10-K 1 k-09.txt FORM 10-K FOR FISCAL YEAR ENDED SEPTEMBER 30, 2009 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2009 [ ] TRANSITION REPORT PURSUANT TO 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. (Exact name of registrant as 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) Registrant's telephone number: (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 per share (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [x] No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ] Yes [x] No Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 of the Exchange Act from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports require to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( 232.405 of this chapter ) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not 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-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [x] (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). [ ] Yes [x] No As of March 31, 2009, based on a price of $0.69 per share, the closing sale price on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") Capital Market, the aggregate market value of shares of voting and non-voting common equity held by non-affiliates of the registrant was approximately $655,930. As of December 1, 2009, the number of outstanding shares of the registrant's common stock was 6,425,984. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference to Item 15(b)-"Exhibits and Financial Statement Schedules": Form 10-QSB for the fiscal quarter ended June 30, 2005; and Form 10-KSB for the fiscal year ended September 30, 2004. TABLE OF CONTENTS PART I 3 Item 1. Business 3 Item 2. Properties 5 Item 3. Legal Proceedings 5 Item 4. Submission of Matters to a Vote of Security Holders 5 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 7 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 12 Report of Independent Registered Public Accounting Firm 12 Consolidated Balance Sheets - September 30, 2009 and 2008 13 Consolidated Statements of Operations for the years ended September 30, 2009 and 2008 14 Consolidated Statements of Stockholders' Equity for the years ended September 30, 2009 and 2008 15 Consolidated Statements of Cash Flows for the years ended September 30, 2009 and 2008 16 Notes to Consolidated Financial Statements 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23 Item 9A. Controls and Procedures 23 Item 9B. Other Information 24 PART III Item 10. Directors, Executive Officers and Corporate Governance 24 Item 11. Executive Compensation 26 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 27 Item 13. Certain Relationships and Related Transactions and Director Independence 28 Item 14. Principal Accountants' Fees and Services 29 PART IV Item 15. Exhibits and Financial Statement Schedules 30 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 180,000 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 stockholder. Inventory of Documents Owned ---------------------------- The Company purchased 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. During the last three fiscal years, the Company's principal officer and majority stockholder, Mr. Todd Axelrod, has purchased documents from outside sources for his own account with personal funds. The Company may have been interested in acquiring some or all of the items; however, management believed that the Company lacked sufficient liquidity to assume the related finance and marketability risks. As a result, the Company and Mr. Axelrod entered into a revenue-sharing arrangement whereby the Company physically safeguards and catalogs the documents, and markets certain of the items on its website for a fee consisting of 80% of the gross profit from any sale (defined as the sales price to a third party buyer less Mr. Axelrod's cost of acquiring the item). The Company believes this fee arrangement is considerably more favorable to the Company than the Company could obtain from an independent third party. Effective October 1, 2009, Mr. Axelrod has increased the Company's revenue share from the 80% of the gross profit to 90%. These avenues of supply are likely to continue to be the Company's main sources of new 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 ----------- 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. Since closing the Company's retail galleries several years ago, the majority of the Company's sales have been through its websites and channels such as Ebay. 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 180,000 document inventory may be positively affected. To the extent the Company is successful in attracting consignments, it may 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, 2009, the Company had seven full-time and one part-time employee, in addition to its two 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 17,699 square feet and leases or is offering to lease the remaining space to others. As of December 1, 2009, 7,063 square feet was being leased to three tenants for an aggregate monthly rental of $11,458 under month-to-month arrangements to leases expiring at varying times from January 31, 2012 though October 31, 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 ----------------- The Company may be engaged, from time to time, in various legal proceedings. Although Management may not be able to predict the outcome of any such matters as they may arise, Management intends, depending upon the nature of any such action, to vigorously contest any such matters as they may arise. As of December 22, 2009, the Company is not aware of any pending legal proceeding which we are a party to, or that has not been dismissed, subject to appeal, upon motion made by the Company. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- On September 28, 2009, the Company held its annual meeting of stockholders for the following purposes: (1) to elect six Directors to serve until the next annual meeting of stockholders; and (2) to ratify the re-appointment of Piercy Bowler Taylor & Kern, Certified Public Accountants, as the Company's independent registered public accounting firm for the fiscal year ending September 30, 2009. At the Meeting the following Directors were elected: VOTES CAST WITHHELD FOR AUTHORITY NOMINEES ELECTION ------------------- --------- --------- Todd M. Axelrod 6,134,615 8,007 Rod Lynam 6,133,725 8,897 Michael Rosenman 6,133,725 8,897 Roger Schneier 6,133,725 8,897 Peter Kuhr 6,133,725 8,897 Derrold Norgaard 6,133,725 8,897 With respect to the ratification of the appointment of Piercy Bowler Taylor & Kern, Certified Public Accountants, as the Company's independent registered public accounting firm, 6,134,677 shares were in favor, 7,807 shares were voted against, and there were 138 abstentions and no broker non-votes. PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ------------------------------------------------------------------ The Company's Common Stock, par value $.0005, is quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") Capital Market under the symbol HIST. According to the records of our transfer agent, as of September 25, 2009, there were approximately 90 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 2008 October 1, 2007 - December 31, 2007 $1.00 $1.70 January 1, 2008 - March 31, 2008 1.00 1.50 April 1, 2008 - June 30, 2008 1.00 1.20 July 1, 2008 - September 30, 2008 .95 1.33 Fiscal 2009 October 1, 2008 - December 31, 2008 $ .50 $1.28 January 1, 2009 - March 31, 2009 .50 1.15 April 1, 2009 - June 30, 2009 .42 1.47 July 1, 2009 - September 30, 2009 .80 1.03 On December 15, 2009, Gallery of History, Inc. (the "Company") received notification from Nasdaq that the trading of the Company 's Common Stock will be suspended as of the opening of business on December 24, 2009, and that the Company's securities will be removed from listing and registration on the Nasdaq Stock Market. The Nasdaq Staff determination resulted from the Company's inability to regain compliance with the Market Value of Publicly Held Shares ("MVPHS") requirement for continued listing, as set forth in Nasdaq Listing Rule 5500(a)(5) (the "MVPHS Rule"). The Company was also previously notified that it was not in compliance with the Minimum Bid Price requirement under Listing Rule 5550(a)(2). The Company previously reported receipt of the Nasdaq Staff Deficiency Letters with respect to both the MVPHS and Minimum Bid Price requirements. The Company's Common Stock may become eligible to trade on the OTC Bulletin Board or in the "pink sheets" if a market maker makes an application to register in and quote the Common Stock in accordance with applicable securities rules and regulations, of which no assurance can be given. 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, if any, for its internal cash flow use and possible repurchase of its own common stock. There are no equity compensation plans or any other options to purchase the Company's common stock outstanding as of September 30, 2009. Item 6. Selected Financial Data ----------------------- Not Required Item 7. 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, as amended, 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 United States is experiencing a widespread recession accompanied by, among other things, declining discretionary spending, a reduction in general credit availability and instability in the commercial and investment banking systems, and is engaged in war, all of which are likely to continue to have far-reaching effects on economic activity in the country for an indeterminate period. The near- and long-term impact of these factors on the economy and the Company's operations, liquidity and cash flows or the Company's principal stockholder's ability to continue to provide financial support to the Company, cannot be predicted at this time but may be substantial. With the exception of the cost of documents that are sold and certain selling expenses, most of the Company's other costs and expenses are relatively fixed. While management believes that the Company's inventory of documents has substantially appreciated, the Company has been unable to produce sufficient volume of sales to the general public and has incurred significant operating losses for the past several years. As a result, the Company has been (and will likely continue to be) dependent upon debt financing, including loans from its majority stockholder, to satisfy its obligations when due. The unique characteristic of some the Company's documents held in inventory may cause those documents to become rarer with time with their then 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 term mortgage note that was renewed in July 2007 in the amount of $1,087,251 and has an 8.25% interest rate and a maturity date of July 15, 2012. The note is collateralized by the Company's building. Prior to fiscal 2008, the Company borrowed $1,000,000 from its majority stockholder/president, Todd M. Axelrod. The advance was due on demand but not earlier than October 31, 2010, with monthly interest payments payable at a rate of 6% per annum. In June 2008, the Company agreed to issue to Mr. Axelrod an aggregate 800,000 shares of its common stock from treasury in exchange for the cancellation of such debt. The outstanding $1,000,000 principal amount was converted into shares of common stock at a conversion price of $1.25 per share, representing a premium to the closing price on June 10, 2008. The Company also has other loans outstanding from Mr. Axelrod, borrowed from time to time. These loans had carried an annual interest rate of 3% until July 1, 2009 when Mr. Axelrod lowered the interest rate to .7% per annum. Subsequently, this rate has been reduced again to .15% effective October 1, 2009. The principal balance of the funds borrowed totaled $1,854,578 and $1,310,226 as of September 30, 2009 and 2008, respectively. Interest expense on these related party borrowings was $36,347 and $34,243 during fiscal years 2009 and 2008, respectively. The funds were used to supplement cash flows from operating activities. The Company believes, although no assurance can be given, that its current cash requirements will be met by generating revenues from operations, appropriately managing the timing and volume of new document acquisitions, including the use of the revenue-sharing agreement with Mr. Axelrod, seeking borrowings or advances against its documents inventory (although there can be no assurance that such financing will be obtainable on acceptable terms) 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 interest payments through at least October 31, 2011. 