SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-13757
GALLERY OF HISTORY, INC.
(Name of Small Business Issuer 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)
Issuer's telephone number (including area code): (702) 364-1000
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
Check whether the issuer (1) filed all reports 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 required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
X Yes No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for the most recent fiscal year: $2,233,194.
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant (1,581,337 shares) as of December 1, 1995
was approximately $4,941,678 based upon the average bid and asked prices of
such stock. On such date, the average of the closing bid and asked prices
of the Common Stock was $3.125.
The Registrant had 5,917,654 shares of Common Stock outstanding as of
December 1, 1995.
Documents Incorporated by Reference: None
<PAGE>
PART I
Item 1. Description of Business
-----------------------
(a) Business Development
--------------------
The Gallery of History, Inc. (hereinafter the "Registrant" or the
"Company") was incorporated in the State of Nevada on November 10, 1981.
The Company is engaged in the business of marketing historical documents
such as letters, documents and signatures of presidents and other governmental
and political figures, significant physicians, inventors, Nobel Prize winners,
explorers, aviators, scientists, entertainers, authors, artists, musicians,
composers, clergymen, judges, lawyers, military figures, and well-known
persons in sports, among others. Most of the documents were written or
executed by deceased persons, but a significant number were written or
executed by living persons, particularly in the entertainment, sports and
political areas. The Company's inventory of documents currently consists of
approximately 152,300 different documents. Retail sales of documents are
made from three galleries at the following locations: The Fashion Show Mall,
in Las Vegas, Nevada since February 1982; The Dallas Galleria, in Dallas,
Texas since December 1983 (which the Company intends to close by December 31,
1995 when its lease expires); and Georgetown Park in Washington, D.C. since
October 1989. Documents are also sold through auctions and its headquarters
location to other dealers and collectors.
The galleries are located in upscale malls, containing some of the most
prestigious stores in the United States. The Company's gallery marketing
efforts principally target individuals who have appreciated or collected
antiques, paintings, lithographs, and other works of art or other
collectibles, but not necessarily historical documents, and who may lack
awareness of the availability of historical documents for purchase.
The documents offered for sale by the Company through its retail
operations are selected from its inventory and are attractively framed,
sometimes together with memorabilia related to the documents, or with current
literature related to the signatory. All of the documents are preserved by
utilizing museum quality encapsulation materials, mattings and protective
coverings that are characteristically acid-free, and by other steps taken to
ensure the longevity of the documents. Once prepared, the documents are hung
in a softly lighted gallery setting. By the decor of its galleries, the
Company endeavors to convey to its clientele a wholesome and dignified
gallery environment conducive to the proper exhibition, display, and sale of
rare historical documents.
The Company sells in its galleries a book entitled The Handbook of
"Historical Documents-A Guide to Owning History" authored by Todd M. Axelrod.
Inventory of Documents Owned
- ----------------------------
The Company purchases documents principally at auctions and from private
collectors, dealers in historical documents, estates and various individuals
who are not collectors but are in possession of documents. These avenues of
supply are likely to continue to be the Company's main sources of inventory.
The inventory of documents now owned by the Company is comprised of
approximately 152,300 items. The Company's inventory consists of documents
written or signed approximately as follows: 28% by sports figures, 23% by
prominent entertainers, 10% by prominent figures in aviation, medicine,
business, science, exploration, or Nobel Prize winners, 10% by military
figures, 8% by presidents and other significant American political figures,
6% by authors and other literary figures, 6% by musicians, 7% by religious,
legal, foreign political and miscellaneous personalities and the remaining 2%
by artists.
In order to catalogue its diverse inventory, the Company has an IBM AS/400
Model E45 computer system. Only a small segment of the Company's inventory
is physically located in each of its sales facilities at any time. The
computer system allows the Company's sales staff to identify inventory held
in the Company's central repository and in other galleries, obtain brief
descriptions of documents and even obtain copies to exhibit to customers.
This enables the Company's staff to offer its broad inventory to customers
who express interest in documents of personalities which the Company owns but
may not be present in any given gallery at the time of sale. The Company is
currently working on a personal computer client server system to replace
the AS/400. The Company anticipates to convert to the new system in its
second fiscal quarter 1996 with the same or greater functionality and cost
savings.
1
<PAGE>
Clientele
- ---------
The Company has two primary marketing strategies. The Company positions
its galleries in upscale retail environments which attract persons who have
not necessarily had an awareness of the existence of historical documents
available for private sale. The Company's staff is generally required to
educate its potential customers, who may be initially dubious of the
authenticity of documents owned and offered for sale by the Company. When
the Company has satisfied the prospective customer regarding authenticity,
interest in purchasing historically significant signatures, letters and
documents can be fostered. In addition, originating from its Corporate
Headquarters, the Company is developing business targeted to wholesale
customers, upscale seasoned collectors as well as the regular retail trade
through direct sales to these individuals and/or auctions. Also the Company
is developing a catalog operation to attract wholesale as well as retail
customers.
The retail prices of documents offered by the Company, including framing,
range from $199 to $1,250,000. For the year ended September 30, 1995, the
Company sold 1,566 documents with an average single document sales price of
approximately $1,408. During the fiscal year, the Company has also sold 631
copies of Mr. Axelrod's book for approximately $50 per copy. During the
fiscal year ended September 30, 1995, the Company generated sales of $256,600,
which were attributable to customers whose purchases accounted for at least
10% of total document sales. There was no individual customer whose purchases
totaled over 10% of sales for the year ended September 30, 1994. None of
these major customers have any direct relationship with the Company. These
major customers will not necessarily become repeat customers nor purchase
expensive or large quantities of documents in the future. Accordingly, the
size of particular sales in any year, is not indicative of the potential size
of comparable sales in the future.
Certificates of Authenticity
- ----------------------------
Documents purchased by the Company frequently are acquired by the Company
with guarantees from the sellers. Whether or not the Company receives such a
guarantee, it purchases documents subject to its own verification of
authenticity. To ascertain authenticity, the Company may utilize information
provided by the seller as to the transfer of ownership of documents; it may
subject the documents to its own expert examination; it may employ outside
experts available to it to examine the documents; or it may use other means.
The Company issues ten-year Certificates of Authenticity to its customers,
which obligate the Company to refund to the customer the purchase price paid
if any document sold lacks authenticity. Should the Company's determination
of authenticity of documents be erroneous, it would be likely to suffer a loss
as a consequence thereof unless redress by the Company against the seller of
the documents could be obtained. The Company does not carry any insurance and
is currently not aware of any entity which would offer or underwrite such
insurance at commercially reasonable rates to protect it against a loss
arising from either the purchase of documents lacking authenticity or claims
by customers for recovery against the Certificates of Authenticity it issues.
Claims made against the Company pursuant to its Certificates of Authenticity
since the inception of the Company in 1981 are as follows: one claim of
$18,000 in fiscal 1987; one claim of $60,000 in fiscal 1992; and three claims
totaling $20,015 in fiscal 1993. Accordingly, the Company has not established
a reserve against the risk of forgery or against any exposure under the
Certificates of Authenticity.
In-House Framing Operation
- --------------------------
The Company operates an in-house framing department in its Las Vegas
headquarters. The department performs all framing and related functions for
its retail locations. The framing department gives the Company the ability to
frame documents, customize matting and engrave biographical and historical
information on metal plates relevant to the specific document, all of which
are included in the framed presentation of its documents.
