<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, 1997
[ ] 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. [ ]
Issuer's revenues for the most recent fiscal year: $3,029,405.
The aggregate market value of the Registrant's Common Stock held by non-
affiliates of the Registrant (1,189,419 shares) as of December 1, 1997 was
approximately $3,270,897 based upon $2.75, the price at which the stock was
sold on such date.
The Registrant had 3,210,934 shares of Common Stock outstanding as of
December 1, 1997.
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The Company is engaged in the business of marketing historical documents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
persons now deceased, but a significant number were written or executed by
persons still living, particularly in the entertainment, sports and political
areas. The Company's inventory of documents currently consists of approximately
160,000 different documents. Retail sales of documents are made from two
galleries located at its headquarters in Las Vegas, Nevada and at Georgetown
Park in Washington, D.C. Documents are also sold through auctions and its
headquarters location to other dealers and collectors.
The Company's 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. Documents sold through the auction
operation are generally sold in a raw unframed state. 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.
The Company sells in its galleries a book entitled "The Handbook of
Historical Documents - A Guide to Owning History" authored by Todd M. Axelrod,
the Company's President and Chairman of the Board.
In early fiscal 1997, the Company formed a new division, called Gallery
of History Direct, dedicated to the issuance of bi-monthly catalogues employing
a mail/phone/fax/internet auction format featuring original historical
documents. The Company distributed its first catalogue in November 1996 for a
December 1996 mail/phone/fax/internet auction. Throughout fiscal 1997,
the Company had seven auctions.
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
<PAGE>
of approximately 160,000 items. The Company's inventory consists of documents
written or signed approximately as follows: 28% by sports figures, 22% by
prominent entertainers, 11% by prominent figures in aviation, medicine,
business, science, exploration, or Nobel Prize winners, 10% by military figures,
7% 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 a personal
computer client server network. The computer system allows the Company's sales
staff to identify inventory held in the Company's central repository and in its
headquarters and Washington, DC galleries. The staff can obtain descriptions
of the documents and even obtain copies to exhibit to customers.
Clientele
The Company has two primary marketing strategies. The first is its
direct sales approach via auctions and a catalog program. Originating from its
Corporate Headquarters, the Company developed a wholesale sales program
directed at autograph dealers, auction houses, major customers and
corporations. Its catalog program will distribute seven or eight different
catalogs per year to its own retail customers, collectors and dealers of
historical documents and a pre-qualified test market.
The Company's other primary marketing strategy is its retail operation
conducted through two locations, its headquarters in Las Vegas, Nevada and a
gallery located in Washington DC. The marketing effort is to 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.
For the year ended September 30, 1997, the Company sold 2,334 documents
with an average single document sales price of approximately $1,300. During
the fiscal year ended September 30, 1997, the Company generated sales of
$570,950, 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.
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.
<PAGE>
The Company makes available to its customers a ten-year Certificate of
Authenticity, which obligates the Company to refund to the customer the
purchase price paid if any document is proven non-authentic. 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 framing department gives the Company the ability to frame
documents, customize matting and engrave biographical and historical information
on metal plates relevant to the specific document, all of which are included in
the framed presentation of its documents.
The manner in which the Company frames documents and prepares them for
sale in its galleries is believed to be an important element in persuading
clientele of the desirability of documents as collectibles, and their
comparability to a work of art that can be displayed in homes and offices. The
Company anticipates that its framing department will be able to fulfill the
framing needs of its existing retail galleries and that it can be readily
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.
In the past several years, many autograph dealers have closed their
retail gallery operations and are attempting to sell their inventories through
an auction format. In addition, many of the upscale malls are remerchandising
for middle-market masses as the consumer looks for warehouse shopping. Since
closing the Company's Fashion Show Mall in March 1997, 95% of the Company's
sales have been through its auction-wholesale efforts at the Company's
headquarters location. Thus, the Company has strategically moved towards
<PAGE>
marketing through a mail/phone/fax/internet auction format with an occasional
live auction.
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.
The Company does accept consignments for its auctions. To the extent the
Company is successful in attracting consignments, it would be positively
impacted by this higher price scenario because the Company receives a
commission from both the buyer and consignor which is based upon a percent of
the hammer price.
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 retail sales relating to the traditional holiday shopping season.
Because the Company expects to receive less than 5% of its revenues from its
gallery-retail sources, the benefit from a spike in holiday shopping is
expected to diminish.
Employees
As of December 5, 1997, the Company had ten full-time and three part-
time employees, in addition to its five executive officers.
