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, 1997
[ ] 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 3,252,934 shares of Common Stock, par value $.001,
outstanding as of August 1, 1997.
<PAGE>
<TABLE>
Part 1 - FINANCIAL INFORMATION
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
______________________________________________________________________
<CAPTION>
JUNE 30, SEPTEMBER 30,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 466,173 $ 115,800
Prepaid expenses 49,399 53,198
Accounts receivable 30,460 98,301
Documents owned 7,043,279 8,677,725
Land and building-net 1,466,752 1,484,292
Property and equipment-net 245,186 194,232
Other assets 164,642 403,786
__________ __________
TOTAL ASSETS $ 9,465,891 $11,027,334
========== ==========
LIABILITIES
Accounts payable $ 73,125 $ 84,117
Notes payable 65,611 196,889
Indebtedness to related parties -- 42,615
Mortgage notes payable 1,839,522 1,874,765
Deposits 47,292 30,073
Accrued and other liabilities 99,075 90,703
__________ __________
TOTAL LIABILITIES 2,124,625 2,319,162
---------- ----------
STOCKHOLDERS' EQUITY
Common stock: $.001 par value;
10,000,000 shares authorized;
5,917,654 shares issued;
3,252,934 and 5,917,654
outstanding 5,918 5,918
Additional paid-in-capital 9,392,363 9,392,363
Common stock in treasury
(2,664,720 shares) (2,014,481) --
Accumulated deficit (42,534) (690,109)
__________ __________
TOTAL STOCKHOLDERS' EQUITY 7,341,266 8,708,172
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,465,891 $11,027,334
========== ==========
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,
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $ 670,944 $ 813,773 $2,442,715 $1,723,177
COST OF GOODS SOLD 193,740 248,476 653,320 491,443
-------- -------- --------- ---------
GROSS PROFIT 477,204 565,297 1,789,395 1,231,734
-------- -------- --------- ---------
OPERATING EXPENSES:
Selling, general and
administrative 343,809 304,902 1,124,544 997,578
Depreciation 17,632 29,374 63,115 97,245
Advertising 33,476 3,901 74,451 14,984
Maintenance & repairs 8,386 6,625 23,192 20,504
Loss on gallery closure -- -- 941 5,877
Restructuring charge 217,438 -- 217,438 --
-------- -------- --------- ---------
TOTAL OPERATING EXPENSES 620,741 344,802 1,503,681 1,136,188
-------- -------- --------- ---------
OPERATING INCOME (LOSS) (143,537) 220,495 285,714 95,546
OTHER INCOME (EXPENSE)
Gain on repurchase of
common stock -- -- 356,553 --
Interest expense (50,252) (56,973) (149,749) (174,392)
Other 51,946 39,671 162,501 105,238
-------- -------- --------- ---------
TOTAL OTHER INCOME (EXPENSE) 1,694 (17,302) 369,305 (69,154)
-------- -------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (141,843) 203,193 655,019 26,392
(PROVISION) CREDIT FOR
INCOME TAX 92,356 -- (7,444) _ (100)
-------- -------- --------- ---------
NET INCOME (LOSS) $ (49,487) $ 203,193 $ 647,575 $ 26,292
======== ======== ========= =========
EARNINGS (LOSS) PER SHARE: $(.02) $ .03 $ .19 $ --
=== === === ===
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,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 647,575 $ 26,292
Adjustments to reconcile net income
to net cash provided from (used in)
operating activities:
Depreciation and amortization 109,979 142,407
Gain on exchange of inventory for
purchase of treasury stock (356,553) --
(Gain) loss on disposal of property (1,096) 3,436
(Increase) decrease in:
Prepaid expenses 3,799 5,842
Accounts receivable 67,841 (152,659)
Documents owned 187,954 379,502
Other assets 239,144 44,481
(Decrease) increase in:
Accounts payable (10,992) 3,805
Customer deposits 17,219 (238,723)
Accrued and other liabilities 8,372 (27,230)
-------- --------
Net cash provided by operating activities 913,242 187,153
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Proceeds from sale of equipment 2,000 --
Purchase of property and equipment (73,798) (91,683)
-------- --------
Net cash used for investing activities (71,798) (91,683)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit 137,500 85,000
Repayments of bank line of credit (137,500) (85,000)
Proceeds from notes payable 55,000 185,400
Repayments of mortgage and notes payable (334,635) (213,936)
Repurchase of common stock (211,436) --
-------- --------
Net cash used for financing activities (491,071) (28,536)
-------- --------
NET INCREASE (DECREASE) IN CASH 350,373 66,934
CASH, BEGINNING OF PERIOD 115,800 171,295
-------- --------
CASH, END OF PERIOD $ 466,173 $ 238,229
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the nine month period ended June 30, 1997:
(1) Documents with a cost of $1,446,492 were exchanged for shares
of the Company's common stock valued at $1,803,045.
