10-Q 1 q0309.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2009 _______________________________________________________________________ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________________________________________ FORM 10-Q (Mark one) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2009 OR [ ] 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 registrant 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) (702) 364-1000 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [x] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). [ ] Yes [x] No As of April 30, 2009 there were 6,425,984 shares of Common Stock outstanding. Part 1 - FINANCIAL INFORMATION GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ____________________________________________________________________________ MARCH 31, SEPTEMBER 30, 2009 2008 (Unaudited) --------- ----------- ASSETS Cash $ 6,112 $ 9,576 Inventory of documents 6,359,352 6,382,828 Deferred tax assets 1,339,842 1,339,842 Property and equipment, net 961,509 990,610 Other assets 94,889 59,394 ---------- ---------- TOTAL ASSETS $ 8,761,704 $ 8,782,250 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 53,237 $ 29,168 Advances and notes payable: Majority stockholder 1,530,868 1,310,226 Other 1,092,538 1,123,236 Preferred stock dividend payable 301,983 249,760 Other liabilities 73,793 80,842 ---------- ---------- Total liabilities 3,052,419 2,793,232 ---------- ---------- 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, $3,533,705, including cumulative unpaid dividends in arrears of $301,983) 808 808 Additional paid-in capital 15,007,394 14,978,860 Deficit (6,677,814) (6,369,547) Common stock in treasury, 5,509,324 shares, at cost (2,627,071) (2,627,071) ---------- ---------- Total stockholders' equity 5,709,285 5,989,018 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,761,704 $ 8,782,250 ========== ========== 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, 2009 2008 2009 2008 -------- -------- --------- --------- REVENUES $ 93,139 $ 96,367 $ 230,262 $ 274,783 COST OF REVENUES 4,770 8,225 17,748 24,188 -------- -------- --------- --------- GROSS PROFIT 88,369 88,142 212,514 250,595 -------- -------- --------- --------- OPERATING EXPENSES: Selling, general and administrative 199,080 220,679 418,984 453,747 Depreciation 8,464 8,896 16,928 18,148 -------- -------- --------- --------- TOTAL OPERATING EXPENSES 207,544 229,575 435,912 471,895 -------- -------- --------- --------- OPERATING LOSS (119,175) (141,433) (223,398) (221,300) -------- -------- --------- --------- OTHER INCOME (EXPENSE) Interest expense Majority stockholder (10,879) (23,149) (21,254) (45,805) Other (22,324) (23,295) (44,909) (46,634) Rental income, net of related expenses 17,799 26,806 33,470 51,919 Other -- (5) 46 6,495 -------- -------- --------- --------- TOTAL OTHER EXPENSE (15,404) (19,643) (32,647) (34,025) -------- -------- --------- --------- NET LOSS (134,579) (161,076) (256,045) (255,325) Preferred stock dividend (52,222) (50,690) (52,222) (50,690) -------- -------- --------- --------- NET LOSS APPLICABLE TO COMMON SHARES $(186,801) $(211,766) $ (308,267) $ (306,015) ======== ======== ========= ========= BASIC LOSS PER SHARE: $(.03) $(.04) $(.05) $(.05) ==== ==== ==== ==== WEIGHTED AVERAGE SHARES OUTSTANDING 6,425,984 5,625,984 6,425,984 5,625,984 ========= ========= ========= ========= 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, 2009 2008 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(256,045) $(255,325) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 30,320 25,045 Contributed services of majority stockholder 16,506 16,506 Stock-based compensation 12,028 18,042 Increase in operating (assets) liabilities: Inventory of documents 23,476 24,223 Other assets (35,495) (29,237) Accounts payable 24,069 (12,769) Other liabilities (7,048) 2,416 -------- -------- Net cash used in operating activities (192,189) (211,099) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (1,219) (3,550) Proceeds from sale of property and equipment -- 6,500 -------- -------- Net cash provided by (used in) investing activities (1,219) 2,950 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings: Majority stockholder 249,000 219,985 Other 192,000 124,000 Repayments of borrowings: Majority stockholder (28,358) (2,574) Other (222,698) (132,063) -------- -------- Net cash provided by financing activities 189,944 209,348 -------- -------- NET INCREASE (DECREASE) IN CASH (3,464) 1,199 CASH, BEGINNING OF PERIOD 9,576 1,517 -------- -------- CASH, END OF PERIOD $ 6,112 $ 2,716 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during period for interest $ 65,510 $ 91,839 ======== ======== Dividend accrued on preferred stock $ 52,222 $ 50,690 ======== ======== 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 March 31, 2009, and for the three month periods ended March 31, 2009 and 2008, included herein have been prepared by management of Gallery of History, Inc. and subsidiaries (collectively, the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission applicable to interim financial information. Accordingly, 