Item 2. Properties
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The Company owns a building located at 3601 West Sahara Avenue, Las
Vegas, Nevada where its executive offices and framing operations are located.
The building contains approximately 33,187 square feet of net leasable space
of which the Company currently occupies 15,580 square feet and leases or is
offering to lease the remaining space to others. As of December 5, 1997,
13,842 square feet was being leased to seven tenants for an aggregate monthly
rental of $19,783 under leases expiring at varying times from January 1998
through June 2011. Refer to Note 5 of the Notes to Consolidated Financial
Statements for a description of the mortgage on the Company's headquarters
building. The Company believes that its headquarters' building is adequate
for its purposes for the foreseeable future and that the building is
<PAGE>
adequately covered by insurance.
The Company's Georgetown Park, Washington DC gallery opened in October
1989 with a lease expiring in September 1999. The gallery has 739 square feet.
The Company owns a Hewlett Packard Netserver LS2 and a Dell PowerEdge
4200 Server and twenty-one micro-computers. The computer system is used 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, 1997.
PART II
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 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
Fiscal 1997
October 1, 1996 - December 31, 1996 3-1/4 1-1/2
January 1, 1997 - March 31, 1997 3-1/4 2-3/4
April 1, 1997 - June 30, 1997 3-1/4 2-3/4
July 1, 1997 - September 30, 1997 2-7/8 2-3/4
</TABLE>
<PAGE>
(b) As of December 5, 1997 there were approximately 147 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 approximately 264
beneficial owners of the Company's common stock as of June 27, 1997.
(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 internal cash flow use and possible
repurchase of its own common stock.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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Liquidity and Capital Resources
The Company has in the past acquired documents in excess of
current needs to accommodate future growth and appreciation. Because
of this, the Company believes it is not practicable to determine what
portion of the documents owned will be sold within the next operating
cycle. Therefore, the Company presents in its financial statements an
unclassified balance sheet. Accordingly, the traditional measures of
liquidity in terms of changes in working capital are not applicable.
Short-term liabilities (including the current portion of long-term
debt) exceeded the aggregate of cash, accounts receivable and prepaid
expenses (approximately $131,000 at September 30, 1997) by
approximately $165,000. This compares to approximately $88,000 of
short-term liabilities in excess of cash accounts receivable and
prepaid expenses as of September 30, 1996.
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 1998.
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, 1997, there were no funds drawn against this line of
credit. In addition, the Company has a reducing principal line of
credit in the amount of approximately $70,000 as of September 30,
1997, with a maturity of March 1999. The principal is reduced by
$4,667 a month. As of September 30, 1997, there were no funds drawn
against this line of credit. Any funds drawn bear interest at prime
plus 1.5%. In July 1997, the Company's term mortgage note was
converted to a reducing revolving line of credit in the amount of
$1,839,523. The line of credit has a 59 month amortization of
principal at a 9% interest rate and a balloon payment due at maturity
of July 2002 in the amount of $1,565,106. This line of credit is
collateralized by the Company's headquarters building. As of
September 30, 1997, there was $427,563 available under this line of
credit. As of September 30, 1997, the Company has available
approximately $610,000 between all of its credit facilities. The
Company cannot predict the extent to which similar sources will be
available to fund future operations. Accordingly, there is no
assurance that the Company's historical means of fulfilling its cash
<PAGE>
needs, or that other means, will be available in the foreseeable
future. The Company will not be showing substantial cash balances
because it is to the Company's advantage to reduce its outstanding
mortgage balance.
The Company closed its Las Vegas Fashion Show Mall gallery in
March 1997, when that lease expired. Management decided not to renew
this lease but rather to move the retail operation to its Las Vegas
headquarters location.
The Company's plan of operation has been to shift from the
gallery-retail generated sales approach to an auction environment.
With its large document inventory, the Company's auction-wholesale
marketing efforts attract wholesale customers, upscale seasoned
collectors and other dealers. The Company intends to continue to
develop its auction operation to attract wholesale as well as retail
customers.
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, 1997.
Primarily, this was due to the Company's net income realized for the
fiscal year. Also contributing to the increase of net cash provided
by operations was a decrease in document inventory primarily due to
the increase in sales, a write down of the Company's book inventory
resulting from the curtailment of the Company's retail operation and
the increase in deferred taxes. The cash generated from operations
was primarily used to reduce the Company's mortgage and notes payable.
In addition, the Company repurchased 2,659,720 shares of its common
stock from a shareholder for total consideration of $2,000,000,
consisting of 460 documents valued at $1,803,045 and $196,955 in cash.
