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, 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 3,208,434 shares of Common Stock, par value $.001,
outstanding as of February 1, 1998.
<PAGE>
<TABLE>
Part 1 - FINANCIAL INFORMATION
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
______________________________________________________________________
<CAPTION>
December 31, SEPTEMBER 30,
1997 1997
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 27,021 $ 20,095
Accounts receivable 42,762 59,650
Prepaid expenses 107,635 50,928
Documents owned 6,916,365 6,980,816
Land and building-net 1,454,848 1,454,805
Property and equipment-net 269,228 258,536
Other assets 174,094 168,636
---------- ----------
TOTAL ASSETS $ 8,991,953 $ 8,993,466
========== ==========
LIABILITIES
Accounts payable $ 153,379 $ 74,409
Notes payable 59,549 62,600
Mortgage notes payable 1,310,478 1,376,239
Deposits 38,869 49,570
Deferred tax 162,843 144,043
Accrued and other liabilities 100,363 93,633
---------- ----------
TOTAL LIABILITIES 1,825,481 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
Common stock in treasury
(2,709,220 shares) (2,140,994) (2,047,481)
Accumulated deficit (90,815) (157,828)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 7,166,472 7,192,972
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,991,953 $ 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
DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
REVENUES $ 687,106 $ 741,759
COST OF GOODS SOLD 253,469 182,637
-------- --------
GROSS PROFIT 433,637 559,122
-------- --------
OPERATING EXPENSES:
Selling, general and
administrative 311,747 400,441
Depreciation 19,230 24,393
Advertising 17,842 11,678
Maintenance & repairs 4,509 7,219
-------- --------
TOTAL OPERATING EXPENSES 353,328 443,731
-------- --------
OPERATING INCOME 80,309 115,391
-------- --------
OTHER INCOME (EXPENSE)
Gain on repurchase of
common stock -- 356,553
Interest expense (34,782) (50,681)
Other 40,286 58,198
-------- --------
TOTAL OTHER INCOME 5,504 364,070
-------- --------
INCOME BEFORE INCOME TAXES 85,813 479,461
PROVISION FOR INCOME TAX 18,800 --
-------- ---------
NET INCOME $ 67,013 $ 479,461
======== ========
EARNINGS PER SHARE:
Basic $ .02 $ .14
==== ====
Diluted $ .02 $ .14
==== ====
See the accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
_______________________________________________________________________________
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 67,013 $ 479,461
Adjustments to reconcile net income
to net cash provided from (used in)
operating activities:
Depreciation and amortization 35,338 39,759
Gain on exchange of inventory for
purchase of treasury stock -- (356,553)
(Increase) decrease in:
Prepaid expenses (56,707) (56,697)
Accounts receivable 16,888 19,347
Documents owned 64,451 103,771
Other assets (5,458) 5,927
(Decrease) increase in:
Accounts payable 78,970 28,771
Customer deposits (10,701) (2,760)
Deferred tax 18,800 --
Accrued and other liabilities 6,730 231
-------- --------
Net cash provided by operating activities 215,324 261,257
-------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of property and equipment (46,073) (27,298)
-------- --------
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 270,027 55,486
Repayments of mortgage and notes payable (338,839) (48,836)
Repurchase of common stock (93,513) (196,955)
-------- --------
Net cash used for financing activities (162,325) (190,305)
-------- --------
NET INCREASE (DECREASE) IN CASH 6,926 43,654
CASH, BEGINNING OF PERIOD 20,095 115,800
-------- --------
CASH, END OF PERIOD $ 27,021 $ 159,454
======== ========
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, 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 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 (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.
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 1996 were restated.
<TABLE>
<CAPTION>
For the periods ended
31-Dec-96 31-Dec-97
___________________________ _________________________
Income Shares Per-Share Income Shares Per-Share
Amount Amount
___________________________ ________________________
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common shareholders $479,461 3,547,034 $0.14 $67,013 3,213,461 $0.02
Effect of dilutive
securities
Options -- -- -- 128,972
___________________ _________________
Diluted EPS
Income available to
common shareholders
including assumed
conversion $479,461 3,547,034 $0.14 $67,013 3,342,433 $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.
