UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2008
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: 000-8880
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THE BANKER'S STORE, INC.
(Exact name of registrant as specified in its charter)
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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's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act).
Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common stock, par value $0.01, 15,754,781 shares outstanding as of November 30, 2008.
THE BANKER'S STORE, INC.
FORM 10-Q
NOVEMBER 30, 2008
PART I – 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 RESULTS OF OPERATIONS
The matters discussed in this management's discussion and analysis or plan of operations contain forward-looking statements that involve risks and uncertainties. The Company's actual results in its two operating segments could differ materially from those discussed here. Factors that could cause or contribute to such differences are discussed elsewhere in this quarterly report on Form 10-Q. The Company disclaims any intent or obligation to update these forward-looking statements.
OVERVIEW
The Banker's Store, Inc. (the “Company") was established in 1968. It remained dormant for many years until it completed the acquisition of B.G. Banking Equipment, Inc., ("B.G. Banking") and Financial Building Equipment Exchange, Inc., ("FBEE"). These acquisitions introduced the Company to the business of buying, selling, refurbishing and trading new and refurbished financial equipment for banks and other financial institutions. Pursuant to the June 2008 Board of Directors resolution the Company expanded its Corporate Information Statement to pursue other lines of business including security, ecommerce, power, energy and transportation. In conjunction with such change, the Company entered into an agreement in August 2008 with AFC Holdings, Inc. and subsidiaries that gave the Company the right to certain servicing and maintenance agreements, subcontracting rights, intellectual properties and associated personnel. These assumptions of rights expanded the Company’s existing business lines to new markets; and introduced security integration and sophisticated access controls significantly altering both the business of the Company and its geographic footprint. The Company markets products throughout the United States primarily through direct sales and other distributors supported by its direct sales force and soliciting new contacts through its presence on the Internet.
The Company anticipates that its results of operations may fluctuate for the foreseeable future due to several factors, including whether and when new products at competitive prices are obtained and sources of good used banking and banking related equipment and furniture become available at favorable prices, market acceptance of current or new products, delays, or inefficiencies, shipment problems, seasonal customer demand, the timing of significant orders, competitive pressures on average selling prices and changes in the mix of products sold.
Operating results would also be adversely affected by a downturn in the market for the Company’s current and future products, order cancellations, or order rescheduling or remanufacturing or delays. The Company purchases and resells new merchandise and remanufactures and ships its other products shortly after receipt of orders. The Company has not developed a significant backlog for such products and does not anticipate developing a material backlog for such products in the future. The Company may not be able to sustain revenue growth on a quarterly or annual basis.
The Company has increased its operating expenses, primarily for personnel and activities supporting newly-introduced products, new product development and entering new markets. The Company’s operating results have been and will continue to be adversely affected if sales do not correspondingly increase or if product development efforts are unsuccessful or are subject to delays.
2
On June 11, 2008, the Company entered into an Acquisition Agreement and Plan of Merger with Chesscom Consultants, Inc. ("Chesscom") that contemplated the merger of Chesscom with and into the Company in exchange for 12 million shares of Company common stock. This transaction has not yet been completed due to a continuing evaluation of certain questions regarding the value of the assets of Chesscom, the structure of the transaction, and various other related issues. The holders of a majority of the outstanding shares of common stock of the Company have raised various concerns regarding the proposed Chesscom transaction and have determined that the transaction is not in the best interests of the Company. On January 15, 2009, the majority stockholders executed a written consent action providing for the removal of Steven K. Wilson, Joan Jolitz, and Allison Belcher from the board of directors of the Company. Such written consent action states that the majority stockholders believe that such removal is necessary to prevent these three directors from causing the Company to complete the Chesscom transaction. The removal of the directors will be effective 20 days after the delivery to the Company's shareholders of an SEC-filed Information Statement relating to the consent action. As a result, although the agreement with Chesscom has not yet been terminated, management does not believe that the transaction will ultimately be completed. On July 12, 2008, 12 million shares of Company common stock were issued purportedly pursuant to the Chesscom transaction, although management believes that these shares were prematurely issued because the Chesscom transaction had not been completed, and management intends to evaluate the Company's rights with respect to pursuing the return of those shares. Therefore, the Company's financial statements included in this report on Form 10-Q do not reflect the issuance of those shares, as such shares are not "validly issued" under New York corporate law
The consulting agreement dated May 1, 2008 between the company and ZBI of Michigan and Woodmoor Associates, LLC was not renewed and was terminated at the end of the six month contractual period.
GOING CONCERN
We have experienced significant operating losses over the last 18 months. Our net operating loss for the six months ended November 30, 2008 was $718,750 and for the prior fiscal year ended May 31, 2008 was $312,635, respectively. The Company has experienced losses from continuing operations during the last two quarters and for the prior fiscal year and has an accumulated deficit of $943,719 as of November 30, 2008. Net cash used for continuing operations for the six month period ended November 30, 2008 was negative $519,827 and for the prior fiscal year ending May 31, 2008 was negative $152,691. As of November 30, 2008, the Company’s cash is negative and the only principal source of liquidity is $802,033 of trade accounts receivable. Such conditions raise substantial doubt that the Company will be able to continue as a going concern. These operating results occurred while the Company was completing the business combination and was transitioning and combining the two operating divisions in Florida and Kentucky. The Company is taking measures to increase revenues, continue to reduce operating costs, and generate positive cash flows from operations.
