10KSB 1 k-06.txt FORM 10-KSB FOR FISCAL YEAR ENDED 9/30/06 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) [x] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2006 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission file number 0-13757 GALLERY OF HISTORY, INC. (Name of small business issuer 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: (702) 364-1000 Securities registered under Section 12(b) of the Act: Title of each class Name of Exchange on which registered ___________________ ________________________ Securities registered under Section 12(g) of the Act: Common Stock, par value $.0005 (Title of class) Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ] 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 in this form, 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] Indicate by check whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). [ ]Yes [x]No State issuer's revenues for the most recent fiscal year: $679,461 The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (1,247,263 shares) as of December 10, 2006 was approximately $2,220,128 based upon $1.78, the price at which the stock was sold on such date. State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. The registrant had 5,625,984 shares of Common Stock outstanding as of December 1, 2006. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference to Item 13 - Exhibits and Reports on Form 8-K; Form 10-QSB for the fiscal quarter ended June 30, 2005; and Form 10-KSB for the fiscal year ended September 30, 2004. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [x] 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 our headquarters in Las Vegas, Nevada. However, documents are largely sold through sales conducted over the internet including the Company's websites. Our 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. 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. 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. We catalogue the 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, we may utilize information provided by the seller as to the transfer of ownership of documents; subject the documents to our own examination; employ outside experts available to examine the documents; or we 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 our determination of authenticity of documents be erroneous, the Company would likely incur a loss unless there was recourse against the seller. The Company does not carry any insurance and is currently not aware of any entity that underwrites such insurance at commercially reasonable rates to protect against a loss arising from either the purchase of documents lacking authenticity or claims by our customers for recovery against our authenticity warranty. Claims made against the Company pursuant to its Certificates of Authenticity have been immaterial, and 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 approximate 183,000 document inventory would be positively affected. 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 realize 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's business, which is currently focused on sales through the internet, is not seasonal. Employees --------- As of December 1, 2006, the Company had five full-time, one contracted employees, in addition to its three 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, 2006, 11,502 square feet was being leased to six tenants for an aggregate monthly rental of $17,365 under leases expiring at varying times from December 2006 though 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 15, 2006, the Company held its annual meeting of shareholders for the following purposes: (1) to elect five 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, 2006. At the Meeting the following Directors were elected: VOTES CAST FOR WITHHELD NOMINEES ELECTION AUTHORITY -------- -------- --------- Todd M. Axelrod 5,552,595 7,200 Rod Lynam 5,552,595 7,200 Michael Rosenman 5,559,795 0 Leo Berezan 5,559,795 0 Roger Schneier 5,559,795 0 Voting for the appointment of Piercy, Bowler, Taylor & Kern as the Company's independent auditors, 5,559,953 shares were in favor, and 140 against. 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 17, 2006 there were approximately 362 holders of record 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 2005 October 1, 2004 - December 31, 2004 $3.70 $4.71 January 1, 2005 - March 31, 2005 3.00 4.40 April 1, 2005 - June 30, 2005 2.50 3.40 July 1, 2005 - September 30, 2005 1.49 2.55 Fiscal 2006 October 1, 2005 - December 31, 2005 $1.00 $1.78 January 1, 2006 - March 31, 2006 1.06 1.77 April 1, 2006 - June 30, 2006 1.05 3.15 July 1, 2006 - September 30, 2006 1.16 3.50 (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, 2006. (b) Not applicable. (c) None. