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, 1999
[ ] 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 5,525,984 shares of Common Stock, par value $.0005,
outstanding as of February 1, 2000.
<PAGE>
<TABLE>
Part 1 - FINANCIAL INFORMATION
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
______________________________________________________________________
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
UNAUDITED
----------- ------------
<S> <C> <C>
ASSETS
Cash $ 10,751 $ 258,263
Accounts receivable 21,816 204,492
Prepaid expenses 91,928 35,808
Documents owned 6,997,867 6,768,573
Land and building-net 1,366,870 1,379,496
Property and equipment-net 475,261 467,834
Other assets 133,551 136,796
---------- ----------
TOTAL ASSETS $ 9,098,044 $ 9,251,262
========== ==========
LIABILITIES
Accounts payable $ 129,545 $ 177,867
Notes payable 1,736,310 1,596,621
Indebtedness to related parties 1,000,000 1,000,000
Deposits 29,795 21,154
Deferred tax 171,011 171,011
Accrued and other liabilities 101,595 79,395
---------- ----------
TOTAL LIABILITIES 3,168,256 3,046,048
---------- ----------
STOCKHOLDERS' EQUITY
Common stock: $.0005 par value;
20,000,000 shares authorized;
11,835,308 shares issued
and outstanding 5,918 5,918
Additional paid-in-capital 9,392,363 9,392,363
Accumulated deficit (459,822) (265,514)
Common stock in treasury (6,309,324
and 6,286,824 shares), at cost (3,008,671) (2,927,553)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 5,929,788 6,205,214
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 9,098,044 $ 9,251,262
========== ==========
<FN>
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,
1999 1998
--------- ---------
<S> <C> <C>
REVENUES $ 421,296 $ 628,502
COST OF REVENUES 204,269 237,641
--------- ---------
GROSS PROFIT 217,027 390,861
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative 335,112 357,483
Depreciation 24,596 16,459
Advertising 9,113 18,718
Maintenance and repairs 3,699 1,635
--------- ---------
TOTAL OPERATING EXPENSES 372,520 394,295
--------- ---------
OPERATING LOSS (155,493) (3,434)
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (55,531) (44,222)
Other 16,716 19,586
--------- ---------
TOTAL OTHER EXPENSE (38,815) (24,636)
--------- ---------
LOSS BEFORE INCOME TAXES (194,308) (28,070)
CREDIT FOR INCOME TAXES -- 8,161
--------- ---------
NET LOSS $ (194,308) $ (19,909)
========= =========
LOSS PER SHARE:
Basic $(.04) $ --
Diluted $(.04) $ --
<FN>
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,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(194,308) $(19,909)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 41,109 32,973
(Increase) decrease in:
Prepaid expenses (56,120) (8,054)
Accounts receivable 182,676 205,947
Documents owned (229,294) 14,333
Other assets 3,245 (1,035)
(Decrease) increase in:
Accounts payable (48,322) (3,932)
Deposits 8,641 (2,632)
Deferred tax -- (7,293)
Accrued and other liabilities 22,200 31,437
-------- -------
Net cash provided by (used for)
operating activities (270,173) 241,835
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (35,910) (21,145)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 614,000 691,520
Repayments of notes payable (474,311) (481,758)
Repurchase of common stock (81,118) (433,020)
-------- -------
Net cash used in financing activities 58,571 (223,258)
-------- -------
NET INCREASE (DECREASE) IN CASH (247,512) (2,568)
CASH, BEGINNING OF PERIOD 258,263 15,069
-------- -------
CASH, END OF PERIOD $ 10,751 $ 12,501
======== =======
<FN>
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, 1999 and 1998
_____________________________________________________________________________
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 1999 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 fiscal 1999, the Company purchased 576,584 shares of its common stock
at an average price of $.86 a share. In October 1999, the Company
purchased 22,500 shares of its common stock at an average price of $3.61
a share. Some of these purchases were made in the open market and
others were privately negotiated transactions.
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. To derive basic earnings
per share, the average number of shares outstanding for the three months
ended December 31, 1999 and 1998 were 5,526,962 and 5,596,756,
respectively. Because of the loss situation, no potential dilution has
been considered, therefore the average number of shares for diluted
earning per share is the same as the basic earning per share.
5) Stock Split
The Company declared a two-for-one stock split for its shareholders of
record as of December 24, 1998. The distribution was made January 8,
1999. All common stock numbers presented herein have been restated to
reflect the stock split.
