**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-QSB**

 

**ý****QUARTERLY REPORT PURSUANTTO SECTION 13 OR 15(d)OF THE SECURITIES ACT OF 1934**

 

**FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2005**

 

**OR**

 

**o****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d)OF THE SECURITIES ACT OF 1934**

 

**FOR THE TRANSITION PERIOD FROM            TO            **

 

**COMMISSION FILE NUMBER: 000-8880**

 

**THEBANKER’S STORE, INC.**

(Exact name of registrant as specified in its charter)

 
| **NEW YORK**                                                    | ** ** | **22-3755766**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

**1535 MEMPHIS JUNCTION ROAD, BOWLING GREEN, KY**

42101 (Address, including zip code, of principal executive offices)

 

**(270) 781-8453**

(Registrant’s telephone number, including area code)

 

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o No  ý 

 

**APPLICABLE ONLY TO CORPORATE ISSUERS:**

 

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

 

Common stock, par value$0.01, 14,954,715 shares outstanding as of October 14, 2005.

 

TransitionalSmall Business Disclosure
| Format  (Check one): | Yes o |   | No ý |
|---------------------------|------------|--------|----------------|

 

 

----

 

**THE BANKER’S STORE, INC.FORM 10-QSB**AUGUST 31, 2005

 

INDEX

 

PART I - FINANCIALINFORMATION

 
| ITEM 1. |                                                  | FINANCIAL STATEMENTS                                                                        |
|---------|-------------------------------------------------------|---------------------------------------------------------------------------------------------|
|    |                                                  |                                                                                        |
|    | See financial statements  beginning on page F-1. |
|    |                                                  |                                                                                        |
| ITEM 2. | ** **                                            | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION** |

 

The matters discussed inthis management’s discussion and analysis or plan of operations containforward-looking statements that involve risks and uncertainties. The Company’sactual results in our two operating segments could differ materially from thosediscussed here. Factors that could cause or contribute to such differences arediscussed elsewhere in this quarterly report on Form 10-QSB. The Companydisclaims any intent or obligation to update these forward-looking statements.

 

**OVERVIEW**

 

The Banker’s Store, Inc.(“Store”) was established in 1968. It remained dormant for many years until itcompleted the acquisition of B.G. Banking Equipment, Inc., (“B.G. Banking”)and Financial Building Equipment Exchange, Inc., (“FBEE”). We are now inthe business of buying, selling, refurbishing and trading new and refurbishedfinancial equipment for banks and other financial institutions. Commencingduring the fourth quarter of the year ended May 31, 2002, we entered theoffice equipment and furniture retail business. We market products throughoutthe United States primarily through direct sales to financial institutions andother distributors supported by our direct sales force and soliciting newcontacts through our presence on the Internet.

 

We anticipate that ourresults of operations may fluctuate for the foreseeable future due to severalfactors, including whether and when new products at competitive prices areobtained and sources of good used banking and banking related equipment andfurniture become available at favorable prices, market acceptance of current ornew products, delays, or inefficiencies, shipment problems, seasonal customerdemand, the timing of significant orders, competitive pressures on averageselling prices and changes in the mix of products sold.

 

Operating results would alsobe adversely affected by a downturn in the market for our current and futureproducts, order cancellations, or order rescheduling or remanufacturing ordelays. We purchase and resell new merchandise and remanufacture and ship ourother products shortly after receipt of orders. We have not developed asignificant backlog for such products and do not anticipate developing amaterial backlog for such products in the future.

 

Because we plan to increaseour operating expenses, primarily for personnel and activities supportingnewly-introduced products, new product development and entering new markets,our operating results would be adversely affected if our sales did notcorrespondingly increase or if our product development efforts are unsuccessfulor are subject to delays.

 

**SUMMARY OFSIGNIFICANT ACCOUNTING ESTIMATES, RELATED PARTY TRANSACTIONS AND CONTINGENCIES:**

 

Significant accountingestimates:

 

Our discussion and analysisof our financial condition and results of operations are based upon ourcondensed consolidated financial statements, which have been prepared inconformity with accounting principles generally accepted in the United Statesof America. The preparation of these condensed consolidated financialstatements requires us to make estimates and judgments that affect the reportedamounts of assets, liabilities, revenues and expenses, and related disclosuresof contingent assets and liabilities. On an on-going basis, we evaluate ourestimates, including those related to accounts receivable, inventories,equipment and improvements, income taxes and contingencies. We base ourestimates on historical experience and on various other assumptions that arebelieved to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying value of assets andliabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions. Theaccounting estimates used as of May 31, 2005 and as outlined in ourpreviously filed Form 10-KSB have been applied consistently for the threemonths ended August 31, 2005.

 

Related party transactions:

 

We have entered into two operating leases with our President and principal stockholder, Paul Clark, for the lease of an aggregate of 32,000 square feet of office and warehouse space located in Bowling Green, Kentucky. The leases provide for a monthly rent of $7,200 plus maintenance expenses.  The leases expire in August and September 2007, respectively.