The manner in which the Company frames documents and prepares them for
sale in its galleries is believed to be an important element in persuading
clientele of the desirability of documents as collectibles, and their
comparability to a work of art that can be displayed in homes and offices.
The Company anticipates that its framing department will be able to fulfill
the framing needs of its existing retail galleries and that it can be readily
2
<PAGE>
expanded within the headquarters building to satisfy any additional demand
created by increased sales or additional locations established by the Company
within the foreseeable future.
Competition
- -----------
The Company does not regard the business of marketing historical documents
as a definable industry. There are a great number of dealers of historical
documents, of which many are only part-time operators, many are located in
homes without any established commercial location and many are located in
commercial office buildings or have retail space in metropolitan areas. The
Company competes primarily with art galleries, antique stores and sellers of
other collectible items, as well as dealers in historical documents. In
addition, certain department stores and other retail outlets offer framed
documents, usually as part of an overall effort to market antiques and other
specialty items. Furthermore, there has been an increase in the number of
organizations which are engaged in the sale through retail galleries of framed
historical documents which appear in a format similar to the format initiated
by the Company. Although there are similarities in format, the Company is
unaware of any competitor that offers historical documents with the same level
of quality and diversification of subject matter as the Company.
When acquiring documents, the Company competes with persons who acquire
documents for resale, as well as private collectors. The principal sources
for documents are auctions held in the United States and abroad, private
collectors, dealers in historical documents, estate sales, and the recipients
of documents and/or their families.
In the event prices for historical documents increase materially, the
Company's ability to acquire documents, and, in turn, its ability to market
such newly acquired documents to the general public, may be adversely affected.
Thus, although the retail value of the Company's existing inventory might be
favorably affected by increasing prices, passing along such increases to
customers could have an inhibiting effect on the Company's overall business.
There is no assurance that the Company will be able to continue to realize
significant profits for its merchandise. Moreover, existing dealers may choose
to compete with the Company in the same manner or in a more favorable format
than that of the Company.
Seasonal Business
- -----------------
The nature of the business in which the Company engages is not seasonal.
However, the Company has experienced in the past a surge in November and
December sales relating to the traditional holiday shopping season.
Employees
- ---------
As of December 1, 1995, the Company had twelve full-time and two part-time
employees, in addition to its five executive officers. Two are employed as
curators, five as salespersons, five as archivists, one as a receptionist and
one as a framer. The title "curator" is a term used by the Company to describe
the managers of its galleries.
Item 2. Properties
----------
The Company owns a building located at 3601 West Sahara Avenue, Las Vegas,
Nevada where its executive offices and framing operations are located. The
outstanding mortgage on the building in the amount of $1,918,216 bears
interest of 9% with a 59 month amortization of principal with the unpaid
balance due July 1998 (see note 5 of the financial statements). The building
contains approximately 33,187 square feet of space of which the Company
currently occupies 15,580 square feet and leases or is offering to lease the
remaining space to others. As of December 1, 1995, 16,665 square feet of space
was being leased to nine tenants for an aggregate monthly rental of $21,544
under leases expiring at varying times from March 1996 through June 2011.
The Company believes that its headquarters' building is adequate for its
purposes for the foreseeable future and that the building is adequately
covered by insurance.
3
<PAGE>
The following table sets forth information regarding the Company's
galleries:
<TABLE>
<CAPTION>
Date Approx.Square Lease
Location Opened Footage Expiration Date
<S> <C> <C> <C>
The Fashion Show Mall, 2/18/82 960 sq.ft. 2/28/97
Las Vegas, Nevada
The Dallas Galleria (1) 12/10/83 1,529 sq.ft. 12/31/95
Dallas, Texas
Georgetown Park 10/ 1/89 739 sq.ft. 9/30/99
Washington, D.C.
</TABLE>
(1) The Company does not intend to renew this lease.
The Company owns an IBM AS/400 Model E45 and several micro-computers
which it uses to catalog and develop cost and other statistical information
relating to the Company's inventory, develop framing and graphic presentations,
and handle the Company's internal accounting functions. The Company also owns
leasehold improvements, fixtures and furniture in its galleries.
Item 3. Legal Proceedings
-----------------
The Company is not a party to any material litigation and none is known
to be contemplated against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On July 14, 1995, the Company held its annual meeting of shareholders for
the following purposes: (1) to elect seven Directors to serve until the next
annual meeting of shareholders; and (2) to approve the appointment of Arthur
Andersen LLP, as the Company's independent auditors for the fiscal year ending
September 30, 1996.
At the Meeting the following Directors were elected by a vote of 5,818,452 for
and 1,201 withholding authority: Todd Axelrod, John Petersen (retired November
1995), Rod Lynam, Marc DuCharme, Stan Johnson, Garrett Williams and Pamela
Axelrod. Voting for the appointment of Arthur Andersen LLP as the Company's
independent auditors, 5,818,451 shares were voted in favor and 1 vote against.
PART II
-------
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
--------------------------------------------------------------------
(a) The Company's Common Stock, par value $.001, is quoted on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ") Small-Cap Market under the symbol HIST. The following table sets
forth the high and low bid quotations for the Company's Common Stock for the
periods indicated as reported on NASDAQ. The quotations set forth below
represent prices between dealers and do not include retail markups, markdowns
or commissions, nor do they represent actual transactions.
<TABLE>
<CAPTION>
High Low
Bid Bid
<S> <C> <C>
Fiscal 1994
October 1, 1993 - December 31, 1993 4-1/4 4-1/8
January 1, 1994 - March 31, 1994 4-1/8 4-1/8
April 1, 1994 - June 30, 1994 4-3/4 4
July 1, 1994 - September 30, 1994 4-1/4 4
Fiscal 1995
October 1, 1994 - December 31, 1994 4 3-1/2
January 1, 1995 - March 31, 1993 3-1/4 3
April 1, 1995 - June 30, 1995 3-1/8 3-1/8
July 1, 1995 - September 30, 1995 3-1/8 3
</TABLE>
4
<PAGE>
(b) As of December 1, 1995 there were approximately 155 holders of
record of the Company's Common Stock before calculating individual participants
in security position listings pursuant to Rule 17Ad-8 under the Securities
Exchange Act of 1934. The Company's transfer agent reported 298 beneficial
owners of the Company's common stock.
(c) Since its inception in November 1981, the Company has not paid any
cash dividends to the holders of its Common Stock. The Company presently
intends to retain any earnings for its business.
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company has in the past acquired documents in excess of current needs
to accommodate future growth and appreciation. Because of this, the Company
believes it is not practicable to determine what portion of the documents
owned will be sold within the next operating cycle. Therefore, the Company
presents in its financial statements an unclassified balance sheet.
Accordingly, the traditional measures of liquidity in terms of changes in
working capital are not applicable. Short-term liabilities (including the
current portion of long-term debt) exceeded the aggregate of cash and prepaid
expenses (approximately $230,000 at September 30, 1995) by approximately
$500,000. This compares to approximately $630,000 of short-term liabilities
in excess of cash and prepaid expenses as of September 30, 1994.
