-----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, KUT7qHXQJXaVJGj7kemIGubH/VPrPMucagnw+jVqblc6qH8baAQ1/X9pmIGgpRh5 B4Vn7eZMQHrrVAAZ2/OPOg== 0000763730-07-000019.txt : 20070810 0000763730-07-000019.hdr.sgml : 20070810 20070810161903 ACCESSION NUMBER: 0000763730-07-000019 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070810 DATE AS OF CHANGE: 20070810 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: 071045595 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2: PROMENADE SUITE 207 CITY: LAS VEGAS STATE: NV ZIP: 89102 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MUSEUM OF HISTORICAL DOCUMENTS CHARTERED/NV/ DATE OF NAME CHANGE: 19900816 10QSB 1 q-0607.txt FORM 10-QSB FOR QUARTER ENDED JUNE 30, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB ((Mark one) [x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2007 [ ] TRANSITION REPORT UNDER 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. (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) (702) 364-1000 (Issuer's telephone number) 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 Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). [ ] Yes [x] No APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: The registrant had 5,625,984 shares of Common Stock, par value $.0005 outstanding as of August 1, 2007. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x] Part 1 - FINANCIAL INFORMATION GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ______________________________________________________________________ JUNE 30, SEPTEMBER 30, 2007 2006 (Unaudited) --------- ----------- ASSETS Cash $ 1,018 $ 1,738 Inventory of documents 6,443,865 6,504,288 Deferred tax assets 1,339,842 1,339,842 Property and equipment, net 1,061,728 1,100,381 Other assets 67,516 53,996 ---------- ---------- TOTAL ASSETS $ 8,913,969 $ 9,000,245 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 42,620 $ 100,093 Notes payable: Majority stockholder 1,786,393 1,582,556 Other 1,139,765 1,186,815 Other liabilities 178,433 145,922 ---------- ---------- TOTAL LIABILITIES 3,147,211 3,015,386 ---------- ---------- Common stock: $.0005 par value; 20,000,000 shares authorized; 11,935,308 shares issued 5,968 5,968 Preferred stock: $.0005 par value; 4,000,000 shares authorized; 1,615,861 shares issued (liquidation value at June 30, 2007 and September 30, 2006, $3,329,401 and $3,280,198 including cumulative unpaid dividends in arrears of $97,679 and $48,476) 808 808 Additional paid-in capital 14,274,088 14,243,315 Deficit (5,505,435) (5,256,561) Common stock in treasury, 6,309,324 shares, at cost (3,008,671) (3,008,671) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 5,766,758 5,984,859 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,913,969 $ 9,000,245 ========== ========== See the accompanying notes to consolidated financial statements. ____________________________________________________________________________ GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED ____________________________________________________________________________ THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 2007 2006 2007 2006 -------- -------- --------- --------- REVENUES $ 105,686 $ 153,437 $ 520,945 $ 502,469 COST OF REVENUES 6,695 15,021 43,068 52,716 -------- -------- --------- --------- GROSS PROFIT 98,991 138,416 477,877 449,753 -------- -------- --------- --------- OPERATING EXPENSES: Selling, general and administrative 193,289 194,444 588,705 715,425 Depreciation 10,033 10,750 30,156 35,680 -------- -------- --------- --------- TOTAL OPERATING EXPENSES 203,322 205,194 618,861 751,105 -------- -------- --------- --------- OPERATING LOSS (104,331) (66,778) (140,984) (301,352) -------- -------- --------- --------- OTHER INCOME (EXPENSE) Interest expense Majority stockholder (20,813) (18,461) (60,177) (85,604) Other (26,642) (29,372) (80,455) (89,369) Rental income, net of expenses 34,316 30,877 81,926 84,925 Other -- -- 19 7,552 -------- -------- --------- --------- TOTAL OTHER EXPENSE (13,139) (16,956) (58,687) (82,496) -------- -------- --------- --------- NET LOSS (117,470) (83,734) (199,671) (383,848) Preferred stock dividend -- -- (49,203) -- -------- -------- --------- --------- NET LOSS APPLICABLE TO COMMON SHARES $(117,470) $ (83,734) $ (248,874) $ (383,848) ======== ======== ========= ========= BASIC LOSS PER SHARE: $(.02) $(.01) $(.04) $(.07) ==== ==== ==== ==== WEIGHTED AVERAGE SHARES OUTSTANDING 5,625,984 5,625,984 5,625,984 5,625,984 ========= ========= ========= ========= See the accompanying notes to consolidated financial statements. ____________________________________________________________________________ GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED ____________________________________________________________________________ NINE MONTHS ENDED JUNE 30, 2007 2006 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(199,671) $(383,848) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 50,761 56,818 Contributed services of majority shareholder 24,759 24,759 Stock based