<PAGE>
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, 1996
[ ] 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 was 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. [X]
Issuer's revenues for the most recent fiscal year: $2,116,725.
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant (1,194,417 shares) as of November 8, 1996
was approximately $3,657,900 based upon $3.0625, the price at which the stock
was spld on such date.
The Registrant had 3,257,934 shares of Common Stock outstanding as of
November 8, 1996.
Documents Incorporated by Reference: None
<PAGE>
PART I
Item 1. Description of Business
-----------------------
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The Company is engaged in the business of marketing historical
documents such as letters, documents and signatures of presidents and other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 150,000 different documents. Retail sales of documents are made
from two galleries at the following locations: The Fashion Show Mall, in Las
Vegas, Nevada since February 1982; 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.
In October 1996, the Company formed a wholly owned subsidiary named
Gallery of History Auctions, Inc., whose goal is to become the premiere live
in-person auction house dedicated exclusively to original historical documents,
autographs and manuscript material focusing on deceased personages of
historical significance. The Company anticipates that the first of its new
bi-monthly auctions will occur January 15, 1997. The Company also formed a new
division, called Gallery of History Direct, dedicated to the issuance of
bi-monthly catalogues employing a mail, phone, fax auction format featuring
original historical documents. The Company distributed its first catalogue in
November 1996 for a December 1996 mail, phone, fax auction.
<PAGE>
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 150,000 items. The Company's inventory consists of documents
written or signed approximately as follows: 28% by sports figures, 23% by
prominent entertainers, 9% 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, 8% 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 conversion to the new system shortly with the
same or greater functionality and cost savings.
In October 1996, the Company repurchased 2,659,720 shares, or
approximately 45%, of its outstanding common stock, for total consideration of
$2,000,000, consisting of 460 documents valued at $1,803,045 and $196,955 in
cash. The value of the inventory was negotiated by the parties based on an
independent expert's appraisal (see note 10 to consolidated financial
statements).
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.
The Company's other primary marketing strategy is to implement its
direct sales approach via auctions and a catalog program. Originating from its
Corporate Headquarters, the Company will develop a wholesale sales program
directed at autograph dealers, auction houses, major customers and corporations.
Its catalog program will distribute six different catalogs per year to its own
retail customers, collectors and dealers of historical documents and a
pre-qualified test market. In addition, it is anticipated by the Company to
conduct at least six auctions of its own per year.
<PAGE>
For the year ended September 30, 1996, the Company sold 1,638 documents
with an average single document sales price of approximately $1,280. During
the fiscal year, the Company has also sold 394 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, 1996. None of these major customers have any
direct relationship with the Company. During the year ended September 30,
1996, the Company generated sales of $943,008 or 45% of total sales through
auctions houses compared to $178,522 or 8% of total sales for the fiscal year
ended September 30, 1995.
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
<PAGE>
framing needs of its existing retail galleries and that it can be readily
expanded within the headquarters building to satisfy any additional demand
created by increased sales 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.
Recently, many autograph dealers are closing their retail operations
and are electing to form cooperatives with other dealers and auction their
inventory. In addition, many of the upscale malls are remerchandising for
middle-market masses as the consumer looks for warehouse shopping. Thus, the
Company is moving towards marketing through catalogs and auctions.
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 November 5, 1996, the Company had eleven full-time and one
part-time employees, in addition to its five executive officers.
<PAGE>
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 $1,874,765 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 November 5, 1996, all of the remaining space
was being leased to eleven tenants for an aggregate monthly rental of $23,595
under leases expiring at varying times from December 31, 1996 through June 30,
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.
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
Georgetown Park 10/ 1/89 739 sq.ft. 9/30/99
Washington, D.C.
</TABLE>
The Company owns an IBM AS/400 Model E45, a netserver LS2 and fourteen
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
---------------------------------------------------
No matter was submitted to a vote of the security holders of the
Company during the fourth quarter of the fiscal year ended September 30, 1996.
<PAGE>
PART II
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Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
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(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 1995
October 1, 1994 - December 31, 1994 4 3-1/2
January 1, 1995 - March 31, 1995 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
Fiscal 1996
October 1, 1995 - December 31, 1995 3 2-1/2
January 1, 1996 - March 31, 1996 2-25/32 1-3/4
April 1, 1996 - June 30, 1996 2-1/8 1
July 1, 1996 - September 30, 1996 1-3/4 1-1/2
(b) As of November 5, 1996 there were approximately 150 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 303 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
<PAGE>
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, accounts
receivable and prepaid expenses (approximately $267,000 at September 30, 1996)
by approximately $88,000. This compares to approximately $494,000 of short-
term liabilities in excess of cash accounts receivable and prepaid expenses as
of September 30, 1995.
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 1997. Loans under the line are secured by the Company's
inventory of documents owned and bear interest at the prime rate plus 1.5%. As
of September 30, 1996, there were no funds drawn against this line of credit.
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 closed its Dallas, Texas gallery at the end of December
1995, when its lease expired. Management believed 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 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
and other dealers which business the Company will conduct from its headquarters
location. The Company has consigned documents for sale through auctions. The
Company also intends to conduct its own auctions in the coming fiscal year. In
addition, the Company is continuing to develop a catalog operation to attract
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 the existing line of credit.
Net cash provided by operating activities exceeded net cash used for
operating activities for the fiscal year ended September 30, 1996. Primarily,
this was due to the Company's curtailment of purchases of document inventory.
An increase in accounts receivable resulted from auction sales. Deposits from
customers decreased during the current period due to the elimination of
deposits received and held for future auction sales in the previous fiscal
period. 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 $415,682. During the current fiscal year, the Company
<PAGE>
supplemented its working capital with a $150,000 term loan obtained from its
bank which has been paid in full during the fiscal year.
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 October 30, 1996, 73% of the value
of the Company's inventory, as carried on its balance sheet, was attributable
to approximately 99% of the Company's documents held in inventory which have a
recorded cost of less than $500 per document. The remaining 1% (or 27% 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.
<PAGE>
Results of Operations
- ---------------------
Fiscal 1996 Compared to Fiscal 1995
- -----------------------------------
Document sales decreased 5% comparing fiscal 1996 to 1995. Gallery
retail sales decreased 22% comparing the periods; the closed Dallas gallery
accounted for 63% of this decrease. Sales made through the Company's
headquarters operation increased 23%. The increase illustrates the Company's
shift in marketing strategy to wholesale and auction sales in addition to its
retail sales. Auction sales amounted to 45% of total sales for fiscal 1996 as
compared to 8% of total sales for fiscal 1995.
