 balance sheet in the accompanying condensed consolidated unaudited
financial statements to correct classification errors related to its
Preferred Stock and revolving credit facility discussed in Notes 3 and 8,
respectively. In addition, as more fully described in Note 2, the Company
discontinued the operations of its beverage marketing and distribution
business effective March 31, 2005. As a result, the September 2004 balance
sheet and fiscal 2004 statement of operations and statement of cash flows
have been prepared reflecting this disposition as discontinued operations in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 146
"Accounting for Costs Associated with Exit or Disposal Activities."

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

The accompanying unaudited condensed consolidated financial statements
include the accounts of AMCON Distributing Company and its subsidiaries
("AMCON" or the "Company"). As a result of its 85% ownership in Trinity
Springs, Inc. ("TSI"), the Company has included the operating results of TSI
in the accompanying consolidated financial statements since the date of
acquisition (June 17, 2004) and has presented the 15% non-owned interest in
this subsidiary as a minority interest. During the first quarter of fiscal
2005, the Company suspended the allocation of TSI's losses to minority
shareholders once their basis was reduced to zero because the minority
shareholders have not guaranteed TSI debt or committed additional capital to
TSI.

All significant intercompany transactions and balances have been eliminated
in consolidation. Certain information and footnote disclosures normally
included in our annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. In
the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to fairly present the
financial information included therein, such adjustments consisting of normal
recurring items. The Company believes that, although the disclosures are
adequate to prevent the information presented from being misleading, these
condensed consolidated financial statements should be read in conjunction
with the Company's annual audited consolidated financial statements for the
year ended September 24, 2004, as filed with the Securities and Exchange
Commission on Form 10-K ("2004 Annual Report") on January 7, 2005.

AMCON's fiscal second quarters ended on March 31, 2005 and March 26, 2004.
For convenience, the fiscal second quarters of 2005 and 2004 have been
indicated as March 2005 and 2004, respectively. During the first quarter of
fiscal 2005, the Company changed its reporting period from a 52-53 week year
ending on the last Friday in September to a calendar month reporting period
ending on September 30. As a result of this change, the first six months

6

of fiscal 2005 comprised 27 weeks of operations as compared to 26 weeks of
operations for the first six months of fiscal 2004. The additional week of
operations recorded in the first six months of fiscal 2005 increased sales,
gross profit and net income by approximately $14.4 million, $0.8 million and
$0.1 million, respectively.

During fiscal 2004, the shareholders approved a one-for-six reverse stock
split of the outstanding shares of its common stock. On May 14, 2004, the
Company effected the reverse stock split and those shareholders who held
fewer than six shares of AMCON's common stock immediately prior to the
reverse stock split received a cash payment in exchange for their shares.
All common stock shares and per share data (except par value) for all periods
presented have been adjusted to reflect the reverse stock split.

Stock-based Compensation
- ------------------------
Prior to its expiration in June 2004, AMCON maintained a stock-based
compensation plan which provided that the Compensation Committee of the Board
of Directors granted incentive stock options and non-qualified stock options.
AMCON accounted for these stock option grants in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" using the intrinsic value method under which compensation cost was
measured by the excess, if any, of the fair market value of its common stock
on the date of grant over the exercise price of the stock option.
Accordingly, stock-based compensation cost related to stock option grants was
not reflected in income or loss as all options granted under the plan had an
exercise price equal to or above the market value of the underlying stock on
the date of grant.

The following table illustrates the required pro forma effect on income
(loss) and earnings (loss) available to common shareholders and the
associated per share amounts assuming the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" to stock-based employee compensation:

For the three months For the six months
ended March ended March
------------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------

(Loss) earnings
- -------------------------

Loss available to common
shareholders, as reported $(1,887,674) $(1,101,749) $(1,973,273) $ (587,505)

Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of
related tax effects (14,008) (15,303) (28,016) (30,606)
----------- ----------- ----------- -----------
Pro forma loss available to common
shareholders $(1,901,682) $(1,117,052) $(2,001,289) $ (618,111)
=========== =========== =========== ===========

7

Loss per share
- -------------------------

As reported: Basic $ (3.58) $ (2.09) $ (3.74) $ (1.11)
=========== =========== =========== ===========
Diluted $ (3.58) $ (2.09) $ (3.74) $ (1.11)
=========== =========== =========== ===========
Pro forma: Basic $ (3.61) $ (2.11) $ (3.80) $ (1.17)
=========== =========== =========== ===========
Diluted $ (3.61) $ (2.11) $ (3.80) $ (1.17)
=========== =========== =========== ===========

Related Party Transactions
- --------------------------
In December 2004, a director of the Company extended a revolving credit
facility to TSI in a principal amount up to $1.0 million at an interest rate
of 8% per annum. The entire $1.0 million is outstanding at March 31, 2005.
To induce the director to extend this loan to TSI, the Company agreed to
allow the director to receive a second mortgage on TSI's real property on an
equal basis with the Company's existing second mortgage on TSI's real
property.

Additionally, on March 30, 2005, a Company that is wholly-owned by three of
the Company's directors (including the Chairman and the President) and
another significant shareholder of the Company extended $0.5 million to TSI
under a promissory note due on or before June 15, 2005. The note bears
interest at 7% per annum. The promissory note was intended to serve as an
interim loan until the negotiations with the bank were completed so that TSI
would be included as a borrower on the New Facility described in Note 8.

Interest on these notes that accrued, but remain unpaid until the notes come
due for Q2 2005 and the first six months of fiscal 2005, was $16,822 and
$18,685, respectively.

2. ACQUISITIONS AND DISPOSITIONS OF BUSINESSES

ACQUISITIONS

Trinity Springs, Inc.
- ---------------------
On June 17, 2004, a newly formed subsidiary of AMCON, TSL Acquisition Corp.,
acquired the tradename, water source, customer list and substantially all of
the operating assets of Trinity Springs, Ltd. (the "Seller," which
subsequently changed its name to Crystal Paradise Holdings, Inc.), a bottler
of geothermal bottled water and a natural mineral supplement. TSL
Acquisition Corp. subsequently changed its name to TSI and continues to
operate under that name.

The total purchase price of $8.8 million was paid through a combination of
$2.3 million in cash, $3.3 million in notes which were issued by TSI and
guaranteed by AMCON; the assumption of approximately $0.2 million of
liabilities and the issuance of TSI common stock representing 15% ownership
of TSI which had an estimated fair value of $0.2 million. The TSI common
stock is convertible into 16,666 shares of AMCON common stock at the option
of the Seller. Additionally, the conversion option had an estimated fair
value of $0.2 million. Included in the $2.3 million paid in cash are

8
transaction costs totaling approximately $0.8 million that were incurred to
complete the acquisition and consists primarily of fees and expenses for
attorneys and investment bankers. In addition, TSI will pay an annual water
royalty to the Seller, in perpetuity, in an amount equal to the greater of
$0.03 per liter of water extracted from the source or 4% of water revenues
(as defined by the purchase agreement) which is guaranteed by AMCON up to a
maximum of $5 million, subject to a floor of $206,400 for the first year and
$288,000 annually thereafter. The Company has recorded a $2.8 million
liability for the present value of future minimum water royalty payments and
related brokers fees to be paid in perpetuity. The discount rate utilized by
the Company to determine the present value of the future minimum water
royalty was based on a weighted average cost of capital which incorporated
the Company's equity discount rate, dividend rate on the Series A Convertible
Preferred Stock and the Company's average borrowing rate for all outstanding
debt.

The promissory notes referred to above and the water royalty are secured by a
first priority security and mortgage on the acquired assets, other than
inventory and accounts receivable. The Seller retains the right to receive
any water royalty payment for the first five years in shares of AMCON common
stock up to a maximum of 41,666 shares. The water royalty can be cancelled
after ten years have elapsed following the closing of the sale of assets of
TSI, or if the business of TSI is sold to an unaffiliated third party, in
which case the Seller would be entitled to receive the appraised fair market
value of the water royalty but not less than $5 million. The Company's
Chairman has, in turn, guaranteed AMCON for these payments as well as the
promissory notes referred to above.

The acquisition has been recorded on the Company's books using the purchase
method of accounting. The purchase price was allocated to the assets
acquired and liabilities assumed based on their fair values.

The initial purchase price allocation performed in the third quarter of
fiscal 2004 was based on management's internal preliminary allocation and
resulted in an estimated purchase price of approximately $11.1 million, with
approximately $7.8 million of the purchase price being allocated to
intangible assets, including customer list, the Trinity tradename and the
water source. Subsequently, the Company engaged an independent valuation
firm to further analyze the transaction and based on preliminary input from
the independent valuation firm, the amount of purchase price was reduced from
$11.1 million to $8.8 million based on reassessment of the future water
royalty obligation and related brokers fees and the weighted average cost of
capital rate applied to the payment stream in perpetuity. Accordingly, the
amount allocated to intangible assets was also reduced from $7.8 million to
$5.5 million. During Q2 2005, the valuation of the identifiable intangible
assets was completed and an adjustment of the purchase price was recorded.
The results of the completed valuation report did not change the overall
purchase price, but rather a change in the allocation of the purchase price
amongst the identifiable intangible assets and goodwill.

The following table summarizes the fair values of the assets acquired and
liabilities assumed at the date of acquisition (June 2004) and subsequent
purchase price allocations (in millions):

9

June September March
2004 2004 2005
---------- ---------- ----------

Current assets $ 0.5 $ 0.5 $ 0.5
Fixed assets 3.0 3.0 3.0
Tradename 2.3 2.3 0.9
Water source 5.1 2.8 3.7
Customer list 0.4 0.4 0.4
Goodwill - - 0.5
---------- ---------- ----------
Total assets acquired 11.3 9.0 9.0
---------- ---------- ----------
Current liabilities 0.2 0.2 0.2
---------- ---------- ----------
Total liabilities acquired 0.2 0.2 0.2
---------- ---------- ----------
Net assets acquired $ 11.1 $ 8.8 $ 8.8
========== ========== ==========

The unique water source acquired as part of the transaction represents an
intangible asset that was originally assigned a preliminary value of $2.8
million. The independent third party valuation of this intangible asset
assigned a value of approximately $3.7 million. Additionally, the Company
acquired the Trinity tradename and assigned a preliminary value of $2.3
million to this intangible asset. The final valuation report indicated the
fair value of this intangible asset was $0.9 million. Since both the water
source and the Trinity tradename have indefinite lives, as does goodwill, the
assets are not amortized. Therefore, the completion of the independent
valuation in the allocation of purchase price from water source or tradename
to goodwill does not impact operating income (loss). Additionally, the
Company has assigned a value of $0.4 million to a customer list which will be
amortized over a five year period.

Assuming the above acquisition had hypothetically occurred on the first day
of fiscal 2004 (September 27, 2003) unaudited pro forma consolidated sales,
income from continuing operations, net (loss) income available to common
shareholders and the related per share amounts would have been as follows:

For the three months For the six months
ended March 2004 ended March 2004
-------------------- --------------------

Sales $ 193,993,109 $ 387,490,264
(Loss) income from continuing
operations (33,047) 1,440,122
Net (loss) income available to
common shareholders (2,624,802) (2,199,836)
Loss per share:
Basic $ (4.97) $ (4.16)
Diluted $ (4.97) $ (4.16)

10

Nesco Hawaii
- ------------
On July 1, 2004, the Company's water bottling subsidiary in Hawaii entered
into an agreement to acquire certain water bottling assets and liabilities
from a water bottling company on the island of Oahu in Hawaii ("Nesco
Hawaii") for $0.5 million in cash, and $0.7 million in notes and the
assumption of $0.1 million of liabilities. The acquisition has been recorded
on the Company's books using the purchase method of accounting. The purchase
price was allocated to the assets acquired and liabilities assumed based on
their estimated fair values. The allocation of the purchase price is as
follows:

At July 1, 2004
(Dollars in millions)
----------------------------------------
Current assets $ 0.1
Fixed assets 0.5
Intangible assets 0.7
------
Total assets acquired 1.3
------
Current liabilities 0.1
------
Total liabilities assumed 0.1
------
Net assets acquired $ 1.2
======

The portion of the purchase price in excess of the estimated fair value of
the net assets acquired to be allocated to identifiable intangible assets is
approximately $0.7 million. The identifiable intangible assets consist of
tradenames and a customer list. The tradenames of $0.1 million have
indefinite lives and therefore are not amortized. The customer list of $0.2
million is amortized over a five year period. The remaining portion of the
excess purchase price allocated to goodwill was $0.4 million. Proforma
information is not presented due to the insignificance of the acquisition.

DISPOSITIONS

The Beverage Group, Inc.
- ------------------------
Effective March 31, 2005, the Company's subsidiary, The Beverage Group, Inc.
("TBG") which represented the beverage marketing and distribution component
of the beverage segment, ceased on-going operations due to recurring losses
since its December 2002 inception. All TBG employees were terminated
effective March 31, 2005 and the Company outsourced various responsibilities
in order to maximize the value of the assets by collecting receivables and
evaluating its payables. In addition, management is working to sell the
remaining TBG inventory to unrelated beverage companies, distributors or
liquidators. Our water bottling manufacturing subsidiaries in Hawaii (HNWC)
and Idaho (TSI), which are also part of the beverage segment, remain
unaffected.

In March 2005, a charge included in loss from discontinued operations
totaling $0.8 million was incurred to adjust the allowance for bad debts and
inventory reserve to their net realizable values and to write off fixed
assets. In addition, in accordance with SFAS No. 146 "Accounting for Costs

11
Associated with Exit or Disposal Activities" management has accrued one-time
termination benefits and rent and related expenses associated with the
remaining lease commitment on the office lease totaling less than $0.1
million. This lease will provide no future economic benefit to the Company.
The Company is actively seeking tenants to assume the office lease for the
remainder of the lease term which ends August 31, 2006. Any differences
between these expense estimates and their actual settlement will be recorded
when incurred and will change the loss accordingly.

This transaction has been reflected as discontinued operations in the
condensed consolidated unaudited financial statements in accordance with SFAS
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
because it represents a component of an entity in which the operations and
cash flows have (or will be) eliminated from the ongoing operations and the
Company will not have any significant continuing involvement in the
operations of TBG.

Sales from the discontinued operations, which have been excluded from income
(loss) from continuing operations in the accompanying condensed consolidated
unaudited statements of operations for the three and six month periods ended
March 31, 2005 and 2004, are presented below. The effects of the
discontinued operations on net (loss) income available to common shareholders
and per share data are reflected within the accompanying condensed
consolidated unaudited statements of operations.

