** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D. C.20549**

** **

**Form 10-K**

 
| **(Mark One)** |                                                                                                                                                            |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ý**     | **Annual Report pursuant to section  13 or 15(d) of the Securities Exchange Act of 1934 [*Fee Required*] for  the fiscal year ended December 31, 2001**

  |

 

** **

**or**

 
| **o** | **Transition report pursuant to  section 13 or 15(d) of the Securities Exchange Act of 1934 [*No Fee  Required*] for the transition period  from                     to                      **

  |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

**Commission file number: 000-29781**

** **

**AMERICABILIA. COM, INC.**

(Exact name of the registrant as specified inits charter)

 

| **Florida**                                                                    |   | **65-0142472**                       |
|--------------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization)                 |   | (I.R.S. Employer Identification No.) |
|                                                                           |   |                                 |
| **150 Cassia Way, Suite 400, Henderson,  Nevada**                              |   | **89014**                            |
| (Address of principal executive offices)                                       |   | (Zip Code)                           |
|                                                                           |   |                                 |
| (Registrant’s  telephone number, including area code) **(702)  567-0070** |

 
| Securities registered pursuant to Section  12(b) of the Act: |   |                                          |
|--------------------------------------------------------------|--------|-----------------------------------------------|
| **Title of  each class**                                     |   | **Name of each exchange on which registered** |
| None                                                         |   | None                                          |

 
| Securities  registered pursuant to Section 12(g) of the Act: |
|--------------------------------------------------------------|
| Common Stock, no par value                                   |
| (Title of class)                                             |
|                                                         |
| (Title of class)                                             |

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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.

Yes  ý  No o

 

The aggregate market value ofthe voting stock held by non-affiliates of the registrant was $1,347,073 as ofMarch 11, 2002 based upon the last trading price for the registrant’s commonstock.

 

The number of shares of theregistrant’s common stock, no par value, outstanding as of March 11, 2002 was6,669,192.

** **

**Documents incorporated by reference.**  None.

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.ý

 

 

**PART I**

 

**Item 1.    Business**

 

GeneralDevelopment of Business.

** **

**america*bilia.*com,Inc.**, a Florida corporation (“americabilia”), isengaged in direct Internet merchandising of American-themed collectibles, giftsand memorabilia.  americabilia offersboth framed memorabilia which it manufactures and products which it acquiresfrom suppliers.  americabilia’s productsare marketed at retail on an Internet shopping site, www.americabilia.com.  americabilia strives to offer its retailcustomers a broad selection of products, a convenient shopping experience, anda competitive price.  americabilia alsoengages in wholesale sales of memorabilia manufactured by its wholly ownedsubsidiary, Worldwide Collectibles, Inc. dba Unique Images.  americabilia commenced with organizationaland operational activities on March 2, 1999 in Nevada as americabilia.comNevada.

 

The registrantwas originally organized under the laws of the state of Florida onAugust 22, 1989 under the name First Zurich Investments, Inc.  On November 15, 1996, the name of theentity was changed to Terra International Pharmaceuticals, Inc.  On September 7, 1999, the entity's namewas changed to americabilia.com, Inc. On September 17, 1999, the registrant conducted a recapitalizationthrough the merger of americabilia.com Nevada with and into WorldwideCollectibles, Inc., a Nevada corporation and a wholly owned subsidiary of theregistrant formed for the purpose of the merger. Pursuant to an Agreement ofMerger dated September 14, 1999, each of the former stockholders ofamericabilia.com Nevada received one (1) share of Common Stock, in exchange fortheir shares of americabilia.com Nevada. As a result of the acquisition, a total of 6,115,000 shares of commonstock were issued to the former shareholders of americabilia.com Nevada.  Prior to its acquisition of americabilia.comNevada, the registrant did not have any operations.

 

OnAugust 11, 1999, americabilia acquired the outstanding capital stock ofVeltre Enterprises, Inc. dba Unique Images. Unique Images designed and manufactured Hollywood and sports memorabiliafor memorabilia galleries.  UniqueImages also provided custom picture framing services.

 

In January2001, Unique Images was merged into Worldwide Collectibles.

 

americabiliahas obtained federal registration of the service mark “america*bilia*.”  All other trademarks or service marksappearing in this Annual Report on Form 10-K are trademarks or service marks ofthe respective companies that utilize them.

 

Ability tocontinue as a going concern

 

At December31, 2001, the Company had cash and cash equivalents of $23,605.  The Company had working capital deficit  $(298,806) and stockholders’ deficiency of$(220,856). Cash decreased by $123,815 during the fiscal year ended December31, 2001 as compared to December 31, 2000. The decrease was primarily a result of payments made to reduce accountspayable as well as increased expenses for sales commissions to a broker servinga new customer.

 

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The Company’scash flows since September 2001 have been adversely impacted by ongoingoperating losses, the loss of three significant marketing venues utilizingtelevision shopping channels, and the departures of several key marketingpersonnel.  The Company’s mostsignificant sales period since inception has been the fourth fiscal quarter ofeach year and in particular, the shopping period between Thanksgiving andChristmas.  The adverse impact ofgeneral economic conditions and recent world events on the demand for theproducts and services of the Company has been significant.  Weak sales in December of 2001 also had anadverse impact on cash flows.

 

Management ofthe Company responded to the slow down in sales with several cash conservingactions.  These steps included thetermination of non-essential personnel, reduced work hours for remainingemployees, renewed negotiations with several suppliers for reduced costs ongoods and services, focused customer satisfaction actions and increasedtargeted marketing efforts.  The Companyhas also made an effort to reduce inventory levels to generate cash for thepayment of accounts payables. Management believes that cash flow from operations will not besufficient to allow the Company to continue in business on the same basis in2002.

 

On November30, 2001, the Company’s Chairman of the Board and President each loaned theCompany $125,000 to enable the Company to pay its note payable to a bank in theamount of $250,000.  The loans from theCompany’s Chairman of the Board and President are secured by all of theCompany's assets.  Notes payable to theCompany’s Chairman of the Board and President now aggregate approximately$573,300 in principal amount and $76,000 in accrued interest and are due in2002.

 

EffectiveDecember 19, 2001, Keith Veltre resigned as President of the Company’soperating subsidiary, Worldwide Collectibles, and as a director of the Company.  Following Mr. Veltre’s resignation, many ofthe Company’s remaining employees also resigned.  The Company’s President, Gary Moore, has agreed to step in asinterim president of Worldwide, a position he held prior to Mr. Veltre joiningthe Company in August 1999.  Inaddition, several founding shareholders of the Company who previously providedsales and administrative services to the Company without charge have agreed todo so once again.

 

Beginning inthe fourth quarter of 2001, management has explored various strategiesincluding, but not limited to, potential divestitures, joint marketingventures, a merger, a re-capitalization or other actions.  Management is unsure that any such plans andactions can be effectively implemented.

 

Managementintends to continue to explore strategic alternatives for the Company and tocontinue Internet sales of the Company’s products, on a more limited basis, inorder to provide cash flow to service the Company’s obligations to creditors.

 

The principalexecutive office of americabilia, hereinafter referred to as the “Company”, islocated at 150 Cassia Way, Suite 400, Henderson, Nevada 89014, telephone (702)567-0070.

 

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FinancialInformation about Segments.

 

See Note 14 tothe Consolidated Financial Statements of the Company included elsewhere hereinfor information on the Company’s operations by business segment for the yearsended December 31, 2001, 2000 and for the period ended December 31, 1999.

 

NarrativeDescription of Business.

 

The Companyengages in the direct merchandising of American-themed collectibles, gifts, andmemorabilia, primarily through its internet shopping site and in wholesalesales of memorabilia manufactured by the Company’s wholly owned subsidiary,Worldwide Collectibles, Inc. dba Unique Images.  The Company also sells its products on the eBay Web site.

 

The Companywas formed to capitalize on the opportunity for online retailing ofcollectibles and memorabilia.  TheCompany believes that the collectibles and memorabilia industry is particularlysuited to online retailing.  An onlineseller has virtually unlimited online shelf space and can offer customers avast selection through an efficient search and retrieval interface.  This is particularly valuable in thecollectibles and memorabilia market because the extraordinary number ofdifferent items precludes even the largest physical store from economicallystocking more than a small minority of available products. Beyond the benefitsof selection, purchasing products online is more convenient than shopping in aphysical store because the products can be purchased 24 hours a day andshopping does not require a trip to a store. Products can be shipped directly to the customer’s home or office.  The Company believes that customers may buymore products because they have more hours to shop, can act immediately on apurchase impulse and can locate products that are hard to find.  Because the online store has a global reach,it can deliver an extremely broad selection to customers in rural,international or other locations that cannot support large-scale physicalstores.  The Company offers more than2,000 products.

 

Growth of the Internet and Online Commerce.

 

The Internetgives companies the opportunity to develop one-to-one relationships withcustomers worldwide from a central location without having the burdensome costsof managing and maintaining a significant retail store infrastructure or thecontinuous printing and mailing costs of catalog marketing.  Growth in Internet usage has been fueled by anumber of factors, including the large and growing installed base of personalcomputers in the workplace and home, advances in the performance and speed ofpersonal computers and modems, improvements in network infrastructure, easierand cheaper access to the Internet and increased awareness of the Internetamong businesses and consumers.  Theincreasing functionality, accessibility and overall usage of the Internet and onlineservices have made them an attractive commercial medium.  The Internet and other online services areevolving into a unique sales and marketing channel, just as retail stores,mail-order catalogs and television shopping have done.  Online retailers can interact directly withcustomers by frequently adjusting their featured selections, editorialinsights, shopping interfaces, pricing and visual presentations.  The minimal cost to publish on the Web, theability to reach and serve a large and global group of customers electronicallyfrom a central location, and the potential for personalized low-cost customerinteraction provide additional economic benefits for online retailers.  An increasingly broad base of products isbeing sold successfully online, including computers, travel services, brokerageservices, music and books.

 

Products Acquired from Others.

 

The Companyoffers a broad range of collectibles, gifts, and memorabilia, most of which arereplicas, and some of which are authentic restored merchandise, includingCoca-Cola bottle dispenser machines.

 

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Merchandiseoffered has a broad price range, from a low end of $15 to $20 for such items ascoffee mugs and die-cast cars to a high end of up to $6,500 for such items aslove seats made from the rear end of a 1957 Chevrolet Bel Air, to a full-sizefloor model Wurlitzer Jukebox, to rare and authenticated autographed photos andcollectibles.  The Company’s averageretail sale has approximated $54.

 

Most productswhich the Company acquires from others are supplied by authorized manufacturersof trademark registered companies, such as Coca-Cola, Star Wars, Star Trek,Pepsi, Chevrolet, Harley-Davidson, NASCAR, Disney, Warner Bros., and variousHollywood and entertainment personalities such as Elvis Presley, MarilynMonroe, James Dean, and John Wayne, as well as a number of famous sportsfigures.

 

Manufactured Products.

 

The Company’swholly owned subsidiary, Worldwide Collectibles, Inc. dba Unique Images,manufactures framed memorabilia products which are sold by the Company throughits Web site and which are sold to the Company’s wholesale customers whichinclude primarily bricks and mortar retailers of Hollywood, sports, music andentertainment industry memorabilia in the United States.

 

The raw materialsfor the framed memorabilia manufactured by Unique Images are obtained fromselected reliable sources such as Hollywood costume companies, movie studiosand prop manufacturers.  Autographedphotos and sports collectibles are obtained from private collections, estateauctions, and through in-person signings with the actor, entertainer, or sportsfigure.  Framing materials are obtainedthrough framing suppliers.  The Companyhas not experienced difficulty in obtaining raw materials.

 

Internet Shopping Site.

 

The Company’sWeb site uses Shopsite Web hosting software. The Company’s Web site is physically located on a server owned andmaintained by InterLand Incorporated in Atlanta, Georgia.

 

The Company’sWeb site features a “secure server” shopping cart for online ordering andtracking of product shipment.  “Secureserver” means that the Company’s server uses software which encrypts personalinformation including credit card number, name and address so that it cannot beread as it travels over the Internet.  Aprimary feature of the Web site is its interactive, searchable catalog of morethan 2,000 products.  The Companyprovides search tools to find products primarily based on categories such assports, television stars, movie stars, music artists, political and historical,game room and home theater, beverage collectibles, Coca-Cola collectibles, hotcollectibles, cartoons, science fiction, neon and electric art, transportationand metal signs.

 

Through theCompany’s Web site, customers are able to order products, conduct targetedsearches, browse from among highlighted product offerings, participate inpromotions and check order status. Clicking with the mouse on any of the products pulls up more informationabout the product, as well as a button which, if clicked, adds the product tothe customer’s order.  Customers can addand remove products from their shopping cart as they browse prior to making afinal purchase decision, just as in a physical store.  To execute orders, customers click on the buy button and areprompted to supply shipping and credit card details, either by e-mail,telephone, fax or website.  The Companyalso accepts “PayPal” on eBay.

 

Customers areoffered a variety of delivery services, including overnight and variousinternational shipping options.  TheCompany’s system automatically confirms each order by e-mail to the customerwithin minutes after the order is placed and advises customers by e-mailshortly after orders are shipped.

 

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The Companyships products from its Henderson, Nevada facilities primarily via the U.S.Postal Service and UPS.  In someinstances, the Company has made arrangements (with the Company bearing the riskof return) for larger products to be drop-shipped by the manufacturer orsupplier directly to the Company’s customer.

 

The Companysources product from a network of distributors.  The Company has implemented the necessary shipping and inventorycontrol capacity to enable it to provide a rapid response to customerrequests.  Most of the Company’sproducts are available for shipment within 24 hours for delivery within two tofour business days.  Items too large forconventional shipping may be shipped via freight.  If an item is backordered, the customer is notified immediatelyvia e-mail.

 

All productsare shipped with a customer satisfaction guarantee, which includes credit,refund or exchange of product which is damaged, defective, or unsatisfactory tothe customer in any way, provided the product is returned in “like-new”condition in its original packaging with the customer’s receipt within 30 days.

 

The Companyparticipates in The Council of Better Business Bureau’s BBBOnLine® PrivacyProgram and complies with its privacy standards.  This allows the Company to display the BBBOnLine® compliance sealon its Web site.  The BBBOnLine® PrivacyProgram provides verification, monitoring and review of Web sites and customerdispute resolution services.  Throughthe BBBOnLine® Privacy Program, customers can check the Company’s history andobtain contact information and assurance that the Company stands behind itsadvertising claims.

 

The Companyhas obtained a VeriSign digital certificate to register its right to use thedomain name “americabilia.com.”  Thiscertificate authenticates the Company for purposes of secure onlinetransactions.

 

Marketing and Promotion.

 

The Company’sWeb site has been registered with key search engine/online web sites, such asYahoo, Excite, Google and AOL Netfind.

 

The Companybelieves that its ability to establish and maintain long-term relationshipswith its customers and encourage repeat visits and purchases depends, in part,on the strength of its customer support and service operations and staff.  The Company offers e-mail addresses toenable customers to request information and to encourage feedback andsuggestions.  The Company’s customersupport and service personnel are responsible for handling general customerinquiries, answering customer questions about the ordering process, andinvestigating the status of orders, shipments and payments.

 

Market and Competition.

 

The market forcollectibles and memorabilia is large and relatively fragmented.  Although the market for collectibles andantiques is worldwide, the Company anticipates that the majority of customerswill be from the United States, as well as Japan, Western Europe and the UnitedKingdom.  The Company believes thatcollectible and memorabilia Web sites currently doing business on the Internetgenerally lack product selection and customer appeal.  The Company has attempted to select a product line which will notonly fill a niche in Internet marketing, but will also have a broad appeal forcollectors of all types of American-themed collectibles and memorabilia.