Total cost of sales increased to 28% of net sales for fiscal 1996 from
25% of net sales for 1995. This increase is due to the increase in auction
sales. Cost of goods sold for auction sales was 31% of auction sales for the
fiscal year ended September 30, 1996 as compared to 29% in 1995. This increase
is directly related to the increased quantity of material sold at wholesale
pricing. Cost of retail sales decreased to 24% of net retail sales for the
fiscal year 1996 as compared to 26% of net retail sales for fiscal 1995. The
resulting gross profit decreased to 72% of net sales for fiscal 1996 as
compared to a gross profit of 75% of net sales for fiscal 1995.
Total operating expenses decreased 12% comparing fiscal 1996 to fiscal
1995 to 70% of net sales for fiscal 1996 as compared to 76% of net sales for
fiscal 1995. Approximately 60% of this decrease was attributed to the closure
of the Dallas gallery. Selling, general and administrative expenses decreased
10% to 62% of net sales for fiscal 1996 from 65% of net sales for fiscal 1995.
This decrease is a direct result of the Company's efforts to reduce its cost of
operations as a result of gallery closures and a reduction of personnel. The
following decreases in selling, general and administrative expenses were
realized comparing fiscal 1996 to fiscal 1995: Payroll and related taxes
decreased 7%, rent expense decreased 25%, property taxes decreased 16%,
telephone and utilities decreased 28% and freight expense decreased 32%.
Depreciation expense decreased 33% to 6% of net sales for the fiscal year 1996
as compared to 8% of net sales for 1995. The decrease can be attributed to
the gallery closure. Advertising expenses decreased 18% comparing the two
fiscal years due to promotional campaigns the Company employed during the
previous fiscal year. Maintenance and repair expenses decreased 21% comparing
the two fiscal years which was directly related to the gallery closure and a
reduction in headquarters equipment.
Interest expense decreased 11% to 10% of net sales for fiscal 1996 as
compared to 11% of net sales for fiscal 1995. The decrease in interest expense
can be attributed to the lower average outstanding loan balances and interest
rates 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 $195,000 operating profit
for fiscal 1996 as compared to approximately $160,000 operating profit for
fiscal 1995. The increase is due to an increase in the square footage leased
and increased rents.
<PAGE>
Item 7. Financial Statements.
---------------------
</TABLE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . 14
Consolidated Balance Sheets - September 30,
1996 and 1995 . . . . . . . . . . . . . . . . 15
Consolidated Statements of Operations for the
Years ended September 30, 1996 and 1995. . . 16
Consolidated Statements of Changes in Stock-
holders' Equity for the Years Ended
September 30, 1996 and 1995 . . . . . . . . . 17
Consolidated Statements of Cash Flows for the
Years ended September 30, 1996 and 1995 . . . 18
Notes to Consolidated Financial Statements . . . . 20
</TABLE>
<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, 1996
and 1995, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended. 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, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
November 1, 1996
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995
________________________________________________________________
<CAPTION>
Notes 1996 1995
------- ---- ----
<S> <C> <C> <C>
ASSETS
Cash $ 115,800 $ 171,295
Accounts receivable 98,301 7,636
Prepaid expenses 53,198 57,843
Documents owned 1,5,10 8,677,725 9,123,220
Land and building-net 1,2,5,8 1,484,292 1,530,278
Property and equipment-net 1,2,5 194,232 204,033
Other assets 3 403,786 452,723
---------- ----------
TOTAL ASSETS $11,027,334 $11,547,028
========== ==========
LIABILITIES
Accounts payable $ 84,117 $ 60,950
Notes payable 5 196,889 321,553
Indebtedness to related parties 4,5 42,615 105,929
Mortgage notes payable 5 1,874,765 1,918,216
Deposits 30,073 266,828
Accrued and other liabilities 90,703 129,129
---------- ----------
TOTAL LIABILITIES 2,319,162 2,802,605
---------- ----------
COMMITMENTS AND CONTINGENCIES 8
STOCKHOLDERS' EQUITY
Common stock: $.001 par value;
authorized, 10,000,000 shares;
issued and outstanding,
5,917,654 shares 6,10 5,918 5,918
Additional paid-in-capital 9,392,363 9,392,363
Accumulated deficit (690,109) (653,858)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 8,708,172 8,744,423
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,027,334 $11,547,028
========== ==========
See the accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
________________________________________________________________
<CAPTION>
Notes 1996 1995
------- ---- ----
<S> <C> <C> <C>
REVENUES 1 $2,116,725 $2,233,194
COST OF REVENUES 600,391 557,332
--------- ---------
GROSS PROFIT 1,516,334 1,675,862
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative 1,309,785 1,454,028
Depreciation 1,2 124,619 185,168
Advertising 16,711 20,269
Maintenance and repairs 1 26,719 33,933
Loss on gallery closures 5,877 --
--------- ---------
TOTAL OPERATING EXPENSES 1,483,711 1,693,398
--------- ---------
OPERATING PROFIT (LOSS) 32,623 (17,536)
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (225,221) (254,466)
Other, net 8 156,447 161,394
--------- ---------
TOTAL OTHER INCOME (EXPENSE) (68,774) (93,072)
--------- ---------
LOSS BEFORE INCOME TAXES (36,151) (110,608)
PROVISION (BENEFIT) FOR INCOME TAXES 1,7 100 (69,568)
--------- ---------
NET LOSS $ (36,251) $ (41,040)
========= =========
LOSS PER SHARE 9 $(.01) $(.01)
==== ====
See the accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
_________________________________________________________________
<CAPTION>
Additional Retained
Common Stock Paid-in Earnings
Shares Par Value Capital (Deficit) Total
------ --------- ------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
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
Net Loss -- -- -- (36,251) (36,251)
--------- ----- --------- -------- ---------
BALANCE AT
SEPTEMBER 30, 1996 5,917,654 $5,918 $9,392,363 $(690,109) $8,708,172
========= ===== ========= ======== =========
See the accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
________________________________________________________________
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (36,251) $ (41,040)
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization 184,942 231,991
(Gain) on disposal of property (4,064) --
(Increase) decrease in:
Prepaid expenses 4,645 8,469
Accounts receivable (90,665) (7,636)
Documents owned (a) 449,192 325,820
Other assets 49,258 58,626
Increase (decrease) in:
Accounts payable 23,167 (32,240)
Deposits (231,266) 110,655
Accrued and other liabilities (47,808) (27,833)
-------- --------
Net cash provided by operating
activities 301,150 626,812
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (130,463) (3,750)
Proceeds from sale of property and
equipment 7,500 --
Purchase of documents (a) -- --
-------- --------
Net cash used for investing activities (122,963) (3,750)
-------- --------
(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 $68,190 and
$43,950 in fiscal 1996 and 1995 included in the net decrease in
inventory of documents and frames owned ($449,192 in fiscal 1996 and
$325,820 in fiscal 1995) 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.