 

2

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Contingencies:

 

Private placement - B.G.Banking:

 

Prior to the Store’s reversemerger with B.G. Banking and FBEE, B.G Banking offered and receivedsubscriptions for 126,500 shares of its common stock at $1.00 per share.Subsequent to the date of the reverse merger, the subscribers of shares of B.G.Banking’s common stock were offered and they received shares of common stock inthe Store at a ratio of 1 share of B.G. Banking common stock to 1.5 shares ofthe Store’s common stock. We issued 189,750 shares of its common stock insatisfaction of the subscription agreements at a value of $.67 per share.

 

Two of our former directors,acting individually as principals of Taurus Investments International, Inc.(a Nevada corporation) (collectively “Taurus”), and as directors of B.G.Banking prior to its acquisition by the Store and subsequent to the acquisitionbecoming directors of the Company, offered and sold on behalf of B.G. Bankingwhat Taurus has admitted to being an aggregate of 304,500 shares of B.G.Banking’s common stock for an aggregate consideration of $304,500. Taurus hasremitted to the Store net proceeds of $109,674 and claims the difference of$194,826 as payment for expenses and commissions. In addition, Taurus hasrefused to disclose the purchaser names and numbers of shares of common stockpurchased, and refused to remit to the Store the balance of the proceeds of theshares sold. As of August 31, 2005, Taurus has failed to turn over thebalance of money, provide the names of the stock subscribers and the number ofshares of common stock purchased.

 

Based upon the accountingprovided by Taurus to the Store, the Store may be liable for the issuance of upto 322,000 shares of common stock if and when Taurus substantiates theirrepresentation as to the number of shares of common stock sold and aggregateconsideration. This number of shares represents the number of shares admittedlysold by Taurus for which the purchasers remained unidentified.

 

We may also be forced todefend ourself against actions to be brought by unknown subscribers to sharesof common stock of B.G. Banking whose purchase price has never been disclosedor delivered to the Store. We are aware of one alleged purchaser who claims tohave delivered funds to Taurus and whose funds were apparently not turned overto us. In the opinion of management, the Store has no liability to suchpurchasers and intends to vigorously defend such actions, if and when brought.

 

We have receivedapproximately $42,000 from Taurus relating to the purchase of shares by anunknown investor in June 1999. We are holding such funds in escrow pendingdisposition.

 

In December 2004, theCompany issued 7,500 shares of common stock to one of the subscribers.

 

As of August  31, 2005,we have reserved 322,000 shares of common stock pending possible issuance ofshares in satisfaction of outstanding subscription agreements.

 

Litigation:

 

On February 29, 2000,Alexander C. Brosda and Andrew Seim filed an action in the United StatesDistrict Court in Florida against the Store. The action alleges that weviolated the Securities and Exchange Act of 1934, as amended, and variousFlorida statutes, by failing to affect the exchange of 150,000 shares of B.G.Banking common stock held by Brosda and Seim for 225,000 shares of our commonstock. On June 5, 2000, we filed a motion to dismiss the complaint forfailure to state a claim, improper venue and lack of jurisdiction,respectively. On January 23, 2001, the court dismissed the plaintiff’sclaims alleging violations of the Securities Exchange Act of 1934. Theplaintiffs did not file an amended complaint, and the action has been dismissedby the court without prejudice.

 

However, on September 26,2001, Taurus Venture Capital Fund, LLC and Taurus filed a similar claim againstthe Store and our President, Paul Clark. The claim seeks $2,000,000 for actualdamages based upon a per share price of $4.50, treble damages of $6,615,000plus interest and fees. In November 2001, the Company and its presidentfiled a motion to discuss or abate the action and are awaiting the schedulingby the court of a hearing on the motion. On May 30, 2002, the court issueda decision denying the motion to dismiss.

 

On August 6, 2002, theCompany and the President filed an answer, affirmative defenses and counterclaimsagainst plaintiffs, denying the allegations in the complaint and alleging ascounterclaims the same claims as are alleged in the following described actionpending in New York State, seeking damages in the amount of not less than$1,700,000 for breach of fiduciary duty, breach of contract, conversion andunjust enrichment, and seeking an accounting of plaintiffs’ books and records.The Company believes that they have meritorious defenses and intends tovigorously defend the action. On May 28, 2003, the Company and itspresident filed a motion to dismiss the action and are awaiting the schedulingby the court of a hearing on the motion.

 

On March 7, 2000, wefiled an action in the Supreme Court of New York, County of New York, againstTaurus, seeking an amount of not less than $1,700,000 for breach of fiduciaryduty, breach of contract, conversion and unjust enrichment and seeking anaccounting of Taurus’ books and records. The action arises out of B.G. Banking’sconfidential private placement memorandum dated January 31, 1998 for thesale of 3,000,000 shares of common stock at $1.00 per share. Taurus filed amotion to dismiss the action which the court denied on October 5, 2000. OnNovember 15, 2000 a motion filed by Taurus counsel to be relieved ascounsel was granted. On December 14, 2000, the court granted our oralmotion for the entry of a default judgment against Taurus. On May 4, 2001,the court granted the motion filed by the defendant and, as a result, theaction has been transferred to the New York State Supreme Court, DelawareCounty. The Company is awaiting a date for a hearing on its claim against theplaintiff for damages. The Company intends to continue to litigate this action.