The Company has historically used cash generated from bank and mortgage
loan financing and public and private issuances of Common Stock to augment cash
generated from operations to fund outlays for documents, to purchase property
and equipment and to provide additional cash required for the Company's
operations. The Company has a bank line of credit in the amount of $100,000
through July 1996. Loans under the line are secured by the Company's inventory
of documents owned and bear interest at the prime rate plus 1.5%. The Company
cannot predict the extent to which similar sources will be available to fund
future document purchases. Accordingly, there is no assurance that the
Company's historical means of fulfilling its cash needs, or that other means,
will be available in the foreseeable future. To the extent necessary to
maintain adequate levels of working capital the Company has curtailed document
purchases as well as reduced its cost of operations as a result of gallery
closures and a reduction of personal.
The Company intends to close its Dallas, Texas gallery at the end of
December 1995, when its current lease expires. Management believes a
renegotiated lease with potentially greater costs would not be justified based
on the trend of the gallery over the past three to five years. Therefore, the
Company has decided not to renew the lease.
The Company's plan of operation is to shift more away from the gallery
generated sales approach. With its large document inventory, the Company
becomes attractive to wholesale customers and to upscale seasoned collectors
which business the Company will conduct from its headquarters location. The
Company has consigned documents for sale through auctions. In addition, the
Company is continuing to develop a catalog operation to attract the wholesale
as well as retail customers which will also be operated from the headquarters
location.
The Company believes that, by appropriately managing the timing and
amount of additional document acquisitions, reducing its overhead as a result
of closing its unprofitable galleries and generating new revenues from its
headquarters operations, the Company's current cash requirements and working
capital requirements will be satisfied for the near term by revenue generated
from operations and amounts available under existing lines of credit.
At September 30, 1995, the Company's cash provided from operating
activities amounted to $626,812 as compared to a deficit of $200,492 in the
preceding fiscal year. Primarily, this was due to a $325,820 reduction in
documents owned resulting from the Company's curtailment of purchases and a
$110,655 increase in customer deposits received as a result of an advance
on an auction (of which approximately $110,000 is currently refundable,
however, this balance will be applied to future auctions). The cash generated
from operations was primarily used to reduce the Company's notes payable;
paying off its bank line of credit and reducing other outstanding notes by
$425,728.
5
<PAGE>
Perpetual inventory records kept by the Company contain inventory
descriptions and the purchase costs of such inventory. Although each inventory
item is unique, the majority of the Company's inventory consists of major
similar categories of documents. With respect to the similar categories of
documents, current retail sales information provides the Company with ratios
of its sales to cost of sales; the Company uses such information to assist it
in substantiating that its inventory value does not exceed market value. The
records for inventory categories are also periodically reviewed by management
to determine if there has been any known auction or interdealer sales of
similar documents at reduced prices and to determine if a reduction in the
inventory carrying value is needed. As of September 30, 1995, 57% of the value
of the Company's inventory, as carried on its balance sheet, was attributable
to approximately 98% of the Company's documents held in inventory which have a
recorded cost of less than $500 per document. The remaining 2% (or 43% of the
Company's inventory value) had a recorded cost of greater than $500 per
individual item. These higher priced documents are individually reviewed by
management for a potential decline in their auction or interdealer market
value of such documents below their recorded costs. Management performs this
review by monitoring current auctions and wholesale catalog pricing and then
comparing such pricing with similar documents in its inventory. The Company's
review of its inventory of documents has not shown any significant decline in
market value below cost on an individual level or by major category. Retail
sales by the Company have, to date, been in excess of carrying costs of the
documents sold. No independent expert has been employed to evaluate the
Company's inventory.
During the past two fiscal years, the Company has not experienced any
adverse impact arising from inflation. However, in the event prices for
historical documents increase materially, the Company's ability to acquire
documents, and, in turn, its ability to market such newly acquired documents
to the general public, may be adversely affected. Thus, although the retail
value of the Company's existing inventory might be favorably affected by
increasing prices, passing along such increases to customers could have an
inhibiting effect on the Company's overall business.
The Company anticipates no material commitments for capital expenditures
at the present time as the Company is not currently contemplating additional
gallery expansion. Management is not aware of any trend in the Company's
capital resources which may have an impact on its income, revenue or income
from continuing operations.
Results of Operations
- ---------------------
Fiscal 1995 Compared to Fiscal 1994
- -----------------------------------
Document sales increased 28% comparing fiscal 1995 to 1994. Sales made
through the Company's headquarters operation increased 78% from $477,742 in
fiscal 1994 to $849,574 in fiscal 1995. Approximately 48% of this increase is
attributed to revenues generated through auctions, an alternative method to
generate revenues the Company elected to begin in fiscal 1995. Sales to
wholesale and/or major customers (i.e., individual customers whose purchases
account for 10% or more of total document sales) amounted to approximately 12%
of fiscal 1995 sales. There were no auction or major customer revenues
generated in fiscal 1994. In addition, the Las Vegas gallery's sales increased
60% from $428,262 in fiscal 1994 to $684,263 in fiscal 1995, which resulted
from improved management and the completion of an entire renovation of the
Fashion Show Mall that greatly curtailed traffic in 1994.
Cost of sales increased to 25% of net sales for fiscal 1995 from 22% of
net sales for 1994. This increase is due to sales at wholesale pricing
realized in the auction sales during the current fiscal year. In addition,
the gallery locations' cost of goods sold increased on an average of 3% of net
sales resulting from a discount policy initiated in the current fiscal year.
The resulting gross profit decreased to 75% of net sales for fiscal 1995 as
compared to a gross profit of 78% of net sales for fiscal 1994.
Operating expenses decreased 14% to 76% of net sales for fiscal 1995 as
compared to 113% of net sales for fiscal 1994. Approximately 40% of this
decrease was attributed to the closure of two galleries in fiscal 1994.
Selling, general and administrative expense decreased 10% to 65% of net sales
for fiscal 1995 from 93% of net sales for fiscal 1994. Approximately 55% of
this decrease was attributed to the closure of the two galleries in fiscal
1994. Salaries and related employee benefits decreased 9% in fiscal 1995 as
compared to fiscal 1994 resulting from gallery closures and a reduction in
6
<PAGE>
personnel at the headquarters operation. Insurance cost decreased 24%
comparing the two years, largely due to reduced premium charges covering the
document inventory. Rent expenses decreased 13% and telephone and utility
expenses decreased 12% comparing fiscal 1995 to fiscal 1994 due to gallery
closures. A reduction in travel expenses resulted in a decrease of 33%.
Expenses attributed to the headquarters building operation, part of which are
allocated to selling, general and administrative expenses, decreased 15%
comparing the two fiscal years primarily due to a change in janitorial
services. Depreciation expense decreased 30% to 8% of net sales for fiscal
1995 from 15% of net sales for fiscal 1994. Gallery closures accounted for 21%
of this decrease and the remaining decrease can be attributed to equipment
having been sold in previous periods. Advertising expenses increased
approximately 119% comparing the two fiscal years due to promotional campaigns
the Company employed during November and December 1994 and again in May and
June 1995. Repair expenses decreased 10% comparing the two fiscal years which
was directly related to the gallery closures.
Interest expense amounted to 11% of net sales for fiscal 1995 as compared
to 15% of net sales for fiscal 1994. The decrease in interest expense can be
attributed to the lower average outstanding loan balances in the current year.