compensation 6,014 -- Increase in operating (assets) liabilities: Inventory of documents 60,423 (54,607) Other assets (13,520) (2,059) Accounts payable (57,473) 62,963 Other liabilities (16,692) (11,286) -------- -------- Net cash used in operating activities (145,399) (307,260) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (12,108) -- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings: Majority stockholder 222,869 425,582 Other 214,000 161,000 Repayments of borrowings: Majority stockholder (19,032) (7,452) Other (261,050) (273,681) -------- -------- Net cash provided by financing activities 156,787 305,449 -------- -------- NET DECREASE IN CASH (720) (1,811) CASH, BEGINNING OF PERIOD 1,738 2,116 -------- -------- CASH, END OF PERIOD $ 1,018 $ 305 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during period for interest $ 140,052 $ 188,596 Noncash investing and financing activities: Capitalization of accrued salaries, majority shareholder -- $ 423,864 Issuance of preferred stock in partial settlement of note payable, majority stockholder -- $3,231,772 Dividend accrued on preferred stock $ 49,203 -- See the accompanying notes to consolidated financial statements. ____________________________________________________________________________ GALLERY OF HISTORY, INC. and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ____________________________________________________________________________ Basis of Presentation - --------------------- The consolidated financial statements as of June 30, 2007, and for the three month and nine month periods ended June 30, 2007 and 2006, included herein have been prepared by Gallery of History, Inc. and subsidiaries (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim financial information. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. 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. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's 2006 Annual Report on Form 10-KSB, from which the September 30, 2006, balance sheet information is derived. Issuance of preferred stock - --------------------------- Prior to 2006, the Company borrowed $1,000,000 from its principal officer/shareholder, Todd Axelrod. The advance was due on demand but not prior to October 31, 2008, with monthly interest payable at 6%. Interest expense on the related party advance was $45,500 and $60,833 for the nine months ended June 30, 2007 and 2006, respectively. The Company has also borrowed other amounts, from Mr. Axelrod, from time to time. The funds borrowed had an interest rate of 1.5% above the prime lending rate but was reduced to 3% as of September 1, 2005. The principal balance of the funds borrowed in addition to the foregoing $1,000,000 totaled $786,393 and $582,556 as of June 30, 2007 and September 30, 2006, respectively. Interest expense on these related party borrowings was $14,677 and $43,918 during the nine months ended June 30, 2007 and 2006, respectively. The funds were used to supplement cash flows from operating activities. On January 20, 2006, the Company held a special meeting of stockholders and approved converting $3,231,722 of debt to its principal officer/stockholder into 1,615,861 shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock earns dividends at the annual rate of 3% applied to the liquidation value, and payable semi-annually so long as resources are legally available for that purpose (unless waived by the holder). Unpaid dividends are cumulative, are added to the liquidation value (upon which the annual dividend rate is applied), and are preferential in the event of liquidation and with respect to any dividends or other distributions to Common Stockholders. The Preferred Stock is non-voting (except as may be required by law) and convertible at any time at the option of the holder at a fixed rate of one common share for every $2 in liquidation value, as adjusted, per share of Preferred Stock at the time of conversion, subject to adjustment in the event of future increases or decreases in the number of outstanding shares of Common Stock for a price other than the then conversion price of the Preferred Stock or in the event of issuance of certain other securities. As of June 30, 2007 and September 30, 2006, a total of 1,664,700 and 1,640,099 shares of Common Stock were issuable upon conversion of the Preferred Stock. Revenue-sharing Arrangement - --------------------------- During the nine month period ended June 30, 2007, the Company's principal officer and majority shareholder, Mr. Todd Axelrod, purchased documents from outside sources for his own account with personal funds. The Company may have been interested in acquiring some or all of the items; however, management believed that the Company lacked sufficient liquidity to assume the related finance and marketability risks. As a result, the Company and Mr. Axelrod entered into a revenue-sharing arrangement whereby the Company physically safeguards and catalogs the documents, and markets certain of the items on its web site for a fee consisting of 80% of the