The book value of the inventory was $1,446,492, resulting in a gain on
disposition of $356,553. In fiscal 1997, the Company repurchased
17,000 additional shares of its common stock for an aggregate $47,481.
Subsequently, in October 1997, the Company purchased 30,000 shares of
its common stock for $87,026.
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. 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
<PAGE>
and wholesale sales by the Company have, to date, been in excess of carrying
costs of the documents sold. The Company has engaged an expert to help
evaluate and authenticate its inventory on a regular basis.
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 its market, may be adversely affected.
Thus, although the retail and wholesale values 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. Management of the Company
actually believes that tangible collectibles move inversely with financial
assets over the long term. As a result, during times of greater inflationary
expectations, tangible collectibles may actually be the beneficiary of
greater interest when inflationary expectations rise.
The Company anticipates no material commitments for capital
expenditures at the present time as the Company is not currently
contemplating additional gallery expansion. Management is not aware
of any trend in the Company's capital resources, which may have an
impact on its income, revenue or income from continuing operations.
Results of Operations
- ---------------------
Fiscal 1997 Compared to Fiscal 1996
Document sales increased 43% comparing fiscal 1997 to 1996.
Auction sales amounted to approximately $2,100,000 or 70% of total
sales for fiscal 1997. This can be compared to approximately $940,000
in sales generated at outside auction houses during fiscal 1996.
Gallery retail sales decreased 28% comparing the periods; the closure
of the Dallas gallery in fiscal 1996 accounted for 35% of this decrease
and the closure of the Las Vegas, Nevada gallery in fiscal 1997 accounted
for 79% of the decrease. Sales made through the Company's headquarters
operation increased 132% to approximately $130,000 primarily due to the
relocation of the Las Vegas retail operation.
Total cost of sales remained the same at 28% of net sales for
fiscal 1997 as compared to fiscal 1996. Cost of documents amounted to
21% of net sales for fiscal 1997, the cost of catalogs amounted to 7% of
net sales. Cost of retail sales decreased to 25% of net retail sales for
the fiscal year 1997 as compared to 27% of net retail sales for fiscal 1996.
Total operating expenses increased approximately $400,000 or 26%
comparing fiscal 1997 to fiscal 1996 but decreased as a percentage of
sales to 62% for 1997 compared to 70% for fiscal 1996. A restructuring
charge incurred by the Company in fiscal 1997 amounted to 56% of this
increase. As the Company is restructuring the nature of its business by
shifting from retail sales to wholesale/auction sales, the Company's gallery
retail operations have been significantly reduced. In light of this change,
management decided to write down certain assets associated with the Company's
retail sales operations. The major portion of this charge was a write down
<PAGE>
of the Company's book inventory to more accurately reflect management's
estimate of its current market value.
Selling, general and administrative expenses increased 11% to 48%
of net sales for fiscal 1997 from 62% of net sales for fiscal 1996.
Professional fees increased 44% during fiscal 1997 largely due to a stock
<PAGE>
repurchase transaction detailed in Note 10 to the Consolidated Financial
Statements. Travel expenses increased 40% and salaries increased 19% compared
to fiscal 1996 due to the auction operation. Depreciation expenses decreased
35% to 3% of net sales for fiscal 1997 as compared to 6% of net sales for
fiscal 1996. This decrease is largely due to equipment and leasehold
improvements becoming fully depreciated and the closure of gallery locations.
Advertising expenses increased to 3% of net sales for fiscal 1997 as compared
to 1% of net sales for fiscal 1996. The increase is due to the Company's
advertising programs that promoted its new auction operation.
Interest expense decreased 19% to 6% of net sales for fiscal 1997 as
compared to 11% of net sales for fiscal 1996. The decrease in interest expense
can be attributed to the lower average outstanding loan balances in the
current year.
Included in selling, general and administrative expenses is 50% of
the operating cost to maintain the headquarters building. This percentage is
the approximate square footage occupied by the Company's headquarters
operation to the total leasable space of the building. The remaining building
operating expenses plus the rental revenues realized are offset and included
in other income and expense. This amounted to approximately $200,000
operating profit for fiscal 1997 as compared to approximately $195,000
operating profit for fiscal 1996.
<PAGE>
Item 7. Financial Statements.