The carrying amount of the major classes of assets and liabilities that are
included in the disposal group are as follows (in millions):

12
3. CONVERTIBLE PREFERRED STOCK

In October 2004, the Company issued $2.0 million of Series B Convertible
Preferred Stock ("Series B Preferred") representing 80,000 shares at a
purchase price of $25.00 per share (the "Liquidation Preference"). The
Series B Preferred is convertible at any time by the holders into a number of
shares of AMCON common stock equal to the number of Preferred Shares being
converted times a fraction equal to $25.00 divided by the conversion price.
The conversion price is initially $24.65 per share, but is subject to
customary adjustments in the event of stock splits, stock dividends and
certain other distributions on the Common Stock. Cumulative dividends on the
Series B Preferred are payable at a rate of 6.37% per annum and are payable
in arrears, when, as and if declared by the Board of Directors, on March 31,
June 30, September 30 and December 31 of each year. In the event of a
liquidation of the Company, the holders of the Series B Preferred Stock are
entitled to receive the Liquidation Preference plus any accrued and unpaid
dividends prior to the distribution of any amount to the holders of the
Common Stock. The Series B Preferred also contains redemption features in
certain circumstances such as a change of control, minimum thresholds of
ownership by the Chairman and his family in AMCON, or bankruptcy. Finally,
the Series B Preferred are optionally redeemable by the Company beginning
October 8, 2006 at a redemption price equal to 112% of the Liquidation
Preference. The redemption price decreases 1% annually thereafter until
October 8, 2018, after which date it remains the Liquidation Preference.

In addition, the Company has Series A Convertible Preferred Stock ("Series A
Preferred") outstanding as of March 2005 that was issued during fiscal 2004.
The Series A Preferred generated gross proceeds of $2.5 million and consisted
of 100,000 Series A shares. All terms of the Series A Preferred are the same
as Series B Preferred except for the dividend rate which is 6.785% for Series
A, the conversion price which is $30.31 per share for Series A and the Series
A is optionally redeemable by the Company beginning June 17, 2006.

The Company believes that redemption of these securities by the holders is
not probable based on the following evaluation. As shown in the table under
the caption "Ownership of Our Common Stock By Our Directors And Executive
Officers And Other Principal Stockholder," in our proxy statement, our
executive officers and directors as a group own approximately 64% of the
outstanding common stock. Mr. William Wright, who has been AMCON's Chairman
of the Board and Chief Executive Officer from the time AMCON was originally
founded, beneficially owns 31% of the outstanding common stock without giving
effect to shares owned by his adult children. There is an identity of
interest among AMCON and its officers and directors for purposes of the
determination of whether the triggering redemption events described above are
within the control of AMCON since AMCON can only make decisions on control or
other matters through those persons. Moreover, the Series A Preferred Stock
is owned by Mr. Wright and a private equity firm of which Mr. Petersen, one
of our long-standing directors, is a large owner. In addition, the Series B
Preferred Stock is owned by an institutional investor which has elected its
representative to AMCON's Board of Directors pursuant to voting rights in the
Certificate of Designation creating the Series B Preferred Stock. The Series
A and Series B Preferred Stock is thus in friendly hands with no expectation
that there would be any effort by the holders of such preferred stock to seek
optional redemption without the Board being supportive of the events that may
trigger that right. In view of the foregoing, the Company believes that it
is not probable under Rule 5-02.28 of Regulation S-X that either Series A or

13

Series B Preferred Stock will become redeemable in the future as a result of
redemption features described above.

As discussed in Note 9, these financial instruments have been reclassified as
mezzanine financing between long-term debt and shareholders' equity in the
balance sheets.

4. INVENTORIES

Inventories consisted of the following at March 2005 and September 2004:

March September
2005 2004
------------ ------------
Finished goods $ 34,300,761 $ 38,194,478
Raw materials 1,207,209 926,237
LIFO reserve (5,203,797) (4,032,147)
------------ ------------
$ 30,304,173 $ 35,088,568
============ ============

The wholesale distribution and retail health food segment inventories consist
of finished products purchased in bulk quantities to be redistributed to the
Company's customers or sold at retail. The wholesale distribution
operation's inventories are stated at the lower of cost (last-in, first-out
or "LIFO" method) or market and consists of the cost of finished goods. The
retail health food operation utilizes the retail inventory method of
accounting stated at the lower of cost (LIFO) or market and consists of the
costs of finished goods. The beverage operation's inventories are stated at
the lower of cost (LIFO) or market and consist of raw materials and finished
goods. The beverage operation's finished goods inventory includes raw
materials, related plant labor and manufacturing overhead costs to convert
raw materials to finished goods. Raw materials inventory consists of pre-
forms used to make bottles, caps, labels and various packaging and shipping
materials. The LIFO reserve at March 2005 and September 2004 represents the
amount by which LIFO inventories were less than the amount of such
inventories valued on a first-in, first-out basis, respectively. An
allowance for obsolete inventory is maintained in the retail health food and
beverage segments to reflect the expected unsaleable or non-refundable
inventory based on evaluation of slow moving and discontinued products.

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill by reporting segment was as follows:

March September
2005 2004
------------ ------------

Wholesale $ 3,935,931 $ 3,935,931
Retail 2,155,465 2,155,465
Beverage 824,261 358,345
------------ ------------
$ 6,915,657 $ 6,449,741
============ ============

14

Other intangible assets at March 2005 and September 2004 consisted of the
following:

March September
2005 2004
------------ ------------

Trademarks and tradenames $ 8,362,535 $ 9,680,521
Water source 3,650,000 2,807,000
Covenants not to compete (less accumulated
amortization of $902,142 and $843,528) 18,084 76,698
Favorable leases (less accumulated
amortization of $359,869 and $340,003) 126,131 145,997
Customer lists (less accumulated
amortization of ($105,859 and $26,285) 481,421 560,995
------------ ------------
$ 12,638,171 $ 13,271,211
============ ============

Trademarks, tradenames and the water source are considered to have indefinite
useful lives, therefore, no amortization is taken on these assets. Impairment
of the reporting units carrying these assets is evaluated annually in the
Company's fourth fiscal quarter in order to coincide with its budgeting
process, unless circumstances dictate earlier evaluation is necessary.
Should forecasted financial results not be achieved, impairment of these
assets may be required. As described in Note 2, the Company received the
final independent third party valuation on TSI's identifiable intangible
assets and has adjusted the allocation of the purchase price accordingly.

Amortization expense for the intangible assets that are considered to have
finite lives was $97,118 and $44,241 and $158,054 and $90,158 for the three
and six months ended March 2005 and 2004, respectively.

Amortization expense related to the amortizing intangible assets held at
March 2005 for each of the five years subsequent to September 2004 is
estimated to be as follows:

Fiscal Fiscal Fiscal Fiscal Fiscal
2005/1/ 2006 2007 2008 2009
--------- --------- -------- -------- --------

Covenants not to compete $ 18,000 $ - $ - $ - $ -
Favorable leases 20,000 40,000 40,000 26,000 -
Customer lists 55,000 117,000 117,000 117,000 92,000
--------- --------- -------- -------- --------
$ 93,000 $ 157,000 $157,000 $143,000 $ 92,000
========= ========= ======== ======== ========

/1/ Fiscal 2005 amortization represents amortization of amortizable
intangible assets for the remaining six months of Fiscal 2005.

15

6. EARNINGS (LOSS) PER SHARE

Basic (loss) earnings per share available to common shareholders is
calculated by dividing (loss) income available to common shareholders by the
weighted average common shares outstanding for each period. Diluted earnings
per share is calculated by dividing (loss) income available to common
shareholders by the sum of the weighted average common shares outstanding and
the weighted average dilutive options, using the treasury stock method.
Stock options and potential common stock outstanding at March 2005 and 2004
that were anti-dilutive were not included in the computations of diluted
earnings per share. Such potential common shares totaled 194,195 with an
average exercise price of $29.32 for the three and six months ended March
2005 and 31,440 with an average exercise price of $39.75 for the three and
six months ended March 2004.

For the three-month period ended March
-------------------------------------------------------
2005 2004
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------

1. Weighted average common
shares outstanding 527,062 527,062 528,192 528,192

2. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock /1/ - - - -

----------- ----------- ----------- -----------
4. Weighted average number of
shares outstanding 527,062 527,062 528,192 528,192
=========== =========== =========== ===========

5. (Loss) income from continuing
operations available to common
shareholders $ (998,055) $ (998,055) $ (125,448) $ (125,448)
=========== =========== =========== ===========

6. Loss from discontinued operations $ (889,619) $ (889,619) $ (976,301) $ (976,301)
=========== =========== =========== ===========

7. (Loss) income available to
common shareholders $(1,887,674) $(1,887,674) $(1,101,749) $(1,101,749)
=========== =========== =========== ===========
8. (Loss) earnings per share available
to common shareholders from
continuing operations $ (1.89) $ (1.89) $ (0.24) $ (0.24)
=========== =========== =========== ===========
9. (Loss) earnings per share available
to common shareholders from
discontinued operations $ (1.69) $ (1.69) $ (1.85) $ (1.85)
=========== =========== =========== ===========
10.(Loss) per share available to
common shareholders $ (3.58) $ (3.58) $ (2.09) $ (2.09)
=========== =========== =========== ===========

16

For the six-month period ended March
-------------------------------------------------------
2005 2004
------------------------- -------------------------
Basic Diluted Basic Diluted
----------- ----------- ----------- -----------

1. Weighted average common
shares outstanding 527,062 527,062 528,179 528,179

2. Weighted average of net
additional shares outstanding
assuming dilutive options and
warrants exercised and proceeds
used to purchase treasury stock /1/ - - - -
----------- ----------- ----------- -----------

4. Weighted average number of
shares outstanding 527,062 527,062 528,179 528,179
=========== =========== =========== ===========

5. (Loss) income from continuing
operations available to common
shareholders $ (603,991) $ (603,991) $ 1,164,239 $ 1,164,239
=========== =========== =========== ===========

6. Loss from discontinued operations $(1,369,282) $(1,369,282) $(1,751,744) $(1,751,744)
=========== =========== =========== ===========

7. (Loss) income available to
common shareholders $(1,973,273) $(1,973,273) $ (587,505) $ (587,505)
=========== =========== =========== ===========

8. (Loss) earnings per share available
to common shareholders from
continuing operations $ (1.14) $ (1.14) $ 2.20 $ 2.20
=========== =========== =========== ===========

9. (Loss) earnings per share available
to common shareholders from
discontinued operations $ (2.60) $ (2.60) $ (3.31) $ (3.31)
=========== =========== =========== ===========

10.(Loss) per share available to
common shareholders $ (3.74) $ (3.74) $ (1.11) $ (1.11)
=========== =========== =========== ===========

/1/ Weighted average of net additional shares not included as such
shares are anti-dilutive due to the net losses incurred during the periods.

7. COMPREHENSIVE INCOME (LOSS)

The following is a reconciliation of (loss) income available to common
shareholders per the accompanying condensed consolidated unaudited statements
of operations to comprehensive income for the periods indicated:

17

For the three months For the six months
ended March ended March
------------------------- -------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------

(Loss) income available to common
shareholders $(1,887,674) $(1,101,749) $(1,973,273) $ (587,505)

Other comprehensive income (loss):
Unrealized holding gains (loss) from
investments arising during the
period, net of income tax expense
(benefit) of $0 and $(2,000)
for the three months ended March
2005 and 2004 and $0 and
$3,000 for the six months ended
March 2005 and 2004, respectively - (3,255) - 4,216

Reclassification adjustments for
gains included in net income in
prior periods, net of income tax
expense of $0 for the three months
ended March 2005 and 2004 and $0
and $145,000 for the six months ended
March 2005 and 2004, respectively - - - (236,741)

Interest rate swap valuation
adjustment, net of income tax
benefit of $19,000 and $33,000
for the three ended March 2005 and
2004 and $44,000 and $1,000 for
six months ended March 31, 2005
and 2004, respectively 31,243 (53,233) 71,666 (2,531)
----------- ----------- ----------- ----------
Comprehensive loss $(1,856,431) $(1,158,237) $(1,901,607) $ (822,561)
=========== =========== =========== ==========

The accumulated balances for each classification of accumulated comprehensive
income (loss) is as follows:

Unrealized Interest Accumulated
gains on rate swap Other
securities mark-to Comprehensive
-market Income
-------------------------------------------

Balance, September 24, 2004 $ 2,638 $ 57,262 $ 59,900
Current period change - 71,666 71,666
--------- --------- ----------
Balance, March 31, 2005 $ 2,638 $ 128,928 $ 131,566
========= ========= ==========

8. DEBT

CREDIT AGREEMENT
- ----------------
In October 2004, the Company refinanced its existing credit agreement. The
amended credit agreement (the "New Facility") provides for a $55.0 million
credit limit consisting of a $53.8 million revolving credit line and a $1.2

18
million term note ("Term Note A"). As payments are made on Term Note A, the
revolving credit limit increases accordingly to a maximum of $55.0 million.
At March 31, 2005, the credit limit on the New Facility was $53.9 million.
In addition, the New Facility provided for a separate term loan in the amount
of $5.0 million ("Term Note B").

Prior to May 23, 2005, the New Facility required that the Company maintain a
mandatory lock-box arrangement whereby remittances from the Company's
customers reduced the borrowings outstanding under the facility. The credit
agreement also contains a "material adverse change" clause that allowed for
the bank, in its sole judgment, to constitute an event of default should
there be a "material adverse change" that causes a "material adverse effect"
to any of the Company's collateral, business, property, assets, prospects,
operations or condition, financial or otherwise.

The Company's credit agreement does not expire or have a maturity date within
one year, but rather has a final expiration date in April 2007. However, EITF
95-22, "Balance Sheet Classification of Borrowings Outstanding under
Revolving Credit Agreements that Include both a Subjective Acceleration
Clause and a Lock-Box Arrangement," requires borrowings under credit
agreements with those two provisions to be classified as current liabilities.

As a result, as discussed in Note 9, the Company has restated the September
2004 and December 2004 balance sheets to reclassify the borrowings under the
credit agreement, which were previously reported as a non-current liability,
as a current liability. On May 23, 2005, the Company completed an amendment
to the New Facility to provide for a "springing" lock-box arrangement. Under
this arrangement, the Company now maintains a lock-box from which it may
apply cash receipts to any corporate purpose so long as it is not in default
under its credit agreement. The bank maintains a security interest in the
Company's lock-box and, upon the occurrence of the foregoing triggering
events, may redirect funds from the lock-box to a loan account in the name of
the lenders on a daily basis and apply the funds against the revolving loan
balance. Effective with the amendment, the Company has classified the
outstanding borrowings under the credit facility as long-term liabilities as
of March 31, 2005, except for the balance expected to be paid down in the
next twelve months.

The New Facility with LaSalle Bank extends the credit agreement through April
2007 and retains many of the previous facility's terms including lending
limits subject to accounts receivable and inventory limitations, an unused
commitment fee and financial covenants. The significant changes under the
New Facility are as follows:

- Inclusion of the subsidiaries, except TSI, as borrowers. In April 2005,
the New Facility was amended to include TSI as a borrower.

- Inclusion of Term Note A within the $55.0 million revolving limit that
is amortized in equal monthly installments over 60 months.

- Replacement of the LIBOR interest rate borrowing option (LIBOR plus
2.50%) on the revolving portion of the New Facility and the $1.2 million
term loan with the bank's base rate, except for $15.0 million of
the new facility that corresponds with the Company's existing interest
rate swap agreements which will remain at LIBOR plus 2.50%.