Included in selling, general and administrative expenses is 50% of the
operating cost to maintain the headquarters building. This percentage is the
approximate square footage occupied by the Company's headquarters operation to
the total leasable space of the building. The remaining building operating
expenses plus the rental revenues realized are offset and included in other
income and expense. This amounted to approximately $160,000 operating profit
for fiscal 1995 as compared to approximately $100,000 operating profit for
fiscal 1994. The increase is due to an increase in the square footage leased,
increased rents and a reduction in operating expenses.
Item 7. Financial Statements.
--------------------
TABLE OF CONTENTS
Independent Auditors' Report . . . . . . . . . . . 8
Consolidated Balance Sheets - September 30,
1995 and 1994 . . . . . . . . . . . . . . . . 9
Consolidated Statements of Operations for the
Years ended September 30, 1995 and 1994. . . 10
Consolidated Statements of Changes in Stock-
holders' Equity for the Years Ended
September 30, 1995 and 1994 . . . . . . . . . 11
Consolidated Statements of Cash Flows for the
Years ended September 30, 1995 and 1994 . . . 12
Notes to Consolidated Financial Statements . . . . 13
7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Gallery of History, Inc.:
We have audited the accompanying consolidated balance sheets of
Gallery of History, Inc. (a Nevada Corporation) and subsidiaries
as of September 30, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity and
cash flows for each of the two years in the period ended
September 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Gallery of History, Inc. and subsidiaries as of September 30,
1995 and 1994, and the results of their operations and their cash
flows for each of the two years in the period ended September 30,
1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 of the notes to consolidated financial
statements, as required by generally accepted accounting
principles, the Company changed its method of accounting for
income taxes in fiscal year 1994.
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
November 7, 1995
8
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1995 AND 1994
________________________________________________________________
<CAPTION>
Notes 1995 1994
----- ---------- -----------
<S> <C> <C> <C>
ASSETS
Cash $ 171,295 $ 33,961
Prepaid expenses 57,843 66,312
Documents owned 1,5 9,123,220 9,449,788
Land and building-net 1,2,5,8 1,530,278 1,576,264
Property and equipment-net 1,2,5 204,033 386,288
Other assets 3 460,359 511,349
---------- ----------
TOTAL ASSETS $11,547,028 $12,023,962
========== ==========
LIABILITIES
Accounts payable $ 60,950 $ 93,190
Bank line of credit 5 -- 60,000
Notes payable 5 321,553 518,531
Indebtedness to related parties 4,5 105,929 314,453
Mortgage notes payable 5 1,918,216 1,957,940
Deposits 266,828 156,173
Accrued and other liabilities 129,129 156,962
---------- ----------
TOTAL LIABILITIES $ 2,802,605 $ 3,257,249
---------- ----------
COMMITMENTS AND CONTINGENCIES 8
STOCKHOLDERS' EQUITY
Common stock: $.001 par value;
authorized, 10,000,000 shares;
issued and outstanding,
5,917,654 and 5,910,154 shares 6 $ 5,918 $ 5,910
Additional paid-in-capital 9,392,363 9,373,621
Retained earnings (deficit) (653,858) (612,818)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY $ 8,744,423 $ 8,766,713
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,547,028 $12,023,962
========== ==========
</TABLE>
See the accompanying notes to consolidated financial statements.
________________________________________________________________
9
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
SEPTEMBER 30, 1995 AND 1994
________________________________________________________________
<CAPTION>
Notes 1995 1994
----- --------- ---------
<S> <C> <C> <C>
REVENUES 1 $2,233,194 $1,749,742
COST OF REVENUES 557,332 386,151
--------- ---------
GROSS PROFIT 1,675,862 1,363,591
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative 1,454,028 1,621,755
Depreciation 1,2 185,168 264,738
Advertising 20,269 9,269
Maintenance and repairs 1 33,933 37,580
Loss on gallery closures -- 42,056
--------- ---------
TOTAL OPERATING EXPENSES 1,693,398 1,975,398
--------- ---------
OPERATING LOSS (17,536) (611,807)
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (254,466) (262,894)
Other, net 8 161,394 111,797
--------- ---------
TOTAL OTHER INCOME (EXPENSE) (93,072) (151,097)
--------- ---------
LOSS BEFORE INCOME TAXES AND CUMMLATIVE
EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (110,608) (762,904)
BENEFIT FOR INCOME TAX 1,7 (69,568) (116,774)
--------- ---------
LOSS BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE (41,040) (646,130)
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE 1,7 -- 90,992
--------- ---------
NET LOSS $ (41,040) $ (737,122)
========= =========
LOSS PER SHARE: 9
Loss before cumulative effect of a
change accounting principle $(.01) $(.11)
Cumulative effect of a change in
accounting principle -- (.02)
---- ----
Total net loss $(.01) $(.13)
==== ====
</TABLE>
See the accompanying notes to consolidated financial statements.
________________________________________________________________________
10
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
_________________________________________________________________
<CAPTION>
Additional Retained
Common Stock Paid-in Earnings
Shares Par Value Capital (Deficit) Total
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1993 5,823,654 $5,824 $9,141,127 $ 124,304 $9,271,255
Unregistered
private placement 12,500 12 49,988 -- 50,000
Options exercised 74,000 74 182,506 -- 182,580
Net Loss -- -- -- (737,122) (737,122)
-------- ----- --------- -------- ---------
BALANCE AT
SEPTEMBER 30, 1994 5,910,154 $5,910 $9,373,621 $(612,818) $8,766,713
Options exercised 7,500 8 18,742 -- 18,750
Net Loss -- -- -- (41,040) (41,040)
--------- ----- --------- -------- ---------
BALANCE AT
SEPTEMBER 30, 1995 5,917,654 $5,918 $9,392,363 $(653,858) $8,744,423
========= ===== ========= ======== =========
</TABLE>
See the accompanying notes to consolidated financial statements.
________________________________________________________________
11
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1995 AND 1994
<CAPTION>
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (41,040) $(737,122)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 231,991 311,601
Loss on disposal of property and equipment:
Gallery locations -- 37,827
Other -- 8,001
Deferred income taxes -- (24,417)
Decrease in:
Prepaid expenses 8,469 9,698
Documents owned (a) 325,820 132,095
Other assets 50,990 67,290
(Decrease) increase in:
Accounts payable (32,240) (64,726)
Deposits 110,655 124,941
Income taxes payable -- (2,614)
Accrued and other liabilities (27,833) (63,066)
-------- --------
Net cash provided by (used for)
operating activities 626,812 (200,492)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,750) (16,184)
Proceeds from sale of property and equipment -- 12,750
Purchase of documents (a) -- --
-------- --------
Net cash used for investing activities (3,750) (3,434)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank lines of credit $125,000 $386,961
Repayments of bank lines of credit (185,000) (357,961)
Proceeds from notes payable and mortgage
notes payable -- 425,260
Repayments of notes payable
and mortgage notes payable (425,728) (463,277)
Net proceeds from sale of common stock -- 232,580
-------- ---------
Net cash provided by (used for)
financing activities (485,728) 223,563
-------- ---------
NET INCREASE IN CASH 137,334 19,647
CASH, BEGINNING OF YEAR 33,961 14,324
-------- ---------
CASH, END OF YEAR $ 171,295 $ 33,961
======== =========
(a) Historically, the Company has normally acquired documents in excess of
current needs when purchasing opportunities are favorable to accommodate future
growth and appreciation. Purchases of $43,950 and $74,941 in fiscal 1995 and
1994 included in the net decrease in inventory of documents and frames owned
($325,820 in fiscal 1995 and $132,095 in fiscal 1994) are shown as an operating
activity above, without an allocation to investing activities, because it is
not practicable to determine what portion of the documents owned will be sold
within the next operating cycle.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 253,300 $ 252,424
Cash received during the year for income taxes $ (69,568) $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
For the year ended September 30, 1995:
(1) Stock options were exercised in part for the retirement of a note
payable in the amount of $18,750 to a related party.