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, especially under current and likely near-term future economic conditions, 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 continues to employ this channel to improve revenue levels. Currently, our website had been materially enlarged to include approximately 66,700 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 material 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, with the possibility of expanding its market through cooperative alliances with firms and/or institutions whose audiences are understood to possess potential as document buyers. The Company expects to make 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 $6.3 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. Deferred tax assets and income taxes ------------------------------------ The Company provides a valuation allowance against deferred tax assets (primarily associated with tax loss carryforwards) to the extent that such tax assets exceed an amount considered by management as more likely than not to be utilized as a result of any gain on the Company's effective tax planning strategies, consisting of the possible sale of appreciated document inventory, particularly if partially sold in bulk, and/or real estate, that would produce gains that may be realized as needed to protect the Company's loss carryforwards. The potential gain and related tax effect is estimated by management based on current market activity and estimate of value and historical profit margins and trends. Such estimates are revisited and revised quarterly. Based on our analysis of our tax provisions, deferred tax assets and the related valuation allowance, we determined that there are no significant uncertain tax positions, including with respect to our operating deficit or related disclosures. Recently issued accounting pronouncements ----------------------------------------- No recently issued accounting pronouncements not yet adopted are expected to have a material impact on our consolidated financial position, results of operations or cash flows. Results of Operations --------------------- Fiscal 2009 Compared to Fiscal 2008 ----------------------------------- Revenues decreased 26% comparing fiscal 2009 to fiscal 2008. Our Company's web site revenues decreased 20% and revenues generated from the Company's Ebay Store site decreased 60% comparing year over year. This decrease was attributed to internet competition, the general decrease in discretionary spending and the general economic condition of this last year. Included in fiscal 2009 revenues, 47 documents were sold amounting to $26,585 in revenues that was generated from the revenue-sharing arrangement with our majority stockholder/president, Mr. Todd Axelrod. This compares to 58 documents sold amounting to $14,758 in revenues for fiscal 2008. Cost of revenues sold was 7% of net revenues in 2009, compared to 8% of net revenues in 2008, a 37% decrease. Excluding the effects of the revenue- sharing arrangement discussed in the previous paragraph, the Company's cost of revenues would have been 7.4% of net revenues for fiscal 2009 compared to 8.4% for fiscal 2008. The decrease in cost of revenues sold is the result of pricing increases. Total operating expenses decreased 8% comparing fiscal 2009 to fiscal 2008 due to decreases in advertising, insurances, computer maintenance and salaries. The Company decreased its advertising expense by 7% comparing the fiscal years. General insurances decreased 8% and medical insurance premiums decreased 13% comparing the years. A decrease in computer maintenance reduced those expenses by 11%. Salaries and related taxes amounted to $390,318 for fiscal 2009, compared to $457,976 for fiscal 2008, a 15% decrease resulting from a decrease of personnel. Depreciation expense decreased 2% in fiscal 2009 compared to 2008. Included in selling, general and administrative expenses is an allocated 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 are allocated to rental operations and included in other income and expense ($60,727 fiscal 2009 as compared to $90,122 for fiscal 2008). Item 8. Financial Statements and Supplementary Data ------------------------------------------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- Board of Directors Gallery of History, Inc. Las Vegas, Nevada We have audited the accompanying consolidated balance sheets of Gallery of History, Inc. (a Nevada Corporation) and subsidiaries (the "Company") as of September 30, 2009 and 2008, 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 consolidated 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, 2009 and 2008, 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 PIERCY BOWLER TAYLOR & KERN Certified Public Accountants Las Vegas, Nevada December 22, 2009 GALLERY OF HISTORY, INC. AND SUBSIDIARIES ----------------------------------------- CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 AND 2008 _______________________________________________________________________ 2009 2008 ASSETS ---- ---- ------ Cash $ 6,796 $ 9,576 Inventory of documents owned 6,348,405 6,382,828 Deferred tax assets 1,339,842 1,339,842 Property and equipment, net 933,990 990,610 Other assets 58,132 59,394 ---------- --------- TOTAL ASSETS $ 8,687,165 $8,782,250 ========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ LIABILITIES Accounts payable $ 23,454 $ 29,168 Advances and notes payable: Majority stockholder 1,854,578 1,310,226 Other 1,026,018 1,123,236 Preferred stock dividend payable 354,988 249,760 Other liabilities and accruals 58,111 80,842 ---------- --------- Total liabilities 3,317,149 2,793,232 ---------- --------- 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 (liquidation value at September 30, 2009 and September 30, 2008, $3,586,710 and $3,481,482 including cumulative unpaid dividends in arrears of $354,988 and $249,760 included among liabilities) 808 808 Additional paid-in capital 15,022,394 14,978,860 Deficit (7,032,083) (6,369,547) Common stock in treasury, 5,509,324 shares, at cost (2,627,071) (2,627,071) ---------- --------- Total stockholders' equity 5,370,016 5,989,018 ---------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,687,165 $8,782,250 ========== ========= See notes to consolidated financial statements. _______________________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES ----------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008 _______________________________________________________________________ 2009 2008 ---- ---- REVENUES $ 386,661 $ 519,824 COST OF REVENUES 26,666 42,365 ---------- --------- GROSS PROFIT 359,995 477,459 ---------- --------- OPERATING EXPENSES Selling, general and administrative 818,606 893,648 Depreciation 34,223 35,084 ---------- --------- Total operating expenses 852,829 928,732 ---------- --------- OPERATING LOSS (492,834) (451,273) ---------- --------- OTHER INCOME (EXPENSE) Interest expense: Majority stockholder (36,347) (74,584) Other (88,900) (92,398) Rental income, net 60,727 90,122 Other 46 6,495 ---------- --------- Total other income (expense) (64,474) (70,365) ---------- --------- NET LOSS (557,308) (521,638) Preferred stock dividend (105,228) (102,141) ---------- --------- NET LOSS APPLICABLE TO COMMON SHARES $ (662,536) $ (623,779) ========== ========= BASIC LOSS PER SHARE $(.10) $(.11) ==== ==== WEIGHTED AVERAGE SHARES OUTSTANDING 6,425,984 5,868,607 ========= ========= See notes to consolidated financial statements. _______________________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008 _______________________________________________________________________ Additional Common Common Stock Preferred Paid-in Stock in Shares Par Shares Par Capital Deficit Treasury Total -------- ----- ------- ---- --------- --------- --------- -------- BALANCES AT OCTOBER 1, 2007 11935308 $5968 1615861 $808 $14291362 $(5745768) $(3008671) $5543699 Contributed services by majority stockholder -- -- -- -- 33013 -- -- 33013 Stock based compensation -- -- -- -- 36085 -- -- 36085 Debt to treasury stock conversion -- -- -- -- 618400 -- 381600 1000000 Preferred stock dividend -- -- -- -- -- (102141) -- (102141) Net loss -- -- -- -- -- (521638) -- (521638) -------- ----- ------- --- -------- ------- ------- ------- BALANCES AT SEPTEMBER 30, 2008 11935308 5,968 1615861 808 14978860 (6369547) (2627071) 5989018 Contributed services by majority stockholder -- -- -- -- 31506 -- -- 31506 Stock based compensation -- -- -- -- 12028 -- -- 12028 Preferred stock dividend -- -- -- -- -- (105228) -- (105228) Net loss -- -- -- -- -- (557308) -- (557308) -------- ----- ------- --- -------- ------- ------- ------- BALANCES AT SEPTEMBER 30, 2009 11935308 $5968 1615861 $808 $15022394 $(7032083) $(2627071) $5370016 ======== ==== ======= === ======== ======= ======= ======= See notes to consolidated financial statements. _______________________________________________________________________ GALLERY OF HISTORY, INC. AND SUBSIDIARIES ----------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008 _______________________________________________________________________ 2009 2008 ---- ---- OPERATING ACTIVITIES Net loss $(557,308) $(521,638) Depreciation 61,007 55,372 Contributed services of majority stockholder 31,506 33,013 Stock-based compensation 12,028 36,085 (Increase) decrease in: Inventory of documents owned 34,423 41,003 Other assets 1,262 2,000 Increase (decrease) in: Accounts payable (5,714) (10,171) Other liabilities and accruals (22,731) 1,468 -------- -------- Net cash used in operating activities (445,527) (362,868) -------- -------- INVESTING ACTIVITIES Purchase of property and equipment (4,387) (5,028) Proceed from sale of property and equipment -- 6,500 -------- -------- Net cash provided by (used in) investing activities (4,387) 1,472 -------- -------- FINANCING ACTIVITIES Proceeds from borrowings: Majority stockholder 585,617 450,970 Other 313,000 253,000 Repayments of borrowings: Majority stockholder (41,265) (35,970) Other (410,218) (298,545) -------- -------- Net cash provided by financing activities 447,134 369,455 -------- -------- NET INCREASE (DECREASE) IN CASH (2,780) 8,059 CASH, BEGINNING OF YEAR 9,576 1,517 -------- -------- CASH, END OF YEAR $ 6,796 $ 9,576 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for interest $ 127,672 $ 166,203 ======== ======== Noncash investing and financing activities: Majority stockholder debt converted to common stock -- $1,000,000 ========= Dividend accrued on preferred stock $ 105,228 $ 102,141 ======== ========= 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. Principles of Consolidation and Basis of Accounting - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant inter-company accounts and transactions have been eliminated. The Company has not elected to adopt the option available under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 825-10-25, "Fair Value Option", to measure any of its eligible financial instruments or other items. Accordingly, all of the Company's assets and liabilities have been measured in the accompanying financial statements on the historical cost basis of accounting. 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. Events through the date the financial statements were issued, December 22, 2009, were evaluated by management to determine if adjustments to or disclosure in these consolidated financial statements were necessary. Economic Conditions and Related Risks and Uncertainties - The United States is experiencing a widespread recession accompanied by, among other things, declining discretionary spending, a reduction in general credit availability and instability in the commercial and investment banking systems, and is engaged in war, all of which are likely to continue to have far-reaching effects on economic activity in the country for an indeterminate period. The near- and long-term impact of these factors on the economy and the Company's operations, or the Company's principal stockholder's ability to continue to provide financial support to the Company, cannot be predicted at this time but may be substantial. Revenues - The Company recognizes revenues from document sales when title passes to the customer upon shipment. Sales taxes received from customers are credited directly to a liability account and are not presented in the statements of operations. Shipping and handling costs and related customer charges are not significant. The Company warrants the authenticity of its products by making available to its customers a certificate of authenticity, valid for ten years from date of purchase, for each document it sells. Under the terms of the certificates, 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. Accordingly no provision for sales returns or warranty costs, for example, relative to the risk of forgery, are deemed necessary. 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 outside experts. 