(Continued)
<PAGE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
________________________________________________________________
1996 1995
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank lines of credit $ 85,000 $ 125,000
Repayments of bank lines of credit (85,000) (185,000)
Proceeds from notes payable
and mortgage notes payable 182,000 --
Repayments of notes payable
and mortgage notes payable (415,682) (425,728)
-------- --------
Net cash used for financing activities (233,682) (485,728)
-------- --------
NET INCREASE (DECREASE) IN CASH (55,495) 137,334
CASH, BEGINNING OF YEAR 171,295 33,961
-------- --------
CASH, END OF YEAR $ 115,800 $ 171,295
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 225,223 $ 253,300
======== ========
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, 1996:
(1) Debt of $3,400 was incurred for the purchase of equipment.
(2) Frames and documents were purchased with a cost of $3,700 in part for
the retirement of a note payable and interest in the amount of $5,038
to a related party.
(3) Software was purchased at a value of $1,070 in exchange for documents
with a cost of $318.
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 $748 to a related party.
See the accompanying notes to consolidated financial statements.
</TABLE>
<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"), a Nevada corporation, 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.
Management's Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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.
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 other income.
<PAGE>
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, 1996. 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.
Reclassifications - Certain amounts in the 1995 consolidated financial
statements have been reclassified to be consistent with the current
year presentation. These reclassifications had no effect on net income.
2. PROPERTY AND EQUIPMENT
Property and equipment and land and building at September 30, 1996
and 1995 consist of the following:
<TABLE>
<CAPTION>
Estimated
Service
Lives 1996 1995
----- ---- ----
<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 481,085 435,099
--------- ---------
Land and building - net $1,484,292 $1,530,278
========= =========
Equipment and furniture 5 years $1,539,940 $1,528,685
Leasehold improvements 5-15 years 461,300 544,396
--------- ---------
Total cost 2,001,240 2,073,081
Less accumulated depreciation
and amortization 1,807,008 1,869,048
--------- ---------
Property and equipment - net $ 194,232 $ 204,033
========= =========
</TABLE>
<PAGE>
3. OTHER ASSETS
Other assets at September 30, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Book inventory and books in
process, net of amortization $ 247,706 $ 287,834
Framing raw materials inventory 151,999 161,053
Other 4,081 3,836
-------- --------
Total $ 403,786 $ 452,723
</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 $7,728 and $13,476 in 1996 and 1995,
respectively, were distributed or sold resulting in revenue of $18,467
and $27,745 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 for both the years ended September 30, 1996 and 1995. 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, 1996 the Company borrowed
$35,400 from Nanna Corp. The loan bore interest at the prime rate plus
2%. The loan was repaid in full during fiscal 1996. 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 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 $748. Mrs.
Axelrod purchased additional documents during fiscal 1996 reducing the
loan balance by $1,146. The current balance of this loan is $42,615 at
September 30, 1996. The loan has no repayment schedule but accrues
interest at the prime rate plus 2%. Interest expense on related party
notes was $8,521 during fiscal year 1996. 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, consisting of $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 at less than cost.
<PAGE>
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>
1996 1995
---- ----
<C> <C> <C>
Mortgage note at 9% with 59 month
amortization of principal and the unpaid
balance due July 15, 1998, collateralized
by building. $1,874,765 $1,918,216
Equipment notes payable at 10.12%
with monthly amortization of principal
through March 1997, collateralized by
related equipment. 22,392 67,056
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 documents, equipment, furniture,
fixtures and furnishings. 174,497 254,497
Related party term note payable at prime
plus 2%, with monthly payments of $6,000. -- 35,427
Related party note payable at prime plus 2%. 42,615 70,502
--------- ---------
Total $2,114,269 $2,345,698
========= =========
</TABLE>
Maturities of notes and mortgage notes payable are as follows for
fiscal years ending September 30:
<TABLE>
<S> <C>
1997 $ 192,538
1998 1,921,731
---------
Total $2,114,269
=========
</TABLE>
The Company has a line of credit from a bank in the amount of $100,000
available through, and due on July 15, 1997. As of September 30, 1996,
there were no funds drawn against this line of credit. Any funds drawn
bear interest at prime plus 1.5%. The prime rate was 8.25% at
September 30, 1996.
The estimated fair value of the Company's debt at September 30, 1996
and 1995, respectively, was approximately $2,114,000 and $2,346,000,
which approximates its book value. The estimated fair value amounts
were based on discounted cash flow valuations, because none of the
Company's debt has quoted market prices. Discount rates were estimated
based on current rates offered to the Company for debt having similar
amounts and maturities.
<PAGE>
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
1997. The following table summarizes the common stock options granted,
exercised and canceled or expired during the two years in the period
ended September 30, 1996:
<TABLE>
<CAPTION>
Number Exercise Expiration
of Shares Prices Dates
--------- -------------- --------------
<S> <C> <C> <C>
Outstanding, 9/30/94 410,400 $2.47 to $4.50 1994 to 1998
Issued 64,000 $3.50 1998
Canceled or expired (100,000) $4.50 1994
--------
Outstanding, 9/30/95 374,400 $2.47 to $4.50 1998
Canceled or expired --
--------
Outstanding, 9/30/96 374,400 $2.47 to $4.50 1998
========
</TABLE>
Employee incentive options were issued for 329,388 shares prior to
October 1, 1991. No employee incentive options were issued in fiscal
1996 and none remain outstanding as of September 30, 1996. During the
three year period ended September 30, 1996, 7,500 options were
exercised in fiscal 1995.
In October 1994, the Company issued 7,500 shares of unregistered common
stock upon the exercise of options at $2.50 per share.