(2) A document was purchased in part for the retirement of a note payable
in the amount of $747.93 to a related party.
For the year ended September 30, 1994:
(1) Debt of $7,914 was incurred for the purchase of equipment.
</TABLE>
See the accompanying notes to consolidated financial statements.
12
<PAGE>
GALLERY OF HISTORY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______________________________________________________________
1. SIGNIFICANT ACCOUNTING POLICIES
Business Activity - Gallery of History, Inc. and subsidiaries (the "Company")
acquires documents of historical or social significance and markets these
documents to the general public.
The Company follows a policy of delivering a certificate of authenticity,
valid for ten years from purchase, with each document it sells to customers.
Under the certificate, the Company is required to refund to the customer the
purchase price should any document prove to be a forgery or otherwise lack
authenticity. To ascertain authenticity, the Company relies upon the
reputation of sellers, opinions of experts under certain circumstances, the
history of prior ownership of such documents and other means.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated.
Unclassified Balance Sheets - The Company includes in its financial statements
an unclassified balance sheet because it believes that such presentation is
more meaningful as a consequence of the Company's policy of acquiring documents
in excess of its current needs, and it is not practicable to determine what
portion of the documents owned will be sold within the next twelve months.
Documents Owned - Documents are stated at cost on a specific-identification
method, not in excess of estimated market value. The Company acquires
documents to accommodate future growth and appreciation in value.
Property and Equipment - Property and equipment are carried at cost.
Depreciation and amortization of property and equipment are provided on the
straight line method over their estimated useful lives.
Maintenance, repairs and renewals which neither materially add to the value of
the property nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on dispositions of property and equipment are
included in income.
Revenue - Revenue is recognized when documents are paid for in full and
delivered to the customer or placed for framing, or paid for in full and held
at the customer's request.
Major Customers - Document sales attributable to major customers (i.e.,
individual customers whose purchases account for 10% or more of total document
sales) aggregated $256,600 for the year ended September 30, 1995 There was no
individual customer whose purchases totaled over 10% of sales for the year
ended September 30, 1994. None of the customers have any direct relationship
with the Company.
Income Taxes - Income taxes, where applicable, are provided at statutory rates.
Deferred income taxes are recognized for income and expense items which are
reported for tax purposes in different years than for financial accounting
purposes.
In February 1992, the Financial Accounting Standards Board issued Statement No.
109, "Accounting for Income Taxes." A significant provision of this Statement
is the change from the deferred to the liability method of computing deferred
income taxes under which deferred taxes are adjusted for tax rate changes as
they occur. The Company adopted FASB 109 in its first fiscal quarter of 1994
by reporting a cumulative effect of a change in accounting principle and not
restating prior periods. The effect of FASB 109 was recorded in October 1993
and it decreased net income as a non-cash, non-recurring cumulative effect of
a change in accounting principle by an amount totaling $90,992.
13
<PAGE>
2. PROPERTY AND EQUIPMENT
Property and equipment and land and building at September 30, 1995 and 1994
consist of the following:
<TABLE>
<CAPTION>
Estimated
Service
Lives 1995 1994
----- ---- ----
<S> <C> <C> <C>
Land $ 580,000 $ 580,000
Building 30 years 1,385,377 1,385,377
--------- ---------
Total cost 1,965,377 1,965,377
Less accumulated depreciation 435,099 389,113
--------- ---------
Land and building - net $1,530,278 $1,576,264
========= =========
Equipment and furniture 5 years $1,528,685 $1,576,229
Leasehold improvements 5-15 years 544,396 544,396
--------- ---------
Total cost 2,073,081 2,120,625
Less accumulated depreciation
and amortization 1,869,048 1,734,337
--------- ---------
Property and equipment - net $ 204,033 $ 386,288
========= =========
</TABLE>
3. OTHER ASSETS
Other assets at September 30, 1993 and 1994 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Book inventory and books in process $287,834 $333,709
Framing raw materials inventory 161,053 166,102
Other 11,472 11,538
------- -------
Total $460,359 $511,349
======= =======
</TABLE>
4. RELATED PARTIES
The Company sells and distributes for promotional purposes a book authored by
Todd M. Axelrod, the Company's President and Chairman of the Board. Books with
a cost of $13,476 and $12,655 in 1995 and 1994, respectively, were distributed
or sold resulting in revenue of $27,745 and $30,260 in the respective years.
Beginning in fiscal 1994, the Company began to amortize the cost of its book
inventory over eight years. This resulted in amortization costs of $32,400
and $32,814 for the years ended September 30, 1995 and 1994. Books purchased
for future sale or distribution totaled $357,500 during the year ended
September 30, 1992. The Company issued a note in the amount of $283,720 to
Nanna Corp., a company owned 100% by Todd Axelrod and his wife, Pamela, to
finance a portion of the purchase price of these books. Such note bore
interest at the prime interest rate. The note was paid in full during fiscal
1995.
During the fiscal year ended September 30, 1994 the Company borrowed $185,260
from Nanna Corp. The loan bears interest at the prime rate plus 2%. The
current balance of the loan is $35,427. The Company borrowed $10,000 and
$30,000 in 1994 and 1993, respectively, from Ruth Canvasser, Mr. Axelrod's
mother. The loans bore interest at 8.5%. The balance of the loan was paid in
full during fiscal 1995. In October 1993, the Company borrowed $20,000 from
Beth Ring, Mr. Axelrod's sister-in-law which bore interest at 8.5% and was paid
in full during fiscal 1995. In May 1994 the Company borrowed $110,000 from
14
<PAGE>
Pamela Axelrod, a Vice President of the Company. During fiscal 1995, Mrs.
Axelrod exercised 7,500 employee stock options at $2.50 a share reducing this
loan balance by $18,750. Mrs. Axelrod purchased a document from the Company
during fiscal 1995 reducing the loan balance by $747.93 The current balance of
this loan is $70,502 at September 30, 1995. The loan has no repayment schedule
but accrues interest at the prime rate plus 2%. Interest expense on related
party notes was $27,981 during fiscal year 1995. The proceeds for such loans
have been utilized by the Company for working capital purposes. Mrs. Axelrod
purchased additional documents from the Company in September 1995, totaling
$36,500. This purchase was paid for by reducing the outstanding bonus due her,
$25,000 from fiscal 1994 and $11,500 out of the total bonus of $25,000 accrued
for fiscal 1995. Sales of documents to related parties are not less favorable
to the Company than if sold at wholesale prices.