 

3

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Although we cannot predictthe outcome of the litigation described above, we do not believe that theultimate outcome will have any material adverse effect on our consolidatedfinancial statements in subsequent periods.

 

**RESULTS OFOPERATIONS**

 

The following table setsforth operating data as a percentage of revenue for the three months ended August 31,2005 and August 31, 2004:

 
| ** **                     | ** ** | **August 31,** | ** ** |
|--------------------------------|------------|----------------|------------|
| ** **                     | ** ** | **2005**       | ** ** | **2004** | ** ** |
| ** **                     | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                      |       | 100.0          | %          | 100.0 | % |
|                           |       |           |       |   |   |
| Cost of  sales                 |       | 72.9           | %          | 75.2 | % |
|                           |       |           |       |   |   |
| Gross profit                   |       | 27.1           | %          | 24.8 | % |
|                           |       |           |       |   |   |
| Expenses                       |       | 35.1           | %          | 26.1 | % |
|                           |       |           |       |   |   |
| Income  (loss) from operations |       | -8.0           | %          | -1.3 | % |
|                           |       |           |       |   |   |
| Other                          |       | 0.1            | %          | -0.1 | % |
|                           |       |           |       |   |   |
| Net income  (loss)             |       | -7.9           | %          | -1.4 | % |

 

**RESULTS OFOPERATIONS FOR THE THREE MONTHS ENDED AUGUST 31, 2005 AS COMPARED TO THETHREE MONTHS ENDED AUGUST 31, 2004.**

 

Revenues were approximately$568,360 for the three months ended August 31, 2005 as compared toapproximately $652,394 for the three months ended August 31, 2004reflecting a decrease of approximately $84,034 or 12.9%. The decrease inrevenues during the three months ended August 31, 2005 was due to adecline in new construction projects, primarily caused by a decrease incontractual orders during the fourth quarter ending May of 2005. Suchorders were down $441,000 or 64% from the same period ending 2004.  Management believes that many financialinstitutions have delayed spending on new construction and are focusing insteadon small remodeling projects, mandated triple DES upgrading or replacement ofATMs, and replacing processing equipment with check imaging and storage. Thistrend is expected to continue for the balance of 2005.  Revenues are not recognized when sales arerecorded but on delivery and completed installations.

 

Cost of goods sold andrelated expenses for the three months ended August 31, 2005 wereapproximately $414,330 or 72.9% of net sales as compared to approximately$490,835 or 75.3% of net sales for the three months ended August 31, 2004**.**Gross profitdecreased during the three months ended August 31, 2005 as compared to thethree months ended August 31, 2004 due to less sales.  Gross profit as a percentage increased forthe three months ended August 31, 2005 due to more new equipment sold thanrefurbished.  New equipment does notrequire labor to get it ready for sale. Also management made cutbacks and eliminated 1 labor position**.**

 

Selling, general andadministrative expenses were approximately $199,687 for the three months ended August 31,2005 as compared to approximately $170,243 for the three months ended August 31,2004 reflecting an increase of approximately $29,444 or 14.8% over the sameperiod last year. ** **The increase was due to an addition of two temporary sales staff who areno longer with the Company.  Also additionalprofessional services in accounting were engaged for PCAOB compliance andfiling efficiency**.**

 

As a result of theaforementioned, the Company incurred a net loss during the three months ended August 31,2005 of approximately $45,659 as opposed to a net loss of approximately $8,684for the comparable period ended August 31, 2004.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

We have historicallyfinanced our operations through revenues from operations, private and publicplacements of equity securities, debt and capital lease financing and interestincome earned on the net proceeds from the private placements.

 

We had cash and cashequivalents of $287,466 and working capital of $438,580 at August 31,2005. During the three months ended August 31, 2005, our cash and cashequivalents increased by $50,078 due tocompletion of jobs that were in progress at the end of the year.  Consequently, accounts payable decreased by$41,938 in the three months ending August 31, 2005 due to satisfaction ofoutstanding equipment invoices in connection with these jobs.  During the three months ended August 31,2005,  we made principal payments of$19,434 on long term debt which consisted of a bank loan and vehicle loans.

