**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM10-QSB**

 

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES ACT OF 1934**

**FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2006**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES ACT OF 1934**

**FOR THE TRANSITION PERIOD FROM            TO              **

 

**COMMISSION FILE NUMBER: 000-08880**

 

**THEBANKER’S STORE, INC.**

(Exactname of registrant as specified in its charter)

 

| **NEW  YORK**                                                    | ** ** | **22-3755756**                         |
|------------------------------------------------------------------|------------|----------------------------------------|
| (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’stelephone number, including area code)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 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 March 31, 2006

 

Transitional Small BusinessDisclosure
| Format (Check one): | Yes  o |   | No  ý |
|---------------------|------------------|--------|----------------------|

 

 

----

 

**THE BANKER’S STORE, INC.**

 

**FORM 10-QSB**

 

FEBRUARY28, 2006

 

INDEX

 

PARTI - FINANCIAL INFORMATION

 
| 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 it completedthe acquisition of B.G. Banking Equipment, Inc., (“B.G. Banking”) and FinancialBuilding Equipment Exchange, Inc., (“FBEE”). We are now in the business ofbuying, selling, refurbishing and trading new and refurbished financialequipment for banks and other financial institutions. Commencing during thefourth quarter of the year ended May 31, 2002, we entered the office equipmentand furniture retail business. We market products throughout the United Statesprimarily through direct sales to financial institutions and other distributorssupported by our direct sales force and soliciting new contacts through ourpresence 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 our previouslyfiled Form 10-KSB have been applied consistently for the nine months endedFebruary 28, 2006.

 

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

----

 

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 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. (aNevada corporation) (collectively “Taurus”), and as directors of B.G. Bankingprior 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 February 28, 2006, 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 pending disposition.

 

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

 

As of February 28, 2006, wehave 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 for failureto state a claim, improper venue and lack of jurisdiction, respectively. OnJanuary 23, 2001, the court dismissed the plaintiff’s claims allegingviolations of the Securities Exchange Act of 1934. The plaintiffs did not filean amended complaint, and the action has been dismissed by the court withoutprejudice.

 

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.

 

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 followingdescribed action that was filed in New York State, seeking damages in theamount of not less than $1,700,000 for breach of fiduciary duty, breach ofcontract, conversion and unjust enrichment, and seeking an accounting ofplaintiffs’ books and records. The Company and the President believe that theyhave meritorious defenses and intends to defend the action as long as itremains pending.

 

On March 7, 2000, we filedan 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 of fiduciary duty,breach of contract, conversion and unjust enrichment and seeking an accountingof Taurus’ books and records. The action arises out of B.G. Banking’sconfidential private placement memorandum dated January 31, 1998 for the saleof 3,000,000 shares of common stock at $1.00 per share. Taurus filed a motionto dismiss the action which the court denied on October 5, 2000. On November15, 2000 a motion filed by Taurus’ counsel to be relieved as counsel wasgranted. On December 14, 2000, the court granted our oral motion for the entryof a default judgment against Taurus. On May 4, 2001, the court granted themotion filed by the defendant and, as a result, ordered the action to betransferred to the New York State Supreme Court, Delaware County. There hasbeen no further activity of record in the case since the order of transfer.

 

3

----

 

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 nine months and threemonths ended February 28, 2006 and 2005:

 
| ** **                                    | ** ** | **Nine months ended** | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **February 28,**           | ** ** | **February 28,**            | ** ** |
| ** **                                    | ** ** | **2006**                        | ** ** | **2005**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Net sales                                     |       | 100.0                           | %          | 100.0                            | %          | 100.0 | % | 100.0 | % |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Cost of sales                                 |       | 68.2                            | %          | 78.7                             | %          | 81.2 | % | 76.0 | % |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Gross profit                                  |       | 31.8                            | %          | 21.3                             | %          | 18.8 | % | 24.0 | % |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Selling, general and administrative  expenses |       | 29.1                            | %          | 25.0                             | %          | 26.1 | % | 20.8 | % |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Income (loss) from operations                 |       | 2.7                             | %          | -3.7                             | %          | -7.1 | % | 3.2 | % |
| Other                                         |       | -0.5                            | %          | 0.0                              | %          | -0.5 | % | 0.0 | % |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Income before income tax provision            |       | 2.2                             | %          | -3.7                             | %          | -7.6 | % | 3.2 | % |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Income tax provision                          |       | 0.8                             | %          | 0.0                              | %          | -2.9 | % | 0.0 | % |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Net income (loss)                             |       | 1.4                             | %          | -3.7                             | %          | -4.8 | % | 3.2 | % |

