-----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, CKWc3kaTSEVKCHD+p/qzuPOYXeEEjWZPvjS3vPVzD7vOAg1UQwt/ijmjaeFTe+4m NKS/65rO/JkfRnDXrs5cDQ== 0000763730-98-000014.txt : 19981211 0000763730-98-000014.hdr.sgml : 19981211 ACCESSION NUMBER: 0000763730-98-000014 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GALLERY OF HISTORY INC CENTRAL INDEX KEY: 0000763730 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 880176525 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-13757 FILM NUMBER: 98766710 BUSINESS ADDRESS: STREET 1: 3601 WEST SAHARA AVE STREET 2: PROMENADE SUITE CITY: LAS VEGAS STATE: NV ZIP: 89102-5822 BUSINESS PHONE: 7023641000 MAIL ADDRESS: STREET 1: 3601 WEST SAHARA AVENUE CITY: LAS VEGAS STATE: NV ZIP: 89102 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN MUSEUM OF HISTORICAL DOCUMENTS CHARTERED/NV/ DATE OF NAME CHANGE: 19900816 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB [x] ANNUAL REPORT PURSUANT TO SECTION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, 1998 [ ] 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: $2,818,097. The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant (649,675 shares) as of December 1, 1998 was approximately $5,034,981 based upon $7.75, the price at which the stock was sold on such date. The Registrant had 2,782,392 shares of Common Stock outstanding as of December 1, 1998. 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 persons now deceased, but a significant number were written or executed by persons still living, particularly in the entertainment, sports and political areas. The Company's inventory of documents currently consists of approximately 177,000 different documents. Retail sales of documents are made from two galleries located at its headquarters in Las Vegas, Nevada and at Georgetown Park in Washington, D.C. Documents are largely sold through auctions and its headquarters location to other dealers and collectors. The Company's marketing efforts principally target individuals who have appreciated or collected antiques, paintings, lithographs, and other works of art or other collectibles, but not necessarily historical documents, and who may lack awareness of the availability of historical documents for purchase. The documents offered for sale by the Company through its retail operations are selected from its inventory and are attractively framed, sometimes together with memorabilia related to the documents, or with current literature related to the signatory. Documents sold through the auction operation are generally sold in a raw unframed state. All of the documents are preserved by utilizing museum quality encapsulation materials, mattings and protective coverings that are characteristically acid-free, and by other steps taken to ensure the longevity of the documents. The Company sells in its galleries a book entitled "The Handbook of Historical Documents - A Guide to Owning History" authored by Todd M. Axelrod, the Company's President and Chairman of the Board. In early fiscal 1997, the Company formed a new division, called Gallery of History Direct, dedicated to the issuance of bi-monthly catalogs employing a mail/phone/fax/internet auction format featuring original historical documents. Throughout fiscal 1998, the Company held eight auctions. During fiscal 1997, the Company held seven auctions. Inventory of Documents Owned - ---------------------------- The Company purchases documents principally at auctions and from private collectors, dealers in historical documents, estates and various individuals who are not collectors but are in possession of documents. These avenues of supply are likely to continue to be the Company's main sources of inventory. In order to catalogue its diverse inventory, the Company has a personal computer client server network. The computer system allows the Company's sales staff to identify inventory held in the Company's central repository and in its headquarters and Washington, D.C. galleries. The staff can obtain descriptions of the documents and even obtain images of the documents to exhibit to customers. Clientele - --------- The Company has two primary marketing strategies. The first is its direct sales approach via auctions and a catalog program. Originating from its Corporate Headquarters, the Company developed a wholesale sales program directed at autograph dealers, auction houses, major customers and corporations. Its catalog program will distribute seven or eight different catalogs per year to its own retail customers, collectors and dealers of historical documents and a pre-qualified test market. The Company's other primary marketing strategy is its retail operation conducted through two locations, its headquarters in Las Vegas, Nevada and a gallery located in Washington D.C. The marketing effort is to attract persons who have not necessarily had an awareness of the existence of historical documents available for private sale. The Company's staff is generally required to educate its potential customers, who may be initially dubious of the authenticity of documents owned and offered for sale by the Company. When the Company has satisfied the prospective customer regarding authenticity, interest in purchasing historically significant signatures, letters and documents can be fostered. For the year ended September 30, 1998, the Company sold approximately 2,500 documents with an average single document sales price of approximately $1,125. During the fiscal year ended September 30, 1997, the Company generated sales of $570,950, which were attributable to customers whose purchases accounted for at least 10% of total document sales. There was no individual customer whose purchases totaled over 10% of sales for the year ended September 30, 1998. None of these major customers have any direct relationship with the Company. Certificates of Authenticity - ---------------------------- Documents purchased by the Company frequently are acquired by the Company with guarantees from the sellers. Whether or not the Company receives such a guarantee, it purchases documents subject to its own verification of authenticity. To ascertain authenticity, the Company may utilize information provided by the seller as to the transfer of