<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 Company incurred a decrease in cash provided by operating
activities in its first quarter resulting from the net loss and an
increase in the purchasing of new document inventory. Document
inventory purchases increased during the quarter due to favorable buying
opportunities. A decrease in accounts receivable resulted from the
timing of auctions held. In October 1999, the Company purchased 22,500
shares of its Common Stock for $3.61 a share. The Company has utilized
its bank lines of credit to finance its operations and common stock
repurchase.
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, 2000. Loans under the line are secured by
the Company's inventory. As of December 31, 1999, there was no
outstanding balance on this line of credit. 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 of the then current balance. This line of
credit is collateralized by the Company's headquarters building. As of
December 31, 1999, there was approximately $5,000 available under this
line of credit with a principal balance of $1,703,466. All excess cash
is applied against this loan rather than maintaining excessive cash
balances. In March 1999, the Company borrowed $1,000,000 from Mr.
Axelrod. This note is due April 30, 2002, with interest payments
monthly at a rate of 8%. The purpose of this note was to reduce the
Company's outstanding line of credit and to finance its stock repurchase
program.
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.
Results of Operations
- ---------------------
Document revenues decreased 33% for the current quarter compared to
the quarter ended December 31, 1998. Retail revenues decreased 28%
comparing the two quarters ended December 1999 to 1998, however, both
periods resulted in approximately 9% of total revenues. Auction
revenues decreased 33% comparing the quarters with both quarter periods
<PAGE>
consisting of two auctions. In the previous quarter period, the Company
had several customers purchasing large quantities of documents; those
larger sales were not realized in the current quarter auctions. The
proximity of the current quarter auctions could have resulted in a
reduced interest among the Company's customers; an auction was held in
November 1999 and another in December 1999, rather than the normal six
weeks separation between auctions. Furthermore, the competition is
increasing with auctions becoming commonplace on the internet.
Cost of goods sold increased from 38% of net revenues for the
quarter ended December 1998 compared to 49% of net revenues for the
quarter ended December 1999. Document costs remained consistent at 24%
of net revenues for the two quarter periods. Cost of catalogs increased
17% comparing the quarter ended December 1999 to 1998 or 25% of net
revenues for 1999 compared to 14% of net revenues for 1998. The
increase is due to enhancements in the printing of the catalogs.
Total operating expenses decreased 6% comparing the quarter ended
December 31, 1999 to December 31, 1998. Selling, general and
administrative expenses decreased 6% comparing the quarter periods. The
decrease is attributed to a decrease in salaries and rent expense
related to the closure of the Company's retail gallery in Washington,
D.C. in January 1999. Depreciation expense increased by 49% comparing
the quarter ended December 31, 1999 to December 31, 1998 as a result of
the Company's expanded computer equipment and software acquisitions. The
added computer equipment also resulted in an increase in repair and
maintenance expenses. Advertising decreased 51% for the quarter ended
December 1999 compared to December 1998. Because of the increased
number of catalog mailings, the Company has scaled back its auction
advertising expenditure.
Interest expense increased 26% for the quarter ended December 31,
1999 compared to December 31, 1998. The increase is a result of higher
outstanding loan balances on the Company's lines of credit, which was
drawn on to finance its operations and the purchase of its common stock.
Other income is largely the result of the rental operation for the
Company's headquarters building. The decrease comparing the periods was
a result of a reduction in leased square footage to outside tenants.
Part II - Other Information
Item 1-5. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(27) Financial Data Schedule.
(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 14, 2000 /s Todd M. Axelrod
______________________ ________________________________
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
Date February 14, 2000 /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, 1999 and its
Consolidated Statement of Operations covering the period from October 1,
1999 to December 31, 1999 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-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 10751
<SECURITIES> 0
<RECEIVABLES> 21816
<ALLOWANCES> 0
<INVENTORY> 6997867
<CURRENT-ASSETS> 0
<PP&E> 2685918
<DEPRECIATION> 1423787
<TOTAL-ASSETS> 9098044
<CURRENT-LIABILITIES> 0
<BONDS> 2736310
0
0
<COMMON> 5918
<OTHER-SE> 5923870
<TOTAL-LIABILITY-AND-EQUITY> 9098044
<SALES> 421296
<TOTAL-REVENUES> 421296
<CGS> 204269
<TOTAL-COSTS> 204269
<OTHER-EXPENSES> 372520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55531
<INCOME-PRETAX> (194308)
<INCOME-TAX> 0
<INCOME-CONTINUING> (194308)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (194308)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