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- Forward Looking Statements -------------------------- This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to the Company's future operations and prospects, including statements that are based on current projections and expectations about the markets in which the Company operates, and management's beliefs concerning future performance and capital requirements based upon current available information. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. When used in this document, words like "may," "might," "will," "expect," "anticipate," "believe," and similar expressions are intended to identify forward looking statements. Those forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance or achievements of those of the Company's industry to be materially different from any future results, performance or achievements expressed or implied by those forward- looking statements. Among the factors that could cause actual results, performance or achievement to differ materially from those described or implied in the forward-looking statements are the Company's ability to obtain additional capital, on reasonable terms, if at all, at such times and in such amounts as may be needed by the Company; competition by entities which may have greater resources than the Company; the Company's ability to market and sell its inventory of historical documents; the Company's ability to correctly value its inventory of documents; and other factors included in the Company's filings with the Securities and Exchange Commission (the "SEC"). Copies of the Company's SEC filings are available from the SEC or may be obtained upon request from the Company. The Company does not undertake any obligation to update the information contained herein, which speaks only as of this date. 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 2007. 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, 2006, there was $12,000 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 2005, the Company borrowed $1,000,000 from its majority shareholder and president, Todd Axelrod. The amount is due on demand but not earlier than October 31, 2007, with interest payments monthly at a rate that was reduced September 1, 2005 from 8% to 6%. The purpose of this advance 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 2006 and 2005. The funds borrowed had an interest rate of 1.5% above the prime lending rate but was reduced to 3% as of September 1, 2005. The balance of the funds borrowed was $582,556 as of September 30, 2006. 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 intends but is not obligated 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 October 31, 2007. Historically, cash flow deficiencies have been funded with borrowing from Mr. Axelrod. Management believes that the need for such borrowing should not diminish until profitability and cash flows from operations improve. To improve profitability and cash flows, sales will need to increase. To increase sales, management may have to reevaluate its product pricing strategy and decrease the offering prices of its merchandise. To date, management has been reluctant to cut prices and, instead, to achieve its strategic objectives, continues to increase inventory available on the internet. With a market potential that is world-wide, and unlimited in terms of inventory exposure, the Company has continued to employ this channel to improve revenue levels. Currently, the website had been materially enlarged to include approximately 40,400 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 positioned to favorably compete with any 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, still significantly increase its available inventory to this outlet without negatively impacting the rarity of our documents, thus providing a global audience with a diversity of choice. 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's distribution channels consist of its direct purchase websites and other internet avenues including eBay. Shipping and handling costs and related customer charges are not significant. Inventory of documents owned and operating cycle ------------------------------------------------ Documents owned are stated at cost on a specific-identification method, not in excess of estimated market value. Management reviews the recorded cost and estimated value of the documents owned on a regular basis (at least quarterly) to determine the adequacy of the allowance for market value declines, if any. Management believes that the Company's inventory of documents is generally appreciating, not depreciating, in value. As a result, managing the rarity of certain types or categories of documents through the judicious marketing of only a selection of documents available in the Company's inventory is an important element of the Company's business. This element is one of the reasons that the Company has accumulated and maintains a supply of documents that is significantly greater than it intends to sell in a year or even aggressively market. As the Company's distribution channels