ownership of documents; it may subject the documents to its own expert examination; it may employ outside experts available to it to examine the documents; or it may use other means. The Company makes available to its customers a ten-year Certificate of Authenticity, which obligates the Company to refund to the customer the purchase price paid if any document is proven non-authentic. Should the Company's determination of authenticity of documents be erroneous, it would be likely to suffer a loss as a consequence thereof unless redress by the Company against the seller of the documents could be obtained. The Company does not carry any insurance and is currently not aware of any entity which would offer or underwrite such insurance at commercially reasonable rates to protect it against a loss arising from either the purchase of documents lacking authenticity or claims by customers for recovery against the Certificates of Authenticity it issues. Claims made against the Company pursuant to its Certificates of Authenticity since the inception of the Company in 1981 are as follows: one claim of $18,000 in fiscal 1987; one claim of $60,000 in fiscal 1992; three claims totaling $20,015 in fiscal 1993; and one claim of $45,330 in fiscal 1998. Accordingly, the Company has not established a reserve against the risk of forgery or against any exposure under the Certificates of Authenticity. Competition - ----------- The Company does not regard the business of marketing historical documents as a definable industry. There are a great number of dealers of historical documents, of which many are only part-time operators, many are located in homes without any established commercial location and many are located in commercial office buildings or have retail space in metropolitan areas. The Company competes primarily with art galleries, antique stores and sellers of other collectible items, as well as dealers in historical documents. In addition, certain department stores and other retail outlets offer framed documents, usually as part of an overall effort to market antiques and other specialty items. In the past several years, many autograph dealers have closed their retail gallery operations and are attempting to sell their inventories through an auction format. In addition, many of the upscale malls are remerchandising for middle-market masses as the consumer looks for warehouse shopping. Since closing the Company's Fashion Show gallery in March 1997, the majority of the Company's sales have been through its auction-wholesale efforts at the Company's headquarters location. Thus, the Company has strategically moved towards marketing through a mail/phone/fax/internet auction format with an occasional live auction. When acquiring documents, the Company competes with persons who acquire documents for resale, as well as private collectors. The principal sources for documents are auctions held in the United States and abroad, private collectors, dealers in historical documents, estate sales, and the recipients of documents and/or their families. In the event prices for historical documents increase materially, the Company's ability to acquire documents, and, in turn, its ability to market such newly acquired documents to the general public, may be adversely affected. If, however, prices for historical documents significantly increase, the resale/wholesale value of the Company's 177,000 document inventory would be positively affected. The Company does accept consignments for its auctions. To the extent the Company is successful in attracting consignments, it would be positively impacted by this higher price scenario because the Company receives a commission from both the buyer and consignor which is based upon a percent of the hammer price. There is no assurance that the Company will be able to continue to realize significant profits for its merchandise. Moreover, existing dealers may choose to compete with the Company in the same manner or in a more favorable format than that of the Company. Seasonal Business - ----------------- The nature of the business in which the Company engages is not seasonal. However, the Company has experienced in the past a surge in November and December retail sales relating to the traditional holiday shopping season. Because the Company expects to receive less than 5% of its revenues from its gallery-retail sources, the benefit from a spike in holiday shopping is expected to diminish. Employees - --------- As of December 1, 1998, the Company had eleven full-time and four part-time employees, in addition to its four executive officers. Item 2. Properties ---------- The Company owns a building located at 3601 West Sahara Avenue, Las Vegas, Nevada where its executive offices and framing operations are located. The building contains approximately 33,187 square feet of net leasable space of which the Company currently occupies 15,580 square feet and leases or is offering to lease the remaining space to others. As of December 1, 1998, 11,126 square feet was being leased to seven tenants for an aggregate monthly rental of $16,900 under leases expiring at varying times from February 1999 through June 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 Company's Georgetown Park, Washington D.C. gallery opened in October 1989 with a lease expiring in September 1999. The gallery has 739 square feet. The Company owns a Hewlett Packard Netserver LS2 and a Dell PowerEdge 4200 Server and twenty-one micro-computers. The computer system is used to catalog and develop cost and other statistical information relating to the Company's inventory, develop framing and graphic presentations, and handle the Company's internal accounting functions. The Company also owns leasehold improvements, fixtures and furniture in its galleries. Item 3. Legal Proceedings ----------------- The Company is not a party to any material litigation and none is known to be contemplated against the Company. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- No matter was submitted to a vote of the security holders of the Company during the fourth quarter of the fiscal year ended September 30, 1998. 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 1997 - ----------- October 1, 1996 - December 31, 1996 3-1/4 1-1/2 January 1, 1997 - March 31, 1997 3-1/4 2-3/4 April 1, 1997 - June 30, 1997 3-1/4 2-3/4 July 1, 1997 - September 30, 1997 2-7/8 2-3/4 Fiscal 1998 - ----------- October 1, 1997 - December 31, 1997 3 2-1/4 January 1, 1998 - March 31, 1998 2-3/4 2-1/2 April 1, 1998 - June 30, 1998 2-3/4 2-3/4 July 1, 1998 - September 30, 1998 2-7/8 1-1/2
