-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R7hlK1F5TpV1j/ptOWhiKHTIQP4grAqItiSWVoVZtrTKE3kaxKriiwIVZ0u5GxD2 bMsiQhMICP119gPoYFPBLw== 0000763730-96-000011.txt : 19961218 0000763730-96-000011.hdr.sgml : 19961218 ACCESSION NUMBER: 0000763730-96-000011 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961217 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALLERY OF HISTORY INC CENTRAL INDEX KEY: 0000763730 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 880176525 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 000-13757 FILM NUMBER: 96681735 BUSINESS ADDRESS: STREET 1: 3601 WEST SAHARA AVE CITY: LAS VEGAS STATE: NV ZIP: 89102-5822 BUSINESS PHONE: 7023641000 MAIL ADDRESS: STREET 1: 3601 WEST SAHARA AVENUE CITY: LAS VEGAS STATE: NV ZIP: 89102 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MUSEUM OF HISTORICAL DOCUMENTS CHARTERED/NV/ DATE OF NAME CHANGE: 19900816 10KSB40 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-13757 GALLERY OF HISTORY, INC. (Name of Small Business Issuer Specified in Its Charter) Nevada 88-0176525 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3601 West Sahara Avenue, Las Vegas, Nevada 89102-5822 (Address of principal executive offices) (Zip Code) Issuer's telephone number (including area code): (702) 364-1000 Securities registered under Section 12(b) of the Act: None Securities registered under Section 12(g) of the Act: Common Stock, par value $.001 (Title of Class) Check whether the issuer (1) filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained herein, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Issuer's revenues for the most recent fiscal year: $2,116,725. The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant (1,194,417 shares) as of November 8, 1996 was approximately $3,657,900 based upon $3.0625, the price at which the stock was spld on such date. The Registrant had 3,257,934 shares of Common Stock outstanding as of November 8, 1996. Documents Incorporated by Reference: None PART I Item 1. Description of Business ----------------------- Business Development -------------------- The Gallery of History, Inc. (hereinafter the "Registrant" or the "Company") was incorporated in the State of Nevada on November 10, 1981. The Company is engaged in the business of marketing historical documents such as letters, documents and signatures of presidents and other governmental and political figures, significant physicians, inventors, Nobel Prize winners, explorers, aviators, scientists, entertainers, authors, artists, musicians, composers, clergymen, judges, lawyers, military figures, and well-known persons in sports, among others. Most of the documents were written or executed by deceased persons, but a significant number were written or executed by living persons, particularly in the entertainment, sports and political areas. The Company's inventory of documents currently consists of approximately 150,000 different documents. Retail sales of documents are made from two galleries at the following locations: The Fashion Show Mall, in Las Vegas, Nevada since February 1982; and Georgetown Park in Washington, D.C. since October 1989. Documents are also sold through auctions and its headquarters location to other dealers and collectors. The galleries are located in upscale malls, containing some of the most prestigious stores in the United States. The Company's gallery marketing efforts principally target individuals who have appreciated or collected antiques, paintings, lithographs, and other works of art or other collectibles, but not necessarily historical documents, and who may lack awareness of the availability of historical documents for purchase. The documents offered for sale by the Company through its retail operations are selected from its inventory and are attractively framed, sometimes together with memorabilia related to the documents, or with current literature related to the signatory. All of the documents are preserved by utilizing museum quality encapsulation materials, mattings and protective coverings that are characteristically acid-free, and by other steps taken to ensure the longevity of the documents. Once prepared, the documents are hung in a softly lighted gallery setting. By the decor of its galleries, the Company endeavors to convey to its clientele a wholesome and dignified gallery environment conducive to the proper exhibition, display, and sale of rare historical documents. The Company sells in its galleries a book entitled "The Handbook of Historical Documents - A Guide to Owning History" authored by Todd M. Axelrod. In October 1996, the Company formed a wholly owned subsidiary named Gallery of History Auctions, Inc., whose goal is to become the premiere live in-person auction house dedicated exclusively to original historical documents, autographs and manuscript material focusing on deceased personages of historical significance. The Company anticipates that the first of its new bi-monthly auctions will occur January 15, 1997. The Company also formed a new division, called Gallery of History Direct, dedicated to the issuance of bi-monthly catalogues employing a mail, phone, fax auction format featuring original historical documents. The Company distributed its first catalogue in November 1996 for a December 1996 mail, phone, fax auction. Inventory of Documents Owned - ---------------------------- The Company purchases documents principally at auctions and from private collectors, dealers in historical documents, estates and various individuals who are not collectors but are in possession of documents. These avenues of supply are likely to continue to be the Company's main sources of inventory. The inventory of documents now owned by the Company is comprised of approximately 150,000 items. The Company's inventory consists of documents written or signed approximately as follows: 28% by sports figures, 23% by prominent entertainers, 9% by prominent figures in aviation, medicine, business, science, exploration, or Nobel Prize winners, 10% by military figures, 8% by presidents and other significant American political figures, 6% by authors and other literary figures, 6% by musicians, 8% by religious, legal, foreign political and miscellaneous personalities and the remaining 2% by artists. In order to catalogue its diverse inventory, the Company has an IBM AS/400 Model E45 computer system. Only a small segment of the Company's inventory is physically located in each of its sales facilities at any time. The computer system allows the Company's sales staff to identify inventory held in the Company's central repository and in other galleries, obtain brief descriptions of documents and even obtain copies to exhibit to customers. This enables the Company's staff to offer its broad inventory to customers who express interest in documents of personalities which the Company owns but may not be present in any given gallery at the time of sale. The Company is currently working on a personal computer client server system to replace the AS/400. The Company anticipates conversion to the new system shortly with the same or greater functionality and cost savings. In October 1996, the Company repurchased 2,659,720 shares, or approximately 45%, of its outstanding common stock, for total consideration of $2,000,000, consisting of 460 documents valued at $1,803,045 and $196,955 in cash. The value of the inventory was negotiated by the parties based on an independent expert's appraisal (see note 10 to consolidated financial statements). Clientele - --------- The Company has two primary marketing strategies. The Company positions its galleries in upscale retail environments which attract persons who have not necessarily had an awareness of the existence of historical documents available for private sale. The Company's staff is generally required to educate its potential customers, who may be initially dubious of the authenticity of documents owned and offered for sale by the Company. When the Company has satisfied the prospective customer regarding authenticity, interest in purchasing historically significant signatures, letters and documents can be fostered. The Company's other primary marketing strategy is to implement its direct sales approach via auctions and a catalog program. Originating from its Corporate Headquarters, the Company will develop a wholesale sales program directed at autograph dealers, auction houses, major customers and corporations. Its catalog program will distribute six different catalogs per year to its own retail customers, collectors and dealers of historical documents and a pre-qualified test market. In addition, it is anticipated by the Company to conduct at least six auctions of its own per year. For the year ended September 30, 1996, the Company sold 1,638 documents with an average single document sales price of approximately $1,280. During the fiscal year, the Company has also sold 394 copies of Mr. Axelrod's book for approximately $50 per copy. During the fiscal year ended September 30, 1995, the Company generated sales of $256,600, which were attributable to customers whose purchases accounted for at least 10% of total document sales. There was no individual customer whose purchases totaled over 10% of sales for the year ended September 30, 1996. None of these major customers have any direct relationship with the Company. During the year ended September 30, 1996, the Company generated sales of $943,008 or 45% of total sales through auctions houses compared to $178,522 or 8% of total sales for the fiscal year ended September 30, 1995. Certificates of Authenticity - ---------------------------- Documents purchased by the Company frequently are acquired by the Company with guarantees from the sellers. Whether or not the Company receives such a guarantee, it purchases documents subject to its own verification of authenticity. To ascertain authenticity, the Company may utilize information provided by the seller as to the transfer of ownership of documents; it may subject the documents to its own expert examination; it may employ outside experts available to it to examine the documents; or it may use other means. The Company issues ten-year Certificates of Authenticity to its customers, which obligate the Company to refund to the customer the purchase price paid if any document sold lacks authenticity. Should the Company's determination of authenticity of documents be erroneous, it would be likely to suffer a loss as a consequence thereof unless redress by the Company against the seller of the documents could be obtained. The Company does not carry any insurance and is currently not aware of any entity which would offer or underwrite such insurance at commercially reasonable rates to protect it against a loss arising from either the purchase of documents lacking authenticity or claims by customers for recovery against the Certificates of Authenticity it issues. Claims made against the Company pursuant to its Certificates of Authenticity since the inception of the Company in 1981 are as follows: one claim of $18,000 in fiscal 1987; one claim of $60,000 in fiscal 1992; and three claims totaling $20,015 in fiscal 1993. Accordingly, the Company has not established a reserve against the risk of forgery or against any exposure under the Certificates of Authenticity. In-House Framing Operation - -------------------------- The Company operates an in-house framing department in its Las Vegas headquarters. The department performs all framing and related functions for its retail locations. The framing department gives the Company the ability to frame documents, customize matting and engrave biographical and historical information on metal plates relevant to the specific document, all of which are included in the framed presentation of its documents. The manner in which the Company frames documents and prepares them for sale in its galleries is believed to be an important element in persuading clientele of the desirability of documents as collectibles, and their comparability to a work of art that can be displayed