We are seeking additional sources of capital and actively seeking to restructure and/or modify existing indebtedness. The amount of funding that we seek and the timing of such fundraising efforts will depend on the extent to which we are able to increase revenues through obtaining additional purchase orders for our products and/or the extent to which we can restructure or modify our debt. We cannot guarantee that adequate funds will be available when needed, and if we do not receive sufficient capital, we may be required to alter or reduce the scope of our operations.
SIGNIFICANT EVENTS
On August 19, 2008 the Company entered into a business combination with AFC Holdings, Inc. and related subsidiaries and AFC Systems, Inc. The Company entered into an Agreement for the Servicing, Subcontracting and Assignment of the Rights to Certain Assets with AFC Holdings, Inc., and related subsidiaries. Pursuant to the Agreement the Company has increased its finance and banking business lines through significant new clients, added 13 new state markets, and added the new business lines of access controls and security integration inclusive of intellectual property and clients. Further, the Company received the rights to the customers and clients; the maintenance and service agreements for ATMs, other financial institution services and access control systems. In exchange for such rights the Company agreed to a maximum payment of $135,000 and to issue warrants on common stock valued at a maximum of $400,000.
The Company has recorded the transaction with AFC Holdings, Inc, and related subsidiaries as a business combination. The Company acquired a small amount of immaterial assets primarily furniture, fixture, and computers however the Company did not acquire any stock or equity nor assume any liabilities or contingencies. The Company recorded in Other Assets approximately $521,282 of Goodwill associated with the business combination and determined that the Goodwill had a finite life of five years. The Company has used this five-year life as the amortization period and therefore has recognized in this 10Q for period ending November 30, 2008 three months of amortization of goodwill in the amount of $26,064 which is reflected in the General and Administrative Expense line of the Statement of Operations.
3
Below is a forecasted Statements of Operations for the three month and six month periods ending November 30, 2008 and 2007, respectively and for the 12 month period ended May 31, 2009 which incorporates the Company’s actual financial results for those periods. This forward looking statement should not be relied upon as achievable results due the many factors affecting the Company and its operations. The Company disclaims any intent or obligation to update these forward-looking statements.
THE BANKER'S STORE, INC. AND SUBSIDIARIES
FORECASTED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER, 2008 AND 2007 (UNAUDITED)
THREE MONTHS ENDED NOVEMBER 30, | ||||||||
2008 | 2007 | |||||||
Revenue | $ | 1,455,898 | $ | 4,213,546 | ||||
Income (loss) from operations | (510,656 | ) | (182,255 | ) | ||||
Net income | $ | (511,123 | ) | $ | (167,685 | ) | ||
Basic earnings (loss) per common share | $ | (0.03 | ) | $ | (0.01 | ) | ||
Diluted earnings (loss) per share | $ | (0.03 | ) | $ | (0.01 | ) |
THE BANKER'S STORE, INC. AND SUBSIDIARIES
FORECASTED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED NOVEMBER, 2008 AND 2007 (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, | ||||||||
2008 | 2007 | |||||||
Revenue | $ | 4,080,579 | $ | 4,124,667 | ||||
Income (loss) from operations | (739,747 | ) | 64,119 | |||||
Net income | $ | (407,616 | ) | $ | 47,557 | |||
$ | (0.03 | ) | $ | 0.00 | ||||
Diluted earnings (loss) per share | $ | (0.03 | ) | $ | 0.00 |
4
THE BANKER'S STORE, INC. AND SUBSIDIARIES
FORECASTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED MAY 31, 2009 (UNAUDITED)
TWELVE MONTHS ENDED MAY 31, 2009 | ||||
Revenue | $ | 4,730,855 | ||
Income (loss) from operations | $ | (998,897 | ) | |
Net income | $ | (673,056 | ) | |
Basic earnings (loss) per common share | $ | (0.05 | ) | |
Diluted earnings (loss) per share | $ | (0.04 | ) |
5
SUMMARY OF SIGNIFICANT ACCOUNTING ESTIMATES, RELATED PARTY TRANSACTIONS AND CONTINGENCIES:
Significant accounting estimates:
The Company’s discussion and analysis of its financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to accounts receivable, inventories, equipment and improvements, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting estimates used as of May 31, 2008 and as outlined in its previously filed Form 10-KSB have been applied consistently for the six months ended November 30, 2008.
Related party transactions:
The Company has entered into an operating lease with a principal stockholder, Paul Clark, for the lease of an aggregate of 25,000 square feet of office and warehouse space located in Bowling Green, Kentucky. The lease provides for a monthly rent plus maintenance expenses and expires in August 2009.