(b) As of December 1, 1998 there were approximately 140 holders of record of the Company's Common Stock before calculating individual participants in security position listings pursuant to Rule 17Ad-8 under the Securities Exchange Act of 1934. The Company's transfer agent reported approximately 261 beneficial owners of the Company's common stock as of April 16, 1998. (c) Since its inception in November 1981, the Company has not paid any cash dividends to the holders of its Common Stock. The Company presently intends to retain any earnings for its internal cash flow use and possible repurchase of its own common stock. Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- 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. Cash, accounts receivable and prepaid expenses (approximately $393,500 at September 30, 1998) exceeded the aggregate of short-term liabilities (including the current portion of long-term debt) by approximately $111,500. This compares to approximately $165,000 of short-term liabilities in excess of cash, accounts receivable and prepaid expenses as of September 30, 1997. The Company has a bank line of credit in the amount of $100,000 through July 1999. 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, 1998, there were no funds drawn against this line of credit. In addition, the Company has a reducing principal line of credit in the amount of approximately $20,000 as of September 30, 1998, with a maturity of March 1999. The principal is reduced by $4,667 a month. As of September 30, 1998, there were no funds drawn against this line of credit. Any funds drawn bear interest at prime plus 1.5%. The Company's term mortgage note that was converted to a reducing revolving line of credit in 1997 in the amount of $1,839,523 has a 9% interest rate and a maturity date of July 2002. As of September 30, 1998, there was an outstanding balance due of $467,778 giving $1,311,988 available under this line of credit. In September 1998, the Company borrowed $1,000,000 from Nanna Corp., a company owned 100% by Todd Axelrod and his wife, Pamela. This note is due in three years with interest payments monthly at a rate of 8.75%. The purpose of this note was to reduce the Company's outstanding line of credit and to finance its stock repurchase program. The Company cannot predict the extent to which similar sources will be available to fund future operations. Accordingly, there is no assurance that the Company's historical means of fulfilling its cash needs, or that other means, will be available in the foreseeable future. The Company will not be showing substantial cash balances because it is to the Company's advantage to reduce its outstanding line of credit balance. The Company believes that, by appropriately managing the timing and amount of additional document acquisitions and generating new revenues from its headquarters operations, the Company's current cash and working capital requirements will be satisfied for the near term by revenue generated from operations and amounts available under the existing lines of credit. Net cash provided from operating activities exceeded cash used for operating activities for the fiscal year ended September 30, 1998, largely due to the net income generated and a reduction in the Company's existing document inventory. Cash provided from operations was offset with a large increase in accounts receivable, resulting from an auction at the end of the current fiscal year. The cash generated from operations was primarily used to reduce the Company's line of credit and the repurchase of its Common Stock. Perpetual inventory records kept by the Company contain inventory descriptions and the purchase costs of such inventory. Although each inventory item is unique, the majority of the Company's inventory consists of major similar categories of documents. With respect to the similar categories of documents, current retail sales information provides the Company with ratios of its sales to cost of sales; the Company uses such information to assist it in substantiating that its inventory value does not exceed market value. The records for inventory categories are also periodically reviewed by management to determine if there has been any known auction or interdealer sales of similar documents at reduced prices and to determine if a reduction in the inventory carrying value is needed. The Company's review of its inventory of documents has not shown any significant decline in market value below cost on an individual level or by major category. Retail and wholesale sales by the Company have, to date, been in excess of carrying costs of the documents sold. The Company has engaged an expert to help evaluate and authenticate its inventory on a regular basis. During the past two fiscal years, the Company has not experienced any adverse impact arising from inflation. However, in the event prices for historical documents increase materially, the Company's ability to acquire documents, and, in turn, its ability to market such newly acquired documents to its market, may be adversely affected. Thus, although the retail and wholesale values of the Company's existing inventory might be favorably affected by increasing prices, passing along such increases to customers could have an inhibiting effect on the Company's overall business. Management of the Company actually believes that tangible collectibles move inversely with financial assets over the long term. As a result, during times of greater inflationary expectations, tangible collectibles may actually be the beneficiary of greater interest. 