gross profit from any sale (defined as the sales price to a third party buyer less Mr. Axelrod's cost of acquiring the item). The Company believes this fee arrangement is considerably more favorable to the Company than the Company could obtain from an independent third party. The Company receives the same guarantee as Mr. Axelrod would receive as to the authenticity warranty obtained from the vendors. The Company has also independently verified Mr. Axelrod's cost of the consigned inventory. During the nine month period ended June 30, 2007, 26 documents subject to the revenue-sharing arrangement were sold for $104,187 (9 documents were sold during the current quarter for $33,898). The Company's revenue share for the three month and nine months was $22,832 and $71,987, respectively, and is included in revenues. Stock-based compensation - ------------------------ As an employment inducement, the recently hired vice-president of sales was granted options to acquire 50,000 shares of the Company's common stock at $2.19 per share, the stock price on the grant date (April 16, 2007). Using the Black-Scholes pricing model and an estimated expiration factor of 3.25 years, a volatility factor of one based on daily trading history, and a risk-free interest rate of 4.5%, the options were valued at approximately $72,000, to be charged to expense ratably over the 24-month vesting period. The financial statements for the three months ended June 30, 2007 includes share-based compensation expense of approximately $6,000 associated with these options. The outstanding options were not given effect to compute diluted loss per share for the period since to do so would have been anti-dilutive. Contributed Services - -------------------- The Company's president and majority shareholder does not receive a salary. Accordingly, the estimated value of such services (approximately $30,000 per year) is recorded as expense and additional paid-in capital. Income Taxes - ------------ The Company provides a valuation allowance against deferred tax assets (primarily associated with net tax loss carryforwards), to the extent that such tax assets are considered by management as not likely to be utilized, after consideration of tax planning strategies. Such valuation allowance is the reason for the variation in the customary relationship between income tax benefit and the pretax accounting loss. Unresolved comments from SEC Staff - ---------------------------------- The staff of the SEC has question the adequacy of the Company's deferred tax asset valuation allowance, and management is in the process of responding to the staff's questions and concerns. Upon resolution of the matter, there could be a restatement of up to a $1.3 million increase in the allowance and a like increase in the deficit as of October 1, 2005, with no effect on current or comparable prior period operations. Part 1 - Item 2 Financial Information MANAGEMENT'S DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements - -------------------------- This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to the Company's future operations and prospects, including statements that are based on current projections and expectations about the markets in which the Company operates, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may," "might," "will," "expect," "anticipate," "believe," and similar expressions are intended to identify forward looking statements. Those forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements of those of the Company's industry to be materially different from any future results, performance or achievements expressed or implied by those forward-looking statements. Among the factors that could cause actual results, performance or achievement to differ materially from those described or implied in the forward-looking statements are the Company's ability to obtain additional capital, on reasonable terms, if at all, at such times and in such amounts as may be needed by the Company; competition by entities which may have greater resources than the Company; the Company's ability to market and sell its inventory of historical documents; the Company's ability to correctly value its inventory of documents; and other factors included in the Company's filings with the Securities and Exchange Commission (the "SEC"). Copies of the Company's SEC filings are available from the SEC or may be obtained upon request from the Company. The Company does not undertake any obligation to update the information contained herein, which speaks only as of this date. Overview - -------- Gallery of History, Inc. and its 100%-owned subsidiaries (collectively the "Company") acquires documents of historical or social significance and markets these documents to the general public. Except for the cost of documents that are sold and certain selling expenses, most of the Company's other costs and expenses are relatively fixed. While management believes that the Company's inventory of documents has substantially appreciated, the Company has been unable