5. BANK LINES OF CREDIT, NOTES PAYABLE, MORTGAGE NOTES PAYABLE AND
INDEBTEDNESS TO RELATED PARTIES
Debt consists of the following at September 30:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Mortgage note at 9% with 59 month amortization
of principal and the unpaid balance due
July 15, 1998 collateralized by building. $1,918,216 $1,957,940
Equipment notes payable at 10.12% with monthly
amortization of principal through March 1997,
collateralized by related equipment. 67,056 107,476
Equipment note payable at prime plus 2% with
monthly amortization of principal through
June 1995, collateralized as second creditor
in all present and hereafter acquired inventory,
equipment, furniture, fixtures and furnishings. -- 49,723
Term note payable at prime plus 1.5% with 59
monthly payments of principal with the unpaid
balance due July 15, 1998, collateralized by
all present and hereafter acquired inventory,
equipment, furniture, fixtures and furnishings. 254,497 334,497
Term note payable at prime plus 1.5%, with
monthly amortization of principal through
November 1994, collateralized by all present
and hereafter acquired inventory, equipment,
furniture, fixtures and furnishings. -- 20,000
Related party term note payable at 8.5%, with
monthly amortization of principal through
October 1994. -- 2,001
Related party term note payable at 8.5%, with
monthly amortization of principal through
November 1994. -- 6,904
Related party term note payable at prime plus
2%, with monthly payments of $6,000. 35,427 163,193
Related party note payable at prime plus 2%. 70,502 110,000
Related party term note payable at prime, with
monthly amortization of principal through
April 1995. -- 32,354
Other, due in monthly installments through October
1995, collateralized by related equipment. -- 6,836
--------- ---------
Total $2,345,698 $2,790,924
========= =========
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Notes payable $ 321,553 $ 518,531
Indebtedness to related parties 105,929 314,453
Mortgage notes payable 1,918,216 1,957,940
--------- ---------
Total $2,345,698 $2,790,924
========= =========
</TABLE>
<TABLE>
Maturities of notes and mortgage notes payable are as follows for fiscal years
ending September 30:
<S> <C>
1996 274,045
1997 149,922
1998 1,921,731
---------
Total $2,345,698
=========
</TABLE>
The Company has a line of credit from a bank in the amount of $100,000
available through, and due on July 15, 1996. As of September 30, 1995, there
were no funds drawn against this line of credit. Any funds drawn bear interest
at prime plus 1.5%.
The prime rate was 8.75% at September 30, 1995.
6. COMMON STOCK AND STOCK OPTIONS
The Company has reserved 1,100,650 shares of common stock for warrants and
options. Warrants were issued for 100,000 shares of common stock in December
1990 and reissued in November 1991 expiring in November 1996. The Company has
issued common stock options as follows:
<TABLE>
<CAPTION>
Number
Outstanding at
September 30, Currently Exercise Year of
Description 1995 Exercisable Price Expiration
- ----------- ---- ----------- ----- ----------
<S> <C> <C> <C> <C>
Options (1) 374,400 All $2.47 to November 1996
$4.50 through
June 1998
</TABLE>
(1) As of October 1, 1993, 395,549 options to purchase shares of common
stock remained outstanding. In June 1994, options to purchase 100,000 shares
of common stock were issued at $4.50 a share expiring in October 1994. Options
to purchase 64,000 shares of common stock were issued in fiscal 1995 expiring
June 1998. During the three year period ended September 30, 1995, 11,149
options were exercised at $2.45 a share in May 1993, 10,000 options were
exercised at $2.45 a share in May 1994 and 64,000 options were exercised at
$2.47 a share in June 1994.
Employee incentive options were issued for 329,388 shares prior to October 1,
1991. Of the options issued, 321,888 have expired or were canceled. No
employee incentive options were issued in 1995 and none remain outstanding as
of September 30, 1995. During the three year period ended September 30, 1995,
7,500 options were exercised in fiscal 1995.
In May 1993, the Company issued 11,149 shares of unregistered common stock
upon the exercise of options at $2.45 per share. In May 1994, the Company
issued 10,000 shares of unregistered common stock upon the exercise of options
at $2.45 per share. In June 1994, the Company issued 64,000 shares of
unregistered common stock upon the exercise of options at $2.47 per share. In
October 1994, the Company issued 7,500 shares of unregistered common stock
upon the exercise of options at $2.50 per share.
In March 1994, the Company sold 12,500 shares of unregistered common stock to a
private investor at a per share price of $4.00.
16
<PAGE>
7. INCOME TAXES
The benefit for income taxes for the years ended September 30, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current
Federal $ (69,668) $ --
State 100 1,700
Deferred (118,474)
-------- --------
Total $ (68,568) $(116,774)
======== ========
</TABLE>
The current federal income tax benefit represents a refund for the carryback of
an alternative minimum tax credit not previously recognized.
Components of deferred tax assets (liabilities) for the years ended September
30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Depreciation $(167,887) $(182,307)
Other _ (98) (98)
-------- --------
Gross deferred tax liability (167,985) (182,405)
-------- --------
Net operating loss carryforward 253,416 240,715
Other 35,622 25,366
-------- --------
Gross deferred tax asset 289,038 266,081
-------- --------
Net deferred tax asset 121,053 83,676
Less valuation allowance (121,053) (83,676)
-------- --------
Net deferred tax asset
(liabilities) $ -- $ --
======== ========
</TABLE>
The provision for income taxes differs from the amount of income tax determined
by applying the applicable U.S. statutory federal income tax rates to the loss
before income taxes and cumulative effect of a change in accounting principle
as a result of the following differences:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Statutory U.S. tax rates (35%) $ (38,712) $(267,016)
Increase (decrease) from rates:
State taxes 100 1,700
Limitation on utilization
of tax benefits 38,712 148,542
Alternative minimum tax
credit refund (69,668) --
-------- --------
Effective tax rate (62.9%,
15.3%) $ (69,568) $(116,774)
======== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into non-cancellable operating lease agreements which
call for certain minimum lease payments plus contingent lease payments based
on annual sales above specified amounts and allocation of common area
management charges. The following is a schedule of the future minimum lease
payments for the non-cancellable operating leases at September 30, 1995:
17
<PAGE>
<TABLE>
<S> <C>
1996 87,895
1997 55,645
1998 40,645
1999 40,645
--------
Total $ 224,830
========
</TABLE>
The leases covering sales outlets in Georgetown, Washington D.C., Las Vegas,
Nevada, and Dallas, Texas expire in various years from fiscal 1995 to 1999 and
contain no specific renewal terms. Rental expense, consisting of minimum
rentals and common area management charges, for the periods ended September 30,
1995 and 1994 was $167,282 and $192,534, respectively.
The Company leases office space in its headquarters building to tenants under
non-cancellable operating leases. Such leases provide for payment of minimum
rentals plus escalation charges determined by certain expenses incurred in the
operation of the building. Lease periods range from one to twenty years with
various renewal options. Rental income for the periods ended September 30,
1995 and 1994 was $234,975 and $188,307, respectively. Included in Selling,
General and Administrative Expenses is 50% of the building's operating costs
representing area occupied by the Company's headquarters operation. Included
in Other Income (Expense) is the net rental income realized by the building
operation less the remaining operation expenses. This resulted in other income
of $160,339 and $100,155 for the periods ended September 30, 1995 and 1994,
respectively. Specific net assets identifiable with rental real estate totaled
$837,031 and $717,587 at September 30, 1995 and 1994.