(2) Debt of $70,499 was incurred for the purchase of a truck.
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, 1997 and 1996
_____________________________________________________________________________
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 1996 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 historical 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 the three months ended June 30, 1997 and
1996 was 3,255,352 and 5,917,654, respectively. The average number of
shares of outstanding common stock for the nine months ended June 30, 1997
and 1996 was 3,354,499 and 5,917,654, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share." SFAS 128 established new accounting standards for the computation
and financial statement presentation of earnings per share data. SFAS 128
is effective for statements issued for periods ending after December 15,
1997 and earlier implementation is not permitted. The Company expects that
there will be no material effect upon implementing SFAS 128 on its earnings
per share calculations.
<PAGE>
4) Repurchase of Common Stock
In October 1996, the Company repurchased 2,659,720 shares of its common
stock, representing the entire interest of the Company's largest
shareholder for total consideration of $2,000,000, consisting of 460
documents valued at $1,803,045 and $196,955 in cash. The parties
negotiated the value of the inventory based on an independent expert's
appraisal. The book value of the inventory was $1,446,492, resulting in a
gain on disposition of $356,553.
As a directive passed by the Company's Board of Directors to purchase
shares of the Company's Common Stock from time to time because the Board
believes that the current stock price does not reflect its improved
business activities nor the value of its asset base, the Company purchased
5,000 shares of its common stock at $2 7/8 in May 1997.
5) Restructuring Charge
The Restructuring Charge represents the write down of certain assets,
principally the Company's book inventory, associated with the Company's
retail sales operations. The Company recently restructured the nature of
its business shifting away from the retail sales to wholesale/auction
sales.
<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 2 to the consolidated
financial statements). Accordingly, the traditional measures of liquidity in
terms of changes in working capital are not applicable. At June 30, 1997, the
Company's cash had increased $350,373 from the September 30, 1996 balance. The
aggregate of cash, accounts receivable and prepaid expenses (approximately
$545,000 at June 30, 1997) exceeded short-term liabilities (including the
current portion of long-term debt) by approximately $310,000. This compares
to approximately $65,000 of cash, accounts receivable and prepaid expenses in
excess of short-term liabilites as of June 30, 1996.
Net cash provided by operating activities exceeded net cash used in operating
activities for the nine month period ended June 30, 1997 largely due to the
increase in revenues in the current period and the resultant increase in net
income.
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, 1998. Loans under the line are secured by the Company's inventory.
As of June 30, 1997, there was no outstanding balance on this line of credit.
The Company incurred a truck loan in the amount of $70,000 at a fixed interest
rate of 7.9% during the nine month period payable over a sixty-month term. In
addition to the mortgage on the Company's headquarters' building, this is the
only remaining loan outstanding; the Company has retired all its term notes,
related party debt and equipment note during the current nine month period.
The Company has converted its fixed term real estate loan maturing July 15, 1998
into a reducing revolving term loan with a maturity of July 15, 2002 at a fixed
rate of interest of 9 percent.
The lease for the Company's gallery located at the Fashion Show Mall in Las
Vegas expired March 31, 1997. The Company decided not to renew this lease but
rather to move the retail operation to its Las Vegas headquarters' building.
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
- ---------------------
The Company has dramatically changed the mix of its business from the
traditional retail sales to wholesale/auction sales. During the three month
period ended June 30, 1997, the Company's wholesale/auction sales amounted to
94 percent of its total sales. Comparing the current quarter to the previous
year quarter this was a 12 percent increase. Total sales decreased 18 percent
comparing the two quarters. Comparing the two nine month periods, the Company
experienced a 42 percent growth in total sales. For the nine month period ended
<PAGE>
June 30, 1997, wholesale/auction sales amounted to 76 percent of total sales
compared to 50 percent of total sales for the nine month period ended June 30,
1996. This resulted in an increase of 115 percent in wholesale/auction sales
for the current period. Retail sales, comparing the two nine month periods,
decreased 32 percent largely due to the closure of two galleries.
Cost of goods sold decreased to 29 percent of net sales for the three month
period ended June 30, 1997 compared to 31 percent of net sales for the three
month period ended June 30, 1996. For the nine month period, cost of goods
sold decreased to 27 percent of net sales for the period ended June 30, 1997
compared to 29 percent for the previous year period. The document inventory
cost decreased to 19 percent of net sales in the current nine month period
compared to 25 percent of net sales in the previous year period. In addition,
commissions amounted to 2 percent of net sales in the current nine month period
compared to 5 percent of net sales in the previous year. However, the Company
incurred catalog costs for its auctions amounting to 6 percent of net sales in
the current nine month period.