7. INCOME TAXES
The benefit for income taxes for the years ended September 30, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ---- ---- ----
<S> <C> <C>
Current
Federal $ -- $(69,668)
State 100 100
Deferred -- --
------- -------
Total $ 100 $(69,568)
======= =======
</TABLE>
The fiscal 1995 federal income tax benefit represents a refund for the
carryback of an alternative minimum tax credit not previously
recognized.
<PAGE>
Components of deferred tax assets (liabilities) for the years ended
September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Depreciation $(176,358) $(167,887)
Other (98) (98)
-------- --------
Gross deferred tax liabilities (176,456) (167,985)
-------- --------
Net operating loss carryforward 219,683 253,416
Other 52,075 35,622
-------- --------
Gross deferred tax assets 271,758 289,038
-------- --------
Net deferred tax assets 95,302 121,053
Less valuation allowance (95,302) (121,053)
-------- --------
Net deferred tax assets
(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>
1996 1995
---- ----
<S> <C> <C>
Statutory U.S. tax rate (35%) $ (12,688) $ (38,712)
Increase (decrease) from rate:
State taxes 100 100
Limitation on utilization
of tax benefits 12,688 38,712
Alternative minimum tax
credit refund -- (69,668)
-------- --------
Effective tax rate (0.3%, 62.9%) $ 100 $ (69,568)
======== ========
</TABLE>
As of September 30, 1996, the Company had the following income tax loss
carryforwards available for income tax purposes:
<TABLE>
<CAPTION>
Expiration Amounts
Dates
---------- -------
<S> <C> <C>
Federal regular tax operating
loss carryforwards 2009 to 2011 $627,667
</TABLE>
<PAGE>
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, 1996:
<TABLE>
<C> <C>
1997 $ 55,645
1998 40,645
1999 40,645
-------
Total $ 136,935
=======
</TABLE>
The leases covering sales outlets in Las Vegas, Nevada and Georgetown,
Washington D.C. expire in fiscal 1997 and 1999, respectively, and
contain no specific renewal terms. Rental expense, consisting of
minimum rentals and common area management charges, for the periods
ended September 30, 1996 and 1995 was $125,204 and $167,282,
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, 1996 and 1995 was
$269,559 and $234,975, 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 $195,145 and $160,339 for the periods ended
September 30, 1996 and 1995, respectively. Specific net assets
identifiable with rental real estate totaled $806,070 and $832,031 at
September 30, 1996 and 1995, respectively.
Future minimum lease payments receivable from non-cancellable operating
leases as of September 30, 1996, excluding amounts applicable to
reimbursable expenses, are as follows:
<TABLE>
<S> <C>
1997 $ 210,748
1998 147,373
1999 126,883
2000 126,325
2001 133,273
Thereafter 1,733,423
---------
Total $2,478,025
=========
</TABLE>
<PAGE>
9. EARNINGS PER SHARE
The computation of earnings per share is based on the weighted average
number of shares of common stock outstanding, 5,708,126 and 5,917,592
for the years ended September 30, 1996 and 1995, respectively.
10. SUBSEQUENT EVENT
On October 18, 1996, the Company repurchased 2,659,720 shares of its
common stock, representing the entire interest of the Company's largest
shareholder (the "Shareholder") for total consideration of $2,000,000,
consisting of 460 documents valued at $1,803,045 and $196,955 in cash.
The value of the inventory was negotiated by the parties based on an
independent expert's appraisal. The book value of the inventory was
$1,446,492, resulting in a gain on disposition of $331,553, after
transaction costs of approximately $25,000. The following condensed
pro forma balance sheet gives effect to the transaction as if it had
occurred as of September 30, 1996:
<TABLE>
<CAPTION>
Actual Stock Repurchase Pro Forma
9/30/96 10/18/96 9/30/96
------- ---------------- ---------
<S> <C> <C> <C>
Cash $ 115,800 $ (196,955) $ (81,155)
Documents owned 8,677,725 (1,446,492) 7,231,233
Other assets 2,233,809 -- 2,233,809
---------- ---------- ----------
TOTAL ASSETS $11,027,334 $(1,643,447) $ 9,383,887
========== ========== ==========
TOTAL LIABILITIES $ 2,319,162 $ 25,000 $ 2,344,162
---------- ---------- ----------
Common stock $ 5,918 $ -- $ 5,918
Additional paid-in
capital 9,392,363 -- 9,392,363
Accumulated deficit (690,109) 331,553 (358,556)
Less treasury stock,
at cost -- (2,000,000) (2,000,000)
---------- ---------- ----------
TOTAL STOCKHOLDERS'
EQUITY $ 8,708,172 $(1,668,447) $ 7,039,725
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,027,334 $(1,643,447) $ 9,383,887
========== ========== ==========
</TABLE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
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 47 President and 1981
Chairman of the
Board of Directors
Rod Lynam 48 Treasurer/Assistant 1984
Secretary and Director
Marc DuCharme 44 Senior Vice-President 1989
and Director
H. Stan Johnson 42 Secretary and Director 1989
Pamela R. Axelrod 41 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.
<PAGE>
Rod 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.
Pamela R. Axelrod has been a Vice-President since 1992 and served as
the Manager of the Las Vegas Fashion Show gallery from June 1984 to April 1996.
She has served as Executive Assistant to the President from April 1996.
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,
1996, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.
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, 1996, 1995 and 1994, of
those persons who were, at September 30, 1996 (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>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Principal Position Fiscal Annual Compensation
Year Salary Bonus
- --------------------------- ------ -------- ---------
<S> <C> <C> <C>
Todd M. Axelrod 1996 $132,500
President and Chief 1995 $133,230 $25,000(1)
Executive Officer 1994 $200,000 --
Pamela R. Axelrod 1996 $132,500 $25,000(2)
Executive Vice- 1995 $131,042 $50,000(3)
President 1994 -- (4)
</TABLE>
<PAGE>
(1) Includes deferred bonus in the amount of $25,000 which was paid to
Todd Axelrod during January and June 1996.
(2) Accrued bonus earned not yet paid.
(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 $10,602 was paid in fiscal 1995 and $14,398 was paid in June 1996.
(4) Less than $100,000
During the three year period ended September 30, 1996 the Company did
not grant any stock options or stock appreciation rights to any of the named
executive officers of the Company. In addition, none of the named executive
officers held any stock options.