Future minimum lease payments receivable from non-cancellable operating leases
as of September 30, 1995, excluding amounts applicable to reimbursable expenses,
are as follows:
<TABLE>
<S> <C>
1996 $ 248,595
1997 158,895
1998 113,497
1999 119,739
2000 126,325
Thereafter 1,866,697
---------
Total $2,605,196
=========
</TABLE>
9. EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average number
of shares of common stock outstanding, 5,917,592 and 5,856,162 for the years
ended September 30, 1995 and 1994, respectively.
18
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Directors, Executive Officers and Significant Employees
Set forth below are the present directors, executive officers and any
significant employees of the Company. Note that there are no other persons who
have been nominated or chosen to become directors nor are there any other
persons who have been chosen to become executive officers. Directors are
elected until the next annual meeting of shareholders and until their
successors are duly elected and qualified. Officers are elected for terms of
one year, or until their successors are duly elected and qualified or until
terminated by the action of the Board of Directors.
<TABLE>
<CAPTION>
Has Served
Positions and as Director
Offices with Continuously
Name Age Registrant Since
---- --- ------------- ------------
<S> <C> <C> <C>
Todd M. Axelrod 46 President and 1981
Chairman of the
Board of Directors
Rod R. Lynam 47 Treasurer/Assistant 1984
Secretary and Director
Marc DuCharme 43 Senior Vice-President 1989
and Director
H. Stan Johnson 41 Secretary and Director 1989
Garrett Williams 53 Senior Vice-President 1991
and Director
Pamela Axelrod 40 Executive Vice-President
and Director 1995
</TABLE>
The only relationship by blood, marriage or adoption (not more remote
than first cousin) between any Director or executive officer of the Company is
that of Todd Axelrod, President and Chairman of the Board of Directors and his
wife Pamela Axelrod, Executive Vice-President and Director.
Set forth below are brief accounts of the business experience during the
past five years of each director and executive officer of the Company.
Todd M. Axelrod has been Chairman of the Board of Directors and President
of the Company since its inception in November 1981. Mr. Axelrod has been a
private collector of valuable historical documents since 1968. Mr. Axelrod
authored a book entitled The Handbook of Historical Documents - A guide to
Owning History, which the Company sells in its galleries.
Rod R. Lynam has been Treasurer and Chief Financial Officer of the Company
since September 1984.
Marc DuCharme, has been a Vice-President since 1989 and served as the
Director of Framing since July 1985.
H. Stan Johnson has been a member of the law firm of Cohen, Johnson & Day,
Las Vegas, Nevada for more than the past five years.
19
<PAGE>
Garrett Williams, has been a Vice-President since 1989 and has served as
Executive Assistant to the President since November 1988. From 1985 to 1986 he
was a curator for the Company.
Pamela Axelrod has been a Vice-President since 1992 and served as the
Manager of the Las Vegas Fashion Show gallery since June 1984.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes of ownership
of Common Stock of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, during the fiscal year ended September 30,
1995, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with,
other than Ethelmae Haldan, as Trustee of the Ethelmae Stuart Haldan Trust, who
to the Company's knowledge has made no filing pursuant to Section 16(a). In
making these disclosures, the Company has relied solely on a review of the
copies of such reports furnished to the Company and written representations of
its directors, executive officers and its greater than ten percent stockholders.
Item 10. Executive Compensation
----------------------
The following summary compensation table sets forth information concerning
the annual and long-term compensation for services in all capacities to the
Company for the fiscal years ended September 30, 1995, 1994 and 1993, of those
persons who were, at September 30, 1995 (i) the chief executive officer and
(ii) the other most highly compensated executive officers of the Company, whose
annual base salary and bonus compensation was in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Principal Fiscal Annual Compensation
Position Year Salary Bonus
______________________ ______ _________ _______
<S> <C> <C> <C>
Todd M. Axelrod 1995 $133,230 25,000(1)
President and Chief 1994 200,000 --
Executive Officer 1993 188,876 50,000(2)
Pamela R. Axelrod 1995 $131,042 50,000(3)
Executive Vice- 1994 -- (4)
President 1993 -- (4)
</TABLE>
(1) Accrued bonus earned not yet paid.
(2) Includes deferred bonus in the amount of $22,704 which was paid to Todd
Axelrod during December 1993.
(3) Includes deferred bonus in the amount of $25,000 which was paid to Pamela
Axelrod during September 1995 and $25,000 accrued bonus of which $14,398
has not yet been paid.
(4) Less than $100,000.
During the three year period ended September 30, 1995 the Company did not
grant any stock options or stock appreciation rights to any of the named
executive officers of the Company. In October 1989, the Company granted Mrs.
Axelrod 7,500 employee stock options which were exercised October 1994 at $2.50
per share:
20
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED SEPTEMBER 30, 1995
AND YEAR END OPTION/SAR VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at 9/30/95 at 9/30/95
Shares Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable
---- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Pamela Axelrod 7,500 $11,250 None None
</TABLE>
During the fiscal year ended September 30, 1995, no director received any
compensation for attending meetings of the Board of Directors and the Company
presently intends that the same will be the case for the fiscal year ended
September 30, 1996. Directors are reimbursed, however, for reasonable expenses
incurred on behalf of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of December 1,
1995, regarding those persons known to the Company to be the beneficial owners
of more than five percent of the Common Stock of the Company, by all Directors
of the Company, by each of the named Executive Officers and by all Officers and
Directors of the Company as a group.
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percent
Class Beneficial Holder Beneficial Ownership(1) of Class
- ------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common Todd M. Axelrod(2) 4,773,632 (3)(4)(7) 80.7%
Stock
Common Rod R. Lynam(2) 105 (5)
Stock
Common H. Stan Johnson 37,000 (6) (5)
Stock 301 East Clark Avenue
Las Vegas, Nevada 89101
Common Pamela Axelrod(2) 2,051,412 (7) 34.7%
Stock
Common Ethelmae Haldan, as 2,722,220 (3) 46.0%
Stock Trustee of the Ethelmae
Stuart Haldan Trust
P. O. Box 3666
Carefree, Arizona 85377
Common Gerald Newman 531,500 (8) 8.5%
Stock Seabreeze Lane
Amagansette, NY 10093
Common All Executive Officers 4,810,737 (9) 81.0%
Stock and Directors as a
group (4 persons)
</TABLE>
(1) Except as otherwise noted in (3) and (7) below, the individuals
referred to above have sole voting and investment power in regard to their
Common Stock, subject to applicable community property laws.
(2) Address is the same as the Company's address.
(3) Ethelmae Haldan, as trustee of the Ethelmae Stuart Haldan trust, has
appointed Mr. Axelrod its proxy with full power of substitution, to vote all of
its 2,722,220 shares and to give all consents on all matters that the trust may
be entitled to vote or consent to at any meeting of the stockholders of the
Company or under any other circumstance where a vote or consent of stockholders
is required. In consideration of receiving such proxy, Mr. Axelrod has agreed
to continue his employment as president of the Company.
21
<PAGE>
(4) Includes the 2,722,220 shares of Common Stock owned of record and
beneficially by the Ethelmae Stuart Haldan trust, for which Mr. Axelrod has
been appointed proxy (as discussed in Note (3) above). Includes 1,029,511
shares of Common Stock owned of record and beneficially by Pamela Axelrod, Mr.