 

4

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We are evaluating variousalternatives in addressing our future facilities expansion needs. Thealternatives being evaluated include negotiations with various parties for theleasing of additional facility space and the purchase of additional property tobuild a new or additional office and warehousing facility. Relocation to a newfacility or leasing of additional facility space would be expected to result inan increase in rent upon occupancy. We believe that our available cash, cashfrom operations and funds from existing credit arrangements will be sufficientto satisfy our funding needs through at least August 31, 2006.  Thereafter, if cash generated from operationsis insufficient to satisfy our working capital and capital expenditurerequirements, we may be required to sell additional equity or debt securitiesor obtain additional credit facilities. There can be no assurance that suchadditional capital, if needed, will be available on satisfactory terms, if atall. Furthermore, any additional equity financing may be dilutive tostockholders, and debt financing, if available, may include restrictivecovenants. Our future liquidity and capital funding requirements will depend onnumerous factors, including the extent to which our new products and productsunder consideration are successfully developed, gain market acceptance andbecome and remain competitive, the timing and results of regulatory actions inthe banking industry, the costs and timing of further expansion of sales,marketing and manufacturing activities and facilities expansion needs. Thefailure by us to raise capital on acceptable terms when needed could have amaterial adverse effect on our business, financial condition and results ofoperations.

 

**ITEM 3.CONTROLS AND PROCEDURES**

 

(a) DISCLOSURE CONTROLSAND PROCEDURES. As of August 31, 2005, the Company evaluated theeffectiveness of the design and operation of its disclosure controls andprocedures. The Company’s disclosure controls and procedures are the controlsand other procedures that it designed to ensure that it records, processes,summarizes and reports in a timely manner the information it must disclose inreports that it files with or submits to the Securities and ExchangeCommission. Paul D. Clark, the Company’s President, CEO and CFO, supervised andparticipated in this evaluation. Based on this evaluation, Mr. Clarkconcluded that, as of the date of their evaluation, the Company’s disclosurecontrols and procedures were effective.

 

(b) CHANGES IN INTERNALCONTROLS.  There were no changes ininternal controls over financial reporting known to the Chief Executive Officerand Chief Financial Officer that occurred during the period covered by thisreport that have materially affected, or are likely to materially affect theCompany’s internal control over financial reporting.

 

**PART II.OTHER INFORMATION**

 

**ITEM 1.LEGAL PROCEEDINGS**

 

No material developmentsoccurred during the quarter with respect to our on-going litigation. For adiscussion of this litigation, please see Item 2. Management’s Discussion andAnalysis of Financial Condition and Results of Operation-Litigation herein.

 

**ITEM 2.CHANGES IN SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES**

 

None.

 

**ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5. OTHERINFORMATION**

 

None.

 

**ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K**

 

a) Exhibits

 

31.1 Certification Pursuantto Rule 13a-14(a) of the Chief Executive Officer and Chief FinancialOfficer Paul Clark

32.1 Certification of ChiefExecutive Officer and Chief Financial Officer Paul Clark

 

5

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**FINANCIAL STATEMENTS**

 

**THE BANKER’S STORE, INC. AND SUBSIDIARIES**

 

**I N D E X**

 

**PAGE**

 

**PART I - FINANCIAL INFORMATION**

 
| ** **                                                                  | ** ** | **PAGE**                                                                                                          |
|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------|
| **ITEM 1.  FINANCIAL STATEMENTS**                                           | ** ** | ** **                                                                                                        |
| ** **                                                                  | ** ** | ** **                                                                                                        | ** ** | ** ** |
| ** **                                                                  | ** ** | **CONDENSED CONSOLIDATED BALANCE SHEETS  AUGUST 31, 2005 (UNAUDITED) AND MAY 31, 2005**                 | ** ** | **F-2** |
| ** **                                                                  | ** ** | ** **                                                                                                        | ** ** | ** ** |
| ** **                                                                  | ** ** | **CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  THREE MONTHS ENDED AUGUST 31, 2005 AND 2004 (UNAUDITED)** | ** ** | **F-3** |
| ** **                                                                  | ** ** | ** **                                                                                                        | ** ** | ** ** |
| ** **                                                                  | ** ** | **CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  THREE MONTHS ENDED AUGUST 31, 2005 AND 2004 (UNAUDITED)** | ** ** | **F-4** |
| ** **                                                                  | ** ** | ** **                                                                                                        | ** ** | ** ** |
| ** **                                                                  | ** ** | **NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)**                                             | ** ** | **F-5 - F-7** |
| ** **                                                                  | ** ** | ** **                                                                                                        |
| **ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION** | ** ** | ** **                                                                                                        |
| ** **                                                                  | ** ** | ** **                                                                                                        |
| **PART II. OTHER INFORMATION**                                         | ** ** | ** **                                                                                                        |
| ** **                                                                  | ** ** | ** **                                                                                                        |
| **SIGNATURES**                                                              | ** ** | ** **                                                                                                        |

 

* * *

 