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. Manafement has analyzed its Year 2000 issues and does not anticipate any material effect to its operations or financial condition. Results of Operations - --------------------- Fiscal 1998 Compared to Fiscal 1997 - ----------------------------------- Document sales decreased 7% comparing fiscal 1998 to 1997 because of a reduction in retail sales largely due to the closure of the Fashion Show mall gallery in March 1997. Retail sales accounted for 5% of total sales for the fiscal year ended September 1998 compared to 20% of total sales in 1997. The Fashion Show gallery accounted for 13% of total sales for the fiscal year 1997. Auction sales increased 15% in fiscal 1998 over fiscal year 1997. The Company conducted eight auctions in fiscal 1998 compared to seven in fiscal 1997. Fiscal 1998 was the Company's second year since its shift from the gallery-retail sales approach to an auction environment. Through its experience, the Company will continue to expand its bidder base and test new markets. Total cost of sales increased 28% to 39% of net sales for fiscal 1998 as compared to 28% of net sales for fiscal 1997. This increase is attributed to the costs of printing and mailing of the auction catalogs which amounted to 14% of net sales in fiscal 1998 compared to 7% of net sales in fiscal 1997. Average printing and mailing cost of the catalogs for the fiscal 1998 auctions was $48,569 compared to an average cost of $30,361 for the fiscal 1997 auctions. This increase is attributed to the Company mailing a substantial number of catalogs in excess of its proven bidder base to test new markets. Cost of documents amounted to 25% of net sales for fiscal 1998 compared to 21% of net sales for fiscal 1997 due to fiscal 1997 including a greater amount of sales at retail pricing. Total operating expenses decreased 13% to 58% of net sales for fiscal 1998 compared to 62% of net sales for fiscal 1997. The decrease was largely due to a restructuring charge incurred by the Company in fiscal 1997, which amounted to 7% of net sales. Selling, general and administrative expenses increased 1% to 52% of net sales for fiscal 1998 from 48% of net sales for fiscal 1997. Approximately $80,000 was incurred in 1998 for the write off of non-authentic material which was the result of the Company's continuing effort to evaluate and authenticate its document inventory. Travel expenses increased 33% and salaries increased 2% compared to fiscal 1997 due to the auction operation. Depreciation expenses decreased 9% in fiscal 1998 from fiscal 1997 largely due to equipment and leasehold improvements becoming fully depreciated. Advertising expenses decreased 10% comparing fiscal 1998 to fiscal 1997 due to a more selective approach in the Company's advertising campaigns. Maintenance and repair costs decreased 57% in fiscal 1998 compared to fiscal 1997, due to the reduced cost of maintaining its mainframe computer, which was replaced with a PC client/server network. Interest expense decreased 27% to 5% of net sales for fiscal 1998 as compared to 6% of net sales for fiscal 1997. The decrease in interest expense can be attributed to the lower average outstanding loan balances in the current year. Included in selling, general and administrative expenses is 50% of the operating cost to maintain the headquarters building. This percentage is the approximate square footage occupied by the Company's headquarters operation to the total leasable space of the building. The remaining building operating expenses plus the rental revenues realized are offset and included in other income and expense. This amounted to approximately $160,000 operating profit for fiscal 1998 as compared to approximately $200,000 operating profit for fiscal 1997. The decrease is a result of a reduction in leased square footage. Also included in other income and expense in the previous fiscal year was the gain on repurchase of common stock as discussed in Note 10 of the notes to consolidated financial statements. Item 7. Financial Statements. --------------------- TABLE OF CONTENTS -----------------
PAGE ---- Independent Auditors' Report . . . . . . . . . . . . 12 Consolidated Balance Sheets - September 30, 1998 and 1997. . . . . . . . . . . . . . . . . . . . 13 Consolidated Statements of Operations for the Years ended September 30, 1998 and 1997. . . . . 14 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended September 30, 1998 and 1997. . . . . . . . . . . . . . . . . . . . 15 Consolidated Statements of Cash Flows for the Years ended September 30, 1998 and 1997. . . . . . . . . . 16 Notes to Consolidated Financial Statements . . . . . 18 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, 1998 and 1997, 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, 1998 and 1997, 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 October 23, 1998
GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1998 AND 1997 ___________________________________________________________________
Notes 1998 1997 ----- ---- ---- ASSETS Cash $ 15,069 $ 20,095 Accounts receivable 293,986 59,650 Prepaid expenses 84,421 50,928 Documents owned 1,10 6,557,812 6,980,816 Land and building-net 2,5,8 1,430,002 1,454,805 Property and equipment-net 1,2,5 235,004 258,536 Other assets 3 163,510 168,636 --------- --------- TOTAL ASSETS $8,779,804 $8,993,446 ========= ========= LIABILITIES Accounts payable $ 82,050 $ 74,409 Notes payable 5 517,803 1,438,839 Indebtedness to related parties 4,5 1,000,000 -- Deposits 31,596 49,570 Deferred tax 170,524 144,043 Accrued and other liabilities 92,619 93,633 --------- --------- TOTAL LIABILITIES 1,894,592 1,800,494 --------- --------- COMMITMENTS AND CONTINGENCIES 8 STOCKHOLDERS' EQUITY Common stock: $.001 par value; authorized, 10,000,000 shares; 5,917,654 shares issued; 5,917,654 outstanding 6,10 5,918 5,918 Additional paid-in-capital 9,392,363 9,392,363 Accumulated deficit (82,073) (157,828) Common stock in treasury (2,855,120 and 2,676,720 shares), at cost (2,430,996) (2,047,481) --------- --------- TOTAL STOCKHOLDERS' EQUITY 6,885,212 7,192,972 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,779,804 $8,993,466 ========= ========= See the accompanying notes to consolidated financial statements. ________________________________________________________________
GALLERY OF HISTORY, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997 ___________________________________________________________________