in homes and offices. The Company anticipates that its framing department will be able to fulfill the framing needs of its existing retail galleries and that it can be readily expanded within the headquarters building to satisfy any additional demand created by increased sales within the foreseeable future. Competition - ----------- The Company does not regard the business of marketing historical documents as a definable industry. There are a great number of dealers of historical documents, of which many are only part-time operators, many are located in homes without any established commercial location and many are located in commercial office buildings or have retail space in metropolitan areas. The Company competes primarily with art galleries, antique stores and sellers of other collectible items, as well as dealers in historical documents. In addition, certain department stores and other retail outlets offer framed documents, usually as part of an overall effort to market antiques and other specialty items. Recently, many autograph dealers are closing their retail operations and are electing to form cooperatives with other dealers and auction their inventory. In addition, many of the upscale malls are remerchandising for middle-market masses as the consumer looks for warehouse shopping. Thus, the Company is moving towards marketing through catalogs and auctions. When acquiring documents, the Company competes with persons who acquire documents for resale, as well as private collectors. The principal sources for documents are auctions held in the United States and abroad, private collectors, dealers in historical documents, estate sales, and the recipients of documents and/or their families. In the event prices for historical documents increase materially, the Company's ability to acquire documents, and, in turn, its ability to market such newly acquired documents to the general public, may be adversely affected. Thus, although the retail value of the Company's existing inventory might be favorably affected by increasing prices, passing along such increases to customers could have an inhibiting effect on the Company's overall business. There is no assurance that the Company will be able to continue to realize significant profits for its merchandise. Moreover, existing dealers may choose to compete with the Company in the same manner or in a more favorable format than that of the Company. Seasonal Business - ----------------- The nature of the business in which the Company engages is not seasonal. However, the Company has experienced in the past a surge in November and December sales relating to the traditional holiday shopping season. Employees - --------- As of November 5, 1996, the Company had eleven full-time and one part-time employees, in addition to its five executive officers. Item 2. Properties ---------- The Company owns a building located at 3601 West Sahara Avenue, Las Vegas, Nevada where its executive offices and framing operations are located. The outstanding mortgage on the building in the amount of $1,874,765 bears interest of 9% with a 59 month amortization of principal with the unpaid balance due July 1998 (see note 5 of the financial statements). The building contains approximately 33,187 square feet of space of which the Company currently occupies 15,580 square feet and leases or is offering to lease the remaining space to others. As of November 5, 1996, all of the remaining space was being leased to eleven tenants for an aggregate monthly rental of $23,595 under leases expiring at varying times from December 31, 1996 through June 30, 2011. The Company believes that its headquarters' building is adequate for its purposes for the foreseeable future and that the building is adequately covered by insurance. The following table sets forth information regarding the Company's galleries:
Date Approx.Square Lease Location Opened Footage Expiration Date - -------- ------ ------------- --------------- The Fashion Show Mall, 2/18/82 960 sq.ft. 2/28/97 Las Vegas, Nevada Georgetown Park 10/ 1/89 739 sq.ft. 9/30/99 Washington, D.C.
The Company owns an IBM AS/400 Model E45, a netserver LS2 and fourteen micro-computers which it uses to catalog and develop cost and other statistical information relating to the Company's inventory, develop framing and graphic presentations, and handle the Company's internal accounting functions. The Company also owns leasehold improvements, fixtures and furniture in its galleries. Item 3. Legal Proceedings ----------------- The Company is not a party to any material litigation and none is known to be contemplated against the Company. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- No matter was submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year ended September 30, 1996. PART II ------- Item 5. Market for Registrant's Common Stock and Related Stockholder Matters -------------------------------------------------------------------- (a) The Company's Common Stock, par value $.001, is quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") Small-Cap Market under the symbol HIST. The following table sets forth the high and low bid quotations for the Company's Common Stock for the periods indicated as reported on NASDAQ. The quotations set forth below represent prices between dealers and do not include retail markups, markdowns or commissions, nor do they represent actual transactions.
High Low Bid Bid ----- ----- Fiscal 1995 October 1, 1994 - December 31, 1994 4 3-1/2 January 1, 1995 - March 31, 1995 3-1/4 3 April 1, 1995 - June 30, 1995 3-1/8 3-1/8 July 1, 1995 - September 30, 1995 3-1/8 3 Fiscal 1996 October 1, 1995 - December 31, 1995 3 2-1/2 January 1, 1996 - March 31, 1996 2-25/32 1-3/4 April 1, 1996 - June 30, 1996 2-1/8 1 July 1, 1996 - September 30, 1996 1-3/4 1-1/2 (b) As of November 5, 1996 there were approximately 150 holders of record of the Company's Common Stock before calculating individual participants in security position listings pursuant to Rule 17Ad-8 under the Securities Exchange Act of 1934. The Company's transfer agent reported 303 beneficial owners of the Company's common stock. (c) Since its inception in November 1981, the Company has not paid any cash dividends to the holders of its Common Stock. The Company presently intends to retain any earnings for its business. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- Liquidity and Capital Resources - ------------------------------- The Company has in the past acquired documents in excess of current needs to accommodate future growth and appreciation. Because of this, the Company believes it is not practicable to determine what portion of the documents owned will be sold within the next operating cycle. Therefore, the Company presents in its financial statements an unclassified balance sheet. Accordingly, the traditional measures of liquidity in terms of changes in working capital are not applicable. Short-term liabilities (including the current portion of long-term debt) exceeded the aggregate of cash, accounts receivable and prepaid expenses (approximately $267,000 at September 30, 1996) by approximately $88,000. This compares to approximately $494,000 of short- term liabilities in excess of cash accounts receivable and prepaid expenses as of September 30, 1995. The Company has historically used cash generated from bank and mortgage loan financing and public and private issuances of Common Stock to augment cash generated from operations to fund outlays for documents, to purchase property and equipment and to provide additional cash required for the Company's operations. The Company has a bank line of credit in the amount of $100,000 through July 1997. Loans under the line are secured by the Company's inventory of documents owned and bear interest at the prime rate plus 1.5%. As of September 30, 1996, there were no funds drawn against this line of credit. The Company cannot predict the extent to which similar sources will be available to fund future document purchases. Accordingly, there is no assurance that the Company's historical means of fulfilling its cash needs, or that other means, will be available in the foreseeable future. To the extent necessary to maintain adequate levels of working capital the Company has curtailed document purchases as well as reduced its cost of operations as a result of gallery closures and a reduction of personal. The Company closed its Dallas, Texas gallery at the end of December 1995, when its lease expired. Management believed a renegotiated lease with potentially greater costs would not be justified based on the trend of the gallery over the past three to five years. Therefore, the Company decided not to renew the lease. The Company's plan of operation is to shift more away from the gallery generated sales approach. With its large document inventory, the Company becomes attractive to wholesale customers and to upscale seasoned collectors and other dealers which business the Company will conduct from its headquarters location. The Company has consigned documents for sale through auctions. The Company also intends to conduct its own auctions in the coming fiscal year. In addition, the Company is continuing to develop a catalog operation to attract wholesale as well as retail customers which will also be operated from the headquarters location. The Company believes that, by appropriately managing the timing and amount of additional document acquisitions, reducing its overhead as a result of closing its unprofitable galleries and generating new revenues from its headquarters operations, the Company's current cash requirements and working capital requirements will be satisfied for the near term by revenue generated from operations and amounts available under the existing line of credit. Net cash provided by operating activities exceeded net cash used for operating activities for the fiscal year ended September 30, 1996. Primarily, this was due to the Company's curtailment of purchases of document inventory. An increase in accounts receivable resulted from auction sales. Deposits from customers decreased during the current period due to the elimination of deposits received and held for future auction sales in the previous fiscal period. The cash generated from operations was primarily used to reduce the Company's notes payable; paying off its bank line of credit and reducing other outstanding notes by $415,682. During the current fiscal year, the Company supplemented its working capital with a $150,000 term loan obtained from its bank which has been paid in full during the fiscal year. Perpetual inventory records kept by the Company contain inventory descriptions and the purchase costs of such inventory. Although each inventory item is unique, the majority of the Company's inventory consists of major similar categories of documents. With respect to the similar categories of documents, current retail sales information provides the Company with ratios of its sales to cost of sales; the Company uses such information to assist it in substantiating that its inventory value does not exceed market value. The records for inventory categories are also periodically reviewed by management to determine if there has been any known auction or interdealer sales of similar documents at reduced prices and to determine if a reduction in the inventory carrying value is needed. As of October 30, 1996, 73% of the value of the Company's inventory, as carried on its balance sheet, was attributable to approximately 99% of the Company's documents held in inventory which have a recorded cost of less than $500 per document. The remaining 1% (or 27% of the Company's inventory value) had a recorded cost of greater than $500 per individual item. These higher priced documents are individually reviewed by management for a potential decline in their auction or interdealer market value of such documents below their recorded costs. Management performs this review by monitoring current auctions and wholesale catalog pricing and then comparing such pricing with similar documents in its inventory. The