to produce sufficient volume of sales to the general public and has incurred significant operating losses for the past several years. (See also discussion of the Company's operating cycle under "Critical Accounting Estimates, Policies, and Practices," below.) As a result, the Company has been (and will continue to be) dependent upon debt financing, including loans from its majority stockholder, to satisfy its obligations when due. The unique characteristic of some documents may cause them to become rarer with their current market value rising significantly over time. In many instances, the Company has a supply of similar documents that, if marketed simultaneously, could negatively impact market value. As a result, managing the rarity of certain types or categories of documents through the judicious marketing of only a selection of documents available in the Company's inventory is an important element of the Company's business. This element is one of the reasons that the Company has accumulated and maintains a supply of documents that is significantly greater than it intends to sell in a year or even aggressively market. Liquidity and Capital Resources ------------------------------- The net cash flow deficiency from operating activities was mainly funded from increased borrowings. However, comparing the deficits from operating activities of the previous year period, the current fiscal year deficit is less by approximately 50% as is the current year borrowings when comparing the two yearly periods. The majority of this decrease in the operating activity deficit occurred from the reduction of inventory purchases. In the current nine month period the deficit from operating activities resulted from, in addition to the net loss, a decrease in accounts payable. The Company continues to take steps to improve its operating results by attempting to increase sales through its direct purchase website and other internet activity and by taking advantage of merchandising opportunities through the use of its revenue-sharing agreement with Mr. Axelrod, which, combined, have become the Company's highest margin distribution channels. Because of the size and diversity of its inventory, management believes the Company is well positioned to compete favorably with other firms offering similar products, but has not generated sufficient sales to make a profit. To generate sufficient sales, the Company may need (but has not committed) to lower prices in addition to adding more of its available inventory to the website. Recently, the Company has offered discount promotions on its website with some success but continues to maintain a gross profit in the 90% range. The Company believes that its current and long-term cash requirements will likely be met by appropriately managing the timing and volume of new document acquisitions, including the use of the revenue-sharing agreement with Mr. Axelrod, generating revenues from its operations, drawing against its available line of credit ($49,000 available at June 30, 2007), seeking additional borrowings collateralized by its documents inventory (although there can be no assurance that such financing will be obtainable on acceptable terms) and borrowing from Mr. Axelrod as required. Mr. Axelrod has also agreed not to demand payment on amounts the Company has borrowed and, if necessary, defer his right to receive interest payments and dividends on preferred stock through at least October 31, 2008. Critical Accounting Estimates, Policies and Practices ----------------------------------------------------- Revenues. The Company recognizes revenues from document sales when title passes to the customer upon shipment. Typically, shipment does not occur until payment has been received. Shipping and handling costs and related customer charges are not significant in relation to selling prices. The Company's primary distribution channel currently is through its website which includes consignment sales related to the revenue-sharing arrangement with Mr. Axelrod. The balance of the Company's sales is from repeat customers through its corporate office. Inventory of documents and operating cycle. Documents in inventory are stated at cost, which is determined on a specific- identification method, not to exceed estimated market value. Management reviews the recorded cost and estimated value of the documents owned individually on a regular basis (at least quarterly) to determine the adequacy of the allowance for market value declines, if any. Management believes that any future changes in such allowance are not likely to have any material effect on the Company. Management believes that the Company's inventory of documents is generally appreciating in value. As a result, as stated earlier, managing the rarity of certain types or categories of documents through the judicious marketing of only a selection of documents available in the Company's inventory is an important element of the Company's business. This element is one of the reasons that the Company has (1) accumulated and maintains