Notes 1998 1997 ----- ---- ---- REVENUES 1 $2,818,097 $3,029,405 COST OF REVENUES 1,101,661 857,609 --------- --------- GROSS PROFIT 1,716,436 2,171,796 --------- --------- OPERATING EXPENSES: Selling, general and administrative 1,462,727 1,454,907 Depreciation 1,2 73,042 80,702 Advertising 82,870 92,079 Maintenance and repairs 1 11,708 27,070 Loss on gallery closures -- 941 Restructuring charge 3 -- 217,438 --------- --------- TOTAL OPERATING EXPENSES 1,630,347 1,873,137 --------- --------- OPERATING PROFIT 86,089 298,659 --------- --------- OTHER INCOME (EXPENSE): Gain on repurchase of stock -- 356,553 Interest expense (132,972) (182,250) Other, net 8 147,764 205,662 --------- --------- TOTAL OTHER INCOME (EXPENSE) 14,792 379,965 --------- --------- INCOME BEFORE INCOME TAXES 100,881 678,624 PROVISION FOR INCOME TAXES 1,7 25,126 146,343 --------- --------- NET INCOME $ 75,755 $ 532,281 ========= ========= EARNINGS PER SHARE 9 Basic $ .02 $ .16 ==== ==== Diluted $ .02 $ .16 ==== ==== 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, 1998 AND 1997 _____________________________________________________________________________
Additional Common Common Stock Paid-in Accumulated Stock in Shares Par Value Capital Deficit Treasury Total ------ --------- ------- ------- -------- ----- BALANCE AT 9/30/96 5,917,654 $5,918 $9,392,363 $(690,109) -- $8,708,172 Repurchase Common Stock, at cost (2,676,720 shares) -- -- -- -- (2,047,481) (2,047,481) Net Income -- -- -- 532,281 -- 532,281 --------- ----- --------- -------- ---------- --------- BALANCE AT 9/30/97 5,917,654 $5,918 $9,392,363 $(157,828) $(2,047,481) $7,192,972 Repurchase Common Stock, at cost (178,400 shares) -- -- -- -- (383,515) (383,515) Net Income -- -- -- 75,755 -- 75,755 --------- ----- --------- -------- ---------- --------- BALANCE AT 9/30/98 5,917,654 $5,918 $9,392,363 $ (82,073) $(2,430,996) $6,885,212 ========= ===== ========= ======== ========== ========= 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, 1998 AND 1997 ___________________________________________________________________
1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 75,755 $ 532,281 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 138,766 143,400 Gain on exchange of inventory for common stock (356,553) (Gain) loss on disposal of property 7,738 (4,315) (Increase) decrease in: Accounts receivable (234,336) 38,651 Prepaid expenses (33,493) 2,270 Documents owned (a) 423,004 250,417 Other assets 5,126 235,150 Increase (decrease) in: Accounts payable 7,641 (9,708) Deposits (17,974) 19,497 Deferred tax 26,481 144,043 Accrued and other liabilities (1,014) 2,930 -------- -------- Net cash provided by operating activities 397,694 998,063 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, equipment and building improvements (98,169) (105,403) Proceeds from sale of property and equipment -- 2,000 Purchase of documents (a) -- -- -------- -------- Net cash used for investing activities (98,169) (103,403) -------- -------- (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 $271,294 and $331,858 in fiscal 1998 and 1997 included in the net decrease in inventory of documents and frames owned ($423,004 in fiscal 1998 and $250,417 in fiscal 1997) 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, 1998 AND 1997 _____________________________________________________________________ 1998 1997 ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank lines of credit $ -- $ 137,500 Repayments of bank lines of credit -- (137,500) Proceeds from notes payable 2,352,903 55,000 Repayments of notes payable (2,273,939) (800,929) Repurchase of common stock (383,515) (244,436) --------- -------- Net cash used for financing activities (304,551) (990,365) --------- -------- NET DECREASE IN CASH (5,026) (95,702) CASH, BEGINNING OF YEAR 20,095 115,800 --------- -------- CASH, END OF YEAR $ 15,069 $ 20,095 ========= ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 130,820 $ 195,276 ========= ======== Cash paid during the year for income taxes $ 18,800 $ 22,750 ========= ======== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: For the year ended September 30, 1997: (1) Documents with a cost of $1,446,492 were exchanged for shares of the Company's common stock valued at $1,803,045. (2) Debt of $70,499 was incurred for the purchase of a truck. 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 makes available to its customers a certificate of authenticity, valid for ten years from date of purchase, for each document it sells. Under the certificate, the Company is required to refund to the customer the purchase price should any document prove to be a forgery or otherwise lack authenticity. To ascertain authenticity, the Company relies upon the reputation of sellers, opinions of experts under certain circumstances, the history of prior ownership of such documents and other means. Management's Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. Unclassified Balance Sheets - The Company includes in its financial statements unclassified balance sheets 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. Accounts Receivable - Management reviews the collectibility of accounts receivable and establishes an allowance if collection is deemed unlikely. As of September 30, 1998 and 1997, no allowances were deemed necessary. Documents Owned - Documents are stated at cost on a specific-identification method, not in excess of estimated market value. Management reviews the value of the documents owned on a regular basis to determine potential impairments and to ensure that documents owned are not reflected at amounts in excess of estimated market value. Property and Equipment - Property and equipment are carried at cost. Depreciation and amortization of property and equipment are provided on the straight line method over their estimated useful lives. Maintenance, repairs and renewals which neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Gains or losses on dispositions of property and equipment are included in other income. Revenue - Revenue is recognized when the sale is consummated. Major Customers - Document sales attributable to major customers (i.e., individual customers whose purchases account for 10% or more of total document sales) aggregated $570,950 for the year ended September 30, 1997. There was no individual customer whose purchases totaled over 10% of sales for the year ended September 30, 1998. None of the customers have any direct relationship with the Company. Income Taxes - Income taxes, where applicable, are provided at statutory rates. Deferred income taxes are recognized for income and expense items which are reported for tax purposes in different years than for financial accounting purposes. 2. PROPERTY, EQUIPMENT, LAND AND BUILDING Property and equipment and land and building at September 30, 1998 and 1997 consist of the following:
Estimated Service Lives 1998 1997 ------- ---- ---- Land $ 580,000 $ 580,000 Building 30 years 1,428,751 1,403,377 --------- --------- Total cost 2,008,751 1,983,377 Less accumulated depreciation 578,749 528,572 --------- --------- Land and building - net $1,430,002 $1,454,805 ========= ========= Equipment and furniture 5 years $ 647,092 $1,023,677 Leasehold improvements 5-15 years 337,905 338,145 --------- --------- Total cost 984,997 1,361,812 Less accumulated depreciation and amortization 749,993 1,103,276 --------- --------- Property and equipment - net $ 235,004 $ 258,536 ========= =========
3. OTHER ASSETS Other assets at September 30, 1998 and 1997 consist of the following:
1998 1997 ---- ---- Book inventory net of amortization $ 14,780 $ 15,762 Framing raw materials inventory 143,908 144,587 Other 4,822 8,287 ------- ------- Total $163,510 $168,636 ======= =======
A restructuring charge was incurred during fiscal 1997 representing the write down of certain assets, principally the Company's book inventory associated with the Company's retail sales operations. The Company recently restructured the nature of its business away from retail sales to wholesale/auction sales. 4. RELATED PARTIES In May 1994, the Company borrowed $110,000 from Pamela Axelrod, a Vice President of the Company. The loan was paid in full during fiscal 1997. In September 1998, the Company borrowed $1,000,000 from Nanna Corp., a company owned 100% by Todd Axelrod, the President of the Company and his wife, Pamela. The loan bears interest at 8.75%. The loan is a three year note with interest only payment monthly. The proceeds of this loan were used to pay down the Company's mortgage on its building which was at a higher interest rate. Interest expense on related party notes was $243 during fiscal year 1998. The Company purchased catalogs for its auction operation from Nanna Corp. During fiscal 1998, the Company paid $157,500 to Nanna Corp. for catalogs for eight auctions. During fiscal 1997, the Company paid $146,500 for catalogs for seven auctions. The Company believes that such purchase prices were substantially comparable to what it would have had to pay an unrelated supplier. As of the June 1998 auction, the Company began utilizing a different source for its catalog printing. 5. NOTES PAYABLE AND INDEBTEDNESS TO RELATED PARTIES Debt consists of the following at September 30:
1998 1997 ---- ---- Reducing revolving line of credit in the amount of $1,839,523. The line has a 59 month amortization of principal at a 9% interest rate, a balloon payment due at maturity of July 15, 2002 in the amount of $1,565,106 or the outstanding balance if the line is paid down. The note is collateralized by a building. $ 467,778 $1,376,239 Related party note payable at 8.75% interest. The note has monthly interest payments with principal due September 29, 2001. 1,000,000 -- Term note payable at 7.99% with 60 monthly payments of principal and interest with the unpaid balance due March 5, 2002, collateralized by a truck. 50,025 62,600 --------- --------- Total $1,517,803 $1,438,839 ========= =========
Maturities of notes payable are as follows for fiscal years ending September 30: 1999 $ 107,392 2000 141,297 2001 1,177,264 2002 91,850 --------- Total $1,517,803 =========
The Company has a line of credit from a bank in the amount of $100,000 available through, and due on July 15, 1999. As of September 30, 1998, there were no funds drawn against this line of credit. Any funds drawn bear interest at prime plus 1.5%. In addition, the Company has a reducing principal line of credit in the amount of approximately $23,000 as of September 30, 1998, with a maturity of March 1999. The principal is reduced by $4,667 a month. As of September 30, 1998, there were no funds drawn against this line of credit. Any funds drawn bear interest at prime plus 1.5%. In July 1997, the Company's term mortgage note was converted to a reducing revolving line of credit in the amount of $1,839,523. The line of credit has a 59 month amortization of principal, a 9% interest rate and a maturity date of July 2002. As of September 30, 1998, there was $1,311,988 available under this line of credit. The estimated fair value of the Company's debt at September 30, 1998 and 1997, respectively, was approximately $1,518,000 and $439,000, 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, 1998:
Number Exercise Expiration of Shares Prices Dates --------- ------ ----- Outstanding, 9/30/96 374,400 $2.47 to $4.50 1998 Canceled or expired (45,000) ------- Outstanding, 9/30/97 329,400 $2.47 to $4.50 1999 =======
Employee incentive options were issued for 329,388 shares prior to October 1, 1991. No employee incentive options were issued in fiscal 1998 and none remain outstanding as of September 30, 1998. The Company accounts for its stock-based compensation plans under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized. In fiscal year 1997, the Company adopted Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation", and noted that the impact of adopting SFAS 123 on the net income (loss) in 1998 and 1997, respectively, was immaterial. 7. INCOME TAXES The provision for income taxes for the years ended September 30, 1998 and 1997 are as follows:
1998 1997 ---- ---- Current Federal $ (1,355) $ 2,300 Deferred 26,481 144,043 -------- ------- Total $ 25,126 $ 146,343 ======== ========
Components of deferred tax assets (liabilities) for the years ended September 30, 1997 and 1996 are as follows:
1998 1997 ---- ---- Depreciation $(207,145) $(190,779) Other -- (98) -------- -------- Gross deferred tax liabilities (207,145) (190,877) -------- -------- Net operating loss carryforward 25,561 27,966 Other 11,050 18,868 -------- -------- Gross deferred tax assets 36,621 46,834 -------- -------- Net deferred tax liabilities $(170,524) $(144,043) ======== ========