 

The online commercemarket, particularly over the Internet, is new, rapidly evolving and intenselycompetitive.  The Company expects thiscompetition to intensify in the future. Barriers to entry

 

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are minimal, and current andnew competitors can launch new sites at a relatively low cost.  The Company believes that the principalcompetitive factors in its market are brand recognition, selection,personalized services, convenience, price, accessibility, customer service,quality of search tools, reliability and speed of fulfillment.  Many of the Company’s current and potentialcompetitors have longer operating histories, larger customer bases, greaterbrand recognition and significantly greater financial, marketing and otherresources than the Company.  Inaddition, online retailers may be acquired by, receive investments from orenter into other commercial relationships with larger, well-established andwell-financed companies as use of the Internet and other online servicesincreases.

 

Certain of theCompany’s competitors may be able to secure merchandise from vendors on morefavorable terms, devote greater resources to marketing and promotionalcampaigns, adopt more aggressive pricing or inventory availability policies anddevote substantially more resources to Web site and systems development thanthe Company.  Increased competition overtime may result in reduced operating margins and loss of market share.  There can be no assurance that the Companywill be able to compete successfully against current and future competitors,and competitive pressures faced by the Company may have a material adverseeffect on the Company’s business, prospects, financial condition and results ofoperations.  The Company may from timeto time make certain pricing, service or marketing decisions or acquisitionsthat could have a material adverse effect on its business, prospects, financialcondition and results of operations.

 

Seasonality.

 

The Company’sbusiness is generally seasonal with higher than average sales normallyoccurring in the fourth calendar quarter as a result of holiday gift purchases.

 

Employees and Consultants.

 

The Companycurrently employs three (3) full time employees and one (1) part time employeeat its Henderson, Nevada facility to handle product production, administrationand shipping.  In addition, five (5) ofthe Company’s shareholders currently work for the Company without cashcompensation.  It is anticipated thatthese three members of the Company’s management will continue to conduct allaspects of the Company’s business without compensation until operationsgenerate cash flow sufficient to permit the payment of salaries.  The Company believes that its relations withits employees are good.

 

Tradename.

 

The Companyhas obtained federal service mark registration of its trade name,“americabilia.”

 

FinancialInformation about Geographic Areas.

 

Over 95% ofthe Company’s revenues from external customers for the years 2001 and 2000 andthe period from March 2, 1999 (Date of Inception) through December 31, 1999were attributable to customers in the United States.

 

All of the Company’s long-livedassets are located in the United States.

** **

**Item 2.  Descriptionof Property**

 

The Companyleases its principal executive offices, production facilities and warehousefacilities which consist of approximately 21,600 square feet ofoffice/production/warehouse space

 

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from a third party at a cost of$11,114 per month pursuant to a triple net lease that expires on October 31,2003 with an option to extend for an additional three (3) year term.

** **

**Item 3.  LegalProceedings**

 

A shareholderhas filed a complaint in the District Court of Clark County, Nevada against theCompany, the Company’s Chairman of the Board, the Company’s Treasurer, andothers claiming, among other things, that his investment of $60,000 in theCompany was induced by representations made to him by the Chairman concerningthe Chairman's “track record” and anticipated profits from the investment.  Entities owned by the Chairman hadpreviously brought an action to recover $1,335,000 plus interest from theshareholder, and others, based upon an unrelated transaction.  The complaint filed by the shareholderappears to be a retaliatory action.  TheCompany believes that the shareholder's complaint is without merit.

 

There are noother material pending legal proceedings to which the Company or the propertyof the Company is subject.  In addition,no other such proceedings are known to be contemplated against the Company.

** **

**Item 4.  Submissionof Matters to a Vote of Security Holders**

 

Notapplicable.

 

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**PART II**

** **

**Item 5.  Marketfor the Company’s Common Equity and Related Stockholder Matters**

 

The Company’sCommon Stock is traded on the OTC Bulletin Board under the symbol “ABIL.”  Set forth in the following table are thehigh and low bid quotations for the Company’s Common Stock for each of thequarters in the years 2000 and 2001. The Company considers its Common Stock to be thinly traded and that anyreported bid or sale prices may not be a true market-based valuation of theCommon Stock.  The quotations representinter-dealer quotations without retail markups, markdowns or commissions andmay not represent actual transactions.

 

| **Quarter  Ended** |   | **High Bid** |   | **Low Bid** |   |
|--------------------|--------|--------------|--------|-------------|--------|
| March 31, 2000     |   | $            | 13.75  |        | $      | 9.00 |   |
|               |   |         |   |        |   |
| June 30, 2000      |   | 12.50        |   | 5.00        |   |
|               |   |         |   |        |   |
| September 30, 2000 |   | 10.375       |   | 4.00        |   |
|               |   |         |   |        |   |
| December 31, 2000  |   | 5.185        |   | 1.375       |   |
|               |   |         |   |        |   |
| March 31, 2001     |   | 1.844        |   | 0.281       |   |
|               |   |         |   |        |   |
| June 30, 2001      |   | 0.594        |   | 0.20        |   |
|               |   |         |   |        |   |
| September 30, 2001 |   | 0.45         |   | 0.16        |   |
|               |   |         |   |        |   |
| December 31, 2001  |   | 0.41         |   | 0.06        |   |
|                    |        |              |        |             |        |  |  |

 

As of March25, 2002, there were approximately 524 record holders of the Company’s CommonStock.

 

The Companyhas not paid any cash dividends since its inception and does not contemplatepaying dividends in the foreseeable future. It is anticipated that earnings, if any, will be retained for theoperation of the Company’s business.

 

On October 30,2000, the Company sold a unit consisting of 16,500 shares of Common Stock andwarrants to purchase an additional 8,250 shares of Common Stock for$49,500.  The sale was exempt from theregistration requirements of the Securities Act of 1933, as amended, pursuantto Section 4(2) and Rule 506 of the Securities Act of 1933, as amended.

 

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**Item 6.    SelectedFinancial Data**

 

The selectedfinancial information set forth below has been derived from the Company'sconsolidated financial statements for the period from March 2, 1999 (date ofinception) through December 31, 1999 and for the fiscal years ended December31, 2000 and 2001, were audited by Deloitte & Touche LLP and should be readin conjunction with the consolidated financial statements and notes thereto,included elsewhere in this Annual Report on Form 10-K.

 
|                                |   | **Fiscal  year  ended  December 31,  2001** |      | **Fiscal  year  ended  December 31,  2000** |   | **Period  from  March 2,1999  (Date of  Inception)  through  December 31,  1999** |   |
|-------------------------------------|--------|---------------------------------------------|-----------|---------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|
| **Operations Data:**                |   |                                        |      |                                        |   |                                                                              |   |
| Revenues                            |   | $                                           | 1,873,324 |                                        | $      | 2,384,236                                                                         |   | $ | 662,231 |   |
| Net Loss                            |   | (953,870                                    | )         | (549,635                                    | )      | (349,551                                                                          | )      |
| Loss per share                      |   | (0.14                                       | )         | (0.08                                       | )      | (0.08                                                                             | )      |
| Weighted average shares outstanding |   | 6,669,192                                   |      | 6,656,815                                   |   | 4,172,576                                                                         |   |
|                                     |        |                                             |           |                                             |        |                                                                                   |        |  |  |  |

 
|                                |   | **December  31,  2001** |     | **December  31,  2000** |   | **December  31,  1999** |   |
|-------------------------------------|--------|-------------------------|----------|-------------------------|--------|-------------------------|--------|
| **Balance Sheet Data:**             |   |                    |     |                    |   |                    |   |
| Working capital(deficit)            |   | $                       | (298,806 | )                       | $      | 1,005,250               |   | $ | 792,861 |   |
| Total assets                        |   | 511,556                 |     | 1,851,728               |   | 1,473,908               |   |
| Long-term debt  (1)            |   | 0                       |     | 628,088                 |   | 46,600                  |   |
| Stockholders’ (deficit)/equity |   | (220,856                | )        | 731,217                 |   | 1,190,215               |   |
|                                     |        |                         |          |                         |        |                         |        |  |  |  |

 

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(1)   Asof December 31, 2001, all of the Company’s debt and related accrued interest ofapproximately $650,000 was due in less than 12 months.

** **

**Item 7.    Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

Overview.

 

Special factors affecting the comparability of current period and priorperiod operating results

 

The followingdiscussion should be read in conjunction with, and is qualified in its entiretyby our consolidated financial statements as of and for the fiscal year endedDecember 31, 2001 and 2000 and for the period from March 2, 1999 (Date ofInception) through December 31, 1999. The Company was formed on March 2, 1999.  The Company did not achieve substantial operations until afterJune 30, 1999.  Further, the Companyacquired Unique Images in the third quarter of 1999.  The period presented in the consolidated financial statementsfrom March 2, 1999 through December 31, 1999 is not a full year of operationsand was during the

 

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development stage of theCompany.  Such period may not becomparable to the fiscal years ended December 31, 2001 and 2000.  The period from March 2, 1999 throughDecember 31, 1999 is referred to herein as “fiscal 1999”, the period fromJanuary 1, 2000 through December 31, 2000 is referred to herein as “fiscal2000” and the period from January 1, 2001 through December 31, 2001 is referredto herein as “fiscal 2001”.

 

Fiscal 2001vs. Fiscal 2000 Results of Operations

 

Revenues and Cost of Products

 

Revenue forfiscal 2001 was $1,873,324, a decrease of $510,912, or 21.4% from prior year.Fiscal 2001 revenues included $436,586 in sales for the retail segment and$1,436,738 in sales for the wholesale segment. The decrease in revenues was dueto a significant decrease in demand for the Company’s products after events ofSeptember 11, 2001 and the recessionary trend of the United States economy.

** **

Expenses

 

Cost of saleswas $1,558,700 in fiscal 2001 versus $1,719,698 in fiscal 2000.  Product costs for the retail segment were$1,211,950 in fiscal 2001 versus $467,139 in fiscal 2000.  Products cost for wholesale segment were$346,751 for fiscal 2001 versus $1,252,559 in fiscal 2000.  Costs of sales include cost of the productplus associated freight costs to acquire and ship the product.  Costs of sales also include direct labor andrelated payroll benefits associated with the manufacturing (for wholesaleproducts), stocking, packaging, and shipment of products.  The retail segment had a gross margin (loss)in fiscal 2001 of ($775,364) or (178)% compared to a gross margin of $202,047or 30% in fiscal 2000.  The decrease inthe margin for retail segment was a result of the sale of slower movinginventory items for lower profits on the eBay Web site in fiscal 2000 in aneffort to improve customer visibility and higher commissions paid on certainitems sold during 2001.  The decrease inthe retail margin is also the result of a valuation allowance recognized of$74,000.  The allowance was recorded atDecember 31, 2001 due to management’s estimate of the lower fair value ofinventory. The wholesale segment, had gross margin for fiscal 2001 of$1,089,987 or 76% compared to $462,522 or 27% in fiscal 2000. The increase inthe margin for the wholesale segment was a result of a shift in product mixesin fiscal 2000 toward higher margin products offset by an allowance recorded atDecember 31, 2001 due to management’s estimate of the lower fair value ofinventory.

 

General andadministrative expenses (including marketing) were $931,145 in fiscal 2001compared to $1,067,712 in fiscal 2000. Marketing expenses decreased by $25,462or 22.4% to $88,090 in fiscal 2001 compared to $113,552 in fiscal 2000.  Professional and legal expenses decreased by$97,297 or 38% to $161,522 in fiscal 2001 compared to $258,819 in fiscal2000.  Facility expenses includingutilities decreased by $27,467 or 15% to $150,474 in fiscal 2001 compared to$177,941 in fiscal 2000.  Salaries andbenefits of office personnel (including the costs of contributed salaries)decreased by $107,015 or 26%, to $303,361 in fiscal 2001 compared to $410,376in fiscal 2000.  Three (3) shareholdersof the Company who began providing services to the Company in December of 2001are currently not receiving salaries. Contributed salary expense of $10,000 and $50,000 has been recognized inthe form of contributed capital for fiscal 2001 and fiscal 2000, respectively.

 

In addition,the Company had a loss on the impairment of goodwill of $176,287 and a loss onthe impairment of fixed assets of $11,717 in fiscal 2001 and a loss on disposalof assets of $24,125 in fiscal 2000. The loss on the impairment of goodwill and fixed assets was the resultof revised cash flow projections in September 2001 and December 2001,respectively, after sales results dramatically dropped and cash flow models nolonger supported the valuation of the goodwill.  The loss on disposal of assets in fiscal 2000 was attributed tothe Company’s termination of its operating lease of the Unique Images facility.

 

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In connectionwith the world events in the third quarter of 2001, the Company re-evaluatedthe recoverability of its intangible assets, in accordance with Statement ofFinancial Accounting Standards No. 121, “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposed Of,” (“SFAS No.121”) and Accounting Principles Board Opinion No. 17, “Intangible Assets,”(“APB No. 17”) and determined that the carrying value of its goodwill wasimpaired.  The goodwill was assessed forrecoverability in accordance with APB No. 17 and based on projected discountedcash flows, an impairment of $176,287 was identified and recorded at September30, 2001.  See Note 1 of theConsolidated Financial Statements for a description of the primary facts andcircumstances related to the impairment.

 

Amortizationexpense associated with goodwill for fiscal 2001 and 2000 were $45,331 and$34,000, respectively.

 

Other Income (Expense)

 

Interestexpense increased to $83,042 in fiscal 2001 from $49,936 in fiscal 2000 as aresult of additional borrowings. Included in interest expense is interest expense for loans from officersand directors of $62,000 for fiscal 2001 compared to $28,209 in fiscal 2000, anincrease of $33,791 as a result of additional borrowings from officers anddirectors.  Interest income decreased to$8,783 from $12,602 in fiscal 2000 due to lower invested balances.

 

Net Income (Loss)

 

The Net Losswas $953,870 or $.14 per share in fiscal 2001 compared to $549,635 or $.08 pershare in fiscal 2000.  The change is theresult of reasons described above.

 

Fiscal 2000vs. Fiscal 1999 Results of Operations

** **

Revenues and Cost of Products

 

Revenue forfiscal 2000 was $2,384,236, an increase of $1,722,005, or 260% from prior year.Fiscal 2000 revenues included $669,186 in external sales by WorldwideCollectibles, Inc. and $1,715,050 in external sales by Unique Images.  External sales refer to sales to thirdparties, excluding intercompany sales between Unique Images and WorldwideCollectibles, Inc. The increase in revenues was due to a full year ofoperations in fiscal 2000 compared to a partial year in fiscal 1999, and in thecase of Unique Images, due to the addition of several new clients whichincrease its total sales volume.

** **

Expenses

 

Cost of saleswas $1,719,698 in fiscal 2000 versus $415,330 in fiscal 1999.  Product costs for Worldwide Collectibles,Inc. were $467,139 in fiscal 2000 versus $142,552 in fiscal 1999.  Product cost for Unique Images was$1,252,559 for fiscal 2000 versus $272,778 in fiscal 1999.  Costs of sales include cost of the productplus associated freight costs to acquire and ship the product.  Costs of sales also include direct labor andrelated payroll benefits associated with the manufacturing (for wholesaleproducts), stocking, packaging, and shipment of products.  Worldwide Collectibles, Inc., the retailsegment, had a gross margin in fiscal 2000 of $202,047 or 30% compared to agross margin of $151,457 or 52% in fiscal 1999.  The decrease in the margin for Worldwide Collectibles, Inc. was aresult of the sale of slower moving inventory items for lower profits on theeBay Web site in fiscal 2000 in an effort to improve customer visibility.  Unique Images, the wholesale segment, hadgross margin for fiscal 2000 of $462,522 or 27% compared to

 

12

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$95,444 or 26%. The increase inthe margin for Unique Images was a result of a shift in product mix in fiscal2000 toward higher margin products.