 

**RESULTS OFOPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED FEBRUARY 28, 2006 ASCOMPARED TO THE NINE MONTHS AND THREE MONTHS ENDED FEBRUARY 28, 2005.**

 

Revenues were $616,867 forthe three months ended February 28, 2006 as compared to $745,833 for the threemonths ended February 28, 2005 reflecting a decrease of approximately $128,966or 17.3%. The decrease in revenues during the three months ended February 28,2006 is****primarily due to one of our ATMmanufacturers adding a subdealer to our territory. This subdealer who wasbuying through us, now is able to buy direct from the manufacturer. For thenine months ended February 28, 2006 revenues were consistent in each segmentbut decreased by $107,111 as compared to the nine months ended February 28,2005.

 

Gross profit for the threeand nine months ended February 28, 2006, decreased $62,504 and increased$180,084, or (10.1)% and 9.4% of revenues, respectively, as compared to thesame periods in the prior year. The decrease in gross profit for the threemonth period is primarily related to a decrease in margins for sales in ourbanking equipment segment. The increase in gross profit for the nine monthperiod is primarily due to increased sales of preowned equipment which has alower cost than new equipment. Our cost of goods sold has decreased by $66,463and $287,195, respectively for the three and nine months ended February 28,2006, as compared to the same periods in the prior year. This decrease isprimarily due to subcontracting our labor force to other dealers, occupyingwhat would have normally been downtime. We have also seen a continuing increasein our internet sales, which requires considerably less labor than contractedprojects.

 

Selling, general andadministrative expenses were $160,738 for the three months ended February 28,2006 as compared to $154,678 for the three months ended February 28, 2005reflecting an increase of approximately $6,060 or 3.8% over the same periodlast year. For the nine months endedFebruary 28, 2006, selling, general, and administrative expenses had increasedby $51,835 or 9.4% as compared to the nine months ended February 28, 2005. Thisincrease was primarily due to increased fuel charges and pay raises. Additionalprofessional services in accounting were also engaged for compliance purposes.

 

As a result of theaforementioned, the Company incurred a net loss during the three months endedFebruary 28, 2006 of approximately $29,473 as opposed to a net profit ofapproximately $23,316 for the comparable period of February 28, 2005. The netprofit for the nine months ended February 28, 2006 was $27,275 as compared to anet loss of $76,734 at the nine months ended February 28, 2005.

 

4

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** **

**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 $467,087 and working capital of $498,534 at February 28, 2006. At February 28, 2006, the Company’s cashposition had increased by $229,699 from the year-end of May 31, 2005. Thisincrease in liquidity primarily came from the collection of accountsreceivables and is partially offset by the reduction in accounts payable of$84,822 and long-term debt of $10, 081 during the same period.

 

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 new facilityor leasing of additional facility space would be expected to result in anincrease in rent upon occupancy. We believe that our available cash, cash fromoperations and funds from existing credit arrangements will be sufficient tosatisfy our funding needs through at least February 28, 2007. Thereafter, ifcash generated from operations is insufficient to satisfy our working capitaland capital expenditure requirements, we may be required to sell additionalequity or debt securities or obtain additional credit arrangements. There canbe no assurance that such additional capital, if needed, will be available onsatisfactory terms, if at all. Furthermore, any additional equity financing maybe dilutive to stockholders, and debt financing, if available, may includerestrictive covenants. Our future liquidity and capital funding requirementswill depend on numerous factors, including the extent to which our new productsand products under consideration are successfully developed, gain marketacceptance and become and remain competitive, the timing and results ofregulatory actions in the banking industry, the costs and timing of furtherexpansion of sales, marketing and manufacturing activities and facilitiesexpansion needs. The failure by us to raise capital on acceptable terms whenneeded could have a material adverse effect on our business, financialcondition and results of operations.

