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, 2008
-------------
[ ] 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 6,425,984 shares of Common Stock, par value $.0005
outstanding as of August 1, 2008.
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,
2008 2007
(Unaudited)
--------- -----------
ASSETS
Cash $ 10,660 $ 1,517
Inventory of documents 6,390,614 6,423,831
Deferred tax assets 1,339,842 1,339,842
Property and equipment, net 1,005,784 1,047,455
Other assets 70,130 61,394
---------- -----------
TOTAL ASSETS $ 8,817,030 $ 8,874,039
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $ 20,884 $ 39,339
Notes payable:
Majority stockholder 1,232,752 1,895,226
Other 1,102,038 1,168,781
Preferred stock dividend payable,
majority stockholder 198,310 147,620
Other liabilities 89,827 79,374
---------- -----------
TOTAL LIABILITIES 2,643,811 3,330,340
---------- -----------
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,
$3,430,032, including cumulative unpaid
dividends in arrears of $198,310
and $97,679) 808 808
Additional paid-in capital 14,961,585 14,291,362
Deficit (6,168,071) (5,745,768)
Common stock in treasury,
5,509,324 and 6,309,324 shares, at cost (2,627,071) (3,008,671)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 6,173,219 5,543,699
---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,817,030 $ 8,874,039
========== ==========
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,
2008 2007 2008 2007
-------- -------- --------- ---------
REVENUES $ 143,505 $ 105,686 $ 418,289 $ 520,945
COST OF REVENUES 9,655 6,695 33,843 43,068
-------- -------- --------- ---------
GROSS PROFIT 133,850 98,991 384,446 477,877
-------- -------- --------- ---------
OPERATING EXPENSES:
Selling, general and
administrative 218,942 193,289 672,689 588,705
Depreciation 8,457 10,033 26,605 30,156
-------- -------- --------- ---------
TOTAL OPERATING EXPENSES 227,399 203,322 699,294 618,861
-------- -------- --------- ---------
OPERATING LOSS (93,549) (104,331) (314,848) (140,984)
-------- -------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense
Majority stockholder (18,938) (20,813) (64,742) (60,177)
Other (23,459) (26,642) (70,094) (80,455)
Rental income, net of
related expenses 19,658 34,316 71,576 81,926
Other -- -- 6,495 19
-------- -------- --------- ---------
TOTAL OTHER EXPENSE (22,739) (13,139) (56,765) (58,687)
-------- -------- --------- ---------
NET LOSS (116,288) (117,470) (371,613) (199,671)
Preferred stock dividend -- -- (50,690) (49,203)
-------- -------- --------- ---------
NET LOSS APPLICABLE TO
COMMON SHARES $(116,288) $(117,470) $ (422,303) $ (248,874)
======== ======== ========= =========
BASIC LOSS PER SHARE: $(.02) $(.02) $(.07) $(.04)
==== ==== ==== ====
WEIGHTED AVERAGE SHARES
OUTSTANDING 5,793,017 5,625,984 5,681,458 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,
2008 2007
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(371,613) $(199,671)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 40,199 50,761
Contributed services of majority shareholder 24,759 24,759
Stock-based compensation 27,064 6,014
Increase in operating (assets) liabilities:
Inventory of documents 33,217 60,423
Other assets (8,736) (13,520)
Accounts payable (18,455) (57,473)
Other liabilities 10,453 (16,692)
-------- --------
Net cash used in operating activities (263,112) (145,399)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (5,028) (12,108)
Proceeds from sale of property and equipment 6,500 --
-------- --------
Net cash provided by (used in) investing
activities 1,472 (12,108)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings:
Majority stockholder 355,985 222,869
Other 171,000 214,000
Repayments of borrowings:
Majority stockholder (18,459) (19,032)
Other (237,743) (261,050)
-------- --------
Net cash provided by financing activities 270,783 156,787
-------- --------
NET INCREASE (DECREASE) IN CASH 9,143 (720)
CASH, BEGINNING OF PERIOD 1,517 1,738
-------- --------
CASH, END OF PERIOD $ 10,660 $ 1,018
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Dividend accrued on preferred stock $ 50,690 $ 49,203
Majority stockholder debt converted to stock $1,000,000
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, 2008, and
for the three month periods ended June 30, 2008 and 2007, 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 2007 Annual Report on Form 10-KSB, from which the
September 30, 2007, balance sheet information is derived.
