_____________________________________________________________________________
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 June 30, 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 July 31, 2009 there were 6,425,984 shares of Common Stock outstanding.
Part 1 - FINANCIAL INFORMATION
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
____________________________________________________________________________
JUNE 30, SEPTEMBER 30,
2009 2008
(Unaudited)
--------- -----------
ASSETS
Cash $ 20,393 $ 9,576
Inventory of documents 6,354,006 6,382,828
Deferred tax assets 1,339,842 1,339,842
Property and equipment, net 949,369 990,610
Other assets 66,828 59,394
---------- ----------
TOTAL ASSETS $ 8,730,438 $ 8,782,250
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $ 32,046 $ 29,168
Advances and notes payable:
Majority stockholder 1,728,053 1,310,226
Other 1,037,346 1,123,236
Preferred stock dividend payable 301,983 249,760
Other liabilities 71,544 80,842
---------- ----------
Total liabilities 3,170,972 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 15,014,894 14,978,860
Deficit (6,835,133) (6,369,547)
Common stock in treasury,
5,509,324 shares, at cost (2,627,071) (2,627,071)
---------- ----------
Total stockholders' equity 5,559,466 5,989,018
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,730,438 $ 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 NINE MONTHS ENDED
JUNE 30, JUNE 30,
2009 2008 2009 2008
-------- -------- --------- ---------
REVENUES $ 79,697 $ 143,505 $ 309,960 $ 418,289
COST OF REVENUES 4,845 9,655 22,594 33,843
-------- -------- --------- ---------
GROSS PROFIT 74,852 133,850 287,366 384,446
-------- -------- --------- ---------
OPERATING EXPENSES:
Selling, general and
administrative 203,873 218,942 622,856 672,689
Depreciation 8,611 8,457 25,540 26,605
-------- -------- --------- ---------
TOTAL OPERATING EXPENSES 212,484 227,399 648,396 699,294
-------- -------- --------- ---------
OPERATING LOSS (137,632) (93,549) (361,030) (314,848)
-------- -------- --------- ---------
OTHER INCOME (EXPENSE)
Interest expense
Majority stockholder (11,927) (18,938) (33,181) (64,742)
Other (22,328) (23,459) (67,236) (70,094)
Rental income, net of
related expenses 14,568 19,658 48,037 71,576
Other -- -- 46 6,495
-------- -------- --------- ---------
TOTAL OTHER EXPENSE (19,687) (22,739) (52,334) (56,765)
-------- -------- --------- ---------
NET LOSS (157,319) (116,288) (413,364) (371,613)
Preferred stock dividend -- -- (52,222) (50,690)
-------- -------- --------- ---------
NET LOSS APPLICABLE TO
COMMON SHARES $(157,319) $(116,288) $ (465,586) $ (422,303)
======== ======== ========= =========
BASIC LOSS PER COMMON SHARE: $(.02) $(.02) $(.07) $(.07)
==== ==== ==== ====
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,425,984 5,793,017 6,425,984 5,681,458
========= ========= ========= =========
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,
2009 2008
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(413,364) $(371,613)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 45,627 40,199
Contributed services of majority stockholder 24,006 24,759
Stock-based compensation 12,028 27,064
Increase in operating (assets) liabilities:
Inventory of documents 28,822 33,217
Other assets (7,434) (8,736)
Accounts payable 2,878 (18,455)
Other liabilities (9,297) 10,453
-------- --------
Net cash used in operating activities (316,734) (263,112)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (4,386) (5,028)
Proceeds from sale of property and equipment -- 6,500
-------- --------
Net cash provided by (used in)
investing activities (4,386) 1,472
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings:
Majority stockholder 454,632 355,985
Other 288,000 171,000
Repayments of borrowings:
Majority stockholder (36,805) (18,459)
Other (373,890) (237,743)
-------- --------
Net cash provided by financing activities 331,937 270,783
-------- --------
NET INCREASE IN CASH 10,817 9,143
CASH, BEGINNING OF PERIOD 9,576 1,517
-------- --------
CASH, END OF PERIOD $ 20,393 $ 10,660
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during period for interest $ 99,660 $ 134,147
======== ========
Dividend accrued on preferred stock $ 52,222 $ 50,690
======== ========
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, 2009, and
for the three month and nine month periods ended June 30, 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. Events through
the date the financial statements were issued, August 14, 2009, were
evaluated by management to determine if adjustments to or disclosure in
these consolidated financial statements were necessary.