19

- Inclusion of a fixed charge coverage ratio of 0.8 to 1.0 through June
2005 and 1.0 to 1.0 thereafter, in lieu of a debt service coverage
ratio. In Q2 2005, the fixed charge coverage ratio was decreased to 0.7
to 1.0 effective December 2004.

- Amendment of the definition of minimum tangible net worth and reduction
of the minimum tangible net worth requirement to $3.0 million through
June 2005. In Q2 2005, the minimum tangible net worth requirement was
decreased to $1.5 million through September 2005 and $2.5 million
thereafter, effective December 2004.

- Inclusion of a prepayment penalty of $0.6 million and $0.3 million
should the loans be paid off prior to September 30, 2005 and September
30, 2006, respectively.

The Company's New Facility, including Term Note A, maintains the maximum
borrowing limit at $55.0 million, subject to eligible accounts receivable and
inventory requirements. As of March 2005, the outstanding balance on the New
Facility was $51.0 million, including Term Note A. The New Facility bears
interest at the bank's base rate, which was 5.75% at March 2005. The Company
is required to pay an unused commitment fee equal to 0.25% per annum on the
difference between the maximum loan limit and the average monthly borrowing
for the month. The New Facility is collateralized by all of the Company's
equipment, intangibles, inventories, and accounts receivable, except those
held by TSI.

The outstanding balance on Term Note B was $5.0 million at March 2005. It
bears interest at the bank's base rate, plus 2.0%, which was 7.75% at March
2005 and is payable in equal monthly installments of $0.3 million beginning
May 1, 2005.

The Company's Chairman has personally guaranteed repayment of up to $10.0
million of the combined amount of the New Facility and the term loans. AMCON
will pay the Company's Chairman an annual fee equal to 2% of the guaranteed
principal then outstanding in return for the personal guarantee. This
guarantee is secured by a pledge of the shares of Chamberlin Natural Foods,
Inc., Health Food Associates, Inc., HNWC and TSI.

At March 31, 2005, the Company had minimum tangible net worth, as defined by
the New Facility of $1.7 million and was in compliance with the minimum
tangible net worth covenant, as amended, and expects to be in compliance for
the remainder of fiscal 2005. However, the Company's minimum fixed charge
ratio of 0.61 at March 31, 2005 was not in compliance with the minimum fixed
charge coverage ratio of 0.7, as amended. As set forth in the loan
agreement, the failure to comply with the minimum fixed charge coverage ratio
shall not constitute an Event of Default so long as AMCON has sufficient
aggregate availability on the revolving credit facility to institute a
reserve in an amount equal to the difference between AMCON's calculated fixed
charge coverage ratio and the minimum fixed charge coverage ratio. At March
31, 2005, the amount necessary to attain compliance with the fixed charge
coverage ratio was approximately $0.4 million. Availability under the
revolver will be reduced by this amount until such time as the Company
reports a fixed charge ratio of 0.7 or greater, which management expects to
occur in Q3 2005.

20

TSI FINANCING
- -------------
In December 2004, a director of the Company extended a revolving credit
facility to TSI in a principal amount of up to $1.0 million at an interest
rate of 8.0% per annum with an initial advance of $0.5 million during Q1
2005. To induce the director to extend this loan to TSI, the Company agreed
to allow the director to receive a second mortgage on TSI's real property on
an equal basis with the Company's existing second mortgage on TSI's real
property. The revolving credit line matures on December 14, 2005 at which
time principal and accrued interest will be due.

Additionally, on March 30, 2005, an affiliated Company that is wholly-owned
by three of the Company's directors (including the Chairman and the
President) and another significant shareholder of the Company extended $0.5
million to TSI under a promissory note due on or before June 15, 2005. The
note bears interest at 7% per annum. The promissory note was intended to
serve as an interim loan until negotiations with the bank were completed so
that TSI would be included as a borrower on the New Facility which occurred
in April 2005.

CONSTRUCTION FINANCING
- ----------------------
In December 2004, the Company purchased a building in order to relocate its
distribution facility in Rapid City, South Dakota and began construction of
an addition to the building. The lease on the existing Rapid City facility
was extended through April 2005 to coincide with the completion of
construction. The Company expects capital expenditures relating to the
building, construction of the addition and related equipment purchases to be
approximately $1.8 million.

At March 2005, the Company had borrowed $1.0 million from a bank to finance
the purchase of the building and the construction of the addition to the
building. The terms of repayment are interest only through July 31, 2005 and
then payable in 54 equal monthly installments of principal of $4,100 based on
a twenty year amortization schedule plus interest with the entire remaining
principal due and payable on December 31, 2009. The interest rate is 6.33%.

The Company also arranged the financing with the same bank of certain
equipment expenditures totaling $0.5 million, of which the Company had
borrowed $0.3 million at March 2005. The additional $0.2 million of funds are
expected to be borrowed in the third quarter of fiscal 2005 as the Company
completes the equipment expenditures and begins operating out of the new
distribution center. Payments are due in 60 equal monthly installments of
principal of $8,000, plus interest beginning April 1, 2005. The interest
rate is 6.33%.

INTEREST RATE SWAPS
- -------------------
The Company hedges its variable rate risk on $15.0 million of its borrowings
under the New Facility by utilizing interest rate swap agreements. The
variable interest payable on this amount is subject to interest rate swap
agreements which have the effect of converting this amount to fixed rates
ranging between 4.38% and 4.87%.

21

9. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the issuance of its Form 10-K for the year ended September 24,
2004, management and the Company's Audit Committee determined that the
Company would restate its balance sheets as of September 24, 2004 and as of
December 31, 2004 to reflect (i) a correction in the classification of Series
A (issued in June 2004) and Series B (issued in October 2004) Preferred Stock
from permanent equity to mezzanine financing, and (ii) a correction in the
classification of its revolving credit facility from long-term to short-term
debt. The balance sheets as of September 24, 2004 and December 31, 2004 will
be restated on Forms 10-K/A and 10-Q/A, respectively, and will be filed with
the Securities and Exchange Commission as soon as practicable.

Under Emerging Issue Task Force ("EITF") D-98 the possibility of a redemption
of securities that is not solely within the control of the issuer without
regard to probability requires the security to be classified outside of
permanent equity. The Certificates of Designation creating the Series A and
Series B Preferred Stock each contain provisions that give the holders the
optional right to redeem such stock if either there is a change of control
(as defined in the Certificates of Designation) or the Wright Family (as
defined in the Certificates of Designation to include William F. Wright, the
Company's Chief Executive Officer, Chairman of the Board and largest
stockholder) beneficially owns less than 20% of the outstanding shares of
common stock. The Company believes it is unlikely that either of those
events will occur without support of the Board of Directors since the two
owners of the Series A Preferred Stock and the sole owner of the Series B
Preferred Stock each have a representative on the Board of Directors, the
interests of the Company and those representatives are aligned, and the
aggregate ownership of all of the Board members is in excess of two-thirds of
the outstanding shares of common stock. However, there can be no assurance
that this will not occur.

Under EITF 95-22, borrowings under an agreement that includes both a
subjective acceleration clause and a lock-box arrangement are required to be
classified as short-term indebtedness. Because the Company's agreement
contains both of these features, the borrowings have been classified as
short-term for September 2004 and December 2004. However, the lending banks
and the Company amended the revolving loan agreement after the Company's
second fiscal quarter of 2005 but prior to the filing of this report on Form
10-Q to replace the lockbox provision with a springing lockbox arrangement
that would require the Company's cash to be placed in a lockbox account that
would be used to automatically pay down the revolving indebtedness subsequent
to an event of default. The EITF, nevertheless, requires the change in
classification of the revolving credit facility to be considered short-term
debt for reports filed prior to such amendment to the revolving loan
agreement.

These restatements do not impact amounts already reported as sales, including
(loss) from continuing operations or the respective net income (loss)
available to common shareholders or earnings (loss) per share nor will they
result in a default under any provisions in the credit agreement.

22

A summary of the significant effects of the restatement is as follows:

September 2004
---------------------------------
As previously As
reported (1) restated
-------------- -------------

Current liabilities $ 42,964,022 $ 82,773,836
Long-term debt, less current portion 50,059,968 10,250,154
Series A cumulative, convertible preferred stock, $.01 par value
1,000,000 authorized and 100,000 issued, liquidation preference
$25.00 per share - 2,438,355
Shareholders' equity 15,205,152 12,766,797

/1/ As previously reported in the Company's Form 10-K for the annual period ended September 24, 2004 filed
on January 7, 2005 and giving effect to the discontinued operations of The Beverage Group, Inc. discussed
in Note 2.

10. BUSINESS SEGMENTS

AMCON has three reportable business segments: the wholesale distribution of
consumer products, the retail sale of health and natural food products, and
the bottling and distribution of bottled water and other beverage products.
As discussed in Note 2, TBG, a business component of the beverage segment was
closed on March 31, 2005. The segments are evaluated on revenue, gross
margins, operating income (loss) and income (loss) before taxes.

Wholesale
Distribution Retail Beverage Other /2/ Consolidated
------------- ----------- ----------- ---------- -------------

QUARTER ENDED MARCH 2005:
External revenue:
Cigarettes $ 139,373,746 $ - $ - $ - $ 139,373,746
Confectionery 12,860,855 - - - 12,860,855
Health food - 8,815,057 - - 8,815,057
Tobacco, beverage & other 30,655,044 - 2,374,693 (31,541) 32,998,196
------------- ----------- ----------- ---------- -------------
Total external revenue 182,889,645 8,815,057 2,374,693 (31,541) 194,047,854
Depreciation /1/ 297,448 192,718 100,118 - 590,284
Amortization 21,657 17,583 57,878 - 97,118
Operating income (loss) 254,831 285,769 (1,090,332) 996 (548,736)
Interest expense 237,335 374,101 286,106 - 897,542
(Loss) income from continuing
operations before taxes (35,487) (78,886) (1,376,439) 996 (1,489,816)
Total assets 72,111,810 16,404,341 18,626,805 2,198,326 109,341,282
Capital expenditures, net 598,474 7,471 187,261 - 793,206

QUARTER ENDED MARCH 2004:
External revenue:
Cigarettes $ 141,409,400 $ - $ - $ - $ 141,409,400
Confectionery 12,529,455 - - - 12,529,455
Health food - 8,654,830 - - 8,654,830
Tobacco, beverage & other 30,072,013 - 398,069 (92,081) 30,378,001
------------- ----------- ----------- ---------- -------------
Total external revenue 184,010,868 8,654,830 398,069 (92,081) 192,971,686

Depreciation /1/ 299,410 192,900 45,475 - 537,785
Amortization 21,657 22,584 - - 44,241
Operating income (loss) 503,583 222,376 (172,090) (33,954) 519,915
Interest expense 332,733 283,643 127,636 - 744,012
(Loss) income from continuing
operations before taxes 179,183 (52,952) (299,725) (33,954) (207,448)
Total assets 63,938,403 16,903,524 8,783,572 4,406,729 94,032,228
Capital expenditures, net 147,966 133,144 219,608 31,278 531,996

23

SIX MONTHS ENDED MARCH 2005:
External revenue:
Cigarettes $ 294,934,884 $ - $ - $ - $ 294,934,884
Confectionery 26,899,200 - - - 26,899,200
Health food - 17,389,188 - - 17,389,188
Tobacco, beverage & other 64,895,369 - 4,388,488 (72,648) 69,211,209
------------- ------------ ----------- ---------- -------------
Total external revenue 386,729,453 17,389,188 4,388,488 (72,648) 408,434,481
Depreciation /1/ 588,746 387,249 270,582 - 1,246,577
Amortization 43,314 35,166 79,574 - 158,054
Operating income (loss) 2,494,650 423,766 (2,044,253) 17,358 891,521
Interest expense 498,596 775,602 529,545 - 1,803,743
(Loss) income from continuing
operations before taxes 1,988,820 (328,751) (2,573,798) 17,358 (896,371)
Total assets 72,111,810 16,404,341 18,626,805 2,198,326 109,341,282
Capital expenditures, net 1,979,336 14,127 275,552 21,568 2,290,583

SIX MONTHS ENDED MARCH 2004:
External revenue:
Cigarettes $ 282,644,067 $ - $ - $ - $ 282,644,067
Confectionery 24,915,812 - - - 24,915,812
Health food - 16,823,830 - - 16,823,830
Tobacco, beverage & other 60,172,836 - 1,125,117 (138,268) 61,159,685
------------- ------------ ----------- ---------- -------------
Total external revenue 367,732,715 16,823,830 1,125,117 (138,268) 385,543,394

Depreciation /1/ 594,876 388,636 88,950 - 1,072,462
Amortization 43,314 46,844 - - 90,158
Operating income (loss) 2,583,304 500,250 (170,745) (73,660) 2,839,149
Interest expense 627,482 582,324 249,832 - 1,459,638
(Loss) income from continuing
operations before taxes 2,386,318 (65,843) (420,576) (73,660) 1,826,239
Total assets 63,938,403 16,903,524 8,783,572 4,406,729 94,032,228
Capital expenditures, net 242,060 243,712 435,336 33,011 954,119

/1/ Includes depreciation reported in cost of sales for the beverage segment.

/2/ Includes charges to operations incurred by discontinued operations and
intercompany eliminations.

11. CONTINGENCIES

The Company is exposed to contingencies that occur in the normal course of
business. The significant contingencies as summarized below.

TSI ACQUISITION
- ---------------
AMCON announced in May 2004 that it was filing suit against Trinity Springs,
Ltd. in order to obtain an order from the United States District Court for
the District of Idaho declaring that a majority of the votes entitled to be
cast by the shareholders of Trinity Springs, Ltd. were cast in favor of the
sale of substantially all of its assets to AMCON's subsidiary, TSL
Acquisition Corp. and thereby satisfied the shareholder approval condition of
the asset purchase transaction. Subsequent to AMCON's filing of its lawsuit,
the Inspectors of Election and the Board of Directors of Trinity Springs,
Ltd. certified the shareholder voting results in favor of the asset purchase
transaction.

After the certification of the voting results, certain minority shareholders
filed a complaint and motion seeking injunctive relief in the District Court
of the Fifth Judicial District of the State of Idaho. The Court granted a
temporary restraining order on June 11, 2004, which prevented the closing of
the asset purchase transaction until the Court had an opportunity to review
additional briefing on the issues presented and the parties could be heard by

24

the Court. On June 16, 2004, the Court heard arguments on whether to extend
the temporary restraining order and grant the minority shareholders' motion
for preliminary injunction. As a result of the parties' briefing and the
arguments presented, the Court dissolved the temporary restraining order and
thereby enabled the asset sale transaction to be consummated.