F-1

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**THE BANKER’S STORE, INC. AND SUBSIDIARIESCONSOLIDATED BALANCESHEETSAUGUST 31, 2005 AND MAY 31, 2005**

 
| ** **                                                                                            | ** ** | **AUGUST 31,  2005** | ** ** | **MAY 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------|------------|-------------------|------------|
| **ASSETS**                                                                                            |       |                 |       |              |       |
|                                                                                                  |       |                 |       |              |       |
| Current  Assets:                                                                                      |       |                 |       |              |       |
| Cash and cash equivalents                                                                             |       | $                    | 287,466    |              | $          | 237,388 |   |
| Accounts receivable, net of allowance for doubtful  accounts of $3,048                                |       | 294,120              |       | 426,852           |       |
| Inventories                                                                                           |       | 707,052              |       | 711,778           |       |
| Prepaid expenses and other current assets                                                             |       | 43,812               |       | 44,444            |       |
| Total current assets                                                                                  |       | 1,332,450            |       | 1,420,462         |       |
|                                                                                                  |       |                 |       |              |       |
| Equipment  and improvements, net                                                                      |       | 99,514               |       | 105,755           |       |
| Other assets                                                                                          |       | 832                  |       | 832               |       |
|                                                                                                  |       |                 |       |              |       |   |   |
| Totals                                                                                                |       | $                    | 1,432,796  |              | $          | 1,527,049 |   |
| ** **                                                                                            |       |                 |       |              |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                         |       |                 |       |              |       |
|                                                                                                  |       |                 |       |              |       |
| Current  Liabilities:                                                                                 |       |                 |       |              |       |
| Current portion of long-term debt                                                                     |       | $                    | 12,497     |              | $          | 12,497 |   |
| Accounts payable and accrued expenses                                                                 |       | 174,341              |       | 216,324           |       |
| Customer deposits                                                                                     |       | 220,191              |       | 237,808           |       |
| Note payable - principal stockholder                                                                  |       | 207,991              |       | 207,991           |       |
| Accrued compensation - principal  stockholder                                                         |       | 236,850              |       | 231,000           |       |
| Private placement funds in dispute                                                                    |       | 42,000               |       | 42,000            |       |
|                                                                                                  |       |                 |       |              |       |
| Total current liabilities                                                                             |       | 893,870              |       | 947,620           |       |
|                                                                                                  |       |                 |       |              |       |
| Long-term  debt, net of current portion                                                               |       | 14,616               |       | 10,050            |       |
|                                                                                                  |       |                 |       |              |       |
| Total liabilities                                                                                     |       | 908,486              |       | 957,670           |       |
|                                                                                                  |       |                 |       |              |       |
| Commitments  and contingencies                                                                        |       |                 |       |              |       |
|                                                                                                  |       |                 |       |              |       |
| Stockholders’  equity:                                                                           |       |                 |       |              |       |
| Common stock, $.01 par value; 80,000,000 shares  authorized; 14,954,715 shares issued and outstanding |       | 149,548              |       | 149,548           |       |
| Additional paid-in capital                                                                            |       | 497,141              |       | 497,141           |       |
| Less: treasury stock 2,000 shares (at cost)                                                           |       | (2,000               | )          | (2,000            | )          |
| Accumulated deficit                                                                                   |       | (120,379             | )          | (75,310           | )          |
|                                                                                                  |       |                 |       |              |       |
| Total stockholders’ equity                                                                       |       | 524,310              |       | 569,379           |       |
|                                                                                                  |       |                 |       |              |       |   |   |
| Totals                                                                                                |       | $                    | 1,432,796  |              | $          | 1,527,049 |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

F-2

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**THEBANKER’S STORE, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF OPERATIONSTHREE MONTHS ENDED AUGUST 31, 2005 AND 2004**

 
| ** **                                    | ** ** | **AUGUST 31,** | ** ** |
|-----------------------------------------------|------------|----------------|------------|
| ** **                                    | ** ** | **2005**       | ** ** | **2004** | ** ** |
| ** **                                    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Revenue                                       |       | $              | 568,360    |   | $ | 652,394 |   |
|                                          |       |           |       |   |   |
| Cost of  goods sold                           |       | 414,330        |       | 490,835 |   |
|                                          |       |           |       |   |   |
| Gross profit                                  |       | 154,030        |       | 161,559 |   |
|                                          |       |           |       |   |   |
| Selling,  general and administrative expenses |       | 199,689        |       | 170,243 |   |
|                                          |       |           |       |   |   |
| Income  (loss) from operations                |       | (45,659        | )          | (8,684 | ) |
|                                          |       |           |       |   |   |
| Other income  (expense):                      |       |           |       |   |   |
| Interest and other income (expenses)          |       | 1,199          |       | 104 |   |
| Interest expense                              |       | (609           | )          | (368 | ) |
|                                          |       |           |       |   |   |
| Total other income (expense):                 |       | 590            |       | (264 | ) |
|                                          |       |           |       |   |   |
| Net income  (loss)                            |       | $              | (45,069    | ) | $ | (8,948 | ) |
|                                          |       |           |       |   |   |
| Basic  earnings (loss) per common share       |       | $              | —     |   | $ | — |   |
|                                          |       |           |       |   |   |
| Diluted  earnings (loss) per share            |       | $              | —     |   | $ | — |   |

 

The accompanyingnotes are an integral part of these financial statements.