Economic Conditions and Related Risks and Uncertainty
- -----------------------------------------------------
The United States is experiencing a widespread recession
accompanied by, among other things, declining 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.
Fair Values of Financial Instruments
- ------------------------------------
The carrying amount of cash and accounts payable approximates
fair value because of the short maturity of those instruments. With
the exception of an 8.25% mortgage obligation of approximately
$1,000,000 that matures in 2012 and the Company's related party debt
discussed below (the fair value of which cannot be reliably estimated
due to its nature), the estimated fair value of the Company's debt
instruments approximated its book value, based on Level 2 inputs, as
defined in Statement of Financial Accounting Standards No. 157, Fair
Value Measurements, as amended, primarily discounted cash flow
valuations, because none of the Company's debt has quoted market
prices. Discount rates were estimated based on current rates offered
to the Company for debt having similar amounts and maturities. The
mortgage obligation is also carried at a Level 2 estimated fair value
based on comparable commercial real estate mortgage interest rates
currently prevalent in the local market.
Related Party Debt
- ------------------
Prior to fiscal 2008, 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 that were borrowed from Mr. Axelrod from time to time.
These loans carry an interest rate of 3% up to the end of this
quarter. Mr. Axelrod has lowered the interest rate to .7% as of July
1, 2009. The principal balance on these obligations totaled
$1,728,053 and $1,232,752 as of June 30, 2009 and 2008, respectively.
Interest expense on these related party borrowings was $11,927 and
$8,936 for the three months and $33,181 and $24,401 for the nine
months ended June 30, 2009 and 2008, respectively.
Revenue-sharing Arrangement
- ---------------------------
The Company's principal officer and majority stockholder, Mr.
Axelrod, has purchased certain documents from outside sources for his
own account with personal funds, although 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 June 30, 2009, 11 documents were sold for $13,281 and
the Company's revenue share was $9,867. Compared to the three month
period ended June 30, 2008, 18 documents were sold for $1,416 and the
Company's share was $1,095. For the nine month period ended June 30,
2009, 37 documents were sold for $28,991 and the Company's revenue
share was $21,717. This compares to 34 documents sold for $9,319
with the Company's share of $7,096 for the nine months ended June 30, 2008.
Stock-based compensation
- ------------------------
As an employment inducement, prior to fiscal 2008, 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
nine month periods ended June 30, 2009 and 2008, included $12,028 and
$27,064, of this share-based compensation expense, respectively.
Share-based compensation expense for the three-month periods ended
June 30, 2009 and 2008 was zero and $9,021, respectively. The
outstanding options were not given effect in a computation of diluted
results per share for the period, which is not presented, 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 for his part-time services as president and Chief
Executive Officer. Accordingly, the estimated value of such 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 or near-unique characteristics 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 Company continues to incur net cumulative negative cash flow
from operations primarily resulting from the net loss. Cash used
from investing activities were negligible; thus operating activities
were funded largely by increased borrowings from the Company's
principal officer/stockholder. The reduction in acquiring new
inventory documents was offset in an increase in prepaid expenses and
a reduction in accrued liabilities.
The Company had a bank line of credit in the amount of $100,000
through August 14, 2009. The Company's bank refused to renew this
line of credit without the personal guarantee from Mr. Axelrod. Mr.