On July 19, 2004, several of the same minority shareholders, along with some
additional shareholders filed an amended complaint in the same Idaho state
court action. The minority shareholders' amended complaint seeks (i) a
declaration that the asset sale transaction is void and injunctive relief
rescinding that transaction or, alternatively, that a new shareholder vote on
the asset sale transaction be ordered, (ii) damages for the alleged breaches
of fiduciary duty which are claimed to have arisen out of the disclosure made
in connection with the solicitation of proxies, how the votes were counted,
and conducting the closing without the requisite shareholder vote, and (iii)
imposition of a constructive trust on the sale proceeds and requiring
separate books to be maintained. AMCON continues to believe that the
shareholders of Trinity Springs, Ltd. approved the sale of assets to the
Company in accordance with applicable law and that the asset sale transaction
was properly completed.

PACIFIC VENTURES HAWAII
- -----------------------

On or about April 15, 2005, plaintiff Pacific Ventures Hawaii served a
Complaint on The Beverage Group, Inc. ("TBG"), naming TBG and certain other
unaffiliated parties as defendants. The dispute centers around a series of
contracts entered into by the various parties to import, broker, market and
distribute the Hype Classic Energy Drink line of products. TBG was to act as
the master distributor for the product. The Complaint alleges five causes of
action against the defendants: breach of contract; common counts; intentional
interference with contract; intentional interference with prospective
economic advantage; and negligent interference with business relationships.
The plaintiff does not specifically allege how TBG breached the contracts or
how it acted wrongfully. The Complaint seeks compensatory damages "in excess
of $500,000 and according to proof"; punitive damages in an unspecified
amount; attorney's fees, witness fees and costs incurred; and all other
relief the Court deems just and proper.

On May 6, 2005 outside counsel for TBG faxed a letter to plaintiff's counsel
demanding that the case be dismissed with prejudice because TBG believes: it
did not breach any of its obligations under those contracts to which it is a
party; the plaintiff has stated in writing that TBG does not have any
liability; and the applicable contract has provisions mandating submission of
any disputes to arbitration by the American Arbitration Association in New
York. If the plaintiff does not voluntarily dismiss before May 16, 2005, TBG
will file an answer or motion to dismiss and vigorously defend the action.
At this point it is too early to determine the likely outcome of the action.

TELEVISION EVENTS & MARKETING, INC. VS. AMCON DISTRIBUTING CO., ET AL.,
- ------------------------------

An action entitled Television Events & Marketing, Inc. vs. AMCON Distributing
Co., et al., Civil No. CV 05-00259 ACK BMK, was filed in the First Circuit
Court of the State of Hawaii in Honolulu, Hawaii on March 8, 2005 and then
removed on April 12, 2005 to the United States District Court for the

25

District of Hawaii. This action concerns the alleged breach of two trademark
licensing agreements involving Television Events & Marketing, Inc. The
complaint seeks (i) an unstated amount of damages for an alleged breach of
those agreements; (ii) an unstated amount of damages for alleged fraudulent
transfer of assets to Trinity Springs, Inc., a subsidiary of the Company;
(iii) interest and reasonable attorney's fees and costs; and (iv) such other
relief as the court deems just and proper. On May 4, 2005, the Company,
together with its named subsidiaries, moved to dismiss the complaint or for
summary judgment on the complaint. On April 28, 2005, the Company offered to
settle this matter with the plaintiff for $100,000. The plaintiff rejected
that written settlement offer. The plaintiff's attorney asserts that the
amount of the plaintiff's damages for the alleged breach of the two
agreements exceeds $400,000.

IN GENERAL
- ----------

The Company is also party to other lawsuits and claims arising out of the
operation of its businesses. Management believes the ultimate resolution of
such matters should not have a material adverse effect on the Company's
financial condition, results of operations or liquidity after giving
consideration to amounts already recorded in the Company's financial
statements.

12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 151 "Inventory
Costs." This statement amends Accounting Research Bulletin No. 43, Chapter
4, "Inventory Pricing" and removes the "so abnormal" criterion that under
certain circumstances could have led to the capitalization of these items.
SFAS No. 151 requires that idle facility expense, excess spoilage, double
freight and rehandling costs be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." SFAS 151
also requires that allocation of fixed production overhead expenses to the
costs of conversion be based on the normal capacity of the production
facilities. SFAS No. 151 is effective for all fiscal years beginning after
June 15, 2005 (fiscal 2006 for AMCON). Management does not believe there
will be a significant impact on the Company's results of operations or
financial condition as a result of adopting this Statement.

In December 2004, the FASB issued Statement No. 123R (revised 2004), "Share-
Based Payment." SFAS No. 123R will require the Company to measure the cost of
all employee stock-based compensation awards based on the grant date fair
value of those awards and to record that cost as compensation expense over
the period during which the employee is required to perform service in
exchange for the award (generally over the vesting period of the award).
Accordingly, the adoption of SFAS No. 123R will have some impact on the
Company's results of operations, although it will have no impact on the
Company's overall financial position. SFAS No. 123R is effective for the
Company's fiscal 2006. Management is currently assessing the impact that
this standard will have on the Company's result of operations and cash flows.

In December 2004, the FASB issued Statement No. 153, "Exchanges of
Nonmonetary Assets," an amendment of APB Opinion No. 29, "Accounting for
Nonmonetary Transactions." The amendments made by Statement 153 are based on

26
the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged. Further, the amendments eliminate
the narrow exception for nonmonetary exchanges of similar productive assets
and replace it with a broader exception for exchanges of nonmonetary assets
that do not have commercial substance. Previously, Opinion 29 required that
the accounting for an exchange of a productive asset for a similar productive
asset or an equivalent interest in the same or similar productive asset
should be based on the recorded amount of the asset relinquished. The
Statement is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005 (fiscal 2006 for the Company). Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. Management is currently
assessing the impact that this standard will have on the Company.

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

FORWARD LOOKING STATEMENTS

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

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

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

27

CRITICAL ACCOUNTING ESTIMATES

Certain accounting estimates used in the preparation of the Company's
financial statements require us to make judgments and estimates and the
financial results we report may vary depending on how we make these
judgments and estimates. Our critical accounting estimates are set forth
below and have not changed during Fiscal 2005.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

NATURE OF ESTIMATES REQUIRED. The allowance for doubtful accounts represents
our estimate of uncollectible accounts receivable at the balance sheet date.
We monitor our credit exposure on a weekly basis and assess the adequacy of
our allowance for doubtful accounts on a quarterly basis. Because credit
losses can vary significantly over time, estimating the required allowance
requires a number of assumptions that are uncertain.

ASSUMPTIONS AND APPROACH USED. We estimate our required allowance for
doubtful accounts using the following key assumptions.

- Historical collections - Represented as the amount of historical
uncollectible accounts as a percent of total accounts receivable.

- Specific credit exposure on certain accounts - Identified based on
management's review of the accounts receivable portfolio and taking
into account the financial wherewithal of particular customers that
management deems to have a higher risk of collection. For example, a
customer in bankruptcy would indicate that an amount could be
uncollectible.

SENSITIVITY ANALYSIS. We believe that our current level of allowance for
doubtful accounts is adequate at the balance sheet date and that our credit
exposure it very low compared with the high volume of sales and the nature of
our industry in which collections are made relatively quickly. However, for
every 1% percent of receivables deemed to require an additional reserve at
March 2005, the impact on the statement of operations would be to increase
selling, general and administrative expenses by approximately $0.3 million.

INVENTORIES.

NATURE OF ESTIMATES REQUIRED. In our businesses, we carry large quantities
and dollar amounts of inventory. Inventories consist primarily of finished
products purchased in bulk quantities to be sold to our customers. Given the
large quantities and broad range of products that we carry to better serve our
customers, there is a risk of impairment in inventory that is unsaleable or
unrefundable, slow moving, obsolete or is discontinued. The use of estimates
is required in determining the salvage value of this inventory.

ASSUMPTIONS AND APPROACH USED. We estimate our inventory obsolescence reserve
at each balance sheet date based on the following criteria:

-Slow moving products - Items identified as slow moving are evaluated
on a case-by-case basis for impairment.

28

-Obsolete/discontinued inventory - Products identified that are near or
beyond their expiration dates. In addition, we may discontinue
carrying certain product lines for our customers. As a result, we
estimate the market value of this inventory as if it were to be
liquidated.

-Estimated salvage value/sales price - The salvage value of the
inventory is estimated using management's evaluation of the congestion
in the distribution channels and experience with brokers and inventory
liquidators to determine the salvage value of the inventory.

SENSITIVITY ANALYSIS. We believe that our current level of reserve for
inventory obsolescence is adequate at the balance sheet date. However, if
there was a decrease in the estimated net realizable value of the inventory
identified as obsolete/discontinued inventory (change in estimated selling
price) of 5% the reserve and costs of goods sold, respectively, would increase
by less than $0.1 million.

DEPRECIATION, AMORTIZATION AND IMPAIRMENT OF LONG-LIVED ASSETS.

Long-lived assets consist primarily of fixed assets and intangible assets that
were acquired in business combinations. Fixed assets and amortizable
identified intangible assets are assigned useful lives ranging from 2 to 40
years. Goodwill is not amortized. Impairment of reporting units, which is
measured in the Company's fourth fiscal quarter in order to coincide with its
budgeting process, is evaluated annually with the assistance of an independent
third party. The reporting units are valued using after-tax cash flows from
operations (less capital expenditures) discounted to present value.

NATURE OF ESTIMATES REQUIRED. Management has to estimate the useful lives of
the Company's long lived assets. In regards to the impairment analysis, the
most significant assumptions include management's estimate of the annual
growth rate used to project future sales and expenses used by the independent
third party.

ASSUMPTIONS AND APPROACH USED. For fixed assets, depreciable lives are based
on our accounting policy which is intended to mirror the expected useful life
of the asset. In determining the estimated useful life of amortizable
intangible assets, such as customer lists, we rely on our historical
experience to estimate the useful life of the applicable asset and consider
industry norms as a benchmark. In evaluating potential impairment of long-
lived assets we primarily use an income based approach (discounted cash flow
method) and guideline public and private company method. A discounted cash
flow methodology requires estimation in (i) forecasting future earnings (ii)
determining the discount rate applicable to the earnings stream being
discounted, and (iii) computing a terminal value at some point in the future.
The forecast of future earnings is an estimate of future financial performance
based on current year results and management's evaluation of the market
potential for growth. The discount rate is a weighted average cost of capital
using a targeted debt-to-equity ratio using the industry average under the
assumption that it represents our optimal capital structure and can be
achieved in a reasonable time period. The terminal value is determined using
a commonly accepted growth model.

SENSITIVITY ANALYSIS. We believe that the estimated useful lives of our fixed
assets and amortizable intangibles are appropriate. If we shortened the

29

estimated useful lives of our fixed assets by one year, the impact on the
statement of operations for the current period would be to increase
depreciation expense by approximately $550,000. A decrease in the estimate of
future sales or increase of estimated expenses for reporting units evaluated
for impairment could result in additional impairment of intangibles being
recorded up to the amount of the carrying amount of the intangible assets
which was approximately $19.6 million as of March 31, 2005.

INSURANCE.

The Company's insurance for worker's compensation, general liability and
employee-related health care benefits are provided through high-deductible or
self-insured programs. As a result, the Company accrues for its worker's
compensation liability based upon claim reserves established with the
assistance of a third-party administrator which are then trended and developed
with the assistance of our insurance agent. The reserves are evaluated at the
end of each reporting period. Due to the uncertainty involved with the
realization of claims incurred but unreported, management is required to make
estimates of these claims.

ASSUMPTIONS AND APPROACH USED. In order to estimate our reserve for incurred
but unreported claims we consider the following key factors:

Employee Health Insurance Claims

- Historical claims experience - We review loss runs for each month to
calculate the average monthly claims experience.

- Lag period for reporting claims - Based on analysis and consultation
with our third party administrator, our experience is such that we
have a one month lag period in which claims are reported.

Workers Compensation Insurance Claims

- Historical claims experience - We review prior year's loss runs to
estimate the average annual expected claims and review monthly loss
runs to compare our estimates to actual claims.

- Lag period for reporting claims - We utilize the assistance of our
insurance agent to trend and develop reserves on reported claims in
order to estimate the amount of incurred but unreported claims. Our
insurance agent uses standard insurance industry loss development
models.

SENSITIVITY ANALYSIS. We believe that our current reserve for incurred but
unreported insurance claims is adequate at the balance sheet date. However,
for every 5% percent increase in claims, an additional reserve of less than
$0.1 million would be required at March 31, 2005, the impact of which would
increase selling, general and administrative expenses by that amount in the
same period.

INCOME TAXES.

The Company accounts for its income taxes by recording taxes payable or
refundable for the current year and deferred tax assets and liabilities for
the future tax consequences of events that have been recognized in our

30

financial statements or tax returns. As required by SFAS No. 109, "Accounting
for Income Taxes", these expected future tax consequences are measured based
on provisions of tax law as currently enacted; the effects of future changes
in tax laws are not anticipated. Future tax law changes, such as a change in
the corporate tax rate, could have a material impact on our financial
condition or results of operations. When appropriate, we record a valuation
allowance against deferred tax assets to offset future tax benefits that may
not be realized.

ASSUMPTIONS AND APPROACH USED. In determining whether a valuation allowance
is appropriate, we consider whether it is more likely than not that all or
some portion of our deferred tax assets will not be realized, based in part
upon management's judgments regarding future events.

In making that estimate we consider the following key factors:

- our current financial position
- historical financial information
- future reversals of existing taxable temporary differences
- future taxable income exclusive of reversing temporary differences
and carryforwards
- taxable income in prior carryback years
- tax planning strategies

SENSITIVITY ANALYSIS. Based on our analysis, we have determined that a
valuation allowance is not required at March 31, 2005. A valuation allowance
would reduce the deferred tax asset to the amount that is more likely than not
to be realized and a corresponding reduction to net income as a result.

REVENUE RECOGNITION.

We recognize revenue in our wholesale and beverage segments when products are
delivered to customers (which generally is the same day products are
shipped)and in our retail health food segment when the products are sold to
consumers. Sales are shown net of returns, discounts, and sales incentives to
customers.

NATURE OF ESTIMATES REQUIRED. We estimate and reserve for anticipated sales
discounts as part of our periodic evaluation of allowance for doubtful
accounts. We also estimate and provide a reserve for anticipated sales
incentives to customers based on volume.

ASSUMPTIONS AND APPROACH USED. We estimate the sales reserves using the
following criteria:

- Sales discounts - We use historical experience to estimate the
amount of accounts receivable that will not be collected due to
customers taking advantage of authorized term discounts.

- Volume sales incentives - We use historical experience in
combination with quarterly reviews of customers sales progress
in order to estimate the amount of volume incentives due to
the customers on a periodic basis.

SENSITIVITY ANALYSIS. Based on the historical information used to estimate
the reserves for sales discounts and volume sales incentives, we do not

31

anticipate significant variances from the amounts reserved. However, there
could be significant variances from period to period based on customer make-up
and programs offered.

Our estimates and assumptions for each of the aforementioned critical
accounting estimates have not changed materially during the periods presented,
nor are we aware of any reasons that they would be reasonably likely to change
in the future.

