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, 1998
[ ] 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 3,208,434 shares of Common Stock, par value $.001,
outstanding as of May 1, 1998.
<PAGE>
<TABLE>
Part 1 - FINANCIAL INFORMATION
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
___________________________________________________________________________
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1997
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 13,413 $ 20,095
Accounts receivable 83,650 59,650
Prepaid expenses 95,720 50,928
Documents owned 6,749,331 6,980,816
Land and building-net 1,455,255 1,454,805
Property and equipment-net 259,367 258,536
Other assets 172,435 168,636
---------- ----------
TOTAL ASSETS $ 8,829,171 $ 8,993,466
========== ==========
LIABILITIES
Accounts payable $ 63,461 $ 74,409
Notes payable 56,437 62,600
Mortgage notes payable 1,273,400 1,376,239
Deposits 28,175 49,570
Deferred tax 145,885 144,043
Accrued and other liabilities 104,848 93,633
---------- ----------
TOTAL LIABILITIES 1,672,206 1,800,494
---------- ----------
STOCKHOLDERS' EQUITY
Common stock: $.001 par value;
10,000,000 shares authorized;
5,917,654 shares issued 5,918 5,918
Additional paid-in-capital 9,392,363 9,392,363
Accumulated deficit (100,322) (157,828)
Treasury stock (2,709,220 and
2,676,720 shares), at cost (2,140,994) (2,047,481)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 7,156,965 7,192,972
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,829,171 $ 8,993,466
========== ==========
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,
1998 1997 1998 1997
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ 718,015 $1,030,012 $1,405,121 $1,771,771
COST OF GOODS SOLD 281,870 276,943 535,339 459,580
-------- --------- --------- ---------
GROSS PROFIT 436,145 753,069 869,782 1,312,191
-------- --------- --------- ---------
OPERATING EXPENSES:
Selling, general and
administrative 413,575 380,294 725,392 780,734
Depreciation 19,617 21,090 38,847 45,483
Advertising 33,761 29,297 51,602 40,975
Maintenance & repairs 1,603 7,587 6,043 14,807
Loss on gallery closure -- 941 -- 941
-------- --------- --------- ---------
TOTAL OPERATING EXPENSES 468,556 439,209 821,884 882,940
-------- --------- --------- ---------
OPERATING INCOME (LOSS) (32,411) 313,860 47,898 429,251
-------- --------- --------- ---------
OTHER INCOME (EXPENSE)
Gain on repurchase of
common stock -- -- -- 356,553
Interest expense (33,429) (48,816) (68,211) (99,497)
Other 40,943 52,357 81,229 110,555
-------- --------- --------- ---------
TOTAL OTHER INCOME 7,514 3,541 13,018 367,611
-------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (24,897) 317,401 60,916 796,862
(PROVISION) CREDIT FOR
INCOME TAXES 15,390 (99,800) (3,410) (99,800)
-------- --------- --------- ---------
NET INCOME (LOSS) $ (9,507) $ 217,601 $ 57,506 $ 697,062
======== ========= ========= =========
EARNINGS PER SHARE:
Basic $ -- $ .07 $ .02 $ .20
==== ==== ==== ====
Diluted $ -- $ .07 $ .02 $ .20
==== ==== ==== ====
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,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 57,506 $ 697,062
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 71,545 76,514
Gain on exchange of inventory for
purchase of treasury stock -- (356,553)
Gain on disposal of property -- (1,096)
(Increase) decrease in:
Prepaid expenses (44,792) (23,491)
Accounts receivable (24,000) 84,653
Documents owned 231,485 234,099
Other assets (3,799) 16,232
(Decrease) increase in:
Accounts payable (10,948) (1,426)
Customer deposits (21,395) 985
Income taxes payable -- 99,800
Deferred tax 1,842 --
Accrued and other liabilities 11,215 15,890
-------- --------
Net cash provided by operating activities 268,659 842,669
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 2,000
Purchase of property and equipment (72,826) (122,654)
-------- --------
Net cash used in investing activities (72,826) (120,654)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank line of credit -- 137,500
Repayments of bank line of credit -- (137,500)
Proceeds from mortgage and notes payable 625,026 125,499
Repayments of mortgage and notes payable (734,028) (142,559)
Repurchase of common stock (93,513) (196,955)
-------- --------
Net cash used in financing activities (202,515) (214,015)
-------- --------
NET INCREASE (DECREASE) IN CASH (6,682) 508,000
CASH, BEGINNING OF PERIOD 20,095 115,800
-------- --------
CASH, END OF PERIOD $ 13,413 $ 623,800
======== ========
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, 1998 and 1997
_____________________________________________________________________________
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 are read in
conjunction with the financial statements and the notes thereto included
in the Company's 1997 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) 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.