Contingencies:
Litigation:
The Company has been served with a lawsuit by Woodmoor and Associates, LLC (“Woodmoor”) whereby Woodmoor contends the Company owes Woodmoor $150,000 related to an alleged note payable. On or about October 1, 2008 Woodmoor loaned the Company $150,000 to be used for working capital. The Company does not dispute the existence of the loan or the amount thereof. Woodmore alleges that the loan was due on demand, but the Company believes that the payment schedule, or any other loan terms and conditions, were ever agreed upon. Until this matter is resolved, the Company has recorded this loan in the financials of the Company as a Note Payable to consultant. The Company has secured counsel to represent the Company in this matter
The Company has been served with a lawsuit by Fortis Security (“Fortis”), whereby Fortis contends the Company owes Fortis an outstanding balance of $6,804 related to various equipment purchases. The Company does not dispute that this amount is owed to Fortis and expects to have the outstanding balance resolved within the next 90 days.
6
RESULTS OF OPERATIONS
The following table sets forth operating data as a percentage of revenue for the six months and three month periods ended November 30, 2008 and 2007:
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of goods sold | 97.7 | % | 65.9 | % | 101.8 | % | 65.6 | % | ||||||||
Gross profit | 2.3 | % | 34.1 | % | -1.8 | % | 34.4 | % | ||||||||
Selling, general and administrative expenses | 38.6 | % | 40.4 | % | 33.3 | % | 44.9 | % | ||||||||
Income (loss) from operations | -36.3 | % | -6.3 | % | -35.1 | % | -10.5 | % | ||||||||
Other | 16.8 | % | -0.3 | % | 0.0 | % | -0.5 | % | ||||||||
Income before income tax provision | -19.5 | % | -6.6 | % | -35.1 | % | -11.0 | % | ||||||||
Income tax provision | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||
Net income (loss) | -19.5 | % | -6.6 | % | -35.1 | % | -11.0 | % |
RESULTS OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED NOVEMBER 30, 2008 AS COMPARED TO THE SIX AND THREE MONTHS ENDED NOVEMBER 30, 2007
Revenues were approximately $1,980,855 for the six months ending November 30, 2008 as compared to approximately $1,364,372 for the six months ended November 30, 2007 reflecting an increase of approximately $616,483, or 45%. The increase in revenues during the six months ending November 30, 2008 is the result of the Company’s business expansion with a Tampa, Florida office specializing in the sales, service, and support of financial institution equipment and diversifying into the access control and integration market. The revenues for the three months ending November 30, 2008 were $1,455,898 as compared to $533,635 for the three months ended November 30, 2007, reflecting an increase of approximately $922,263, or 172.8%. This increase for the three months ending November 30, 2008 is the direct result of increased equipment sales due to the additional sales driven from the Tampa, Florida office.
Cost of goods sold for the six months ended November 30, 2008 were approximately $1,935,782, or 97.7% of net sales as compared to approximately $898,448, or 65.9% of net sales for the six months ended November 30, 2007. Cost of goods sold for the three months ended November 30, 2008 was approximately $1,482,207, or 101.8% of net sales as compared to approximately $349,901, or 65.6% of net sales for the three months ended November 30, 2007. The Company has experienced a decline in Gross Profit of approximately $420,851 for the six months period ended November 30, 2008 as compared to the prior six month period ended November 30, 2007. Gross Profit was $45,073 and $465,924 for the six month periods ending November 30, 2008 and 2007, respectively. The decline in Gross Profit is primarily due to the Company incurring transitional costs associated with the acquisition of the work in progress and service contracts related to the Tampa, Florida office and to the Company incurring transitional material costs that did not ultimately result in recognized revenues.
Selling, general and administrative expenses were approximately $763,823, or 38.6% of revenues for the six months ending November 30, 2008 as compared to approximately $550,786, or 40.4% of revenues for the six months ended November 30, 2007 reflecting an increase of approximately $213,037. Selling, general and administrative expenses were approximately $484,347, or 33.3% of revenues for the three months ending November 30, 2008 as compared to approximately $239,589, or 44.9% of revenues for the three months ended November 30, 2007 reflecting an increase of approximately $244,758. This increase is due to the additional staff added at the Tampa, Florida office which includes three people in sales, ten people in the installation department, twelve people in service and nine office personnel.
7
As a result of the aforementioned, the Company incurred a net loss from operations during the six months ending November 30, 2008 of approximately $718,750 as opposed to a net operating loss of approximately $84,862 for the six months ending November 30, 2007. For the three months ending November 30, 2008, the Company incurred a net operating loss of approximately $510,656 as opposed to a net operating loss of approximately $55,855 for the comparable prior period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through internal cash flows from operations.
The Company had bank overdrafts of $10,047 and negative working capital of $769,673 at November 30, 2008. At November 30, 2008, the Company’s working capital had decreased by $843,998 from the year ended May 31, 2008. The decrease in working capital was primarily caused by the additional expenditures associated with the acquisition of the Tampa, Florida office.
The Company will continue evaluating opportunities to grow and expand through mergers or acquisitions, and may hire additional sales personnel in order to reach potential customers in new markets and additional customers in existing markets.
The Company’s ability to effect any of these strategies or to take any of these steps will depend on a number of factors including, but not limited to, the Company’s ability to generate sufficient cash flow or obtain sufficient capital on reasonable terms; the Company’s ability to locate and hire qualified personnel on satisfactory terms and conditions, the availability of attractive candidates for merger or acquisition on reasonable terms and conditions; continued demand for the Company’s products and services; the Company’s ability to withstand increased competitive pressures; and economic conditions within the industries and markets the Company now serves. There is no assurance that the Company will be able to meet any or all of its goals.