The Company recently restructured the nature of its business by shifting from
retail sales to wholesale/auction sales. The Company's gallery retail
operations have been significantly reduced following the closure of the
Company's flagship Las Vegas retail gallery during the current period. In
light of this change, management decided to write down certain assets
associated with the Company's retail sales operations. As a result, the
Company incurred a $217,438 restructuring charge in the current quarter. The
major portion of this amount was a write down of the Company's book inventory.
The Company sells this book largely through its retail sales operation in its
galleries. Because of the shift away from retail sales, the Company reduced
the book inventory to more accurately reflect management's estimate of its
current market value. In addition, the Company's framing raw material
inventory was written down to reflect damaged and obsolete inventory.
Total operating expenses increased 80% for the quarter and 32% for the nine
month period ended June 30, 1997 compared to June 30, 1996. The restructuring
charge amounted to 79% of this increase for the current quarter and 59% of the
increase for the nine month period. Without the restructuring charge, total
operating expenses increased 17% or 60% of net sales for the three month period
ended June 30, 1997 compared to 42% of net sales for the three month period
ended June 30, 1996. For the current nine month period without the
restructuring charge, total operating expenses increased 13% or 53% of net
sales compared to 66% of net sales for the previous year nine month period.
Selling, general and administrative expenses increased 13% comparing the three
month periods and the nine month periods. Abnormal fees were incurred for
professional services, which increased 73% for the current nine month period
compared to the previous nine month period due to the stock repurchase
transaction. Salaries increased 21% comparing the three month periods and 17%
comparing the nine month periods due to increased salaries for the auction
operation and computer programming for the Company's PC conversion program.
Travel expenses increased 185% comparing the three month periods and 224%
comparing the nine month periods due to travel related to an outside consultant
for the auction operation. Depreciation expense decreased 40% comparing the
three month period ended June 30, 1997 to June 30, 1996 and 35% for the nine
month periods due to equipment and leasehold improvements becoming fully
depreciated. Advertising expenses increased to 5% of net sales for the quarter
ended June 30, 1997 compared to 1/2% of net sales for the quarter ended June
30, 1996. For the nine month period ended June 30, 1997, advertising increased
to 3% of net sales as compared to 1% of net sales for the pervious year period.
The increase is largely due to the Company's new advertising programs that
<PAGE>
promoted its new auction operations. Repair expenses increased 27% comparing
the two quarter and 13% comparing the nine month periods largely due to the
increased cost of maintaining its mainframe computer, which will soon be
replaced with a PC client/server network.
Interest expense amounted to 7% of net sales for the quarter ended June 30,
1997, the same as for the previous year quarter. Interest decreased to 6% of
net sales for the nine month period ended June 30, 1997 as compared to 10% of
net sales for the previous year. In June 1997, the Company restructured its
existing term real estate loan to a reducing revolving term loan and wrote off
approximately $4,000 for the early retirement of the existing loan. The
decrease in the nine month interest expense amount is attributed to lower
average outstanding loan balances in the current period. 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
$53,423 operating profit for the three month period and $165,811 for the nine
month period ended June 30, 1997 as compared to $53,236 operating profit for
the three month period and $145,249 for the nine month period ended June 30,
1996. The increase was due to an increase in the square footage leased in
addition to increased rents.
Part II - Other Information
Item 1-3. None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
On June 27, 1997, 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, 1997.
At the Meeting the following Directors were elected
by a vote of 3,236,906 for and 220 withholding authority:
Todd M. Axelrod, Rod Lynam, Marc DuCharme, Pamela Axelrod
and Roger Croteau. Voting for the appointment of Arthur
Andersen LLP, as the Company's independent auditors,
3,236,905 shares were in favor and 221 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)
Date August 14, 1997 /s Todd M. Axelrod
______________________ ________________________________
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
Date August 14, 1997 /s Rod Lynam
______________________ _______________________________
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, 1997 and its
Consolidated Statement of Operations covering the period from October 1,
1996 to June 30, 1997 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-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 466173
<SECURITIES> 0
<RECEIVABLES> 30460
<ALLOWANCES> 0
<INVENTORY> 7043279
<CURRENT-ASSETS> 0
<PP&E> 3285833
<DEPRECIATION> 2153896
<TOTAL-ASSETS> 9465891
<CURRENT-LIABILITIES> 0
<BONDS> 1839522
0
0
<COMMON> 5918
<OTHER-SE> 7335348
<TOTAL-LIABILITY-AND-EQUITY> 9465891
<SALES> 2442715
<TOTAL-REVENUES> 2442715
<CGS> 653320
<TOTAL-COSTS> 653320
<OTHER-EXPENSES> 1503681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149749
<INCOME-PRETAX> 655019
<INCOME-TAX> 7444
<INCOME-CONTINUING> 647575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 647575
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