In May 1997, the Company purchased 5,000 shares of its common stock at a
price of $2.875. In September 1997, it purchased 12,000 shares at
$2.75; in October 1997, it purchased 30,000 at $2.865 and in December
1997, the Company purchased 2,500 shares at $2.563.
<PAGE>
4) Earnings 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.
In December 1997, the Company adopted SFAS No. 128, "Earnings per
Share," effective December 15, 1997. As a result the Company's reported
earnings per share for 1997 were restated.
<TABLE>
<CAPTION>
For the periods ended
March 31, 1997 March 31, 1998
___________________________ ________________________
Income Shares Per-Share Income Shares Per-Share
Amount Amount
___________________________ ________________________
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common shareholders $697,062 3,404,073 $0.20 $57,506 3,213,461 $0.02
Effect of dilutive
securities
Options -- -- -- 20,913
___________________ _________________
Diluted EPS
Income available to
common shareholders
including assumed
conversion $697,062 3,404,073 $0.20 $57,506 3,213,889 $0.02
========================== ========================
</TABLE>
<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.
The increase in net cash provided by operating activities in the
first six months of fiscal 1998 was largely due to the decrease in the
Company's document inventory. Purchases of documents during the six
month period were approximately $106,000 in contrast to approximately
$346,000 for cost of documents sold. An increase in prepaid expenses is
attributed to prepayment for catalogs in process for an upcoming
auction. Accounts receivable increased due to funds due the Company for
its March 1998 auction. The Company utilizes the cash provided from
operations to pay down its revolving line of credit rather than
maintaining larger cash balances.
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 March 31, 1998, there was no outstanding
balance on this line of credit. In addition, the Company has a reducing
principal line of credit in the amount of approximately $45,000 as of
March 31, 1998, with a maturity of March 1999. The principal is reduced
by $4,667 a month. As of March 31, 1998, there were no funds drawn
against this line of credit. Any funds drawn bear interest at the
bank's prime rate plus 1.5%. In July 1997, the Company's term mortgage
note was converted to a reducing revolving line of credit in the amount
of $1,839,523. The line of credit has a 59 month amortization of
principal at a 9% interest rate and a balloon payment due at maturity in
July 2002 in the amount of $1,565,106. This line of credit is
collateralized by the Company's headquarters building. As of March 31,
1998, there was $533,000 available under 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 lines 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.
<PAGE>
Results of Operations
- ---------------------
Document revenues decreased 30% for the quarter and 21% for the six
month period ended March 31, 1998 compared to the quarter and six month
period ended March 31, 1997. Retail sales declined 87% because of the
closure of the Fashion Show Mall gallery in the previous year comparing
the two six month periods. Retail sales amounted to 5% of total sales
for the six month period ended March 31, 1998 as compared to 31% of
total sales in the previous year period. However, auction sales
increased 10%, consisting of four auctions for the period ended March
31, 1998 compared to three auctions for the period ended March 31, 1997.