The Company believes that its available cash and cash from operations will be sufficient to satisfy the Company’s funding needs through at least November 30, 2009. However, if cash generated from operations is insufficient to satisfy the Company’s working capital and capital expenditure requirements, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. There can be no assurance that such additions, if needed, will be available on satisfactory terms, if at all. Furthermore, any additional equity financing may be substantially dilutive to stockholders, and debt financing, if available, may include restrictive covenants and also result in substantial dilution to stockholders. The Company’s future liquidity and capital funding requirements will depend on numerous factors, including the extent to which the Company’s new products and products under consideration are successfully developed, gain market acceptance, become and remain competitive as well as the costs and timing of further expansion of sales and marketing. The failure by the Company to raise capital on acceptable terms when needed could have a material adverse effect on the Company’s business, financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks in conducting the business of the Company, and we anticipate that this exposure will increase as a result of our planned growth. In an effort to mitigate losses associated with these risks, we may at times enter into derivative financial instruments, although we have not historically done so. These may take the form of forward sales contracts, option contracts, foreign currency exchange contracts, and interest rate swaps.
ITEM 4. CONTROLS AND PROCEDURES
(a) DISCLOSURE CONTROLS AND PROCEDURES. As of May 31, 2008, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The Company's disclosure controls and procedures are the controls and other procedures that it designed to ensure that it records, processes, summarizes and reports in a timely manner the information it must disclose in reports that it files with or submits to the Securities and Exchange Commission. Cynthia Hayden, the Company's President, supervised and participated in this evaluation. Based on this evaluation, Ms. Hayden concluded that, as of the date of their evaluation, the Company's disclosure controls and procedures were effective.
(b) CHANGES IN INTERNAL CONTROLS. There were no changes in internal controls over financial reporting known to the President that occurred during the period covered by this report that have materially affected, or are likely to materially effect, the Company’s internal control over financial reporting.
Evaluation of Disclosure Controls and Procedures. In accordance with the final Release No. 33-8934 by the Security and Exchange Commission, which requires companies that are non-accelerated filers to include in their annual reports an attestation report of their independent auditors on internal control over financial reporting for fiscal years ending on or after December 15, 2009, the Company has concluded that based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of November 30, 2008, the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were effective.
8
Changes in Internal Controls. During the quarter ended November 30, 2008, there was no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been served with a lawsuit by Woodmoor and Associates, LLC (“Woodmoor”) whereby Woodmoor contends the Company owes Woodmoor $150,000 related to an alleged note payable. On or about October 1, 2008 Woodmoor loaned the Company $150,000 to be used for working capital. The Company does not dispute the existence of the loan or the amount thereof. Woodmore alleges that the loan was due on demand, but the Company believes that the payment schedule, or any other loan terms and conditions, were ever agreed upon. Until this matter is resolved, the Company has recorded this loan in the financials of the Company as a Note Payable to consultant. The Company has secured counsel to represent the Company in this matter
The Company has been served with a lawsuit by Fortis Security (“Fortis”), whereby Fortis contends the Company owes Fortis an outstanding balance of $6,804 related to various equipment purchases. The Company does not dispute that this amount is owed to Fortis and expects to have the outstanding balance resolved within the next 90 days.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
On January 15, 2009, stockholders of the Company holding more than a majority of the outstanding common stock of the Company (the "Majority Stockholders") executed a written consent action (the "Consent Action") providing for the removal of Steven K. Wilson, Joan Jolitz, and Allison Belcher (the "Removed Directors") from the Company's Board of Directors. The Consent Action states that the Majority Stockholders have resolved to remove the Removed Directors from the Board because the Majority Stockholders believe it is necessary to do so to prevent the Removed Directors, who comprise a majority of the Board, from causing the Company to complete a transaction involving the acquisition of Chesscom Consultants, Inc. ("Chesscom").
On June 11, 2008, the Company entered into an Acquisition Agreement and Plan of Merger with Chesscom that contemplated the merger of Chesscom with and into the Company in exchange for 12 million shares of Company common stock (the "Chesscom Agreement"). Joan Jolitz is the sole stockholder of Chesscom, and Allison Belcher is the stepdaughter of Ms. Jolitz. According to the Consent Action, following the execution of the Chesscom Agreement, the Majority Stockholders examined the documentation, facts, and circumstances relating to the proposed Chesscom transaction and communicated a variety of concerns and potential problems regarding the transaction to the Company's Board of Directors. Thereafter, according to the Consent Action, neither the Removed Directors nor their counsel responded directly to the Majority Stockholders regarding these concerns, and the Removed Directors became adversarial and attempted to force the Company to complete the Chesscom transaction. The Consent Action states that the Majority Stockholders believe that the removal of the Removed Directors is necessary to prevent the completion of the Chesscom transaction and that the removal is therefore advisable and in the best interest of the Company's stockholders. The Company intends to file a Schedule 14C Information Statement with the SEC regarding the Consent Action and to deliver the same to the Company's stockholders, and it is currently anticipated that the removal of the Removed Directors will be effective within 20 days following the mailing of the Schedule 14C Information Statement to the Company's stockholders. The Consent Action was signed by Paul Clark and Roberta Clark.