During the fiscal year ended September 30, 1996, 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, 1997. 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,
1996, 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) 2,051,412 (3)(6) 63.0%
Stock
Common Rod Lynam(2) 105 (4)
Stock
Common H. Stan Johnson 37,000 (5) 1.1%
Stock 301 East Clark Avenue
Las Vegas, Nevada 89101
Common Pamela Axelrod(2) 2,051,412 (6) 63.0%
Stock
Common Gerald Newman 531,500 (7) 14.8%
Stock Seabreeze Lane
Amagansette, NY 10093
Common All Executive Officers 2,088,517 (8) 63.6%
Stock and Directors as a
group (4 persons)
</TABLE>
<PAGE>
(1) Except as otherwise noted in (6) 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) 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 (6) 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.
(4) Less than 1%.
(5) Includes shares issuable upon exercise of options to purchase 25,000
shares of Common Stock, at an exercise price of $4.50 per share.
(6) 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 (3) above).
(7) 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.
(8) Includes 25,000 shares issuable upon exercise of options granted to
Executive Officers and Directors, as described in footnote (5) above.
(c) Changes in Control
------------------
In October 1996, the Company repurchased 2,659,720 shares, or
approximately 45%, of its outstanding common stock, for total consideration of
$2,000,000, consisting of 460 documents valued at $1,803,045 and $196,955 in
cash. The value of the inventory was negotiated by the parties based on an
independent expert's appraisal.
There are no other arrangements known to the Company, the operation of
which may at a subsequent date result in a change of control of the Registrant.
<PAGE>
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 $185,260 in the fiscal year 1994 from Nanna Corp.
The loan bore interest at the prime rate plus 2% and are payable in
installments of $6,000 a month. The loan was paid in full during fiscal 1996.
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 $748. Mrs. Axelrod purchased additional documents from the
Company during fiscal 1996 reducing the loan balance by $1,146. The current
balance of this loan is $42,615 at September 30, 1996. The loan has no
repayment schedule but accrues interest at the prime rate plus 2%. Interest
expense on related party notes was $8,521 during fiscal year 1996. 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.
<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.*
10.4 Lease between Georgetown Park Associates and the Company
dated August 22, 1989.***
10.5 Gallery of History, Inc. 1992 Stock Option Plan.****
10.6 Agreement and Release dated October 11, 1996 between
Ethelmae Stuart Haldan, as trustee of the Ethelman S.
Haldan Trust dated March 30, 1987, and Gallery of
History, Inc.
21 List of Subsidiaries.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
* 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.
<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 16, 1996
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 16, 1996
- ------------------- Chairman of the
TOdd M. Axelrod Board of Directors
(Principal Executive Officer)
/s/ Rod Lynam Treasurer/Assistant December 16, 1996
- ------------------- Secretary and Director
Rod Lynam (Principal Financial and
Accounting Officer)
/s/ Marc DuCharme Senior Vice President December 16, 1996
- ------------------- and Director
Marc DuCharme
/s/ H. Stan Johnson Secretary and Director December 16, 1996
- -------------------
H. Stan Johnson
/s/ Pamela Axelrod Executive Vice President December 16, 1996
- ------------------- and Director
Pamela Axelrod
</TABLE>
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:
3601 West Sahara Corp.
A Nevada Corporation
Gallery of History, Inc.
A Delaware Corporation
Gallery of History Auctions, Inc.
A Nevada Corporation
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated November 1, 1996 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 16, 1996
EXHIBIT 10.6 - AGREEMENT AND RELEASE DATED October 11, 1996 BETWEEN ETHELMAE
STUART HALDAN, AS TRUSTEE OF THE ETHELMAN S. HALDAN TRUST DATED
March 30, 1987, AND GALLERY OF HISTORY, INC.
---------------------------------------------------------------
This Agreement and Release (hereafter, "Agreement") is made as of
October 11, 1996, between Ethelmae Stuart Haldan, as Trustee of the Ethelmae S.
Haldan Trust dated 3/30/87 (hereafter, "Haldan"), and Gallery of History, Inc.,
a Nevada corporation (hereafter, "Company"), with reference to the following
facts:
A. Company proposes to purchase 2,659,720 shares of its common
stock (hereafter, the "Shares") from Haldan, and to satisfy the purchase
price therefor by transferring all of Company's right, title and interest
in and to all of the property listed on Exhibit "A" hereto (hereafter, the
"Property") to Haldan pursuant to a Bill of Sale in the form attached
hereto as Exhibit "B"; and
B. Haldan is agreeable to Company's proposal, and desires to enter
into this Agreement with Company to set forth the parties' agreement
respecting said sale of the Property to Haldan in return for the transfer of
the Shares to Company and other matters related thereto.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto,
and based on the foregoing premises, each of Haldan and Company agree as
follows:
1. Mutual Agreement To Transfer. Company hereby agrees to sell,
transfer and convey the Property to Haldan, and Haldan hereby agrees to
transfer the Shares to Company, all on the terms and conditions as hereinafter
set forth.
2. Agreement As To Value Of Property. Company and Haldan agree
that the fair market value of the Property is $1,803,045.
3. Payment of Cash In Lieu of Delivery of Certain Items. Company
has heretofore sold, contracted to sell, or otherwise will be unable to deliver
certain items which would have otherwise constituted part of the Property, all
of which items are listed on Exhibit "C" hereto. In lieu of delivery of such
items, Haldan has agreed to accept the amount of $196,955, which amount shall
be paid to Haldan in immediately available funds on and as of the Closing (as
hereinafter defined) and as a condition precedent thereto.