Axelrod's wife, for which Mr. Axelrod has been appointed proxy (as discussed in
Note (7) below). Excludes 81,302 shares of Common Stock owned of record and
beneficially by Ruth Canvasser, Mr. Axelrod's mother; as to which Mr. Axelrod
disclaims beneficial ownership.
(5) Less than 1%.
(6) Includes shares issuable upon exercise of options to purchase 25,000
shares of Common Stock, at an exercise price of $4.50 per share.
(7) Pamela Axelrod has appointed Todd Axelrod her proxy with full power of
substitution, to vote all of her 1,029,511 shares and to give all consents on
all matters that Mrs. Axelrod may be entitled to vote or consent to at any
meeting of the stockholders of the Company or under any other circumstance
where a vote or consent of stockholders is required. Includes 1,021,901 shares
held by Todd Axelrod, as to which Pamela Axelrod disclaims beneficial ownership
(see Note (4) above).
(8) Includes 200,000 shares of Common Stock issuable upon exercise of
options to purchase such shares at an exercise price of $2.47 per share, 10,000
shares of Common Stock issuable upon exercise of options to purchase such
shares at an exercise price of $3.00 per share, 25,000 shares of Common Stock
issuable upon exercise of options to purchase such shares at an exercise price
of $4.50 per share and 100,000 shares of Common Stock issuable upon exercise of
warrants to purchase such shares at an exercise price of $3.50 per share.
(9) Includes 25,000 shares issuable upon exercise of options granted to
Executive Officers and Directors, as described in the preceding footnotes.
(c) Changes in Control
------------------
There are no arrangements known to the Company, the operation of which may
at a subsequent date result in a change of control of the Registrant.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
The Company sells for promotional purposes a book authored by Todd M.
Axelrod, the Company's President and Chairman of the Board. Books were
purchased in January 1992 from Nanna Corp., a company owned 100% by Mr. and
Mrs. Axelrod, for a total purchase price of $357,500, of which $283,720 was
paid by the Company by issuing a note to Nanna Corp., bearing interest at the
prime rate. The note was paid in full April 1995. The Company believes that
such purchase price is substantially comparable to what it would have to pay an
unrelated supplier.
The Company borrowed $135,000 in the fiscal year 1992 and $185,260 in the
fiscal year 1994 from Nanna Corp. The loans bear interest at the prime rate
plus 2% and are payable in installments of $6,000 a month. The current balance
of the reamining loan is $35,427. During fiscal years 1994 and 1993, the
Company borrowed an aggregate $40,000 from Ruth Canvasser, Mr. Axelrod's mother.
These loans bore interest of 8.5% and were paid in full during fiscal 1995. In
October 1993, the Company borrowed $20,000 from Beth Ring, Mr. Axelrod's
sister-in-law, which bore interest at 8.5% and was paid in full during fiscal
1995. In May 1994, the Company borrowed $110,000 from Pamela Axelrod, a
Vice-President of the Company and Mr. Axelrod's wife. During fiscal 1995, Mrs.
Axelrod exercised 7,500 employee stock options at $2.50 a share reducing this
loan balance by $18,750. Mrs. Axelrod purchased a document from the Company
during fiscal 1995 reducing the loan balance by $747.93 The current balance of
this loan is $70,502 at September 30, 1995. The loan has no repayment schedule
but accrues interest at the prime rate plus 2%. Interest expense on related
party notes was $27,981 during fiscal year 1995. The proceeds for such loans
have been utilized by the Company for working capital purposes.
In September 1995, Mrs. Axelrod purchased additional documents from the
Company totaling $36,500. This purchase was paid for by reducing the
outstanding bonus due her. The prices sold to Mrs. Axelrod for these documents
were not less favorable to the Company than if sold at wholesale prices.
22
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
--------------------------------
(a)1 & 2. Financial Statements See Item 7 in Part II of this report.
All other financial statement schedules are omitted because the
information required to be set forth therein is not applicable or because that
information is in the financial statements or notes thereto.
(a) 3. Exhibits
3.1 Articles of Incorporation and By-Laws.*
3.2 Amendment to Articles of Incorporation filed July 9, 1984.*
3.3 Amendment to Articles of Incorporation filed May 29, 1990.**
10.1 Lease between The Fashion Show and the Company dated
January 18, 1982.*
10.2 Lease between the Dallas Galleria and the Company dated
Septembe 23, 1983.*
10.4 Lease between Georgetown Park Associates and the Company dated
August 22, 1989.***
10.5 Gallery of History, Inc. 1992 Stock Option Plan.****
21 List of Subsidiaries.
23 Consent of Independent Auditors.
* Incorporated by reference to the Registrant's Registration
Statement on Form S-18, File No. 2-95737-LA.
** Incorporated by reference to the Registrant's Form 10-K for
its fiscal year ended September 30, 1990, File No. 0-13757.
*** Incorporated by reference to the Registrant's Form 10-KSB,
fiscal year ended September 30, 1993, File No. 0-13757.
**** Incorporated by reference to the Registrant's Form 10-KSB,
fiscal year ended September 30, 1994, File No. 0-13757.
(b) Reports on Form 8-K.
None.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: December 22, 1995
GALLERY OF HISTORY, INC.
By: /s/ Todd M. Axelrod
----------------------
Todd M. Axelrod,
Chairman and President
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Todd M. Axelrod President and December 22, 1995
- -------------------- Chairman of the
Todd M. Axelrod Board of Directors
(Principal Executive Officer)
/s/ Rod Lynam Treasurer/Assistant December 22, 1995
- -------------------- Secretary and Director
Rod Lynam (Principal Financial and
Accounting Officer)
/s/ Marc DuCharme Senior Vice President December 22, 1995
- -------------------- and Director
Marc DuCharme
/s/ H. Stan Johnson Secretary and Director December 22, 1995
- --------------------
H. Stan Johnson
/s/ Garrett Williams Senior Vice President December 22, 1995
- -------------------- and Director
Garrett Williams
/s/ Pamela Axelrod Executive Vice President December 22, 1995
- -------------------- and Director
Pamela Axelrod
</TABLE>
24
EXHIBIT 21 - LIST OF SUBSIDIARIES.
The following subsidiaries are wholly owned by the parent company
Gallery of History, Inc., which was incorporated in Nevada in
November 1981:
The American Museum of Historical Documents,
Texas Chartered
DBA Gallery of History, Inc.
A Texas Corporation
3601 West Sahara Corp.
A Nevada Corporation
Gallery of History, Inc.
A Delaware Corporation
25
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated November 7, 1995 included in
this Form 10-KSB, into the Company's previously filed Form S-8
Registration Statement File No. 33-17896.
/S/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
December 22, 1995
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB,
FY 1995 FOR THE PERIOD ENDED SEPTEMBER 30, 1005 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 171,295
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 9,123,220
<CURRENT-ASSETS> 0
<PP&E> 3,458,458
<DEPRECIATION> 2,304,147
<TOTAL-ASSETS> 11,547,028
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 5,918
0
0
<OTHER-SE> 8,738,505
<TOTAL-LIABILITY-AND-EQUITY> 11,547,028
<SALES> 2,233,194
<TOTAL-REVENUES> 2,233,194
<CGS> 557,332
<TOTAL-COSTS> 557,332
<OTHER-EXPENSES> 1,693,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 254,466
<INCOME-PRETAX> (110,608)
<INCOME-TAX> (69,568)
<INCOME-CONTINUING> (41,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,040)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