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ITEM 6. EXHIBITS
a)Exhibits
Exhibit Number | Description | |
31.1 | Certification Pursuant to Rule 13a-14(a) of Cynthia A. Hayden, President | |
31.2 | Certification of Cynthia A. Hayden | |
32.1 | Certification Pursuant to Rule 13a-14(a) of David A. Nail, CFO | |
32.2 | Certification of David A. Nail |
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FINANCIAL STATEMENTS
THE BANKER'S STORE, INC. AND SUBSIDIARIES
I N D E X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE | ||
CONDENSED CONSOLIDATED BALANCE SHEETS NOVEMBER 30, 2008 (UNAUDITED) AND MAY 31, 2008 | F-2 | |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED NOVEMBER 30, 2008 AND 2007 (UNAUDITED) | F-3 | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007 (UNAUDITED) | F-4 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | F-5 - F-10 | |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | ||
PART II. OTHER INFORMATION | ||
SIGNATURES |
F-1
THE BANKER'S STORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2008 (UNAUDITED) AND MAY 31, 2008
NOVEMBER 30, | MAY 31, | |||||||
2008 | 2008 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | - | $ | 149,365 | ||||
Accounts receivable, net of allowance for bad debts of $4,043 | 802,033 | 131,820 | ||||||
Costs and estimated earning in excess of billings | 369,713 | - | ||||||
Inventories | 480,377 | 578,790 | ||||||
Prepaid expenses and other current assets | 90,995 | 62,461 | ||||||
Total current assets | 1,743,118 | 922,436 | ||||||
Equipment and improvements, net | 93,032 | 69,181 | ||||||
Other assets, inlcuding Goodwill, net of amortization | 500,999 | 831 | ||||||
Totals | $ | 2,337,149 | $ | 992,448 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities: | ||||||||
Bank Overdrafts | $ | 10,047 | $ | - | ||||
Accounts payable and accrued expenses | 1,089,552 | 137,377 | ||||||
Customer deposits | 247,097 | 305,115 | ||||||
Deferred Service Contracts | 8,718 | - | ||||||
Note payable - principal stockholder | - | 142,519 | ||||||
Note payable - AFC Holdings, Inc. | 535,000 | - | ||||||
Note payable - consultant | 150,000 | - | ||||||
Accrued compensation - principal stockholder | - | 263,100 | ||||||
Short Term Debt - Funding Company | 58,363 | - | ||||||
Billings in excess of costs and estimated earnings | 414,014 | - | ||||||
Total current liabilities | 2,512,791 | 848,111 | ||||||
Total liabilities | 2,512,791 | 848,111 | ||||||
Commitments and contingencies | ||||||||
Stockholders' equity: | ||||||||
Common stock, $.01 par value; 200,000,000 shares authorized; 15,754,781 shares issued and outstanding | 157,548 | 149,548 | ||||||
Additional paid-in capital | 612,529 | 553,889 | ||||||
Less: treasury stock 2,000 shares (at cost) | (2,000 | ) | (2,000 | ) | ||||
Accumulated (deficit) earnings | (943,719 | ) | (557,100 | ) | ||||
Total stockholders' equity | (175,642 | ) | 144,337 | |||||
Totals | $ | 2,337,149 | $ | 992,448 |
The accompanying notes are an integral part of these financial statements.
F-2
THE BANKER'S STORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NOVEMBER, 2008 AND 2007 (UNAUDITED)
SIX MONTHS ENDED | THREE MONTHS ENDED | |||||||||||||||
NOVEMBER 30, | NOVEMBER 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Revenue | $ | 1,980,855 | $ | 1,364,372 | $ | 1,455,898 | $ | 533,635 | ||||||||
Cost of goods sold | 1,935,782 | 898,448 | 1,482,207 | 349,901 | ||||||||||||
Gross profit | 45,073 | 465,924 | (26,309 | ) | 183,734 | |||||||||||
Selling, general and administrative expenses | 763,823 | 550,786 | 484,347 | 239,589 | ||||||||||||
Income (loss) from operations | (718,750 | ) | (84,862 | ) | (510,656 | ) | (55,855 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest income (expenses) | 410 | 3,255 | 169 | 1,228 | ||||||||||||
Interest expense | (3,145 | ) | (7,979 | ) | (637 | ) | (3,883 | ) | ||||||||
Gain on extinguishment of debt to princial stockholder | 334,866 | |||||||||||||||
Total other income (expense): | 332,131 | (4,724 | ) | (468 | ) | (2,655 | ) | |||||||||
Income before income tax provision | (386,619 | ) | (89,586 | ) | (511,124 | ) | (58,510 | ) | ||||||||
Income tax provision | - | - | - | - | ||||||||||||
Net income | $ | (386,619 | ) | $ | (89,586 | ) | $ | (511,124 | ) | $ | (58,510 | ) | ||||
Basic earnings (loss) per common share | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.00 | ) | ||||
Diluted earnings (loss) per share | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.00 | ) |
The accompanying notes are an integral part of these financial statements.