 

**ITEM 3.CONTROLS AND PROCEDURES**

 

(a) DISCLOSURE CONTROLS ANDPROCEDURES. As of February 28, 2006, the Company evaluated the effectiveness ofthe design and operation of its disclosure controls and procedures. The Company’sdisclosure controls and procedures are the controls and other procedures thatit designed to ensure that it records, processes, summarizes and reports in atimely manner the information it must disclose in reports that it files with orsubmits to the Securities and Exchange Commission. Paul D. Clark, the Company’sPresident, CEO and CFO, supervised and participated in this evaluation. Basedon this evaluation, Mr. Clark concluded that, as of the date of the evaluation,the Company’s disclosure controls and procedures were effective.

 

(b) CHANGES IN INTERNALCONTROLS. There were no changes in internal controls over financial reportingknown to the Chief Executive Officer and Chief Financial Officer that occurredduring the period covered by this report that have materially affected, or arelikely to materially affect the Company’s internal control over financialreporting.

 

**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.UNREGISTERED SALES OF EQUITY 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.OTHER INFORMATION**

 

None.

** **

**ITEM 6.EXHIBITS**

 

a) Exhibits

 

31.1 Certification Pursuantto Rule 13a-14(a) of the Chief Executive Officer and Chief Financial OfficerPaul 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**

 

**INDEX**

 

**PAGE**

 

**PART I - FINANCIAL INFORMATION**

 
| **ITEM 1.  FINANCIAL STATEMENTS**                                           |                                                                           |
|-----------------------------------------------------------------------------|--------------------------------------------------------------------------------|
|                                                                        |
| ** **                                                                  | **CONDENSED CONSOLIDATED  BALANCE SHEETS**                                     |   |
| ** **                                                                  | **FEBRUARY 28, 2006  (UNAUDITED) AND MAY 31, 2005**                            | ** ** |
| ** **                                                                  | ** **                                                                     | ** ** |
| ** **                                                                  | **CONDENSED CONSOLIDATED  STATEMENTS OF OPERATIONS**                           | ** ** |
| ** **                                                                  | **NINE  MONTHS AND THREE MONTHS ENDED FEBRUARY 28, 2006 AND 2005 (UNAUDITED)** |   |
|                                                                        |                                                                           |   |
| ** **                                                                  | **CONDENSED CONSOLIDATED  STATEMENTS OF CASH FLOWS**                           |   |
| ** **                                                                  | **NINE  MONTHS ENDED FEBRUARY 28, 2006 AND 2005 (UNAUDITED)**                  |   |
|                                                                        |                                                                           |   |
| ** **                                                                  | **NOTES TO CONDENSED  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**          |   |
| ** **                                                                  | ** **                                                                     |   |
| **ITEM 2. MANAGEMENT’S DISCUSSION  AND ANALYSIS OR PLAN OF OPERATION** |                                                                           |
|                                                                        |                                                                           |
| **PART II. OTHER INFORMATION**                                              | ** **                                                                     |
| ** **                                                                  | ** **                                                                     |
| **SIGNATURES**                                                              | ** **                                                                     |

 

** *

 

F-1

----

 

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

 

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

**FEBRUARY 28, 2006 (UNAUDITED) AND MAY 31, 2005**

 
| ** **                                                                                     | ** ** | **FEBRUARY** | ** ** | **MAY 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------|------------|------------------|------------|
| ** **                                                                                     | ** ** | **2006**     | ** ** | **2005**         | ** ** |
| **ASSETS**                                                                                     | ** ** | ** **   | ** ** | ** **       | ** ** |
| Current Assets:                                                                                |       |         |       |             |       |
| Cash and cash equivalents                                                                      |       | $            | 467,087    |             | $          | 237,388 |   |
|                                                                                           |       |         |       |             |       |
| Accounts receivable                                                                            |       | 213,499      |       | 426,852          |       |
| Inventories                                                                                    |       | 808,932      |       | 711,778          |       |
| Prepaid expenses and other current assets                                                      |       | 39,310       |       | 44,444           |       |
| Total current assets                                                                           |       | 1,528,828    |       | 1,420,462        |       |
| Equipment and improvements, net                                                                |       | 101,299      |       | 105,755          |       |
| Other assets                                                                                   |       | 832          |       | 832              |       |
| Totals                                                                                         |       | $            | 1,630,959  |             | $          | 1,527,049 |   |
|                                                                                           |       |         |       |             |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                 |       |         |       |             |       |
| Current Liabilities:                                                                           |       |         |       |             |       |
| Current portion of long-term debt                                                              |       | $            | 8,454      |             | $          | 12,497 |   |
| Accounts payable and accrued expenses                                                          |       | 158,538      |       | 216,324          |       |
| Customer deposits                                                                              |       | 364,761      |       | 237,808          |       |
| Note payable - principal stockholder                                                           |       | 207,991      |       | 207,991          |       |
| Accrued compensation - principal  stockholder                                                  |       | 248,550      |       | 231,000          |       |
| Private placement funds in dispute                                                             |       | 42,000       |       | 42,000           |       |
| Total current liabilities                                                                      |       | 1,030,294    |       | 947,620          |       |
|                                                                                           |       |         |       |             |       |
| Long-term debt, net of current portion                                                         |       | 4,012        |       | 10,050           |       |
| Total liabilities                                                                              |       | 1,034,306    |       | 957,670          |       |
|                                                                                           |       |         |       |             |       |
| Commitments and contingencies                                                                  |       |         |       |             |       |
|                                                                                           |       |         |       |             |       |
| Stockholders’ equity:                                                                     |       |         |       |             |       |
| Common stock, $.01 par value; 80,000,000 shares  authorized; 14,954,715 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) earnings                                                                 |       | (48,036      | )          | (75,310          | )          |
| Total stockholders’ equity                                                                |       | 596,653      |       | 569,379          |       |
| Totals                                                                                         |       | $            | 1,630,959  |             | $          | 1,527,049 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-2