RESTATEMENT

As discussed in Note 9 to the condensed consolidated financial statements,
subsequent to the issuance of its Form 10-K for the year ended September 24,
2004, management and the Company's Audit Committee determined that the Company
would restate its balance sheets as of September 24, 2004 and as of December
31, 2004 to reflect (i) a correction in the classification of Series A (issued
in June 2004) and Series B (issued in October 2004) Preferred Stock from
permanent equity to mezzanine financing, and (ii) a correction in the
classification of its revolving credit facility from long-term to short-term
debt. The balance sheets as of September 24, 2004 and December 31, 2004 will
be restated on Forms 10-K/A and 10-Q/A and will be filed with the Securities
and Exchange Commission as soon as practicable.

Under Emerging Issue Task Force ("EITF") D-98 the possibility of a redemption
of securities that is not solely within the control of the issuer without
regard to probability requires the security to be classified outside of
permanent equity. The Certificates of Designation creating the Series A and
Series B Preferred Stock each contain provisions that give the holders the
optional right to redeem such stock if either there is a change of control (as
defined in the Certificates of Designation) or the Wright Family (as defined
in the Certificates of Designation to include William F. Wright, the Company's
Chief Executive Officer, Chairman of the Board and largest stockholder)
beneficially owns less than 20% of the outstanding shares of common stock.
The Company believes it is unlikely that either of those events will occur
without support of the Board of Directors since the two owners of the Series A
Preferred Stock and the sole owner of the Series B Preferred Stock each have a
representative on the Board of Directors, the interests of the Company and
those representatives are aligned, and the aggregate ownership of all of the
Board members is in excess of two-thirds of the outstanding shares of common
stock. However, there can be no assurance that this will not occur.

Under EITF 95-22, borrowings under an agreement that includes both a
subjective acceleration clause and a lock-box arrangement are required to be
classified as short-term indebtedness. Because the Company's agreement
contains both of these features, the borrowings have been classified as short-
term for September 2004 and December 2004. However, the lending banks and the
Company amended the revolving loan agreement after the Company's second fiscal
quarter of 2005 but prior to the filing of this report on Form 10-Q to replace
the lockbox provision with a springing lockbox arrangement that would require
the Company's cash to be placed in a lockbox account that would be used to
automatically pay down the revolving indebtedness subsequent to an event of
default. The EITF, nevertheless, requires the change in classification of the
revolving credit facility to be considered short-term debt for reports filed
prior to such amendment to the revolving loan agreement.

These restatements do not impact amounts already reported as sales, including
(loss) from continuing operations or the respective net income (loss)

32
available to common shareholders or earnings (loss) per share nor will they
result in a default under any provisions in the credit agreement.

A summary of the significant effects of the restatement on our Form 10-K for
the year ended September 24, 2004 and our Form 10-Q for the three months ended
December 31, 2004 are as follows:

September 2004
---------------------------------
As previously As
reported (1) restated
-------------- -------------

Current liabilities $ 42,964,022 $ 82,773,836
Long-term debt, less current portion 50,059,968 10,250,154
Series A cumulative, convertible preferred stock, $.01 par value
1,000,000 authorized and 100,000 issued, liquidation preference
$25.00 per share - 2,438,355
Shareholders' equity 15,205,152 12,766,797

/1/ As previously reported in the Company's Form 10-K for the annual period ended September 24, 2004 filed
on January 7, 2005 and giving effect to the discontinued operations of The Beverage Group, Inc. discussed
in Note 2.

December 31, 2004
---------------------------------
As previously As
reported (1) restated
-------------- -------------

Current liabilities $ 29,512,070 $ 77,015,087
Long-term debt, less current portion 61,622,121 13,619,104
Series A cumulative, convertible preferred stock, $.01 par value
1,000,000 authorized and 100,000 issued, liquidation preference
$25.00 per share - 2,438,355
Series B cumulative, convertible preferred stock, $.01 par value
1,000,000 authorized and 80,000 issued, liquidation preference
$25.00 per share - 1,857,645
Shareholders' equity 17,017,620 12,721,620

/1/ As previously reported in the Company's Form 10-Q for the quarterly period ended December 31, 2004
filed on February 14, 2005

The accompanying management discussion and analysis and results of operations
give effect to the restatements.

COMPANY OVERVIEW - SECOND FISCAL QUARTER 2005

AMCON Distributing Company ("AMCON" or the "Company") is primarily engaged in
the wholesale distribution business in the Great Plains and Rocky Mountain
regions of the United States. In addition, AMCON operates thirteen retail
health food stores and a non-alcoholic beverage business that includes natural
spring and geothermal water bottling operations in Hawaii and Idaho. As used
herein, unless the context indicates otherwise, the term "ADC" means the
wholesale distribution segment and "AMCON" or the "Company" means AMCON
Distributing Company and its consolidated subsidiaries.

AMCON's fiscal second quarters ended on March 31, 2005 and March 26, 2004.
For ease of discussion, these fiscal quarters are referred to herein as March
2005 and 2004, respectively or Q2 2005 and Q2 2004, respectively.

33

During the second quarter of fiscal 2005, the Company:

- discontinued operations of the beverage segment's marketing and
distribution business which had been incurring losses since its
inception in December 2002 which resulted in a pre-tax charge of
approximately $0.8 million. The business component is now accounted
for as a discontinued operation.

- experienced a significant increase in producer price indexes which
increased the required LIFO reserve by approximately $1.0 million as
compared to the same quarter in prior year.

- recognized income (loss) from continuing operations per diluted share of
($1.89) and ($1.14) for the three and six months ended March 2005,
respectively, compared to income (loss) from continuing operations per
diluted share of ($0.24) and $2.20 for the same periods in the prior
year.

- identified errors in its classification on the balance sheet of its
Preferred Stock and of its revolving credit facility, and, as a
consequence, the Company has restated certain historical results in the
accompanying condensed consolidated financial statements (See Note 9
thereto) and will be restating its financial statements for fiscal year
2004 and first quarter of fiscal 2005 to reflect the correction of these
errors as soon as practicable.

INDUSTRY SEGMENT OVERVIEWS

Wholesale Distribution Segment
- ------------------------------
The wholesale distribution of cigarettes and convenience store products has
been significantly affected during the past year due to changing promotional
programs implemented by the major cigarette manufacturers. Reductions in
these promotional programs have caused wholesalers to react by increasing
cigarette prices to retailers. This occurred for the first time at the
beginning of fiscal 2004 without a corresponding price increase from
manufacturers and occurred again at the beginning of the second quarter of
fiscal 2004. The manufacturers followed by implementing promotional programs
later in fiscal 2004 and then increased prices in Q1 2005 on certain brands.

Based on these activities, it is difficult to predict how future changes in
promotional programs will impact the Company and the industry in the future.

As a result of one of the manufacturer program changes discussed above,
certain small wholesalers filed suit against Philip Morris and RJ Reynolds
alleging unfair trade practices. In addition, due to the heightened level of
competition in the marketplace from both a wholesale and retail convenience
store perspective, a number of wholesalers and retailers have sought
bankruptcy protection, been acquired or are on the market to be sold.
Therefore, we expect that competition and pressure on profit margins will
continue to affect both large and small distributors and demand that
distributors consolidate in order to become more efficient.

Retail Health Food Segment
- --------------------------
The retail health food industry has experienced declining sales and gross
profit over the past several periods. Our retail health food segment has felt

34

the impacts of this trend as our sales increase primarily is due to a new
store that opened in Q2 2004. The impact of reduced supplement sales
resulting from unfavorable media coverage related to the government ban on
ephedra based products and a general softening of the low-carb market coupled
with continued expansion of low-carb offerings and sales through mainstream
grocery channels has caused management to closely review all store locations
for opportunities to close or relocate marginally performing stores, remodel
and expand good performing stores and identify new locations for one or two
additional stores.

Beverage Segment
- ----------------
With the discontinuation of The Beverage Group, Inc.("TBG") in March 2005,
which comprised the beverage marketing and distribution business portion of
the beverage segment, the segment now consists of Hawaiian Natural Water Co.,
Inc. ("HNWC") and Trinity Springs, Inc. ("TSI") which both operate in the
bottled water manufacturing industry. HNWC completed the construction of an
expanded warehouse and packaging building at our plant on the Big Island in
Hawaii in the first quarter of fiscal 2004 and management is hopeful that HNWC
will now generate profits as we focus on expansion of our markets and take
advantage of the new operations. In addition, the acquisition of a purified
water bottling operations on the island of Oahu in Hawaii ("Nesco Hawaii") in
Q4 2004 has positioned us to more effectively compete in the private label
water bottling channel and diversify our water production to include premium
spring water and purified water. TSI, acquired in June 2004, bottles and
sells geothermal bottled water, a natural mineral supplement and introduced a
vitamin enhanced bottled water in April 2005. TSI, which is an 85% owned
subsidiary of AMCON, is now headquartered in Boise, Idaho. The TSI water and
mineral supplements are currently sold primarily in health food stores where
they represent the number two packaged non-carbonated water brand in the
United States. The Company is extending the distribution channels for this
water and mineral supplement outside the health food market by adding
distributor relationships that are outside the health food market.

The beverage marketing and distribution business incurred significant losses
during 2004 as significant expenditures were made for product development,
distribution network development and marketing efforts to promote our
portfolio of specialty beverages. The resulting sales were less than expected
due to lack of market penetration of our new beverage products.

In October 2004, management took steps to reduce on-going operating expenses
by reducing the work force and consolidating certain activities of marketing
and distribution with other companies in the affiliated group. However, the
results that we had hoped to achieve were not being realized and as a result,
management decided to exit this business line in March 2005.

In management's discussion and analysis of the results of operations for Q2
2005 compared to Q2 2004 and the six month results through March 31, 2005 and
2004, TBG's sales, gross profit (loss), selling, general and administrative,
depreciation and amortization, interest, other expenses and income tax benefit
have been aggregated and reported as a loss from discontinued operations in
accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" and is therefore not a component of the discussion of the
aforementioned items.

35

RESULTS OF OPERATIONS

Comparison of the three and six months periods ended March 2005 and 2004
- ------------------------------------------------------------------------

SALES

Sales for Q2 2005 increased 0.6%, or $1.1 million, compared to Q2 2004. Sales
are reported net of costs associated with sales incentives provided to
retailers, totaling $3.7 million and $3.4 million, for Q2 2005 and Q2 2004,
respectively. The increase (decrease) in sales by business segment from Q2
2004 to Q2 2005 is as follows:

Wholesale distribution segment $ (1.1) million
Retail health food stores segment 0.2 million
Beverage segment 2.0 million
Intersegment eliminations - million
------
$ 1.1 million
======

Cigarette sales in the wholesale distribution segment decreased by $2.0
million while the sales of tobacco, confectionary and other products increased
$0.9 million in Q2 2005 compared to Q2 2004. The decrease in cigarette sales
was primarily attributable to a 4.8% decrease in carton volume in Q2 2005
compared to Q2 2004 which reduced sales by approximately $6.5 million. This
reduction was partially offset by $2.9 million of increased sales that were
attributable to price increases implemented by major cigarette manufacturers
in December 2004 and by $1.6 million due to excise tax increases implemented
in certain states on January 1, 2005. In addition, sales of tobacco,
confectionary and other products increased by $0.9 million due to increased
volume during Q2 2005 as compared to Q2 2004.

Sales from the retail health food segment during Q2 2005 increased by $0.2
million when compared to Q2 2004 primarily from the segment's new Oklahoma
City store, which opened in April 2004 and contributed an incremental $0.3
million in sales for Q2 2005. The retail health food segment experienced
lower sales of grocery and low carb products in Q2 2005 as these products
continued to move to mainstream grocery channels, but the impacts were
mitigated by improving vitamin and supplement sales which have been showing
steady signs of improvement.

The beverage segment accounted for $2.4 million in sales for Q2 2005 compared
to $0.4 million in Q2 2004. TSI, which was acquired in June 2004, accounted
for $1.0 million of the increase in sales during Q2 2005. The addition of
Nesco Hawaii increased sales in Q2 2005 by $0.3 million. The remaining $0.7
million increase was due primarily to increased sales of HNWC's spring water
made possible due to completion of plant construction in Q1 2004 and a change
to a new distributor in the Hawaii market during Fiscal 2004.

Sales for the six months ended March 2005 increased to $408.4 million,
compared to $385.5 million for the same period in the prior fiscal year.

36

Sales changes by business segment are as follows:

Incr
(Decr)
------
Wholesale distribution segment $ 19.0 million
Retail health food stores segment 0.6 million
Beverage segment 3.3 million
Intersegment eliminations - million
------
$ 22.9 million
======

Sales from the wholesale distribution segment increased by $19.0 million for
the six months ended March 2005 as compared to the same period in the prior
year. Cigarette sales increased $12.3 million for the first six months of
fiscal 2005 and the sales of tobacco, confectionary and other products
contributed an additional $6.7 million during the period. Of the increase in
cigarette sales, $10.4 million was a result of the change in our monthly
reporting period which added an extra week of sales in the first six months of
fiscal 2005 as compared to the same period in fiscal 2004, $3.6 million was
attributable to price increases implemented by major cigarette manufacturers
in December 2004 and $1.6 million was due to increased excise taxes
implemented in certain states on January 1, 2005. These increases were offset
by a $3.3 million decrease in sales due to a 1.2% decrease in carton volume
(excluding the extra week). Of the increase in tobacco, confectionary and
other products, $3.2 million was due to the extra week and $3.5 million was
attributable primarily to new business obtained through expansion of our
market area. We continue to market our full service capabilities in an effort
to differentiate our Company from competitors who utilize pricing as their
primary marketing tool.

Sales from the retail health food segment during the first six months of
fiscal 2005 increased by $0.6 million when compared to the same period in
2004. The extra week of operations during the first six months of fiscal 2005
resulting from the change in the Company's monthly reporting period
contributed approximately $0.4 million. In addition, a net sales increase of
$1.1 million resulted from sales generated from the opening of a new store in
Oklahoma City in April 2004. These increases were offset by the closure of a
non contributing store in Florida in October 2004 which decreased sales by
$0.4 million and lower sales of grocery and low carb products of $0.5 million
during the first six months of fiscal 2005 compared to the same period in
prior year as these products continued to move to mainstream grocery channels
which offset these increases.

The beverage segment accounted for $4.4 million in sales for first six months
of fiscal 2005, compared to $1.1 million for the same period in 2004. TSI,
which was acquired in June 2004, accounted for $1.7 million of the increase in
sales. The Nesco Hawaii acquisition increased sales during the first six
months of fiscal 2005 by $0.6 million as compared to the same period in 2004.
Additionally, the extra week of operations during the first six months of
fiscal 2005 resulting from the change in the Company's monthly reporting
period increased sales by $0.2 million compared to the same period in 2004.
There was also significant sales improvement of HNWC's spring water, due to
completion of plant construction in Q1 2004 and a change to a new distributor
in the Hawaii market in Fiscal 2004 which accounted for the additional $0.8
million in sales for the six months.