 

F-3

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**THE BANKER’S STORE, INC. AND SUBSIDIARIES**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWSTHREE MONTHS ENDED AUGUST 31, 2005 AND 2004**

 
| ** **                                                                                          | ** ** | **AUGUST 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|----------------|------------|
| ** **                                                                                          | ** ** | **2005**       | ** ** | **2004** | ** ** |
|                                                                                                |       |           |       |   |   |
| Operating  activities                                                                               |       |           |       |   |   |
| Net income (loss)                                                                                   |       | $              | (45,069    | ) | $ | (8,948 | ) |
| Adjustments to reconcile net income (loss) to  net cash provided by (used in) operating activities: |       |           |       |   |   |
| Depreciation and amortization                                                                       |       | 6,241          |       | 7,383 |   |
| Changes in operating assets and  liabilities:                                                       |       |           |       |   |   |
| Accounts receivable                                                                                 |       | 132,732        |       | 96,892 |   |
| Inventories                                                                                         |       | 4,726          |       | (134,242 | ) |
| Prepaid expenses and other current assets                                                           |       | 632            |       | 7,532 |   |
| Accounts payable and accrued expenses                                                               |       | (41,983        | )          | 114,078 |   |
| Customer deposits                                                                                   |       | (17,617        | )          | (75,765 | ) |
| Net cash provided by (used in) operating  activities                                                |       | 39,662         |       | 6,930 |   |
|                                                                                                |       |           |       |   |   |
| Investing  activities                                                                               |       |           |       |   |   |
| Capital expenditures, net of writeoffs                                                              |       | —         |       | (2,449 | ) |
|                                                                                                |       |           |       |   |   |
| Net cash provided by (used in) investing  activities                                                |       | —         |       | (2,449 | ) |
|                                                                                                |       |           |       |   |   |
| Financing  activities                                                                               |       |           |       |   |   |
| Principal payments on long-term debt                                                                |       | (19,434        | )          | (4,061 | ) |
| Proceeds from long-term debt                                                                        |       | 24,000         |       | — |   |
| Loan payable - Borrowing from principal  stockholder                                                |       | 5,850          |       | 5,850 |   |
|                                                                                                |       |           |       |   |   |
| Net cash provided by financing activities                                                           |       | 10,416         |       | 1,789 |   |
|                                                                                                |       |           |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                                               |       | 50,078         |       | 6,270 |   |
|                                                                                                |       |           |       |   |   |
| Cash and  cash equivalents, beginning of year                                                       |       | 237,388        |       | 282,443 |   |
|                                                                                                |       |           |       |   |   |
| Cash and  cash equivalents, end of year                                                             |       | $              | 287,466    |   | $ | 288,713 |   |
|                                                                                                |       |           |       |   |   |
| Supplemental  disclosure of cash flow information:                                                  |       |           |       |   |   |
| Interest paid                                                                                       |       | $              | 609        |   | $ | 368 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-4

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**THE BANKER’S STORE, INC. AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**(Unaudited)

 

**Note 1 -Basis of presentation:**

 

In the opinion ofmanagement, the accompanying unaudited condensed consolidated financialstatements reflect all adjustments, consisting of normal recurring accruals,necessary to present fairly the financial position of The Banker’s Store, Inc.and Subsidiaries (the “Company”) as of August 31, 2005, and the Company’sresults of operations and cash flows for the three months ended August 31,2005 and 2004. Pursuant to the rules and regulations of the United StatesSecurities and Exchange Commission (the “SEC”), certain information anddisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americahave been condensed in or omitted from these consolidated financial statementsunless significant changes have taken place since the end of the most recentfiscal year. Accordingly, these unaudited condensed consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements as of May 31, 2005 and for the years ended May 31,2005 and 2004 and the notes thereto (the “Audited Financial Statements”) andthe other information included in the Company’s Annual Report on Form 10-KSB(the “Form 10-KSB”) for the year ended May 31, 2005.

 

The consolidated results ofoperations for the three months ended August 31, 2005 are not necessarilyindicative of the results to be expected for the full year.

 

**Note 2 -Earnings (loss) per common share:**

 

The Company presents “basic”earnings (loss) per common share and, if applicable, “diluted” earnings percommon share pursuant to the provisions of Statement of Financial AccountingStandards No. 128, “Earnings per Share” (“SFAS 128”). Basic earnings(loss) per share is calculated by dividing net income or loss by the weightedaverage number of common shares outstanding during each period. The calculationof diluted earnings per share is similar to that of basic earnings per share,except that the denominator is increased to include the number of additionalcommon shares that would have been outstanding if all potentially dilutivecommon shares, such as those issuable upon the exercise of stock options, wereissued during the period. As of August 31, 2005 the Company has reserved322,000 shares of common stock pending possible issuance of shares insatisfaction of outstanding subscription agreements.  The weighted average numbers of shares fordetermining basic earnings per share were 14,954,715 and 14,947,215 in 2005 and2004 respectively.  The weighted averagenumbers of shares for determining diluted earnings per share were 15,276,715and 15,269,215 in 2005 and 2004 respectively.