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 necessary for a fair presentation of the results for the interim periods have been made. These consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's 2008 Annual Report on Form 10-K, from which the September 30, 2008, balance sheet information is derived. Economic Conditions and Related Risk and Uncertainty The United States is experiencing a widespread recession accompanied by declining investment values, discretionary spending, a reduction in general credit availability and instability in the commercial and investment banking systems, and is engaged in war, all of which are likely to continue to have far-reaching effects on economic activity in the country for an indeterminate period. The near- and long-term impact of these factors on the economy and the Company's operations, or the Company's principal stockholder's ability to continue to provide financial support to the Company, cannot be predicted at this time but may be substantial. Related Party Debt Conversion ----------------------------- Prior to 2007, the Company borrowed $1,000,000 from its principal officer/stockholder, Todd M. Axelrod. The advance was due on demand but not prior to October 31, 2010, with monthly interest payable at 6%. In June 2008, the Company agreed to issue to Mr. Axelrod an aggregate 800,000 shares of its common stock from treasury in exchange for the cancellation of such debt. The outstanding $1,000,000 principal amount was converted into shares of common stock at a conversion price of $1.25 per share, representing a premium to the closing price on June 10, 2008. The Company also has other loans outstanding from Mr. Axelrod, borrowed from time to time. These loans carry an interest rate of 3%. The principal balance of the funds borrowed totaled $1,530,868 and $1,112,636 as of March 31, 2009 and 2008, respectively. Interest expense on these related party borrowings was $10,879 and $7,979 for the three months and $21,254 and $15,465 for the six months ended March 31, 2009 and 2008, respectively. The borrowed funds were used to supplement cash flows from operating activities. Revenue-sharing Arrangement --------------------------- Since fiscal 2007, the Company's principal officer and majority stockholder has purchased certain 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 three month period ended March 31, 2009, 15 documents were sold for $15,709 and the Company's revenue share was $11,850 compared to the three month period ended March 31, 2008, 4 documents were sold for $806 and the Company's share was $628. For the six month period ended March 31, 2009, 26 documents were sold for $15,709 and the Company's revenue share was $11,850. This compares to 16 documents sold for $7,902 with the Company's share of $6,000 for the six months ended March 31, 2008. Stock-based compensation ------------------------ As an employment inducement, the Company's 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 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. However, this employment was terminated February 3, 2009 and the options were cancelled pursuant to their terms. The financial statements for the six month periods ended March 31, 2009 and 2008, included $12,028 and $18,024, of this share-based compensation expense, respectively. For the three month periods ended March 31, 2009 and 2008, the financial statements included an expense of $3,007 and $9,021, respectively. The outstanding options were not given effect in a computation of diluted results per share for the period since to do so would have been anti-dilutive due to losses. Contributed Services -------------------- The Company's president and majority stockholder does not receive a salary. Accordingly, the estimated value of his part-time services (at approximately $30,000 per year) is recorded ratably each quarter as expense and additional paid-in capital. Income Taxes ------------ The Company maintains 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 more likely than not to be realized, after consideration of its tax planning strategies. The assessment of such valuation allowance is the reason for the variation in the customary relationship between income tax benefit and the pretax accounting loss. Effective with the quarter ended December 31, 2007, the Company was required to apply Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). Based on its analysis of the Company's tax provisions, deferred tax assets and the related valuation allowance, management determined that there was no impact to the Company's financial statements, loss carryovers, or the related valuation allowance as a result of adoption of the provisions of FIN 48, including with respect to its operating deficit. Part 1 - Item 2 Financial Information MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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, as amended, 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 current widespread economic recession, 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, on its website (www.sec.gov), 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 the date of this filing. 