37
GROSS PROFIT

Our gross profit does not include fulfillment costs and costs related to the
distribution network which are included in selling, general and administrative
costs, and may not be comparable to those of other entities. Some entities
may classify such costs as a component of cost of sales. Cost of sales, a
component used in determining gross profit, for wholesale and retail segments
includes the cost of products purchased from manufacturers, less incentives
that we receive which are netted against such costs. In the beverage segment,
cost of sales includes the cost of the raw materials and related plant labor
and manufacturing overhead costs required to convert raw materials into
finished goods (including labor, warehousing, depreciation and utilities).

During Q2 2005, gross profit of $13.8 million increased 0.9%, or $0.1 million,
compared to Q2 2004. Gross profit as a percent of sales increased slightly to
7.12% in Q2 2005 compared to 7.09% in Q2 2004. Gross profit by business
segment is as follows (dollars in millions):

Quarter ended
March
---------------- Incr
2005 2004 (Decr)
------ ------ -----

Wholesale distribution segment $ 10.1 $ 10.2 $(0.1)
Retail health food stores segment 3.4 3.4 0.0
Beverage segment 0.3 0.1 0.2
------ ------ -----
$ 13.8 $ 13.7 $ 0.1
====== ====== =====

Gross profit from our wholesale distribution segment for Q2 2005 decreased
$0.1 million compared to Q2 2004 primarily due to a larger quarterly LIFO
charge of $0.9 million in Q2 2005 as compared to Q2 2004. Items increasing
gross profit during Q2 2005 included $0.5 million related to the excise tax
increases in certain states that occurred on January 1, 2005 and incentive
payments of $0.3 million received from non-cigarette vendors based on the
Company's buying volumes.

Gross profit for the retail health food segment was flat at $3.4 million
compared with Q2 2004.

Gross profit for the beverage segment increased $0.2 million in Q2 2005
primarily due to the incremental sales from TSI which was acquired in June
2004 and the process improvements that have occurred at HNWC since the
completion of the plant construction in fiscal 2004.

For the six months ended March 2005, gross profit increased 3.5% to $29.7
million from $28.7 million for the same period during the prior fiscal year.

Gross profit as a percent of sales decreased to 7.28% from 7.45% for the six
month period ended March 2005 compared to the same period in 2004. Gross
profit by business segment is as follows (dollars in millions):

38

Six months ended
March
---------------- Incr
2005 2004 (Decr)
------ ------ -----

Wholesale distribution $ 22.4 $ 21.7 $ 0.7
Retail health food stores 6.8 6.8 0.0
Beverage segment 0.5 0.2 0.3
Intersegment elimination 0.0 0.0 0.0
------ ------ -----
$ 29.7 $ 28.7 $ 1.0
====== ====== =====

Gross profit from our wholesale distribution segment for the six months ended
March 2005 increased approximately $0.7 million as compared to the prior year.
Items increasing gross profit during the first six months of fiscal 2005 as
compared to the same period in fiscal 2004 included $0.6 million attributable
to the extra week of operations resulting from a change in our reporting
period, $0.3 million due to cigarette price increases implemented by major
cigarette manufacturers in December 2004, $0.5 million related to the excise
tax increases in certain states that occurred on January 1, 2005 and incentive
payments of $0.8 million received from a non-cigarette vendors based on the
Company's buying volumes. These increases were offset by decreases in
cigarette manufacturer promotional allowances of $0.7 million resulting from
changes in promotional programs and $0.8 million from a larger LIFO charge
during the first six months of fiscal 2005 as compared to the same period in
fiscal 2004.

Gross profit for the retail health food segment for the first six months of
fiscal 2005 was flat at $6.8 million compared with the same period in fiscal
2004, including the extra week of operations which contributed approximately
$0.2 million in gross profit during the period.

Gross profit for the beverage segment increased $0.3 million in Q2 2005
primarily due to the incremental sales from TSI which was acquired in June
2004 and the process improvements that have occurred at HNWC since the
completion of the plant construction in fiscal 2004.

OPERATING EXPENSE

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

In Q2 2005 operating expense increased 9.1% or approximately $1.2 million as
compared to Q2 2004. The increase is primarily related to the addition of TSI
in June 2004 which added $1.0 million of additional operating expenses in Q2

39

2005 compared to Q2 2004. In addition, the wholesale distribution segment
incurred $0.3 million higher professional fees during Q2 2005 as compared to
Q2 2004 as the Company works towards Sarbanes-Oxley compliance. The Company
also experienced a slight increase of $0.1 million in bad debt expense. These
increases were offset by lower salary and health insurance expenses of $0.2
million.

For the six month period ended March 2005, total operating expense increased
11.4% or approximately $3.0 million to $28.8 million compared to the same
period in the prior year. The increase is primarily related to the addition
of TSI in June 2004 which added $1.9 million of additional operating expenses
and the extra week of operations which increased the amount of payroll and
certain other expenses during the first six months of fiscal 2005 by $0.6
million, as compared to the same period in prior year. In addition, the
wholesale distribution segment incurred increased professional fees of $0.4
million during the first six months of fiscal 2005 as compared to the same
period in prior year as the Company works towards Sarbanes-Oxley compliance
and experienced a slight increase in bad debt expense of $0.1 million.

As a result of the above, income (loss) from continuing operations for Q2 2005
decreased by $1.1 million compared to Q2 2004 to a net loss of $0.5 million.
Income (loss) from operations for the six months ended March 2005 decreased by
$1.9 million to $0.9 million.

INTEREST EXPENSE

Interest expense for Q2 2005 increased 20.6%, or $0.2 million, during Q2 2005
compared to Q2 2004. The increase was primarily due to increases in the prime
rate since March 31, 2004, which under the terms of the amended and restated
credit facility, is the rate at which the Company primarily borrows. On
average, the Company's borrowing rates on its variable rate debt were 1.45%
higher and average borrowings were $16.6 million higher in Q2 2005 as compared
to Q2 2004, of which $4.5 million related to acquisition debt incurred to
purchase TSI in June 2004 and Nesco Hawaii in July 2004.

Interest expense of $1.8 million for the six months ended March 2005
represented an increase of 23.6% from the same period in the prior fiscal
year. The increase was primarily due to increases in the prime rate since
March 31, 2004, which under the terms of the amended and restated credit
facility, is the rate at which the Company primarily borrows. On average, the
Company's borrowing rates on its variable rate debt were 1.19% higher and
average borrowings were $16.2 million higher for the first six months of
fiscal 2005 compared to same period in fiscal 2004, of which $4.5 million
related to acquisition debt incurred to purchase TSI in June 2004 and Nesco
Hawaii in July 2004.

OTHER

For the first six months of fiscal 2005, other income decreased $0.4 million
as compared to same period in fiscal 2004 because of the sale of available-
for-sale securities in the first six months of 2004 that did not recur in
2005.

During Q2 2005 and the first six months of fiscal 2005, the Company paid
preferred dividends of $0.1 million, respectively, on its Series A and B,
Cumulative, Convertible Preferred Stock.

40

For the first six months of fiscal 2005, minority interest in loss, net of
tax, increased during the period (which decreased the net loss) by $0.1
million as compared to the same period in fiscal 2004 due to the 15% ownership
of TSI that is not owned by AMCON. Additionally, losses were not allocated
due to the reduction of the third parties investment to zero as a result of
the cumulative losses.

As a result of the above factors, the net loss from continuing operations
available to common shareholders for the three month period ended March 2005
decreased $0.9 million compared to the same period of the prior year to a net
loss of $1.0 million. The net loss from continuing operations available to
common shareholders for the six months ended March 2005 of $0.6 million
represented a decrease of $1.8 million from the same period of the prior year.

DISCONTINUED OPERATIONS

Effective March 31, 2005, the Company's subsidiary, The Beverage Group, Inc.,
ceased on-going operations due to recurring losses since its December 2002
inception. In March 2005, a charge included in loss from discontinued
operations totaling $0.8 million, before income taxes, was incurred to adjust
the allowance for bad debts and inventory reserve to their net realizable
values and to write off fixed assets. In addition, in accordance with SFAS
No. 146 "Accounting for Costs Associated with Exit or Disposal Activities"
management has accrued one-time termination benefits and rent and related
expenses associated with the remaining lease commitment on the office lease
totaling approximately $0.1 million.

LIQUIDITY AND CAPITAL RESOURCES

Overview
- ----------
The Company requires cash to pay its operating expenses, purchase inventory
and make capital investments and acquisitions of businesses. In general, the
Company finances these cash needs from the cash flow generated by its
operating activities and from borrowings, as necessary. During the six months
ended March 31, 2005, the Company used $0.5 million of cash from
operating activities, primarily to fund the reduction of certain liabilities,
namely accounts payable. Our variability in cash flows from operating
activities is heavily dependent on the timing of inventory purchases and
seasonal fluctuations. For example, in the circumstance where we are "buying-
in" to obtain favorable terms on a particular product or to maintain our LIFO
layers, we may have to retain the inventory for a period longer than the
payment terms. This generates cash outflow from operating activities that we
expect to reverse in a later period. Additionally, during the summer, which
is our busiest time of the year, we generally carry larger back stock of
inventory to ensure high fill rates to maintain customer satisfaction. Our
inventory levels are usually at their highest levels in the third and fourth
fiscal quarters. We generally experience reductions in inventory levels
during the first fiscal quarter, as compared to year end, and maintain these
levels until the beginning of the third fiscal quarter when we begin building
for increased summer business.

Cash of $2.2 million was utilized in investing activities during the first six
months of fiscal 2005 for capital expenditures primarily related to the
purchase of a building and the construction of an addition so that we could
relocate one of our wholesale distribution facilities. A significant portion

41

of the cash flows used in investing activities were financed through the real
estate term debt discussed below.

The Company generated net cash of $2.8 million from financing activities
during the first six months of fiscal 2005 primarily from borrowings of $14.0
million on bank credit agreements, other long-term debt arrangements and $1.9
million from the private placement of Series B Convertible Preferred Stock
(net of costs incurred to issue the securities). Cash of $12.5 million was
used in financing activities during the first six months of fiscal 2005 to pay
down revolving lines of credit totaling $4.8 million used to fund our beverage
segment, $6.8 million in subordinated debt in the retail segment and other
long-term debt totaling $0.9 million. During the first six months of fiscal
2005, $0.1 million was used to pay dividends on preferred stock and $0.4
million was used to pay for costs incurred to amend and restate our revolving
credit facility.

As of March 2005, the Company had cash on hand of $0.6 million and working
capital (current assets less current liabilities) of $34.0 million. This
compares to cash on hand of $0.4 million and negative working capital of $11.9
million as of September 2004. The evaluation of the Company's working capital
is significantly impacted by the classification of the revolving credit
facility as a short-term obligation in September 2004 due to the restatement
discussed in Note 9 and treatment as long-term in March 2005, except for the
amount to expected to be paid on the revolver in the next twelve months, for
the reasons discussed in Note 8. The Company's ratio of debt to equity was
6.93 at March 2005 compared to 5.56 in September 2004.

The Company's maximum revolving credit limit on the New Facility was $53.9
million at March 31, 2005, however the amount available for use at any given
time is subject to many factors including eligible accounts receivable and
inventory balances that are evaluated on a daily basis. On March 31, 2005,
the balance on the facility was $51.0 million, including Term Note A, and the
amount available to borrow, based on our collateral and the loan limits was
approximately $53.5 million. During the six months ended March 31, 2005 our
peak borrowing was $52.9 million, our average borrowing was $48.4 million and
our average availability was $3.6 million. Our availability to borrow under
the New Facility generally decreases as inventory and accounts receivable
levels go up because of the borrowing limitations that are placed on the
collateralized assets.

The Company believes that funds generated from operations, supplemented as
necessary with funds available under the New Facility will provide sufficient
liquidity for the operation of its wholesale and retail businesses. In April
2005, management negotiated the inclusion of TSI into the Company's revolving
credit facility which has incrementally increased collateral by $0.8 million.
Additionally, management has been actively negotiating with potential
investors and lenders to privately place additional debt or equity to provide
additional funding for TSI. Although management is optimistic that additional
financing will be committed, the ultimate outcome of this financing is not
certain at this time. If the Company is unable to raise the additional funds
in the near future, plans for growth within TSI would be negatively impacted
and could potentially impact the carrying value of the business.

42

Dividend Payments
- -----------------
During the first quarter of fiscal 2005, the Board of Directors suspended
payment of cash dividends on our common shares. The Company is implementing a
strategy to invest its cash resources into growth-oriented businesses and has
therefore determined to suspend the payment of cash dividends on common stock
for the foreseeable future. The Company will periodically revisit its
dividend policy to determine whether it has adequate internally generated
funds, together with other needed financing to fund its growth and operations
in order to resume the payment of cash dividends on common stock.

Contractual Obligations
- -----------------------
The following table summarizes our outstanding contractual obligations and
commitments, including interest, as of March 2005. Significant changes to
this schedule since fiscal year end 2004, that are reflected below are; (i)
the inclusion of interest on the contractual obligations, (ii) the payoff of
$4.8 million of revolving credit related to our beverage segment, (iii) the
amendment to the $55.0 million credit facility to include a $1.2 million term
note ("Term Note A") which reduces the amount available under the $55.0
million revolving limit by the amount outstanding under Term Note A, to
include the subsidiaries, except TSI, as borrowers,(iv) the addition of a $5.0
term note ("Term Note B") obtained by the Company which was used in addition
to funds raised from the Series B Convertible Preferred Stock offering to
retire $6.8 million of subordinated debt at the retail health food segment,
and (v) the addition of $1.3 million in real estate term debt incurred in
connection with the purchase of, and addition to, a distribution facility.
(Amounts in thousands):

Payments Due By Period
--------------------------------------------------------------------
Contractual Fiscal Fiscal Fiscal Fiscal Fiscal
Obligations Total 2005/1/ 2006 2007 2008 2009 Thereafter
- ------------------ --------- -------- -------- ------- ------- ------- ----------

Long-term debt/2/ $ 70,124 $ 7,844 $ 16,700 $41,841 $ 678 $ 2,199 $ 862
Subordinated debt 1,076 1,076 - - - - -
Interest on long-term
and subordinated
debt/3/ 7,866 2,046 3,542 1,715 198 352 13
Operating leases 17,762 2,691 4,489 2,712 1,963 1,505 4,402
Minimum water royalty/4/ 4,058 99 288 288 288 288 2,807
--------- -------- -------- ------- ------- ------- ---------
Total $ 100,886 $ 13,756 $ 25,019 $46,556 $ 3,127 $ 4,344 $ 8,084
========= ======== ======== ======= ======= ======= =========

Total
Other Commercial Amounts Fiscal Fiscal Fiscal Fiscal Fiscal
Commitments Committed 2005/1/ 2006 2007 2008 2009 Thereafter
- ------------------ --------- -------- -------- ------- ------- ------- ----------
Lines of credit (LOC) $ 56,000 $ - $ 1,000 $55,000 $ - $ - $ -
LOC in use (52,041) - (1,000) (51,041) - - -
--------- -------- -------- ------- ------- ------- ----------
LOC available 3,959 - - 3,959 - - -
Water source guarantee 5,000 - - - - - 5,000
Letters of credit 837 837 - - - - -
--------- -------- -------- ------- ------- ------- ----------
Total $ 9,796 $ 837 $ - $ 3,959 $ - $ - $ 5,000
========= ======== ======== ======= ======= ======= ==========

43

/1/ Includes remaining payments scheduled to be made in the last six
months of fiscal 2005.

