SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-13757
GALLERY OF HISTORY, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 88-0176525
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3601 West Sahara Avenue, Las Vegas, Nevada 89102-5822
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (702) 364-1000
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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. X Yes No
The Registrant had 5,917,654 shares of Common Stock, par value $.001,
outstanding as of August 1, 1996.
<PAGE>
<TABLE>
Part 1 - FINANCIAL INFORMATION
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
______________________________________________________________________
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
Cash $ 238,229 $ 171,295
Prepaid expenses 52,001 57,843
Accounts receivable 152,659 --
Documents owned 8,743,718 9,123,220
Land and building-net 1,495,788 1,530,278
Property and equipment-net 184,363 204,033
Other assets 415,878 460,359
__________ __________
TOTAL ASSETS $11,282,636 $11,547,028
LIABILITIES
Accounts payable $ 64,755 $ 60,950
Notes payable 361,810 321,553
Indebtedness to related parties 69,356 105,929
Mortgage notes payable 1,885,996 1,918,216
Deposits 28,105 266,828
Accrued and other liabilities 101,899 129,129
__________ __________
TOTAL LIABILITIES $ 2,511,921 $ 2,802,605
STOCKHOLDERS' EQUITY
Common stock: $.001 par value;
authorized, 10,000,000 shares;
issued and outstanding,
5,917,654 shares 5,918 5,918
Additional paid-in-capital 9,392,363 9,392,363
Accumulated deficit (627,566) (653,858)
__________ __________
TOTAL STOCKHOLDERS' EQUITY $ 8,770,715 $ 8,744,423
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,282,636 $11,547,028
========== ==========
See the accompanying notes to consolidated financial statements.
______________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
______________________________________________________________________
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 813,773 $ 579,573 $1,723,177 $1,838,200
COST OF REVENUES 248,476 124,458 491,443 460,199
-------- -------- --------- ---------
GROSS PROFIT 565,297 455,115 1,231,734 1,378,001
-------- -------- --------- ---------
OPERATING EXPENSES:
Selling, general and
administrative 304,902 372,505 997,578 1,118,027
Depreciation 29,374 44,205 97,245 143,457
Advertising 3,901 6,839 14,984 17,703
Maintenance & repairs 6,625 8,125 20,504 26,782
Loss on gallery closure -- -- 5,877 --
-------- -------- --------- ---------
TOTAL OPERATING EXPENSES 344,802 431,674 1,136,188 1,305,969
-------- -------- --------- ---------
OPERATING INCOME 220,495 23,441 95,546 72,032
OTHER INCOME (EXPENSE)
Interest expense (56,973) (60,503) (174,392) (195,305)
Other 39,671 39,116 105,238 118,775
-------- -------- --------- ---------
TOTAL OTHER INCOME
(EXPENSE) (17,302) (21,387) (69,154) (76,530)
-------- -------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES 203,193 2,054 26,392 (4,498)
(PROVISION) CREDIT FOR
INCOME TAXES -- (1,370) (100) 69,568
-------- -------- --------- --------
NET INCOME $ 203,193 $ 684 $ 26,292 $ 65,070
======== ======== ========= ========
EARNINGS PER SHARE: $.03 $ -- $ -- $.01
=== === === ===
See the accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
______________________________________________________________________
<CAPTION>
NINE MONTHS ENDED JUNE 30,
1996 1995
________ ________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 26,292 $ 65,070
Adjustments to reconcile net income
to net cash provided from (used in)
operating activities:
Depreciation and amortization 142,407 178,574
Loss on disposal of property 3,436 --
(Increase) decrease in:
Prepaid expenses 5,842 3,290
Accounts receivable (152,659) --
Documents owned 379,502 281,084
Other assets 44,481 22,277
(Decrease) increase in:
Accounts payable 3,805 (16,372)
Customer deposits (238,723) (126,276)
Accrued and other liabilities (27,230) 22,059
-------- --------
Net cash provided by operating activities 187,153 429,706
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment (91,683) (716)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit 85,000 125,000
Repayments of bank line of credit (85,000) (185,000)
Proceeds from notes payable 185,400 --
Repayments of mortgage and notes payable (213,936) (338,418)
-------- --------
Net cash used in financing activities (28,536) (398,418)
-------- --------
NET INCREASE IN CASH 66,934 30,572
CASH, BEGINNING OF PERIOD 171,295 33,961
-------- --------
CASH, END OF PERIOD $ 238,229 $ 64,533
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the nine month period ended June 30, 1995:
(1) Stock options were exercised in part for the retirement of a
note payable in the amount of $18,750 to a related party.
