-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VdRXK5FGeTKaue58jE+Jn0pO0ivSaLI3Eo0D/o2g3t0iha1d7MagELq/cB1Wyztu 5YlwfrPudVRORhFjAhsHEQ== 0000763730-04-000012.txt : 20060327 0000763730-04-000012.hdr.sgml : 20060327 20041229160009 ACCESSION NUMBER: 0000763730-04-000012 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041229 DATE AS OF CHANGE: 20050323 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALLERY OF HISTORY INC CENTRAL INDEX KEY: 0000763730 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 880176525 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13757 FILM NUMBER: 041231219 BUSINESS ADDRESS: STREET 1: 3601 WEST SAHARA AVE STREET 2: PROMENADE SUITE CITY: LAS VEGAS STATE: NV ZIP: 89102-5822 BUSINESS PHONE: 7023641000 MAIL ADDRESS: STREET 1: 3601 WEST SAHARA AVENUE STREET 2: PROMENADE SUITE 207 CITY: LAS VEGAS STATE: NV ZIP: 89102 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MUSEUM OF HISTORICAL DOCUMENTS CHARTERED/NV/ DATE OF NAME CHANGE: 19900816 10KSB 1 r10k-04.txt FORM 10-KSB FOR FISCAL YEAR ENDED 9/30/2004 SECURITIES AND EXCHANGE COMMISSION Washington, D.C.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, 2004 [ ] 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 $.0005 (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: $1,323,366 The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant (1,344,950 shares) as of December 15, 2004 was approximately $5,379,800 based upon $4.00, the price at which the stock was sold on such date. The Registrant had 5,625,984 shares of Common Stock outstanding as of December 15, 2004. Documents Incorporated by Reference: None PART I Item 1. Business Business Development -------------------- The Gallery of History, Inc. (hereinafter 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 183,000 different documents. Retail sales of documents are made from a gallery located at its headquarters in Las Vegas, Nevada. However, documents are largely sold through auctions conducted at the Company's headquarters location and sales conducted over the Company's websites. 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. For each of the fiscal years 2004 and 2003, the Company held seven auctions and participated in four auctions in 2003 (none in 2004) organized and conducted by other organizations. 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 also sells a book entitled The Handbook of Historical Documents - A Guide to Owning History authored by Todd M. Axelrod, the Company's President, Chairman of the Board, and majority shareholder. Sales of the book have been immaterial to date. 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 Company catalogues its diverse inventory using internally developed software and a computer server network. The system allows the Company's sales staff to identify inventory held in the Company's central repository, obtain descriptions of the documents, and even obtain images of the documents to exhibit to customers. 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 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 have been immaterial, accordingly, the Company has not established a reserve against the risk of forgery or against any exposure under the Certificates of Authenticity. 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. The Company competes primarily with art galleries, antique stores and sellers of other collectible items, as well as dealers in historical documents. In the past several years, many autograph dealers have closed their retail gallery operations and are attempting to sell their inventories through auctions and the internet. In addition, many upscale malls are remerchandising for middle-market masses as the consumer looks for warehouse shopping. Since closing the Company's retail galleries several years ago, the majority of the Company's sales have been through its websites and internal auction efforts. 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. However, if prices for historical documents significantly increase, the resale/wholesale value of the Company's 183,000 document inventory would be positively affected. The Company, on a limited basis, accepts consignments for its internally promoted and managed 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" or selling price. There is no assurance that the Company will be able to continue to realize significant profit margins 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 Company has experienced in the past a surge in retail sales in November and December, the traditional holiday shopping season. Because the Company expects to receive less than 15% of its revenues from its gallery- retail source, the benefit from a spike in holiday shopping would be minimal. Employees - --------- As of December 15, 2004, the Company had eight full-time, one part-time and three contracted employees, in addition to its four executive officers. 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 building contains approximately 33,187 square feet of net leasable space of which the Company currently occupies 18,913 square feet and leases or is offering to lease the remaining space to others. As of December 1, 2004, 10,112 square feet was being leased to six tenants for an aggregate monthly rental of $14,284 under leases expiring at varying times from December 2004 through October 2012. 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 property is collateral for a loan instrument - see Note 5 to Consolidated Financial Statements. Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders On September 27, 2004, the Company held its annual meeting of shareholders for the following purposes: (1) to elect six Directors to serve until the next annual meeting of shareholders; and (2) to approve the appointment of Piercy, Bowler, Taylor & Kern, Certified Public Accountants and Business Advisors, a professional corporation (PBTK), as the Company's independent auditors for the fiscal year ending September 30, 2004. At the Meeting the following Directors were elected: VOTES CAST FOR WITHHELD NOMINEES ELECTION AUTHORITY -------- -------- --------- Todd M. Axelrod 5,391,349 83,860 Rod Lynam 5,391,351 83,858 Pamela Axelrod 5,391,349 83,860 Michael Rosenman 5,475,207 2 Glen Olnick 5,475,207 2 Leo Berezan 5,475,207 2 Voting for the appointment of Piercy, Bowler, Taylor & Kern as the Company's independent auditors, 5,475,067 shares were in favor, 4 against and 138 abstain. PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters (a)(1)(2) The Company's Common Stock, par value $.0005, is quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") Small-Cap Market under the symbol HIST. According to the records of our transfer agent and ADP Investor Communications Services, as of October 1, 2004 there were approximately 312 holders of record and beneficial owners of the Company's Common Stock. The following table sets forth the high and low sale price for the Company's Common Stock for the periods indicated as reported on NASDAQ. Low Sale High Sale Price Price Fiscal 2003 October 1, 2002 - December 31, 2002 $3.23 $5.10 January 1, 2003 - March 31, 2003 3.82 4.15 April 1, 2003 - June 30, 2003 3.85 4.05 July 1, 2003 - September 30, 2003 3.05 4.59 Fiscal 2004 October 1, 2003 - December 31, 2003 $4.05 $4.57 January 1, 2003 - March 31, 2004 3.96 5.15 April 1, 2003 - June 30, 2004 3.61 4.33 July 1, 2003 - September 30, 2004 3.60 3.94 (a)(3) 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. (a)(4) There are no equity compensation plans or any other options to purchase the Company's common stock outstanding as of September 30, 2004. (b) Not applicable. (c) None. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements - -------------------------- In addition to historical information, this Annual Report on Form 10-KSB contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to the Company's future operations and prospects, including statements that are based on current projections and expectations about the markets in which the Company operates, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may", "might", "will", "expect", "anticipate", "believe", and similar expressions are intended to identify forward looking statements. Actual results could differ materially from management's current expectations. For example, there can be no assurance that additional capital will not be required or that additional capital, if required, will be available on reasonable terms, if at all, at such times and in such amounts as may be needed by the Company. Liquidity and Capital Resources - ------------------------------- The unique characteristic of some documents owned may become more rare with their current market value rising significantly over time. In many instances the Company has a supply of similar documents that, if marketed simultaneously, may negatively impact market value. As a result, managing the rarity of certain types or categories of documents through the judicious marketing of only a selection of documents available in the Company's inventory is an important element of the Company's business. This element is one of the reasons that the Company has accumulated and maintains a supply of documents that is significantly greater than it intends to sell in a year or even aggressively market. The Company has a bank line of credit in the amount of $100,000 through August 2005. Loans under the line are secured by the Company's inventory of documents owned and bear interest at the prime rate plus 2%. As of September 30, 2004, there was $80,000 drawn against this line of credit. The Company's term mortgage note was renewed in July 2002 in the amount of $1,541,389 and has a 9% interest rate and a maturity date of July 15, 2007. The note is collateralized by the Company's building. Prior to fiscal 2001, the Company borrowed $1,000,000 from its majority shareholder and president, Todd Axelrod. The note is due April 30, 2005, with interest payments monthly at a rate of 8%. The purpose of this note was to reduce the Company's outstanding line of credit and to finance its stock repurchase program. The Company has also borrowed funds from Mr. Axelrod, from time to time during the fiscal years 2004 and 2003. The funds borrowed bear interest at the same rate as Mr. Axelrod pays on his personal line of credit, which was 5.75% as of September 30, 2004. The balance of the funds borrowed was $2,904,791 as of September 30, 2004. The funds were used to supplement operating activities. The Company believes that its current cash requirements will be met by appropriately managing the timing and volume of new document acquisitions and availability for sale, generating revenues from its operations, drawing amounts available under its existing line of credit facility, seeking additional borrowings or advances against its documents inventory and borrowing amounts from Mr. Axelrod as required. Mr. Axelrod has, to the extent reasonable based upon his ability to do so, committed to continue funding or guarantee additional debt, should it be required. Mr. Axelrod has also agreed not to demand payment on amounts the Company has borrowed and, if necessary, defer his right to receive interest payments through at least November 1, 2005. Historically, cash flow deficiencies have been funded with borrowing from Mr. Axelrod. Management believes, but there is no assurance, that the need for such borrowing should diminish and profitability and cash flows should improve with the full implementation of the Company's strategic plans. The Company is continuing to improve operating results by taking steps to increase sales through its direct purchase website, its highest margin distribution channel. To achieve its strategies, the Company continues to increase inventory available on the internet, intensify marketing strategies for attracting qualified visitors which will increase their traffic and to continue enhancements of the ease- of-use features at our websites. With a market potential that is world-wide, and unlimited in terms of inventory exposure, the Company has seen steady increases in the revenue produced through this outlet. There exists a distinct interest of collectors worldwide but a limited source of dealers to supply this interest. As fiscal 2004 wound to a close the website had been materially enlarged to include approximately 27,000 document choices spread over an expanded list of categories and historical genres. Further, owing to the size and diversity of its inventory, management feels the Company is uniquely positioned to favorably compete with any, and all, firms offering similar products. Equally important is the fact that with no limitations, or added costs for the development of this outlet, the Company could, in time, add most of its available inventory to this outlet, thus providing a global audience with a diversity of choice unparalleled in our industry. The Company also continues its investigation of productive links with other organizations, thus expanding its market through cooperative alliances with firms and/or institutions whose audiences are understood to possess potential as document buyers. The Company anticipates no material commitments for capital expenditures in the near term, as the Company is not currently contemplating additional 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. Critical Accounting Policies and Practices - ------------------------------------------ Revenues - -------- The Company recognizes revenues from document sales when title passes to the customer upon shipment. Typically, shipment does not occur until payment has been received. The Company has two primary distribution channels, its direct purchase websites and its internally promoted and managed auctions. Such sales totaled approximately 85% and 77% of the Company's total revenues in 2004 and 2003, respectively. For each item sold through the Company's internal auctions, a 15% premium (processing fee) is charged plus a commission on any consigned sales. Shipping and handling costs and related customer charges are not significant. Revenues generated from the Company's direct purchase website amounted to 48% of total revenues during 2004, up from 27% of total revenues in 2003. The Company generated revenues from externally managed and promoted auctions in fiscal 2003, which amounted to 12% of total revenues; the Company did not participate in any external auctions during fiscal 2004. The balance of the Company's sales are generated through its corporate office. Inventory of documents owned and operating cycle - ------------------------------------------------ Documents owned are stated at cost on a specific-identification method, not in excess of estimated market value. Management reviews the recorded cost and estimated value of the documents owned on a regular basis (at least quarterly) to determine the adequacy of the allowance for market value declines, if any. Management believes that the Company's inventory of documents is generally appreciating, not depreciating, in value. As a result, managing the rarity of certain types or categories of documents through the judicious marketing of only a selection of documents available in the Company's inventory is an important element of the Company's business. This element is one of the reasons that the Company has accumulated and maintains a supply of documents that is significantly greater than it intends to sell in a year or even aggressively market. As the Company's distribution channels have changed over the years and are expected to continue to change in the future, the volume of documents marketed in any one year, or succession of years, changes significantly. For these reasons, it has been impractical, for the Company to define its operating cycle and, as a result, presents its balance sheet on an unclassified basis. The Company believes that this presentation better reflects the nature of the Company's business and its principal asset. Over the past several years the cost of the Company's inventory as of its fiscal year end has ranged from its present level of approximately $6.6 million to roughly $7.2 million, which management believes is a sufficient supply of documents to provide for managing rarity and its other purposes. Management has no current intention of significantly changing the composition of its inventory and, as a result, the Company accounts for changes in the cost of documents owned as an adjustment to arrive at cash flows from operating activities. Results of Operations - --------------------- Fiscal 2004 Compared to Fiscal 2003 - ----------------------------------- Revenues decreased 14% comparing the fiscal year ended September 30, 2004, to the fiscal year ended September 30, 2003. Primarily, the decrease is a result of lost revenues associated with the Company's internal and external auctions. The external auctions generated 12% of total revenues in fiscal 2003, however the Company decided to discontinue these low