 

General andadministrative expenses (including marketing) were $1,067,712 in fiscal 2000compared to $557,310 in fiscal 1999. Marketing expenses decreased by $12,457 or10% to $113,552 in fiscal 2000 compared to $126,009 in fiscal 1999.  Professional and legal expenses increased by$101,856 or 65% to $258,819 in fiscal 2000 compared to $156,963 in fiscal1999.  Facility expenses including utilitiesincreased by $117,596 or 195% to $177,941 in fiscal 2000 compared to $60,345 infiscal 1999.  Salaries and benefits ofoffice personnel (including the costs of contributed salaries) increased by$272,776 or 198%, to $410,376 in fiscal 2000 compared to $137,600 in fiscal1999.  Three (3) shareholders of theCompany who provide services to the Company are currently not receivingsalaries.  However, contributed salaryexpense has been recognized in the form of contributed capital.  In addition, the Company had a loss ondisposal of assets of $24,125 in fiscal 2000. The loss was attributed to the Company’s termination of its operatinglease of the Unique Images facility. All other expenses increased by $86,005 or 113% to $162,398 in fiscal2000 compared to $76,393 in fiscal 1999. The changes in these expenses arelargely attributable to the Company’s full year of operations as compared to apartial year in fiscal 1999, and the increased maturation of the Company’soperations.

** **

Other Income (Expense)

 

Interestexpense increased to $49,936 from $13,648 in fiscal 1999 as a result of additionalborrowings of Worldwide Collectibles, Inc. and of Unique Images.  Included in interest expense is interestexpense for loans from officers and directors of $28,209 for fiscal 2000compared to $3,779 in fiscal 1999, an increase of $24,430 as a result ofadditional borrowings from officers and directors.  Interest income increased to $12,602 from $10,091 in fiscal1999.  Other income increased to $9,529from $2,314 in fiscal 1999. The changes in interest income and other income areattributable to the Company’s full year of operations as compared to a partialyear in fiscal 1999.

** **

Net Income (Loss)

 

The Net Losswas $549,635 or $.08 per share in fiscal 2000 compared to $349,551 or $.08 pershare in fiscal 1999.  The change is theresult of reasons described above.

 

Liquidity AndCapital Resources.

*** ***

***Going ConcernMatters*** - As discussed above, during the yearsended December 31, 2001 and 2000, the Company incurred net losses of$953,870 and $549,635, respectively, and, as of December 31, 2001, theCompany’s current liabilities exceeded its current assets by $298,806 and itstotal liabilities exceeded its total assets by $220,856.  At December 31, 2001, the Company hadcash and cash equivalents of $23,605.

 

BeginningSeptember 11, 2001, the United States was subject to various terroristattacks.  The severity and length of theimpact of these attacks on the economy, which had already shown signs ofweakness, have directly affected the ability of the Company to achieve saleslevels sufficient to cover operating costs. The Company’s cash flows since September 2001 have been adverselyimpacted by operating losses incurred during the fourth quarter of 2001, a lossof three significant marketing venues utilizing television shopping channels,and the departures of several key marketing personnel.

 

The Company’smost significant sales period since inception has been the fourth quarter ofeach year and in particular, the shopping period between Thanksgiving andChristmas.  The

 

13

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adverse impact of generaleconomic conditions and recent world events on the demand for the products andservices of the Company have been significant. Sales in the fourth quarter of 2001 were $201,000 compared to $835,000in the fourth quarter of 2000. Management believes that cash flow from operations will not besufficient to allow the Company to continue in business on the same basis in2002.

 

These factorsamong others may indicate that the Company will be unable to continue as a goingconcern for a reasonable period of time. The Company’s continuation as a goingconcern is dependent upon its ability to generate sufficient cash flow to meetits obligations on a timely basis, to comply with the terms and covenants ofits financing agreements, to obtain additional financing or refinancing as maybe required, and ultimately to attain successful operations.  Management is continuing its efforts toobtain additional funds so that the Company can meet its obligations andsustain operations from sources that are described in Note 1 to the financialstatements.

 

Theaccompanying consolidated financial statements have been prepared on a goingconcern basis, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business.  The financial statements do not include anyadjustments relating to the recoverability and classification of recorded assetamounts or the amounts and classification of liabilities that might benecessary should the Company be unable to continue as a going concern.

 

As describedin Note 7, the Company was unable to make scheduled debt payments on its bankline of credit in November of 2001.  OnNovember 30, 2001, the Company’s Chairman of the Board and President eachloaned the Company $125,000 to enable the Company to pay its note payable to abank in the amount of $250,000.  Theloans from the Company’s Chairman of the Board and President are secured by allof the Company's assets.  Notes payableto the Company’s Chairman of the Board and President now aggregateapproximately $573,000 in principal and $76,000 in accrued interest and are duein 2002.

 

Cash decreasedat the end of fiscal 2001 as compared to the end of fiscal 2000 by $123,815primarily due to $74,591 used in operating activities.  The decrease was primarily a result ofpayments made to reduce accounts payable as well as increased expenses forsales commissions to a broker serving a new customer.

 

Since October2001, management and the Board of Directors have explored various strategiesincluding, but not limited to, potential divestitures, joint marketingventures, a merger, a re-capitalization or other actions.  Management and the Board are unsure that anysuch plans and actions can be effectively implemented.  Management and the Board intend to continueto explore strategic alternatives for the Company and to continue Internetsales of the Company’s products, on a more limited basis, in order to providecash flow to service the Company’s obligations to creditors. No assessment canbe made of the likelihood that such plans and actions can be effectivelyimplemented.  Ultimately, ourcontinuation as a going concern will depend upon our ability to successfullymarket our products at a price sufficient to generate margin that will coverthe related operating overhead and non-discretionary overhead.

 

During thefirst quarter of 2002, the Chairman and President have been pursuing severaloptions for the Company in an effort to (1) dispose of the retail operations ofthe Company and sell or merge the publicly traded entity into another company,(2) monazite the inventory in manner that will maximize the

 

14

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cash flows of the Company inthe shortest period of time, or (3) facilitate the secured lenders’ assumptionof the Company’s assets and liabilities in satisfaction of the notes payableand cease operations.  The outcome ofthese actions is unknown at March 25, 2002.

 

Managementbelieves that the Company may have insufficient cash flow to replace theinventory it is selling and expects that cash flow from operations may not besufficient to allow the Company to continue in business in 2002.  The Company has not been successful inraising sufficient capital to expand or sustain its operations.  There can be no assurance that the Company’sestimate of foreseeable liquidity needs is accurate.

 

Loans FromRelated Parties.

 

During fiscal1999, the Company accepted notes totaling $200,000 from six employeeshareholders in connection with the issuance of shares of the Company withprincipal and interest due July 31, 2004. As of December 31, 2001 and 2000, and as a result of transactionsdescribed below, the balance remaining on the shareholder notes was $121,478and $113,275 including accrued interest. This amount was owed by three compensated employee shareholders.

 

Interestincome from notes receivable from stockholders was $8,203, $8,863 and $3,412 infiscal 2001, 2000 and 1999, respectively.

 

From August1999 through November 2000, the Company leased certain office space, aproduction facility, and equipment from a related party. In November 2000, theCompany terminated its office space and production facility leases with therelated party and entered into a new office and production facility lease withan outside party. The office and production facility leases with the relatedparty had been classified as operating leases. The rent expense incurred inconnection with these leases during fiscal 2001, 2000 and 1999 wasapproximately $0, $101,750, and $32,000 respectively. The Company leasedcertain production equipment from a related party. This lease expired in August2001. The office and production facility lease with an outside party expires inNovember 2003.

 

During fiscal1999, the Company’s Chairman of the Board and the Company’s president eachloaned the Company $50,000,  which bearsinterest at the rate of nine percent (9%) per annum and is due and payable inJune 2002, as amended.  The Chairmanalso contributed approximately $34,000 of inventory in exchange for a note infiscal 1999.  During fiscal 1999, theCompany’s Chairman exchanged $67,778 of his notes payable, including accruedinterest, for the same amount of the note receivable from stockholders arisingfrom the issuance of stock in June 1999, leaving a net note payable in theamount of $16,021, due on March 1, 2001. During fiscal 1999, the Company’s President exchanged $33,889 of hisnote payable, including accrued interest, for the same amount of notesreceivable arising from the issuance of stock in June 1999, leaving a net notepayable in the amount of $17,116, due in June 2002, as amended.

 

During fiscal2000, the Company’s Chairman of the Board and the Company’s President loanedthe Company $150,000 and $100,000, respectively.  Each of these loans bears interest at the rate of eight percent(8%) per annum and is due and payable in June 2002, as amended.

 

During fiscal2000, the Company’s Chairman of the Board advanced $405,514 to the Company forpurchases of inventory by the wholesale segment of the Company.  The advances bear interest at the rate often percent (10%) per annum and are secured by the inventory and must be repaidwith proceeds from the sale of the inventory purchased with the advances.  The Company repaid $33,865 and $31,468 ofthe advances in fiscal 2001 and 2000, respectively.  In the fourth quarter of 2001, the Company returned $299,810 ofthe inventory at cost and reduced the loan by this amount and left a remainingbalance of $40,371 that is currently due and payable.

 

On November30, 2001, the Company’s Chairman of the Board and President each loaned theCompany $125,000 to enable the Company to pay its note payable to a bank in theamount of $250,000.  The loans from theCompany’s Chairman of the Board and President bear interest at ten percent(10%), are secured by all of the Company's assets, and are due and payableDecember 31, 2002.  Notes payable to theCompany’s Chairman of the Board and President now aggregate approximately$573,300 in principal amount and $76,000 in accrued interest and are due in2002.

 

Interestexpense incurred in connection with loans from stockholders was $62,000,$28,568 and $3,779 in fiscal 2001, 2000 and 1999, respectively.

 

15

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CRITICAL ACCOUNTING POLICIES

 

The preparation of theCompany’s financial statements requires that the Company’s management adoptaccounting policies and make estimates and assumptions that affect the reportedamounts of assets, liabilities, revenue and expenses.  Management periodically evaluates its policies, estimates andassumptions related to, among others: asset impairment, revenue recognition andcredit losses and inventory obsolescence. The Company’s management bases its estimates on historical experienceand expectations of the future.  Futureactual results will likely differ from these estimates.

 

The Company has determined thatthe following accounting policies and related estimates are critical to thepreparation of the Company’s consolidated financial statements:

 

RevenueRecognition and Credit Losses

 

The Company generally recordsits revenue on retail and wholesale sales when products are shipped and thecollectibility of revenue is likely. Management evaluates the collectibility based upon periodic creditevaluations of wholesale customers.  TheCompany maintains a provision for estimated credit losses based on historicalexperience and specific customer collection issues.  Any unforeseen change in customer liquidity or financial conditioncould adversely affect the collectibility of that account and the Company’soperating results.  Allowances areadjusted when circumstances or facts cause management to believe that thelikelihood of collection is unfavorable.

 

InventoryObsolescence

 

The Company values itsinventory at the lower of cost or market and estimates a reserve forobsolescence.  Significant adversechanges in demand for the Company’s products could affect the valuation ofinventory and could result in actual obsolescence charges that differ fromestimates.  Additionally, such changesin product demand could require changes to the Company’s production scheduleand thereby reduce the amount of manufacturing labor and overhead absorbed intoproduct cost, adversely affecting operating results.

 

RecentlyAdopted Accounting Standards

 

The Companyadopted Statement of Financial Accounting Standards (“SFAS”) No. 133,“Accounting for Derivatives” effective January 1, 2001.  The adoption had no effect on the financialstatements or results of operations as the Company had no such derivatives.

 

RecentlyIssued Accounting Standards

 

In July 2001,the FASB issued SFAS No. 141, “Business Combinations.”  SFAS 141 requires the purchase method ofaccounting for business combinations initiated after June 30, 2001 andeliminates the pooling-of-interests method. The Company does not believe that the adoption of SFAS 141 will have asignificant impact on its financial statements.

 

In July 2001,the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which iseffective January 1, 2002.  SFAS142 requires, among other things, the discontinuance of goodwillamortization.  In addition, the standardincludes provisions for the reclassification of certain existing recognizedintangibles as goodwill, reassessment of the useful lives of existingrecognized intangibles, reclassification of certain intangibles out ofpreviously reported goodwill and the identification of reporting units forpurposes of assessing potential future impairments of goodwill.  SFAS 142 also

 

16

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requires the Company tocomplete a transitional goodwill impairment test six months from the date ofadoption.  The Company wrote off itsremaining goodwill balance in 2001 due to impairment.  The adoption of SFAS 142 is not expected to further impact theCompany’s financial position and results of operations.

 

The FASBissued SFAS No. 143, “Accounting for Asset Retirement Obligations,” in June of2001.  This Statement addresses financialaccounting and reporting for obligations associated with the retirement oftangible long-lived assets and the associated asset retirement costs.  This Statement applies to all entities.  It applies to legal obligations associatedwith the retirement of long-lived assets that result from the acquisition,construction, development and (or) the normal operation of a long-lived asset,except for certain obligations of lessees. This Statement is effective for financial statements issued for fiscalyears beginning after June 15, 2002. The Company does not believe that the adoption of SFAS No. 143 will havea material impact on its financial position and results of operations.

 

The FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets,” in August of 2001.  ThisStatement address financial accounting and reporting for the impairment ordisposal of long-lived assets and supersedes FASB Statement No. 121, Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assets to BeDisposed Of, and the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of Operations-Reporting the Effects of Disposal of aSegment of a Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions, for the disposal of a segment of a business (aspreviously defined in that opinion). This Statement also amends ARB No. 51, Consolidated FinancialStatements, to eliminate the exception to consolidation for a subsidiary forwhich control is likely to be temporary. The provisions of this Statement are effective for financial statementsissued for fiscal years beginning after December 15, 2001, and interim periodswithin those fiscal years.  The Companyis currently assessing, but has not yet determined the impact of SFAS No. 144on its financial position and results of operations.

 

ForwardLooking Statements.

 

The PrivateSecurities Litigation Reform Act provides a "safe harbor" for certainforward-looking statements. Certain matters discussed in this filing could becharacterized as forward-looking statements such as statements relating toplans for future expansion, as well as other capital spending, financingsources and effects of regulation and competition.  Such forward-looking statements involve important risks anduncertainties that could cause actual results to differ materially from thoseexpressed in such forward-looking statements.

 

**Item 7A.   Quantitativeand Qualitative Disclosure About Market Risk**

 

The Companyinvests its cash and cash equivalents in FDIC insured savings accounts which,by their nature, are not subject to interest rate fluctuation.

 

As of December31, 2001, the Company had $573,303 in borrowings.  The borrowings are related party loans from officers anddirectors which, by their nature, are not subject to interest ratefluctuations.

 

17

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**Item 8.    FinancialStatements and Supplementary Data**

 
| Independent Auditors’ Report                                                                                                                                                                      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                   |
| Consolidated Balance Sheets as of December 31, 2001 and 2000                                                                                                                                           |
|                                                                                                                                                                                                   |
| Consolidated Statements of Operations for  the years ended December 31, 2001 Deficiency and 2000 and for the period from  March 2, 1999 (Date of Inception) through December 31, 1999                  |
|                                                                                                                                                                                                   |
| Consolidated Statements of Stockholders’  Equity (Deficiency) for the years ended December 31, 2001 and 2000 and for  the period from March 2, 1999 (Date of Inception) through December 31, 1999 |
|                                                                                                                                                                                                   |
| Consolidated Statements of Cash Flows for  the years ended December 31, 2001 and 2000 and for the period from March 2,  1999 (Date of Inception) through December 31, 1999                             |
|                                                                                                                                                                                                   |
| Notes to Consolidated Financial Statements                                                                                                                                                             |

 

18

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**INDEPENDENTAUDITORS’ REPORT**

 

To the Board of Directors andStockholders of

americabilia.com, Inc.