have changed over the years and are expected to continue to change in the future, the volume of documents marketed in any one year, or succession of years, changes significantly. For these reasons, it has been impractical, for the Company to define its operating cycle and, as a result, presents its balance sheet on an unclassified basis. The Company believes that this presentation better reflects the nature of the Company's business and its principal asset. Over the past several years the cost of the Company's inventory as of its fiscal year end has ranged from its present level of approximately $6.5 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 2006 Compared to Fiscal 2005 ----------------------------------- The Company had decided in fiscal 2006 to cease its catalog auction operation due to the extreme competition developing in this area. The Company could not maintain its historical gross margins. Instead, effort was directed towards the Company's own websites and other internet channels. Total revenues decreased 30% comparing fiscal 2006 to fiscal 2005. The Company's catalog auction revenues were minor for fiscal 2006 but amounted to 26% of total revenues for fiscal 2005. The Company also participated in one external auction in fiscal 2005 that amounted to 4% of total revenues for fiscal 2005. The Company did not participate in any external auctions in fiscal 2006. Revenues generated through the internet channels increased 3% comparing fiscal 2006 with fiscal 2005. These revenues amounted to 91% of total revenues generated for fiscal 2006 compared to 53% of total revenues in fiscal 2005. Cost of revenues decreased to 10% of net revenues in fiscal 2006 compared to 13% of net revenues for fiscal 2005. Part of this decrease is because of the Company's pricing structure, but in addition, the cost of revenues for the Company's fiscal 2005 catalog auction operation amounted to 17% of net revenues. In addition, this fiscal 2005 cost of revenues number does not include the cost of printing and mailing of the catalogs which amounted to 6% of fiscal 2005 net revenues. Cost of revenues is comprised of the actual document cost. The cost of shipping and handling charges and related customer charges are not significant. Total operating expenses decreased 35% comparing fiscal 2006 to fiscal 2005. As stated above, a significant amount of this decrease is attributed to discontinuing the printing and mailing of catalogs. Salaries and related payroll taxes decreased 51% comparing fiscal 2006 to 2005 mainly due to the reduction in officer salaries. Advertising on the internet was reduced in fiscal 2006 and resulted in a decrease of 13% comparing the two fiscal years. Depreciation expense decreased 53% in fiscal 2006 compared to 2005 largely resulting from assets becoming fully depreciated. 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 included net in other income and expense ($105,936 fiscal 2006 as compared to $91,991 for fiscal 2005). Rental revenues increased 7% comparing the fiscal years due to increased rental rates. Other expense includes a $75,377 write down of our framing raw material inventory. The Company does not promote framed documents as it once did in its gallery settings, thus we do very little framing of sales generated from the internet. Item 7. Financial Statements. TABLE OF CONTENTS PAGE Report of Independent Registered Public Accounting Firm 12 Consolidated Balance Sheets - September 30, 2006 and 2005 13 Consolidated Statements of Operations for the years ended September 30, 2006 and 2005 14 Consolidated Statements of Stockholders' Equity for the years ended September 30, 2006 and 2005 15 Consolidated Statements of Cash Flows for the years ended September 30, 2006 and 2005 16 Notes to Consolidated Financial Statements 17 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- 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, 2006 and 2005, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 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, 2006 and 2005, 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 October 26, 2006 GALLERY OF HISTORY, INC. AND SUBSIDIARIES ----------------------------------------- CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2006 AND 2005 __________________________________________________________________ 2006 2005 ---- ---- ASSETS ------ Cash $ 1,738 $ 2,116 Inventory of documents owned 6,504,288 6,451,310 Deferred tax assets 1,339,842 1,339,842 Property and equipment, net 1,100,381 1,173,538 Other assets 53,996 139,564 --------- --------- $9,000,245 $9,106,370 ========= ========= LIABILITIES Accounts payable $ 100,093 $ 51,373 Advances and notes payable: Majority shareholder 1,582,556 4,280,063 Other 1,186,815 1,380,633 Accrued salaries due to majority shareholder -- 423,684 Other liabilities and accruals 145,922 91,408 --------- --------- 3,015,386 6,227,161 --------- --------- STOCKHOLDERS' EQUITY Common stock: $.0005 par value; 20,000,000 shares authorized; 11,935,308 shares issued 5,968 5,968 Preferred stock: $.0005 par value; 4,000,000 shares authorized; 1,615,861 shares issued 808 -- Additional paid-in capital 14,243,315 10,555,655 Accumulated deficit (5,256,561) (4,673,743) Common stock in treasury, 6,309,324 shares, at cost (3,008,671) (3,008,671) --------- --------- 5,984,859 2,879,209 --------- --------- $9,000,245 $9,106,370 ========= ========= See notes to consolidated financial statements. ________________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES ----------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 ________________________________________________________________ 2006 2005 ---- ---- REVENUES $ 679,461 $1,120,959 COST OF REVENUES 68,685 148,041 --------- --------- GROSS PROFIT 610,776 972,918 --------- --------- OPERATING EXPENSES Selling, general and administrative 915,895 1,385,329 Depreciation 45,113 95,968 --------- --------- 961,008 1,481,297 --------- --------- OPERATING LOSS (350,232) (508,379) --------- --------- OTHER INCOME (EXPENSE) Interest expense: Majority shareholder (104,751) (274,785) Other (117,699) (127,633) Rental income, net 105,936 91,991 Impairment provision of other assets (75,377) -- Other 7,781 -- --------- --------- (184,110) (310,427) --------- --------- NET LOSS $( 534,342) $( 818,806) ========= ========= BASIC AND DILUTED LOSS PER SHARE $(.09) $(.15) ==== ==== 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, 2006 AND 2005 ____________________________________________________________________________ Additional Common Common Stock Preferred Paid-in Accumulated Stock in Shares Par Shares Par Capital Deficit Treasury Total -------- ----- ------- ---- --------- --------- --------- -------- Balance at October 1, 2004 11935308 $5968 -- $-- $ 9851655 $(3854937) $(3008671) $2994015 Contributed services by Majority shareholders -- -- -- -- 704000 -- -- 704000 Net loss -- -- -- -- -- (818806) -- (818806) -------- ---- ------- --- -------- -------- -------- ------- BALANCE AT SEPTEMBER 30, 2005 11935308 5968 -- -- 10555655 (4673743) (3008671) 2879209 Contributed services by Majority shareholders -- -- -- -- 456696 -- -- 456696 Issue preferred stock -- -- 1615861 808 3230964 -- -- 3231772 Preferred dividend -- -- -- -- -- (48476) -- (48476) Net loss -- -- -- -- -- (534342) -- (534342) -------- ---- ------- --- -------- -------- -------- ------- BALANCE AT SEPTEMBER 30, 2006 11935308 $5968 1615861 $808 $14243315 $(5256561) $(3008671) $5984859 ======== ==== ======= === ======== ======== ======== ======= See notes to consolidated financial statements. ________________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2006 AND 2005 __________________________________________________________________ 2006 2005 ---- ---- OPERATING ACTIVITIES Net loss $(534,342) $(818,806) Depreciation and amortization 73,157 124,474 Contributed services of majority shareholders 33,012 704,000 (Increase) decrease in: Inventory of documents owned (52,978) 110,692 Other assets 85,568 1,123 Increase (decrease) in: Accounts payable 48,720 (44,127) Accrued and other liabilities 6,038 (424,488) -------- -------- Net cash used in operating activities (340,825) (347,132) -------- -------- INVESTING ACTIVITIES Purchase of property and equipment -- (9,182) -------- -------- FINANCING ACTIVITIES Proceeds from borrowings: Majority shareholder 541,820 383,634 Other 217,000 280,000 Repayments of borrowings: Majority shareholder (7,555) (8,362) Other (410,818) (356,710) -------- -------- Net cash provided by financing activities 340,447 298,562 -------- -------- NET DECREASE IN CASH (378) (57,752) CASH, BEGINNING OF YEAR 2,116 59,868 -------- -------- CASH, END OF YEAR $ 1,738 $ 2,116 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for interest $ 223,450 $ 402,757 ========= ======== Capitalization of contributed services, majority shareholder $ 423,684 ========= Issuance of preferred stock in partial settlement of note payable, majority shareholder $ 3,231,772 ========= Dividend accrued on preferred stock $ 48,476 ========= 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 that affect reported amounts and disclosures, some of which may require revision in future periods. Estimated valuation allowances for deferred tax assets (Note 6) 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 is 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, $75,716 in 2006 and $149,210 in 2005, including all sales material and catalog costs, are generally expensed as incurred and are included in general, selling and administrative expenses. 