Company's review of its inventory of documents has not shown any significant decline in market value below cost on an individual level or by major category. Retail sales by the Company have, to date, been in excess of carrying costs of the documents sold. No independent expert has been employed to evaluate the Company's inventory. During the past two fiscal years, the Company has not experienced any adverse impact arising from inflation. However, in the event prices for historical documents increase materially, the Company's ability to acquire documents, and, in turn, its ability to market such newly acquired documents to the general public, may be adversely affected. Thus, although the retail value of the Company's existing inventory might be favorably affected by increasing prices, passing along such increases to customers could have an inhibiting effect on the Company's overall business. The Company anticipates no material commitments for capital expenditures at the present time as the Company is not currently contemplating additional gallery expansion. Management is not aware of any trend in the Company's capital resources which may have an impact on its income, revenue or income from continuing operations. Results of Operations - --------------------- Fiscal 1996 Compared to Fiscal 1995 - ----------------------------------- Document sales decreased 5% comparing fiscal 1996 to 1995. Gallery retail sales decreased 22% comparing the periods; the closed Dallas gallery accounted for 63% of this decrease. Sales made through the Company's headquarters operation increased 23%. The increase illustrates the Company's shift in marketing strategy to wholesale and auction sales in addition to its retail sales. Auction sales amounted to 45% of total sales for fiscal 1996 as compared to 8% of total sales for fiscal 1995. Total cost of sales increased to 28% of net sales for fiscal 1996 from 25% of net sales for 1995. This increase is due to the increase in auction sales. Cost of goods sold for auction sales was 31% of auction sales for the fiscal year ended September 30, 1996 as compared to 29% in 1995. This increase is directly related to the increased quantity of material sold at wholesale pricing. Cost of retail sales decreased to 24% of net retail sales for the fiscal year 1996 as compared to 26% of net retail sales for fiscal 1995. The resulting gross profit decreased to 72% of net sales for fiscal 1996 as compared to a gross profit of 75% of net sales for fiscal 1995. Total operating expenses decreased 12% comparing fiscal 1996 to fiscal 1995 to 70% of net sales for fiscal 1996 as compared to 76% of net sales for fiscal 1995. Approximately 60% of this decrease was attributed to the closure of the Dallas gallery. Selling, general and administrative expenses decreased 10% to 62% of net sales for fiscal 1996 from 65% of net sales for fiscal 1995. This decrease is a direct result of the Company's efforts to reduce its cost of operations as a result of gallery closures and a reduction of personnel. The following decreases in selling, general and administrative expenses were realized comparing fiscal 1996 to fiscal 1995: Payroll and related taxes decreased 7%, rent expense decreased 25%, property taxes decreased 16%, telephone and utilities decreased 28% and freight expense decreased 32%. Depreciation expense decreased 33% to 6% of net sales for the fiscal year 1996 as compared to 8% of net sales for 1995. The decrease can be attributed to the gallery closure. Advertising expenses decreased 18% comparing the two fiscal years due to promotional campaigns the Company employed during the previous fiscal year. Maintenance and repair expenses decreased 21% comparing the two fiscal years which was directly related to the gallery closure and a reduction in headquarters equipment. Interest expense decreased 11% to 10% of net sales for fiscal 1996 as compared to 11% of net sales for fiscal 1995. The decrease in interest expense can be attributed to the lower average outstanding loan balances and interest rates in the current year. Included in selling, general and administrative expenses is 50% of the operating cost to maintain the headquarters building. This percentage is the approximate square footage occupied by the Company's headquarters operation to the total leasable space of the building. The remaining building operating expenses plus the rental revenues realized are offset and included in other income and expense. This amounted to approximately $195,000 operating profit for fiscal 1996 as compared to approximately $160,000 operating profit for fiscal 1995. The increase is due to an increase in the square footage leased and increased rents. Item 7. Financial Statements. ---------------------
TABLE OF CONTENTS
PAGE ---- Independent Auditors' Report . . . . . . . . . . . 14 Consolidated Balance Sheets - September 30, 1996 and 1995 . . . . . . . . . . . . . . . . 15 Consolidated Statements of Operations for the Years ended September 30, 1996 and 1995. . . 16 Consolidated Statements of Changes in Stock- holders' Equity for the Years Ended September 30, 1996 and 1995 . . . . . . . . . 17 Consolidated Statements of Cash Flows for the Years ended September 30, 1996 and 1995 . . . 18 Notes to Consolidated Financial Statements . . . . 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Board of Directors and Stockholders of Gallery of History, Inc.: We have audited the accompanying consolidated balance sheets of Gallery of History, Inc. (a Nevada Corporation) and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gallery of History, Inc. and subsidiaries as of September 30, 1996 and 1995, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP ------------------------ ARTHUR ANDERSEN LLP Las Vegas, Nevada November 1, 1996 GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995 ________________________________________________________________
Notes 1996 1995 ------- ---- ---- ASSETS Cash $ 115,800 $ 171,295 Accounts receivable 98,301 7,636 Prepaid expenses 53,198 57,843 Documents owned 1,5,10 8,677,725 9,123,220 Land and building-net 1,2,5,8 1,484,292 1,530,278 Property and equipment-net 1,2,5 194,232 204,033 Other assets 3 403,786 452,723 ---------- ---------- TOTAL ASSETS $11,027,334 $11,547,028 ========== ========== LIABILITIES Accounts payable $ 84,117 $ 60,950 Notes payable 5 196,889 321,553 Indebtedness to related parties 4,5 42,615 105,929 Mortgage notes payable 5 1,874,765 1,918,216 Deposits 30,073 266,828 Accrued and other liabilities 90,703 129,129 ---------- ---------- TOTAL LIABILITIES 2,319,162 2,802,605 ---------- ---------- COMMITMENTS AND CONTINGENCIES 8 STOCKHOLDERS' EQUITY Common stock: $.001 par value; authorized, 10,000,000 shares; issued and outstanding, 5,917,654 shares 6,10 5,918 5,918 Additional paid-in-capital 9,392,363 9,392,363 Accumulated deficit (690,109) (653,858) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 8,708,172 8,744,423 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,027,334 $11,547,028 ========== ========== See the accompanying notes to consolidated financial statements.
GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995 ________________________________________________________________
Notes 1996 1995 ------- ---- ---- REVENUES 1 $2,116,725 $2,233,194 COST OF REVENUES 600,391 557,332 --------- --------- GROSS PROFIT 1,516,334 1,675,862 --------- --------- OPERATING EXPENSES: Selling, general and administrative 1,309,785 1,454,028 Depreciation 1,2 124,619 185,168 Advertising 16,711 20,269 Maintenance and repairs 1 26,719 33,933 Loss on gallery closures 5,877 -- --------- --------- TOTAL OPERATING EXPENSES 1,483,711 1,693,398 --------- --------- OPERATING PROFIT (LOSS) 32,623 (17,536) --------- --------- OTHER INCOME (EXPENSE): Interest expense (225,221) (254,466) Other, net 8 156,447 161,394 --------- --------- TOTAL OTHER INCOME (EXPENSE) (68,774) (93,072) --------- --------- LOSS BEFORE INCOME TAXES (36,151) (110,608) PROVISION (BENEFIT) FOR INCOME TAXES 1,7 100 (69,568) --------- --------- NET LOSS $ (36,251) $ (41,040) ========= ========= LOSS PER SHARE 9 $(.01) $(.01) ==== ==== See the accompanying notes to consolidated financial statements.
GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995 _________________________________________________________________
Additional Retained Common Stock Paid-in Earnings Shares Par Value Capital (Deficit) Total ------ --------- ------- --------- ----- ----- BALANCE AT SEPTEMBER 30, 1994 5,910,154 $5,910 $9,373,621 $(612,818) $8,766,713 Options exercised 7,500 8 18,742 -- 18,750 Net Loss -- -- -- (41,040) (41,040) --------- ----- --------- -------- --------- BALANCE AT SEPTEMBER 30, 1995 5,917,654 5,918 9,392,363 (653,858) 8,744,423 Net Loss -- -- -- (36,251) (36,251) --------- ----- --------- -------- --------- BALANCE AT SEPTEMBER 30, 1996 5,917,654 $5,918 $9,392,363 $(690,109) $8,708,172 ========= ===== ========= ======== ========= See the accompanying notes to consolidated financial statements.
GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995 ________________________________________________________________
1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (36,251) $ (41,040) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 184,942 231,991 (Gain) on disposal of property (4,064) -- (Increase) decrease in: Prepaid expenses 4,645 8,469 Accounts receivable (90,665) (7,636) Documents owned (a) 449,192 325,820 Other assets 49,258 58,626 Increase (decrease) in: Accounts payable 23,167 (32,240) Deposits (231,266) 110,655 Accrued and other liabilities (47,808) (27,833) -------- -------- Net cash provided by operating activities 301,150 626,812 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (130,463) (3,750) Proceeds from sale of property and equipment 7,500 -- Purchase of documents (a) -- -- -------- -------- Net cash used for investing activities (122,963) (3,750) -------- -------- (a) Historically, the Company has normally acquired documents in excess of current needs when purchasing opportunities are favorable to accommodate future growth and appreciation. Purchases of $68,190 and $43,950 in fiscal 1996 and 1995 included in the net decrease in inventory of documents and frames owned ($449,192 in fiscal 1996 and $325,820 in fiscal 1995) are shown as an operating activity above, without an allocation to investing activities, because it is not practicable to determine what portion of the documents owned will be sold within the next operating cycle. (Continued) GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995 ________________________________________________________________ 1996 1995 ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank lines of credit $ 85,000 $ 125,000 Repayments of bank lines of credit (85,000) (185,000) Proceeds from notes payable and mortgage notes payable 182,000 -- Repayments of notes payable and mortgage notes payable (415,682) (425,728) -------- -------- Net cash used for financing activities (233,682) (485,728) -------- -------- NET INCREASE (DECREASE) IN CASH (55,495) 137,334 CASH, BEGINNING OF YEAR 171,295 33,961 -------- -------- CASH, END OF YEAR $ 115,800 $ 171,295 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 225,223 $ 253,300 ======== ======== Cash received during the year for income taxes $ -- $ (69,568) ======== ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: For the year ended September 30, 1996: (1) Debt of $3,400 was incurred for the purchase of equipment. (2) Frames and documents were purchased with a cost of $3,700 in part for the retirement of a note payable and interest in the amount of $5,038 to a related party. (3) Software was purchased at a value of $1,070 in exchange for documents with a cost of $318. For the year ended September 30, 1995: (1) Stock options were exercised in part for the retirement of a note payable in the amount of $18,750 to a related party. (2) A document was purchased in part for the retirement of a note payable in the amount of $748 to a related party. See the accompanying notes to consolidated financial statements.
