-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MZanWgdIJWpCFA1Xlo+GbpGPJKgatC/nsNdzqoC4O1SXfJSIvDkdjHN83Jo3x2Pf oGpa/a/NCe2tpLvj18b/ig== 0000763730-02-000005.txt : 20020514 0000763730-02-000005.hdr.sgml : 20020514 ACCESSION NUMBER: 0000763730-02-000005 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALLERY OF HISTORY INC CENTRAL INDEX KEY: 0000763730 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 880176525 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13757 FILM NUMBER: 02646672 BUSINESS ADDRESS: STREET 1: 3601 WEST SAHARA AVE STREET 2: PROMENADE SUITE CITY: LAS VEGAS STATE: NV ZIP: 89102-5822 BUSINESS PHONE: 7023641000 MAIL ADDRESS: STREET 1: 3601 WEST SAHARA AVENUE STREET 2: PROMENADE SUITE 207 CITY: LAS VEGAS STATE: NV ZIP: 89102 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MUSEUM OF HISTORICAL DOCUMENTS CHARTERED/NV/ DATE OF NAME CHANGE: 19900816 10QSB 1 mar02q.txt FORM 10-QSB FOR QUARTER ENDED MARCH 31, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C.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, 2002 [ ] 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 5,625,984 shares of Common Stock, par value $.0005, outstanding as of May 1, 2002. Part 1 - FINANCIAL INFORMATION GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ______________________________________________________________________ MARCH 31, SEPTEMBER 30, 2002 2001 UNAUDITED ----------- ------------ ASSETS Cash $ 11,890 $ 7,957 Accounts receivable 451 32,260 Prepaid expenses 84,624 46,792 Documents owned 6,725,080 6,773,133 Land and building-net 1,253,268 1,278,485 Property and equipment-net 395,677 473,161 Other assets 122,175 123,792 ---------- ---------- TOTAL ASSETS $ 8,593,165 $ 8,735,580 ========== ========== LIABILITIES Accounts payable $ 60,966 $ 58,398 Notes payable 1,594,357 1,619,991 Indebtedness to related parties 2,711,491 2,385,239 Deposits 10,952 10,253 Accrued and other liabilities 177,420 164,193 ---------- ---------- TOTAL LIABILITIES 4,555,186 4,238,074 ---------- ---------- STOCKHOLDERS' EQUITY Common stock: $.0005 par value; 20,000,000 shares authorized; 11,935,308 shares issued 5,968 5,968 Additional paid-in-capital 9,901,905 9,813,072 Deferred compensation (53,425) (85,830) Accumulated deficit (2,807,798) (2,227,033) Common stock in treasury (6,309,324 shares), at cost (3,008,671) (3,008,671) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 4,037,979 4,497,506 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,593,165 $ 8,735,580 ========== ========== See the accompanying notes to consolidated financial statements. GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED _____________________________________________________________________________ THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 2002 2001 2002 2001 -------- -------- -------- --------- REVENUES $ 275,798 $ 323,255 $ 568,558 $ 635,641 COST OF REVENUES 121,158 154,979 276,484 296,750 -------- -------- -------- -------- GROSS PROFIT 154,640 168,276 292,074 338,891 -------- -------- -------- -------- OPERATING EXPENSES: Selling, general and administrative 303,243 355,431 597,385 706,208 Depreciation 38,331 36,707 77,518 80,439 Advertising 5,759 8,802 9,548 17,441 Maintenance & repairs 26,143 8,605 50,312 17,651 -------- -------- -------- -------- TOTAL OPERATING EXPENSES 373,476 409,545 734,763 821,739 -------- -------- -------- -------- OPERATING LOSS (218,836) (241,269) (442,689) (482,848) -------- -------- -------- -------- OTHER INCOME (EXPENSE) Interest expense (80,362) (80,290) (161,080) (161,696) Building rental operations 10,019 10,871 20,303 61,593 Net gain (loss)on disposal of assets (42) 22,294 (42) 20,774 Other 3 19 2,743 47 -------- -------- -------- -------- TOTAL OTHER EXPENSE (70,382) (47,106) (138,076) (79,282) -------- -------- -------- -------- LOSS BEFORE INCOME TAXES (289,218) (288,375) (580,765) (562,130) PROVISION FOR INCOME TAX -- -- -- -- NET LOSS $(289,218) $(288,375) $(580,765) $(562,130) ======== ======== ======== ======== LOSS PER SHARE: Basic $(.05) $(.05) $(.10) $(.10) ==== ==== ==== ==== Diluted $(.05) $(.05) $(.10) $(.10) ==== ==== ==== ==== See the accompanying notes to consolidated financial statements. GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED __________________________________________________________________________ SIX MONTHS ENDED MARCH 31, 2002 2001 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $(580,765) $(562,130) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 103,839 106,360 (Gain) loss on disposal of property 42 (20,773) Common stock issued for services 121,238 72,520 (Increase) decrease in: Accounts receivable 31,809 44,431 Prepaid expenses (37,832) (15,849) Documents owned 48,053 108,457 Other assets 1,617 3,573 (Decrease) increase in: Accounts payable 2,568 (8,038) Deposits 699 1,001 Accrued and other liabilities 13,227 26,077 -------- -------- Net cash used for operating activities (295,505) (244,371) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,180) (40,594) Proceeds