Net cash provided by operating activities increased due to the net
income from operations, a decrease in the Company's document inventory
and an increase in accounts payable and prepaid expenses during the three
month period ended December 31, 1997. Purchases of documents during the three
month period was approximately $100,000, however cost of documents sold during
this period was approximately $164,000. Accounts payable increased largely
due to outstanding consignments sold in the December auction that are due to
consignors and amounts due related to purchases of inventory in late December.
Prepaid expenses increased mainly due to payments made for catalogs for the
January 1998 auction.
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 December 31, 1997, 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
$60,000 as of December 31, 1997, with a maturity of March 1999. The
principal is reduced by $4,667 a month. As of December 31, 1997, there
were no funds drawn against this line of credit. Any funds drawn bear
interest at prime 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 September
30, 1997, there was approximately $460,000 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 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.
<PAGE>
Results of Operations
- ---------------------
Document sales for the three month period ended December 31, 1997
decreased 7% from the three month period ended December 31, 1996.
Generally, the decline was due to a decrease in retail sales as a result
of the closure of the Fashion Show Mall gallery in the previous year.
Retail sales in the current period amounted to 20% of total sales
compared to 48% of total sales in the previous year period. The Company
realized a 42% increase in auction sales in the current quarter compared
to the previous year quarter. The Company conducted two auctions in the
current quarter compared to one auction in the previous year period.
Cost of goods sold increased to 37 percent of net sales for the
three month period ended December 31, 1997 compared to 25 percent of net
sales for the three month period ended December 31, 1996. This increase
is directly related to the cost of catalogs for the auction sales which
amount to 12 percent of net sales for the two auctions held during the
quarter ended December 31, 1997 as compared to 3 percent of net sales
for the one auction held during the quarter ended December 31, 1996.
The document inventory cost of sales amounted to 25 percent of net sales
for the current period compared to 22 percent of net sales for the
previous year period.
Total operating expenses decreased 20% for the quarter to 51% of
net sales in the current period from 60% of net sales in the previous
year period. The decrease was realized largely in selling, general and
administrative expenses which decreased 22% to 45% of net sales in the
period ended December 31, 1997 as compared to 54% of net sales in the
period ended December 31, 1996. This decrease was due to the closure of
the Fashion Show Mall gallery in the previous year period; rent expense
decreased 44%, salaries decreased 8%, utilities and telephone expenses
decreased 30% and property taxes decreased 18% comparing the two
periods. In addition in the previous year period, abnormal fees were
incurred for professional services relating to the stock repurchase
transaction. Depreciation expense decreased 21% comparing the three
month period ended December 31, 1997 to December 31, 1996 due to the
closure of the Las Vegas gallery and equipment and leasehold
improvements becoming fully depreciated. Advertising expenses increased
53% for the quarter ended December 31, 1997 compared to the quarter
ended December 31, 1996. The increase is largely due to the Company's
new advertising programs that promoted its auction operations. Repair
expenses decreased 38% comparing the two quarters largely due to the
decreased cost of maintaining its mainframe computer, which was replaced
with a PC client/server network.
Interest expense amounted to 5% of net sales for the quarter ended
December 31, 1997, down 31% compared to 7% of net sales for the previous
year quarter. 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 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
<PAGE>
operating expenses plus the rental revenues realized are offset and
included in other income and expense. This amounted to $40,229
operating profit for the three month period ended December 31, 1997 as
compared to $65,132 operating profit for the three month period December
31, 1996. The decrease was due to a reduction in leased square footage.
Also 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 February 11, 1998 /s Todd M. Axelrod
______________________ ________________________________
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
Date February 11, 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 December 31, 1997 and its
Consolidated Statement of Operations covering the period from October 1,
1997 to December 31, 1997 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-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 27021
<SECURITIES> 0
<RECEIVABLES> 42762
<ALLOWANCES> 0
<INVENTORY> 6916365
<CURRENT-ASSETS> 0
<PP&E> 2811262
<DEPRECIATION> 1667186
<TOTAL-ASSETS> 8991953
<CURRENT-LIABILITIES> 0
<BONDS> 1310478
0
0
<COMMON> 5918
<OTHER-SE> 7160554
<TOTAL-LIABILITY-AND-EQUITY> 8991953
<SALES> 687106
<TOTAL-REVENUES> 687106
<CGS> 253469
<TOTAL-COSTS> 253469
<OTHER-EXPENSES> 353328
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34782
<INCOME-PRETAX> 85813
<INCOME-TAX> 18800
<INCOME-CONTINUING> 67013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67013
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