GALLERY OF HISTORY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ______________________________________________________________ 1. SIGNIFICANT ACCOUNTING POLICIES Business Activity - Gallery of History, Inc. and subsidiaries (the "Company"), a Nevada corporation, acquires documents of historical or social significance and markets these documents to the general public. The Company follows a policy of delivering a certificate of authenticity, valid for ten years from purchase, with each document it sells to customers. Under the certificate, the Company is required to refund to the customer the purchase price should any document prove to be a forgery or otherwise lack authenticity. To ascertain authenticity, the Company relies upon the reputation of sellers, opinions of experts under certain circumstances, the history of prior ownership of such documents and other means. Management's Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. Unclassified Balance Sheets - The Company includes in its financial statements an unclassified balance sheet because it believes that such presentation is more meaningful as a consequence of the Company's policy of acquiring documents in excess of its current needs, and it is not practicable to determine what portion of the documents owned will be sold within the next twelve months. Documents Owned - Documents are stated at cost on a specific- identification method, not in excess of estimated market value. Property and Equipment - Property and equipment are carried at cost. Depreciation and amortization of property and equipment are provided on the straight line method over their estimated useful lives. Maintenance, repairs and renewals which neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Gains or losses on dispositions of property and equipment are included in other income. Revenue - Revenue is recognized when documents are paid for in full and delivered to the customer or placed for framing, or paid for in full and held at the customer's request. Major Customers - Document sales attributable to major customers (i.e., individual customers whose purchases account for 10% or more of total document sales) aggregated $256,600 for the year ended September 30, 1995. There was no individual customer whose purchases totaled over 10% of sales for the year ended September 30, 1996. None of the customers have any direct relationship with the Company. Income Taxes - Income taxes, where applicable, are provided at statutory rates. Deferred income taxes are recognized for income and expense items which are reported for tax purposes in different years than for financial accounting purposes. Reclassifications - Certain amounts in the 1995 consolidated financial statements have been reclassified to be consistent with the current year presentation. These reclassifications had no effect on net income. 2. PROPERTY AND EQUIPMENT Property and equipment and land and building at September 30, 1996 and 1995 consist of the following:
Estimated Service Lives 1996 1995 ----- ---- ---- Land $ 580,000 $ 580,000 Building 30 years 1,385,377 1,385,377 --------- --------- Total cost 1,965,377 1,965,377 Less accumulated depreciation 481,085 435,099 --------- --------- Land and building - net $1,484,292 $1,530,278 ========= ========= Equipment and furniture 5 years $1,539,940 $1,528,685 Leasehold improvements 5-15 years 461,300 544,396 --------- --------- Total cost 2,001,240 2,073,081 Less accumulated depreciation and amortization 1,807,008 1,869,048 --------- --------- Property and equipment - net $ 194,232 $ 204,033 ========= =========
3. OTHER ASSETS Other assets at September 30, 1996 and 1995 consist of the following:
1996 1995 ---- ---- Book inventory and books in process, net of amortization $ 247,706 $ 287,834 Framing raw materials inventory 151,999 161,053 Other 4,081 3,836 -------- -------- Total $ 403,786 $ 452,723
4. RELATED PARTIES The Company sells and distributes for promotional purposes a book authored by Todd M. Axelrod, the Company's President and Chairman of the Board. Books with a cost of $7,728 and $13,476 in 1996 and 1995, respectively, were distributed or sold resulting in revenue of $18,467 and $27,745 in the respective years. Beginning in fiscal 1994, the Company began to amortize the cost of its book inventory over eight years. This resulted in amortization costs of $32,400 for both the years ended September 30, 1996 and 1995. Books purchased for future sale or distribution totaled $357,500 during the year ended September 30, 1992. The Company issued a note in the amount of $283,720 to Nanna Corp., a company owned 100% by Todd Axelrod and his wife, Pamela, to finance a portion of the purchase price of these books. Such note bore interest at the prime interest rate. The note was paid in full during fiscal 1995. During the fiscal year ended September 30, 1996 the Company borrowed $35,400 from Nanna Corp. The loan bore interest at the prime rate plus 2%. The loan was repaid in full during fiscal 1996. The Company borrowed $10,000 and $30,000 in 1994 and 1993, respectively, from Ruth Canvasser, Mr. Axelrod's mother. The loans bore interest at 8.5%. The balance of the loan was paid in full during fiscal 1995. In October 1993, the Company borrowed $20,000 from Beth Ring, Mr. Axelrod's sister -in-law, which bore interest at 8.5% and was paid in full during fiscal 1995. In May 1994 the Company borrowed $110,000 from Pamela Axelrod, a Vice President of the Company. During fiscal 1995, Mrs. Axelrod exercised 7,500 employee stock options at $2.50 a share reducing this loan balance by $18,750. Mrs. Axelrod purchased a document from the Company during fiscal 1995 reducing the loan balance by $748. Mrs. Axelrod purchased additional documents during fiscal 1996 reducing the loan balance by $1,146. The current balance of this loan is $42,615 at September 30, 1996. The loan has no repayment schedule but accrues interest at the prime rate plus 2%. Interest expense on related party notes was $8,521 during fiscal year 1996. The proceeds for such loans have been utilized by the Company for working capital purposes. Mrs. Axelrod purchased additional documents from the Company in September 1995, totaling $36,500. This purchase was paid for by reducing the outstanding bonus due her, consisting of $25,000 from fiscal 1994 and $11,500 out of the total bonus of $25,000 accrued for fiscal 1995. Sales of documents to related parties are not at less than cost. 5. BANK LINES OF CREDIT, NOTES PAYABLE, MORTGAGE NOTES PAYABLE AND INDEBTEDNESS TO RELATED PARTIES ---------------------------------------------------------------------- Debt consists of the following at September 30:
1996 1995 ---- ---- Mortgage note at 9% with 59 month amortization of principal and the unpaid balance due July 15, 1998, collateralized by building. $1,874,765 $1,918,216 Equipment notes payable at 10.12% with monthly amortization of principal through March 1997, collateralized by related equipment. 22,392 67,056 Term note payable at prime plus 1.5% with 59 monthly payments of principal with the unpaid balance due July 15, 1998, collateralized by all present and hereafter acquired documents, equipment, furniture, fixtures and furnishings. 174,497 254,497 Related party term note payable at prime plus 2%, with monthly payments of $6,000. -- 35,427 Related party note payable at prime plus 2%. 42,615 70,502 --------- --------- Total $2,114,269 $2,345,698 ========= =========
Maturities of notes and mortgage notes payable are as follows for fiscal years ending September 30: 1997 $ 192,538 1998 1,921,731 --------- Total $2,114,269 =========
The Company has a line of credit from a bank in the amount of $100,000 available through, and due on July 15, 1997. As of September 30, 1996, there were no funds drawn against this line of credit. Any funds drawn bear interest at prime plus 1.5%. The prime rate was 8.25% at September 30, 1996. The estimated fair value of the Company's debt at September 30, 1996 and 1995, respectively, was approximately $2,114,000 and $2,346,000, which approximates its book value. The estimated fair value amounts were based on discounted cash flow valuations, because none of the Company's debt has quoted market prices. Discount rates were estimated based on current rates offered to the Company for debt having similar amounts and maturities. 6. COMMON STOCK AND STOCK OPTIONS The Company has reserved 1,100,650 shares of common stock for warrants and options. Warrants were issued for 100,000 shares of common stock in December 1990 and reissued in November 1991 expiring in November 1997. The following table summarizes the common stock options granted, exercised and canceled or expired during the two years in the period ended September 30, 1996:
Number Exercise Expiration of Shares Prices Dates --------- -------------- -------------- Outstanding, 9/30/94 410,400 $2.47 to $4.50 1994 to 1998 Issued 64,000 $3.50 1998 Canceled or expired (100,000) $4.50 1994 -------- Outstanding, 9/30/95 374,400 $2.47 to $4.50 1998 Canceled or expired -- -------- Outstanding, 9/30/96 374,400 $2.47 to $4.50 1998 ========
Employee incentive options were issued for 329,388 shares prior to October 1, 1991. No employee incentive options were issued in fiscal 1996 and none remain outstanding as of September 30, 1996. During the three year period ended September 30, 1996, 7,500 options were exercised in fiscal 1995. In October 1994, the Company issued 7,500 shares of unregistered common stock upon the exercise of options at $2.50 per share. 7. INCOME TAXES The benefit for income taxes for the years ended September 30, 1996 and 1995 are as follows:
1996 1995 ---- ---- ---- ---- Current Federal $ -- $(69,668) State 100 100 Deferred -- -- ------- ------- Total $ 100 $(69,568) ======= =======
The fiscal 1995 federal income tax benefit represents a refund for the carryback of an alternative minimum tax credit not previously recognized. Components of deferred tax assets (liabilities) for the years ended September 30, 1996 and 1995 are as follows:
1996 1995 ---- ---- Depreciation $(176,358) $(167,887) Other (98) (98) -------- -------- Gross deferred tax liabilities (176,456) (167,985) -------- -------- Net operating loss carryforward 219,683 253,416 Other 52,075 35,622 -------- -------- Gross deferred tax assets 271,758 289,038 -------- -------- Net deferred tax assets 95,302 121,053 Less valuation allowance (95,302) (121,053) -------- -------- Net deferred tax assets (liabilities) $ -- $ -- ======== ========
The provision for income taxes differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rates to the loss before income taxes and cumulative effect of a change in accounting principle as a result of the following differences:
1996 1995 ---- ---- Statutory U.S. tax rate (35%) $ (12,688) $ (38,712) Increase (decrease) from rate: State taxes 100 100 Limitation on utilization of tax benefits 12,688 38,712 Alternative minimum tax credit refund -- (69,668) -------- -------- Effective tax rate (0.3%, 62.9%) $ 100 $ (69,568) ======== ========
As of September 30, 1996, the Company had the following income tax loss carryforwards available for income tax purposes:
Expiration Amounts Dates ---------- ------- Federal regular tax operating loss carryforwards 2009 to 2011 $627,667
8. COMMITMENTS AND CONTINGENCIES The Company has entered into non-cancellable operating lease agreements which call for certain minimum lease payments plus contingent lease payments based on annual sales above specified amounts and allocation of common area management charges. The following is a schedule of the future minimum lease payments for the non-cancellable operating leases at September 30, 1996: 1997 $ 55,645 1998 40,645 1999 40,645 ------- Total $ 136,935 =======
The leases covering sales outlets in Las Vegas, Nevada and Georgetown, Washington D.C. expire in fiscal 1997 and 1999, respectively, and contain no specific renewal terms. Rental expense, consisting of minimum rentals and common area management charges, for the periods ended September 30, 1996 and 1995 was $125,204 and $167,282, respectively. The Company leases office space in its headquarters building to tenants under non-cancellable operating leases. Such leases provide for payment of minimum rentals plus escalation charges determined by certain expenses incurred in the operation of the building. Lease periods range from one to twenty years with various renewal options. Rental income for the periods ended September 30, 1996 and 1995 was $269,559 and $234,975, respectively. Included in Selling, General and Administrative Expenses is 50% of the building's operating costs representing area occupied by the Company's headquarters operation. Included in Other Income (Expense) is the net rental income realized by the building operation less the remaining operation expenses. This resulted in other income of $195,145 and $160,339 for the periods ended September 30, 1996 and 1995, respectively. Specific net assets identifiable with rental real estate totaled $806,070 and $832,031 at September 30, 1996 and 1995, respectively. Future minimum lease payments receivable from non-cancellable operating leases as of September 30, 1996, excluding amounts applicable to reimbursable expenses, are as follows: 1997 $ 210,748 1998 147,373 1999 126,883 2000 126,325 2001 133,273 Thereafter 1,733,423 --------- Total $2,478,025 =========
9. EARNINGS PER SHARE The computation of earnings per share is based on the weighted average number of shares of common stock outstanding, 5,708,126 and 5,917,592 for the years ended September 30, 1996 and 1995, respectively. 10. SUBSEQUENT EVENT On October 18, 1996, the Company repurchased 2,659,720 shares of its common stock, representing the entire interest of the Company's largest shareholder (the "Shareholder") for total consideration of $2,000,000, consisting of 460 documents valued at $1,803,045 and $196,955 in cash. The value of the inventory was negotiated by the parties based on an independent expert's appraisal. The book value of the inventory was $1,446,492, resulting in a gain on disposition of $331,553, after transaction costs of approximately $25,000. The following condensed pro forma balance sheet gives effect to the transaction as if it had occurred as of September 30, 1996:
Actual Stock Repurchase Pro Forma 9/30/96 10/18/96 9/30/96 ------- ---------------- --------- Cash $ 115,800 $ (196,955) $ (81,155) Documents owned 8,677,725 (1,446,492) 7,231,233 Other assets 2,233,809 -- 2,233,809 ---------- ---------- ---------- TOTAL ASSETS $11,027,334 $(1,643,447) $ 9,383,887 ========== ========== ========== TOTAL LIABILITIES $ 2,319,162 $ 25,000 $ 2,344,162 ---------- ---------- ---------- Common stock $ 5,918 $ -- $ 5,918 Additional paid-in capital 9,392,363 -- 9,392,363 Accumulated deficit (690,109) 331,553 (358,556) Less treasury stock, at cost -- (2,000,000) (2,000,000) ---------- ---------- ---------- TOTAL STOCKHOLDERS' EQUITY $ 8,708,172 $(1,668,447) $ 7,039,725 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,027,334 $(1,643,447) $ 9,383,887 ========== ========== ==========
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 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 Positions and as Director Offices with Continuously Name Age Registrant Since ---- --- ------------- ------------ Todd M. Axelrod 47 President and 1981 Chairman of the Board of Directors Rod Lynam 48 Treasurer/Assistant 1984 Secretary and Director Marc DuCharme 44 Senior Vice-President 1989 and Director H. Stan Johnson 42 Secretary and Director 1989 Pamela R. Axelrod 41 Executive Vice-President and Director 1995
The only relationship by blood, marriage or adoption (not more remote than first cousin) between any Director or executive officer of the Company is that of Todd Axelrod, President and Chairman of the Board of Directors and his wife Pamela Axelrod, Executive Vice-President and Director. Set forth below are brief accounts of the business experience during the past five years of each director and executive officer of the Company. Todd M. Axelrod has been Chairman of the Board of Directors and President of the Company since its inception in November 1981. Mr. Axelrod has been a private collector of valuable historical documents since 1968. Mr. Axelrod authored a book entitled "The Handbook of Historical Documents - A guide to Owning History", which the Company sells in its galleries. Rod Lynam has been Treasurer and Chief Financial Officer of the Company since September 1984. Marc DuCharme, has been a Vice-President since 1989 and served as the Director of Framing since July 1985. H. Stan Johnson has been a member of the law firm of Cohen, Johnson & Day, Las Vegas, Nevada for more than the past five years. Pamela R. Axelrod has been a Vice-President since 1992 and served as the Manager of the Las Vegas Fashion Show gallery from June 1984 to April 1996. She has served as Executive Assistant to the President from April 1996. Compliance with Section 16(a) of the Exchange Act - ------------------------------------------------- Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of the Company's Common Stock, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of Common Stock of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, during the fiscal year ended September 30, 1996, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with. In making these disclosures, the Company has relied solely on a review of the copies of such reports furnished to the Company and written representations of its directors, executive officers and its greater than ten percent stockholders. Item 10. Executive Compensation ---------------------- The following summary compensation table sets forth information concerning the annual and long-term compensation for services in all capacities to the Company for the fiscal years ended September 30, 1996, 1995 and 1994, of those persons who were, at September 30, 1996 (i) the chief executive officer and (ii) the other most highly compensated executive officers of the Company, whose annual base salary and bonus compensation was in excess of $100,000. SUMMARY COMPENSATION TABLE
Name and Principal Position Fiscal Annual Compensation Year Salary Bonus - --------------------------- ------ -------- --------- Todd M. Axelrod 1996 $132,500 President and Chief 1995 $133,230 $25,000(1) Executive Officer 1994 $200,000 -- Pamela R. Axelrod 1996 $132,500 $25,000(2) Executive Vice- 1995 $131,042 $50,000(3) President 1994 -- (4)
(1) Includes deferred bonus in the amount of $25,000 which was paid to Todd Axelrod during January and June 1996. (2) Accrued bonus earned not yet paid. (3) Includes deferred bonus in the amount of $25,000 which was paid to Pamela Axelrod during September 1995 and $25,000 accrued bonus of which $10,602 was paid in fiscal 1995 and $14,398 was paid in June 1996. (4) Less than $100,000 During the three year period ended September 30, 1996 the Company did not grant any stock options or stock appreciation rights to any of the named executive officers of the Company. In addition, none of the named executive officers held any stock options. During the fiscal year ended September 30, 1996, no director received any compensation for attending meetings of the Board of Directors and the Company presently intends that the same will be the case for the fiscal year ended September 30, 1997. Directors are reimbursed, however, for reasonable expenses incurred on behalf of the Company. Item 11. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- The following table sets forth certain information, as of December 1, 1996, regarding those persons known to the Company to be the beneficial owners of more than five percent of the Common Stock of the Company, by all Directors of the Company, by each of the named Executive Officers and by all Officers and Directors of the Company as a group.