---------------------
<TABLE>
TABLE OF CONTENTS
PAGE
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<S> <C>
Independent Auditors' Report . . . . . . . . . . . 12
Consolidated Balance Sheets - September 30,
1997 and 1996 . . . . . . . . . . . . . . . . 13
Consolidated Statements of Operations for the
Years ended September 30, 1997 and 1996. . . 14
Consolidated Statements of Changes in Stock-
holders' Equity for the Years Ended
September 30, 1997 and 1996 . . . . . . . . . 15
Consolidated Statements of Cash Flows for the
Years ended September 30, 1997 and 1996 . . . 16
Notes to Consolidated Financial Statements . . . . 18
</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, 1997 and 1996, 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, 1997 and 1996, 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 7, 1997
<PAGE>
<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
__________________________________________________________________
<CAPTION>
Notes 1997 1996
------- ---- ----
<S> <C> <C> <C>
ASSETS
Cash $ 20,095 $ 115,800
Accounts receivable 59,650 98,301
Prepaid expenses 50,928 53,198
Documents owned 1,5,10 6,980,816 8,677,725
Land and building-net 2,5,8 1,454,805 1,484,292
Property and equipment-net 1,2,5 258,536 194,232
Other assets 3 168,636 403,786
---------- ----------
TOTAL ASSETS $ 8,993,466 $11,027,334
========== ==========
LIABILITIES
Accounts payable $ 74,409 $ 84,117
Notes payable 5 62,600 196,889
Indebtedness to related parties 4,5 -- 42,615
Mortgage notes payable 5 1,376,239 1,874,765
Deposits 49,570 30,073
Deferred tax 144,043 --
Accrued and other liabilities 93,633 90,703
---------- ----------
TOTAL LIABILITIES 1,800,494 2,319,162
---------- ----------
COMMITMENTS AND CONTINGENCIES 8
STOCKHOLDERS' EQUITY
Common stock: $.001 par value;
authorized, 10,000,000 shares;
5,917,654 shares issued;
5,917,654 outstanding 6,10 5,918 5,918
Additional paid-in-capital 9,392,363 9,392,363
Common stock in treasury
(2,676,720 shares) (2,047,481) --
Accumulated deficit (157,828) (690,109)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 7,192,972 8,708,172
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,993,466 $11,027,334
========== ==========
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, 1997 AND 1996
________________________________________________________________
<CAPTION>
Notes 1997 1996
------- ---- ----
<S> <C> <C> <C>
REVENUES 1 $3,029,405 $2,116,725
COST OF REVENUES 857,609 600,391
--------- ---------
GROSS PROFIT 2,171,796 1,516,334
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative 1,454,907 1,309,785
Depreciation 1,2 80,702 124,619
Advertising 92,079 16,711
Maintenance and repairs 1 27,070 26,719
Loss on gallery closures 941 5,877
Restructuring charge 3 217,438 --
--------- ---------
TOTAL OPERATING EXPENSES 1,873,137 1,483,711
--------- ---------
OPERATING PROFIT 298,659 32,623
--------- ---------
OTHER INCOME (EXPENSE):
Gain on repurchase of stock 356,553 --
Interest expense (182,250) (225,221)
Other, net 8 205,662 156,447
--------- ---------
TOTAL OTHER INCOME (EXPENSE) 379,965 (68,774)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 678,624 (36,151)
PROVISION FOR INCOME TAXES 1,7 146,343 100
--------- ---------
NET INCOME (LOSS) $ 532,281 $ (36,251)
========= =========
EARNINGS (LOSS) PER SHARE 9 $ .16 $(.01)
==== ====
See the accompanying notes to consolidated financial statements.