Axelrod has elected not to give this guarantee and has loaned the
Company $30,000 to pay the outstanding amount in full as of July 30,
2009. In addition, Mr. Axelrod has agreed to lend the Company the
balance of the monies that were available under this line of credit.
The Company's term mortgage note was renewed in July 2007 and has a
principal balance of $1,030,095 as of June 30, 2009. The mortgage
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 carried an interest rate of 3% through June 30, 2009; Mr.
Axelrod lowered the rate to .7% effective July 1, 2009. The
principal balance on these obligations totaled $1,728,053 and
$1,232,752 as of June 30, 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%.
The foregoing notwithstanding, the United States is experiencing
a widespread recession accompanied by, among other things, declining
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.
Subject to the future effects of the economic uncertainties
discussed in the foregoing 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, 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.
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, despite current
economic conditions and uncertainties. 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 exceed 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 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 SFAS 160 will be technically effective for the Company's fiscal year
beginning October 1, 2009, it 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 for acquisitions
after 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. The effective date for SFAS 157 for us with respect to nonfinancial
assets and liabilities carried at fair value, will be fiscal year 2010, and
the interim periods within that fiscal year. However, the requirements of
SFAS 157 will not apply to our financial statements unless we elect to do so
which election has not been made and is presently not expected, or unless we
engage in transactions that will require the use of fair value accounting,
also not expected. Accordingly, there is no likely impact on our future
financial statements expected of SFAS 157 or any related subsequent standard.
Results of Operations
---------------------
Revenues decreased 44% comparing the three month periods and they
decreased 26% comparing the nine month periods ended June 30, 2009 to June 30,
2008. Revenues generated from the Company's web site decreased 44% comparing
the quarters and decreased 19% comparing the nine month periods. Revenues
generated through the Company's eBay site decreased 46% comparing the quarter
periods and down 69% comparing the year to date periods. An overall decrease
in discretionary spending and the general economic condition continues 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 June 30,
2009 and 2008, are fees of $9,867 and $1,095 respectively, associated with
this arrangement. For the nine month periods, the fees amounted to $21,717
for 2009 and $7,096 for 2008.
Cost of documents sold continues to decrease comparing the periods
generally due to pricing increases. For the quarterly period ended June 30,
2009, cost of documents sold was 6% of net revenues compared to 7% of net
revenues for the quarter ended June 30, 2008. For the nine month period ended
June 30, 2009, cost of documents sold amount to 7% of net revenues compared to
8% of net revenues for the previous year's nine month period.
Total operating expenses decreased 7% comparing both the three month
periods and the nine month periods ended June 30, 2009 to June 30, 2008. This
is the same results for selling, general and administrative expenses, 7%
decrease comparing the quarter and year-to-date periods. A large decrease
resulted in the reduction of salaries. Comparing the quarter periods, the
Company realized an 18% decrease in salaries and related taxes and benefits;
comparing the nine month periods, the Company realized an 11% decrease. The
Company's computer maintenance expenses decreased 13% comparing the quarter
periods and decreased 11% comparing the nine month periods.
Included in selling, general and administrative expenses is 50% of the
operating cost to maintain our 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 remainder of our
building operating expenses are netted against rental income realized and
included in other income and expense. This net rental income amounted to
$14,568 for the three month period ended June 30, 2009, as compared to $19,657
for three month period ended June 30, 2008. For the nine month periods ended
June 30, 2009 and 2008, these amount were $48,038 and $71,576, respectively.
The decreases are the result of a decline in occupancy resulting from economic
conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
------------------------
Based on their evaluation, as of June 30, 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 June 30, 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 August 14, 2009 /s/ Todd M. Axelrod
_________________ _______________________________
Todd M. Axelrod
President and
Chairman of the Board
(Principal Executive Officer)
Date August 14, 2009 /s/ Rod Lynam
_________________ _______________________________
Rod Lynam
Treasurer and Director
(Principal Financial and Accounting Officer)