F-3
THE BANKER'S STORE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 2008 AND 2007 (UNAUDITED)
NOVEMBER 30, | ||||||||
2008 | 2007 | |||||||
Operating activities | ||||||||
Net income (loss) | $ | (386,619 | ) | $ | (89,586 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 36,134 | 10,403 | ||||||
Stock based compensation | - | 8,667 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts and contracts receivable | (670,213 | ) | (45,194 | ) | ||||
Inventories | 98,412 | 117,754 | ||||||
Earnings in Excess of Billings | (369,713 | ) | - | |||||
Prepaid expenses and other current assets | (28,533 | ) | 48,347 | |||||
Other assets | (526,232 | ) | 16,286 | |||||
Accounts payable and accrued expenses | 962,222 | 7,161 | ||||||
Billings in Excess of Earnings | 414,014 | - | ||||||
Deferred Income | 8,718 | - | ||||||
Customer deposits | (58,017 | ) | (217,890 | ) | ||||
Net cash (used in) operating activities | (519,827 | ) | (144,052 | ) | ||||
Investing activities | ||||||||
Capital expenditures, net of writeoffs | (33,922 | ) | (6,066 | ) | ||||
Net cash (used in) investing activities | (33,922 | ) | (6,066 | ) | ||||
Financing activities | ||||||||
Increase (decrease) in long-term debt, net | - | (2,346 | ) | |||||
Increase (decrease) in short-term debt, net | 58,363 | - | ||||||
Notes Payable - AFC Holdings and Consultant | 685,000 | - | ||||||
Loan payable - Borrowing from principal stockholder | (405,619 | ) | (23,040 | ) | ||||
Common stock issued | 8,000 | - | ||||||
Additional paid in capital | 58,640 | - | ||||||
Net cash provided by (used in) financing activities | 404,384 | (25,386 | ) | |||||
Net decrease in cash and cash equivalents | (149,365 | ) | (175,504 | ) | ||||
Cash and cash equivalents, beginning of period | 149,365 | 357,323 | ||||||
Cash and cash equivalents, end of period | $ | 0 | $ | 181,819 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Interest paid | $ | 3,145 | $ | 7,979 | ||||
Income taxes paid | $ | - | $ | - |
The accompanying notes are an integral part of these financial statements.
F-4
THE BANKER’S STORE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of presentation:
In the opinion of management, the accompanying unaudited condensed consolidated financial statements 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 November 30, 2008 and the Company's results of operations and cash flows for the six months ended November 30, 2008 and 2007. Pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"), certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed in or omitted from these consolidated financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of May 31, 2008 and the notes thereto (the "Audited Financial Statements") and the other information included in the Company's Annual Report on Form 10-KSB (the "Form 10-KSB") for the year ended May 31, 2008.
The consolidated results of operations for the six months ended November 30, 2008 are not necessarily indicative of the results to be expected for the full year.
Note 2 - Liquidity:
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements, the Company incurred a net loss available to common stockholders of $511,124 and $58,510 for the three month period ended November 30, 2008 and 2007, respectively. Additionally, the Company has negative cash flows from operations of $519,827 for the six month period ended November 30, 2008 and an accumulated deficit of $943,719 as of November 30, 2008. These factors among others may indicate that the Company may be unable to continue as a going concern.
The Company’s continued existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.
Note 3 - Earnings (loss) per common share:
The Company presents "basic" earnings (loss) per share and, if applicable, "diluted" earnings per share pursuant to the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share". Basic earnings (loss) per share is calculated by dividing net income or loss by the weighted average number of shares outstanding during each period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares were issued during the period. The weighted average numbers of shares for determining basic earnings per share were 15,754,781 in 2008. The weighted average numbers of shares for determining diluted earnings per share were 15,754,781 in 2008.
F-5
THE BANKER’S STORE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Note 4 - Income taxes:
The Company’s estimated federal and state income tax rate is 40 percent. Due to the uncertainties related to, among other things, the extent and timing of the Company’s future taxable income, the Company offset the deferred tax assets attributable to the potential benefits of approximately $53,000 from the utilization of net operating loss carry forwards and other deferred tax assets by an equivalent valuation allowance during the three months ending November 30, 2008. Total deferred tax assets were approximately $300,000 which was offset by an equivalent valuation allowance as of November 30, 2008.
As a result of the corresponding increase in the valuation allowance and deferred tax assets of $53,000 during the six months ended November 30, 2008, the Company did not recognize any income taxes in the accompanying condensed consolidated statements of operations to offset its pre-tax income and loss in the periods.