margin auctions in fiscal 2004. The Company's internally promoted auctions decreased 36% comparing the two fiscal years. The catalog auction revenues amount to 37% of total revenues for fiscal 2004 compared to 50% of total revenues generated in fiscal 2003. Competition for the Company's auction audience has increased, reducing margins and, as a result, decreasing the effectiveness of this outlet. By design, revenues generated from our direct purchase website increased 51% year over year. The internet revenues increased to 48% of total revenues for the current year compared to 27% of total revenues generated in the previous year. The results of fiscal 2004 indicate that we have made substantial progress toward our goal of expanding revenues generated through the Company's website. Cost of revenues is comprised of the actual document cost. The cost of shipping and handling charges and related customer charges are not significant. The cost of revenues decreased 53% to 14% of net revenues for fiscal 2004 compared to 26% of net revenues for fiscal 2003. This decrease in document cost resulted from the Company's reduced participation in external auctions. Of the 12% of total revenues generated in fiscal 2003 through external auctions, the associated cost of revenues amounted to 50%. In comparison, cost of revenues generated from internal auctions and our internet website during fiscal 2004 amounted to 14% of net revenues. Although revenues decreased by 14% year over year, our resulting gross profit decrease was less the one percentage point due to the decrease in cost of revenues. Total operating expenses increased 1% comparing fiscal 2004 to fiscal 2003. The Company realized a reduction in nearly all operating expense areas including selling, administrative and depreciation expenses. However the Company has increased its advertising costs by 70% year over year to 7% of net revenues in fiscal 2004 compared to 3.5% of net revenues during fiscal 2003. This increase is in line with the Company's marketing strategy for attracting qualified visitors and increase their traffic on the Company's website. Also included in selling, general and administrative expenses is 50% of the operating cost to maintain the headquarters building. This percentage is the ratio that the square footage occupied by the Company's headquarters operation bears to the total leasable space of the building. The remaining building operating expenses plus the rental revenues realized are offset and included net in other income and expense. This amounted to approximately $70,000 operating profit for fiscal 2004 as compared to approximately $72,000 operating profit for fiscal 2003. Other income in fiscal 2003 also included approximately $24,000 relating to the settlement of a legal action. Item 7. Financial Statements. TABLE OF CONTENTS ----------------- PAGE ---- Report of Independent Auditors 12 Consolidated Balance Sheets - September 30, 2004 and 2003 13 Consolidated Statements of Operations for the years ended September 30, 2004 and 2003 14 Consolidated Statements of Stockholders' Equity for the years ended September 30, 2004 and 2003 15 Consolidated Statements of Cash Flows for the years ended September 30, 2004 and 2003 16 Notes to Consolidated Financial Statements 17 REPORT OF INDEPENDENT AUDITORS ------------------------------ 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 (the "Company") as of September 30, 2004 and 2003, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended. The financial statements are the responsibility of the Company's management. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ PIERCY, BOWLER, TAYLOR & KERN - --------------------------------- Certified Public Accountants and Business Advisors, a Professional Corporation Las Vegas, Nevada November 10, 2004 GALLERY OF HISTORY, INC. AND SUBSIDIARIES - ----------------------------------------- CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2004 AND 2003 __________________________________________________________________ 2004 2003 ---- ---- ASSETS Cash $ 59,868 $ 2,034 Inventory of documents owned 6,562,002 6,303,706 Deferred tax assets 1,339,842 1,262,819 Property and equipment, net 1,288,830 1,465,499 Other assets 140,687 156,290 --------- --------- $9,391,229 $9,190,348 ========= ========= LIABILITIES Accounts payable $ 95,500 $ 40,124 Notes payable: Majority shareholder 3,904,791 3,158,355 Other 1,457,343 1,545,373 Accrued salaries due to majority shareholder 802,101 486,962 Other liabilities and accruals 137,479 98,073 --------- --------- 6,397,214 5,328,887 --------- --------- STOCKHOLDERS' EQUITY Common stock: $.0005 par value; authorized, 20,000,000 shares; 11,935,308 shares issued 5,968 5,968 Additional paid-in-capital 9,851,655 9,851,655 Accumulated deficit (3,854,937) (2,987,491) Common stock in treasury, 6,309,324 shares, at cost (3,008,671) (3,008,671) --------- --------- 2,994,015 3,861,461 --------- --------- $9,391,229 $9,190,348 ========= ========= See notes to consolidated financial statements. _______________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES - ----------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003 ________________________________________________________________ 2004 2003 ---- ---- REVENUES $1,138,553 $1,323,366 COST OF REVENUES 160,851 344,035 --------- --------- GROSS PROFIT 977,702 979,331 OPERATING EXPENSES Selling, general and administrative 1,498,871 1,502,039 Depreciation 150,880 169,422 1,649,751 1,671,461 --------- --------- OPERATING LOSS (672,049) (692,130) --------- --------- OTHER INCOME (EXPENSE) Interest expense: Majority shareholder (206,832) (183,573) Other (135,393) (141,261) Rental income, net 69,553 79,195 Other 252 18,990 --------- --------- (272,420) (226,649) --------- --------- NET LOSS BEFORE INCOME TAX BENEFIT (944,469) (918,779) INCOME TAX BENEFIT 77,023 297,552 --------- --------- NET LOSS $( 867,446) $( 621,227) ========= ========= BASIC AND DILUTED LOSS PER SHARE $(.15) $(.11) ==== ==== WEIGHTED AVERAGE SHARES OUTSTANDING 5,625,984 5,625,984 ========= ========= See notes to consolidated financial statements. ________________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES - ----------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003 ______________________________________________________________________________ Additional Common Common Stock Paid-in Deferred Accumulated Stock in Shares Par Value Capital Compensation Deficit Treasury Total ------ --------- ------- ------------ ------- -------- ----- Balance at October 1, 2002 11,935,308 $5,968 $9,870,655 $(18,709) $(2,366,264) $(3,008,671) $4,482,979 Vesting of restricted stock -- -- (19,000) -- -- -- (19,000) Deferred compensation adjustment -- -- -- 18,709 -- -- 18,709 Net loss -- -- -- -- (621,227) -- (621,227) BALANCE AT SEPTEMBER 30, 2003 11,935,308 5,968 9,851,655 -- (2,987,491) (3,008,671) 3,861,461 Net loss -- -- -- -- (867,446) -- (867,446) BALANCE AT SEPTEMBER 30, 2003 11,935,308 $5,968 $9,851,655 $ -- $(3,854,937) $(3,008,671) $2,994,015 ========== ===== ========= ====== ========== ========== ========= See notes to consolidated financial statements. ________________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES - ----------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2004 AND 2003 __________________________________________________________________ 2004 2003 ---- ---- OPERATING ACTIVITIES Net cash used in operating activities $( 597,054) $( 224,926) --------- --------- INVESTING ACTIVITIES Proceeds on disposal of property 518 1,750 Purchase of property and equipment (4,036) (102,365) --------- --------- Net cash used in investing activities (3,518) (100,615) --------- --------- FINANCING ACTIVITIES Proceeds from borrowings: Majority shareholder 760,501 397,260 Other 182,000 439,214 Repayments of borrowings: Majority shareholder (14,065) (48,038) Other (270,030) (473,355) --------- --------- Net cash provided by financing activities 658,406 315,081 --------- --------- NET INCREASE (DECREASE) IN CASH 57,834 (10,460) CASH, BEGINNING OF YEAR 2,034 12,494 --------- --------- CASH, END OF YEAR $ 59,868 $ 2,034 ========= ========= See notes to consolidated financial statements. ________________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES - ----------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS _____________________________________________________________________ 1. SIGNIFICANT ACCOUNTING POLICIES Business Activity - Gallery of History, Inc. and its 100%-owned subsidiaries (collectively the "Company"), acquire documents of historical or social significance and market 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. Historically, such refunds have been insignificant. To ascertain authenticity, the Company under certain circumstances may rely upon the reputation of sellers, the history of prior ownership of such documents, and/or opinions of experts. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and disclosures, some of which may require revision in future periods. Estimated valuation allowances for deferred tax assets (Note 7) are subject to material changes within the next year. Revenues - The Company recognizes revenues from document sales when title passes to the customer upon shipment. Shipping and handling costs and related customer charges are not significant. Inventory of documents owned and operating cycle - Documents owned are stated at cost on a specific-identification method, not in excess of estimated market value. Management reviews the recorded cost and estimated value of the documents owned on a regular basis (at least quarterly) to determine the adequacy of the allowance for market valuation declines, if any. Because of wide variations in the time between purchase and sale of many of such documents, it has been impractical for the Company to define its operating cycle and, as a result, presents its balance sheet on an unclassified basis. The company accounts for changes in the cost of documents owned as an adjustment to arrive at cash flows from operating activities. Property and Equipment - Property and equipment (Note 2) are stated at cost. Depreciation of property and equipment are provided on the straight-line method over their estimated useful lives (30 years for buildings and 3-15 years for other classifications). Depreciation expense and certain other expenses related to the Company's building, are allocated between operating and rental activities generally on a per square foot basis. In addition to land, building and equipment, property and equipment also includes the cost to develop internal-use software and the Company's website. These costs are reviewed for possible impairment at least quarterly. Advertising Costs - Advertising costs, $218,080 in 2004 and $181,750 in 2003, including all sales material and catalog costs, are generally expensed as incurred and are included in general, selling and administrative expenses. Advertising costs exclude website maintenance costs. Stock-based compensation - The Company accounts for stock-based employee compensation (Note 6) using the intrinsic value method in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Net loss per share - For 2003, options to purchase 20,000 shares of common stock (Note 6) were excluded from the computation of diluted loss per share because inclusion would have been anti-dilutive. The computation includes 100,000 restricted common shares issued in connection with a consulting agreement which expired during fiscal 2003 (Note 9). Certificates of Authenticity - 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. Claims made against the Company pursuant to its Certificates of Authenticity have been immaterial, accordingly, the Company has not established a reserve against the risk of forgery or against any exposure under the Certificates of Authenticity. 2. PROPERTY AND EQUIPMENT Property and equipment at September 30, 2004 and 2003, consists of the following: 2004 2003 ---- ----- Land $ 580,000 $ 580,000 Equipment and furniture 599,313 720,396 Software 440,796 437,911 Office building and improvements 1,653,729 1,653,729 3,273,838 3,392,036 Less accumulated depreciation (1,985,008) (1,926,537) --------- --------- $1,288,830 $1,465,499 ========= ========= Approximately 50% of the Company's office building is leased or is available to lease to tenants (Note 8). Property and equipment identifiable with the rental operation and the Company's use is as follows: 2004 2003 ---- ---- Office building $1,495,751 $1,495,751 Less accumulated depreciation (882,145) (825,373) --------- --------- $ 613,606 $ 670,378 ========= ========= 3. OTHER ASSETS Other assets at September 30, 2004 and 2003, consist of the following: 2004 2003 ---- ---- Framing materials $102,323 $102,567 Prepaid expenses 24,316 38,444 Other 14,048 15,279 ------- ------- $140,687 $156,290 ======= ======= 4. RELATED PARTY TRANSACTIONS Prior to 2003, the Company borrowed $1,000,000 from its principal officer/ stockholder, Todd Axelrod, to repay bank debt. The note is due April 30, 2005, with monthly interest payments at a rate of 8%. Interest expense on the related party note was $81,333 and $81,111 for fiscal years 2004 and 2003, respectively. The Company has also borrowed funds from Mr. Axelrod, from time to time during the fiscal year 2004 and 2003. The funds borrowed bear interest at the same rate as Mr. Axelrod pays on his personal line of credit which is 5.75% as of September 30, 2004. The balance of the funds borrowed was $2,904,791 and $2,158,355 as of September 30, 2004 and September 30, 2003, respectively. Interest expense on these related party borrowings were $125,499 and $102,461 during fiscal years 2004 and 2003, respectively. The funds were used to supplement cash flows from operating activities. Mr. Axelrod has, to the extent of his reasonable ability to do so, committed to continue funding or guarantee additional debt, should it be required. Mr. Axelrod has agreed not to demand payment on amounts the Company has borrowed and, if necessary, defer his right to receive interest payments through at least November 1, 2005 (Note 5). To facilitate cash flows, the Company has been accruing salaries and bonuses for Mr. and Mrs. Axelrod. Salaries have been accrued since the latter part of fiscal 2002 and amount to $602,876. Bonuses have been accrued since fiscal 2000 and amount to $199,225. 5. NOTES PAYABLE Notes payable consist of the following at September 30: Notes payable, Majority Shareholder debt (demand rights waived through November 1, 2005): 2004 2003 ---- ---- 8% note $1,000,000 $1,000,000 Other advances, interest rate fluctuates with the rate applicable to the Majority Shareholder's personal line of credit (5.75% at September 30, 2004) 2,904,791 2,158,355 --------- --------- $3,904,791 $3,158,355 ========= ========= Notes payable, other: 2004 2003 ---- ---- 9% Mortgage note payable July 15, 2007, collateralized by a building $1,366,493 $1,451,519 6.5% auto loan payable in 60 monthly installments 10,850 13,854 Prime plus 2% revolving line of credit (up to $100,000) renewing August 2005, (6.75% at September 30, 2004), collateralized by documents and equipment 80,000 80,000 --------- --------- $1,457,343 $1,545,373 ========= ========= Maturities of notes payable are as follows for fiscal years ending September 30: 2005 $ 178,323 2006 4,012,046 2007 1,171,185 2008 580 --------- Total $5,362,134 ========= 6. COMMON STOCK AND STOCK OPTIONS A maximum of 1,100,650 shares of common stock were reserved for issuance of stock options. Options to purchase 20,000 shares of common stock at an exercise price of $4.50 expired in August 2004. The authority to issue additional options without further shareholder approval has also expired. Had compensation expense for the plans been determined in accordance with Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, valuing the options granted on the date of grant using the Black-Scholes option pricing method and appropriate valuation assumptions, the effect on the Company's net loss applicable to common stock and the basic and diluted loss per common share would have been insignificant. 7. INCOME TAXES The following summarizes the components of deferred income taxes at September 30, 2004 and 2003: 2004 2003 Deferred tax assets ---- ---- Net operating losses, net of reserves of $241,354 and $0 $1,235,040 $1,311,015 Other 282,925 174,141 --------- --------- 1,517,965 1,485,156 Deferred tax liabilities Depreciation (178,123) (222,337) --------- --------- Net deferred tax assets $1,339,842 $1,262,819 ========= ========= The differences between the normal federal statutory rate of 34% applied to loss before income taxes and the Company's effective rate is: Tax Tax 2004 rate 2003 rate ---- ---- ---- ---- Benefit at statutory rate $(321,119) (34%) $(312,385) (34%) Reserve against tax benefit 241,354 26% -- -- Other 2,562 0% 14,833 2% -------- ---- -------- ---- Income tax benefit $ (77,023) ( 8%) $(297,552) (32%) ======== ==== ======== ==== The entire tax benefit attributable to fiscal year 2004 of $318,557 is recognized net of a reserve of $241,354 because its future realization is not assured. As of September 30, 2004, the Company had federal income tax loss carryforwards available to reduce future tax payment obligations of $4,337,849 and expiring from 2009 to 2024. 