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, 2006 and 2005, consists of the following: 2006 2005 ---- ---- Land $ 580,000 $ 580,000 Equipment and furniture 576,526 581,350 Software 310,389 437,298 Office building and improvements 1,653,729 1,653,729 --------- --------- 3,120,644 3,252,377 Less accumulated depreciation (2,020,263) (2,078,839) --------- --------- $1,100,381 $1,173,538 ========= ========= Approximately 50% of the Company's office building is leased or is available to lease to tenants (Note 7). Property and equipment identifiable with the rental operation and the Company's use is as follows: 2006 2005 ---- ---- Office building $1,495,751 $1,495,751 Less accumulated depreciation (991,765) (937,218) --------- --------- $ 503,986 $ 558,533 ========= ========= 3. OTHER ASSETS Other assets at September 30, 2006 and 2005, consist of the following: 2006 2005 ---- ---- Framing materials $ 25,000 $101,191 Prepaid expenses 16,750 25,669 Other 12,246 12,704 ------- ------- $ 53,996 $139,564 ======= ======= 4. RELATED PARTY TRANSACTIONS Prior to 2005, the Company borrowed $1,000,000 from its principal officer/stockholder, Todd Axelrod. The advance is due on demand but not prior to October 31, 2007, with monthly interest payments payable at a rate of 6% per annum (reduced from 8% as of September 2005). Interest expense on the related party advance was $60,833 and $79,333 for fiscal years 2006 and 2005, respectively. The Company has also borrowed other amounts, from Mr. Axelrod, from time to time during the fiscal years 2006 and 2005. The funds borrowed had an interest rate of 1.5% above the prime lending rate but was reduced to 3% as of September 1, 2005. The principal balance of the funds borrowed totaled $582,556 and $3,280,063 as of September 30, 2006 and September 30, 2005, respectively. Interest expense on these related party borrowings was $43,918 and $195,452 during fiscal years 2006 and 2005, respectively. The funds were used to supplement cash flows from operating activities. On January 20, 2006, the Company held a special meeting of stockholders and approved converting $3,231,722 of the advances into 1,615,861 non-voting shares of Series A Convertible Preferred Stock. The preferred stock is entitled to an annual dividend rate of 3%. Mr. Axelrod intends but is not obligated to continue funding or guarantee additional debt, should it be required. Mr. Axelrod has agreed not to demand payment on any amounts the Company has borrowed and, if necessary, defer his right to receive interest payments and/or dividend payments through at least October 31, 2007 (Note 5). Mr. and Mrs. Axelrod have deferred receiving salaries since July 2001 to help the Company with its cash flows needs. To enable the Company to meet a NASDAQ listing requirement of maintaining $2,500,000 in equity, the Axelrods agreed to forgive payment of $704,000 of previously accrued salaries and related payroll taxes in the fourth quarter of 2005 and $423,684 in the first quarter of fiscal 2006. These amounts have been credited to paid-in capital as contributed services. Pamela Ring (Axelrod) submitted her resignation as an officer and director of the Company on December 7, 2005. Mr. Axelrod is not currently being paid a salary in cash, and the Company is now recording compensation at the estimated fair-value of his reduced services. 5. ADVANCES AND NOTES PAYABLE Advances and notes payable consist of the following at September 30: Advances payable, Majority Shareholder debt (demand rights waived through October 31, 2007): 2006 2005 ---- ---- 6% advance $1,000,000 $1,000,000 Other advances, interest rate 3% 582,556 3,280,063(a) --------- --------- $1,582,556 $4,280,063 ========= ========= Notes payable, other: 2006 2005 9% Mortgage note payable ---- ---- July 15, 2007, collateralized by a building $1,170,588 $1,272,987 6.5% auto loan payable in 60 monthly installments 4,227 7,646 Prime plus 1.5% revolving line of credit (up to $100,000) renewing August 2007, (9.75% at September 30, 2006), collateralized by documents and equipment 12,000 100,000 --------- --------- $1,186,815 $1,380,633 ========= ========= (a) The Company converted $3,231,722 of this loan into 1,615,861 non-voting shares of Series A Convertible Preferred Stock (See Note 4). The estimated fair value of the Company's debt at September 30, 2006 and 2005, respectively, was approximately $2,769,371 and $5,660,696, which approximated its book value. The estimated fair value amounts are based on discounted cash flow valuations, because none of the Company's debt has quoted market prices. Discount rates were estimated based on current rates offered to the Company for debt having similar amounts and maturities. Maturities of notes payable are as follows for fiscal years ending September 30: 2007 $1,186,235 2008 1,583,136 --------- Total $2,769,371 ========= 6. INCOME TAXES The following summarizes the components of deferred income taxes at September 30, 2006 and 2005: 2006 2005 ---- ---- Deferred tax assets Net operating losses, net of reserves of $716,100 and $539,200 $1,411,708 $1,314,673 Other 32,666 148,782 --------- --------- 1,444,374 1,463,455 Deferred tax liabilities Depreciation (104,532) (123,613) --------- --------- Net deferred tax assets $1,339,842 $1,339,842 ========= ========= The differences between the normal federal statutory rate of 34% applied to loss before income taxes and the Company's effective rate are: Tax Tax 2006 rate 2005 rate ---- ---- ---- ---- Benefit at statutory rate (181,700) (34.0%) $(278,400) (34.0%) Reserve against tax benefit 176,900 33.1% 275,900 33.7% Other 4,800 .9% 2,500 .3% -------- ----- -------- ----- Income tax benefit $ -- -- % $ -- -- % ======== ===== ======== ===== The entire tax benefit attributable to fiscal years 2006 and 2005 of $176,900 and $275,900 are recognized net of 100% reserves because future realization is estimated to be less likely than not. As of September 30, 2006, the Company had federal income tax loss carryforwards of $6,260,000 available to reduce future tax payment obligations. The carryforwards expire from 2009 to 2026. 7. 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 2006 to 2012 with various renewal options. Gross rental income for the periods ended September 30, 2006 and 2005 was $189,073 and $177,077, respectively. Building operating costs, including primarily depreciation, repairs and maintenance, janitorial, utilities and property taxes, totaled $83,137 and $85,086 in 2006 and 2005, respectively. Future minimum lease payments receivable under non-cancelable operating leases as of September 30, 2006, excluding contingent amounts applicable to reimbursable expenses, are as follows: 2007 $163,377 2008 135,263 2009 124,346 2010 97,753 2011 99,479 Thereafter 107,970 ------- $728,188 ======= Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure ----------------------------------------------------------- None. Item 8a. Controls and Procedures ----------------------- The Company 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. As of September 30, 2006, the Company carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. The evaluation was conducted under the supervision of, and with the participation of the Company's management including the Company's Chief Executive Officer and Chief Financial Officer. Based on their evaluation, as of September 30, 2006, the Company's Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective. There have been no changes in our internal control over financial reporting during the fiscal year ended September 30, 2006, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 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 57 President and Chairman 1981 of the Board of Directors Rod R. Lynam 58 Treasurer/Assistant 1984 Secretary and Director Dr. Michael Rosenman 45 Director 2002 Leo Berezan 51 Director 2004 Roger Schneier 63 Director 2006 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. 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. 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. Roger Schneier was appointed to the Board of Directors on May 22, 2006. Mr. Schnier has been retired since January 2005. Prior to his retirement he was President for twenty-five years of Ben's Auto Parts and Be-Mack Warehouse, both located in Bronx, New York. 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, 2006, 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. Audit Committee Matters ----------------------- In fiscal 2006, the Company's Audit Committee consisted of Mr. Olnick, Chairman, Dr. Rosenman and Mr. Berezan. Mr. Olnick resigned as a director of the Company and as audit committee chairman May 1, 2006. The Board of Directors in a meeting held May 19, 2006, elected Mr. Roger Schneier to the Board effective May 22, 2006. The Board also appointed Mr. Schneier as a member of the Audit Committee and Mr. Berezan as Chairman of the Audit Committee. The Company's Board of Directors has determined that each member of the Audit Committee is an "audit committee financial expert" and that each member of the Audit Committee is an "independent director." 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. 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, 2006, 2005, and 2004, 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 2006 $ --(1) $ -0- President and Chief 2005 --(2) --(2) Executive Officer 2004 --(2) --(2) Pamela R. Axelrod(2) 2006 $ --(2) $ -0- Executive Vice-President 2005 --(2) --(2) 2004 --(2) --(2) (1)Less than $100,000. Mr. Axelrod is not currently being paid a salary in cash, and the Company is now recording compensation at the estimated fair-value of his reduced services, which is approximately $33,000 per year. (2)Previously accrued amounts were credited to paid-in capital effective September 2005. All remaining amounts have been accrued but not yet paid. (3)Pamela Ring (Axelrod) submitted her resignation as an officer and director of the Company on December 7, 2005. During the three-year period ended September 30, 2006, 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, 2006, 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, 2007. 