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 held in inventory 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 ------------------------------- Net cash used in operating activities decreased by 9% comparing the six month period ended March 31, 2009 to March 31, 2008. The net losses being about the same for both periods, the decrease in cash used in operations resulted mainly from a decrease in purchases of inventory and an increase in accounts payable. In addition, depreciation resulted in an increase because the prior year's number included an adjustment for the sale of a Company vehicle. This cash deficiency from operating activities was funded from increased borrowings from the Company's principal officer/stockholder. These increased borrowings resulted in providing the Company with $220,642 additional funds in the six month period ended March 31, 2009 in contrast with the Company paying down a net of $30,698 on its bank credit instruments. The Company currently has a bank line of credit in the amount of $100,000 through August 2009. Loans under the line of credit are secured by the Company's inventory of documents owned and bear interest at the prime rate plus 1.5%. As of March 31, 2009, there was $46,000 available against this line of credit. The Company's term mortgage note was renewed in July 2007 in the amount of $1,087,251 and has an 8.25% interest rate and a maturity date of July 15, 2012. The note is collateralized by the Company's building. As discussed in the notes to the financial statements, prior to 2007, the Company borrowed $1,000,000 from its principal officer/stockholder, which was converted into 800,000 shares of the company's common stock on June 11, 2008. The conversion rate of $1.25 represented a premium in relation to the closing price of the common stock on the date of the transaction. The shares were issued out of treasury stock held by the Company. The Company also has other loans outstanding from Mr. Axelrod, borrowed from time to time. These loans carry an interest rate of 3%. The principal balance of the funds borrowed totaled $1,530,868 and $1,112,636 as of March 31, 2009 and 2008, respectively. The borrowed funds were used to supplement cash flows from operating activities. The Company endeavors to improve its operating results by increasing its internet exposure. Its direct website has become the Company's principal distribution channel. 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 yet 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. The Company also continues to offer discount promotions on its website with some success, while still maintaining its profit margin in excess of 90%. Subject to the future effects of the economic uncertainties discussed in the following paragraph, the Company's management believes that its current cash requirements will be met by generating revenues from operations, appropriately managing the timing and volume of new document acquisitions, including the use of the revenue- sharing agreement with Mr. Axelrod, drawing against its available line of credit, 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 his loans to the Company and, if necessary, defer his right to receive interest payments and dividends on preferred stock through at least October 31, 2010. The foregoing notwithstanding, the United States is experiencing a widespread recession accompanied by declining investment values and discretionary spending, a reduction in general credit availability and instability in the commercial and investment banking systems, and is engaged in war, all of which are likely to have continue to have far-reaching effects on economic activity in the country for an indeterminate period. The near- and long-term impact of these factors on the economy and the Company's operations, or the Company's principal stockholder's ability to continue to provide financial support to the Company, cannot be predicted at this time but may be substantial. 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. The Company's distribution channels consist of its direct purchase websites and other internet avenues including eBay. Shipping and handling costs and related customer charges are not significant. Inventory of documents owned and operating cycle ------------------------------------------------ Documents owned are stated at cost on a specific-identification method, not in excess of estimated market value. Management reviews the recorded cost and estimated value of the documents owned on a regular basis (at least quarterly) to determine the adequacy of the allowance for market value declines, if any. Management believes that the Company's inventory of documents is generally appreciating, not depreciating, in 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. 