4. Conditions And Deliveries. The Closing of the transaction
contemplated hereunder (hereafter, "Closing") shall occur not later than
October 18, 1996, upon the satisfaction of the following conditions and
delivery of the following items:
A. By Company:
(i) Company shall execute and deliver to Haldan the Bill
of Sale in the form attached hereto as Exhibit "B";
(ii) Company shall deliver to a carrier under the direct
supervision of Mr. Selby Kiffer of Sotheby's or Mr. Kiffer's designee
(hereafter, "Haldan's Representative") the Property for shipment to Sotheby's
<PAGE>
in New York, New York, in the form inspected and found acceptable by Haldan's
Representative;
(iii) Company shall deliver to Haldan's Representative
(with copy by facsimile to Irell & Manella LLP, at numbers (310) 203-7199, to
the attention of Mr. Ede C. Ibekwe) a certificate evidencing insurance in the
amount of at least $2,000,000 (with no deductibles) covering any loss that may
occur in the shipment of the Property to Sotheby's in New York, New York;
(iv) Company shall deliver to Haldan cash or other
immediately available funds in the amount of $196,955; and
(v) Company shall cause to be delivered to Haldan the
legal opinion of the firm of Christensen, White, Miller, Fink, Jacobs, Glaser
and Shapiro, LLP, and that of Nevada counsel, Cohen, Johnson & Day, as to
matters of Nevada law, that (a) Company has the corporate power and authority
to enter into this Agreement, (b) this Agreement and the Bill of Sale have
been duly executed and delivered by Company, (c) the Agreement and the Bill of
Sale constitute valid and binding obligations of Company, enforceable against
Company in accordance with the respective terms thereof, and (d) the sale of
the Property by Company and the redemption of the Shares in connection
therewith do not violate any federal or state laws applicable thereto
including, without limitation, federal and state securities laws.
B. By Haldan:
(i) Haldan shall deliver to Company's representative at
the offices of Irell & Manella LLP, 1800 Avenue of the Stars, Suite 900, Los
Angeles, California (a) certificates enumerated on Exhibit "D" hereto and
representing a total of 2,562,220 of the Shares, together with stock power(s)
as necessary to effect the transfer of the ownership of such Shares from
Haldan to Company, and (b) instructions to Goldman, Sachs & Co. (hereafter,
"Goldman") in the form heretofore prepared by Company and accepted by each of
Haldan and Goldman, instructing Goldman to transfer a total of 97,500 of the
Shares held by Haldan in "street name" to the Company (the foregoing items (a)
and (b) are hereinafter referred to as the "Assignment Documents"); and
(ii) Haldan shall cause to be delivered to Company the
legal opinion of the law firm of Irell & Manella LLP, and that of Nevada
counsel to Haldan, Scarpello & Alling, Ltd., as to matters of Nevada law, that
(a) Haldan has the power and authority to enter into this Agreement and
execute and deliver the Assignment Documents, and to sell the Shares pursuant
hereto, (b) this Agreement and the Assignment Documents have been duly
executed and delivered by Haldan, (c) this Agreement and the Assignment
Documents constitute valid and binding obligations of Haldan, enforceable
against Haldan in accordance with the respective terms thereof, and the
purchase of the Property by Haldan does not violate its trust instrument or
the trust and estate laws applicable to Haldan as a trust.
5. Closing. The Closing shall occur when Haldan's Representative
shall have confirmed to Haldan that it is ready and will accept delivery of
the Property, that the Property has been delivered to a carrier for shipment
to Sotheby's in New York, New York, and that such delivery to the carrier was
made under the direct supervision of Haldan's Representative. To facilitate
such determination by Haldan's Representative, Company shall assemble the
Property at its place of business set forth in paragraph 11.1 hereof, and
shall allow Haldan's Representative access thereto, commencing as from 6:00
a.m. on Friday, October 18, 1996, to inspect same for purposes of determining
<PAGE>
(i) the authenticity of each item of Property, (ii) that the items of Property
presented for inspection are all of those set forth on Exhibit "A", and (iii)
that the condition of each such item of Property conforms to the description
thereof as heretofore provided to Haldan and/or Haldan's Representative for
purposes of the appraisal thereof. Haldan's Representative shall confirm to
Haldan when it has made such determination and whether based on such
determination it is ready to accept delivery of the Property on behalf of
Haldan in New York, New York. Company acknowledges and agrees that all of the
Property shall by delivered UNFRAMED, and that no item of Property will be
accepted for delivery if framed. Upon (a) confirmation to Haldan by Haldan's
Representative that (1) Haldan's Representative is ready to accept delivery of
the Property, and (2) the Property had been delivered to a carrier under the
direct supervision of Haldan's Representative, and (b) delivery to Haldan of
the other items to be delivered by Company as set forth in paragraph 4 A.
above, Haldan shall deliver the items required to be delivered by Haldan as
set forth in paragraph 4 B. The Closing shall be deemed to have occurred upon
the consummation of all of the foregoing deliveries by Company and Haldan.
6. Release. Concurrently with the Closing and effective as of the
date of the occurrence thereof, each of Company and Mr. Todd Axelrod on the
one part, and Haldan on the other, hereby irrevocably waives, releases and
discharges the other from any and all claims, demands, rights, actions,
suites, causes of action, settlements, breaches, inaccuracies, obligations,
costs, expenses, damages, liabilities and indemnities of whatever nature
(collectively, "Claims"), and indemnification with respect to Claims
pertaining to, and/or arising from, the purchase and ownership of the Shares
by James E. Haldan and/or Haldan, the purported agreements between Mr. James
E. Haldan and Mr. Todd Axelrod dated May 10, 1994 and May 12, 1994 (hereafter,
the "May Agreements"), and the foregoing persons' dealings with each other
with respect thereto. It is the intention of the parties that the release
affected hereby shall be a bar to each and every Claim with respect to the
matters covered by this release, whether known or unknown, asserted or
unasserted, or suspected or unsuspected. In furtherance of this intention,
each of Company and Mr. Todd Axelrod on the one part, and Haldan on the other,
hereby expressly waives any and all rights and benefits conferred upon it by
the provisions of Section 1542 of the California Civil Code which provides
that:
"A general release does not extend to claims which
the creditor does not know or suspect to exist in
his favor at the time of executing the release,
which if known by him must have materially affected
his settlement with the debtor."
Each of Company and Mr. Todd Axelrod understands, acknowledges and agrees that
the release effected hereby shall have absolutely no effect whatsoever on each
of their respective obligations under this Agreement, and the documents and/or
instruments executed pursuant hereto and/or in connection herewith including,
without limitation, its obligations respecting representations and warranties
made with respect to the Property transferred pursuant hereto, and Haldan
similarly acknowledges, understands and agrees that said release shall have
absolutely no effect on its obligations hereunder including, without
limitation, its representations and warranties respecting the Shares
transferred pursuant hereto.
7. Costs. Company shall be responsible for and shall pay for all
of the costs and expenses of delivery of the Property to Haldan's Representative
in New York, New York, including, without limitation, the costs of insurance
<PAGE>
for the Property, it being acknowledged and agreed that Company shall bear the
risk of loss to the Property at all times prior to delivery thereof to
Haldan's Reprensentative4 in New York, New York.
