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 December 31, 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 3,257,934 shares of Common Stock, par value $.001,
outstanding as of February 1, 1997.
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Part 1 - FINANCIAL INFORMATION
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
______________________________________________________________________
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
----------- -------------
<S> <C> <C>
ASSETS
Cash $ 159,454 $ 115,800
Prepaid expenses 109,895 53,198
Accounts receivable 78,954 98,301
Documents owned 7,127,462 8,677,725
Land and building-net 1,490,645 1,484,292
Property and equipment-net 175,418 194,232
Other assets 397,859 403,786
__________ __________
TOTAL ASSETS $ 9,539,687 $11,027,334
========== ==========
LIABILITIES
Accounts payable $ 112,888 $ 84,117
Notes payable 165,008 196,889
Indebtedness to related parties 92,631 42,615
Mortgage notes payable 1,863,280 1,874,765
Deposits 27,313 30,073
Accrued and other liabilities 90,934 90,703
__________ __________
TOTAL LIABILITIES 2,352,054 2,319,162
---------- ----------
STOCKHOLDERS' EQUITY
Common stock: $.001 par value;
10,000,000 shares authorized;
5,917,654 shares issued;
3,257,934 and 5,917,654
outstanding 5,918 5,918
Additional paid-in-capital 9,392,363 9,392,363
Common stock in treasury
(2,659,720 shares) (2,000,000) --
Accumulated deficit (210,648) (690,109)
__________ __________
TOTAL STOCKHOLDERS' EQUITY 7,187,633 8,708,172
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,539,687 $11,027,334
========== ==========
See the accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
______________________________________________________________________
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
REVENUES $ 741,759 $ 635,622
COST OF REVENUES 182,637 170,911
-------- --------
GROSS PROFIT 559,122 464,711
-------- --------
OPERATING EXPENSES:
Selling, general and administrative 400,441 358,157
Depreciation 24,393 37,016
Advertising 11,678 9,712
Maintenance and repairs 7,219 6,791
Loss on gallery closure -- 5,676
-------- --------
TOTAL OPERATING EXPENSES 443,731 417,352
-------- --------
OPERATING INCOME 115,391 47,359
-------- --------
OTHER INCOME (EXPENSE):
Gain on repurchase of common stock 356,553 --
Interest expense (50,681) (58,833)
Other 58,198 52,687
-------- --------
TOTAL OTHER INCOME (EXPENSE) 364,070 (6,146)
-------- --------
INCOME BEFORE INCOME TAXES 479,461 41,213
PROVISION FOR INCOME TAXES -- 100
-------- --------
NET INCOME $ 479,461 $ 41,113
======== ========
EARNINGS PER SHARE $ .14 $ .01
==== ====
See the accompanying notes to consolidated financial statements.
_____________________________________________________________________
</TABLE>
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<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
______________________________________________________________________
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 479,461 $ 41,113
Adjustments to reconcile net income
to net cash provided from (used in)
operating activities:
Depreciation and amortization 39,759 52,080
Gain on exchange of inventory for
purchase of treasury stock (356,553) --
Loss on disposal of property -- 3,437
(Increase) decrease in:
Prepaid expenses (56,697) (21,433)
Accounts receivable 19,347 --
Documents owned 103,771 98,933
Other assets 5,927 (27,049)
(Decrease) increase in:
Accounts payable 28,771 32,318
Customer deposits (2,760) (130,753)
Accrued and other liabilities 231 21,337
-------- --------
Net cash provided by operating activities 261,257 69,983
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment (27,298) (78,722)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit 137,500 --
Repayments of bank line of credit (137,500) --
Proceeds from notes payable 55,486 --
Repayments of mortgage and notes payable (48,836) (59,564)
Repurchase of common stock (196,955) --
-------- --------
Net cash used in financing activities (190,305) (59,564)
-------- --------
NET INCREASE (DECREASE) IN CASH 43,654 (68,303)
CASH, BEGINNING OF PERIOD 115,800 171,295
-------- --------
CASH, END OF PERIOD $ 159,454 $ 102,992
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the three month period ended December 31, 1996:
(1) Documents with a cost of $1,446,492 were exchanged for shares
of the Company's common stock valued at $1,803,045.
