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entities which may have greater resources than the Company; the Company's ability to market and sell its inventory of historical documents; the Company's ability to correctly value its inventory of documents; and other factors included in the Company's filings with the Securities and Exchange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.