a supply of documents that is significantly greater than it intends or expects to market aggressively or even sell in a year and (2) has not committed to lowering prices as a long-term strategy to potentially generate increased sales to attain short-term profitability. Based on an aggregate historical cost (not number of documents), only about one- half of the Company's documents are listed and made available on one or more of the various distribution channels or displayed for sale. As the Company's distribution channels have changed over the years and are expected to continue to change in the future, the volume of documents marketed in any one year, or succession of years, changes significantly. For these reasons, it has been impractical for the Company to define its operating cycle and, as a result, the Company presents its balance sheet on an unclassified basis. The Company believes that this presentation better reflects the nature of the Company's business and its principal asset. Over the past several years, the cost of the Company's inventory has ranged from its present level of approximately $6.5 million, which management believes is a sufficient supply of documents to provide for managing rarity and its other purposes, to roughly $7.2 million. Management has no current intention of changing significantly the composition of its inventory but may supplement its base with such opportunities as the revenue-sharing arrangement with Mr. Axelrod. Deferred tax assets. The Company provides a valuation allowance against deferred tax assets (primarily associated with tax loss carryforwards) to the extent that such tax assets exceeds an amount considered by management as more likely than not to be utilized as a result of any gain on the Company's appreciated document inventory, if partially sold in bulk, and/or real estate, that may be realized as needed to protect the carryforwards and, therefore, considered effective tax planning strategies as defined in FASB Statement No. 109. The potential gain and related tax effect is estimated based on management's perception of market activity and estimate of value and historical profit margins and trends. Such estimates are revisited and revised quarterly. Unresolved comments from SEC Staff. The staff of the SEC has question the adequacy of the Company's deferred tax asset valuation allowance, and management is in the process of responding to the staff's questions and concerns. Upon resolution of the matter, there could be a restatement of up to a $1.3 million increase in the allowance and a like increase in the deficit as of October 1, 2005, with no effect on current or comparable prior period operations. Recently issued accounting pronouncements. In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America, and expands disclosure about fair value measurements. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115, which will permit the option of choosing to measure certain eligible items at fair value at specified election dates and report unrealized gains and losses in earnings. SFAS Nos. 157 and 159 will become effective for us for fiscal year 2009, and interim periods within those fiscal years. We are currently evaluating the requirements of SFAS Nos. 157 and 159, and have not yet determined the likely, if any, impact on our future financial statements. In July 2006, the FASB issued Interpretation No. 48 (FIN 48) Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 will be effective for our fiscal year 2008. We do not expect that the adoption of FIN 48 will have a significant impact on our future financial position, results of operations, and cash flows. However, we are evaluating the impact that FIN 48 will have on the amount, reporting, and disclosures relating to our deferred tax assets resulting primarily from tax loss carryforwards. Results of Operations --------------------- Revenues decreased 31% comparing the quarter period ended June 30, 2007 to the quarter period ended June 30, 2006. Revenues increased 4% for the nine month period ended June 30, 2007 compared to the nine month period ended June 30, 2006. The majority of the decrease was the result of a reduction of revenues derived from the Company's sales on eBay which decreased 71% comparing the quarter periods and a decrease of 67% comparing the nine month periods. Revenues generated from the Company's web site decreased 16% comparing the quarter periods and increased by 28% comparing the nine month periods. The decrease in revenues can again be attributed to internet competition. Excluding the effects of the revenue-sharing arrangement discussed in the following paragraph, the Company's cost of revenues continued to decline to 8% of net revenues for the three month period and 10% of net revenues for the nine month period ended June 30, 2007. During the current fiscal year, the Company entered into a revenue- sharing arrangement with our principal officer/shareholder, Mr. Todd Axelrod, whereby the Company physically safeguards, catalogs, and markets certain historical