Title of Name and Address of Amount and Nature of Percent Class Beneficial Holder Beneficial Ownership(1) of Class ------- ------------------- ----------------------- -------- Common Todd M. Axelrod(2) 2,051,412 (3)(6) 63.0% Stock Common Rod Lynam(2) 105 (4) Stock Common H. Stan Johnson 37,000 (5) 1.1% Stock 301 East Clark Avenue Las Vegas, Nevada 89101 Common Pamela Axelrod(2) 2,051,412 (6) 63.0% Stock Common Gerald Newman 531,500 (7) 14.8% Stock Seabreeze Lane Amagansette, NY 10093 Common All Executive Officers 2,088,517 (8) 63.6% Stock and Directors as a group (4 persons)
(1) Except as otherwise noted in (6) below, the individuals referred to above have sole voting and investment power in regard to their Common Stock, subject to applicable community property laws. (2) Address is the same as the Company's address. (3) Includes 1,029,511 shares of Common Stock owned of record and beneficially by Pamela Axelrod, Mr. Axelrod's wife, for which Mr. Axelrod has been appointed proxy (as discussed in Note (6) below). Excludes 81,302 shares of Common Stock owned of record and beneficially by Ruth Canvasser, Mr. Axelrod's mother; as to which Mr. Axelrod disclaims beneficial ownership. (4) Less than 1%. (5) Includes shares issuable upon exercise of options to purchase 25,000 shares of Common Stock, at an exercise price of $4.50 per share. (6) Pamela Axelrod has appointed Todd Axelrod her proxy with full power of substitution, to vote all of her 1,029,511 shares and to give all consents on all matters that Mrs. Axelrod may be entitled to vote or consent to at any meeting of the stockholders of the Company or under any other circumstance where a vote or consent of stockholders is required. Includes 1,021,901 shares held by Todd Axelrod, as to which Pamela Axelrod disclaims beneficial ownership (see Note (3) above). (7) Includes 200,000 shares of Common Stock issuable upon exercise of options to purchase such shares at an exercise price of $2.47 per share, 10,000 shares of Common Stock issuable upon exercise of options to purchase such shares at an exercise price of $3.00 per share, 25,000 shares of Common Stock issuable upon exercise of options to purchase such shares at an exercise price of $4.50 per share and 100,000 shares of Common Stock issuable upon exercise of warrants to purchase such shares at an exercise price of $3.50 per share. (8) Includes 25,000 shares issuable upon exercise of options granted to Executive Officers and Directors, as described in footnote (5) above. (c) Changes in Control ------------------ In October 1996, the Company repurchased 2,659,720 shares, or approximately 45%, of its outstanding common stock, for total consideration of $2,000,000, consisting of 460 documents valued at $1,803,045 and $196,955 in cash. The value of the inventory was negotiated by the parties based on an independent expert's appraisal. There are no other arrangements known to the Company, the operation of which may at a subsequent date result in a change of control of the Registrant. Item 12. Certain Relationships and Related Transactions ---------------------------------------------- The Company sells for promotional purposes a book authored by Todd M. Axelrod, the Company's President and Chairman of the Board. Books were purchased in January 1992 from Nanna Corp., a company owned 100% by Mr. and Mrs. Axelrod, for a total purchase price of $357,500, of which $283,720 was paid by the Company by issuing a note to Nanna Corp., bearing interest at the prime rate. The note was paid in full April 1995. The Company believes that such purchase price is substantially comparable to what it would have to pay an unrelated supplier. The Company borrowed $185,260 in the fiscal year 1994 from Nanna Corp. The loan bore interest at the prime rate plus 2% and are payable in installments of $6,000 a month. The loan was paid in full during fiscal 1996. During fiscal years 1994 and 1993, the Company borrowed an aggregate $40,000 from Ruth Canvasser, Mr. Axelrod's mother. These loans bore interest of 8.5% and were paid in full during fiscal 1995. In October 1993, the Company borrowed $20,000 from Beth Ring, Mr. Axelrod's sister-in-law, which bore interest at 8.5% and was paid in full during fiscal 1995. In May 1994, the Company borrowed $110,000 from Pamela Axelrod, a Vice-President of the Company and Mr. Axelrod's wife. During fiscal 1995, Mrs. Axelrod exercised 7,500 employee stock options at $2.50 a share reducing this loan balance by $18,750. Mrs. Axelrod purchased a document from the Company during fiscal 1995 reducing the loan balance by $748. Mrs. Axelrod purchased additional documents from the Company during fiscal 1996 reducing the loan balance by $1,146. The current balance of this loan is $42,615 at September 30, 1996. The loan has no repayment schedule but accrues interest at the prime rate plus 2%. Interest expense on related party notes was $8,521 during fiscal year 1996. The proceeds for such loans have been utilized by the Company for working capital purposes. In September 1995, Mrs. Axelrod purchased additional documents from the Company totaling $36,500. This purchase was paid for by reducing the outstanding bonus due her. The prices sold to Mrs. Axelrod for these documents were not less favorable to the Company than if sold at wholesale prices. Item 13. Exhibits and Reports on Form 8-K -------------------------------- (a)1 & 2. Financial Statements See Item 7 in Part II of this report. All other financial statement schedules are omitted because the information required to be set forth therein is not applicable or because that information is in the financial statements or notes thereto. (a) 3. Exhibits 3.1 Articles of Incorporation and By-Laws.* 3.2 Amendment to Articles of Incorporation filed July 9, 1984.* 3.3 Amendment to Articles of Incorporation filed May 29, 1990.** 10.1 Lease between The Fashion Show and the Company dated January 18, 1982.* 10.4 Lease between Georgetown Park Associates and the Company dated August 22, 1989.*** 10.5 Gallery of History, Inc. 1992 Stock Option Plan.**** 10.6 Agreement and Release dated October 11, 1996 between Ethelmae Stuart Haldan, as trustee of the Ethelman S. Haldan Trust dated March 30, 1987, and Gallery of History, Inc. 21 List of Subsidiaries. 23 Consent of Independent Auditors. 27 Financial Data Schedule. * Incorporated by reference to the Registrant's Registration Statement on Form S-18, File No. 2-95737-LA. ** Incorporated by reference to the Registrant's Form 10-K for its fiscal year ended September 30, 1990, File No. 0-13757. *** Incorporated by reference to the Registrant's Form 10-KSB, fiscal year ended September 30, 1993, File No. 0-13757. **** Incorporated by reference to the Registrant's Form 10-KSB, fiscal year ended September 30, 1994, File No. 0-13757. (b) Reports on Form 8-K. None. SIGNATURES ---------- In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 16, 1996 GALLERY OF HISTORY, INC. By: /s/ Todd M. Axelrod -------------------------- Todd M. Axelrod, Chairman and President In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature Title Date - --------- ----- ---- /s/ Todd M. Axelrod President and December 16, 1996 - ------------------- Chairman of the TOdd M. Axelrod Board of Directors (Principal Executive Officer) /s/ Rod Lynam Treasurer/Assistant December 16, 1996 - ------------------- Secretary and Director Rod Lynam (Principal Financial and Accounting Officer) /s/ Marc DuCharme Senior Vice President December 16, 1996 - ------------------- and Director Marc DuCharme /s/ H. Stan Johnson Secretary and Director December 16, 1996 - ------------------- H. Stan Johnson /s/ Pamela Axelrod Executive Vice President December 16, 1996 - ------------------- and Director Pamela Axelrod
EX-21 2 EXHIBIT 21 - LIST OF SUBSIDIARIES. - ---------------------------------- The following subsidiaries are wholly owned by the parent company Gallery of History, Inc., which was incorporated in Nevada in November 1981: 3601 West Sahara Corp. A Nevada Corporation Gallery of History, Inc. A Delaware Corporation Gallery of History Auctions, Inc. A Nevada Corporation EX-23 3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated November 1, 1996 included in this Form 10-KSB, into the Company's previously filed Form S-8 Registration Statement File No. 33-17896. /S/ ARTHUR ANDERSEN LLP --------------------------- ARTHUR ANDERSEN LLP Las Vegas, Nevada December 16, 1996 EX-10 4 EXHIBIT 10.6 - AGREEMENT AND RELEASE DATED October 11, 1996 BETWEEN ETHELMAE STUART HALDAN, AS TRUSTEE OF THE ETHELMAN S. HALDAN TRUST DATED March 30, 1987, AND GALLERY OF HISTORY, INC. --------------------------------------------------------------- This Agreement and Release (hereafter, "Agreement") is made as of October 11, 1996, between Ethelmae Stuart Haldan, as Trustee of the Ethelmae S. Haldan Trust dated 3/30/87 (hereafter, "Haldan"), and Gallery of History, Inc., a Nevada corporation (hereafter, "Company"), with reference to the following facts: A. Company proposes to purchase 2,659,720 shares of its common stock (hereafter, the "Shares") from Haldan, and to satisfy the purchase price therefor by transferring all of Company's right, title and interest in and to all of the property listed on Exhibit "A" hereto (hereafter, the "Property") to Haldan pursuant to a Bill of Sale in the form attached hereto as Exhibit "B"; and B. Haldan is agreeable to Company's proposal, and desires to enter into this Agreement with Company to set forth the parties' agreement respecting said sale of the Property to Haldan in return for the transfer of the Shares to Company and other matters related thereto. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each of the parties hereto, and based on the foregoing premises, each of Haldan and Company agree as follows: 1. Mutual Agreement To Transfer. Company hereby agrees to sell, transfer and convey the Property to Haldan, and Haldan hereby agrees to transfer the Shares to Company, all on the terms and conditions as hereinafter set forth. 2. Agreement As To Value Of Property. Company and Haldan agree that the fair market value of the Property is $1,803,045. 3. Payment of Cash In Lieu of Delivery of Certain Items. Company has heretofore sold, contracted to sell, or otherwise will be unable to deliver certain items which would have otherwise constituted part of the Property, all of which items are listed on Exhibit "C" hereto. In lieu of delivery of such items, Haldan has agreed to accept the amount of $196,955, which amount shall be paid to Haldan in immediately available funds on and as of the Closing (as hereinafter defined) and as a condition precedent thereto. 