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**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

**NINE MONTHS AND THREE MONTHS ENDED FEBRUARY 28,2006 AND 2005**

 
| ** **                                    | ** ** | **NINE MONTHS ENDED** | ** ** | **THREE MONTHS ENDED** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **FEBRUARY 28,**           | ** ** | **FEBRUARY 28,**            | ** ** |
| ** **                                    | ** ** | **2006**                        | ** ** | **2005**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                    | ** ** | ** **                      | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                       |       | $                               | 1,923,504  |                             | $          | 2,030,615 |   | $ | 616,867 |   | $ | 745,833 |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Cost of goods sold                            |       | 1,311,814                       |       | 1,599,009                        |       | 500,714 |   | 567,176 |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Gross profit                                  |       | 611,690                         |       | 431,606                          |       | 116,153 |   | 178,657 |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Selling, general and administrative  expenses |       | 559,159                         |       | 507,324                          |       | 160,738 |   | 154,678 |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Income (loss) from operations                 |       | 52,531                          |       | (75,718                          | )          | (44,585 | ) | 23,979 |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Other income (expense):                       |       |                            |       |                             |       |   |   |   |   |
| Interest and other income (expenses)          |       | 2,966                           |       | (1,016                           | )          | 1,200 |   | (663 | ) |
| Interest expense                              |       | (12,584                         | )          | —                           |       | (4,140 | ) | — |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Total other income (expense):                 |       | (9,618                          | )          | (1,016                           | )          | (2,940 | ) | (663 | ) |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Income before income tax provision            |       | 42,913                          |       | (76,734                          | )          | (47,525 | ) | 23,316 |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Income tax provision                          |       | 15,638                          |       | —                           |       | (18,052 | ) | — |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Net income (loss)                             |       | $                               | 27,275     |                             | $          | (76,734 | ) | $ | (29,473 | ) | $ | 23,316 |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Basic earnings (loss) per common share        |       | $                               | 0.00       |                             | $          | (0.01 | ) | $ | (0.00 | ) | $ | 0.00 |   |
|                                          |       |                            |       |                             |       |   |   |   |   |
| Diluted earnings (loss) per share             |       | $                               | 0.00       |                             | $          | (0.01 | ) | $ | (0.00 | ) | $ | 0.00 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-3

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**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