Statement of Financial Accounting Standards No. 109 requires recognition of the future tax benefit of these assets to the extent realization of such benefits is more likely than not, otherwise, a valuation allowance is applied. 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:
1998 1997 ---- ---- Statutory U.S. tax rate (35%) $ 35,308 $237,518 Increase (decrease) from rate: Effect of unrecognized tax benefits (19,085) -- Other 8,903 (405) Change in valuation allowance -- (90,770) ------- ------- Effective tax rate (24.9%, 21.6%) $ 25,126 $146,343 ======= =======
As of September 30, 1998, 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 $ 73,031
8. COMMITMENTS AND CONTINGENCIES The Company entered into non-cancellable operating lease agreements which call for certain minimum lease payments plus contingent lease payments based on annual sales above specified amounts and allocation of common area management charges. Future minimum lease payments at September 30, 1998 exist only for the Georgetown Park mall in the amount of $40,645 payable during the 1999 fiscal year. The lease covering the sales outlet in Georgetown, Washington D.C. expires in fiscal 1999, and contains no specific renewal terms. The lease for the Las Vegas, Nevada gallery expired March 31, 1997. Rental expense, consisting of minimum rentals and common area management charges, for the periods ended September 30, 1998 and 1997 was $61,981 and $88,830, 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 two to twenty years with various renewal options. Rental income for the periods ended September 30, 1998 and 1997 was $239,496 and $281,045, 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 $160,140 and $200,254 for the periods ended September 30, 1998 and 1997, respectively. Specific net assets identifiable with rental real estate totaled $775,231 and $788,055 at September 30, 1998 and 1997, respectively. Future minimum lease payments receivable from non-cancellable operating leases as of September 30, 1998, excluding amounts applicable to reimbursable expenses, are as follows: 1999 $ 189,680 2000 171,705 2001 152,720 2002 126,415 2003 107,295 Thereafter 939,323 --------- Total $1,687,138 =========
9. EARNINGS PER SHARE The computation of earnings per share is based on the weighted average number of shares of common stock outstanding, 3,173,468 and 3,328,669 for the years ended September 30, 1998 and 1997, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 - Earnings Per Share ("SFAS 128"). SFAS 128 is effective for periods ending after December 15, 1997 and replaces currently reported earnings per share with "basic," or undiluted, earnings per share and "diluted" earnings per share. Basic earnings per share is computed by dividing reported earnings by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the additional dilution for all potentially dilutive securities such as stock options. The Company adopted the provisions of SFAS 128 in its 1998 annual financial statements and all previously reported earnings per share amounts are restated. The following table discloses the Company's earnings per share for the years ended September 30, 1998 and 1997, as determined in accordance with SFAS 128.
1998 1997 ---- ---- Net income per share Basic $.02 $.16 Diluted $.02 $.16
10. REPURCHASE OF COMMON STOCK On October 18, 1996, the Company repurchased 2,659,720 shares of its common stock, representing the entire interest of the Company's largest shareholder for total consideration of $2,000,000, consisting of 460 documents valued at $1,803,045 and $196,955 in cash. The value of the inventory was negotiated by the parties based on an independent expert's appraisal. The book value of the inventory was $1,446,492, resulting in a gain on disposition of $356,553. In fiscal 1997, the Company purchased 17,000 shares of its common stock at an average price of $2.793. During fiscal 1998, the Company purchased 178,400 shares at an average price per share of $2.15. Subsequently, during October 1998, the Company purchased 280,142 shares of its common stock at an average price of $1.546. 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 Servered as Director Position(s) with Conntinuously Name Age the Company Since - --------------- --- ----------------------- ------------- Todd M. Axelrod 49 President and Chairman 1981 of the Board of Directors Rod R. Lynam 50 Treasurer/Assistant 1984 Secretary and Director Pamela Axelrod 43 Executive Vice President and 1995 Director Roger P. Croteau 36 Director 1997 Bernard Duke 71 Director 1998
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 R. Lynam has been Treasurer and Chief Financial Officer of the Company since September 1984. Pamela Axelrod has been a Vice-President since 1992 and served as the Manager of the Las Vegas Fashion Show gallery from June 1984 to April 1996. She has served as Executive Assistant to the President from April 1996. Roger P. Croteau is a practicing attorney and has been a partner in the law firm of Croteau & Shawhan, Ltd., Las Vegas, Nevada since November 1996. Prior to his current position, Mr. Croteau was Associate General Counsel for the State Industrial Insurance System from June 1995 to November 1996; Corporate Associate, Gordon & Silver, Ltd., Las Vegas, Nevada from July 1994 to June 1995; and Associate General Counsel for H. P. Hood, Inc. from May 1992 to July 1994. Bernard Duke was elected to the Company's Board of Directors in February 1998. From 1992 to 1997, Mr. Duke had been a Director, Vice President and Chief Executive Officer of TFH Publications, Inc., of Neptune City, New Jersey. From 1984 to 1996, Mr. Duke was a Director and member of the Executive Committee of Graphic Arts Mutual Insurance Company. 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, 1998, 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, 1998, 1997 and 1996, of those persons who were (i) the chief executive officer and (ii) the other most highly compensated executive officers of the Company, whose annual base salary and bonus compensation was in excess of $100,000.