- ----------------------------------------------------------------
</TABLE>
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<TABLE>
GALLERY OF HISTORY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
__________________________________________________________________________
<CAPTION>
Additional Common
Common Stock Paid-in Accumulated Stock in
Shares Par Value Capital Deficit Treasury Total
------ --------- ------- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE
AT 9/30/95 5,917,654 $5,918 $9,392,363 $(653,858) -- $8,744,423
Net Loss -- -- -- (36,251) -- (36,251)
---------- ----- --------- -------- ---------- ---------
BALANCE
AT 9/30/96 5,917,654 5,918 9,392,363 (690,109) -- 8,708,172
Repurchase
Common
Stock (2,676,720) -- -- -- (2,047,481) (2,047,481)
Net Income -- -- -- 532,281 -- 532,281
---------- ----- --------- -------- ---------- ---------
BALANCE
AT 9/30/97 3,240,934 $5,918 $9,392,363 $(157,828) $(2,047,481) $7,192,972
========== ===== ========= ======== ========== =========
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, 1997 AND 1996
________________________________________________________________
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 532,281 $ (36,251)
Adjustments to reconcile net income
loss to net cash provided by
operating activities:
Depreciation and amortization 143,400 184,942
Gain on exchange of inventory for
common stock (356,553) --
Gain on disposal of property (4,315) (4,064)
(Increase) decrease in:
Accounts receivable 38,651 (90,665)
Prepaid expenses 2,270 4,645
Documents owned (a) 250,417 449,192
Other assets 235,150 49,258
Increase (decrease) in:
Accounts payable (9,708) 23,167
Deposits 19,497 (231,266)
Deferred tax 144,043 --
Accrued and other liabilities 2,930 (47,808)
-------- --------
Net cash provided by operating
activities 998,063 301,150
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (105,403) (130,463)
Proceeds from sale of property and
equipment 2,000 7,500
Purchase of documents (a) -- --
-------- --------
Net cash used for investing activities (103,403) (122,963)
(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 $331,858 and
$68,190 in fiscal 1997 and 1996 included in the net decrease in
inventory of documents and frames owned ($250,417 in fiscal 1997 and
$449,192 in fiscal 1996) 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, 1997 AND 1996
________________________________________________________________
1997 1996
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank lines of credit $ 137,500 $ 85,000
Repayments of bank lines of credit (137,500) (85,000)
Proceeds from notes payable
and mortgage notes payable 55,000 182,000
Repayments of notes payable
and mortgage notes payable (800,929) (415,682)
Repurchase of common stock (244,436) --
-------- --------
Net cash used for financing activities (990,365) (233,682)
-------- --------
NET DECREASE IN CASH (95,702) (55,495)
CASH, BEGINNING OF YEAR 115,800 171,295
-------- --------
CASH, END OF YEAR $ 20,095 $ 115,800
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for interest $ 195,276 $ 225,223
======== ========
Cash paid during the year for income
taxes $ 22,750 $ 100
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
For the year ended September 30, 1997:
(1) Documents with a cost of $1,446,492 were exchanged for shares of the
Company's common stock valued at $1,803,045.
(2) Debt of $70,499 was incurred for the purchase of a truck.
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.
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 makes available to its customers a certificate of
authenticity, valid for ten years from date of purchase, for each
document it sells. 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.
Management reviews the value of the documents owned on a regular basis
to determine potential impairments and to ensure that documents owned
are not reflected at amounts 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.
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.
<PAGE>
Major Customers - Document sales attributable to major customers (i.e.,
individual customers whose purchases account for 10% or more of total
document sales) aggregated $570,950 for the year ended September 30,
1997. 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.
2. PROPERTY AND EQUIPMENT
Property and equipment and land and building at September 30, 1997
and 1996 consist of the following:
<TABLE>
<CAPTION>
Estimated
Service
Lives 1997 1996
----- ---- ----
<S> <C> <C> <C>
Land $ 580,000 $ 580,000
Building 30 years 1,403,377 1,385,377
Total cost 1,983,377 1,965,377
Less accumulated depreciation 528,572 481,085
Land and building - net $1,454,805 $1,484,292
Equipment and furniture 5 years $1,023,667 $1,539,940
Leasehold improvements 5-15 years 338,145 461,300
--------- ---------
Total cost 1,361,812 2,001,240
Less accumulated depreciation
and amortization 1,103,276 1,807,008
--------- ---------
Property and equipment - net $ 258,536 $ 194,232
========= =========
</TABLE>
3. OTHER ASSETS
Other assets at September 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Book inventory and books in
process, net of amortization $ 15,762 $247,706
Framing raw materials inventory 144,587 151,999
Other 8,287 4,081
------- -------
Total $168,636 $403,786
======= =======
</TABLE>
<PAGE>
A restructuring charge was incurred during the fiscal year representing
the write down of certain assets, principally the Company's book
inventory, associated with the Company's retail sales operations. The
Company recently restructured the nature of its business away from the
retail sales to wholesale/auction sales.
4. RELATED PARTIES
During the fiscal year ended September 30, 1996 the Company borrowed
$35,400 from Nanna Corp., a company owned 100% by Todd Axelrod and his
wife, Pamela. The loan bore interest at the prime rate plus 2%. The
loan was repaid in full during fiscal 1996. In May 1994 the Company
borrowed $110,000 from Pamela Axelrod, a Vice President of the Company.
The loan was paid in full during fiscal 1997. Interest expense on
related party notes was $2,809 during fiscal year 1997. The proceeds
for such loans have been utilized by the Company for working capital
purposes.
The Company purchases catalogs for its auction operation from Nanna
Corp. During fiscal 1997, the Company has paid $146,500 for its seven
auctions. The Company believes that such purchase prices were
substantially comparable to what it would have had to pay an unrelated
supplier.