Henderson, Nevada

 

We have audited theaccompanying consolidated balance sheets of americabilia.com, Inc. andSubsidiaries (the “Company”) as of December 31, 2001 and 2000, and the relatedconsolidated statements of operations, stockholders’ equity (deficiency), andcash flows for the years then ended and for the period from March 2, 1999 (dateof inception) through December 31, 1999. These consolidated financial statements are the responsibility of theCompany’s management.  Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

 

We conducted our audits inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of the Company at December 31, 2001 and 2000, and theresults of its operations and its cash flows for the two years then ended andfor the period from March 2, 1999 (date of inception) through December 31, 1999in conformity with accounting principles generally accepted in the UnitedStates of America.

 

The accompanying 2001consolidated financial statements have been prepared assuming that the Companywill continue as a going concern.  Asdescribed in Note 1 to the consolidated financial statements, the Company’s recurringlosses from operations, negative working capital, and stockholders’ deficiencyraise substantial doubt about its ability to continue as a going concern.  Management’s plans concerning these mattersare also described in Note 1.  Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

March 25, 2002

 

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**americabilia.com, Inc. and Subsidiaries**

** **

**CONSOLIDATEDBALANCE SHEETS**

**DECEMBER 31, 2001 AND 2000**

** **
| **ASSETS**                                                        |   | **2001**   |       | **2000**  | ** ** |
|-------------------------------------------------------------------|--------|------------|------------|-----------|------------|
| CURRENT ASSETS:                                                   |   |       |       |      |       |
| Cash and cash equivalents                                         |   | $          | 23,605     |      | $          | 147,420 |   |
| Accounts receivable, net                                          |   | 137,773    |       | 430,984   |       |
| Inventories                                                       |   | 251,202    |       | 913,468   |       |
| Prepaid expenses and deposits                                     |   | 21,026     |       | 5,801     |       |
|                                                              |   |       |       |      |       |
| Total current assets                                              |   | 433,606    |       | 1,497,673 |       |
|                                                              |   |       |       |      |       |
| PROPERTY AND EQUIPMENT, Net                                       |   | 77,950     |       | 120,992   |       |
|                                                              |   |       |       |      |       |
| GOODWILL, Net                                                     |   |       |       | 221,619   |       |
|                                                              |   |       |       |      |       |
| OTHER ASSETS                                                      |   |       |       | 11,444    |       |
|                                                              |   |       |       |      |       |
| TOTAL                                                             |   | $          | 511,556    |      | $          | 1,851,728 |   |
|                                                              |   |       |       |      |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)**        |   |       | ** ** |      | ** ** |
| CURRENT LIABILITIES:                                              |   |       |       |      |       |
| Accounts payable and accrued liabilities                          |   | $          | 82,695     |      | $          | 181,829 |   |
| Notes payable to bank                                             |   |       |       | 250,000   |       |
| Accrued interest-related party                                    |   | 76,414     |       | 19,245    |       |
| Current portion of loans from stockholders                        |   | 573,303    |       | 32,933    |       |
| Current portion of lease obligations                              |   |       |       | 8,416     |       |
|                                                              |   |       |       |      |       |
| Total current liabilities                                         |   | 732,412    |       | 492,423   |       |
|                                                              |   |       |       |      |       |
| LOANS FROM STOCKHOLDERS, Less current portion                     |   |       |       | 624,250   |       |
|                                                              |   |       |       |      |       |
| LEASE OBLIGATIONS, Less current portion                           |   |       |       | 3,838     |       |
|                                                              |   |       |       |      |       |
| Total liabilities                                                 |   | 732,412    |       | 1,120,511 |       |
|                                                              |   |       |       |      |       |
| COMMITMENTS AND CONTINGENCIES (Note 11)                           |   |       |       |      |       |
|                                                              |   |       |       |      |       |
| STOCKHOLDERS’ EQUITY (DEFICIENCY):                           |   |       |       |      |       |
| Common stock, $0.001 par value; authorized, 50,000,000 shares;    |   |       |       |      |       |
| 6,669,192 shares issued and outstanding                           |   | 6,670      |       | 6,670     |       |
| Additional paid-in capital                                        |   | 1,747,008  |       | 1,737,008 |       |
| Notes receivable and accrued interest from stockholders for stock |   | (121,478   | )          | (113,275  | )          |
| Accumulated deficit                                               |   | (1,853,056 | )          | (899,186  | )          |
|                                                              |   |       |       |      |       |
| Total stockholders’ (deficiency) equity                      |   | (220,856   | )          | 731,217   |       |
|                                                              |   |       |       |      |       |
| TOTAL                                                             |   | $          | 511,556    |      | $          | 1,851,728 |   |

 

See accompanying notes to consolidatedfinancial statements.

 

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**americabilia.com,Inc. and Subsidiaries**

 

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**YEARS ENDEDDECEMBER 31, 2001 AND 2000 AND THE PERIOD FROM**

**MARCH 2,1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999**

 
|                                       |   | **Year Ended****December 31,** |      | **Period from  March 2,  1999 to  December 31,** |   |      |
|--------------------------------------------|--------|--------------------------------|-----------|--------------------------------------------------|--------|-----------|
| **2001**                                   |   | **2000**                       |      | **1999**                                         |   |
| REVENUES:                                  |   |                           |      |                                             |   |      |   |
| Retail/wholesale                           |   | $                              | 1,873,324 |                                             | $      | 2,384,236 |   | $ | 662,231 |   |
| Cost of sales                              |   | 1,558,700                      |      | 1,719,698                                        |   | 415,330   |   |
|                                       |   |                           |      |                                             |   |      |   |
| Gross profit                               |   | 314,624                        |      | 664,538                                          |   | 246,901   |   |
|                                       |   |                           |      |                                             |   |      |   |
| OPERATING EXPENSES:                        |   |                           |      |                                             |   |      |   |
| General and administrative expenses        |   | 843,055                        |      | 954,160                                          |   | 431,301   |   |
| Marketing expenses                         |   | 88,090                         |      | 113,552                                          |   | 126,009   |   |
| Depreciation and amortization              |   | 79,556                         |      | 94,531                                           |   | 34,368    |   |
| Asset impairment, goodwill                 |   | 176,287                        |      |                                             |   |      |   |
| Asset impairment, fixed assets             |   | 11,717                         |      |                                             |   |      |   |
| Loss on disposal of assets                 |   |                           |      | 24,125                                           |   |      |   |
| Organization costs                         |   |                           |      |                                             |   | 34,532    |   |
|                                       |   |                           |      |                                             |   |      |   |
| Total operating expenses                   |   | 1,198,705                      |      | 1,186,368                                        |   | 626,210   |   |
|                                       |   |                           |      |                                             |   |      |   |
| LOSS FROM OPERATIONS                       |   | (884,081                       | )         | (521,830                                         | )      | (379,309  | ) |
|                                       |   |                           |      |                                             |   |      |   |
| OTHER (EXPENSE) INCOME:                    |   |                           |      |                                             |   |      |   |
| Interest income                            |   | 8,783                          |      | 12,602                                           |   | 10,091    |   |
| Interest expense                           |   | (83,042                        | )         | (49,936                                          | )      | (13,648   | ) |
| Other                                      |   | 4,470                          |      | 9,529                                            |   | 2,314     |   |
|                                       |   |                           |      |                                             |   |      |   |
| Total other expense                        |   | (69,789                        | )         | (27,805                                          | )      | (1,243    | ) |
|                                       |   |                           |      |                                             |   |      |   |
| LOSS BEFORE INCOME TAXES                   |   | (953,870                       | )         | (549,635                                         | )      | (380,552  | ) |
|                                       |   |                           |      |                                             |   |      |   |
| BENEFIT FOR INCOME TAXES -                 |   |                           |      |                                             |   |      |   |
| Deferred tax benefit                       |   |                           |      |                                             |   | 31,001    |   |
|                                       |   |                           |      |                                             |   |      |   |
| NET LOSS                                   |   | $                              | (953,870  | )                                                | $      | (549,635  | ) | $ | (349,551 | ) |
|                                       |   |                           |      |                                             |   |      |   |
| EARNINGS PER SHARE:                        |   |                           |      |                                             |   |      |   |
| Basic and diluted -                        |   |                           |      |                                             |   |      |   |
| Net loss                                   |   | $                              | (953,870  | )                                                | $      | (549,635  | ) | $ | (349,551 | ) |
|                                       |   |                           |      |                                             |   |      |   |
| Weighted-average common shares outstanding |   | 6,669,192                      |      | 6,656,815                                        |   | 4,172,576 |   |
|                                       |   |                           |      |                                             |   |      |   |
| Loss per share                             |   | $                              | (0.14     | )                                                | $      | (0.08     | ) | $ | (0.08 | ) |
|                                            |        |                                |           |                                                  |        |           |  |  |  |  |  |  |  |

 

See accompanying notes to consolidatedfinancial statements.

 

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**americabilia.com,Inc. and Subsidiaries**

** **

**CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ (DEFICIENCY) EQUITY**

**YEARS ENDEDDECEMBER 31, 2001 AND 2000 AND THE PERIOD FROM**

**MARCH 2, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999**

** **
|                                                           |   | **Common Stock** |   | **Additional  Paid-in  Capital** |   | **Notes  Receivable  from  Stockholders** |   | **Accumulated********Deficit** |   | **Total** |     |
|----------------------------------------------------------------|--------|------------------|--------|----------------------------------|--------|-------------------------------------------|--------|--------------------------------|--------|-----------|----------|
|                                                           |   | **Shares**       |   | **Amount**                       |   |                                      |   |                           |   |
| BALANCE, MARCH 2, 1999                                         |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| (Date of inception)                                            |   | —           |   | $                                | — |                                      | $      | —                         |   | $         | —   |   | $ | — |   | $ | — |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Proceeds from issuance to original investors                   |   | 5,000,000        |   | 5,000                            |   | 495,000                                   |   | (200,000                       | )      |      |     | 300,000 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Proceeds from private placement                                |   | 1,000,000        |   | 1,000                            |   | 989,178                                   |   |                           |   |      |     | 990,178 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Stock issued in connection with acquisition                    |   | 100,000          |   | 100                              |   | 99,900                                    |   |                           |   |      |     | 100,000 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Stock options exercised                                        |   | 15,000           |   | 15                               |   | 14,985                                    |   |                           |   |      |     | 15,000 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Effect of a reverse merger accounted for as a recapitalization |   | 537,692          |   | 538                              |   | (538                                      | )      |                           |   |      |     |   |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Interest income from notes receivable from stockholders        |   |             |   |                             |   |                                      |   | (3,412                         | )      |      |     | (3,412 | ) |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Contributed services of officers and employees                 |   |             |   |                             |   | 39,000                                    |   |                           |   |      |     | 39,000 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Loans payable to officers exchanged for stockholder loans      |   |             |   |                             |   |                                      |   | 99,000                         |   |      |     | 99,000 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Net loss                                                       |   |             |   |                             |   |                                      |   |                           |   | (349,551  | )        | (349,551 | ) |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| BALANCE, DECEMBER 31, 1999                                     |   | 6,652,692        |   | 6,653                            |   | 1,637,525                                 |   | (104,412                       | )      | (349,551  | )        | 1,190,215 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Proceeds from private placement                                |   | 16,500           |   | 17                               |   | 49,483                                    |   |                           |   |      |     | 49,500 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Interest income from notes receivable from stockholders        |   |             |   |                             |   |                                      |   | (8,863                         | )      |      |     | (8,863 | ) |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Contributed services of officers and employees                 |   |             |   |                             |   | 50,000                                    |   |                           |   |      |     | 50,000 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Net loss                                                       |   |             |   |                             |   |                                      |   |                           |   | (549,635  | )        | (549,635 | ) |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| BALANCE, DECEMBER 31, 2000                                     |   | 6,669,192        |   | 6,670                            |   | 1,737,008                                 |   | (113,275                       | )      | (899,186  | )        | 731,217 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Interest income from notes receivable from stockholders        |   |             |   |                             |   |                                      |   | (8,203                         | )      |      |     | (8,203 | ) |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Contributed services of officers                               |   |             |   |                             |   | 10,000                                    |   |                           |   |      |     | 10,000 |   |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| Net loss                                                       |   |             |   |                             |   |                                      |   |                           |   | (953,870  | )        | (953,870 | ) |
|                                                           |   |             |   |                             |   |                                      |   |                           |   |      |     |   |   |
| BALANCE, DECEMBER 31, 2001                                     |   | 6,669,192        |   | $                                | 6,670  |                                      | $      | 1,747,008                      |   | $         | (121,478 | ) | $ | (1,853,056 | ) | $ | (220,856 | ) |

 

See accompanying notes toconsolidated financial statements.

 

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**americabilia.com, Inc. and Subsidiaries**

 