See the accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Month Period Ended June 30, 1996 and 1995
_______________________________________________________________
1) Summary of Significant Accounting Policies
The consolidated financial statements included herein have been
prepared by Gallery of History, Inc. (the Company), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of management, all adjustments,
consisting of normal recurring items, necessary for a fair
presentation of the results for the interim periods have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to
such rules and regulations. It is suggested that these consolidated
financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1995
Annual Report on Form 10-KSB.
2) Unclassified Balance Sheet
The Company includes in its financial statements an unclassified
balance sheet because it believes that such presentation is more
meaningful as a consequence of the Company's policy of acquiring
documents in excess of its current needs, when feasible, and it is not
practicable to determine what portion of the documents owned will be
sold within the next twelve months.
3) Earnings (Loss) per Share
The computation of earnings or loss per share is based on the weighted
average number of shares of common stock outstanding and stock options
granted that are outstanding, if applicable. The average number of
shares of outstanding common stock for both three months ended June
30, 1996 and 1995 was 5,917,654. The average number of shares of
outstanding common stock for each of the nine months ended June 30,
1996 and 1995 was 5,917,654 and 5,917,297, respectively.
<PAGE>
Part 1 - Item 2 Financial Information
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Due to the nature of the Company's inventory of documents
owned, the Company has presented an unclassified balance sheet (see
Note 1 to the consolidated financial statements). Accordingly, the
traditional measures of liquidity in terms of changes in working
capital are not applicable.
Net cash provided by operating activities exceeded net cash used
for operating activities for the nine month period ended June 30,
1996. An increase in accounts receivable resulted from auction sales
that occurred in the second and third quarters of 1996. Deposits from
customers decreased during the nine month period ended June 30, 1996
due to the elimination of deposits received and held for future
auction sales. The Company realized a decrease in its document
inventory resulting from an increase in sales in the current quarter
and a reduction in purchasing of document inventory. The Company
supplemented its working capital with a $150,000 term loan obtained
from its bank maturing March 1999 at an interest rate of 1.5% over the
prime rate.
The Company has available a line of credit from its bank in the
amount of $100,000 at an interest rate of 1.5% over the prime rate
with a maturity date of July 15, 1997. Loans under the line are
secured by the Company's inventory. As of March 31, 1996, there was
no outstanding balance on this line of credit.
The Company closed its Dallas, Texas gallery December 26, 1995.
The loss realized in the current period for the closure amounted to
$5,877, which was primarily the write-off of leasehold improvements.
The Company believes its current cash and working capital
requirements will be satisfied for the near term by revenue generated
from operations and amounts available under the existing line of
credit. In the event the Company does not generate sufficient working
capital from operations, the Company will seek alternative equity
and/or debt financing, the availability and terms of which cannot be
assured.
Results of Operations
Document sales increased 40% for the three month period ended
June 30, 1996 compared to the three month period ended June 30, 1995.
Comparing the two nine month periods, sales decreased in the current
year by 6%. In the current nine month period, sales generated from
auctions increased 337% compared to the nine month period ended June
30, 1995. Auction sales comprised 45% of total document sales in the
nine month period ended June 30, 1996 compared to approximately 10%
during the nine months ended June 30, 1995. The increase illustrates
the Company's shift in marketing strategy to auction and wholesale
sales in addition to its retail sales. Retail sales decreased 43% in
<PAGE>
the current nine month period ended June 30, 1996 compared to the nine
month period ended June 30, 1995. Retail sales originating from a
gallery that was discontinued in the current year amounted to 7% of
total sales in the nine month period ended June 30, 1996 compared to
that gallery generating 15% of total sales in 1995. Cost of goods
sold for auction sales increased to 31% of auction sales for the nine
month period ended June 30, 1996 as compared to 29% in 1995. This
increase is directly related to the increased quantity of material
sold at wholesale pricing. Cost of retail sales remained
approximately the same at 26% of net retail sales for the nine month
period ended June 30, 1996 as compared to 25% of net retail sales for
the nine month period ended June 30, 1995.