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>
1997 1996
---- ----
<S> <C> <C>
Mortgage note at 9% with 59 month
amortization of principal and the unpaid
balance due July 15, 1998,
collateralized by a building. $ -- $1,874,765
Reducing revolving line of credit in the
amount of $1,839,523. The line has a 59
month amortization of principal at a 9%
interest rate, a balloon payment due at
maturity of July 15, 2002 in the amount
of $1,565,106 and is collateralized by
a building. 1,376,239 --
Equipment notes payable at 10.12% with
monthly amortization of principal through
March 1997, collateralized by related
equipment. -- 22,392
Term note payable at prime plus 1.5% with
59 monthly payments of principal with
the unpaid balance due July 15, 1998,
<PAGE>
1997 1996
---- ----
collateralized by all present and
hereafter acquired documents, equipment,
furniture, fixtures and furnishings. -- 174,497
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
Term note payable at 7.99% with 60 monthly
payments of principal with the unpaid
balance due March 5, 2002, collateralized
by a truck 62,600
Related party note payable at prime plus 2%. -- 42,615
--------- ---------
Total $1,438,839 $2,114,269
========= =========
</TABLE>
Maturities of notes and mortgage notes payable are as follows for
fiscal years ending September 30:
<TABLE>
<S> <C>
1998 $ 78,485
1999 108,583
2000 141,492
2001 177,477
2002 932,801
---------
Total $1,438,838
=========
</TABLE>
The Company has a line of credit from a bank in the amount of $100,000
available through, and due on July 15, 1998. As of September 30, 1997,
there were no funds drawn against this line of credit. Any funds
drawn bear interest at prime plus 1.5%. In addition, the Company has
a reducing principal line of credit in the amount of approximately
$70,000 as of September 30, 1997, with a maturity of March 1999. The
principal is reduced by $4,667 a month. As of September 30, 1997,
there were no funds drawn against this line of credit. Any funds drawn
bear interest at prime plus 1.5%.
In July 1997, the Company's term mortgage note was converted to a
reducing revolving line of credit in the amount of $1,839,523. The
line of credit has a 59 month amortization of principal, a 9% interest
rate and a maturity date of July 2002. As of September 30, 1997,
there was $427,563 available under this line of credit.
The estimated fair value of the Company's debt at September 30, 1997
and 1996, respectively, was approximately $1,439,000 and $2,114,000,
which approximates its book value. The estimated fair value amounts
were based on discounted cash flow valuations, because none of the
<PAGE>
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.
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, 1997:
<TABLE>
<CAPTION>
Number Exercise Expiration
of Shares Prices Dates
--------- ------ -----
<S> <C> <C> <C>
Outstanding, 9/30/96 374,400 $2.47 to $4.50 1998
Canceled or expired --
-------
Outstanding, 9/30/97 374,400 $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
1997 and none remain outstanding as of September 30, 1997.
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, under which no compensation
cost has been recognized. In fiscal year 1997, the Company adopted
Statement of Financial Accounting Standards No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation", and noted that the impact of
adopting SFAS 123 on the net income (loss) in 1997 and 1996,
respectively, was immaterial.
7. INCOME TAXES
The provision for income taxes for the years ended September 30, 1997
and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current
Federal $ 2,300 $ --
State -- 100
Deferred 144,043 --
-------- -------
Total $ 146,343 $ 100
======== =======
</TABLE>
<PAGE>
Components of deferred tax assets (liabilities) for the years ended
September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Depreciation $(190,779) $(176,358)
Other (98) (98)
-------- --------
Gross deferred tax liabilities (190,877) (176,456)
-------- --------
Net operating loss carryforward 27,966 219,683
Other 18,868 52,075
-------- --------
Gross deferred tax assets 46,834 271,758
-------- --------
Net deferred tax assets (liabilities) (144,043) 95,302
Less valuation allowance -- (95,302)
-------- --------
Net deferred tax liabilities $(144,043) $ --
======== ========
</TABLE>
Statement of Financial Accounting Standards No. 109 requires
recognition of the future tax benefit of these assets to the extent
realization of such benefits is more likely than not, otherwise, a
valuation allowance is applied. At September 30, 1996, the Company
determined that $95,302 of tax benefits did not meet the realization
criteria because of the Company's prior history of operating results.
Accordingly, a valuation allowance was applied to reserve the
applicable deferred tax asset.