from sale of property -- 23,094 -------- -------- Net cash used for investing activities (1,180) (17,500) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings from credit facilities and related parties 300,618 239,209 -------- -------- NET INCREASE (DECREASE) IN CASH 3,933 (22,662) CASH, BEGINNING OF PERIOD 7,957 30,138 -------- -------- CASH, END OF PERIOD $ 11,890 $ 7,476 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during period for interest $ 161,080 $ 161,696 ======== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: For the six month period ended March 31, 2001: (1) Documents with a net cost of $128,131 were exchanged for a reduction in related party debt of $143,578. (2) Sale of property included a note paid in full in the amount of $17,906. See the accompanying notes to consolidated financial statements. GALLERY OF HISTORY, INC. and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Six Month Period Ended March 31, 2002 and 2001 _____________________________________________________________________________ 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 2001 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 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 weighted average number of shares outstanding for the quarter periods ended March 31, 2002 and 2001 were 5,592,651 and 5,559,318, respectively; and for the six month period ended March 31, 2002 and 2001 the weighted average number of shares outstanding were 5,588,439 and 5,559,318, respectively. Because of the Company's loss, no potential dilution has been considered; therefore the weighted average number of shares for diluted earnings per share is the same as the basic earnings per share. 4) Restricted Common Stock In April 2000, the Company entered into a consultant agreement with an expert investment banker and money manager. As compensation for the consulting services rendered, the Company has issued 100,000 restricted shares of its common stock which will vest over the three year term of the agreement. As of March 31, 2002, 66,667 shares have vested and the remaining 33,333 shares are restricted. The total 100,000 shares have been included in the Common Stock Issued and Outstanding presented in the Company's Balance Sheet. Additionally, $53,425 of deferred compensation was recorded to reflect the unvested balance of the shares as of March 31, 2002. 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 negative cash flows from operations incurred in the first six months of fiscal 2002 were primarily due to the net operating loss. Prepaid expenses increased due to prepayment of insurances and May's catalog costs. Accounts Receivable decreased due to the timing of the Company's last auction. Document inventory purchases decreased due to the constraints on the Company's cash flow. 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 August 2, 2002. Loans under the line are secured by the Company's inventory. As of March 31, 2002, the Company had available $65,000 under this line of credit. In March 1999, the Company borrowed $1,000,000 from Mr. Axelrod with interest payments paid monthly at a rate of 8% and a due date that has been extended to April 30, 2003. The purpose of this note was to reduce the Company's outstanding line of credit and to finance its stock repurchase program. The Company has also borrowed additional funds during the period, when necessary, from Mr. Axelrod. The Company pays the same interest rate as Mr. Axelrod's bank line of credit which is 1% over the prime rate. The outstanding balance was $1,711,491 as of March 31, 2002 on these additional borrowed funds. In November 2000, Todd Axelrod acquired 157 documents from the Company for his personal use. The cost of the documents amounted to $140,131. The Company obtained an outside specialist to perform an independent appraisal of the documents involved. The amount of the appraisal was $152,500. The Company offset this amount against debt owing Mr. Axelrod. The Company also purchased three documents from Mr. Axelrod for a cost to the Company of $12,000. The three documents had an appraised value of $18,000. The Company believes that its current cash and working capital requirements will be met by appropriately managing the timing and amount of new document acquisitions, generating revenues from its operations, drawing amounts available under its existing line of credit facilities, seeking additional borrowings or advances against its documents inventory and borrowing amounts from Todd Axelrod, as required. Mr. Axelrod has, to the extent of his reasonable ability to do so, committed to continue funding or guarantee additional debt, should it be required, through September 30, 2002. Results of Operations - --------------------- Total revenues decreased 15% and 11% for the three and six month periods ended March 31, 2002 from the corresponding prior years periods, respectively. The decrease was primarily attributable to a decrease in auction revenues resulting from continued weakness in the economy