 

**Note 3 -Income taxes:**

 

TheCompany’s estimated federal and state income tax rate is 40 percent.  Due to the uncertainties related to, amongother things, the changes in the ownership of the Company, which could subjectloss carryforwards to substantial annual limitations, and the extent and timingof its future taxable income, the Company offset the deferred tax assetsattributable to the potential benefits of approximately $16,000 from theutilization of those net operating loss carryforwards and other deferred taxassets by an equivalent valuation allowance as of August 31, 2005.  Total deferred tax assets offset by avaluation allowance were $136,000 as of August 31,2005 and $126,000 as of August 31,2004.

 

**Note 4 – Related Party Note**

 

The notepayable to the president and principal stockholder is a demand promissory noteof $207,991 with interest accruing at prime plus 0.5% per annum.  At August 31, 2005 the Company hadaccrued interest of approximately $3,640 relating to this note.  The president and principal stockholder hasrepresented that he will not demand repayment until the Company has sufficientresources to make the repayment.

 

**Note 5 -Contingencies:**

 

Private placement - B.G.Banking:

 

Prior to The Banker’s Store, Inc.’sreverse acquisition with B.G. Banking and FBEE on May 31, 1998, B.G.Banking offered and received subscriptions for 126,500 shares of its commonstock at $1.00 per share. Subsequent to the date of the reverse merger, thesubscribers to shares of B.G. Banking’s common stock were offered and theyreceived shares of common stock in The Banker’s Store, Inc. at a ratio of1 share of B.G. Banking common stock to 1.5 shares of The Banker’s Store Inc.’scommon stock. The Company issued 189,750 shares of its common stock insatisfaction of the subscription agreements at a value of $.67 per share.

 

F-5

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**THE BANKER’S STORE, INC. AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**(Unaudited)

 

Two of the Company’s formerdirectors, acting individually as principals of Taurus InvestmentsInternational, Inc. (a Nevada corporation) (collectively “Taurus”), and asdirectors of B.G. Banking prior to its acquisition by The Banker’s Store, Inc.and subsequent to the acquisition becoming directors of the Company, offeredand sold on behalf of B.G. Banking what Taurus has admitted to being anaggregate of 304,500 shares of B.G. Banking’s common stock for an aggregateconsideration of $304,500. Taurus has remitted to the Company net proceeds of$109,674 and claims the difference of $194,826 as payment for expenses andcommissions. In addition, Taurus has refused to disclose the purchaser namesand numbers of shares of common stock purchased and refused to remit to theCompany the balance of the proceeds of the shares sold. As of August 31,2005, Taurus has failed to turn over the balance of money, provide the names ofthe stock subscribers and the number of shares of common stock purchased.

 

Based upon the accountingprovided by Taurus to the Company, the Company may be liable for the issuanceof up to 322,000 shares of common stock if and when Taurus substantiates theirrepresentation as to the number of shares of common stock sold and theaggregate consideration. This number of shares represents the number of sharesadmittedly sold by Taurus for which the purchasers remain unidentified.

 

The Company may also beforced to defend itself against actions to be brought by unknown subscribers toshares of common stock of B.G. Banking whose purchase price has never beendisclosed or delivered to the Company. The Company is aware of one allegedpurchaser who claims to have delivered funds to Taurus and whose funds wereapparently not turned over to the Company. In the opinion of management, theCompany has no liability to such purchasers and intends to vigorously defendsuch actions, if and when brought.

 

The Company has receivedapproximately $42,000 from Taurus relating to the purchase of shares by anunknown investor in June 1999. The Company is holding such funds in escrowpending disposition.

 

In December 2004, theCompany issued 7,500 shares to one shareholder.

 

As of August 31, 2005,the Company has reserved 322,000 shares of common stock pending possibleissuance of shares in satisfaction of outstanding subscription agreements.

 

**Litigation:**

 

On February 29, 2000,Alexander C. Brosda and Andrew Seim filed an action in the United StatesDistrict Court in Florida against the Company. The action alleges that theCompany violated the Securities Exchange Act of 1934, as amended, and variousFlorida statutes, by failing to effect the exchange of 150,000 shares of B.G.Banking common stock held by Brosda and Seim for 225,000 shares of the Company’scommon stock. On June 5, 2000, the Company filed a motion to dismiss thecomplaint for failure to state a claim, improper venue and lack of jurisdiction,respectively. On January 23, 2001, the court dismissed the plaintiffs’claims alleging violations of the Securities Exchange Act of 1934. Theplaintiffs did not file an amended complaint, and the action has been dismissedby the court without prejudice.