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>
1997 1996
---- ----
<S> <C> <C>
Statutory U.S. tax rate (35%) $ 237,518 $ (12,688)
Increase (decrease) from rate:
State taxes -- 100
Limitation on utilization
of tax benefits (405) 12,688
Change in valuation allowance (90,770) --
-------- --------
Effective tax rate (21.6%, 0.3%) $ 146,343 $ 100
======== ========
</TABLE>
<PAGE>
As of September 30, 1997, 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 $ 79,904
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
The Company 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, 1997:
<TABLE>
<C> <C>
1998 $ 40,645
1999 40,645
-------
Total $ 81,290
=======
</TABLE>
The lease covering the sales outlet in Georgetown, Washington D.C.
expires in fiscal 1999, and contains no specific renewal terms. The
lease for the Las Vegas, Nevada gallery expired March 31, 1997.
Rental expense, consisting of minimum rentals and common area
management charges, for the periods ended September 30, 1997 and 1996
was $88,830 and $125,204, 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, 1997 and 1996 was
$281,045 and $269,559, 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 $200,254 and $195,145 for the periods ended
September 30, 1997 and 1996, respectively. Specific net assets
identifiable with rental real estate totaled $788,055 and $806,070 at
September 30, 1997 and 1996, respectively.
Future minimum lease payments receivable from non-cancellable operating
leases as of September 30, 1997, excluding amounts applicable to
reimbursable expenses, are as follows:
<PAGE>
<TABLE>
<C> <C>
1998 $ 193,461
1999 152,887
2000 146,908
2001 154,808
2002 146,489
Thereafter 1,824,993
---------
Total $2,619,546
=========
</TABLE>
9. EARNINGS PER SHARE
The computation of earnings per share is based on the weighted
average number of shares of common stock outstanding, 3,328,669
and 5,708,126 for the years ended September 30, 1997 and 1996,
respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 - Earnings
Per Share ("SFAS 128"). SFAS 128 is effective for periods ending
after December 15, 1997 and replaces currently reported earnings
per share with "basic," or undiluted, earnings per share and
"diluted" earnings per share. Basic earnings per share are
computed by dividing reported earnings by the weighted-average
number of common shares outstanding during the period. Diluted
earnings per share reflects the additional dilution for all
potentially dilutive securities such as stock options.
The Company will adopt the provisions of SFAS 128 in its 1998 annual
financial statements and all previously reported earnings per share
amounts will be restated. The following table discloses the Company's
pro forma earnings per share for the years ended September 30, 1997
and 1996 as determined in accordance with SFAS 128.
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net income (loss) per share
As reported $ .16 $(.01)
Pro forma
Basic .16 (.01)
Diluted .16 (.01)
</TABLE>
10. REPURCHASE OF COMMON STOCK
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 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
<PAGE>
expert's appraisal. The book value of the inventory was $1,446,492,
resulting in a gain on disposition of $356,553. In May 1997, the
Company purchased 5,000 shares of its common stock at a price of
$2.875. In September 1997, it also purchased 12,000 shares at $2.75.
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 48 President and 1981
Chairman of the
Board of Directors
Rod R. Lynam 49 Treasurer/Assistant 1984
Secretary and Director
Marc DuCharme 45 Senior Vice-President 1989
and Director
Pamela Axelrod 42 Executive Vice-President
and Director 1995
Roger P. Croteau 35 Director 1997
</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.
<PAGE>
Todd M. Axelrod has been Chairman of the Board of Directors and
President of the Company since its inception in November 1981. Mr. Axelrod has
been a private collector of valuable historical documents since 1968. Mr.
Axelrod authored a book entitled The Handbook of Historical Documents - A guide
to Owning History, which the Company sells in its galleries.
Rod R. Lynam has been Treasurer and Chief Financial Officer of the
Company since September 1984.
Marc DuCharme, has been a Vice-President since 1989 and served as the
Director of Framing since July 1985.
Pamela 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.
Roger P. Croteau is a practicing attorney and has been a partner in the
law firm of Croteau & Shawhan, Ltd., Las Vegas, Nevada since November 1996.
Prior to his current position, Mr. Croteau was Associate General Counsel for
the State Industrial Insurance System from June 1995 to November 1996;
Corporate Associate, Gordon & Silver, Ltd., Las Vegas, Nevada from July 1994
to June 1995; and Associate General Counsel for H. P. Hood, Inc. from
May 1992 to July 1994.
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,
1997, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with,
with the exception of Form 3 for Mr. Croteau as a new director of the Company
which was filed late. 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,
1997, 1996 and 1995, of those persons who were (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.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name and Principal Fiscal Annual Compensation
Position Year Salary Bonus
______________________ ______ _________ _______
<S> <C> <C> <C>
Todd M. Axelrod 1997 $132,500 $25,000
President and Chief 1996 $132,500 $25,000
Executive Officer 1995 $133,230 $25,000(1)
Pamela R. Axelrod 1997 $132,500 $25,000
Executive Vice- 1996 $132,500 $25,000(2)
President 1995 $131,042 $50,000(3)
</TABLE>
(1) Includes deferred bonus in the amount of $25,000 which was paid to Todd
Axelrod during January and June 1996.