8. Taxes. Company shall be responsible for and shall pay any
Nevada sales, use or other Nevada taxes applicable to the sale of the Property
to Haldan, and hereby agrees to indemnify and hold Haldan free and harmless from
and against any and all liability for such taxes, it being acknowledged and
agreed that Company shall not be responsible for any taxes measured by or
based on the income of Haldan, or sales, use or other taxes imposed on Haldan
and/or the Property by federal or any other state laws other than the laws of
Nevada and the governmental jurisdictions therein.
9. Indemnification. Company hereby agrees to indemnify, defend and
hold Haldan and its agents, assigns, successors and transferees free and
harmless from and against any liability, loss, claim, damage or cost
(including attorneys' fees and costs) relating to any breach or alleged breach
of Company's representations and/or warranties contained herein and/or in the
Bill of Sale respecting the Property and the transfer thereof to Haldan
pursuant hereto. Haldan shall allow Company to assume control of the defense
of any such action brought by a third party provided that (i) Company shall
deliver to Haldan an agreement in writing to defend such claim at its sole
cost and expense within five (5) business days of notice from Haldan and (ii)
Company is and remains financially capable for providing indemnification for
such claim. Such defense will be conducted by reputable attorneys (reasonably
approved by Haldan) retained by Company at Company's sole cost and expense.
Haldan will have the right to participate in such proceedings and to be
separately represented by attorneys of its own choosing, but will be
responsible for the costs of such separate representation unless the interest
of Haldan and Company in the action conflict in such a manner and to such an
extent as to require, consistent with applicable standards of professional
responsibility, the retention of separate counsel for Haldan, in which case
Company will pay for such separate representation by attorneys chosen by
Haldan. In connection with the foregoing indemnification, Haldan agrees that
with respect to any item of Property, Company shall not be required to pay
Haldan more that 110% of the Sotheby's high auction estimate for such item of
Property as set forth on Exhibit "A" hereto (but not including any costs
incurred by Haldan to enforce this indemnity, or costs incurred by Haldan or
Company to defend against any alleged breach) for any claim by Haldan of loss
or diminution in value of such item of Property resulting from Company's
breach of any representation or warranty contained herein and/or in the Bill
of Sale as to authenticity or ownership of such item of Property, or to pay
any amount respecting any such claim that arises after the fifth anniversary
of the date as of which the Closing occurs; it being acknowledged and agreed
by Company that the foregoing limitation shall not apply to limit (i) any
other claim by Haldan to the extent the same is not based on the authenticity
or ownership of the Property or any item thereof, or (ii) Haldan's claim based
on the authenticity or ownership of Property or any item thereof if breach of
the representation and/or warranty of authenticity or ownership resulted from
Company's willful misconduct.
10. Representations.
A. By Haldan: Haldan represents and warrants to Company that:
(i) Haldan is not a "foreign person" as such terms is
defined in 1445(f) of the Internal Revenue Code;
<PAGE>
(ii) Haldan is the sole, rightful, legal and beneficial
owner of the Shares:
(iii) Haldan has the legal capacity to sell the Shares to
Company and to make the representations and warranties set forth in the
paragraph 10A.;
(iv) the Shares will be transferred to Company free of
any lien, encumbrance or claim of any kind whatsoever against the Shares or
title thereto;
(v) upon execution by Haldan and delivery thereof to
Company of this Agreement and the Assignment Documents, good title and right
to possession of the Shares will pass to Company; and
(vi) the execution, delivery and performance of this
Agreement by Haldan will not violate its trust instrument or the trust and
estate laws applicable to Haldan as a trust.
Haldan hereby agrees to indemnify Company and its directors,
officers, agents, assigns, successors and transferees against any breach of
Haldan's representations and warranties set forth in this paragraph 10A.
Company shall allow Haldan to assume control of the defense of any action
brought by any third party for which Haldan is obligated to indemnify Company
pursuant to the forgoing provided that (1) Haldan shall deliver to Company an
agreement in writing to defend such claim at its sole cost and expense within
five (5) business days of notice from Company and (2) Haldan is and remains
financially capable of providing indemnification for such claim. Such defense
shall be conducted by reputable attorneys (reasonably approved by Company)
retained by Haldan at Haldan's sole cost and expense. Company will have the
right to participate in such proceedings and to be separately represented by
attorneys of its own choosing, but will be responsible for the costs of such
separate representation unless the interest of Company and Haldan in the
action conflict in such a manner and to such an extent as to require,
consistent with applicable standards of professional responsibility, the
retention of separate counsel for Company, in which case Haldan will pay for
such representation by attorneys chosen by Company.
B. By Company: Company represents and warrants to Haldan that:
(i) it has the legal capacity to enter into this Agreement,
sell the Property to Haldan and make the representations and warranties herein
and in the Bill of Sale regarding such sale;
(ii) its execution, delivery and performance of this
Agreement has been duly authorized by all necessary corporate action, the
person executing this Agreement has been duly authorized to do so by the
Company, and the Company has duly executed and delivered this Agreement;
(iii) its execution, delivery and performance of this
Agreement and its purchase of the Shares will not violate the Company's
constating instruments, and laws applicable to Company, or agreements binding
on the Company or its property;
(iv) it has filed as and when due (giving effect to
extensions obtained) all federal and state tax returns required to be filed by
Company, and has paid all taxes due and payable in such returns, and has paid
all sales, use, withholding and other taxes applicable to Company, other than,
<PAGE>
in each of the foregoing instances, taxes being contested in good faith and
with respect to which Company has appropriately reserved for the payment
thereof in accordance with generally accepted accounting principles; the
Company has not received any notice of a deficiency or other claim for taxes
owing from any federal or state taxing authority, other than such as have been
paid, or settled with any settlement amount paid;
(v) Company has complied with all applicable provisions of
the Uniform Commercial Code as in effect in the State of Nevada respecting the
sale of the Property;
(vi) the Company is not qualified to conduct business in
the State of New York, and neither its business activities in said state nor
its ownership of property located therein would require that the Company
qualify to do business in the State of New York; and
(vii) other than the items set forth on Exhibit "A" and
Exhibit "C" hereto, the Company does not have any other item of inventory with
"raw" cost (that is excluding framing, research, translation, conservator
costs and the like) of $2,000 or more, except for approximately 121 items with
individual "raw" cost of $2,000 or more, which items aggregate less than
$415,000.
