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 March 31, 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 3,257,934 shares of Common Stock, par value $.001,
outstanding as of May 1, 1997.
<PAGE>
<TABLE>
Part 1 - FINANCIAL INFORMATION
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
______________________________________________________________________
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 623,800 $ 115,800
Prepaid expenses 76,689 53,198
Accounts receivable 13,648 98,301
Documents owned 6,997,134 8,677,725
Land and building-net 1,478,698 1,484,292
Property and equipment-net 245,062 194,232
Other assets 387,554 403,786
__________ __________
TOTAL ASSETS $ 9,822,585 $11,027,334
---------- ----------
LIABILITIES
Accounts payable $ 82,691 $ 84,117
Notes payable 203,060 196,889
Indebtedness to related parties 42,615 42,615
Mortgage notes payable 1,851,534 1,874,765
Deposits 31,058 30,073
Income taxes payable 99,800 --
Accrued and other liabilities 106,593 90,703
__________ __________
TOTAL LIABILITIES 2,417,351 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 earnings (deficit) 6,953 (690,109)
__________ __________
TOTAL STOCKHOLDERS' EQUITY 7,405,234 8,708,172
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,822,585 $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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES $1,030,012 $ 273,783 $1,771,771 $ 909,404
COST OF GOODS SOLD 276,943 72,056 459,580 242,967
--------- -------- --------- ---------
GROSS PROFIT 753,069 201,727 1,312,191 666,437
--------- -------- --------- ---------
OPERATING EXPENSES:
Selling, general and
administrative 380,294 334,519 780,734 692,677
Depreciation 21,090 30,855 45,483 67,870
Advertising 29,297 1,371 40,975 11,083
Maintenance & repairs 7,587 7,089 14,807 13,879
Loss on gallery closure 941 201 941 5,877
--------- -------- --------- ---------
TOTAL OPERATING EXPENSES 439,209 374,035 882,940 791,386
--------- -------- --------- ---------
OPERATING INCOME (LOSS) 313,860 (172,308) 429,251 (124,949)
--------- -------- --------- ---------
OTHER INCOME (EXPENSE)
Gain on repurchase of
common stock -- -- 356,553 --
Interest expense (48,816) (58,586) (99,497) (117,419)
Other 52,357 12,880 110,555 65,567
--------- -------- --------- ---------
TOTAL OTHER INCOME
(EXPENSE) 3,541 (45,706) 367,611 (51,852)
--------- -------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES 317,401 (218,014) 796,862 (176,801)
PROVISION FOR INCOME TAX (99,800) -- (99,800) (100)
--------- -------- --------- ---------
NET INCOME (LOSS) $ 217,601 $(218,014) $ 697,062 $ (176,901)
========= ======== ========= =========
EARNINGS (LOSS) PER SHARE: $ .07 $(.04) $ .20 $(.03)
==== ==== ==== ====
See the accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
____________________________________________________________________________
<CAPTION>
SIX MONTHS ENDED MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 697,062 $(176,901)
Adjustments to reconcile net income
to net cash provided from (used in)
operating activities:
Depreciation and amortization 76,514 97,984
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 (23,491) 7,045
Accounts receivable 84,653 --
Documents owned 234,099 179,467
Other assets 16,232 (5,319)
(Decrease) increase in:
Accounts payable (1,426) 21,095
Customer deposits 985 (212,605)
Income taxes payable 99,800 --
Accrued and other liabilities 15,890 19,780
-------- --------
Net cash provided by(used in) operating activities 842,669 (66,018)
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Proceeds from sale of equipment 2,000 --
Purchase of property and equipment (122,654) (78,722)
-------- --------
Net cash used for investing activities (120,654) (78,722)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit 137,500 35,000
Repayments of bank line of credit (137,500) (35,000)
Proceeds from notes payable 125,499 150,000
Repayments of mortgage and notes payable (142,559) (123,082)
Repurchase of common stock (196,955) --
-------- --------
Net cash provided by(used in) financing activities (214,015) 26,918
-------- --------
NET INCREASE (DECREASE) IN CASH 508,000 (117,822)
CASH, BEGINNING OF PERIOD 115,800 171,295
-------- --------
CASH, END OF PERIOD $ 623,800 $ 53,473
======== ========
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
Six Month Period Ended March 31, 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 March 31, 1997 and
1996 was 3,257,934 and 5,917,654, respectively. The average number of
shares of outstanding common stock for the six months ended March 31, 1997
and 1996 was 3,404,072 and 5,917,118, 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.