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 its provisions 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 carrying values of inventory items 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, included in other income (expense), generally on a per square foot basis. Advertising Costs - Advertising costs, $40,292 in 2009 and $43,318 in 2008, including all sales material and internet selling fees, are expensed as incurred and are included in general, selling and administrative expenses. Legal Defense Costs - The Company does not accrue for estimated future legal and related defense costs, if any, to be incurred in connection with outstand or threatened litigation or other disputed matters but rather, records such as period costs when the services are rendered. Income Taxes - The Company recognizes interest and penalties, if any, related to income taxes within the income tax expense (benefit) line in its consolidated statements of operations. Loss Per Share - Outstanding options (50,000 at September 30, 2008, and subsequently terminated) were not given effect in a computation of diluted results per share for the period, which is not presented, since to do so would have been anti-dilutive due to losses. 2. PROPERTY AND EQUIPMENT Property and equipment at September 30, 2009 and 2008, consists of the following: 2009 2008 ---- ---- Land $ 580,000 $ 580,000 Equipment and furniture 795,942 825,474 Office building and improvements 1,653,729 1,653,729 --------- --------- 3,029,671 3,059,203 Less accumulated depreciation (2,095,681) (2,068,593) --------- --------- $ 933,990 $ 990,610 ========= ========= Approximately 50% of the Company's office building is leased or is held available to lease to tenants (Note 7). Property and equipment identifiable with the rental operation and the Company's use is as follows: 2009 2008 ---- ---- Office building $1,495,751 $1,495,751 Less accumulated depreciation (1,153,444) (1,099,878) ---------- --------- $ 342,307 $ 395,873 ========== ========= 3. RELATED PARTY TRANSACTIONS In fiscal 2006, the Company converted $3,231,722 of debt to its principal officer/stockholder into 1,615,861 shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock earns dividends at the annual rate of 3% applied to the liquidation value, and payable semi-annually so long as resources are legally available for that purpose (unless waived by the holder). Unpaid dividends are cumulative, are recorded as liabilities and added to the liquidation value (upon which the annual dividend rate is applied), and are preferential in the event of liquidation and with respect to any dividends or other distributions to Common Stockholders. The Preferred Stock is non-voting (except as may be required by law) and convertible at any time at the option of the holder at a fixed rate of one common share for every $2 in liquidation value, as adjusted, per share of Preferred Stock at the time of conversion, subject to adjustment in the event of future increases or decreases in the number of outstanding shares of Common Stock for a price other than the then conversion price of the Preferred Stock or in the event of issuance of certain other securities. As of September 30, 2009 and September 30, 2008, a total of 1,793,355 and 1,740,741 shares of Common Stock were issuable upon conversion of the Preferred Stock. Prior to fiscal 2008, the Company borrowed $1,000,000 from its majority stockholder/president, Todd M. Axelrod. The advance was due on demand but not earlier than October 31, 2010, with monthly interest payments payable at a rate of 6% per annum. In June 2008, the Company agreed to issue to Mr. Axelrod an aggregate 800,000 shares of its common stock from treasury in exchange for the cancellation of such debt. The outstanding $1,000,000 principal amount was converted into shares of common stock at a conversion price of $1.25 per share, representing a premium to the closing price on June 10, 2008. The Company also has other loans outstanding from Mr. Axelrod, borrowed from time to time. These loans had carried an annual interest rate of 3% until July 1, 2009 when Mr. Axelrod lowered the interest rate to 0.7% per annum. Subsequently, effective October 1, 2009, this rate has been reduced again to 0.15%. The principal balance of the funds borrowed totaled $1,854,578 and $1,310,226 as of September 30, 2009 and 2008, respectively. The borrowed funds were used to supplement cash flows from operating activities. Interest expense on these related party borrowings was $36,347 and $34,243 during fiscal years 2009 and 2008, respectively. Mr. Axelrod intends but is not obligated to continue funding or guarantee additional debt, of the Company, should it be required. Mr. Axelrod has agreed not to demand payment on any amounts the Company has borrowed and defer his right to receive interest payments and/or dividend payments through at least October 31, 2011 (Note 4). Revenue-sharing arrangement. Since 2006, Mr. Axelrod has purchased documents from outside sources for his own account with personal funds. The Company may have been interested in acquiring some or all of the items; however, management believed that the Company lacked sufficient liquidity to assume the related finance and marketability risks. As a result, the Company and Mr. Axelrod entered into a revenue-sharing arrangement whereby the Company physically safeguards and catalogs the documents, and markets certain of the items on its web site for a fee consisting of 80% of the gross profit from any sale (defined as the sales price to a third party buyer less Mr. Axelrod's cost of acquiring the item). The Company believes this fee arrangement is considerably more favorable to the Company than the Company could obtain from an independent third party. Effective October 1, 2009, Mr. Axelrod increased the Company's revenue share from the 80% of gross profit to 90%. The Company receives the same guarantee as Mr. Axelrod would receive as to the authenticity warranty obtained from the vendors. The Company has also independently verified Mr. Axelrod's cost of the consigned inventory. During fiscal 2009, 47 documents subject to the revenue-sharing arrangement were sold for $35,596 and the Company's revenue share was $26,585 which was included in revenue. During fiscal 2008, 58 documents were sold for $19,359 and the Company's revenue share was $14,758. Contributed Services. As Company's president and majority stockholder, Mr. Axelrod does not receive a salary. Accordingly, the estimated value of his services (approximately $30,000 per year) is recorded as expense and additional paid-in capital. 