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**YEARS ENDED DECEMBER 31, 2001 AND 2000 AND THE PERIODFROM**

**MARCH 2, 1999 (DATE OF INCEPTION) TO DECEMBER 31, 1999**

 
|                                                                                                                                                                  |   | **Year Ended   December 31,** |     | **Period from   March 2,   1999 to   December 31,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|----------|-----------------------------------------------------|--------|
|                                                                                                                                                                  |   | **2001**                      |     | **2000**                                            |   | **1999** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                                                                 |   |                          |     |                                                |   |   |   |
| Net loss                                                                                                                                                              |   | $                             | (953,870 | )                                                   | $      | (549,635 | ) | $ | (349,551 | ) |
| Adjustments to reconcile net loss to net cash   used in operating activities:                                                                                         |   |                          |     |                                                |   |   |   |
| Depreciation and amortization                                                                                                                                         |   | 79,556                        |     | 94,531                                              |   | 34,368 |   |
| Loss on disposal of assets                                                                                                                                            |   |                          |     | 24,125                                              |   |   |   |
| Provision for bad debts                                                                                                                                               |   | (6,429                        | )        | 729                                                 |   | (150 | ) |
| Contributed services of officers and employees                                                                                                                        |   | 10,000                        |     | 50,000                                              |   | 39,000 |   |
| Interest on notes receivable from shareholders                                                                                                                        |   | (8,203                        | )        | (8,863                                              | )      | (3,412 | ) |
| Deferred income taxes                                                                                                                                                 |   |                          |     |                                                |   | (7,600 | ) |
| Valuation allowance, inventory                                                                                                                                        |   | 78,517                        |     |                                                |   |   |   |
| Asset impairment, goodwill                                                                                                                                            |   | 176,287                       |     |                                                |   |   |   |
| Asset impairment, fixed assets                                                                                                                                        |   | 11,717                        |     |                                                |   |   |   |
| Changes in operating assets and liabilities, net of effects from   acquisition of businesses:                                                                         |   |                          |     |                                                |   |   |   |
| Decrease (increase) in trade accounts receivable                                                                                                                      |   | 299,640                       |     | (195,130                                            | )      | (10,511 | ) |
| Decrease (increase) in inventories                                                                                                                                    |   | 283,940                       |     | (467,020                                            | )      | (410,768 | ) |
| Decrease (increase) in prepaid assets and deposits                                                                                                                    |   | (15,225                       | )        | 17,995                                              |   | (8,447 | ) |
| Decrease (increase) in other assets                                                                                                                                   |   | 11,444                        |     | (12,813                                             | )      | 24,875 |   |
| (Decrease) increase in trade accounts payable and accrued expenses                                                                                                    |   | (99,134                       | )        | (39,991                                             | )      | 152,244 |   |
| Increase (decrease) in accrued interest-related party                                                                                                                 |   | 57,169                        |     | 16,643                                              |   |   |   |
| Decrease in other liabilities                                                                                                                                         |   |                          |     | (3,549                                              | )      | (20,100 | ) |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| Net cash used in operating activities                                                                                                                                 |   | (74,591                       | )        | (1,072,978                                          | )      | (560,052 | ) |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| CASH FLOWS USED IN INVESTING ACTIVITIES:                                                                                                                              |   |                          |     |                                                |   |   |   |
| Purchase of property and equipment                                                                                                                                    |   | (2,900                        | )        | (24,807                                             | )      | (103,998 | ) |
| Acquisition of business, net of cash acquired                                                                                                                         |   |                          |     |                                                |   | (394,434 | ) |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| Net cash used in investing activities                                                                                                                                 |   | (2,900                        | )        | (24,807                                             | )      | (498,432 | ) |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:                                                                                                                          |   |                          |     |                                                |   |   |   |
| (Payment) proceeds on notes payable to bank                                                                                                                           |   | (250,000                      | )        | 250,000                                             |   |   |   |
| Repayment of loan and lease obligations                                                                                                                               |   | (12,254                       | )        | (8,960                                              | )      | (26,979 | ) |
| Payment on shareholders loans                                                                                                                                         |   | (34,070                       | )        |                                                |   |   |   |
| Proceeds from loans from stockholders                                                                                                                                 |   | 250,000                       |     | 654,143                                             |   | 100,000 |   |
| Change in note receivables from stockholders, net                                                                                                                     |   |                          |     | (22,605                                             | )      |   |   |
| Common stock issued                                                                                                                                                   |   |                          |     | 49,500                                              |   | 1,308,590 |   |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| Net cash (used in) provided by financing activities                                                                                                                   |   | (46,324                       | )        | 922,078                                             |   | 1,381,611 |   |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                                                                                      |   | (123,815                      | )        | (175,707                                            | )      | 323,127 |   |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                                                                        |   | 147,420                       |     | 323,127                                             |   | — |   |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                                                              |   | $                             | 23,605   |                                                | $      | 147,420 |   | $ | 323,127 |   |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -  Cash paid during the year for:                                                                                   |   |                          |     |                                                |   |   |   |
| Interest                                                                                                                                                              |   | $                             | 20,669   |                                                | $      | 34,735 |   | $ | 12,842 |   |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| Taxes                                                                                                                                                                 |   |                          |     | $                                                   | 3,700  |   |   |   |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| EXCHANGE  OF INVENTORY AS SETTLEMENT OF SECURED SHAREHOLDER NOTE PAYABLE                                                                                              |   | $                             | 299,810  |                                                |   |   |   |   |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| SUPPLEMENTAL  DISCLOSURES OF NONCASH ACTIVITIES:                                                                                                                      |   |                          |     |                                                |   |   |   |
| Stock issued for notes receivable                                                                                                                                     |   |                          |     |                                                |   | $ | 104,412 |   |
| Inventory acquired through loan to stockholder                                                                                                                        |   |                          |     |                                                |   | 34,506 |   |
| The Company purchased all of the capital stock of  Unique Images, Inc. for $500,000.  In  conjunction with the acquisition, liabilities were assumed as follows: |   |                          |     |                                                |   |   |   |
| Fair value of assets acquired through purchase of  Unique Images, Inc.                                                                                                |   |                          |     |                                                |   | $ | 586,128 |   |
| Cash paid for capital stock                                                                                                                                           |   |                          |     |                                                |   | (400,000 | ) |
|                                                                                                                                                                  |   |                          |     |                                                |   |   |   |
| Liabilities assumed through purchase of Unique  Images, Inc.                                                                                                          |   |                          |     |                                                |   | $ | 186,128 |   |

 

See accompanying notes to consolidated financial statements.

 

23

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**americabilia.com,inc. and Subsidiaries**

** **

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.             NATURE OF BUSINESS AND SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

*** ***

***Going ConcernMatters*** - The accompanying consolidated financialstatements have been prepared on a going concern basis, which contemplates therealization of assets and the satisfaction of liabilities in the normal courseof business.  As shown in theaccompanying consolidated financial statements, during the years endedDecember 31, 2001 and 2000, the Company incurred net losses of $953,870and $549,635, respectively, and, as of December 31, 2001, the Company’scurrent liabilities exceeded its current assets by $298,806 and its totalliabilities exceeded its total assets by $220,856.  At December 31, 2001, the Company had cash and cashequivalents of $23,605.  The Company’scash flows since September 2001 have been adversely impacted by operatinglosses incurred during the fourth quarter of 2001, a loss of three significantmarketing venues utilizing television shopping channels, and the departures ofseveral key marketing personnel. Effective December 19, 2001, the President of the Company’soperating subsidiary, Worldwide Collectibles, who was also a director of theCompany, resigned.  Following thePresident’s resignation, many of the Company’s remaining employees alsoresigned.  The Company’s President,agreed to assume the responsibilities of the vacated position on an interimbasis.  The Company’s President hadpreviously served in the position through August 1999.  In addition, several founding shareholdersof the Company who previously provided sales and administrative services to theCompany without charge have agreed to do so once again.

 

The Company’smost significant sales period since inception has been the fourth quarter ofeach year and in particular, the shopping period between Thanksgiving andChristmas.  The adverse impact ofgeneral economic conditions and recent world events on the demand for theproducts and services of the Company have been significant.  Sales in the fourth quarter of 2001 were$201,000 compared to $835,000 in the fourth quarter of 2000.  Management believes that cash flows fromoperations will not be sufficient to allow the Company to continue in businesson the same basis in 2002.  Thesefactors among others may indicate that the Company will be unable to continueas a going concern for a reasonable period of time.

 

SinceSeptember of 2001, management and the Board of Directors have been pursuingseveral options for the Company in an effort to (1) raise additional capital,(2) spin off the retail operations of the Company and sell or merge thepublicly traded shell into another viable company, (3) monatize the inventoryin manner that will maximize the cash flows of the Company in the shortestperiod of time, or (4) assume the assets and liabilities in exchange for theNotes Payable and cease operations.  Theoutcome of these actions is unknown.

 

Since October2001, management has explored various strategies including, but not limited to,potential divestitures, joint marketing ventures, a merger, a re-capitalizationor other actions.  Management is unsurethat any such plans and actions can be effectively implemented.  Management intends to continue to explorestrategic alternatives for the Company and to continue Internet sales of theCompany’s products, on a more limited basis, in order to provide cash flow toservice the Company’s obligations to creditors.

 

24

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The financialstatements do not include any adjustments relating to the recoverability andclassification of recorded asset amounts or the amounts and classification ofliabilities that might be necessary should the Company be unable to continue asa going concern.  As described in Note7, the Company was unable to make scheduled debt payments on its bank line ofcredit in November of 2001.  OnNovember 30, 2001, the Company’s Chairman of the Board and President eachloaned the Company $125,000 to enable the Company to pay its notes payable to abank in the amount of $250,000.  Theloans from the Company’s Chairman of the Board and President are secured by allof the Company's assets.  Notes payableto the Company’s Chairman of the Board and President now aggregateapproximately $573,300 in principal and $76,000 in accrued interest and are duein 2002.  The Company’s continuation asa going concern is dependent upon its ability to generate sufficient cash flowto meet its obligations on a timely basis, to comply with the terms andcovenants of its financing agreements, to obtain additional financing orrefinancing as may be required, and ultimately to attain successfuloperations.  Management is continuingits efforts to obtain additional funds so that the Company can meet itsobligations and sustain operations from sources that are described in Note 13to the consolidated financial statements.

*** ***

***Description ofBusiness***- americabilia.com, Inc., a Floridacorporation (the “Company”), is engaged in direct Internet merchandisingand wholesale distribution of American-themed collectibles, gifts, andmemorabilia.  The Company manufacturesand assembles its own products and also purchases products from a number ofsources.  The Company’s products aremarketed on an Internet shopping site, *www.americabilia.com.*  The Company strives to offer its customers abroad selection of products, a convenient shopping experience, and competitivepricing.  The Company commenced withorganizational and operational activities on March 2, 1999 in Nevada asamericabilia.com Nevada.

 

OnAugust 11, 1999, the Company acquired the outstanding capital stock ofVeltre Enterprises, Inc. dba Unique Images, Inc. (“Unique Images”).  Unique Images designs and manufacturesHollywood and sports memorabilia for fine art and memorabilia galleries.  Unique Images also provides high-volume andcustom picture framing services.  UniqueImages uses computerized joiner and mat cutting equipment.  The purchase price paid for Unique Imagesconsisted of (i) $200,000 in cash, (ii) a Promissory Note in the originalprincipal amount of $200,000, and (iii) 100,000 shares of the Rule 506common stock of americabilia.com Nevada. The stock was issued at its fair value on issue date of $1.00 per shareor $100,000 in total.  The PromissoryNote was paid in full in November 1999.

 

The Companywas organized under the laws of the State of Florida on August 22, 1989 underthe name First Zurich Investments, Inc. On November 15, 1996, the Company changed its name to TerraInternational Pharmaceuticals, Inc.  OnSeptember 7, 1999, the Company conducted a recapitalization through the mergerof americabilia.com Nevada with and into Worldwide Collectibles, Inc., a Nevadacorporation and a wholly owned subsidiary of the Company formed for the purposeof the merger.  Pursuant to an Agreementof Merger, dated September 14, 1999, each of the former stockholders ofamericabilia.com Nevada received one (1) share of the Company’s common stock,$.001 par value per share, in exchange for their shares of americabilia.comNevada.  As a result of the acquisition,a total of 6,115,000 shares of Rule 506 common stock were issued to the formerstockholders of americabilia.com Nevada. Prior to its acquisition of americabilia.com Nevada, the Company did nothave any operations.  For accountingpurposes, the acquisition has been treated as a recapitalization ofamericabilia.com, with americabilia.com as the acquirer (reverse merger).  As a result of this transaction, the Companybecame a publicly traded company.

 

Therecapitalization was accounted for by adjusting common stock by $537 for the537,692 shares of common stock held by the stockholders at the time that theentity was known as Terra International Pharmaceuticals, Inc. (“Terra”) and bydecreasing paid-in capital by an amount equal 

 

25

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to the parvalue of the 537,692 shares because the net assets of Terra totaled $0.  Prior to the reverse merger, Terra had nooperations.  The companies involved inthe recapitalization included Terra, Terra’s wholly owned subsidiary, WorldwideCollectibles, and americabilia.com Nevada (the predecessor of WorldwideCollectibles).

 

In January2001, the Company merged Unique Images into Worldwide Collectibles.  There was no accounting impact from thismerger.

 

During theyears ended December 31, 2001 and 2000, certain stockholders provided servicesfor the Company.  The accompanyingfinancial statements for the years ended December 31, 2001 and 2000include contributions to capital representing estimates of compensation costsfor services rendered to the Company by the executive officers of the Companyupon commencement of sales.  Thesecontributions, which amounted to $10,000, $50,000 and $39,000 for the yearsended December 31, 2001 and 2000, and for the period from March 2,1999 through December 31, 1999, respectively, were based on management’sestimate of time expended on the Company’s behalf by the executiveofficers.  Such contributions have beenaccounted for with charges to operations and with credits net of tax effects inlike amounts to paid-in capital.

 

The Companyhas not yet determined the amount or timing of the payment of salaries tocertain of its executive personnel and will do so at the discretion of itsofficers and directors.  The Companywill continue to estimate and record compensation costs for services renderedby executive officers as circumstances warrant.

*** ***

***Basis ofPresentation***-******The accompanying consolidated financial statements havebeen prepared in accordance with accounting principles generally accepted inthe United States of America and include the accounts of the Company and itssubsidiaries.  All material intercompanytransactions and accounts have been eliminated in consolidation.  Results of operations of the acquisition ofUnique Images, as described in Note 3, accounted for using the purchase method,are included from its date of acquisition. The period from March 2, 1999 through December 31, 1999 is hereinreferred to as “fiscal 1999” while the period from January 1, 2000 throughDecember 31, 2000 is referred to herein as “fiscal 2000.”  The period from January 1, 2001 throughDecember 31, 2001 is referred to as “fiscal 2001”.  The financial statements do not include anyadjustments that might result from the outcome of the Company’s ability tocontinue as a going concern.

*** ***

***Cash and CashEquivalents***- Cash and cash equivalents aredefined as highly liquid investments with original maturities of three monthsor less and, at December 31, 2001 and 2000, consist of amounts held as bankdeposits.

*** ***

***Accounts Receivable***-The Company’s accounts receivable principally result from credit sales to third–partywholesale customers.  Allowances fordoubtful accounts are made when management believes that accounts areuncollectible. Allowances were $12,464 and $6,764 at December 31, 2001 and2000, respectively.

*** ***

***Inventories***-Inventories, consisting primarily of framed celebrity-autographed memorabiliapictures and collectibles, are valued at the lower of cost or market(replacement or net realizable value). Cost is determined using the first-in, first-out (FIFO) method for bothraw materials and finished goods.  TheCompany offers both framed memorabilia which it manufactures and products whichit acquires from suppliers. Allowances were $78,517 and $0 at December 31, 2001and 2000, respectively.

 

 

26

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***Property andEquipment***- Property and equipment are stated atcost.  Equipment under capital leases isstated at the present value of future minimum lease payments.  Depreciation and amortization are providedfor in amounts sufficient to allocate the cost of depreciable or amortizableassets to operations over their estimated service lives or the lease term,using the straight-line method.  Theestimated service lives are generally as follows:

 
| Machinery and equipment         |   | 5-10  years |
|---------------------------------|--------|-------------|
| Vehicles                        |   | 5-7  years  |
| Office furniture and  equipment |   | 3-7  years  |
| Leasehold improvements          |   | 5-10  years |

 

***Goodwill***-******The excess of costover the fair value of net assets of purchased companies (goodwill) was beingamortized by the straight-line method over five years.  As of December 31, 2000, unamortizedgoodwill was $221,619, net of accumulated amortization of $80,589,respectively.

 

In connectionwith the decline in revenues following the events of September 11, 2001and the general decline in the economy, the Company re-evaluated therecoverability of the goodwill associated with the purchase of Unique Images,Inc. in accordance with Statement of Financial Accounting StandardsNo. 121, Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed Of and determined that the carrying value ofthe goodwill was impaired and, accordingly, wrote the goodwill down to its netrealizable value of $0 at September 31, 2001.

*** ***

***Retail and WholesaleRevenues***- Retail revenues are recognized when productis shipped.  Payment is received priorto shipment of product.  Revenues areshown net of returns.  The Companyestimates the amounts of returns and refunds each month.  Due to the shipping methods used by theCompany, customers typically receive their product within one week after orderplacement.

 

Estimatedreturns and refunds are recognized in the same period as sales.  The Company recorded returns of $0, $24,000and $1,600 in fiscal 2001, 2000 and 1999, respectively, which approximatedactual returns.  The Company’s refundand return policy is generally a “no questions asked” policy for 30 days afterthe sale provided that the product is returned in “like new” condition in itsoriginal packaging box with the customer’s receipt.

 

The Companyhas arrangements with a number of its suppliers to send certain larger productsdirectly to customers.  The Companyrecognizes revenue from the sale of these products when the products areshipped.  Payment is received prior toshipment of the products.  The title tothese goods and the risks of ownership transfer to the Company upon shipment bythe supplier.  These products aremanufactured by third parties, sold by the supplier to the Company, and shippedby the supplier upon the Company’s request as a result of sales orders placedby customers.

 

Wholesalerevenues are recognized when goods are shipped.  The Company records prepayments for goods as deferred revenueuntil the goods are shipped.  Suchprepayments are generally the result of deposits on larger wholesaleorders.  At December 31, 2001 and 2000,there was no deferred revenue.

*** ***

***Cost of Sales***- Cost of sales includes cost of the product plus associated freight costs toacquire and ship the product.  Cost ofsales also includes direct labor and related payroll benefits associated withthe manufacturing (for wholesale products), stocking, packaging, and shippingof products.  Agent or commission feesfor the sales of products are included in cost of sales.  The Company paid commission fees of $148,223and $18,485 for the years ended December 31, 2001 and 2000, respectively. Noagent or commission fees were paid for the period ended December 31, 1999.