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, 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 as of its fiscal year end has ranged from its present level of approximately $6.4 million to roughly $7.2 million, which management believes is a sufficient supply of documents to provide for managing rarity and its other purposes. Management has no current intention of significantly changing the composition of its inventory and, as a result, the Company accounts for changes in the cost of documents owned as an adjustment to arrive at cash flows from operating activities. Deferred tax assets and income taxes ------------------------------------ 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 effective tax planning strategies, as defined in Financial Accounting Standards Board (FASB) Statement No. 109, "Accounting for Income Taxes", consisting of the possible sale of appreciated document inventory, particularly if partially sold in bulk, and/or real estate, that would produce gains that may be realized as needed to protect the Company's loss carryforwards. The potential gain and related tax effect is estimated based on management's perception of current market activity and estimate of value and historical profit margins and trends. Such estimates are revisited and revised quarterly. Effective with the quarter ended December 31, 2007, we were required to apply FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48). Based on our analysis of our tax provisions, deferred tax assets and the related valuation allowance, we determined that there was no impact to our financial statements upon initial adoption of the provisions of FIN 48, including with respect to our operating deficit or related disclosures. Recently issued accounting pronouncements ----------------------------------------- In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Accounting Standards (SFAS) No. 161, "Disclosures About Derivative Instruments and Hedging Activities - an amendment of FASB Statement No 133". SFAS 161 expands the disclosure requirements in SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", regarding derivative instruments and hedging activities. SFAS 161 will be effective for the Company's fiscal year beginning October 1, 2008. As SFAS 161 relates specifically to disclosures regarding matters that the Company is typically not involved in, SFAS 161 will likely have no impact on the Company's future financial condition, results of operations or cash flows. In December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements". It requires that a noncontrolling (minority) interest in a subsidiary, including a variable interest entity, should be reported as equity in the consolidated financial statements. Although technically effective for the Company's fiscal year beginning October 1, 2009, SFAS 160 will not likely have any effect on the Company's consolidated financial statements since we are not presently contemplating investing in, establishing or acquiring a subsidiary with a noncontrolling interest. In December 2007, the FASB issued SFAS 141R, "Business Combinations, which replaces SFAS 141, Business Combinations". Also, in April of 2008, the FASB issued FSP SFAS 141R-1, "Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies", to address some of the application issues under SFAS 141R. FSP SFAS 141R-1 deals with the initial recognition and measurement of an asset acquired or a liability assumed in a business combination that arises from a contingency (provided the fair value on the date of acquisition of the related asset or liability can be determined). We have not yet evaluated SFAS 141R or FSP SFAS 141R-1 for the impact, if any, that either might have on our future financial statements in the event we make any business combination or other covered acquisitions after its effective date, which for us will be September 30, 2009. No such transactions are presently contemplated. In September 2006, the FASB issued SFAS 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, and expands disclosure about fair value measurements in the financial statements, if any. In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement 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 157 and 159 were scheduled to become effective for us for fiscal year 2009, and interim periods within that fiscal year; however, the effective date for SFAS 157 was delayed one year to fiscal year 2010, and interim periods within that fiscal year with respect to nonfinancial assets and liabilities carried at fair value, if any, to the extent not already adopted, which we have not. Although SFAS 157 is now effective for us for financial assets and liabilities carried at fair value, we are not currently carrying any such assets or liabilities at fair value. Therefore, the requirements of SFAS 157 will not apply to our financial statements unless we elect to do so under SFAS 159, which election has not been made and is presently not expected. Accordingly, there is no likely impact on our future financial statements expected of either of these two standards. In April 2009, the FASB issued FSP 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly", which provides guidance in the application of FASB 157 when the volume and level of activity for an asset or liability have significantly decreased and when circumstances indicate that a transaction is not orderly. Also in April 2009, the FASB issued FSP 107-1 and APB 28-1, "Interim Disclosures about Fair Value of