4. Conditions And Deliveries. The Closing of the transaction contemplated hereunder (hereafter, "Closing") shall occur not later than October 18, 1996, upon the satisfaction of the following conditions and delivery of the following items: A. By Company: (i) Company shall execute and deliver to Haldan the Bill of Sale in the form attached hereto as Exhibit "B"; (ii) Company shall deliver to a carrier under the direct supervision of Mr. Selby Kiffer of Sotheby's or Mr. Kiffer's designee (hereafter, "Haldan's Representative") the Property for shipment to Sotheby's in New York, New York, in the form inspected and found acceptable by Haldan's Representative; (iii) Company shall deliver to Haldan's Representative (with copy by facsimile to Irell & Manella LLP, at numbers (310) 203-7199, to the attention of Mr. Ede C. Ibekwe) a certificate evidencing insurance in the amount of at least $2,000,000 (with no deductibles) covering any loss that may occur in the shipment of the Property to Sotheby's in New York, New York; (iv) Company shall deliver to Haldan cash or other immediately available funds in the amount of $196,955; and (v) Company shall cause to be delivered to Haldan the legal opinion of the firm of Christensen, White, Miller, Fink, Jacobs, Glaser and Shapiro, LLP, and that of Nevada counsel, Cohen, Johnson & Day, as to matters of Nevada law, that (a) Company has the corporate power and authority to enter into this Agreement, (b) this Agreement and the Bill of Sale have been duly executed and delivered by Company, (c) the Agreement and the Bill of Sale constitute valid and binding obligations of Company, enforceable against Company in accordance with the respective terms thereof, and (d) the sale of the Property by Company and the redemption of the Shares in connection therewith do not violate any federal or state laws applicable thereto including, without limitation, federal and state securities laws. B. By Haldan: (i) Haldan shall deliver to Company's representative at the offices of Irell & Manella LLP, 1800 Avenue of the Stars, Suite 900, Los Angeles, California (a) certificates enumerated on Exhibit "D" hereto and representing a total of 2,562,220 of the Shares, together with stock power(s) as necessary to effect the transfer of the ownership of such Shares from Haldan to Company, and (b) instructions to Goldman, Sachs & Co. (hereafter, "Goldman") in the form heretofore prepared by Company and accepted by each of Haldan and Goldman, instructing Goldman to transfer a total of 97,500 of the Shares held by Haldan in "street name" to the Company (the foregoing items (a) and (b) are hereinafter referred to as the "Assignment Documents"); and (ii) Haldan shall cause to be delivered to Company the legal opinion of the law firm of Irell & Manella LLP, and that of Nevada counsel to Haldan, Scarpello & Alling, Ltd., as to matters of Nevada law, that (a) Haldan has the power and authority to enter into this Agreement and execute and deliver the Assignment Documents, and to sell the Shares pursuant hereto, (b) this Agreement and the Assignment Documents have been duly executed and delivered by Haldan, (c) this Agreement and the Assignment Documents constitute valid and binding obligations of Haldan, enforceable against Haldan in accordance with the respective terms thereof, and the purchase of the Property by Haldan does not violate its trust instrument or the trust and estate laws applicable to Haldan as a trust. 5. Closing. The Closing shall occur when Haldan's Representative shall have confirmed to Haldan that it is ready and will accept delivery of the Property, that the Property has been delivered to a carrier for shipment to Sotheby's in New York, New York, and that such delivery to the carrier was made under the direct supervision of Haldan's Representative. To facilitate such determination by Haldan's Representative, Company shall assemble the Property at its place of business set forth in paragraph 11.1 hereof, and shall allow Haldan's Representative access thereto, commencing as from 6:00 a.m. on Friday, October 18, 1996, to inspect same for purposes of determining (i) the authenticity of each item of Property, (ii) that the items of Property presented for inspection are all of those set forth on Exhibit "A", and (iii) that the condition of each such item of Property conforms to the description thereof as heretofore provided to Haldan and/or Haldan's Representative for purposes of the appraisal thereof. Haldan's Representative shall confirm to Haldan when it has made such determination and whether based on such determination it is ready to accept delivery of the Property on behalf of Haldan in New York, New York. Company acknowledges and agrees that all of the Property shall by delivered UNFRAMED, and that no item of Property will be accepted for delivery if framed. Upon (a) confirmation to Haldan by Haldan's Representative that (1) Haldan's Representative is ready to accept delivery of the Property, and (2) the Property had been delivered to a carrier under the direct supervision of Haldan's Representative, and (b) delivery to Haldan of the other items to be delivered by Company as set forth in paragraph 4 A. above, Haldan shall deliver the items required to be delivered by Haldan as set forth in paragraph 4 B. The Closing shall be deemed to have occurred upon the consummation of all of the foregoing deliveries by Company and Haldan. 6. Release. Concurrently with the Closing and effective as of the date of the occurrence thereof, each of Company and Mr. Todd Axelrod on the one part, and Haldan on the other, hereby irrevocably waives, releases and discharges the other from any and all claims, demands, rights, actions, suites, causes of action, settlements, breaches, inaccuracies, obligations, costs, expenses, damages, liabilities and indemnities of whatever nature (collectively, "Claims"), and indemnification with respect to Claims pertaining to, and/or arising from, the purchase and ownership of the Shares by James E. Haldan and/or Haldan, the purported agreements between Mr. James E. Haldan and Mr. Todd Axelrod dated May 10, 1994 and May 12, 1994 (hereafter, the "May Agreements"), and the foregoing persons' dealings with each other with respect thereto. It is the intention of the parties that the release affected hereby shall be a bar to each and every Claim with respect to the matters covered by this release, whether known or unknown, asserted or unasserted, or suspected or unsuspected. In furtherance of this intention, each of Company and Mr. Todd Axelrod on the one part, and Haldan on the other, hereby expressly waives any and all rights and benefits conferred upon it by the provisions of Section 1542 of the California Civil Code which provides that: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Each of Company and Mr. Todd Axelrod understands, acknowledges and agrees that the release effected hereby shall have absolutely no effect whatsoever on each of their respective obligations under this Agreement, and the documents and/or instruments executed pursuant hereto and/or in connection herewith including, without limitation, its obligations respecting representations and warranties made with respect to the Property transferred pursuant hereto, and Haldan similarly acknowledges, understands and agrees that said release shall have absolutely no effect on its obligations hereunder including, without limitation, its representations and warranties respecting the Shares transferred pursuant hereto. 7. Costs. Company shall be responsible for and shall pay for all of the costs and expenses of delivery of the Property to Haldan's Representative in New York, New York, including, without limitation, the costs of insurance for the Property, it being acknowledged and agreed that Company shall bear the risk of loss to the Property at all times prior to delivery thereof to Haldan's Reprensentative4 in New York, New York. 8. Taxes. Company shall be responsible for and shall pay any Nevada sales, use or other Nevada taxes applicable to the sale of the Property to Haldan, and hereby agrees to indemnify and hold Haldan free and harmless from and against any and all liability for such taxes, it being acknowledged and agreed that Company shall not be responsible for any taxes measured by or based on the income of Haldan, or sales, use or other taxes imposed on Haldan and/or the Property by federal or any other state laws other than the laws of Nevada and the governmental jurisdictions therein. 9. Indemnification. Company hereby agrees to indemnify, defend and hold Haldan and its agents, assigns, successors and transferees free and harmless from and against any liability, loss, claim, damage or cost (including attorneys' fees and costs) relating to any breach or alleged breach of Company's representations and/or warranties contained herein and/or in the Bill of Sale respecting the Property and the transfer thereof to Haldan pursuant hereto. Haldan shall allow Company to assume control of the defense of any such action brought by a third party provided that (i) Company shall deliver to Haldan an agreement in writing to defend such claim at its sole cost and expense within five (5) business days of notice from Haldan and (ii) Company is and remains financially capable for providing indemnification for such claim. Such defense will be conducted by reputable attorneys (reasonably approved by Haldan) retained by Company at Company's sole cost and expense. Haldan will have the right to participate in such proceedings and to be separately represented by attorneys of its own choosing, but will be responsible for the costs of such separate representation unless the interest of Haldan and Company in the action conflict in such a manner and to such an extent as to require, consistent with applicable standards of professional responsibility, the retention of separate counsel for Haldan, in which case Company will pay for such separate representation by attorneys chosen by Haldan. In connection with the foregoing indemnification, Haldan agrees that with respect to any item of Property, Company shall not be required to pay Haldan more that 110% of the Sotheby's high auction estimate for such item of Property as set forth on Exhibit "A" hereto (but not including any costs incurred by Haldan to enforce this indemnity, or costs incurred by Haldan or Company to defend against any alleged breach) for any claim by Haldan of loss or diminution in value of such item of Property resulting from Company's breach of any representation or warranty contained herein and/or in the Bill of Sale as to authenticity or ownership of such item of Property, or to pay any amount respecting any such claim that arises after the fifth anniversary of the date as of which the Closing occurs; it being acknowledged and agreed by Company that the foregoing limitation shall not apply to limit (i) any other claim by Haldan to the extent the same is not based on the authenticity or ownership of the Property or any item thereof, or (ii) Haldan's claim based on the authenticity or ownership of Property or any item thereof if breach of the representation and/or warranty of authenticity or ownership resulted from Company's willful misconduct. 