 

27

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***Advertising andPromotional Costs***- All advertising andpromotional costs associated with advertising and promoting the Company’s linesof business are expensed in the period incurred.

*** ***

***Impairment ofLong-Lived Assets***-******In the event that facts and circumstancesindicate that the carrying value of long-lived assets, including associatedintangibles, may be impaired, an evaluation of recoverability is performed bycomparing the estimated future undiscounted cash flows associated with theasset to the asset’s carrying amount to determine if a write-down to market valueor discounted cash flow is required.  Asa result of analysis conducted by the Company, goodwill was written down by$176,287 and fixed assets were written down by $11,717 in fiscal 2001.  As of December 31, 2000, no furtheradjustments or write-downs were required.

*** ***

***Fair Value ofFinancial Instruments***- The carrying values ofcash and cash equivalents, accounts receivable, accounts payable, and accruedliabilities approximated their fair values because of the short maturity ofthese instruments.  The fair value ofthe Company’s notes payable and long-term debt is estimated based on quotedmarket prices for the same or similar issues or on current rates offered to theCompany for debt of the same remaining maturities.  At December 31, 2001 and 2000, the aggregate fair value of theCompany’s notes payable and long-term debt approximated their carrying value.

*** ***

***Income Taxes***-The Company accounts for income taxes in accordance with Statement of FinancialAccounting Standard (“SFAS”) No. 109, “Accounting for Income Taxes.”  Under the asset and liability method withSFAS No. 109, deferred income taxes are required for the expected taxconsequences of temporary differences by applying enacted statutory ratesapplicable to future years to the difference between the financial statementcarrying amounts and the tax bases of existing assets and liabilities.  Under SFAS No. 109, the effect ondeferred taxes of a change in tax rates is recognized in income in the period thatincludes the enactment date.

*** ***

***Net Income per Share***- Basic earnings per share (“EPS”) are computed bydividing the net income available to common stockholders by the weightedaverage of common shares outstanding during the period.  Dilutive earnings per share are notpresented for the fiscal years presented. When applicable, the Company’s diluted EPS will include the dilutiveeffect of potential stock options and certain warrant exercises, calculatedusing the treasury stock method.  AtDecember 31, 2001, 2000 and 1999, the Company had potentially dilutive optionsoutstanding of 0, 162,500 and 5,000 shares, respectively.

*** ***

***Stock-BasedCompensation***-******SFAS No. 123 provides companies with a choice to followthe provisions of SFAS No. 123 in determination of stock-based compensationexpense or to continue with the provisions of the Accounting Principles BoardOpinion (“APB”) No. 25, “Accounting for Stock Issued to Employees.”  The Company continues to follow APB No. 25and will provide pro forma disclosure as required by SFAS No. 123 in the notesto the consolidated financial statements.

*** ***

***Recently AdoptedAccounting Standards*** - The FASB issued SFAS No.133, "Accounting for Derivatives," which is effective for fiscalyears beginning after June 15, 2000. This statement defines derivatives and requires qualitative disclosureof certain financial and descriptive information about a company'sderivatives.  The Company adopted SEASNo. 133 in the quarter ended March 31, 2001.  The adoption of this SEAS 133 had no impact on the Company or theCompany's consolidated financial statements.

*** ***

***Recently IssuedAccounting Standards*** - In July 2001, the FASBissued SFAS No. 141, “Business Combinations.” SFAS 141 requires the purchase method of accounting for businesscombinations initiated after June 30, 2001 and eliminates the pooling–of–interestsmethod.  The Company does not believethat the adoption of SFAS 141 will have a significant impact on its financialstatements.

 

28

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In July 2001,the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which iseffective January 1, 2002.  SFAS142 requires, among other things, the discontinuance of goodwillamortization.  In addition, the standardincludes provisions for the reclassification of certain existing recognizedintangibles as goodwill, reassessment of the useful lives of existingrecognized intangibles, reclassification of certain intangibles out ofpreviously reported goodwill and the identification of reporting units forpurposes of assessing potential future impairments of goodwill.  SFAS 142 also requires the Company tocomplete a transitional goodwill impairment test six months from the date ofadoption.  The Company wrote off itsremaining goodwill balance in 2001 due to impairment.  The adoption of SFAS 142 is not expected to further impact theCompany’s financial position and results of operations.

 

The FASBissued SFAS No. 143, “Accounting for Asset Retirement Obligations,” in June of2001.  This Statement addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long–lived assets and the associated assetretirement costs.  This Statementapplies to all entities.  It applies tolegal obligations associated with the retirement of long–lived assetsthat result from the acquisition, construction, development and (or) the normaloperation of a long–lived asset, except for certain obligations oflessees.  This Statement is effectivefor financial statements issued for fiscal years beginning after June 15,2002.  The Company does not believe thatthe adoption of SFAS No. 143 will have a material impact on its financialposition and results of operations.

 

The FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long–LivedAssets,” in August of 2001.  ThisStatement address financial accounting and reporting for the impairment ordisposal of long-lived assets and supersedes FASB Statement No. 121,“Accounting for the Impairment of Long–Lived Assets and for Long-LivedAssets to Be Disposed Of,” and the accounting and reporting provisions of APBOpinion No. 30, “Reporting the Results of Operations-Reporting the Effects ofDisposal of a Segment of a Business, and Extraordinary, Unusual andInfrequently Occurring Events and Transactions,” for the disposal of a segmentof a business (as previously defined in that opinion).  This Statement also amends ARB No. 51,“Consolidated Financial Statements,” to eliminate the exception toconsolidation for a subsidiary for which control is likely to betemporary.  The provisions of thisStatement are effective for financial statements issued for fiscal yearsbeginning after December 15, 2001, and interim periods within those fiscalyears.  The Company is currentlyassessing, but has not yet determined the impact of SFAS No. 144 on itsfinancial position and results of operations.

*** ***

***Use of Estimates***-The preparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the amounts reportedin the consolidated financial statements and related notes to the consolidatedfinancial statements.  Estimates areused when accounting for uncollectible accounts receivable, inventory marketvalue and obsolescence, depreciation, taxes, contingencies, and salesreturns.  Actual results could differfrom those estimated by management, and changes in such estimates may affectamounts reported in future periods.

 

**2.             CONCENTRATION OF CREDIT RISK**

 

Financialinstruments that potentially subject the Company to concentrations of creditrisk are cash and cash equivalents and accounts receivable arising from itsnormal business activities.

 

29

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Regardingretail accounts receivable, the Company believes that credit risk is limiteddue to the large number of entities comprising the Company’s customerbase.  Regarding wholesale accountsreceivable, the Company performs certain credit evaluation procedures and doesnot require collateral.  The Companybelieves that credit risk is limited because the Company routinely assesses thefinancial strength of its customers and, based upon factors surrounding thecredit risk of customers, establishes an allowance for uncollectible accountsand, as a consequence, believes that its accounts receivable credit riskexposure beyond such allowances is limited.

 

Changes in theallowance for doubtful accounts for fiscal 2001 and fiscal 2000 consist of thefollowing:

 
|                 |   | **2001** |         | **2000** |   |
|----------------------|--------|----------|--------------|----------|--------|
| Beginning balance    |   | $        |  6,035  |     | $      |  6,764 |   |
| Change in allowances |   | 6,429    |         | (729     | )      |
|                 |   |     |         |     |   |
| Ending balance       |   | $        |  12,464 |     | $      |  6,035 |   |

 

**3.             BUSINESS COMBINATIONS**

 

On August 11,1999, the Company acquired the outstanding capital stock of Veltre Enterprises,Inc. dba Unique Images.  The purchaseprice paid for Unique Images consisted of (i) $200,000 in cash and $200,000 bydelivery of a Promissory Note and (ii) 100,000 shares of common stock of theCompany.  The Promissory Note was paidin full in November 1999.  As part ofthe purchase, the Company entered into leases with Mr. Keith Veltre and hisaffiliates for the premises being used in Unique Images’ business operationsand certain business equipment.  Thetransaction was recorded as a purchase. The resulting goodwill of $302,208 was being amortized over fiveyears.  However, during 2001, theCompany determined that goodwill was impaired and charged off the unamortizedbalance of $176,287.

 

On September21, 1999, the Company merged with Terra. The stockholders of the Company exchanged 100 percent of theirstock for approximately 91 percent of the stock of Terra.  The transaction was accounted for as arecapitalization of the Company.  Terrahad no assets or liabilities.  At thedate of the merger, the financial position of Terra reflected $397,000 ofaccumulated deficit and an equal amount of additional paid-in capital andcommon stock.  Its net equity was equalto $0.  Terra had no operations prior tothe reverse merger on September 21, 1999.

 

The followingunaudited pro forma information has been prepared assuming Unique Images hadbeen acquired as of the beginning of the period presented and as if UniqueImages were the predecessor company. The pro forma information is presented for information purposes only andis not necessarily indicative of what would have occurred if the acquisitionhad been made as of those dates.  Inaddition, the pro forma information is not intended to be a projection offutures results and does not reflect synergies expected to result from the integrationof Unique Images and the Company’s operations. Terra had no operations for the period, and, accordingly, no separatedisclosure is presented.

 

Pro formainformation (unaudited), for the period from January 1, 1999 through December31, 1999, is as follows:

 

 

30

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| Sales and other income                    |   | $      |  1,350,578 |   |
|-------------------------------------------|--------|--------|-----------------|--------|
|                                      |   |   |            |
| Net loss from operations                  |   | $      |  (286,880  | )      |
|                                      |   |   |            |
| Loss per share from continuing operations |   | $      | (0.07           | )      |

 

**4.             INVENTORIES**

 

The componentsof inventories at December 31 are as follows:

 
|                         |   | **2001** |          | **2000** |   |
|------------------------------|--------|----------|---------------|----------|--------|
| Memorabilia and collectibles |   | $        |  178,528 |     | $      |  304,062 |   |
| Wholesale materials          |   | 151,191  |          | 609,406  |   |
| Valuation allowances         |   | (78,517  | )             | —   |   |
|                         |   |     |          |     |   |
| Total                        |   | $        |  251,202 |     | $      |  913,468 |   |

 

As a result ofweak sales in November and December of 2001, the Company began evaluating thecost assigned to the wholesale and retail inventory.  In November and December of 2001, the Company wrote down andrecognized valuation allowances of $58,000 and $78,000, respectively, on theinventory.  Such allowances have beenrecorded in costs of sales.  Althoughmanagement believes that its allowance is adequate at December 31, 2001,further allowances may be necessary if future events indicate furtherimpairment on the market value of the inventory.

 

**5.             PROPERTY AND EQUIPMENT**

 

The componentsof property and equipment at December 31 are as follows:

 
|                                           |   | **2001** |         | **2000** |   |
|------------------------------------------------|--------|----------|--------------|----------|--------|
| Machinery and equipment                        |   | $        |  51,078 |     | $      |  63,078 |   |
| Vehicles                                       |   | 4,500    |         | 4,500    |   |
| Office furniture and equipment                 |   | 93,210   |         | 99,307   |   |
|                                           |   |     |         |     |   |
|                                           |   | 148,788  |         | 166,885  |   |
| Less accumulated depreciation and amortization |   | 70,838   |         | 45,893   |   |
|                                           |   |     |         |     |   |
| Total                                          |   | $        |  77,950 |     | $      |  120,992 |   |

 

**6.             ACCOUNTS PAYABLE AND ACCRUEDLIABILITIES**

 

Accountspayable and accrued liabilities consisted of the following at December 31:

 
|                                              |   | **2001**  |   | **2000**  |   |
|---------------------------------------------------|--------|-----------|--------|-----------|--------|
| Accounts payable and accrued expenses             |   | $  81,795 |   | $ 165,361 |   |
| Payroll and related costs (including commissions) |   | 900       |   | 16,468    |   |
|                                              |   |      |   |      |   |
| Total                                             |   | $  82,695 |   | $ 181,829 |   |

 

31

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**7.             LONG-TERM DEBT**

 

Long-term debtconsists of the following at December 31:

 
|                                                                                                                  |   | **2001** |         | **2000** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|----------|--------------|----------|--------|
| Notes payable to related parties (Company stockholders), due in June  2002, unsecured (Note 12)                       |   | $        | 323,303      |     | $      |  657,183 |   |
| Notes  payable to related parties (Company stockholders), due in December 2002,  secured (Note 12)                    |   | 250,000  |         |     |   |
| Capitalized lease obligations with interest at 9.569% and 13.376%,  collateralized by certain manufacturing equipment |   |     |         | 12,254   |   |
|                                                                                                                  |   |     |         |     |   |
| Variable rate bank loan with interest at 10.5%, due and repaid in  December 2001                                      |   |     |         | 250,000  |   |
|                                                                                                                  |   |     |         |     |   |
| Other                                                                                                                 |   |     |         |     |   |
|                                                                                                                  |   |     |         |     |   |
| Total debt                                                                                                            |   | 573,303  |         | 919,437  |   |
| Less current portion                                                                                                  |   | (573,303 | )            | 291,349  |   |
|                                                                                                                  |   |     |         |     |   |
| Long-term debt                                                                                                        |   | $        |  — |     | $      |  628,088 |   |

 

During thefourth quarter of 2001, the Company was unable to make required debt paymentson the variable rate bank loan.  TheCompany Chairman and the Company President each loaned the Company $125,000,bearing interest at 10% and due December 31, 2002.  The proceeds were used to pay the bank loan in its entirety.  In consideration for making these loans, allassets of the Company were pledged as collateral to the Chairman and President.

 

**8.             LEASES**

 

The Companyleases office space, warehouse, and equipment. In November 2000, the Company terminated its two office space andproduction facility leases and entered into a new office space and warehouselease in order to consolidate operations. The new lease is renewable and provides for the payment of real estatetaxes and certain other occupancy expenses. Rent expense was $125,957, $135,859 and $58,570 in fiscal 2001, 2000 and1999, respectively.  See Note 12regarding the lease on the building for Unique Images.

 

Property andequipment at December 31 include the following amounts for capitalized leases:

 
|                            |   | **2001** |   | **2000** |   | **1999** |   |
|---------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Machinery and equipment         |   |     |   | $        | 25,251 |     | $      | 25,251 |   |
| Less allowance for depreciation |   |     |   | 7,373    |   | 2,323    |   |
|                            |   |     |   |     |   |     |   |
|                            |   | —   |   | $        | 17,878 |     | $      | 22,928 |   |

 

**9.             STOCKHOLDERS’ EQUITY/DEFICIENCY**

 

***Common Stock***-Beginning in June 1999 and through July 15, 1999, the Company issued 5,000,000common shares valued at $.10 per share or $500,000 to the originalinvestors of the Company.

 

32

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2,000,000 ofthe shares were issued through acceptance of $200,000 of notes receivable.  The stock was restricted from trading for aperiod of one years after issuance.

 

During Augustand September 1999, the Company issued 1,000,000 shares at $1.00 per shareof its authorized but unissued common stock in a private placement.  The proceeds from the sale of stock, net ofissuance costs of $9,822, totaled $990,178. The stock was restricted from trading for a period of one years afterissuance.

 

In October2000, the Company issued units consisting of 16,500 shares at $3.00 per share ofits authorized but unissued common stock in a private placement.  The subscription also issued 8,250 warrantsto purchase stock at $4.50 per share through April 30, 2001.  The proceeds from the sale of stock totaled$49,500.  The stock was restricted fromtrading for a period of one years after issuance.

*** ***

***Notes Receivablefrom Stockholders***- In June 1999, the Companyaccepted notes totaling $200,000 from six stockholders, in connection with theissuance of 2,000,000 shares of stock. The stock was restricted from trading for a period of one years afterthe dates of issuance or payment in full of the note.  The notes as amended bear interest at eight percent perannum with principal and interest due July 31, 2004 (see Note 12).