4. ADVANCES AND NOTES PAYABLE Advances and notes payable consist of the following at September 30: 2009 2008 ---- ---- Majority stockholder debt (demand rights waived through October 31, 2011): $1,854,578 $1,310,226 8.5% mortgage note payable July 15, 2012, collateralized by a building 1,026,018 1,051,236 Prime plus 1.5% revolving line of credit terminated July 2009, was collateralized by documents and equipment -- 72,000 --------- --------- $2,880,596 $2,433,462 ========= ========= Maturities of notes payable are as follows for fiscal years ending September 30: 2010 $ 27,408 2011 29,791 2012 2,823,397 --------- Total $2,880,596 ========= 5. INCOME TAXES As of September 30, 2009, the Company had federal income tax loss carryforwards of$7,423,496 available to reduce future tax payment obligations. The carryforwards expire from 2010 to 2029. The Company provides a valuation allowance against its deferred tax assets (which are primarily associated with net tax loss carryforwards), to the extent that such tax assets are deemed by management as not likely to be utilized, after consideration of management's tax planning strategies. Such valuation allowance is the principal reason for the variation in the customary relationship between income tax benefit and the pretax accounting loss. Additional details of the components of deferred income taxes at September 30, 2009 and 2008, follows: 2009 2008 Deferred tax assets ---- ---- Net operating losses $2,523,989 $2,384,867 Other 4,392 6,660 --------- --------- 2,528,381 2,391,527 Valuation allowance (1,112,131) (959,600) --------- --------- 1,416,250 1,431,927 Deferred tax liabilities Depreciation (76,408) (92,085) --------- --------- 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 2009 rate 2008 rate ---- ---- ---- ---- Benefit at statutory rate $(189,500) (34.0%) $(177,400) (34.0%) Allowance against tax benefit 172,100 31.5% 164,700 31.5% Other 17,400 2.5% 12,700 2.5% -------- ---- -------- ---- Income tax benefit $ -- -- % $ -- -- % ======== ==== ======== ==== Based on its analysis of the Company's tax provisions, deferred tax assets, and the related valuation allowance, management determined that there are no significant, uncertain tax provisions that might affect the Company's financial statements, loss carryovers, or the related valuation allowance, including with respect to its operating deficit. 6. 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 exist month-to-month to periods expiring January 31, 2013, with various renewal options. Gross rental income for the periods ended September 30, 2009 and 2008 was $141,182 and $170,835, respectively. Building operating costs, including primarily depreciation, repairs and maintenance, janitorial, utilities and property taxes, totaled $80,455 and $80,713 in 2009 and 2008, respectively. Future minimum lease payments due under non-cancelable operating leases with initial lease terms exceeding 12 months as of September 30, 2009, excluding contingent amounts applicable to reimbursable expenses, are as follows: 2010 $ 117,048 2011 119,664 2012 120,756 2013 15,480 -------- $ 372,948 ======== 7. FAIR VALUES OF FINANCIAL INSTRUMENTS The carrying amount of cash and accounts payable approximates fair value because of the short maturity of those instruments. With the exception of an 8.25% mortgage obligation of approximately $1,000,000 that matures in 2012 and the Company's related party debt discussed below (the fair value of which cannot be reliably estimated due to its nature), the estimated fair value of the Company's debt instruments approximated its book value, based on Level 2 inputs, as defined in FASB ASC 820, Fair Value Measurements and Disclosures, as amended, primarily 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. The carrying value of mortgage obligation is also estimated to approximate fair value based on a Level 2 input consisting of comparable commercial real estate mortgage interest rates currently prevalent in the local market. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure ----------------------------------------------------------- None. Item 9A. Controls and Procedures ----------------------- The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. Management's Evaluation of Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and disposition of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The scope of management's assessment of the effectiveness of internal control over financial reporting includes all of our Company's consolidated subsidiaries. Our management performed an assessment as of September 30, 2009 of the effectiveness of our internal controls over financial reporting based upon the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and concluded that our internal control over financial reporting was effective as of September 30, 2009. This Annual Report on Form 10-K does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report. Item 9B. Other Information ----------------- None PART III -------- Item 10. Directors, Executive Officers and Corporate Governance ------------------------------------------------------ Set forth below is certain information concerning the individuals who were directors and executive officers of the Company as of September 30, 2009. Name Age Position ---- --- -------- Todd M. Axelrod 60 President, CEO and Chairman of the Board Rod R. Lynam 61 Treasurer, CFO, Assistant Secretary and Director Dr. Michael Rosenman 48 Director Roger Schneier 66 Director Peter Kuhr 61 Director Derrold Norgaard 48 Director The following are brief biographies of the Company's executive officers and directors. 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 member of our Board of Directors since 2002. Dr. Rosenman is 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. Roger Schneier was appointed to the Board of Directors on May 22, 2006. Mr. Schneier 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. Peter Kuhr was elected to the Board of Directors on March 13, 2007. Mr. Kuhr is currently the president of, and a partner in, Capital Iron 1997 Ltd., a specialty retail operation servicing the Victoria, British Columbia market. Prior to this position, in 1996, he was general merchandise manager of the textiles division of Eaton's of Canada, then a major department store with over 100 stores across Canada. Mr. Kuhr is a member of the Board of Directors for the Downtown Victoria Business Association and is an active fund raiser and volunteer with a number of community organizations including the United Way and the Prostate Centre. Derrold Norgaard, FCA, CFP is currently president and owner of Island Tax and Smithgate Farms Ltd, a consulting firm which engages in accounting and tax advisory and compliance for local companies in Vancouver, British Columbia and elsewhere. Prior to this position, from 1982 to 2008, he was employed by KPMG LLP in various capacities, starting as a member of their audit and accounting staff, becoming a tax partner and eventually the office managing partner. Mr. Norgaard is a tax speaker for local and international business groups and an instructor of advanced tax courses. He is a director of Ironwood Clay Company Ltd, a Richmond British Columbia based cosmetics manufacturing company. He is chair and director of the British Columbia Cancer Foundation and Vancouver Island Centre Gifts Committee and is vice chair of the British Columbia Cancer Foundation's 2009 Capital Campaign. 