Cost of goods sold increased to 39 percent of revenues for the
three month period ended March 31, 1998 compared to 27 percent of
revenues for the three month period ended March 31, 1997. Costs were
38% of revenues for the six month period ended March 31, 1998 compared
to 26% of revenues for March 31, 1997. The increase is related to the
cost of catalogs for the auction sales which amount to 14% of revenues
for the four auctions held during the six month period ended March 31,
1998 as compared to 5% of revenues for the three auctions held during
the six month period ended March 31, 1997. The Company is increasing
the mailing of its catalogs and is averaging approximately $30,000 for
catalogs and $16,000 in mailing cost for each auction held in the
current six month period compared to an average catalog cost of
approximately $18,300 and mailing cost of $6,500 per auction in the
previous year six month period. The document inventory cost portion of
total cost of goods sold increased slightly due to the greater share of
sales at wholesale/auction pricing compared to retail pricing.
Total operating expenses increased 7% comparing the 1998 quarter to
the 1997 quarter and total expenses decreased 7% comparing the six month
periods. The increase, comparing the quarter periods, related to higher
advertising and selling expenses. The decrease, comparing the six month
periods, was realized largely in selling, general and administrative
expenses. Selling, general and administrative expenses increased 9% or
58% of net sales for the quarter ended March 31, 1998 compared to 37% of
net sales for the quarter ended March 31, 1997. This increase was
largely due to approximately $50,000 the Company has written off as a
miscellaneous expense for non-authentic material. Comparing the six
month periods, selling, general and administrative expenses decreased
largely due to the closure of the Fashion Show Mall gallery in the
previous year period. Rent expense decreased 50%, salaries and payroll
taxes decreased 2%, utilities and telephone expenses decreased 32% and
property taxes decreased 13% comparing the two periods. In addition in
the previous year six month period, abnormal fees were incurred for
professional services relating to the stock repurchase transaction.
Depreciation expense decreased 7% comparing the three month period ended
March 31, 1998 to March 31, 1997 and 15% comparing the two six month
periods. The decrease was due to the closure of the Las Vegas gallery
and equipment and leasehold improvements becoming fully depreciated.
Advertising expenses increased 15% for the quarter ended March 31, 1998
or 5% of net sales compared to 2% of net sales for the quarter ended
March 31, 1997. Advertising increased 26% to 4% of net sales for the
six month period ended March 31, 1998 compared to 2% of net sales for
the six month period ended March 31, 1997. The Company is continuing to
expand its campaigns to promote its auction operations. Repair expenses
decreased 79% comparing the two quarters and decreased 59% comparing the
<PAGE>
six month periods largely due to the decreased cost of maintaining its
mainframe computer, which was replaced with a PC client/server network.
Interest expense decreased 32% comparing the quarter ended March
31, 1998 to the quarter ended March 31, 1997 and decreased 31% or 5% of
net sales for the six month period ended March 31, 1998 compared to 6%
of net sales for the six months ended March 31, 1997. The decrease is
attributed to lower average outstanding loan balances in the current
period including paying down on the term mortgage note that was
converted to a revolving line of credit. Included in other income and
expense in the previous year period was the gain on repurchase of common
stock as discussed in Note 3 to the consolidated financial statements.
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 14, 1998 /s Todd M. Axelrod
______________________ ________________________________
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
Date May 14, 1998 /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, 1998 and its
Consolidated Statement of Operations covering the period from October 1,
1997 to March 31, 1998 and is qualified in its entirety by reference
to such financial statement and notes thereof.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 13413
<SECURITIES> 0
<RECEIVABLES> 83650
<ALLOWANCES> 0
<INVENTORY> 6749331
<CURRENT-ASSETS> 0
<PP&E> 2838015
<DEPRECIATION> 1703393
<TOTAL-ASSETS> 8829171
<CURRENT-LIABILITIES> 0
<BONDS> 1273400
0
0
<COMMON> 5918
<OTHER-SE> 7151047
<TOTAL-LIABILITY-AND-EQUITY> 8829171
<SALES> 1405121
<TOTAL-REVENUES> 1405121
<CGS> 535339
<TOTAL-COSTS> 535339
<OTHER-EXPENSES> 821884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68211
<INCOME-PRETAX> 60916
<INCOME-TAX> 3410
<INCOME-CONTINUING> 57506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57506
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