 

One of the sixstockholders with loans to the Company is no longer employed.  The Company intends to present notice ofpayment for $25,000 plus accrued interest of $5,370.  If not paid within sixty days, the shares of stock will becancelled.  The Company may make demandfor payment on the remaining $100,000 of notes receivable in the next 90days.  The cancellation of such noteswould have no effect on the Company’s results of operations because thereceivables are recorded as an offset to stockholders’ equity.

*** ***

***Stock Options***-During fiscal 1999, the Company’s Board of Directors adopted a stock optionplan for certain employees (“Optionees”) whereby Optionees are granted theright to purchase shares of the Company’s common stock at the market price whenthe options are issued.  The optionsgenerally vest immediately and expire one years after grant.  The stock issued from the exercise ofoptions is restricted from trading for a period of one years after issuance.

 

Transactionsand other information relating to the plan for fiscal 2001 and fiscal 2000 aresummarized as follows:

 
|                             |   | **Stock Options** |   |
|----------------------------------|--------|-------------------|--------|
|                             |   | **Shares**        |   | **Weighted   Average   Exercise   Price** |   |
| Outstanding at December 31, 1999 |   | 5,000             |   | $ | 1.00 |   |
|                             |   |              |   |   |   |
| Granted                          |   | 162,500           |   | 3.73 |   |
| Exercised                        |   |              |   |   |   |
| Forfeited                        |   | (5,000            | )      | 1.00 |   |
|                             |   |              |   |   |   |
| Outstanding at December 31, 2000 |   | 162,500           |   | 3.73 |   |
|                             |   |              |   |   |   |
| Forfeited                        |   | (162,500          | )      | 3.73 |   |
|                             |   |              |   |   |   |
| Outstanding at December 31, 2001 |   | 0                 |   |   |   |
|                                  |        |                   |        |  |  |  |

 

33

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The exerciseprices of the stock options discussed below were at the fair market value ofthe common stock on the date the options were granted.  In addition, the stock is restricted fromtrading for a period of one years after issuance:

 

On August 11,1999, the Company issued options to purchase 15,000 shares at $1.00 pershare to three employees of the Company’s subsidiary, Unique Images.

 

On August 12,1999, the Company issued options to purchase 5,000 shares at$1.00 per share to an employee of the Company.

 

On September28, 2000, the Company issued options to purchase 137,500 shares at $4.00 pershare to several employees of the Company.

 

On December12, 2000, the Company issued options to purchase 25,000 shares at $2.25 pershare to several employees of the Company.

 

For purposesof the following pro forma disclosures, the weighted-average fair value of eachoption has been estimated on the date of grant using the Black-Scholesoption-pricing model with the following weighted-average assumptions used forgrants in fiscal 2000:  no dividendyield; volatility of 115 percent; risk-free interest rate of5.34 percent; and an expected term of one year.  The weighted–average Black–Scholes value of optionsgranted for the years ended December 31, 2000 and 1999 was $1.13 and $.12 peroption, respectively.  Had compensation costfor the Company’s fixed stock-based compensation plan been determined based onthe fair value at the grant dates for awards under this plan consistent withthe method of SFAS No. 123, the Company’s pro forma net loss and pro forma netloss per share would have been as indicated below:

 
|                    |   | **Year   Ended   2000** |     | **Period from   March 2, 1999  (Inception)  through  December 31,  1999** |   |
|-------------------------|--------|-------------------------|----------|---------------------------------------------------------------------------|--------|
| Net loss:               |   |                    |     |                                                                      |   |
| As reported             |   | $                       | (549,635 | )                                                                         | $      | (349,551 | ) |
|                    |   |                    |     |                                                                      |   |
| Pro forma               |   | $                       | (668,864 | )                                                                         | $      | (350,771 | ) |
|                    |   |                    |     |                                                                      |   |
| Basic loss per share:   |   |                    |     |                                                                      |   |
| As reported             |   | $                       | (0.08    | )                                                                         | $      | (0.08 | ) |
|                    |   |                    |     |                                                                      |   |
| Pro forma               |   | $                       | (0.10    | )                                                                         | $      | (0.08 | ) |
|                    |   |                    |     |                                                                      |   |
| Diluted loss per share: |   |                    |     |                                                                      |   |
| As reported             |   | $                       | (0.08    | )                                                                         | $      | (0.08 | ) |
|                    |   |                    |     |                                                                      |   |
| Pro forma               |   | $                       | (0.10    | )                                                                         | $      | (0.08 | ) |

 

34

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**10.          INCOME TAXES**

** **

The effectivetax rate varies from the U.S. federal statutory tax rate for the periods endedDecember 31, principally due to the following:

 
|                                   |   | **2001** |   | **2000** |   | **1999** |   |
|----------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| U.S. federal statutory tax rate        |   | (34.0    | )%     | (34.0    | )%     | (34.0    | )%     |
| Valuation allowance for deferred taxes |   | 34.00    |   | 26.51    |   | 25.20    |   |
| All other                              |   |     |   | 7.49     |   | .80      |   |
|                                   |   |     |   |     |   |     |   |
| Effective tax rate                     |   | 0.0      | %      | 0.0      | %      | (8.0     | )%     |

 

Thedifferences between the benefit (provision) for income taxes at the U.S.statutory rate and the Company’s effective rate for the period ended December31 are summarized as follows:

 
|                                   |   | **2001** |     | **2000** |   | **1999** |   |
|----------------------------------------|--------|----------|----------|----------|--------|----------|--------|
| Expected benefit for income taxes      |   | $        | (333,855 | )        | $      | (186,876 | )      | $ | (100,662 | ) |
| Valuation allowance for deferred taxes |   | 333,855  |     | 145,695  |   | 9,156    |   |
| Non-deductible items                   |   |     |     | 41,181   |   | 6,850    |   |
| Other                                  |   |     |     |     |   | (27,345  | )      |
|                                   |   |     |     |     |   |     |   |
| Provision (benefit) for income taxes   |   | $        | —   |     | $      | —   |   | $ | (31,100 | ) |

 

The benefitsfor taxes for the periods ended December 31, consist of:

 
|                     |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------|--------|----------|--------|----------|--------|----------|--------|
| Current benefit          |   | $        | — |     | $      | —   |   | $ | 31,100 |   |
| Deferred benefit         |   |     |   |     |   |     |   |
|                     |   |     |   |     |   |     |   |
| Benefit for income taxes |   | $        | — |     | $      | —   |   | $ | 31,100 |   |

 

 

35

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The taxeffects of items comprising the Company’s net deferred tax asset consist of thefollowing at December 31:

 
|                                                 |   | **2001** |    | **2000** |   | **1999** |   |
|------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
| Deferred tax liability -                             |   |     |    |     |   |     |   |
| Difference between book and tax depreciable property |   | $        | (12,167 | )        | $      | (12,408  | )      | $ | (8,112 | ) |
|                                                 |   |     |    |     |   |     |   |
| Deferred tax assets:                                 |   |     |    |     |   |     |   |
| Net operating loss carryforwards                     |   | 582,273  |    | 248,418  |   | 98,268   |   |
| Miscellaneous accruals                               |   | —   |    | 2,051    |   | —   |   |
| Valuation allowance                                  |   | (570,106 | )       | (238,061 | )      | (90,156  | )      |
|                                                 |   |     |    |     |   |     |   |
| Net deferred tax assets                              |   | $        | —  |     | $      | —   |   | $ | — |   |

 

SFAS No. 109requires a valuation allowance to be recorded when it is more likely than notthat some or all of the deferred tax assets will not be realized.  A valuation allowance has been establishedon the computed deferred tax asset at December 31, 2001 and 2000 due to theuncertainties associated with realizing such assets in the future.

 

Theaccompanying financial statements do not include a provision for state incometax as the Company’s income is earned in Nevada, which does not have acorporate income tax.

 

**11.          COMMITMENTS AND CONTINGENCIES**

*** ***

***Leases***- The following is a schedule of future minimum lease payments under operatingleases, including those with related parties as more fully described in Note12, that have initial or remaining noncancelable lease terms in excess of oneyears at December 31, 2001 and 2000.

 
| 2002   |   | $       | 151,866 |   |
|--------|--------|---------|---------|--------|
| 2003   |   | 114,919 |    |
|   |   |    |    |
|   |   | $       | 266,785 |   |

 

The Companyhas begun discussions with the lessor of the building for the offices andwarehouse of the operations to determine if the lease may be cancelled ortransferred and what costs would be associated with such amendments to thelease.  No determination has beenreached regarding the costs associated with such changes, or the lessor’swillingness to consider such changes.

*** ***

***Employment Contracts***- The Company has no employment contractsrequiring compensation with any of its executive officers other than thepresident of Unique Images.  Thecontract was for five years beginning September 1999 and provides forcompensation of $6,500 per month.  Inconnection with the president’s resignation in 2001, he forfeited his rights tofurther compensation in accordance with the terms of the agreement.

*** ***

***Contingencies******-*** A shareholder has filed a complaintin the District Court of Clark County, Nevada against the Company, theCompany’s Chairman of the Board, the Company’s Treasurer, and others claiming,among other things, that his investment of $60,000 in the Company was inducedby representations made to him by the Chairman concerning the Chairman’s “trackrecord” and anticipated profits from the investment.  Entities owned by the Chairman had previously brought an actionto recover $1,335,000 plus interest from the shareholder,

 

36

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and others,based upon an unrelated transaction. The complaint filed by the shareholder appears to be a retaliatoryaction.  The Company believes that theshareholder’s complaint is without merit.

 

There are noother material pending legal proceedings to which the Company or the propertyof the Company is subject.  In addition,no other such proceedings are known to be contemplated against the Company.

 

**12.          RELATED PARTY TRANSACTIONS**

 

During fiscal1999, the Company accepted notes totaling $200,000 from six employeeshareholders in connection with the issuance of shares of the Company withprincipal and interest due July 31, 2004.  As of December 31, 2001 and 2000, and as a result of transactionsdescribed below, the balance remaining on the shareholder notes was $121,478and $113,275, including accrued interest. This amount was owed by three compensated employee shareholders.

 

Interestincome from notes receivable from stockholders was $8,203, $8,863 and $3,412 infiscal 2001, 2000 and 1999, respectively.

 

From August1999 through November 2000, the Company leased certain office space, aproduction facility, and equipment from a related party.  In November 2000, the Company terminated itsoffice space and production facility leases with the related party and enteredinto a new office and production facility lease with an outside party.  The office and production facility leaseswith the related party had been classified as operating leases.  The rent expense incurred in connection withthese leases during fiscal 2001, 2000 and 1999 was approximately $0, $101,750,and $32,000, respectively.  The Companyleased certain production equipment from a related party.  This lease expired in August 2001.  The office and production facility leasewith an outside party expires in November 2003.

 

During fiscal1999, the Company’s Chairman of the Board and the Company’s President eachloaned the Company $50,000, which bears interest at a rate of nine percent(9%) per annum and is due and payable on March 1, 2002. Maturity was extendedto June 2002 during fiscal 2001. The chairman also contributed approximately$34,000 of inventory in exchange for a note in fiscal 1999.  During November 1999, the Company’s Chairmanexchanged $67,778 of his notes payable, including accrued interest, for thesame amount of the note receivable from stockholders arising from the issuanceof stock in June 1999, leaving a net note payable in the amount of $16,021, dueon March 1, 2001. Maturity was extended to June 2002 during fiscal 2001.During fiscal 1999, the Company’s President exchanged $33,889 of his notepayable, including accrued interest, for the same amount of notes receivablearising from the issuance of stock in June 1999, leaving a net note payable inthe amount of $17,116, due March 1, 2001. Maturity was extended to June 2002during fiscal 2001.

 

During fiscal2000, the Company’s Chairman of the Board and the Company’s President loanedthe Company $150,000 and $100,000, respectively.  Each of these loans bears interest at the rate ofeight percent (8%) per annum and are due and payable in March 2002.Maturity was extended to June 2002 during fiscal 2001.

 

During fiscal2000, the Company’s Chairman of the Board advanced $405,514 to the Company forpurchases of inventory by the wholesale segment of the Company.  The advances bear interest at the rate often percent (10%) per annum and are secured by the inventory and must berepaid by proceeds from the sale of inventory purchased with the advances.  The Company repaid $33,865 and $31,468 ofthe advances in fiscal 2001 and 2000, respectively.  In the fourth quarter of 2001, the Company returned $299,810 ofthe inventory at cost and reduced the loan by this amount and left a remainingbalance of $40,371 that is currently due and payable.

 

37

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OnNovember 30, 2001, the Company’s Chairman of the Board and President eachloaned the Company $125,000 to enable the Company to pay its note payable to abank in the amount of $250,000.  Theloans from the Company’s Chairman of the Board and President bear interest atten percent (10%), are secured by all of the Company's assets and are dueand payable December 31, 2002.  Notespayable to the Company’s Chairman of the Board and President now aggregateapproximately $573,300 in principal and $76,000 in accrued interest and are duein 2002.

 

Interestexpense incurred in connection with loans from stockholders was $62,000,$28,568 and $3,779 in fiscal 2001, 2000 and 1999, respectively.

 

**13.          SEGMENT REPORTING**

 

The Companyhas two reportable segments based upon products offered: retail sales andcorporate operations, and wholesale distribution and manufacturing.

 

38

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The Companychanged its management review process for segment operations in 2001 as aresult of the merger of Unique Images into Worldwide Collectibles in January2001.  The Company now reviews eachsegment’s performance based on segment gross profit.  Due to this change, the corresponding prior year data has beenrestated to reflect the current review process.  The accounting policies of the operating segments are the same asthose described in the summary of significant accounting policies.