SUMMARY COMPENSATION TABLE Name and Principal Fiscal Annual Compensation Position Year Salary Bonus - ------------------ ---- ------- ------ Todd M. Axelrod 1998 $137,469 $26,304 President and Chief 1997 132,500 25,000 Executive Officer 1996 133,500 25,000 Pamela R. Axelrod 1998 $137,469 $26,304 Executive Vice-President 1997 132,500 $25,000 1996 132,500 25,000(1)
(1) Accrued bonus paid during December 1996. During the three year period ended September 30, 1998 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, 1998, 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, 1999. 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, 1998, 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) 2,132,612 (3)(5) 76.6% Stock Common Rod R. Lynam(2) 105 (4) Stock Common Pamela Axelrod(2) 2,132,612 (5) 76.6% Stock Common Gerald Newman 431,500 (6) 14.3% Stock Seabreeze Lane Amagansette, NY 10093 Common All Executive Officers 2,132,717 76.7% Stock and Directors as a group (3 persons)
(1) Except as otherwise noted in (5) below, the individuals referred to above have sole voting and investment power in regard to their Common Stock, subject to applicable community property laws. (2) Address is the same as the Company's address. (3) Includes 1,029,511 shares of Common Stock owned of record and beneficially by Pamela Axelrod, Mr. Axelrod's wife, for which Mr. Axelrod has been appointed proxy (as discussed in Note (5) below). Excludes 102 shares of Common Stock owned of record and beneficially by Ruth Canvasser, Mr. Axelrod's mother; as to which Mr. Axelrod disclaims beneficial ownership. (4) Less than 1%. (5) Pamela Axelrod has appointed Todd Axelrod her proxy with full power of substitution, to vote all of her 1,029,511 shares and to give all consents on all matters that Mrs. Axelrod may be entitled to vote or consent to at any meeting of the stockholders of the Company or under any other circumstance where a vote or consent of stockholders is required. Includes 1,103,101 shares held by Todd Axelrod, as to which Pamela Axelrod disclaims beneficial ownership (see Note (3) above). (6) Includes 200,000 shares of Common Stock issuable upon exercise of options to purchase such shares at an exercise price of $2.47 per share, 10,000 shares of Common Stock issuable upon exercise of options to purchase such shares at an exercise price of $3.00 per share and 25,000 shares of Common Stock issuable upon exercise of options to purchase such shares at an exercise price of $4.50 per share. (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 ---------------------------------------------- In May 1994, the Company borrowed $110,000 from Pamela Axelrod, which was paid in full during fiscal 1997. The Company borrowed $1,000,000 in September 1998 from Nanna Corp., a company owned by Todd Axelrod and his wife Pamela Axelrod. The loan is payable of interest only at a rate of 8.75% with principal due September 2001. Interest expense on related party notes was $243 during fiscal year 1998. The proceeds for such loans have been utilized by the Company to reduce its outstanding line of credit. The Company purchased catalogs for its auction operation from Nanna Corp. During fiscal 1998, the Company has paid $157,000 for catalogs for its eight auctions; in fiscal 1997, the Company paid $146,500 for catalogs for its seven auctions. The Company believes that such purchase prices were substantially comparable to what it would have had to pay an unrelated supplier. As of the June 1998 auction, the Company began utilizing a different source for its catalog printing. Item 13. Exhibits and Reports on Form 8-K -------------------------------- (a)1 & 2. Financial Statements See Item 7 in Part II of this report. All other financial statement schedules are omitted because the information required to be set forth therein is not applicable or because that information is in the financial statements or notes thereto. (a)3. Exhibits 3.1 Articles of Incorporation and By-Laws.* 3.2 Amendment to Articles of Incorporation filed July 9, 1984.* 3.3 Amendment to Articles of Incorporation filed May 29, 1990.** 10.4 Lease between Georgetown Park Associates and the Company dated August 22, 1989.*** 10.5 Gallery of History, Inc. 1992 Stock Option Plan.**** 10.6 Agreement and Release dated October 11, 1996 between Ethelmae Stuart Haldan, as trustee of the Ethelmae S. Haldan Trust dated March 30, 1987, and Gallery of History, Inc.***** 21 List of Subsidiaries. 23 Consent of Independent Auditors. 27 Financial Data Schedule. * Incorporated by reference to the Registrant's Registration Statement on Form S-18, File No. 2-95737-LA. ** Incorporated by reference to the Registrant's Form 10-K for its fiscal year ended September 30, 1990, File No. 0-13757. *** Incorporated by reference to the Registrant's Form 10-KSB, fiscal year ended September 30, 1993, File No. 0-13757. **** Incorporated by reference to the Registrant's Form 10-KSB, fiscal year ended September 30, 1994, File No. 0-13757. ***** Incorporated by reference to the Registrant's Form 10-KSB, fiscal year ended September 30, 1996, File No. 0-13757. (b) Reports on Form 8-K. None. 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 9, 1998 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 9, 1998 - -------------------- Chairman of the Todd M. Axelrod Board of Directors (Principal Executive Officer) /s/ Rod Lynam Treasurer/Assistant December 9, 1998 - -------------------- Secretary and Director Rod Lynam (Principal Financial and Accounting Officer) /s/ Pamela Axelrod Executive Vice President December 9, 1998 - -------------------- and Director Pamela Axelrod /s/ Roger P. Croteau Director December 9, 1998 - -------------------- Roger P Croteau /s/ Bernard Duke Director December 9, 1998 - -------------------- Bernard Duke
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 October 23, 1998 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 7, 1998 EX-27 4 ARTICLE 5 FINANCIAL DATA SCHEDULE FOR YEAR 1998
5 This schedule contains summary financial information extracted from the Company's Consolidated Balance Sheet dated September 30, 1998 and its Consolidated Statement of Operations covering the period from October 1, 1997 to September 30, 1998 and is qualified in its entirety by reference to such financial statement and notes thereof. 12-MOS SEP-30-1998 SEP-30-1998 15069 0 293986 0 6557812 0 2413749 1328743 8779804 0 1410411 0 0 5918 6879294 8779804 2818097 2818097 1101661 1101661 1630347 0 132972 100881 25126 75755 0 0 0 75755 .02 .02 -----END PRIVACY-ENHANCED MESSAGE-----