8. RENTAL INCOME, NET The Company leases office space in its office building to tenants under non-cancelable 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 expire from 2004 to 2012 with various renewal options. Gross rental income for the periods ended September 30, 2004 and 2003 was $148,851 and $156,243, respectively. Building operating costs, including primarily depreciation, repairs and maintenance, janitorial, utilities and property taxes, totaled $79,299 and $77,047 in 2004 and 2003, respectively. Future minimum lease payments receivable under non-cancelable operating leases as of September 30, 2004, excluding contingent amounts applicable to reimbursable expenses, are as follows: 2005 $ 146,235 2006 121,411 2007 95,756 2008 95,907 2009 97,599 Thereafter 305,202 -------- Total $ 862,110 ======== 9. RESTRICTED COMMON STOCK Prior to fiscal 2003, the Company entered into an agreement with an unrelated investment banker and money manager. As compensation for the consulting services, the Company issued 100,000 restricted shares of its common stock, which vested over the three-year term of the agreement which has expired as of September 30, 2003. 10. MANAGEMENT'S PLANS Historically, cash flow deficiencies have been funded with borrowings from the Majority Shareholder. As discussed in Note 4, the Majority Shareholder has agreed not to demand payment on amounts the Company has borrowed and, if necessary, defer his right to receive interest payments through November 1, 2005. Management believes, but there is no assurance, that although expected to be available, as needed, the need for such borrowing should diminish and profitability and cash flows should improve if the Company can continue to increase internet sales in an effort to increase gross profit and decrease selling expenses and find additional profitable outlets for its documents. The market potential of the internet distribution channel is world-wide, and unlimited in terms of inventory exposure. There is a known interest of collectors worldwide, but there is a highly limited source of dealers to supply it. The website has been materially enlarged to include more than 22,000 document choices spread over an expanded list of categories and historical genres. And as the Company moves in to fiscal 2005, the aggressive development of the website continues with its strategies to increase inventory on the internet, intensify marketing strategies for attracting qualified visitors which will increase their traffic and to continue enhancements of ease-of-use features. The Company also continues its investigation of productive web links with other organizations, thus expanding its market through cooperative alliances. In fiscal 2005, the Company will also continue its internal auctions and mailings to a list of 5000 autograph collectors, dealers and Gallery of History clients. 11. SUPPLEMENTAL CASH FLOWS INFORMATION Reconciliation of net loss to net cash used in operating activities: 2004 2003 ---- ---- Net loss $(867,446) $(621,227) Depreciation and amortization 180,236 198,219 Common stock issued for services -- (291) Net (gain)loss on disposal of property (49) 5,450 (Increase) decrease in: Accounts receivable -- 1,777 Deferred tax assets (77,023) (297,552) Inventory of documents owned (258,296) 156,419 Other assets 15,603 13,221 Increase (decrease) in: Accounts payable 55,376 15,078 Accrued and other liabilities 354,545 303,980 -------- -------- Net cash used in operating activities $(597,054) $(224,926) ======== ======== Cash paid during the year for interest $ 342,496 $ 325,149 ======== ======== Item 8. Disagreements With Accountants on Accounting and Financial Disclosure None. Item 8a. Controls and Procedures Gallery of History, Inc. maintains disclosure controls and procedures designed to ensure that it is able to timely collect the information it is required to disclose in the reports it files with the Securities and Exchange Commission. Within 90 days prior to the date of this report, Gallery of History carried out an evaluation of the effectiveness of the design and operation of Gallery of History's disclosure controls and procedures pursuant to Exchange Act Rules 13a-14 and 15d-14. The evaluation was conducted under the supervision of, and with the participation of Gallery of History's management including Gallery of History's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Based upon that evaluation, Gallery of History's CEO and CFO concluded that Gallery of History's disclosure controls and procedures are adequate in timely alerting them to material information relating to Gallery of History (including its consolidated subsidiaries) required to be included in Gallery of History's periodic filings with the Securities and Exchange Commission. Gallery of History also maintains a system of internal controls designed to provide reasonable assurance that (i) transactions are executed in accordance with management's general and specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Gallery of History believes that its internal controls are effective to provide reasonable assurance that its financial statements are fairly presented in conformity with generally accepted accounting principles. Since the most recent evaluation of Gallery of History's internal controls by Gallery of History's CEO and CFO, there have been no significant changes in Gallery of History's internal controls or in other factors that could significantly affect these controls, nor were any corrective actions required with regard to significant deficiencies and material weaknesses. Item 8b. Other Information - None. PART III -------- Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Directors, Executive Officers and Significant Employees - ------------------------------------------------------- Set forth below are the present directors, executive officers and any significant employees of the Company. Note that there are no other persons who have been nominated or chosen to become directors nor are there any other persons who have been chosen to become executive officers. Directors are elected until the next annual meeting of shareholders and until their successors are duly elected and qualified. Officers are elected for terms of one year, or until their successors are duly elected and qualified or until terminated by the action of the Board of Directors. Has Served as Director Position(s) with Continuously Name Age the Company Since - ---- --- ---------------------- ----- Todd M. Axelrod 55 President and Chairman 1981 of the Board of Directors Rod R. Lynam 56 Treasurer/Assistant 1984 Secretary and Director Pamela Axelrod 49 Executive Vice President and 1995 Director Dr. Michael Rosenman 43 Director 2002 Glenn Olnick 58 Director 2003 Leo Berezan 49 Director 2004 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. Rod Lynam has been Treasurer and Chief Financial Officer of the Company since September 1984. Pamela Axelrod has been a Vice-President since 1995. She served as the manager of the Company's Las Vegas Fashion Show gallery, the Company's merchandise manager and co-director of sales since 1984. She has served as Editor-in-Chief of the Company's Simple & Direct auction catalog and as co-auction manager since 1996. Michael Rosenman, M.D., Ph.D., has been a practicing physician specializing in the field of Pediatrics since 1988. Prior to establishing private practice offices in Las Vegas in 1996, Dr. Rosenman was associated with UCLA's Department of Medicine, Division of Hematology/Oncology, and with Children's Hospital in Orange County, California. His practice employs multiple offices and physicians. Glenn Olnick has been employed in the brokerage industry for a number of firms since 1980. From February 1991 to October 2001, Mr. Olnick worked with McDermid St. Lawrence Securities as a senior retail broker specializing in small and mid cap securities, working with numerous companies, advising them on corporate direction, fund raising, investment strategies, takeovers and acquisitions. In October 2001, Mr. Olnick joined Haywood Securities in the same capacity as with McDermid. In August of 2002, Mr. Olnick retired from the brokerage industry. From then until the present, Mr. Olnick has worked as a consultant to a number of private and public companies. Leo Berezan has been employed the last thirty years in real estate development and property management. He is an owner and manager of various real estate holdings, industrial warehouses and office buildings. Section 16(a) Beneficial Ownership Reporting Compliance - ------------------------------------------------------- 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, 2004, 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. Code of Ethics - -------------- Effective September 27, 2004, our Company's Board of Directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our Company's directors, President (being our Principal Executive Officer) and Treasurer (being our Principal Financial Officer), as well as our Company's other executive officers and persons performing similar functions. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us; (3) compliance with applicable governmental laws, rules and regulations; (4) the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and (5) accountability for adherence to the Code of Business Conduct and Ethics. Our Code of Business Conduct and Ethics requires, among other things, that all of our Company's personnel shall be accorded full access to our President with respect to any matter which may arise relating to the Code of Business Conduct and Ethics. Further, all of our Company's personnel are to be accorded full access to our Company's Board of Directors if any such matter involves an alleged breach of the Code of Business Conduct and Ethics by our President. In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within our Company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to our Company's President. If the incident involves an alleged breach of the Code of Business Conduct and Ethics by the President, the incident must be reported to any member of our Board of Directors. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our Company policy to retaliate against any individual who reports in good faith the violation of potential violation of our Company's Code of Business Conduct and Ethics by another. Our Code of Business Conduct and Ethics is filed herewith with the Securities and Exchange Commission as Exhibit 14.1 to this annual report. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to 3601 West Sahara Avenue, Promenade Suite, Las Vegas, Nevada 89102. 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, 2004, 2003, and 2002, 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. SUMMARY COMPENSATION TABLE -------------------------- Name and Principal Fiscal Annual Compensation Position Year Salary Bonus - -------------------- ---- ------ ----- Todd M. Axelrod 2004 $139,124 $26,250 President and Chief 2003 127,532 24,063 Executive Officer 2002 34,781 6,563 Pamela R. Axelrod 2004 $139,124 $26,250 Executive Vice-President 2003 127,532 24,062 2002 34,782 6,562 All above accrued salaries and bonus earned but not yet paid. During the three-year period ended September 30, 2004, 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, 2004, 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, 2005. Directors are reimbursed, however, for reasonable expenses incurred on behalf of the Company. Item 11. Security Ownership of Certain Beneficial Owners and Management (a)&(b) The following table sets forth certain information, as of December 1, 2004, 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. Title of Name and Address of Amount and Nature of Percent Class Beneficial Holder Beneficial Ownership(1) of Class - -------- ------------------- ----------------------- -------- Common Todd M. Axelrod(2) 4,280,824(3)(5) 76.1% Stock Common Rod R. Lynam(2) 210 (4) Stock Common Pamela Axelrod(2) 4,280,824(3)(5) 76.1% Stock Dr. Michael Rosenman -0- -- Glenn Olnick -0- -- Common Gerald Newman 493,000 8.8% Stock 1716 Coral Cove Way Boca Raton, FL 33496 Leo Berezan -0- -- Common All Executive Officers 4,281,034 76.1% Stock and Directors as a group (6 persons) (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 2,059,022 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). (4) Less than 1%. (5) Pamela Axelrod has appointed Todd Axelrod her proxy with full power of substitution, to vote all of her 2,059,022 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 2,221,802 shares held by Todd Axelrod, as to which Pamela Axelrod disclaims beneficial ownership (see Note (3) above). There are no arrangements known to the Company, the operation of which may at a subsequent date result in a change of control of the Registrant. Item 12. Certain Relationships and Related Transactions Prior to 2002, the Company borrowed $1,000,000 from its principal officer/stockholder, Todd Axelrod. The note is due April 30, 2005, with monthly interest payments at a rate of 8%. Interest expense on the related party note was $81,333 and $81,111 for fiscal years 2004 and 2003,respectively. The proceeds from this loan were utilized by the Company to reduce its outstanding bank line of credit. The Company has also borrowed funds from Mr. Axelrod, from time to time during the fiscal year 2004 and 2003. The funds borrowed bear interest at the same rate as Mr. Axelrod pays on his personal line of credit which is 5.75% as of September 30, 2004. The balance of the funds borrowed was $2,904,791 and $2,158,355 as of September 30, 2004 and September 30, 2003, respectively. Mr. Axelrod has, to the extent reasonable based upon his ability to do so, committed to continue funding or guarantee additional debt, should it be required. Mr. Axelrod also has agreed not to demand payment on amounts the Company has borrowed and, if necessary, defer his right to receive interest payments through at least November 1, 2005. Interest expense on this related party note was $125,499 and $102,461 during fiscal years 2004 and 2003, respectively. The funds were used to supplement cash flows from operating activities. 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.** 14.1 Code of Business Conduct and Ethics. 21 List of Subsidiaries. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a). 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a). 32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b). 32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b). * 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. (b) Reports on Form 8-K. None. Item 14. Principal Accountant Fees and Services The following table list the aggregate fees billed for professional services rendered for the audit of the Company's annual financial statements for the years ended September 30, 2004 and 2003 including the reviews of the unaudited interim financial statements of the Company's Form 10-QSB. 2004(1) 2003 ------ ---- Audit Fees (2) $15,224 $30,300 Audit-Related Fees 0 0 Tax Fees (3) 2,239 3,039 All other fees 0 0 (1) Total audit and tax fees for fiscal 2004 have not yet been billed to the Company. (2) Audit fees consist of services rendered to the Company for the audit of the Company's annual financial statements, reviews of the Company's quarterly financial statements and related services. (3) Tax fees consist of tax compliance and related tax services. The audit committee pre-approves all services provided by our independent auditors, Piercy, Bowler, Taylor & Kern. All of the above services and fees were reviewed and approved by the audit committee. 