and auction markets. Auction revenues decreased 8% comparing the quarter periods and 17% comparing the six month periods. The average number of winning bidders in the four auctions held in each of the six month periods decreased 12%, however the average number of documents sold remained the same in both six month periods. The average sales price declined to $724 in the four auctions held in 2002 compared to $873 in the four auctions held in 2001. Although documents revenues generated from the Company's headquarters operation decreased 38% comparing the quarter periods ended March 31, 2002 to 2001, they had increased 20% in fiscal 2002 comparing the six month periods. The headquarters' revenues amounted to 23% of total revenues for the six month period ended March 31, 2002 compared to 17% of total revenues for the six month period in 2001. The increase in retail revenues generated can be attributed to the increased exposure on the internet and follow-up sales from the auctions. Total cost of revenues as a percentage of total revenues decreased to 44% for the quarter ended March 31, 2002 compared to 48% of revenues for the quarter ended March 31, 2001. However, total cost of revenues increased to 49% of revenues for the six month period ended March 31, 2002 compared to 47% of revenues for the corresponding prior year period. Because of the lower average sale price incurred in 2002, document cost increased 2% comparing the quarter periods to 27% of total revenues for the quarter ended March 31, 2002 compared to 22% for the quarter ended March 31, 2001. For the six month periods, document cost increased 10% to 26% of revenues in 2002 compared to 22% of revenues in 2001. Beginning with the January 2002 auction, the Company had decided to cut its catalog costs with a less expensive catalog layout and to cut mailing units. Cost of catalogs decreased 43% comparing the quarter periods to 17% of revenues for the quarter ended in 2002 from 26% of revenues for the 2001 quarter. Cost of catalogs decreased 20% comparing the six month periods to 23% of revenues for the six month period in 2002 compared to 26% for the six month period in 2001. Comparing the two six month periods, the Company has decreased the catalog printing cost by 21% and decreased mailing cost by 20%. Total operating expenses decreased 9% and 11% for the three and six month periods ended March 31, 2002 from the corresponding prior year periods. The decrease resulted primarily in selling, general and administrative expenses that decreased 15% in both the three and six month period compared to the previous year periods. The decrease in selling, general and administrative expenses was largely due to reduced compensation expenses that decreased 39% comparing the three month periods and 38% comparing the six month periods. The principal owners of the Company have temporarily discontinued taking compensation to assist the Company with cash flows. This decrease was partially offset by an increase in consultant fees incurred as discussed in footnote 4. Depreciation increased 4% for the quarter ended March 31, 2002 compared to prior year quarter. This was a result of software development being recorded after the quarter ended March 31, 2001. Depreciation decreased 4% comparing the six month period ended March 31, 2002 to the prior year six month period. This was a result of assets becoming fully depreciated. Advertising expense decreased 35% and 45% for the three and six month periods ended March 31, 2002 from the corresponding prior year periods. This decrease is a result of a new contract with a major advertiser of the Company and a reduction in other advertising avenues the Company had previously employed. Maintenance and repair expenses increased to 9% of total revenues for both the three and six month periods ended March 31, 2002 compared to 3%for both the three and six month periods ended March 31, 2001. The increase is a result of the Company's expenditure for a software consultant to maintain its auction and inventory software programs. Interest expense remained constant comparing the three and six month period. Although the Company had increased its outstanding loan balances, the interest rates have decreased. Included in selling, general and administrative expense 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 operations. The remaining building operating expenses offset by the rental revenues realized are included in other income and expense. The amount in the prior six month period included a lease buyout option that was exercised in the amount of $40,000. 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. 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, 2002 /s Todd M. Axelrod ______________________ ________________________________ Todd M. Axelrod President and Chairman of the Board (Principal Executive Officer) Date May 14, 2002 /s Rod Lynam ______________________ _______________________________ Rod Lynam Treasurer and Director (Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----