Note 5 - Contingencies:
Litigation:
The Company has been served with a lawsuit by Woodmoor and Associates, LLC (“Woodmoor”) whereby Woodmoor contends the Company owes Woodmoor $150,000 related to an alleged note payable. On or about October 1, 2008 Woodmoor loaned the Company $150,000 to be used for working capital. The Company does not dispute the existence of the loan or the amount thereof. Woodmore alleges that the loan was due on demand, but the Company believes that the payment schedule, or any other loan terms and conditions, were ever agreed upon. Until this matter is resolved, the Company has recorded this loan in the financials of the Company as a Note Payable to consultant. The Company has secured counsel to represent the Company in this matter
The Company has been served with a lawsuit by Fortis Security (“Fortis”), whereby Fortis contends the Company owes Fortis an outstanding balance of $6,804 related to various equipment purchases. The Company does not dispute that this amount is owed to Fortis and expects to have the outstanding balance resolved within the next 90 days.
Note 6 - Segment information:
The Company has adopted the provisions of Statements of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"). Pursuant to the provisions of SFAS 131, the Company is reporting segment sales, cost of goods sold, gross margins and inventories in the same format reviewed by the Company's management (the "management approach"). The Company has two reporting segments: "Banking Equipment", "Office Equipment." The Banking Equipment segment is comprised of the operations connected with the buying, selling and trading of new and refurbished financial equipment for banks and other financial institutions. The Office Equipment segment is comprised of buying and selling office equipment and supplies.
F-6
THE BANKER'S STORE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Revenues and other related segment information follows for the six months and three months ended November 30, 2008 and 2007:
THE BANKER'S STORE, INC. AND SUBSIDIARIES |
DISCLOSURE OF REPORTED SEGMENT PROFIT OR LOSS, AND SEGMENT ASSETS |
SIX MONTHS ENDED | SIX MONTHS ENDED | |||||||||||||||||||||||
NOVEMBER | NOVEMBER | |||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Banking | Office | Banking | Office | |||||||||||||||||||||
Equipment | Equipment | Totals | Equipment | Equipment | Totals | |||||||||||||||||||
Revenues from external customers | $ | 1,908,916 | $ | 71,939 | $ | 1,980,855 | $ | 1,148,655 | $ | 215,717 | $ | 1,364,372 | ||||||||||||
Segment profit (loss) | (374,659 | ) | (11,960 | ) | (386,619 | ) | (56,114 | ) | (33,472 | ) | (89,586 | ) | ||||||||||||
Segment assets | $ | 2,272,316 | $ | 64,833 | $ | 2,337,149 | $ | 1,045,493 | $ | 33,276 | $ | 1,078,769 |
THREE MONTHS ENDED | THREE MONTHS ENDED | |||||||||||||||||||||||
NOVEMBER 30, | NOVEMBER | |||||||||||||||||||||||
2008 | 2007 | |||||||||||||||||||||||
Banking | Office | Banking | Office | |||||||||||||||||||||
Equipment | Equipment | Totals | Equipment | Equipment | Totals | |||||||||||||||||||
Revenues from external customers | $ | 1,438,078 | $ | 17,820 | $ | 1,455,898 | $ | 451,750 | $ | 81,885 | $ | 533,635 | ||||||||||||
Segment profit (loss) | (509,258 | ) | (1,865 | ) | (511,123 | ) | (30,373 | ) | (28,137 | ) | (58,510 | ) | ||||||||||||
Segment assets | $ | 2,272,316 | $ | 64,833 | $ | 2,337,149 | $ | 1,045,493 | $ | 33,276 | $ | 1,078,769 |
Note 7 - Goodwill:
The Company recorded $521,282 of Goodwill associated with the business combination between the Company and AFC Holdings, Inc. The Company determined that there is a finite life associated with this Goodwill of approximately five years. Accordingly the Company is amortizing the cost of Goodwill over this five-year period. The Company reflects the net carrying amount in the Company’s financials and is recording a monthly amortization expense of $8,688 and will record approximately $78,192 of amortization of goodwill for this fiscal year ending May 31, 2009.
F-7
The future amortization expense for each of the five succeeding years relating to all intangible assets that are currently recorded in the Consolidated Statement of Financial Position is estimated to be the following at May 31, 2009:
Fiscal Period Ending/Dollars in Thousands | ||||
2010 | $ | 104 | ||
2011 | $ | 104 | ||
2012 | $ | 104 | ||
2013 | $ | 104 | ||
2014 – 3 months | $ | 27 |
Note 8 – Debt and Notes Payable:
Factoring Agreement
The Company entered into a Factoring, Loan, and Security Agreement (the “Agreement”) with a financing company on September 19, 2008, which allows for borrowings of up to $2,000,000. The Agreement expires on September 18, 2009, and automatically renews annually thereafter. All borrowings are secured by outstanding receivables specifically assigned to the financing company. Assigned receivables are considered “Approved” or “Non-Approved” by the financing company.
Payments on assigned receivables are received directly by the financing company, and applied to outstanding advances. All outstanding advances and uncollected assigned receivables are subject to fees and interest charges ranging from 0.55% to 1.5% plus prime rate as published by the Wall Street Journal. All receivables assigned and advances made are subject to return and recall by the financing company, respectively. As such, the advances have been classified as short-term secured borrowings in accordance with SFAS No. 140 “Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities.”
The total outstanding advance made under the agreement as of November 30, 2008 is $58,363 which is presented as short-term debt. The weighted average rate of interest for borrowings made under the Agreement was 14.0% for the six months ended November 30, 2008. As of November 30, 2008, the Company’s availability for future borrowing under the agreement is $89,000 which is contingent on approval of eligible receivables by the financing company.