documents, that Mr. Axelrod owns personally, for a fee consisting of 80% of the gross profit from any sale (defined as the sales price to a third-party buyer less Mr. Axelrod's cost of acquiring the item). The Company independently verifies the cost of any item sold pursuant to this arrangement. The Company believes this fee arrangement is considerably more favorable to the Company than could be obtained from an independent third party. Included in revenues for the three and nine month periods ended June 30, 2007, are fees of $22,832 and $71,987, respectively, associated with this arrangement. Total operating expenses decreased 1% for the three month period and decreased 18% for the nine month period ended June 30, 2007 compared to the previous year periods. Reductions came principally from advertising expenses, professional fees and salary expenses. The Company became more selective in its advertising and reduced the expense by 14% comparing the quarter periods and 38% comparing the nine month periods. Professional fees decreased due to fees incurred in fiscal 2006 relating to Nasdaq compliance issues. Salaries decreased 9% comparing the nine month periods. However, comparing the quarterly periods, salaries increased 36% as a result of the recent employment of a new Vice President of Sales for the Company. As an employment inducement, the recently hired vice-president of sales was granted options to acquire 50,000 shares of the Company's common stock. The financial statements for the three months ended June 30, 2007 includes share-based compensation expense of approximately $6,000 associated with these options not included in the prior year. Depreciation costs decreased 7% comparing the quarter periods and 15% comparing the nine month periods due to assets becoming fully depreciated, primarily the Company's archive and inventory software programs. Item 3. Controls and Procedures. ----------------------- Based on their evaluation, as of June 30, 2007, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective. There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Part 2 - Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. ----------------------------------------------------------- On April 16, 2007, the Company issued to one employee an aggregate 50,000 options to purchase a like number of shares of the Company's Common Stock at an exercise price of $2.19 per share (the closing price on April 16, 2007). The options are subject to a vesting schedule and expire upon the earlier of five years from the date of grant or the termination of the employee's employment with the Company, irrespective of the reasons for any such termination. The options were granted pursuant to the exemption from the registration requirements under the Securities Act of 1933, as amended, under Section 4(2) of such Act. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a). 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a). 32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b). 32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b). 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 August 10, 2007 /s/ Todd M. Axelrod _________________ _______________________________ Todd M. Axelrod President and Chairman of the Board (Principal Executive Officer) Date August 10, 2007 /s/ Rod Lynam _________________ _______________________________ Rod Lynam Treasurer and Director (Principal Financial and Accounting Officer) EX-31 2 q-ex311.txt EXHIBIT 31.1 - CERTIFICATION OF CEO EXHIBIT 31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) I, Todd Axelrod, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Gallery of History, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 10, 2007 /s/ TODD AXELROD Todd Axelrod Chief Executive Officer EX-31 3 q-ex312.txt EXHIBIT 31.2 - CERTIFICATION OF CFO EXHIBIT 31.2 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) I, Rod Lynam, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Gallery of History, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 10, 2007 /s/ ROD LYNAM_ Rod Lynam Chief Financial Officer EX-32 4 q-ex321.txt EXHIBIT 32.1 - CERTIFICATION OF CEO EXHIBIT 32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(b) In connection with the Quarterly Report of Gallery of History, Inc. (the "Company") on Form 10-QSB for the quarter ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Todd Axelrod, Chief Executive Office of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Todd Axelrod - ---------------- Todd Axelrod Chief Executive Officer August 10, 2007 EX-32 5 q-ex322.txt EXHIBIT 32.2 - CERTIFICATION OF CFO EXHIBIT 32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(b) In connection with the Quarter Report of Gallery of History, Inc. (the "Company") on Form 10-QSB for the quarter ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Rod Lynam, Chief Financial Office of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Rod Lynam - ------------- Rod Lynam Chief Financial Officer August 10, 2007 -----END PRIVACY-ENHANCED MESSAGE-----