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 SEC 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. During the fiscal year ended September 30, 2009, 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 ----------------------- The Company's Audit Committee currently is composed of Mr. Norgaard, Chairman, Dr. Rosenman and Mr. Kuhr. The Company's Board of Directors has determined that each member of the Audit Committee is able to read and understand fundamental financial statements, including the Company's consolidated balance sheet, income statement and cash flow statement. In addition, the Board of Directors has determined that Derrold Norgaard is an "audit committee financial expert" as that term is defined by the rules and regulations of the Securities and Exchange Commission. Also, the Board of Directors has determined that each of these individuals is an "independent director," as defined under the applicable rules and listing standards of the NASDAQ Stock Market LLC and the rules and regulations of the Securities and Exchange Commission. Code of Ethics -------------- The Company has adopted a Code of Business and Ethics that applies to the Company's principal executive officer, principal financial officer, principal accounting officer or other persons performing similar functions. 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 11. Executive Compensation ---------------------- The following table sets forth all compensation awarded to, earned by, or paid by the Company during our fiscal year ended September 30, 2009 to our Chief Executive Officer, and to any executive officer who received compensation in excess of $100,000 for the last completed fiscal year (each a "Named Executive Officer"). SUMMARY COMPENSATION TABLE -------------------------- Non-equity Nonqualified Name and Incentive Deferred All Principal Stock Option Plan Compensation Other Position Year Salary Bonus Award Awards Compensation Earnings Comp Total ------------------------------------------------------------------------------- Todd M. Axelrod, President 2009 $-0- $-0- $-0- $-0- $-0- $-0- $-0- $-0- and Chief (1) Executive Officer 2008 $-0- $-0- $-0- $-0- $-0- $-0- $5,061 $5,061 (1) (2) (1) Mr. Axelrod does not receive compensation for services rendered by him as an officer or director of the Company. (2) Represesents employee benefits in the form of health and life insurances, which was cancelled May 15, 2008. During the fiscal year ended September 30, 2009, we did not grant any stock options to any of our Named Executive Officers of the Company, and none of our Named Executive Officers owned any stock options as of September 30, 2009. The following table sets forth certain information concerning compensation paid to our outside directors during fiscal 2009: DIRECTOR COMPENSATION --------------------- Fees Non-Equity Non-qualified Earned or Incentive Deferred All Name Paid in Stock Option Plan Compensation Other Total Cash Awards Awards Compensation Earnings Comp ------------------------------------------------------------------------------- Michael Rosenman $-0- $-0- $-0- $-0- $-0- $-0- $-0- Roger Schneier $-0- $-0- $-0- $-0- $-0- $-0- $-0- Peter Kuhr $-0- $-0- $-0- $-0- $-0- $-0- $-0- Derrold Norgaard $-0- $-0- $-0- $-0- $-0- $-0- $-0- We do not compensate any of our directors for serving on the Board or on any committee of the Board. If requested, we may reimburse our outside directors for their reasonable travel expenses incurred in attending Board or committee meetings. We are not a party to any employment agreement with any of our executive officers. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ------------------------------------------------------------------ The following table sets forth certain information, as of December 1, 2009, pertaining to ownership of the Company's Common Stock by those persons known to the Company to be the beneficial and record owners of more than five percent of the Common Stock of the Company, by each director and nominee of the Company, by each executive officer included in the summary compensation table, and by all officers and directors of the Company as a group: Name of Beneficial Number of Percent Holder (1) (2) Shares of Class ------------------ ------ -------- Todd M. Axelrod (3) 7,226,243 87.9% Rod Lynam 210 (4) Dr. Michael Rosenman -0- -- Roger Schneier 74,900 1.2% Peter Kuhr -0- -- Gerald Newman 493,000 7.7% 17161 Coral Cove Way Boca Raton, Florida 33496 Derrold Norgaard -0- -- All officers and directors 7,301,353 88.8% as a group (6 persons)(3) (1) The address of each director and nominee, except where otherwise indicated is: c/o Gallery of History, Inc., 3601 West Sahara Avenue, Promenade Suite, Las Vegas, Nevada 89102-5822. (2) The individuals referred to above have sole voting and investment power in regard to their Common Stock. (3) Includes 1,793,355 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%. Item 13. Certain Relationships and Related Transactions, and Director Independence --------------------------------------------------------------------- In fiscal 2006, the Company converted $3,231,722 of debt to its principal officer/stockholder into 1,615,861 shares of Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock earns dividends at the annual rate of 3% applied to the liquidation value, and payable semi-annually so long as resources are legally available for that purpose (unless waived by the holder). Unpaid dividends are cumulative, are added to the liquidation value (upon which the annual dividend rate is applied), and are preferential in the event of liquidation and with respect to any dividends or other distributions to Common Stockholders. The Preferred Stock is non-voting (except as may be required by