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, 2004 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: Signature Title Date - --------- ----- ---- /s/ Todd M. Axelrod President and December 29, 2004 - ------------------- Chairman of the Todd M. Axelrod Board of Directors (Principal Executive Officer) /s/ Rod Lynam Treasurer/Assistant December 29, 2004 - ------------- Secretary and Director Rod Lynam (Principal Financial and Accounting Officer) /s/ Pamela Axelrod Executive Vice President December 29, 2004 - ------------------ and Director Pamela Axelrod /s/ Michael Rosenman Director December 29, 2004 - -------------------- Michael Rosenman /s/ Glenn Olnick Director December 29, 2004 - ---------------- Glenn Olnick /s/ Leo Berezan Director December 29, 2004 - --------------- Leo Berezan EX-14 3 k-ex141.txt EXHIBIT 14.1 - CODE OF BUSINESS CONDUCT & ETHICS EXHIBIT 14.1 GALLERY OF HISTORY, INC. CODE OF BUSINESS CONDUCT AND ETHICS ADOPTED BY THE BOARD OF DIRECTORSON SEPTEMBER 27, 2004 The upholding of a strong sense of ethics and integrity is of the highest importance to Gallery of History, Inc. (the "Company") and critical to its success in the business environment. The Company's Code of Business Conduct and Ethics embodies the Company's commitment to such ethical principles and sets forth the responsibilities of the Company to its shareholders, employees, customers, lenders and other stakeholders. The Company's Code of Business Conduct and Ethics addresses general business ethical principles, conflicts of interest, special ethical obligations for employees with financial reporting responsibilities, insider trading laws, reporting of any unlawful or unethical conduct, political contributions and other relevant issues. GENERAL PRINCIPLES It is the Company's firm belief that effective business relationships can only be built on mutual trust and fair dealing. The Company and all its directors, officers and employees, to whom the Company's Code of Business Conduct and Ethics is applicable, will conduct themselves in accordance with the standards established herein. The Company's Code of Business Conduct and Ethics outlines the fundamental principles of legal and ethical business conduct as adopted by the Board of Directors of the Company. It is not intended to be a comprehensive list addressing all legal or ethical issues which may confront the Company's personnel. Hence, it is essential that all personnel subject to the Company's Code of Business Conduct and Ethics employ good judgment in the application of the principles contained herein. CONFLICTS OF INTEREST Directors, officers and employees of the Company are expected to make decisions and take actions based on the best interests of the Company, as a whole and not based on personal relationships or benefits. Generally, a "conflict of interest" is an activity that is inconsistent with or opposed to the best interest of the Company or one which gives the appearance of impropriety. As conflicts of interest can compromise the ethical behavior of Company personnel, they should be avoided. Employees should avoid any relationship which would create a conflict of interest. Employees are expected to disclose such relationships and conflicts to their immediate supervisors. Conflicts of interest involving those with whom the Company does business should also be disclosed in writing to such third parties. Any waivers of conflicts of interest must be approved by the Board of Directors and must be promptly disclosed to the Company's shareholders. Members of the Board of Directors are to disclose any conflicts of interest and potential conflicts of interest to the entire Board of Directors as well as the committees on which they serve. Directors are to excuse themselves from participation in any decision of the Board of Directors or a committee thereof in any matter in which there is a conflict of interest or potential conflict of interest. Set forth below is specific guidance in respect to certain conflicts of interest situations. As it is not possible to list all conflicts of interest situations, it is the responsibility of the individual, ultimately, to avoid and properly address any situation involving a conflict of interest or potential conflict of interest. Company personnel who wish to obtain clarification of the Company's conflicts of interest principles or further guidance with respect to the proper handling of any specific situation should consult his or her immediate supervisor. Interest in Other Businesses: All Company's directors, officers and employees and their family members must avoid any direct or indirect financial relationship with third parties with whom the Company has relationships which would involve a conflict of interest or a potential conflict of interest or compromise the individual's loyalty to the Company. Written permission must be obtained from the Company's Board of Directors before any such individual commences an employment, business or consulting relationship with third parties with whom the Company has relationships. Outside Directorships: All Company's directors, officers and employees may serve on the boards of directors of other profit-making organizations to the extent that such service will not interfere or conflict with their respective duties to the Company. None of the Company's directors, officers or employees may serve on the boards of directors of any business organization which is a competitor of the Company, without the informed consent of the Company's Board of Directors. Individuals who serve as directors of other companies in the circumstances permitted hereunder may retain any compensation earned from that outside directorship unless otherwise specifically prohibited by the Company. Unless otherwise specifically authorized by the Company's Board of Directors, individuals may not receive any form of compensation (whether in the form of cash, stock or options) for service on a board of director of another business organization if such service is at the request of the Company or in connection with the investment of the Company in such business organization. All individuals must excuse themselves from any matters pertaining to the Company and the business organization of which they are directors. The Company reserves the right to request any individual to resign his or her position as a director of other business organizations if such resignation is determined by the Company's Board of Directors to be in the best interests of the Company. The Company may terminate its relationship with any individual who does not comply with the Company's request in this regard. Proper Payments: All individuals should pay for and receive only that which is proper. Company personnel should not make improper payments for the purposes of influencing another's acts or decisions and should not receive any improper payments or gifts from others for the purposes influencing the decisions or actions of Company's personnel. No individual should give gifts beyond those extended in the context of normal business circumstances. Company personnel must observe all government restrictions on gifts and entertainment. Supervisory Relationships: Supervisory relationships with family members present special workplace issues. Accordingly, Company personnel must avoid a direct reporting relationship with family member or any individual with whom a significant relationship exists. If such a relationship exists or occurs, the individuals involved must report the relationship in writing to the Board of Directors. FINANCIAL REPORTING RESPONSIBILITIES As a public company, it is of critical importance that the Company's filings with the Securities and Exchange Commission and other relevant regulatory authorities be accurate and timely. Hence, the Company's directors, officers and employees are obligated to provide information to ensure that the Company's publicly filed documents are complete and accurate. The Company's directors, officers and employees must take this responsibility seriously and provide prompt and accurate answers and responses to inquiries related to the Company's public disclosure requirements. The President of the Company has the ultimate responsibility of ensuring the integrity of the filings and disclosure made by the Company required by the rules and regulations of the Securities and Exchange Commission and other relevant regulatory authorities. In the performance of their duties relating to the Company's public disclosure obligations, the Company's directors, officers and employees must: a) Act with honesty and integrity; b) Provide information that is accurate, complete, objective, fair and timely; c) Comply with rules and regulations of federal, state, provincial and local governments and other relevant public and private regulatory authorities; d) Act in good faith with due care, competence and due diligence; e) Respect the confidentiality of information acquired in the course of the performance of one's duties; f) Promote ethical and proper behavior in the work environment; and g) Report to the Chairman of the Audit Committee any conduct that the individual believes to be a violation of law of the Company's Code of Business Conduct and Ethics. INSIDER TRADING Regulation FD - ------------- Regulation FD (Fair Disclosure) implemented by the Securities and Exchange Commission provides that when the Company, or person acting on its behalf, discloses material nonpublic