Total operating expenses decreased 20% for the quarter ended
June 30, 1996 which was 42% of net sales as compared to the quarter
ended June 30, 1995 which amounted to 74% of net sales. Total
operating expenses decreased 13% for the nine month period ended June
30, 1996 or 66% of net sales as compared to the nine month period
ended June 30, 1995 which was 71% of net sales. Selling, general and
administrative expense decreased 18% comparing the quarter periods,
from 64% of net sales in 1995 to 37% of net sales in 1996. The
expenses decreased 11% comparing the nine month periods, from 61% of
net sales in 1995 to 58% of net sales in 1996. Comparing the
quarters, salaries and related payroll taxes and benefits decreased
17%, and for the nine month period these expenses decreased 9% due to
the closing of galleries and a reduction of staff at the headquarters
operation. Also related to the closing of galleries, rent expenses
decreased 30% comparing the quarters and 23% comparing the nine month
periods; utilities decreased 42% comparing the quarters and 26%
comparing the nine month periods; and freight expenses decreased 31%
for the quarter periods and 47% for the nine month periods.
Depreciation expense decreased 34% for the three month period ended
June 30, 1996 to 4% of net sales compared to the three month period
ended June 30, 1995 which was at 8% of net sales. Comparing the nine
month periods, depreciation expenses decreased 32%, from 6% of net
sales for 1995 to 8% of net sales for 1996. The decrease can be
attributed to a reduction of furnishings and equipment largely due to
the closure of galleries. Advertising expenses decreased 43% in the
current quarter as compared to the previous year quarter, and
advertising decreased by 15% comparing the nine month periods. Repair
expenses decreased 18% comparing the two quarter periods and 23%
comparing the two nine month periods which decrease was directly
related to the gallery closures.
Interest expense decreased 6% for the three month period and 11%
for the nine month period ended June 30, 1996 compared to the previous
year periods. The decrease in interest expense can be attributed to
the reduced interest rates and lower average outstanding loan balances
in the current periods. Included in selling, general and
administrative expenses is 50% of the operating cost to maintain the
headquarters building. This percentage is the approximate percentage
of leasable space of the building occupied by the Company's
headquarters operation. The remaining building operating expenses
plus the rental revenues realized are offset and included in other
income and expense. This amounted to approximately $53,000 operating
profit for the three month period ended June 30, 1996 as compared to
approximately $38,000 operating profit for the three month period
ended June 30, 1995. For the nine month period, the operating profit
<PAGE>
amounted to $145,000 for 1996 compared to $115,000 for 1995. The
increase is due to an increase in the square footage leased in
addition to increased rents. The Company has conducted a substantiative
review of its inventory and has taken a $44,000 write down in its inventory
value in the current nine month period recorded as other expense due to its
discovery of non-authentic material.
Part II - Other Information
Item 1-3. None.
Item 4. Submission of Matters to a Vote of Security Holders.
On June 24, 1996, the Company held its annual meeting
of shareholders for the following purposes: (1) to elect
five Directors to serve until the next annual meeting of
shareholders; and (2) to approve the appointment of Arthur
Andersen LLP, as the Company's independent auditors for the
fiscal year ending September 30, 1996.
At the Meeting the following Directors were elected by
a vote of 5,892,868 for and 1,452 withholding authority:
Todd M. Axelrod, Rod Lynam, Marc DuCharme, H. Stan Johnson
and Pamela Axelrod. Voting for the appointment of Arthur
Andersen LLP, as the Company's independent auditors,
5,893,901 shares were in favor and 350 shares against.
Item 5. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities
Exchange Act of 1934, the registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Gallery of History, Inc.
_______________________________
(Registrant)
August 1, 1996 /s Todd M. Axelrod
Date _________________ ________________________________
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
August 1, 1996 /s Rod Lynam
Date _________________ _______________________________
Rod Lynam
Treasurer and Director
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet dated June 30, 1996 and its
Consolidated Statement of Operations covering the period from October 1,
1995 to June 30, 1996 and is qualified in its entirety by reference
to such financial statement and notes thereof.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 238229
<SECURITIES> 0
<RECEIVABLES> 152659
<ALLOWANCES> 0
<INVENTORY> 8743718
<CURRENT-ASSETS> 0
<PP&E> 3345710
<DEPRECIATION> 2245558
<TOTAL-ASSETS> 11282636
<CURRENT-LIABILITIES> 0
<BONDS> 1885996
0
0
<COMMON> 5918
<OTHER-SE> 8764797
<TOTAL-LIABILITY-AND-EQUITY> 11282636
<SALES> 1723177
<TOTAL-REVENUES> 1723177
<CGS> 491443
<TOTAL-COSTS> 491443
<OTHER-EXPENSES> 1136188
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174392
<INCOME-PRETAX> 26392
<INCOME-TAX> 100
<INCOME-CONTINUING> 26292
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26292
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