 

However, on September 26,2001, Taurus Venture Capital Fund, LLC and Taurus filed a similar claim againstthe Company and its president. The claim seeks $2,000,000 for actual damagesbased upon a per share price of $4.50, treble damages of $6,615,000 plusinterest and fees. In November 2001, the Company and its president filed amotion to dismiss or abate the action and are awaiting the scheduling by thecourt of a hearing on the motion. On May 30, 2002, the court issued adecision denying the motion to dismiss.

 

On August 6, 2002, theCompany and the President filed an answer, affirmative defenses andcounterclaims against plaintiffs, denying the allegations in the complaint andalleging as counterclaims the same claims as are alleged in the following describedaction pending in New York State, seeking damages in the amount of not lessthan $1,700,000 for breach of fiduciary duty, breach of contract, conversion ofunjust enrichment, and seeking an accounting of plaintiff’s books and records.The Company believes that they have meritorious defenses and intends tovigorously defend the action. On May 28, 2003, the Company and itspresident filed a motion to dismiss the action and are awaiting the schedulingby the court of a hearing on the motion.

 

F-6

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**THE BANKER’S STORE, INC. AND SUBSIDIARIES**

 

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**(Unaudited)

 

**Note 4 -Contingencies (concluded):**

 

**Litigation(concluded):**

 

On March 7, 2000, theCompany filed an action in the Supreme Court of New York, County of New York,against Taurus, seeking an amount of not less than $1,700,000 for breach offiduciary duty, breach of contract, conversion and unjust enrichment andseeking an accounting of Taurus’ books and records. The action arises out ofB.G. Banking’s confidential private placement memorandum dated January 31,1998 for the sale of 3,000,000 shares of common stock at $1.00 per share.Taurus filed a motion to dismiss the action which the court denied on October 5,2000. On November 15, 2000, a motion filed by Taurus’ counsel to berelieved as counsel was granted. On December 14, 2000, the court grantedthe Company’s oral motion for the entry of a default judgment against Taurus.On May 4, 2001, the court granted a motion filed by the defendant and, asa result, the action has been transferred to the New York State Supreme Court,Delaware County. The Company is awaiting a date for a hearing on its claimagainst the plaintiff for damages. The Company intends to continue to litigatethis action.

 

Although it cannot predictthe outcome of the litigation described above, management does not believe thatthe ultimate outcome of the claims brought by the plaintiffs will not have anymaterial adverse effects on the Company’s consolidated financial statements insubsequent periods.

 

**Note 5 -Segment information:**

 

The Company has adopted theprovisions of Statements of Financial Accounting Standards No. 131, “Disclosuresabout Segments of an Enterprise and Related Information (“SFAS 131”). Pursuantto the provisions of SFAS 131, the Company is reporting segment sales, cost ofgoods sold, gross margins and inventories in the same format reviewed by theCompany’s management (the “management approach”). The Company has two reportingsegments: “Banking Equipment” and “Office Equipment.” The Banking Equipmentsegment is comprised of the operations connected with the buying, selling andtrading of new and refurbished financial equipment for banks and otherfinancial institutions. The Office Equipment segment is comprised of buying andselling office equipment and supplies.

 

Revenue, cost of goods soldand other related segment information follows as of August 31, 2005 andfor the three months ended August 31, 2005 and 2004:

 

**Note 5 - Segmentinformation (concluded):**

 

**THE BANKER’S STORE, INC. AND SUBSIDIARIES**

 

**DISCLOSURE OF REPORTED SEGMENT PROFIT OR LOSS,AND SEGMENT ASSETS**
| ** **                        | ** ** | **AUGUST 31,**         | ** ** |
|-----------------------------------|------------|------------------------|------------|
| ** **                        | ** ** | **2005**               | ** ** | **2004** | ** ** |
| ** **                        | ** ** | **Banking  Equipment** | ** ** | **Office  Equipment** | ** ** | **Totals** | ** ** | **Banking  Equipment** | ** ** | **Office  Equipment** | ** ** | **Totals** | ** ** |
| ** **                        | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues  from external customers |       | $                      | 486,623    |   | $ | 81,736 |   | $ | 568,360 |   | $ | 584,491 |   | $ | 67,903 |   | $ | 652,394 |   |
|                              |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Intersegment  revenues            |       | —                 |       | — |   | — |   | — |   | — |   | — |   |
|                              |       |                   |       |   |   |   |   |   |   |   |   |   |   |
| Segment  profit (loss)            |       | (51,340                | )          | 6,271 |   | (45,069 | ) | (8,948 | ) | — |   | (8,948 | ) |
|                                   |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

F-7

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities and Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.

 
|       | **THE BANKER’S STORE, INC.**                          |
|------------|------------------------------------------------------------|
|       | ** **                                                 |
|       |                                                       |
| ** ** | *By:*                                                      | * /s/ PAUL D.  CLARK* |   |
|       | *Paul D. Clark,*                                           |
|       | **President, CEO, Chief Financial Officer, and  Director** |
|       | (Principal Executive Officer)                              |

 

Date: October 14, 2005

 

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