information to certain enumerated persons (in general, securities market professionals and holders of the Company's securities who may well trade on the basis of the information), it must make public disclosure of that information. The timing of the required public disclosure depends on whether the selective disclosure was intentional or unintentional; for an intentional selective disclosure, the Company must make public disclosures simultaneously; for non-intentional disclosure the Company must make public disclosure promptly. Under the regulation, the required public disclosure may be made by filing or furnishing a Form 8-K, or by another method or combination of methods that is reasonably designed to effect broad, non-exclusionary distribution of the information to the public. It is the policy of the Company that all communications with the press be handled through the Company's President. Confidentiality of Nonpublic Information: Nonpublic information relating to the Company is the property of the Company and the unauthorized disclosure of such information is strictly forbidden. Applicability of Insider Trading Regulations to Securities of Other Companies: The Company's Insider Trading Policy shall also apply to material nonpublic information relating to other companies, including the Company's customers, vendors or suppliers ("business partners"), when that information is obtained in the course of employment with, or other services performed on behalf of the Company. All directors, officers and employees should treat material nonpublic information about the Company's business partners with the same care as is required with respect to information relating directly to the Company. DUTY TO REPORT INAPPROPRIATE AND IRREGULAR CONDUCT All employees, and particularly managers and/or supervisors, have a responsibility for maintaining financial integrity within the Company, consistent with generally accepted accounting principles, and federal, provincial and state securities laws. Any employee who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to his or her immediate supervisor or to the Company's President; provided, however, that the incident must be reported to any member of the Company's Board of Directors if it involves an alleged breach of the Company's Code of Business Conduct and Ethics by the President. Any failure to report such inappropriate or irregular conduct of others shall be treated as a severe disciplinary matter. It is against Company policy to retaliate against any individual who reports in good faith the violation or potential violation of the Company's Code of Business Conduct and Ethics of another. POLITICAL CONTRIBUTIONS No assets of the Company, including the time of Company personnel, the use of Company premises or equipment and direct or indirect monetary payments, may be contributed to any political candidate, political action committees, political party or ballot measure without the approval of the Company's Board of Directors. COMPLIANCE PROGRAM In order to implement the principles of the Company's Code of Business Conduct and Ethics and to establish a compliance program, the Company has adopted the following policies: Selection of Board Nominees: The Company's Board of Directors will be responsible for the selection of candidates for the nomination of all members of the Board of Directors. Board Membership Criteria: The Board of Directors' policy is to encourage selection of directors who will contribute to the Company's overall corporate goals of responsibility to its shareholders. Board Committees: The Board of Directors has a Compensation Committee, an Audit Committee and an Executive Committee. From time to time, the Board of Directors may establish additional committees. Committee Member Selection: The Board of Directors will designate the members and Chairs of each committee. The membership of the Audit Committee shall meet all applicable criteria of the rules and regulations of the Securities and Exchange Commission and any stock exchange or stock quotation system on which the shares of the Company may then be traded. Insider Trading Compliance: The Board of Directors have adopted an Insider Trading Compliance Policy for the purposes of educating and ensuring that all subject persons are fully aware of the rules and regulations of the Securities and Exchange Commission with respect to insider trading. All Company personnel shall have full access to the President and the Company's outside counsel with respect to any insider trading questions or issues. Financial Reporting; Legal Compliance and Ethics: The Board of Directors' governance and oversight functions do not relieve the Company's executive management of its primary responsibility of preparing financial statements which accurately and fairly present the Company's financial results and condition, the responsibility of each executive officer to fully comply with applicable legal and regulatory requirements or the responsibility of each executive officer to uphold the ethical principles adopted by the Company. Corporate Communications: Management has the primary responsibility to communicate with investors, the press, employees and other stakeholders on a timely basis and to establish policies for such communication. Access to President: All Company personnel shall be accorded full access to the Company's President with respect to any matter which may arise relating to the Company's Code of Business Conduct and Ethics; provided, however, that all Company personnel shall be accorded full access to the Company's Board of Directors if any such matter involves an alleged breach of the Company's Code of Business Conduct and Ethics by the president. EX-21 4 k-ex21.txt EXHIBIT 21 - LIST OF SUBSIDIARIES 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 Auctions, Inc. A Nevada Corporation International Stolen Art & Documents Clearinghouse Corp. A Nevada Corporation EX-31 5 k-ex311.txt EXHIBIT 31.1 - CERTIFICATION OF CEO EXHIBIT 31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) I, Todd Axelrod, certify that: 1. I have reviewed this annual report on Form 10-KSB of Gallery of History, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the annual period covered by this report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: December 29, 2004 /s/ TODD AXELROD _______________________ Todd Axelrod Chief Executive Officer EX-31 6 k-ex312.txt EXHIBIT 31.2 - CERTIFICATION OF CFO EXHIBIT 31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) I, Rod Lynam, certify that: 1. I have reviewed this annual report on Form 10-KSB of Gallery of History, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the annual period covered by this report based on such evaluation; and c) disclosed in this annual report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: December 29, 2004 /s/ ROD LYNAM _______________________ Rod Lynam Chief Financial Officer EX-32 7 k-ex321.txt EXHIBIT 32.1 - CERTIFICATION OF CEO EXHIBIT 32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(b) In connection with the Annual Report of Gallery of History, Inc. (the "Company") on Form 10-KSB for the fiscal year ended September 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Todd Axelrod, Chief Executive Office of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presented, in all material respects, the financial condition and results of operations of the Company. /s/ Todd Axelrod ----------------- Todd Axelrod Chief Executive Officer December 29, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 8 q-ex322.txt EXHIBIT 32.2 - CERTIFICATION OF CFO EXHIBIT 32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(b) In connection with the Quarter Report of Gallery of History, Inc. (the "Company") on Form 10-QSB for the quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Rod Lynam, Chief Financial Office of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presented, in all material respects, the financial condition and results of operations of the Company. /s/ Rod Lynam Rod Lynam Chief Financial Officer August 13, 2004 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. COVER 9 filename9.txt December 29, 2004 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Gentlemen: Pursuant to the requirements of the Securities Exchange Act of 1934, we are transmitting herewith the attached Form 10-KSB for the year ended September 30, 2004. Sincerely, Rod Lynam Rod Lynam, Treasurer -----END PRIVACY-ENHANCED MESSAGE-----