/2/ Includes principal portion of capital leases totaling $1.3 million.

/3/ Represents estimated interest payments on long-term debt, including
capital leases and subordinated debt. Certain obligations contain variable
interest rates. For illustrative purposes, the Company has projected future
interest payments assuming that interest rates will remain unchanged from
March 2005 forward, and additionally, that the outstanding revolving credit
facility balance will be reduced by $5.0 million in Fiscal 2005 and 2006 with
the remaining principal falling due when the agreement expires in April 2007

/4/ Fiscal 2005 - 2009 represent the annual minimum water royalty and
the balance thereafter represents the minimum water royalty in perpetuity.
Both amounts are representative of the present value of the obligation
reflected in our balance sheet together with the imputed interest portions of
required payments.

Credit Agreement
- -------------------
The Company's primary source of borrowing for liquidity purposes is its
revolving credit facility with LaSalle Bank (the "Facility"). As of March
2005, the outstanding balance on the Facility was $51.0 million, including
Term Note A. In October 2004, the Facility was amended (the "New Facility")
to transfer $1.2 million of revolving debt to term debt and add the
subsidiaries, except TSI, as borrowers. The New Facility bears interest at a
variable rate equal to the bank's base rate, which was 5.75% at March 2005.
The Company may, however, select a rate equal to LIBOR plus 2.50%, for an
amount of the New Facility up to $15.0 million which relates to our swap
agreements. The New Facility continues to restrict borrowings for
intercompany advances to TBG and TSI to $1.0 million in the aggregate and to
the retail health food subsidiaries and HNWC to $0.9 million in the aggregate
in fiscal 2005 and $0.1 million in the aggregate in subsequent years.

The Company hedges its variable rate risk on a notional $15.0 million of its
borrowings under the New Facility by use of interest rate swap agreements.
These swap agreements have the effect of converting the interest on this
amount of debt to fixed rates ranging between 4.38% and 4.87% per annum.

The Company is required to pay an unused commitment fee equal to 0.25% per
annum on the difference between the maximum loan limit and average monthly
borrowing for the month. The New Facility is collateralized by all of the
Company's equipment, intangibles, inventories, and accounts receivable, except
those held by TSI. The New Facility expires in April 2007.

The New Facility contains covenants that (i) restrict permitted investments,
(ii) restrict intercompany advances to certain subsidiaries as described
above, (iii) restrict incurrence of additional debt, (iv) restrict mergers and
acquisitions and changes in business or conduct of business and (v) require
the maintenance of certain financial ratios and net worth levels including an
average annual fixed charge ratio of 0.7 to 1.0, and a minimum tangible net
worth of $1.5 million through September 2005 and $2.5 million thereafter. The
New Facility also provides that the Company may not pay dividends on its
common stock in excess of $0.72 per share on an annual basis.

44

At March 31, 2005, the Company had minimum tangible net worth, as defined by
the New Facility, of $1.7 million and was in compliance with the minimum
tangible net worth covenant as of March 2005 and expects to be in compliance
for the remainder of the fiscal year. However, the Company's minimum fixed
charge ratio of 0.61 at March 31, 2005 was not in compliance with the minimum
fixed charge coverage ratio of 0.7, as amended. As set forth in the loan
agreement, the failure to comply with the minimum fixed charge coverage ratio
shall not constitute an Event of Default so long as AMCON has sufficient
aggregate availability on the revolving credit facility to institute a reserve
in an amount equal to the difference between AMCON's calculated fixed charge
coverage ratio and the minimum fixed charge coverage ratio. At March 31,
2005, the amount necessary to attain compliance with the fixed charge coverage
ratio was approximately $0.4 million. Availability under the revolver will be
reduced by this amount until such time as the Company reports a fixed charge
ratio of 0.7 or greater, which management expects to occur in Q3 2005.

In April 2005, the New Facility was amended to include TSI as a borrower.

In addition, the Company obtained Term Note B from LaSalle Bank, which had an
outstanding balance of $5.0 million at March 2005. Term Note B bears interest
at the bank's base rate plus 2.00%, which was 7.75% at March 2005 and is
required to be repaid in eighteen monthly installments of $0.3 million
beginning March 2005.

The Company's Chairman has personally guaranteed repayment of up to $10
million of the combined amount of the New Facility and the term loans. AMCON
will pay the Company's Chairman an annual fee equal to 2% of the guaranteed
principal in return for the personal guarantee. This guarantee is secured by
a pledge of the shares of Chamberlin Natural Foods, Inc., Health Food
Associates, Inc., HNWC and TSI.

The Company's $2.8 million and $2.0 million credit facilities with a bank
which were used to fund operating activities of our beverage segment were
eliminated in October 2004 as they were brought into the Company's revolving
credit facility as part of the debt restructuring transaction.

Preferred Stock
- ---------------
In October 2004 the Company completed a $2.0 million private placement of
Series B Convertible Preferred Stock representing 80,000 shares at $25 per
share, the proceeds of which were used in combination with funds from Term
Note B to retire $6.8 million of subordinated debt.

Real Estate Term Debt
- ---------------------
In December 2004, the Company purchased a distribution building in Rapid City,
South Dakota and began construction of an addition to the building. The lease
on the current building was extended to coincide with the completion of
construction in the third quarter of fiscal 2005. The Company has incurred
capital expenditures relating to the building, construction of the addition
and related equipment purchases in the amount of approximately $1.8 million.
The Company arranged permanent financing for the building and equipment in an
amount equal to 80% of the acquisition cost or approximately $1.5 million.
The remainder of the capital expenditures related to the building and the
building addition will be provided from the New Facility.

45

TSI Financing
- -------------
In December 2004, a director of the Company extended a revolving credit
facility to TSI in a principal amount of up to $1.0 million at an interest
rate of 8% per annum. The entire $1.0 million is outstanding at March 31,
2005. To induce the director to extend this loan to TSI, the Company agreed
to allow the director to receive a second mortgage on TSI's real property on
an equal basis with the Company's existing second mortgage on TSI's real
property.

Additionally, on March 30, 2005, a Company that is wholly-owned by three of
the Company's directors (including the Chairman and the President) and another
significant shareholder of the Company, extended $0.5 million to TSI under a
promissory note due on or before June 15, 2005. The note bears interest at 7%
per annum. The promissory note was intended to serve as an interim loan until
the negotiations with the bank were completed so that TSI would be included as
a borrower on the New Facility which occurred in April 2005.

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

CERTAIN ACCOUNTING CONSIDERATIONS

In December 2004, the FASB issued Statement No. 123R (revised 2004), "Share-
Based Payment." SFAS No. 123R will require the Company to measure the cost of
all employee stock-based compensation awards based on the grant date fair
value of those awards and to record that cost as compensation expense over the
period during which the employee is required to perform service in exchange
for the award (generally over the vesting period of the award). Accordingly,
the adoption of SFAS No. 123R will have some impact on the Company's results
of operations, although it will have no impact on the Company's overall
financial position. SFAS No. 123R is effective for the Company's fiscal 2006.
Management is currently assessing the impact that this standard will have on
the Company's result of operations and cash flows.

OFF-BALANCE SHEET ARRANGEMENTS

The Company does not have any off-balance sheet arrangements that have or are
reasonably expected to have a material effect on the Company's financial
position or results of operations.

RELATED PARTY TRANSACTIONS

As described under the headings LIQUIDITY AND CAPITAL RESOURCES - Credit
Facilities and TSI Financing, the Company's Chairman has personally guaranteed
repayment of certain obligations of the Company and is being paid a guarantee

46

fee for that service. In addition, a director of the Company has extended a
$1.0 million revolving line of credit to TSI and a Company that is wholly-
owned by the three directors of the Company (including the Chairman and
President) and another significant shareholder have issued a promissory note
to TSI in the amount of $0.5 million.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to interest rate risk on its variable rate debt. At
March 2005, we had $36.0 million of variable rate debt outstanding (excluding
$15.0 million variable rate debt which is fixed through the swaps described
below), with maturities through April 2007. The interest rate on this debt
was 5.75% at March 2005. We estimate that our annual cash flow exposure
relating to interest rate risk based on our current borrowings is
approximately $0.2 million for each 1% change in our lender's prime interest
rate.

In June 2003, the Company entered into two interest rate swap agreements with
a bank in order to mitigate the Company's exposure to interest rate risk on
this variable rate debt. Under the agreements, the Company agrees to
exchange, at specified intervals, fixed interest amounts for variable interest
amounts calculated by reference to agreed-upon notional principal amounts of
$10.0 million and $5.0 million. The interest rate swaps effectively convert
$15.0 million of variable-rate senior debt to fixed-rate debt at rates of
4.87% and 4.38% on the $10.0 million and $5.0 million notional amounts through
the maturity of the swap agreements on June 2, 2006 and 2005, respectively.
These interest rate swap agreements have been designated as hedges and are
accounted for as such for financial accounting purposes.

We do not utilize financial instruments for trading purposes and hold no
derivative financial instruments other than the interest rate swaps which
could expose us to significant market risk.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure
that information required to be disclosed in the Company's reports under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission, and that such information is accumulated and communicated to the
Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures. Any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. As set forth below, our Chief Executive Officer
and Chief Financial Officer concluded that, as of the end of the period
covered by this report, the design and operation of these disclosure controls
and procedures were ineffective.

As more fully described in Note 9 to the condensed consolidated financial
statements, the Company has restated its September 2004 condensed consolidated
balance sheet to correct classification errors of the Series A and B Preferred
Stock and the Company's revolving credit facility. The Company's Chief

47

Executive Officer and Chief Financial Officer concluded that a material
weakness (as defined under standards established by the American Institute of
Certified Public Accountants) existed in the Company's disclosure controls and
procedures with respect to the application of accounting guidance contained in
certain Emerging Issues Task Force Applications ("EITFs") and other accounting
standards relating to the Company's recent financing transactions. This
material weakness resulted in the restatements described above. The Company
is in the process of enhancing its internal controls by enhancing the training
of our accounting staff and requiring periodic review of a wider variety of
current technical accounting literature to obtain a reasonable level of
assurance that all appropriate accounting guidance is applied to the
classification of indebtedness it incurs and equity securities it issues.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

TSI ACQUISITION

AMCON announced in May 2004 that it was filing suit against Trinity Springs,
Ltd. in order to obtain an order from the United States District Court for the
District of Idaho declaring that a majority of the votes entitled to be cast
by the shareholders of Trinity Springs, Ltd. were cast in favor of the sale of
substantially all of its assets to AMCON's subsidiary, TSL Acquisition Corp.
and thereby satisfied the shareholder approval condition of the asset purchase
transaction. Subsequent to AMCON's filing of its lawsuit,
the Inspectors of Election and the Board of Directors of Trinity Springs, Ltd.
certified the shareholder voting results in favor of the asset purchase
transaction.

After the certification of the voting results, certain minority shareholders
filed a complaint and motion seeking injunctive relief in the District Court
of the Fifth Judicial District of the State of Idaho. The Court granted a
temporary restraining order on June 11, 2004, which prevented the closing of
the asset purchase transaction until the Court had an opportunity to review
additional briefing on the issues presented and the parties could be heard by
the Court. On June 16, 2004, the Court heard arguments on whether to extend
the temporary restraining order and grant the minority shareholders' motion
for preliminary injunction. As a result of the parties' briefing and the
arguments presented, the Court dissolved the temporary restraining order and
thereby enabled the asset sale transaction to be consummated.

On July 19, 2004, several of the same minority shareholders, along with some
additional shareholders filed an amended complaint in the same Idaho state
court action. The minority shareholders' amended complaint seeks (i) a
declaration that the asset sale transaction is void and injunctive relief
rescinding that transaction or, alternatively, that a new shareholder vote on
the asset sale transaction be ordered, (ii) damages for the alleged breaches
of fiduciary duty which are claimed to have arisen out of the disclosure made
in connection with the solicitation of proxies, how the votes were counted,
and conducting the closing without the requisite shareholder vote, and (iii)
imposition of a constructive trust on the sale proceeds and requiring separate
books to be maintained. AMCON continues to believe that the shareholders of
Trinity Springs, Ltd. approved the sale of assets to the Company in accordance
with applicable law and that the asset sale transaction was properly
completed.

48

PACIFIC VENTURES HAWAII

On or about April 15, 2005, plaintiff Pacific Ventures Hawaii served a
Complaint on The Beverage Group, Inc. ("TBG"), naming TBG and certain other
unaffiliated parties as defendants. The dispute centers around a series of
contracts entered into by the various parties to import, broker, market and
distribute the Hype Classic Energy Drink line of products. TBG was to act as
the master distributor for the product. The Complaint alleges five causes of
action against the defendants: breach of contract; common counts; intentional
interference with contract; intentional interference with prospective economic
advantage; and negligent interference with business relationships. The
plaintiff does not specifically allege how TBG breached the contracts or how
it acted wrongfully. The Complaint seeks compensatory damages "in excess of
$500,000 and according to proof"; punitive damages in an unspecified amount;
attorney's fees, witness fees and costs incurred; and all other relief the
Court deems just and proper.

On May 6, 2005 outside counsel for TBG faxed a letter to plaintiff's counsel
demanding that the case be dismissed with prejudice because TBG believes: it
did not breach any of its obligations under those contracts to which it is a
party; the plaintiff has stated in writing that TBG does not have any
liability; and the applicable contract has provisions mandating submission of
any disputes to arbitration by the American Arbitration Association in New
York. If the plaintiff does not voluntarily dismiss before May 16, 2005, TBG
will file an answer or motion to dismiss and vigorously defend the action. At
this point it is too early to determine the likely outcome of the action.

TELEVISION EVENTS & MARKETING, INC. VS. AMCON DISTRIBUTING CO., ET AL.

An action entitled Television Events & Marketing, Inc. vs. AMCON Distributing
Co., et al., Civil No. CV 05-00259 ACK BMK, was filed in the First Circuit
Court of the State of Hawaii in Honolulu, Hawaii on March 8, 2005 and then
removed on April 12, 2005 to the United States District Court for the District
of Hawaii. This action concerns the alleged breach of two trademark licensing
agreements involving Television Events & Marketing, Inc. The complaint seeks
(i) an unstated amount of damages for an alleged breach of those agreements;
(ii) an unstated amount of damages for alleged fraudulent transfer of assets
to Trinity Springs, Inc., a subsidiary of the Company; (iii) interest and
reasonable attorney's fees and costs; and (iv) such other relief as the court
deems just and proper. On May 4, 2005, the Company, together with its named
subsidiaries, moved to dismiss the complaint or for summary judgment on the
complaint. On April 28, 2005, the Company offered to settle this matter with
the plaintiff for $100,000. The plaintiff rejected that written settlement
offer. The plaintiff's attorney asserts that the amount of the plaintiff's
damages for the alleged breach of the two agreements exceeds $400,000.