10. Representations. A. By Haldan: Haldan represents and warrants to Company that: (i) Haldan is not a "foreign person" as such terms is defined in 1445(f) of the Internal Revenue Code; (ii) Haldan is the sole, rightful, legal and beneficial owner of the Shares: (iii) Haldan has the legal capacity to sell the Shares to Company and to make the representations and warranties set forth in the paragraph 10A.; (iv) the Shares will be transferred to Company free of any lien, encumbrance or claim of any kind whatsoever against the Shares or title thereto; (v) upon execution by Haldan and delivery thereof to Company of this Agreement and the Assignment Documents, good title and right to possession of the Shares will pass to Company; and (vi) the execution, delivery and performance of this Agreement by Haldan will not violate its trust instrument or the trust and estate laws applicable to Haldan as a trust. Haldan hereby agrees to indemnify Company and its directors, officers, agents, assigns, successors and transferees against any breach of Haldan's representations and warranties set forth in this paragraph 10A. Company shall allow Haldan to assume control of the defense of any action brought by any third party for which Haldan is obligated to indemnify Company pursuant to the forgoing provided that (1) Haldan shall deliver to Company an agreement in writing to defend such claim at its sole cost and expense within five (5) business days of notice from Company and (2) Haldan is and remains financially capable of providing indemnification for such claim. Such defense shall be conducted by reputable attorneys (reasonably approved by Company) retained by Haldan at Haldan's sole cost and expense. Company will have the right to participate in such proceedings and to be separately represented by attorneys of its own choosing, but will be responsible for the costs of such separate representation unless the interest of Company and Haldan in the action conflict in such a manner and to such an extent as to require, consistent with applicable standards of professional responsibility, the retention of separate counsel for Company, in which case Haldan will pay for such representation by attorneys chosen by Company. B. By Company: Company represents and warrants to Haldan that: (i) it has the legal capacity to enter into this Agreement, sell the Property to Haldan and make the representations and warranties herein and in the Bill of Sale regarding such sale; (ii) its execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate action, the person executing this Agreement has been duly authorized to do so by the Company, and the Company has duly executed and delivered this Agreement; (iii) its execution, delivery and performance of this Agreement and its purchase of the Shares will not violate the Company's constating instruments, and laws applicable to Company, or agreements binding on the Company or its property; (iv) it has filed as and when due (giving effect to extensions obtained) all federal and state tax returns required to be filed by Company, and has paid all taxes due and payable in such returns, and has paid all sales, use, withholding and other taxes applicable to Company, other than, in each of the foregoing instances, taxes being contested in good faith and with respect to which Company has appropriately reserved for the payment thereof in accordance with generally accepted accounting principles; the Company has not received any notice of a deficiency or other claim for taxes owing from any federal or state taxing authority, other than such as have been paid, or settled with any settlement amount paid; (v) Company has complied with all applicable provisions of the Uniform Commercial Code as in effect in the State of Nevada respecting the sale of the Property; (vi) the Company is not qualified to conduct business in the State of New York, and neither its business activities in said state nor its ownership of property located therein would require that the Company qualify to do business in the State of New York; and (vii) other than the items set forth on Exhibit "A" and Exhibit "C" hereto, the Company does not have any other item of inventory with "raw" cost (that is excluding framing, research, translation, conservator costs and the like) of $2,000 or more, except for approximately 121 items with individual "raw" cost of $2,000 or more, which items aggregate less than $415,000. C. Each of Haldan's and Company's representations and warranties herein shall survive the Closing and shall not be affected in any manner whatsoever by any inspections conducted by or on behalf of such party respecting the items covered by such representations and/or warranties, it being acknowledged and agreed, however, that the representations and warranties of Company respecting authenticity and/or ownership of the Property shall not survive beyond the fifth anniversary of the date as of which the Closing occurred. 11. Miscellaneous. 11.1 Notices. All notices, requests, demands to or upon, or other communication with, the respective parties hereto to be effective shall be in writing (including by facsimile transmission) and, unless otherwise expressly provided herein, shall be deemed to have been duly given, made or received (a) in the case of delivery by hand, when delivered, (b) in the case of delivery by mail, three (3) days after being deposited in the mails, postage prepaid, or (c) in the case of delivery by facsimile transmission, when sent and receipt has been confirmed, addressed as follows: If to Haldan: Alvaro Pascotto, Esq. Irell & Manella LLP 1800 Avenue of the Stars, Suite 900 Los Angeles, CA 90067-4267 Telecopier: (310) 203-7199 If to Company: Gallery of History 3601 West Sahara Avenue Las Vegas, Nevada 89102 Telecopier: (702) 364-1285 11.2 Entire Agreement. This Agreement and the other documents and instruments expressly referred to herein constitute the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior agreements of the parties with respect hereto. There are no promises, undertakings, representations or warranties, whether oral or written, by Haldan relative to the subject matter hereof which has not been expressly set forth or referred to herein. The May Agreements are hereby canceled and of no further force or effect. 11.3 Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of California. 11.4 Counterparts. This Agreement may be executed by one or both parties to this Agreement on any number of separate counterparts (including facsimile transmission), and all of said counterparts when taken together shall be deemed to constitute one and the same instrument. A faxed signature shall have the same validity as a manual signature. 11.5 Amendments: Successors and Assigns. This Agreement may not be modified or amended without the prior written consent of the parties hereto. This Agreement shall be binding on the parties hereto and their respective successors and assigns. 11.6 Resolution of Disputes. Except for actions seeking injunctive relief, which may be brought either in arbitration or in any court having jurisdiction, any dispute on any matter regarding this Agreement shall be submitted by the parties to binding arbitration in Los Angeles, California in accordance with the rules of the American Arbitration Association. The parties agree that all of the discovery rights available under Section 1283.05 of the California Code of Civil Procedures shall be available to the parties in connection with any arbitration proceeding. The parties acknowledge that in the event of any arbitration or other action to resolve disputes hereunder, the prevailing party in such dispute shall be entitled and shall receive (including, without limitation, as part of any award in an arbitration) the fees and costs incurred by it in connection with such dispute including, without limitation, the fees and costs of counsel engaged in connection therewith. "In any arbitration proceeding hereunder, the parties hereto hereby EXPRESSLY, KNOWINGLY AND VOLUNTARILY FULLY AND FINALLY WAIVE AND RELINQUISH any and all provisions of, and rights and benefits that may arise under, Section 1281.9 of the Code of Civil Procedure of the State of California ("the statute"), and hereby DISCHARGE AND EXONERATE any person(s) proposed for nomination as neutral arbitrator(s) from any duty to comply with any of the provisions of the statute in any such arbitration proceeding hereunder. In connection with such waiver, relinquishment, exoneration and discharge, the parties acknowledge that they have read and are familiar with the provisions of the statute and have had adequate opportunity to consult with legal counsel with respect thereto and with respect to any other pertinent provisions of law. All parties, with the advice of their respective legal counsel, agree that the statute is unnecessary and burdensome as to them and that it is in their best interests to enter into this agreement, so that the arbitration process provided for by this agreement shall proceed as if the statute did not exist. HOWEVER, this waiver, relinquishment, exoneration and discharge is not intended to apply to any judicial appointment of arbitrators, nor is it intended to discharge or exonerate any potential arbitrator from any other duty imposed by law or equity. 12. Agreement Negotiated. The parties hereto are sophisticated and have been represented by lawyers throughout this transaction who have carefully negotiated the provisions hereof. As a consequence, the parties do not believe that the presumptions of Civil Code Section 1654 and similar laws or rules relating to the interpretation of contracts against the drafter of any particular clause should be applied in this case and therefore waive their effects. Only the final executed version of this Agreement may be admitted into evidence or used for any purpose, and drafts of this Agreement shall be disregarded for all purposes. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written by the person(s) duly authorized to do so. Ethelmae S. Haldan Trust Dated 3/30/87 By: /s/ Ethelmae Stuart Haldan, Trustee ------------------------------------- Ethelmae Stuart Haldan, as Trustee Gallery of History, Inc., a Nevada corporation By: /s/ Todd M. Axelrod ------------------------------------- Mr. Todd Axelrod Its: President The undersigned, Mr. Todd Axelrod, by execution hereof hereby joins in the release effected in paragraph 6 hereof, and otherwise agrees to the terms hereof and to be bound thereby. By: /s/ Todd M. Axelrod ------------------------------------- Mr. Todd Axelrod EX-27 5 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet dated September 30, 1996 and its Consolidated Statement of Operations covering the period from October 1, 1995 to September 30, 1996 and is qualified in its entirety by reference to such financial statement and notes thereof. 12-MOS SEP-30-1996 SEP-30-1996 115800 0 98301 0 8677725 0 3386617 2288093 11027334 0 1874765 0 0 5918 8702254 11027334 2116725 2116725 600391 600391 1483711 0 225221 (36151) 100 (36251) 0 0 0 (36251) (.01) (.01)
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