Financial Instruments", which requires entities to disclosure, among other things, the methods and significant assumptions used to estimate the fair value of financial instruments in both interim and annual financial statements. In April 2009, the FASB also issued FSB 115-2 and FSP 124-2, "Recognition and Presentation of Other-Than-Temporary Impairments", to amend the other-than-temporary impairment guidance for debt securities and the presentation and disclosure requirements of other-than-temporary impairments of debt and equity securities. These accounting changes are effective in the Company's third quarter. The Company does not currently expect these accounting changes will have a material impact on the consolidated financial statements. Results of Operations --------------------- Total revenues decreased 3% comparing the three month period ended March 31, 2009 to March 31, 2008. Total revenues decreased 16% comparing the first six month period in fiscal 2009 to fiscal 2008. Although eBay store revenues represent only about 5% of our total revenues generated for the quarter, they represent the largest decrease, 58% comparing the two quarter periods. Comparing the fiscal periods, the decrease was more pronounced. For the six month period ended March 31, 2009, eBay revenues amounted to 4% of total revenues compared to March 2008, when they were 15% of total revenues. Revenues generated from the Company's internet website increased 5% comparing the quarter periods and revenues decreased 5% comparing the six month periods. Although not particularly significant when compared to its effect on the businesses of other sellers of luxury and non-essential merchandise and many other types of enterprises, the international economic crisis is continuing to have a negative effect on our business. Included in revenues is the 80% of gross profit from the sales generated through the revenue-sharing arrangement the Company has with Mr. Axelrod, as explained earlier. For the three month periods ended March 31, 2009 and 2008, are fees of $5,997 and $628, respectively, associated with this arrangement. For the six month periods, the fees amounted to $11,850 for 2009 and $6,000 for 2008. Cost of documents sold decreased significantly during the current quarter period as a result of pricing increases. For the quarter period ended March 31, 2009, cost of documents sold amount to 5% of net revenues compared to 9% of net revenues for the quarter ended March 31, 2008. This brought the year-to-date comparisons more in line; for the six month period ended March 31, 2009, cost of documents sold amounted to 8% of net revenues compared to 9% of net revenues for 2008. Total operating expenses decreased 10% comparing the two quarter periods and the decrease was 8% comparing the six month periods. Decreases in selling, general and administrative expense were realized principally due to cost reductions in advertising, maintenance expenses, general insurances and salaries. Reductions in advertising resulted in a 9% decrease comparing the quarter periods and a 36% reduction comparing the six month periods. The Company's computer maintenance expenses were reduced by 6% comparing the quarters and 10% comparing the six month periods. General insurance costs decreased 17% comparing the quarters and 19% comparing the six month periods. Due to the termination of the Company's Vice President of Sales, salaries were decreased by 17% comparing quarter periods and 8% comparing the six month periods. Depreciation expenses decreased 5% comparing the quarters and 7% comparing the six month periods as a result of older equipment becoming fully depreciated. Included in selling, general and administrative expenses is 50% of the operating cost to maintain the headquarters building. This percentage is the ratio that the square footage occupied by the Company's headquarters operation bears to the total leasable space of the building. The remaining building operating expenses plus the rental income realized are included net in other income and expense. This amounted to $17,799 for the three month period ended March 31, 2009, as compared to $26,806 for three month period ended March 31, 2008. For the six month periods ended March 31, 2009 and 2008, these amount were $33,470 and $51,919, respectively. The decrease is the result of a decline in occupancy. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Not Applicable. Item 4. Controls and Procedures. Based on their evaluation, as of March 31, 2009, 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 March 31, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Part 2 - Other Information 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 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Gallery of History, Inc. _______________________________ (Registrant) Date May 15, 2009 /s/ Todd M. Axelrod _________________ _______________________________ Todd M. Axelrod President and Chairman of the Board (Principal Executive Officer) Date May 15, 2009 /s/ Rod Lynam _________________ _______________________________ Rod Lynam Treasurer and Director (Principal Financial and Accounting Officer)