C. Each of Haldan's and Company's representations and
warranties herein shall survive the Closing and shall not be affected in any
manner whatsoever by any inspections conducted by or on behalf of such party
respecting the items covered by such representations and/or warranties, it
being acknowledged and agreed, however, that the representations and
warranties of Company respecting authenticity and/or ownership of the Property
shall not survive beyond the fifth anniversary of the date as of which the
Closing occurred.
11. Miscellaneous.
11.1 Notices. All notices, requests, demands to or upon,
or other communication with, the respective parties hereto to be effective
shall be in writing (including by facsimile transmission) and, unless
otherwise expressly provided herein, shall be deemed to have been duly given,
made or received (a) in the case of delivery by hand, when delivered, (b) in
the case of delivery by mail, three (3) days after being deposited in the
mails, postage prepaid, or (c) in the case of delivery by facsimile
transmission, when sent and receipt has been confirmed, addressed as follows:
If to Haldan:
Alvaro Pascotto, Esq.
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, CA 90067-4267
Telecopier: (310) 203-7199
If to Company:
Gallery of History
3601 West Sahara Avenue
Las Vegas, Nevada 89102
Telecopier: (702) 364-1285
<PAGE>
11.2 Entire Agreement. This Agreement and the other
documents and instruments expressly referred to herein constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements of the parties with respect hereto. There are
no promises, undertakings, representations or warranties, whether oral or
written, by Haldan relative to the subject matter hereof which has not been
expressly set forth or referred to herein. The May Agreements are hereby
canceled and of no further force or effect.
11.3 Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be governed by, and construed and
interpreted in accordance with, the laws of the State of California.
11.4 Counterparts. This Agreement may be executed by one
or both parties to this Agreement on any number of separate counterparts
(including facsimile transmission), and all of said counterparts when taken
together shall be deemed to constitute one and the same instrument. A faxed
signature shall have the same validity as a manual signature.
11.5 Amendments: Successors and Assigns. This Agreement
may not be modified or amended without the prior written consent of the
parties hereto. This Agreement shall be binding on the parties hereto and
their respective successors and assigns.
11.6 Resolution of Disputes. Except for actions seeking
injunctive relief, which may be brought either in arbitration or in any court
having jurisdiction, any dispute on any matter regarding this Agreement shall
be submitted by the parties to binding arbitration in Los Angeles, California
in accordance with the rules of the American Arbitration Association. The
parties agree that all of the discovery rights available under Section 1283.05
of the California Code of Civil Procedures shall be available to the parties
in connection with any arbitration proceeding. The parties acknowledge that
in the event of any arbitration or other action to resolve disputes hereunder,
the prevailing party in such dispute shall be entitled and shall receive
(including, without limitation, as part of any award in an arbitration) the
fees and costs incurred by it in connection with such dispute including,
without limitation, the fees and costs of counsel engaged in connection
therewith. "In any arbitration proceeding hereunder, the parties hereto
hereby EXPRESSLY, KNOWINGLY AND VOLUNTARILY FULLY AND FINALLY WAIVE AND
RELINQUISH any and all provisions of, and rights and benefits that may arise
under, Section 1281.9 of the Code of Civil Procedure of the State of
California ("the statute"), and hereby DISCHARGE AND EXONERATE any person(s)
proposed for nomination as neutral arbitrator(s) from any duty to comply with
any of the provisions of the statute in any such arbitration proceeding
hereunder.
In connection with such waiver, relinquishment, exoneration and
discharge, the parties acknowledge that they have read and are familiar with
the provisions of the statute and have had adequate opportunity to consult
with legal counsel with respect thereto and with respect to any other
pertinent provisions of law. All parties, with the advice of their respective
legal counsel, agree that the statute is unnecessary and burdensome as to them
and that it is in their best interests to enter into this agreement, so that
the arbitration process provided for by this agreement shall proceed as if the
statute did not exist.
<PAGE>
HOWEVER, this waiver, relinquishment, exoneration and discharge is
not intended to apply to any judicial appointment of arbitrators, nor is it
intended to discharge or exonerate any potential arbitrator from any other
duty imposed by law or equity.
12. Agreement Negotiated. The parties hereto are sophisticated
and have been represented by lawyers throughout this transaction who have
carefully negotiated the provisions hereof. As a consequence, the parties do
not believe that the presumptions of Civil Code Section 1654 and similar laws
or rules relating to the interpretation of contracts against the drafter of
any particular clause should be applied in this case and therefore waive their
effects. Only the final executed version of this Agreement may be admitted
into evidence or used for any purpose, and drafts of this Agreement shall be
disregarded for all purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the date first above written by the
person(s) duly authorized to do so.
Ethelmae S. Haldan Trust
Dated 3/30/87
By: /s/ Ethelmae Stuart Haldan, Trustee
-------------------------------------
Ethelmae Stuart Haldan, as Trustee
Gallery of History, Inc.,
a Nevada corporation
By: /s/ Todd M. Axelrod
-------------------------------------
Mr. Todd Axelrod
Its: President
The undersigned, Mr. Todd Axelrod, by execution hereof hereby
joins in the release effected in paragraph 6 hereof, and otherwise agrees to
the terms hereof and to be bound thereby.
By: /s/ Todd M. Axelrod
-------------------------------------
Mr. Todd Axelrod
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet dated September 30, 1996 and its
Consolidated Statement of Operations covering the period from October 1,
1995 to September 30, 1996 and is qualified in its entirety by reference
to such financial statement and notes thereof.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 115800
<SECURITIES> 0
<RECEIVABLES> 98301
<ALLOWANCES> 0
<INVENTORY> 8677725
<CURRENT-ASSETS> 0
<PP&E> 3386617
<DEPRECIATION> 2288093
<TOTAL-ASSETS> 11027334
<CURRENT-LIABILITIES> 0
<BONDS> 1874765
0
0
<COMMON> 5918
<OTHER-SE> 8702254
<TOTAL-LIABILITY-AND-EQUITY> 11027334
<SALES> 2116725
<TOTAL-REVENUES> 2116725
<CGS> 600391
<TOTAL-COSTS> 600391
<OTHER-EXPENSES> 1483711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 225221
<INCOME-PRETAX> (36151)
<INCOME-TAX> 100
<INCOME-CONTINUING> (36251)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36251)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