law) and convertible at any time at the option of the holder at a fixed rate of one common share for every $2 in liquidation value, as adjusted, per share of Preferred Stock at the time of conversion, subject to adjustment in the event of future increases or decreases in the number of outstanding shares of Common Stock for a price other than the then conversion price of the Preferred Stock or in the event of issuance of certain other securities. As of September 30, 2009 and September 30, 2008, a total of 1,793,355 and 1,740,741 shares of Common Stock were issuable upon conversion of the Preferred Stock. Prior to fiscal 2008, the Company borrowed $1,000,000 from its majority stockholder/president, Todd M. Axelrod. The advance was due on demand but not earlier than October 31, 2010, with monthly interest payments payable at a rate of 6% per annum. In June 2008, the Company agreed to issue to Mr. Axelrod an aggregate 800,000 shares of its common stock from treasury in exchange for the cancellation of such debt. The outstanding $1,000,000 principal amount was converted into shares of common stock at a conversion price of $1.25 per share, representing a premium to the closing price on June 10, 2008. The Company also has other loans outstanding from Mr. Axelrod, borrowed from time to time. These loans had carried an annual interest rate of 3% until July 1, 2009 when Mr. Axelrod lowered the interest rate to .7% per annum. Subsequently, this rate has been reduced again to .15% effective October 1, 2009. The principal balance of the funds borrowed totaled $1,854,578 and $1,310,226 as of September 30, 2009 and 2008, respectively. Interest expense on these related party borrowings was $36,347 and $34,243 during fiscal years 2009 and 2008, respectively. The funds were used to supplement cash flows from operating activities. Since November 2006, Mr. Axelrod has purchased documents from outside sources for his own account with personal funds. The Company may have been interested in acquiring some or all of the items; however, management believed that the Company lacked sufficient liquidity to assume the related finance and marketability risks. As a result, the Company and Mr. Axelrod entered into a revenue-sharing arrangement whereby the Company physically safeguards and catalogs the documents, and markets certain of the items on its web site for a fee consisting of 80% of the gross profit from any sale (defined as the sales price to a third party buyer less Mr. Axelrod's cost of acquiring the item). The Company believes this fee arrangement is considerably more favorable to the Company than the Company could obtain from an independent third party. Effective October 1, 2009, Mr. Axelrod has increased the Company's revenue share from the 80% of gross profit to 90%. The Company receives the same guarantee as Mr. Axelrod would receive as to the authenticity warranty obtained from the vendors. The Company has also independently verified Mr. Axelrod's cost of the consigned inventory. During fiscal 2009, 47 documents subject to the revenue-sharing arrangement were sold for $35,596 and the Company's revenue share was $26,585 which was included in revenue. During fiscal 2008, 58 documents were sold for $19,359 and the Company's revenue share was $14,758. Director Independence The Company follows the director independence standards prescribed by NASDAQ. As such, the members of our Board of Directors who are considered independent and are also members of the Company's Audit Committee are Mr. Derrold Norgaard, Chairman, Dr. Michael Rosenman and Mr. Peter Kuhr. Item 14. Principal Accountants' Fees and Services ---------------------------------------- The following table lists the aggregate fees billed and/or estimated unbilled for professional services rendered for the audit of the Company's annual financial statements for the years ended September 30, 2009 and 2008, including the reviews of the unaudited interim financial statements of the Company's Form 10-QSB. 2009(1) 2008 ---- ---- Audit Fees (2) $40,191 $39,213 Audit-Related Fees 0 0 Tax Fees (3) 3,000 3.000 All other fees 0 0 (1) Total audit and tax fees for fiscal 2009 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 and reviews of the Company's quarterly financial statements. (3) Tax fees consist of tax compliance and related tax services. The audit committee pre-approves all services provided by our independent registered accounting firm, Piercy Bowler Taylor & Kern, Certified Public Accountants. All of the above services and fees were reviewed and approved by the Company's audit committee. PART IV ------- Item 15. Exhibits and Financial Statement Schedules ------------------------------------------ (a) Documents filed as part of this Form 10-K 1. Financial Statements and Supplementary Date Page ---- Report of Independent Registered Public Accounting Firm 12 Consolidated Balance Sheets 13 Consolidated Statements of Operations 14 Consolidated Statements of Stockholders' Equity 15 Consolidated Statements of Cash Flow 16 Notes to Consolidated Financial Statements 17 2. Financial Statement Schedules (not applicable) (b) See Exhibit Index below (c) Not applicable EXHIBITS Number Description ------ ----------- 3.2 Amendment to Articles of Incorporation filed July 9, 1984 (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")). 3.3 Amendment to Articles of Incorporation filed May 29, 1990 (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")) 3.4 Bylaws (incorporated by reference to Exhibit 3.2 to the Form 10-QSB.) 14.1 Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Registrant's Form 10-KSB for its fiscal year ended September 30, 2004). 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). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 22, 2009 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 and Title Date -------------------- ---- /s/ Todd M. Axelrod December 22, 2009 -------------------- Todd M. Axelrod President and Chairman of the Board of Directors (Principal Executive Officer) /s/ Rod Lynam December 22, 2009 -------------------- Rod Lynam Treasurer, Assistant Secretary and Director (Principal Accounting Officer) /s/ Michael Rosenman December 22, 2009 -------------------- Michael Rosenman, Director /s/ Roger Schneier December 22, 2009 -------------------- Roger Schneier, Director /s/ Peter Kuhr December 22, 2009 -------------------- Peter Kuhr, Director /s/ Derrold Norgaard December 22, 2009 -------------------- Derrold Norgaard, Director