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, 2006, 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 each Director 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(2) Beneficial Ownership(1) of Class ------- -------------------- ----------------------- -------- Common Todd M. Axelrod 4,312,114(3) 81.9% Stock Common Rod R. Lynam 210 (4) Stock Dr. Michael Rosenman -0- -- Common Leo Berezan 35,690 (4) Stock Common Roger Schneier 30,707 1.3% Stock Common Gerald Newman 493,000 8.8% Stock 1049 Seminole Drive Fort Lauderdale, FL 33304 Common All Executive Officers 6,038,775(3) 78.6% Stock and Directors as a group (5 persons) (1) 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 1,615,861 shares of Common Stock issuable upon conversion of 1,615,861 shares of Series A Preferred Stock owned of record by Mr. Axelrod. (4) Less than 1%. 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 2005, the Company borrowed $1,000,000 from its principal officer/stockholder, Todd Axelrod. The advance is due on demand but not prior to October 31, 2007, with monthly interest payments payable at a rate of 6% per annum (reduced from 8% as of September 2005). Interest expense on the related party advance was $60,833 and $79,333 for fiscal years 2006 and 2005, respectively. The Company has also borrowed other amounts, from Mr. Axelrod, from time to time during the fiscal years 2006 and 2005. The funds borrowed had an interest rate of 1.5% above the prime lending rate but was reduced to 3% as of September 1, 2005. The principal balance of the funds borrowed totaled $582,556 and $3,280,063 as of September 30, 2006 and September 30, 2005, respectively. Interest expense on these related party borrowings was $43,918 and $195,452 during fiscal years 2006 and 2005, respectively. The funds were used to supplement cash flows from operating activities. On January 20, 2006, the Company held a special meeting of stockholders and approved converting $3,231,722 of the advances into 1,615,861 non-voting shares of Series A Convertible Preferred Stock. The preferred stock is entitled to an annual dividend rate of 3%. Mr. Axelrod intends but is not obligated to continue funding or guarantee additional debt, should it be required. Mr. Axelrod has agreed not to demand payment on any amounts the Company has borrowed and, if necessary, defer his right to receive interest payments and/or dividend payments through at least October 31, 2007 (Note 5). Mr. Axelrod has deferred receiving salaries since July 2001 to help the Company with its cash flows needs. To enable the Company to meet a NASDAQ listing requirement of maintaining $2,500,000 in equity, previously accrued salaries and related payroll taxes were forgiven in the amount of $704,000 of in the fourth quarter of 2005 and $423,684 in the first quarter of fiscal 2006. These amounts have been credited to paid-in capital as contributed services. Pamela Ring (Axelrod) submitted her resignation as an officer and director of the Company on December 7, 2005. Mr. Axelrod is not currently being paid a salary in cash, and the Company is now recording compensation at the estimated fair-value of his reduced services, which is approximately $33,000 per year. Item 13. Exhibits and Reports on Form 8-K -------------------------------- Exhibits 3.1 Articles of Incorporation.* 3.2 Amendment to Articles of Incorporation filed July 9, 1984.* 3.3 Amendment to Articles of Incorporation filed May 29, 1990.* 3.4 Bylaws.** 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 Exhibit 3.1 to the Registrant's Form 10-QSB for its fiscal quarter ended June 30, 2005 (the "Form 10-QSB"). ** Incorporated by reference to Exhibit 3.2 to the Form 10-QSB. *** Incorporated by reference to Exhibit 14.1 to the Registrant's Form 10-KSB for its fiscal year ended September 30, 2004. Item 14. Principal Accountant Fees and Services The following table lists the aggregate fees billed for professional services rendered for the audit of the Company's annual financial statements for the years ended September 30, 2006 and 2005 including the reviews of the unaudited interim financial statements of the Company's Form 10-QSB. 2006(1) 2005 ------- ---- Audit Fees (2) $37,400 $34,101 Audit-Related Fees 0 0 Tax Fees (3) 2,950 4,662 All other fees 0 0 (1) Total audit and tax fees for fiscal 2006 have not yet been billed to the Company. The amounts entered are estimated. (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 28, 2006 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 28, 2006 -------------------- Chairman of the Todd M. Axelrod Board of Directors (Principal Executive Officer) /s/ Rod Lynam Treasurer/Assistant December 28, 2006 -------------------- Secretary and Director Rod Lynam (Principal Financial and Accounting Officer) /s/ Michael Rosenman Director December 28, 2006 -------------------- Michael Rosenman /s/ Leo Berezan Director December 28, 2006 --------------- Les Berezan /s/ Roger Schneier Director December 28, 2006 ------------------ Roger Schneier