(2) Accrued bonus paid during December 1996.
(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.
During the three year period ended September 30, 1997 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, 1997, 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, 1998. 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,
1997, 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)(5) 63.9%
Stock
Common Rod R. Lynam(2) 105 (4)
Stock
<PAGE>
Title of Name and Address of Amount and Nature of Percent
Class Beneficial Holder Beneficial Ownership(1) of Class
- ------- --------------------- ----------------------- --------
Common Pamela Axelrod(2) 2,051,412 (5) 63.9%
Stock
Common Gerald Newman 431,500 (6) 12.5%
Stock Seabreeze Lane
Amagansette, NY 10093
Common Elliott Associates, L.P. 434,792 (7) 13.5%
Stock 712 Fifth Avenue, 36th Floor
New York, NY 10019
Common Westgate International, L.P. 434,792 (7) 13.5%
Stock Midland Bank Trust Corporation
P.O. Box 1109, Mary Street
Grand Cayman, Cayman Islands,
British West Indies
Common Martley International, Inc. 434,792 (7) 13.5%
Stock 222 Cedar Lane, Suite 111
Teaneck, NJ 07666
Common All Executive Officers 2,051,517 63.9%
Stock and Directors as a
group (3 persons)
</TABLE>
(1) Except as otherwise noted in (5) 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 (5) 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) 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).
(6) 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 and
25,000 shares of Common Stock issuable upon exercise of options to
purchase such shares at an exercise price of $4.50 per share.
<PAGE>
(7) According to a Schedule 13D dated April 15, 1996 received by the
Company, Elliott Associates, L.P., a Delaware limited partnership
("Elliott"), owns 284,692 shares, Westgate International, L.P., a
Cayman Island limited partnership ("Westgate") owns 75,050 shares
and Martley International, Inc., a Delaware corporation ("Martley")
owns 75,050. The above listed companies have indicated in the
Schedule 13D that they constitute a "group" as defined in Rule
13d-5(b)(1) with respect to their beneficial ownership of the Common
Stock.
(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.
Item 12. Certain Relationships and Related Transactions
----------------------------------------------
The Company borrowed $35,400 in the fiscal year 1996 from Nanna Corp.,
a company owned by Todd Axelrod and his wife Pamela Axelrod. The loan bore
interest at the prime rate plus 2% and was paid in full during fiscal 1996.
In May 1994, the Company borrowed $110,000 from Pamela Axelrod, which was paid
in full during fiscal 1997. Interest expense on related party notes was $2,809
during fiscal year 1997. The proceeds for such loans have been utilized by
the Company for working capital purposes.
The Company purchases catalogs for its auction operation from Nanna
Corp. During fiscal 1997, the Company has paid $146,500 for its seven
auctions. The Company believes that such purchase prices were substantially
comparable to what it would have had to pay an unrelated supplier.
<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.**
10.4 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 Ethelmae 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.
***** Incorporated by reference to the Registrant's Form 10-KSB, fiscal year
ended September 30, 1996, 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 29, 1997
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 Chairman of the December 29,1997
------------------- Board of Directors
Todd M. Axelrod (Principal Executive Officer)
/s/ Rod Lynam Treasurer/Assistant December 29,1997
------------------- Secretary and Director
Rod Lynam (Principal Financial and
Accounting Officer)
/s/ Marc DuCharme Senior Vice President December 29,1997
------------------- and Director
Marc DuCharme
/s/ Pamela Axelrod Executive Vice President December 29,1997
------------------- and Director
Pamela Axelrod
/s/ Roger P. Croteau Director December 29,1997
-------------------
Roger P. Croteau
</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 7, 1997 included in this
Form 10-KSB, into the Company's previously filed Form S-8 Registration
Statement File No. 33-17896.
/S/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
December 22,1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Consolidated Balance Sheet dated September 30, 1997 and its
Consolidated Statement of Operations covering the period from October 1,
1996 to September 30, 1997 and is qualified in its entirety by reference
to such financial statement and notes thereof.
</LEGEND>
<S> <C>
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<PERIOD-END> SEP-30-1997
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<INVENTORY> 6980816
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<PP&E> 2765189
<DEPRECIATION> 1631848
<TOTAL-ASSETS> 8993466
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0
0
<COMMON> 5918
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