See the accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Month Period Ended December 31, 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 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 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 December
31, 1996 and 1995 was 3,356,875 and 5,917,654, respectively.
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 value
of the inventory was negotiated by the parties 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.
<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 three month period ended December 31,
1996 largely due to the increase in net income for the current period.
In addition, deposits from customers decreased during the three month
period ended December 31, 1996 due to the elimination of deposits
received and held for future auction sales in the prior periods. The
Company realized a decrease in its document inventory resulting from
an increase in sales in the current quarter. Prepaid expenses
increased in the current quarter resulting from the prepayment of
officers' bonuses.
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 December 31, 1996, there
was no outstanding balance on this line of credit.
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
- ---------------------
In December 1996, the Company had its first mail/phone/fax
auction at it headquarters location. This resulted in sales revenue
of $384,487. These two events resulted in an increase in sales of 17%
comparing the quarter ended December 1996 to December 1995. Retail
sales for the quarter decreased 42% comparing 1996 to 1995. The
closure of the Dallas, Texas gallery accounted for 62% of this
decrease.
Cost of goods sold decreased as a percentage of net sales from
27% for the period ended December 31, 1995 to 25% for the period ended
December 31, 1996. Cost of goods sold for the auction amounted to 25%
of the auction net sales, of which 5% of this cost was attributed to
the cost of the catalog. Cost of retail sales decreased slightly for
the current quarter, 24% of net sales for the period ended December
31, 1996 as compared to 26% of net sales for the period ended December
31, 1995. The resulting gross profit increased 20% comparing December
1996 to 1995.
<PAGE>
Total operating expenses increased 6% for the quarter ended
December 31, 1996 which was 60% of net sales as compared to the
quarter ended December 31, 1995 which amounted to 66% of net sales.
Selling, general and administrative expense increased 12% comparing
the quarter periods. Abnormal fees were incurred for professional
services, which increased 242% for the current quarter compared to the
previous quarter due to the stock repurchase transaction. Salaries
and related payroll taxes and benefits increased 13% comparing the
quarters due to increased salaries for the auction operation and
computer programming for the Company's PC conversion. Depreciation
expense decreased 34% for the three month period ended December 31,
1996 to 3% of net sales compared to the three month period ended
December 31, 1995 which was at 6% of net sales. The decrease can be
attributed to a reduction of furnishings and equipment largely due to
the closure of the Dallas gallery. Advertising expenses increased 20%
in the current quarter as compared to the previous year quarter. The
Company has initiated advertising programs to promote its auction
operations. Repair expenses increased 6% comparing the two quarter
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 decreased 14% for the three month period ended
December 31, 1996 compared to the previous year periods. The decrease
in interest expense can be 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 approximately $65,000 operating
profit for the three month period ended December 31, 1996 as compared
to approximately $45,000 operating profit for the three month period
ended December 31, 1995. The increase is due to an increase in the
square footage leased in addition to increased rents.
Part II - Other Information
Item 1-5. None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
10.6 Agreement and Release dated October 11, 1996
between Ethelmae Stuart Haldan, as trustee of
the Ethelmae S. Haldan Trust dated March 30,
1987, and Gallery of History, Inc.
(Incorporated by reference to exhibit 10.6 to
the Company's annual report on Form 10-KSB
for the year ended September 30, 1996.
(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 February 10, 1997 /s Todd M. Axelrod
----------------- -----------------------------
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
Date February 10, 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 December 31, 1996 and its
Consolidated Statement of Operations covering the period from October 1,
1996 to December 31, 1996 and is qualified in its entirety by reference
to such financial statement and notes thereof.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 159454
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<RECEIVABLES> 78954
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<PP&E> 3413914
<DEPRECIATION> 2327851
<TOTAL-ASSETS> 9539687
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<BONDS> 1863280
0
0
<COMMON> 5918
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<TOTAL-LIABILITY-AND-EQUITY> 9539687
<SALES> 741759
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<CGS> 182637
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<OTHER-EXPENSES> 443731
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<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