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, 2009, with monthly interest
payable at 6%. Interest expense on the related party advance was
$10,002 and $15,333 for the three months ended June 30, 2008 and
2007, respectively. Interest expense on this loan was $40,341 and
$45,500 for the nine months ended June 30, 2008 and 2007,
respectively. On June 11, 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 $1,232,752 and $786,393 as of June 30, 2008
and 2007, respectively. Interest expense on these related party
borrowings was $8,936 and $5,480 for the three months and $24,401 and
$14,677 for the nine months ended June 30, 2008 and 2007,
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
shareholder, Mr. Todd Axelrod, has 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 three and nine
month periods ended June 30, 2008, 18 and 34 documents were sold for
$1,416 and $9,319, and the Company's revenue share was $1,095 and
$7,096, respectively. During the three and nine month periods ended
June 30, 2007, 9 and 26 documents were sold for $33,898 and $106,131
and the Company's revenue share was $22,832 and $73,512,
respectively.
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. The financial
statement for the three and nine month periods ended June 30, 2008
include share-based compensation expense of approximately $9,000 and
$18,000 associated with these options. 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 shareholder does not
receive a salary. Accordingly, the estimated value of his part-time
services (at a rate of approximately $30,000 per year) is recorded 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 opening deficit.
Part 1 - Item 2 Financial Information
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
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 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
-------------------------------
The net cash flow deficiency from operating activities continues
to be a problem for the Company mainly because of the net losses
incurred. The reduction in acquiring new inventory has offset the
deficiency somewhat. The cash deficiency from operating activities
was mainly funded from increased borrowings from the Company's
principal officer/stockholder, while we continue to decrease
borrowing from outside sources.
The Company has a bank line of credit in the amount of $100,000
through August 2008, which the Company anticipates to renew for
another year, of which no assurance can be given. 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 June 30,
2008, there was $55,000 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, Todd Axelrod, 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 $1,232,752
and $786,393 as of June 30, 2008 and 2007, respectively. The
borrowed 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 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, 2008 and 2007, including accrued
dividends, a total of 1,715,016 and 1,664,700 shares of common stock
were issuable upon conversion of the preferred stock.
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%.
The Company 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, 2009.
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 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 $6.4 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 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 opening 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. We
have not yet evaluated SFAS 141R for the impact, if any, that SFAS
141R 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 was
scheduled to become effective for us for fiscal year 2009, and
interim periods within those fiscal years; however, the effective
date for SFAS 157 was delayed one year with respect to nonfinancial
assets and liabilities carried at fair value, if any, to the extent
not already adopted, which we have not. We are not currently
carrying any 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 is presently
not expected. Accordingly, there is no likely impact on our future
financial statements expected of either of these two standards.
Results of Operations
---------------------
Revenues increased 36% comparing the quarter period ended June
30, 2008 to the quarter period ended June 30, 2007. However,
revenues are still down 20% comparing the year-to-date periods ended
June 30, 2008 to June 30, 2007. Revenues generated from the
Company's internet website increased 61% comparing the quarter
periods and are down 15% comparing the nine month periods. Revenues
generated from our eBay site improved by 83% comparing the year over
year quarter periods and decreased 15% comparing the nine month
periods. The increases in the current quarter period can be
attributed to the discounting policy in effect. The overall decrease
in revenues in the year to date amounts would be largely due to the
general decrease in discretionary spending and to the economic
slowdown.
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 June 30, 2008 and 2007, are fees of $1,095 and $22,832,
respectively, associated with this arrangement. For the nine month
period, the fees were $7,096 for 2008 and $73,512 for 2007. The
increase in the fees for fiscal 2007 included a large sale in the
first and third quarters.
Cost of documents sold increased slightly comparing the quarter
periods to 6.7% of net revenues for the quarter ended June 30, 2008
from 6.3% of net revenues for the quarter ended June 30, 2007. Cost
of documents sold decreased slightly comparing the nine month periods
from 8% of net revenues for year to date 2008 from 8.3% of net
revenues for 2007.
Total operating expenses continue to increase mainly from the
additional salary expenses realized over the prior period. Operating
expenses increased 12% for the three month period ended June 30, 2008
compared to the previous year period and they increased 13% comparing
the nine month periods. Because of additional salaries realized in
the current period, the expense increased 48% comparing the nine
month period ended June 2008 compared to June 2007. In addition to
the salary, the Company had granted 50,000 options to purchase the
Company's common stock as an employment inducement on April 16, 2007.
The current fiscal year's salary expense included approximately
$27,000 associated with these options. The Company also realized a
legal fee settlement in the previous fiscal year that resulted in a
decrease of approximately $49,000 in the previous year's professional
fees.
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
($71,576 for the nine month period ended June 30, 2008, as compared
to $81,926 for nine month period ended June 30, 2007).
Item 3. Controls and Procedures.
-----------------------
Based on their evaluation, as of June 30, 2008, 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, 2008, that have materially
affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Part 2 - Other Information
Item 1-5, None.
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 14, 2008 /s/ Todd M. Axelrod
_________________ _______________________________
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
Date August 14, 2008 /s/ Rod Lynam
_________________ _______________________________
Rod Lynam
Treasurer and Director
(Principal Financial and Accounting Officer)