IN GENERAL

The Company is also party to other lawsuits and claims arising out of the
operation of its businesses. Management believes the ultimate resolution of
such matters should not have a material adverse effect on the Company's
financial condition, results of operations or liquidity after giving
consideration to amounts already recorded in the Company's financial
statements.
49

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

In October 2004, the Company completed a $2.0 million private placement of
Series B Convertible Preferred Stock representing 80,000 shares at $25.00 per
share which was primarily used to partially fund the repayment of subordinated
debt obligations of the Company. The Series B Convertible Preferred Stock is
senior to the Company's outstanding common stock and provides for preferential
treatment for preferred shareholders in the event of distributions, proceeds
upon liquidation of the Company or the redemption of the stock.

The Series B Convertible Preferred Stock is convertible at any time by the
holders into a number of shares of AMCON common stock equal to the number of
Preferred Shares being converted times a fraction equal to $25.00 divided by
the conversion price. The conversion price is initially $24.65 per share, but
is subject to customary adjustments in the event of stock splits, stock
dividends and certain other distributions on the Common Stock.

This transaction was affected in reliance upon exemption for securities
registration provided by Section 4(2) of the Securities Act of 1933 and Rule
506 of Regulation D thereunder.

Item 3. Defaults Upon Senior Securities

During the fiscal quarter ended December 2004, the Company's minimum tangible
net worth dropped below that required by the New Facility. LaSalle waived
this default and entered into an amendment to the Credit Agreement effective
December 31, 2004 which reduced the minimum tangible net worth covenant
requirement to $1.5 million through September 29, 2005 and $2.5 million
thereafter, and redefined and reduced the minimum fixed charge coverage ratio
to 0.7 million for the remainder of fiscal 2005. The Company is in compliance
with the minimum tangible net worth covenant at March 31, 2005, but is not in
compliance with the fixed charge coverage ratio covenant. As discussed in
Note 8 to the condensed consolidated unaudited financial statements, the
failure to comply the minimum fixed charge coverage ratio shall not constitute
an Event of Default so long as AMCON has sufficient aggregate availability the
revolver to institute a reserve in an amount equal to the difference between
AMCON's calculated fixed charge coverage ratio and the minimum fixed charge
coverage ratio. At March 31, 2005, there was sufficient aggregate availability
and thereby does not constitute an event of default.

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

The Company held its Annual Meeting of Stockholders on March 15, 2005 for the
purpose of electing three directors, ratifying the appointment of its auditors
and amending the Certificate of Incorporation of the Company in order to
reduce the number of authorized common shares from 15,000,000 shares to
3,000,000 shares.

The following sets forth the results of the election of directors:

NAME OF NOMINEE FOR WITHHELD
Mr. Christopher H. Atayan 475,468 100.0% 155
Mr. Raymond F. Bentele 475,462 100.0% 161
Mr. Allen D. Petersen 475,468 100.0% 155

50

There was no solicitation in opposition to the nominees proposed to be elected
by the Stockholders in the Proxy Statement. In addition to the directors
elected at the Annual Meeting, the following directors continued their term of
office: Kathleen M. Evans, Timothy R. Pestotnik, John R. Loyack, William F.
Wright, William R. Hoppner and Stanley Mayer.

The ratification of the appointment of Deloitte & Touche LLP as independent
auditors for the Company for the fiscal year ending September 30, 2005 was
approved by the Stockholders with 475,309 votes FOR (99.9% of votes cast), 284
votes AGAINST, and 30 votes ABSTAINED.

The proposal to amend the Certificate of Incorporation of the Company to
reduce the number of authorized common shares from 15,000,000 to 3,000,000
shares was approved with 474,141 votes FOR (90.0% of total shares
outstanding), 1,334 votes AGAINST, and 148 votes ABSTAINED OR BROKER NON-
VOTES.

Item 5. Other Information

On May 25, 2005, the Company received a letter from the American Stock
Exchange ("AMEX") notifying the Company that it was not in compliance with
Sections 134 and 1101 of the AMEX Company Guide, and accordingly was not in
compliance with the AMEX continued listing standards, because the Company had
not filed this Quarterly Report on Form 10-Q for the period ended March 31,
2005. With this filing of the Quarterly Report on Form 10-Q for the period
ended March 31, 2005, the Company has complied with the listing standards.

51

Item 6. Exhibits

(a) EXHIBITS

2.1 Assets Purchase and Sale Agreement by and between Food For Health
Company, Inc., AMCON Distributing Company and Tree of Life, Inc. dated
March 8, 2001 (incorporated by reference to Exhibit 2.1 of AMCON's
Current Report on Form 8-K filed on April 10, 2001)

2.2 Amendment to Assets Purchase and Sale Agreement by and between Food For
Health Company, Inc., AMCON Distributing Company and Tree of Life, Inc.
effective March 23, 2001 (incorporated by reference to Exhibit 2.2 of
AMCON's Current Report on Form 8-K filed on April 10, 2001)

2.3 Asset Purchase Agreement, dated February 8, 2001, between AMCON
Distributing Company, Merchants Wholesale Inc. and Robert and Marcia
Lansing (incorporated by reference to Exhibit 2.1 of AMCON's Current
Report on Form 8-K filed on June 18, 2001)

2.4 Addendum to Asset Purchase Agreement, dated May 30, 2001, between AMCON
Distributing Company, Merchants Wholesale Inc. and Robert and Marcia
Lansing (incorporated by reference to Exhibit 2.2 of AMCON's Current
Report on Form 8-K filed on June 18, 2001)

2.5 Real Estate Purchase Agreement, dated February 8, 2001, between AMCON
Distributing Company and Robert and Marcia Lansing (incorporated by
reference to Exhibit 2.3 of AMCON's Current Report on Form 8-K filed on
June 18, 2001)

2.6 Addendum to Real Estate Purchase Agreement, dated May 30, 2001, between
AMCON Distributing Company and Robert and Marcia Lansing (incorporated
by reference to Exhibit 2.4 of AMCON's Current Report on Form 8-K filed
on June 18, 2001)

2.7 Asset Purchase Agreement, dated April 24, 2004, between TSL Acquisition
Corp., AMCON Distributing Company and Trinity Springs, Ltd.
(incorporated by reference to Exhibit 2.8 of AMCON's Quarterly Report on
Form 10-Q filed on August 9, 2004)

2.8 First Amendment to Asset Purchase Agreement dated June 17, 2004 between
TSL Acquisition Corp., AMCON Distributing Company and Trinity Springs,
Ltd. (incorporated by reference to Exhibit 2.9 of AMCON's Quarterly
Report on Form 10-Q filed on August 9, 2004)

3.1 Restated Certificate of Incorporation of the Company, as amended May
11, 2004 (incorporated by reference to Exhibit 3.1 of AMCON's Quarterly
Report on Form 10-Q filed on August 9, 2004)

3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 of
AMCON's Registration Statement on Form S-1 (Registration No. 33-82848)
filed on August 15, 1994)

3.3 Second Corrected Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Securities of AMCON Distributing Company
dated August 5, 2004 (incorporated by reference to Exhibit 3.3 of
AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)

52

3.4 Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Securities of AMCON Distributing Company dated
October 8, 2004 (incorporated by reference to Exhibit 3.4 of AMCON's
Annual Report on Form 10-K filed on January 7, 2005)

4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit
4.1 of AMCON's Registration Statement on Form S-1 (Registration No.
33-82848) filed on August 15, 1994)

4.2 Specimen Series A Convertible Preferred Stock Certificate (incorporated
by reference to Exhibit 4.2 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)

4.3 Specimen Series B Convertible Preferred Stock Certificate (incorporated
by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)

4.4 Securities Purchase Agreement dated June 17, 2004 between AMCON
Distributing Company, William F. Wright and Draupnir, LLC (incorporated
by reference to Exhibit 4.3 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)

4.5 Securities Purchase Agreement dated October 8, 2004 between AMCON
Distributing Company and Spencer Street Investments, Inc. (incorporated
by reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)

10.1 Amended and Restated Loan and Security Agreement, dated September 30,
2004, between the Company and LaSalle National Bank, as agent
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)

10.2 Revised First Amendment To Amended and Restated Loan and Security
Agreement, dated April 14, 2005

10.3 Revised Second Amendment to Amended and Restated Loan and Security
Agreement, dated May 23, 2005

10.4 First Amended and Restated AMCON Distributing Company 1994 Stock Option
Plan (incorporated by reference to Exhibit 10.17 of AMCON's Current
Report on Form 10-Q filed on August 4, 2000)

10.5 AMCON Distributing Company Profit Sharing Plan (incorporated by
reference to Exhibit 10.8 of Amendment No. 1 to the Company's
Registration Statement on Form S-1 (Registration No. 33-82848) filed on
November 8, 1994)

10.6 Employment Agreement, dated May 22, 1998, between the Company and
William F. Wright (incorporated by reference to Exhibit 10.14 of
AMCON's Quarterly Report on Form 10-Q filed on August 6, 1998)

10.7 Employment Agreement, dated May 22, 1998, between the Company and
Kathleen M. Evans (incorporated by reference to Exhibit 10.15 of
AMCON's Quarterly Report on Form 10-Q filed on August 6, 1998)

10.8 Director and Officer Compensation

53

10.9 Agreement, dated December 10, 2004 between AMCON Distributing Company
and William F. Wright with respect to split dollar life insurance
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)

10.10 Agreement, dated December 15, 2004 between AMCON Distributing Company
and Kathleen M. Evans with respect to split dollar life insurance
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)

10.11 ISDA Master Agreement, dated as of May 12, 2003 between the Company and
LaSalle Bank National Association (incorporated by reference to Exhibit
10.13 of AMCON's Quarterly Report on Form 10-Q filed on August 11,
2003)

10.12 Swap Transaction Confirmation ($10,000,000) dated as of May 23, 2003
between the Company and LaSalle Bank National Association (incorporated
by reference to Exhibit 10.14 of AMCON's Quarterly Report on Form 10-Q
filed on August 11, 2003)

10.13 Swap Transaction Confirmation ($5,000,000) dated as of May 23, 2003
between the Company and LaSalle Bank National Association (incorporated
by reference to Exhibit 10.15 of AMCON's Quarterly Report on Form 10-Q
filed on August 11, 2003)

10.14 Promissory Note ($2,828,440), dated as of June 17, 2004 between the
Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit
10.15 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)

10.15 Promissory Note ($500,000), dated as of June 17, 2004 between the
Company and Trinity Springs, Ltd. (incorporated by reference to Exhibit
10.16 of AMCON's Quarterly Report on Form 10-Q filed on August 9, 2004)

10.16 Security Agreement, dated June 17, 2004 by and between TSL Acquisition
Corp., AMCON Distributing Company and Trinity Springs,Ltd.(incorporated
by reference to Exhibit 10.17 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)

10.17 Shareholders Agreement, dated June 17,2004, by and between TSL
Acquisition Corp, AMCON Distributing Company and Trinity Springs, Ltd.
(incorporated by reference to Exhibit 10.18 of AMCON's Quarterly Report
on Form 10-Q filed on August 9, 2004)

10.18 Guaranty and Suretyship Agreement, dated June 17, 2004, by and between
AMCON Distributing Company and Trinity Springs, Ltd. (incorporated by
reference to Exhibit 10.19 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)

10.19 Mortgage, dated June 17, 2004, by and between TSL Acquisition Corp.,
AMCON Distributing Company and Trinity Springs, Ltd.(incorporated by
reference to Exhibit 10.20 of AMCON's Quarterly Report on Form 10-Q
filed on August 9, 2004)

10.20 Guaranty Fee, Reimbursement and Indemnification Agreement, dated as of
September 30, 2004, between AMCON Distributing Company and William F.
Wright (incorporated by reference to Exhibit 3.4 of AMCON's Annual
Report on Form 10-K filed on January 7, 2005)

54

10.21 Unconditional Guaranty, dated as of September 30, 2004 between William
F. Wright and LaSalle Bank, N.A.(incorporated by reference to Exhibit
3.4 of AMCON's Annual Report on Form 10-K filed on January 7, 2005)

10.22 Secured Promissory Note ($1,000,000), dated December 14, 2004, issued
by Trinity Springs, Inc. to Allen D. Petersen (incorporated by
reference to Exhibit 3.4 of AMCON's Annual Report on Form 10-K filed
on January 7, 2005)

10.23 Modification and Extension of Second Lien Commercial Mortgage,
Assignment of Leases and Rents, and Fixture Filing, dated as of
December 14, 2004 between Trinity Springs, Inc. and Allen D. Petersen
(incorporated by reference to Exhibit 3.4 of AMCON's Annual Report on
Form 10-K filed on January 7, 2005)

10.24 Term Real Estate Promissory Note, dated December 21, 2004, issued by
AMCON Distributing Company to Gold Bank (incorporated by reference to
Exhibit 10.21 of AMCON's quarterly report on Form 10-Q filed on
February 14, 2005)

10.25 Term Equipment Promissory Note, dated December 21, 2004 issued by AMCON
Distributing Company to Gold Bank (incorporated by reference to
Exhibit 10.22 of AMCON's quarterly report on Form 10-Q filed on
February 14, 2005)

10.26 One Hundred Eighty Day Redemption Mortgage and Security Agreement by
and between AMCON Distributing Company and Gold Bank (incorporated by
reference to Exhibit 10.23 of AMCON's quarterly report on Form 10-Q
filed on February 14, 2005)

10.27 Security Agreement by and between AMCON Distributing Company and Gold
Bank (incorporated by reference to Exhibit 10.24 of AMCON's quarterly
report on Form 10-Q filed on February 14, 2005)

11.1 Statement re: computation of per share earnings (incorporated by
reference to footnote 4 to the financial statements which are
incorporated herein by reference to Item 1 of Part I herein)

14.1 Code of Ethics for Principal Executive and Financial Officers
(incorporated by reference to Exhibit 14.1 of AMCON's Annual Report on
Form 10-K filed on December 24, 2003)

31.1 Certification by William F. Wright, Chairman and Principal Executive
Officer, furnished pursuant to section 302 of the Sarbanes-Oxley Act

31.2 Certification by Michael D. James, Vice President and Chief Financial
Officer, furnished pursuant to section 302 of the Sarbanes-Oxley Act

32.1 Certification by William F. Wright, Chairman and Principal Executive
Officer, furnished pursuant to section 906 of the Sarbanes-Oxley Act

32.2 Certification by Michael D. James, Vice President and Chief Financial
Officer, furnished pursuant to section 906 of the Sarbanes-Oxley Act

55

SIGNATURES

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

AMCON DISTRIBUTING COMPANY
(registrant)

Date: May 27, 2005 /s/ William F. Wright
----------------- -----------------------------
William F. Wright
Chairman of the Board and
Principal Executive Officer

Date: May 27, 2005 /s/ Michael D. James
----------------- -----------------------------
Michael D. James
Treasurer & CFO and
Principal Financial and
Accounting Officer

56