**NINE MONTHS ENDED FEBRUARY 28, 2006 AND 2005**

 
| ** **                                                                                          | ** ** | **FEBRUARY 28,** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                          | ** ** | **2006**              | ** ** | **2005** | ** ** |
| Operating activities                                                                                |       |                  |       |   |   |
| Net income (loss)                                                                                   |       | $                     | 27,275     |   | $ | (76,734 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities: |       |                  |       |   |   |
| Depreciation and amortization                                                                       |       | 19,099                |       | 27,015 |   |
| Changes in operating assets and  liabilities:                                                       |       |                  |       |   |   |
| Accounts receivable                                                                                 |       | 213,352               |       | (47,760 | ) |
| Inventories                                                                                         |       | (97,154               | )          | (49,228 | ) |
| Prepaid expenses and other current assets                                                           |       | 5,133                 |       | 3,919 |   |
| Accounts payable and accrued expenses                                                               |       | (57,786               | )          | 133,749 |   |
| Customer deposits                                                                                   |       | 126,953               |       | 41,646 |   |
|                                                                                                |       |                  |       |   |   |
| Net cash provided by (used in) operating  activities                                                |       | 236,872               |       | 32,607 |   |
| Investing activities                                                                                |       |                  |       |   |   |
| Capital expenditures, net of writeoffs                                                              |       | (14,642               | )          | (68,444 | ) |
|                                                                                                |       |                  |       |   |   |
| Net cash (used in) investing activities                                                             |       | (14,642               | )          | (68,444 | ) |
| Financing activities                                                                                |       |                  |       |   |   |
| Increase (decrease) in long-term debt, net                                                          |       | (10,081               | )          | (12,473 | ) |
| Proceeds from long-term debt                                                                        |       | —                |       | 18,436 |   |
| Loan payable - Borrowing from principal  stockholder                                                |       | 17,550                |       | 17,550 |   |
| Purchase of Treasury stock                                                                          |       | —                |       | (2,000 | ) |
|                                                                                                |       |                  |       |   |   |
| Net cash provided by financing activities                                                           |       | 7,469                 |       | 21,513 |   |
|                                                                                                |       |                  |       |   |   |
| Net increase (decrease) in cash and cash  equivalents                                               |       | 229,699               |       | (14,324 | ) |
|                                                                                                |       |                  |       |   |   |
| Cash and cash equivalents, beginning of  period                                                     |       | 237,388               |       | 282,443 |   |
|                                                                                                |       |                  |       |   |   |
| Cash and cash equivalents, end of period                                                            |       | $                     | 467,087    |   | $ | 268,119 |   |
|                                                                                                |       |                  |       |   |   |
| Supplemental disclosure of cash flow  information: Interest paid                                    |       | $                     | 12,296     |   | $ | 1,528 |   |

 

The accompanyingnotes are an integral part of 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 February 28, 2006 and 2005, and theCompany’s results of operations for the nine months and three months endedFebruary 28, 2006 and 2005, and cash flows for the nine months ended February28, 2006 and 2005. 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, 2005and 2004 and the notes thereto (the “Audited Financial Statements”) and theother information included in the Company’s Annual Report on Form 10-KSB (the “Form10-KSB”) for the year ended May 31, 2005.

 

The consolidated results ofoperations for the nine and three months ended February 28, 2006 are notnecessarily indicative 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) pershare is calculated by dividing net income or loss by the weighted averagenumber of common shares outstanding during each period. The calculation ofdiluted 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 February 28, 2006 the Company has reserved322,000 shares of common stock pending possible issuance of shares insatisfaction of outstanding subscription agreements. The weighted averagenumbers of shares for determining basic earnings per share were 14,954,715 in2006. The weighted average numbers of shares for determining diluted earningsper share were 15,276,715 in 2006.

 

**Note 3 -Income taxes:**

 

The Company’s estimated effectivefederal and state income tax rate is 37 percent. A substantial portion of theCompany’s deferred tax asset is attributable to accrued officer’s salary. Dueto the uncertainties related to the payment of this liability and the extentand timing of future taxable income, the Company offset the deferred tax assetsby an equivalent valuation allowance as of February 28, 2006. Deferred taxassets offset by a valuation allowance were approximately $100,000 as ofFebruary 28, 2006.

 

**Note 4 – RelatedParty Note**

 

The note payable to the president andprincipal stockholder is a demand promissory note of $207,991 with interestaccruing at prime plus 0.5% per annum. At February 28, 2006 the Company hadaccrued interest of $3,970 relating to this note. The president and principalstockholder has represented that he will not demand repayment until the Companyhas sufficient resources to make the repayment.

 

**Note 5 -Contingencies:**

 

Private placement - B.G. Banking:

 

Prior to The Banker’s Store,Inc.’s reverse 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 of 1share 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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Two of the Company’sdirectors, 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 proceeds of the shares sold. As of February 28, 2006, Taurus hasfailed to turn over the balance of money, provide the names of the stocksubscribers 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 shares admittedlysold by Taurus for which the purchasers have as yet remained 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 February 28, 2006, theCompany has reserved 322,000 shares of common stock pending possible issuanceof 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 ofjurisdiction, respectively. On January 23, 2001, the court dismissed theplaintiffs’ claims alleging violations of the Securities Exchange Act of 1934.The plaintiffs did not file an amended complaint, and the action has beendismissed by 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 a decisiondenying 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 followingdescribed action that was filed in New York State, seeking damages in theamount of not less than $1,700,000 for breach of fiduciary duty, breach ofcontract, conversion of unjust enrichment, and seeking an accounting ofplaintiff’s books and records. The Company and the President believe that theyhave meritorious defenses and intends to defend the action as long as itremains pending.