Unsecured Subordinated Note – Woodmoor and Associates, LLC
On or about October 1, 2008, the Company received a loan of $150,000 from Woodmoor and Associates, LLC to be used for working capital. The loan was structured as an unsecured note payable and the terms and conditions to repayment are still being negotiated. The note is subordinated to the Factoring Agreement of First Growth Capital. As of November 30, 2008, the note is recorded as a current note payable in the financial statements of the Company.
Unsecured Subordinated Debt – AFC Holdings, Inc.
On August 19, 2008 the Company entered into a business combination with AFC Holdings, Inc. and related subsidiaries and AFC Systems, Inc. The Company entered into an Agreement for the Servicing, Subcontracting and Assignment of the Rights to Certain Assets with AFC Holdings, Inc., and related subsidiaries. The agreement calls for a maximum payment of $135,000 and to issue warrants on common stock valued at a maximum of $400,000. The agreement has been recorded in the Company’s records as a current note payable of $535,000 and as of November 30, 2008, is reflected as a note payable – AFC Holdings, Inc. in the current liabilities section of the Balance Sheet.
Note 9 – Business Combination:
On August 19, 2008 the Company entered into a business combination with AFC Holdings, Inc. and related subsidiaries and AFC Systems, Inc. The Company entered into an Agreement for the Servicing, Subcontracting and Assignment of the Rights to Certain Assets with AFC Holdings, Inc., and related subsidiaries. Pursuant to the Agreement the Company has increased its finance and banking business lines through significant new clients, added 13 new state markets, and added the new business lines of access controls and security integration inclusive of intellectual property and clients. Further, the Company received the rights to the customers and clients; the maintenance and service agreements for ATMs, other financial institution services and access control systems. In exchange for such rights the Company agreed to a maximum payment of $135,000 and to issue warrants on common stock valued at a maximum of $400,000.
F-8
The Company has recorded the transaction with AFC Holdings, Inc, and related subsidiaries as a business combination. The Company acquired a small amount of immaterial assets primarily furniture, fixture, and computers however the Company did not acquire any stock or equity nor assume any liabilities or contingencies. The Company recorded in Other Assets approximately $521,282 of Goodwill associated with the business combination and determined that the Goodwill had a finite life of five years. The Company has used this five-year life as the amortization period and therefore has recognized in this 10Q for period ending November 30, 2008 three months of amortization of goodwill in the amount of $26,064 which is reflected in the General and Administrative Expense line of the Statement of Operations.
Below is a forecasted Statements of Operations for the three month and six month periods ending November 30, 2008 and 2007, respectively and for the 12 month period ended May 31, 2009 which incorporates the Company’s actual financial results for those periods. This forward looking statement should not be relied upon as achievable results due the many factors affecting the Company and its operations. The Company disclaims any intent or obligation to update these forward-looking statements.
THE BANKER'S STORE, INC. AND SUBSIDIARIES |
FORECASTED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
THREE MONTHS ENDED NOVEMBER, 2008 AND 2007 (UNAUDITED) |
THREE MONTHS ENDED | ||||||||
NOVEMBER 30, | ||||||||
2008 | 2007 | |||||||
Revenue | $ | 1,455,898 | $ | 4,213,546 | ||||
Income (loss) from operations | (510,656 | ) | (182,255 | ) | ||||
Net income | $ | (511,123 | ) | $ | (167,685 | ) | ||
Basic earnings (loss) per common share | $ | (0.03 | ) | $ | (0.01 | ) | ||
Diluted earnings (loss) per share | $ | (0.03 | ) | $ | (0.01 | ) |
THE BANKER'S STORE, INC. AND SUBSIDIARIES |
FORECASTED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
SIX MONTHS ENDED NOVEMBER, 2008 AND 2007 (UNAUDITED) |
SIX MONTHS ENDED | ||||||||
NOVEMBER 30, | ||||||||
2008 | 2007 | |||||||
Revenue | $ | 4,080,579 | $ | 4,124,667 | ||||
Income (loss) from operations | (739,747 | ) | 64,119 | |||||
Net income | $ | (407,616 | ) | $ | 47,557 | |||
Basic earnings (loss) per common share | $ | (0.03 | ) | $ | (0.01 | ) | ||
Diluted earnings (loss) per share | $ | (0.03 | ) | $ | (0.01 | ) |
F-9
THE BANKER'S STORE, INC. AND SUBSIDIARIES
FORECASTED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTH PERIOD ENDED MAY 31, 2009 (UNAUDITED)
TWELVE MONTHS ENDED MAY 31, 2009 | ||||
Revenue | $ | 4,730,855 | ||
Income (loss) from operations | $ | (998,897 | ) | |
Net income | $ | (673,056 | ) | |
Basic earnings (loss) per common share | $ | (0.05 | ) | |
Diluted earnings (loss) per share | $ | (0.04 | ) | |
F-10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
THE BANKER'S STORE, INC. | ||
By: | /s/ Cynthia A. Hayden | |
Cynthia A. Hayden, President and Director | ||
Dated : January 20, 2009 |