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.
<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.
Net cash provided by operating activities exceeded net cash used
in operating activities for the six month period ended March 31, 1997
largely due to the increase in revenues in the current period and the
resultant increase in net income, and a reduction in the Company's
document inventory purchases. Deposits from customers decreased during
the first part of the current period due to the elimination of deposits
received and held for future auction sales in the prior period. The
Company incurred an income tax liability in the second quarter of
fiscal 1997 after using up its tax loss carryforward during the first
quarter of fiscal 1997.
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, 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 current period payable over a sixty-month term.
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 experienced a 95 percent growth in net revenues for
the six month period ended March 31, 1997 compared to March 31, 1996
due to two mail/phone/fax/internet auctions and one live auction. The
auctions generated sales revenue of $1.1 million in the current six
month period. The Company generated approximately $360,000 in outside
auctions during the six month period ended March 31, 1996. Retail
sales for the quarter increased 75 percent but decreased 11 percent for
the six month period comparing 1997 to 1996. This was largely due to a
gallery closure in the first quarter of 1996.
Cost of goods sold remained constant between 26% and 27% as a
percentage of net sales for both the two quarter periods and the two
<PAGE>
six month periods ending March 31, 1997 and 1996. Cost of goods sold
for the auctions amounted to 25% of the auction net sales for the first
two auctions but increased to 32% for the third auction due to
increased catalog costs. Cost of retail goods sold decreased for the
six month period ended March 31, 1997 to 24% of net sales as compared
to 26% of net sales for the period ended March 31, 1996.
Total operating expenses increased 17% for the quarter and 12%
for the six month period ended March 31, 1997 compared to March 31,
1996, while declining as a percentage of net sales to 50% in 1997 from
87% in 1996. Selling, general and administrative expense increased 14%
comparing the quarter periods and 13% comparing the six month periods.
Abnormal fees were incurred for professional services, which increased
85% for the current six month period compared to the previous six month
period due to the stock repurchase transaction. Increases also
resulted due to an addition of sales and administrative personnel and
other expenses associated with the Company's higher sales volume.
Salaries increased 16% comparing the quarters and six month periods due
to increased salaries for the auction operation and computer
programming for the Company's PC conversion program. Advertising
expenses increased largely due to the Company's new advertising
programs that promoted its auction operations. Depreciation expense
decreased approximately 30% for the quarter and six month periods due
to equipment and leasehold improvements becoming fully depreciated.
Repair expenses increased 7% comparing the two quarter and six 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 decreased 17% for the three month period and 15%
for the six month period ended March 31, 1997 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
$47,255 operating profit for the three month period and $112,388 for
the six month period ended March 31, 1997 as compared to $46,705
operating profit for the three month period and $92,012 for the six
month period ended March 31, 1996. The increase comparing the six
month periods was due to an increase in the square footage leased in
addition to increased rents. In addition, other income included
interest received on the Company's excess cash balances in the current
six month period.
Part II - Other Information
- ---------------------------
Item 1-5. 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 May 5, 1997 /s Todd M. Axelrod
______________________ ________________________________
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
Date May 5, 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 March 31, 1997 and its Consolidated
Statement of Operations covering the period from October 1, 1996 to March 31,
1997 and is qualified in its entirety by reference to such financial statements
and notes thereof.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 623800
<SECURITIES> 0
<RECEIVABLES> 13648
<ALLOWANCES> 0
<INVENTORY> 6997134
<CURRENT-ASSETS> 0
<PP&E> 3264191
<DEPRECIATION> 2120431
<TOTAL-ASSETS> 9822585
<CURRENT-LIABILITIES> 0
<BONDS> 1851534
0
0
<COMMON> 5918
<OTHER-SE> 7399316
<TOTAL-LIABILITY-AND-EQUITY> 9822585
<SALES> 1771771
<TOTAL-REVENUES> 1771771
<CGS> 459580
<TOTAL-COSTS> 459580
<OTHER-EXPENSES> 882940
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99497
<INCOME-PRETAX> 796862
<INCOME-TAX> 99800
<INCOME-CONTINUING> 697062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 697062
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