 

F-6

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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, 1998for the sale of 3,000,000 shares of common stock at $1.00 per share. Taurusfiled 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 be relieved ascounsel was granted. On December 14, 2000, the court granted the Company’s oralmotion for the entry of a default judgment against Taurus. On May 4, 2001, thecourt granted a motion filed by the defendant and, as a result, ordered theaction to be transferred to the New York State Supreme Court, Delaware County. Therehas been no further activity of record in the case since the order of transfer.

 

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**.”**TheBanking Equipment segment is comprised of installation, services, andoperations connected with the buying, selling and trading of new andrefurbished financial equipment for banks and other financial institutions. TheOffice Equipment segment is comprised of buying and selling office equipment****and supplies.

 

Revenues, segment assets,and other related segment information follows as of and for the nine months andthree months ended February 28, 2006 and 2005:

 

**DISCLOSURE OF REPORTED SEGMENT PROFIT OR LOSS,AND SEGMENT ASSETS**

 
| ** **                       | ** ** | **NINE MONTHS ENDED** | ** ** | **NINE MONTHS ENDED** | ** ** |
|----------------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **                       | ** ** | **FEBRUARY 28,**           | ** ** | **FEBRUARY**                    | ** ** |
| ** **                       | ** ** | **2006**                        | ** ** | **2005**                        | ** ** |
| ** **                       | ** ** | **Banking**                     | ** ** | **Office**                      | ** ** | ** ** | ** ** | **Banking** | ** ** | **Office** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Equipment**                   | ** ** | **Equipment**                   | ** ** | **Totals** | ** ** | **Equipment** | ** ** | **Equipment** | ** ** | **Totals** | ** ** |
|                             |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Revenues from external customers |       | $                               | 1,723,439  |                            | $          | 200,065 |   | $ | 1,923,504 |   | $ | 1,812,672 |   | $ | 217,943 |   | $ | 2,030,615 |   |
|                             |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Segment profit (loss)            |       | 31,026                          |       | (3,751                          | )          | 27,275 |   | (80,572 | ) | 3,838 |   | (76,734 | ) |
|                             |       |                            |       |                            |       |   |   |   |   |   |   |   |   |
| Segment assets                   |       | $                               | 1,504,343  |                            | $          | 126,616 |   | $ | 1,630,959 |   | $ | 1,300,604 |   | $ | 132,523 |   | $ | 1,433,127 |   |

 
| ** **                       | ** ** | **THREE MONTHS ENDED** | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **FEBRUARY 28,**            | ** ** | **FEBRUARY 28,**            | ** ** |
| ** **                       | ** ** | **2006**                         | ** ** | **2005**                         | ** ** |
| ** **                       | ** ** | **Banking**                      | ** ** | **Office**                       | ** ** | ** ** | ** ** | **Banking** | ** ** | **Office** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Equipment**                    | ** ** | **Equipment**                    | ** ** | **Totals** | ** ** | **Equipment** | ** ** | **Equipment** | ** ** | **Totals** | ** ** |
| ** **                       | ** ** | ** **                       | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues from external customers |       | $                                | 563,947    |                             | $          | 52,920 |   | $ | 616,867 |   | $ | 670,130 |   | $ | 75,703 |   | $ | 745,833 |   |
|                             |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Segment profit (loss)            |       | (28,565                          | )          | (908                             | )          | (29,473 | ) | 44,496 |   | 3,579 |   | 48,075 |   |
|                             |       |                             |       |                             |       |   |   |   |   |   |   |   |   |
| Segment assets                   |       | $                                | 1,504,343  |                             | $          | 126,616 |   | $ | 1,630,959 |   | $ | 1,300,604 |   | $ | 132,523 |   | $ | 1,433,127 |   |

 

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: April 14, 2006*                                              |
|          |          |                                                                     |        |  |  |

 

F-8

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