 

Informationpertaining to the operations of reportable segments is as follows:

 
| **For the year ended December 31, 2001**                                         |   | **Retail and Corporate** |    | **Wholesale Distribution and Manufacturing** |   | **Total** |     |
|----------------------------------------------------------------------------------|--------|--------------------------|---------|----------------------------------------------|--------|-----------|----------|
| Revenues                                                                         |   | $                        | 436,586 |                                         | $      | 1,436,738 |     | $ | 1,873,324 |   |
|                                                                             |   |                     |    |                                         |   |      |     |
| Gross profit (loss)                                                              |   | (775,363                 | )       | 1,089,987                                    |   | 314,624   |     |
|                                                                             |   |                     |    |                                         |   |      |     |
| **Reconciliation of Segment Gross Profit to  Consolidated Loss from Operations** |   |                     |    |                                         |   |      |     |
|                                                                             |   |                     |    |                                         |   |      |     |
| Total gross profit                                                               |   |                     |    |                                         |   | $         | 314,624  |   |
| General and administrative expenses                                              |   |                     |    |                                         |   | 843,055   |     |
| Marketing expenses                                                               |   |                     |    |                                         |   | 88,090    |     |
| Asset impairment, goodwill                                                       |   |                     |    |                                         |   | 176,287   |     |
| Asset impairment, fixed assets                                                   |   |                     |    |                                         |   | 11,717    |     |
| Depreciation and amortization                                                    |   |                     |    |                                         |   | 79,556    |     |
|                                                                             |   |                     |    |                                         |   |      |     |
| Loss from operations                                                             |   |                     |    |                                         |   | $         | (884,081 | ) |
|                                                                                  |        |                          |         |                                              |        |           |          |  |  |  |

 
| **For the year ended December 31, 2000**                                         |   | **Retail and Corporate** |    | **Wholesale Distribution and Manufacturing (Restated)** |   | **Total** |     |
|----------------------------------------------------------------------------------|--------|--------------------------|---------|---------------------------------------------------------|--------|-----------|----------|
| Revenues                                                                         |   | $                        | 669,186 |                                                    | $      | 1,715,050 |     | $ | 2,384,236 |   |
|                                                                             |   |                     |    |                                                    |   |      |     |
| Gross profit                                                                     |   | 202,047                  |    | 462,491                                                 |   | 664,538   |     |
|                                                                             |   |                     |    |                                                    |   |      |     |
| **Reconciliation of Segment Gross Profit to  Consolidated Loss from Operations** |   |                     |    |
|                                                                             |   |                     |    |                                                    |   |      |     |
| Total gross profit                                                               |   |                     |    |                                                    |   | $         | 664,538  |   |
| General and administrative expenses                                              |   |                     |    |                                                    |   | 954,160   |     |
| Marketing expenses                                                               |   |                     |    |                                                    |   | 113,552   |     |
| Loss on disposal of assets                                                       |   |                     |    |                                                    |   | 24,125    |     |
| Depreciation and amortization                                                    |   |                     |    |                                                    |   | 94,531    |     |
|                                                                             |   |                     |    |                                                    |   |      |     |
| Loss from operations                                                             |   |                     |    |                                                    |   | $         | (521,830 | ) |
|                                                                             |   |                     |    |                                                    |   |      |     |   |
|                                                                                  |        |                          |         |                                                         |        |           |          |  |  |  |

 
| **For the period ended December 31, 1999**                                                 |   | **Retail and Corporate** |    | **Wholesale Distribution and Manufacturing (Restated)** |   | **Total** |     |
|--------------------------------------------------------------------------------------------|--------|--------------------------|---------|---------------------------------------------------------|--------|-----------|----------|
| Revenues                                                                                   |   | $                        | 294,009 |                                                    | $      | 368,222   |     | $ | 662,231 |   |
|                                                                                       |   |                     |    |                                                    |   |      |     |
| Gross profit                                                                               |   | $                        | 151,457 |                                                    | $      | 95,444    |     | $ | 246,901 |   |
|                                                                                       |   |                     |    |                                                    |   |      |     |
| **Reconciliation of Segment Gross Profit to  Consolidated Loss from Operations**           |   |                     |    |
|                                                                                       |   |                     |    |                                                    |   |      |     |
| Total gross profit                                                                         |   |                     |    |                                                    |   | $         | 246,901  |   |
| General and administrative expenses                                                        |   |                     |    |                                                    |   | 431,301   |     |
| Marketing expenses                                                                         |   |                     |    |                                                    |   | 126,009   |     |
| Organization costs                                                                         |   |                     |    |                                                    |   | 34,532    |     |
| Depreciation and amortization                                                              |   |                     |    |                                                    |   | 34,368    |     |
|                                                                                       |   |                     |    |                                                    |   |      |     |
| Loss from operations                                                                       |   |                     |    |                                                    |   | $         | (379,309 | ) |
|                                                                                       |   |                     |    |                                                    |   |      |     |   |
| Significantly  all (over 95 percent) of the Company’s sales are in the United States. |   |
|                                                                                            |        |                          |         |                                                         |        |           |          |  |  |  |  |  |  |

 

 

39

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**14.          FOURTH QUARTER ADJUSTMENTS**

 

The salesresults for the fourth quarter of 2001 indicated that inventory values may beimpaired.  Management determined that$54,800 of wholesale inventory was impaired and was, consequently writtenoff.  Additionally, a valuation of$36,300 was recorded on other wholesale inventory.  Retail inventory was reserved with a valuation of $42,300.

 

**14.          SELECTED QUARTERLY FINANCIAL DATA(UNAUDITED)**

 
|                                     |   | **Quarter Ended** |    |
|------------------------------------------|--------|-------------------|---------|
|                                     |   | **March 31**      |    | **June 30** |   | **September 30** |   | **December 31** |   |
| **Fiscal 2001**                          |   |              |    |   |   |   |   |   |   |
| Revenue                                  |   | $                 | 768,208 |   | $ | 460,548 |   | $ | 443,910 |   | $ | 200,658 |   |
| Gross profit (loss)                      |   | 295,499           |    | 148,541 |   | 138,841 |   | (268,257 | ) |
| Operating loss                           |   | (8,485            | )       | (112,980 | ) | (327,723 | ) | (434,893 | ) |
| Net loss                                 |   | (34,296           | )       | (127,750 | ) | (345,194 | ) | (446,630 | ) |
| Loss per common share, basic             |   | (.01              | )       | (.02 | ) | (.05 | ) | (.06 | ) |
| Loss per common share, assuming dilution |   | (.01              | )  | (.02 | ) | (.05 | ) | (.06 | ) |
|                                     |   |              |    |   |   |   |   |   |   |
| **Fiscal 2000**                          |   |              |    |   |   |   |   |   |   |
| Revenue                                  |   | $                 | 387,373 |   | $ | 420,131 |   | $ | 741,798 |   | $ | 834,934 |   |
| Gross profit                             |   | 78,241            |    | 137,323 |   | 238,725 |   | 210,249 |   |
| Operating loss                           |   | (159,603          | )       | (216,711 | ) | (44,787 | ) | (100,729 | ) |
| Net loss                                 |   | (158,179          | )       | (223,511 | ) | (53,328 | ) | (114,617 | ) |
| Loss per common share, basic             |   | (.02              | )       | (.03 | ) | (.01 | ) | (.02 | ) |
| Loss per common share, assuming dilution |   | (.02              | )       | (.03 | ) | (.01 | ) | (.02 | ) |

 

******

 

40

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**Item 9. Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure**

 

Notapplicable.

** **

**Item 10. Directors and Executive Officers of the Company**

 

The directorsand executive officers of the Company are as follows:

 
| **Name**             |   | **Age** |   | **Served Since** |   | **Position**                        |
|----------------------|--------|---------|--------|------------------|--------|-------------------------------------|
| Henry E.  Cartwright |   | 63      |   | 1999             |   | Chairman of  the Board of Directors |
| Gary Moore           |   | 57      |   | 1999             |   | President  and Director             |
| Joseph Flynn         |   | 62      |   | 1999             |   | Director                            |
| Dalton L.  Conners   |   | 56      |   | 1999             |   | Director                            |
| Dixie  Cartwright    |   | 63      |   | 1999             |   | Secretary  and Treasurer            |

 

**Mr. Cartwright**has served as Chairman of the Board of the Company since September 1999.  Mr. Cartwright has also been a directorof the Company’s wholly owned subsidiary, Unique Images, since its acquisitionin August 1999.  Mr. Cartwright isa private investor in numerous real estate, lending transactions and otherventures.  Mr. Cartwright served asChairman of the Board of Major Video Corp. from December 1982 until its mergerwith Blockbuster Entertainment Corporation in January 1989.  In September 1993, Mr. Cartwrightfounded Back to the 50’s, Inc., a company that sold 50's and 60’s memorabiliathrough a mail order catalog and showroom. Back to the 50’s, Inc. was acquired by Crowne Ventures, Inc. in November1995.  Mr. Cartwright served asdirector of Crowne Ventures, Inc. from 1995 until he resigned in April 1998.

** **

**Mr. Moore**has served as the President of the Company and as director since September1999.  Mr. Moore has also been adirector of the Company’s wholly owned subsidiary, Unique Images, since itsacquisition in August 1999. Mr. Moore is a private investor. Mr. Moore was the President and Chief Operations Officer of Major VideoCorp. from 1984 until its merger with Blockbuster Entertainment Corp. in1989.  Mr. Moore continues to be aBlockbuster Video franchisee.

** **

**Mr. Flynn**has served as a director of the Company since September 1999.  From 1987 through the present,Mr. Flynn has been the legal counsel for Gaelic Management, Inc., whichprovides legal, management, franchise, merger and acquisitions and operationsconsulting to restaurant, real estate development, communications, aircraftmaintenance and athletic supply chains for affiliated and unrelated domesticand international companies.

** **

**Mr. Conners**has served as a director of the Company since September 1999.  Since 1998, Mr. Conners has been aprivate investor and financial consultant. For thirty years prior thereto, Mr. Conners was employed in thecommercial banking business and served in the positions of Vice President andBranch Manager, Area Sale Manager, Manager Automobile Lending Center and SeniorCommercial Real Estate Officer.

** **

**Mrs. Cartwright**has served as the Secretary and Treasurer of the Company since September1999.  Mrs. Cartwright is a privateinvestor.  From 1983 until 1989,Mrs. Cartwright managed all aspects 

 

41

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of the office operations ofMajor Video Corp.  From 1993 to 1995,Mrs. Cartwright managed all aspects of the office and financial operationsof Back to the 50’s, Inc.

 

Each directorserves for a term of one year or until his or her successor has been electedand qualified.  Each executive officerserves at the pleasure of the Board of Directors.  Henry E. Cartwright and Dixie Cartwright are husband andwife.  Gary Moore and Dixie Cartwrightare brother and sister.

 

Section 16(a)Beneficial Ownership Reporting

 

Section 16(a)of the Securities Exchange Act of 1934, as amended, requires the Company’sofficers, directors and persons who beneficially own more than 10% of aregistered class of the Company’s equity securities to file reports ofsecurities ownership and changes in such ownership with the Securities andExchange Commission (the “SEC”). Officers, directors and greater than 10% beneficial owners are alsorequired by rules promulgated by the SEC to furnish the Company with copies ofall Section 16(a) forms they file.

 

Based solelyupon a review of the copies of such forms furnished to the Company, or writtenrepresentations that no Form 5 filings were required, the Company believesthat during the period from January 1, 2001 through December 31, 2001, allSection 16(a) filing requirements applicable to its officers, directors andgreater than 10% beneficial owners were complied with.

** **

**Item 11. Executive Compensation**

 

Summary CashCompensation Table

 

The followingtable sets forth the compensation (cash and non cash), for the Chief ExecutiveOfficer and all the executive officers that earned in excess of $100,000 perannum during any of the Company’s last three fiscal years.

 

SUMMARY COMPENSATION TABLE

 
|                             | **Long-Term  Compensation** |             |
|----------------------------------|-----------------------------|------------------|
|                             | **Annual  Compensation**    |             | **Awards** |   | **Payouts** |   |
| **Name and  Principal Position** |                        | **Fiscal  Year** |   | **Salary** |   | **Bonus ($)** |   | **Other  Annual Compensation  ($)** |   | **Restricted  Stock Awards  ($)** |   | **Securities  Underlying Stock Options  (#)** |   | **LTIP  Payouts  ($)** |   | **All Other  Compensation** | ** ** |
| Gary R. Moore                    |                        | 2001             |   | $ | 0 |   | $ | 0 |   | — |   | — |   | — |   | — |   | — |   |
| President                        |                        | 2000             |   | $ | 0 |   | $ | 0 |   | — |   | — |   | — |   | — |   | — |   |
|                             |                        | 1999             |   | $ | 0 |   | $ | 0 |   | — |   | — |   | — |   | — |   | — |   |

 

Since itsinception in March 1999, the Company has paid no salaries to any of itsexecutive officers other than Keith Veltre, the former President of UniqueImages.  Salaries have been included inthe income statement as contributed capital for the value of suchservices.  The Company has not yet determinedthe amount or timing of the payment of salaries to its executive and managementpersonnel and will do so in the discretion of its officers and directors.

 

Option Grants

 

There were nooptions granted to executive officers during fiscal 2001 or prior thereto.

 

42

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Option Exerciseand Fiscal Year-End Values

 

There were nooptions exercised by executive officers during fiscal 2001 and there are nooptions held by executive officers during fiscal 2001 or prior thereto.

 

Compensationof Directors

 

Directors donot receive compensation but are reimbursed for their expenses for each meetingof the Board of Directors which they attend.

 

EmploymentContracts.

 

The Companyhas two year Employment Agreements with Henry E. Cartwright, its Chairman ofthe Board, and Gary Moore, its President, each of which expires on August 14,2002.  The Employment Agreements, whichare terminable by the Company on thirty days notice, provide for compensationas determined by the Board of Directors of the Company and for reimbursement ofexpenses.  As of this date, the Board ofDirectors has not approved compensation for Mr. Cartwright or Mr. Moore and itis not expected that compensation will be paid to Mr. Cartwright or Mr. Mooreuntil the Company has achieved profitable operations.  The Employment Agreements also contain confidentiality agreementand non-competition provisions.

 

Board ofDirectors Report on Executive Compensation

 

The executivecompensation philosophy of the Company is to (i) attract and retainqualified management to run the business efficiently and guide the Company’sgrowth, (ii) establish a link between management compensation and theachievement of the Company’s annual and long-term performance goals, and(iii) recognize and reward individual initiative and achievement.

 

Chief Executive Officer  Gary Moore, the Company’s President, is thechief executive officer of the Company. Mr. Moore has a significant stock ownership position in the Company andreceives no compensation for his services.

 

Base Salaries Base salaries for new management employees are based primarily on theresponsibilities of the position and the experience of the individual, withreference to the competitive marketplace for management talent, which ismeasured in terms of executive compensation offered by comparable companies inrelated businesses.

 

Conclusion Through the options described above, a portion of the Company’smanagement compensation for new management employees will be linked directly toCompany performance.  The Board ofDirectors will continually review all compensation practices and make changesas appropriate.

 

Sincerely,

 

Henry E.Cartwright

Gary Moore

Joseph P.Flynn

Dalton Conners

 

43

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**Item 12.  Security Ownership of Certain Beneficial Owners and Management**

 

The followingtable sets forth certain information regarding the beneficial ownership of theshares of Common Stock as of March 11, 2001 by (i) each person who isknown by the Company to be the beneficial owner of more than five percent (5%)of the issued and outstanding shares of Common Stock, (ii) each of theCompany’s directors and executive officers and (iii) all directors andexecutive officers as a group.  Eachstockholder listed below has sole voting power and investment power withrespect to the shares beneficially owned by such person.

 

| **Name and Address of Beneficial Owner**           |   | **Amount and  Nature of  Beneficial  Ownership(1)** |   | **Percent of  Class** |   |
|----------------------------------------------------|--------|-----------------------------------------------------|--------|-----------------------|--------|
| Gary Moore(2)                                      |   | 559,000                                             |   | 8.4                   | %      |
| Henry E. Cartwright(3)                             |   | 500,000                                             |   | 7.5                   | %      |
| Keith Veltre(3)(7)                                 |   | 500,000                                             |   | 7.5                   | %      |
| Paul Heroy(3)                                      |   | 345,000                                             |   | 5.2                   | %      |
| Tom Pitch(3)                                       |   | 335,000                                             |   | 5.0                   | %      |
| Dixie Cartwright(3)                                |   | 125,000                                             |   | 1.9                   | %      |
| Joseph P. Flynn(4)                                 |   | 50,000                                              |   |                  | (5)    |
| Dalton L. Conners(6)                               |   | 46,900                                              |   |                  | (5)    |
| All Directors and Officers as a group (5  persons) |   | 1,280,900                                           |   | 19.2                  | %      |

 

----

(1)           All shares are owned beneficially and of record by theperson named.

(2)           Address is 2700 Sunset Road, Suite A-11, Las Vegas, Nevada89120.

(3)           Address is 150 Cassia Way, Suite 400, Henderson,Nevada  89014.

(4)           Address is 8236 E. Sands Drive, Scottsdale, Arizona 85255.

(5)           Less than one percent.

(6)           Address is 32 Paladin Court, Henderson, Nevada 89014.

(7)           Resigned from the Company prior to December 31, 2001

 

44

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**Item 13.          Certain Relationships and Related Transactions**

 

Loans from andto Related Parties.

 

During fiscal1999, the Company accepted notes totaling $200,000 from six employeeshareholders in connection with the issuance of shares of the Company withprincipal and interest due July 31, 2004. As of December 31, 2001 and 2000, and as a result of transactionsdescribed below, the balance remaining on the shareholder notes was $121,478and $113,275 including accrued interest. This amount was owed by three compensated employee shareholders.

 

Interestincome from notes receivable from stockholders was $8,203, $8,863 and $3,412 infiscal 2001, 2000 and 1999, respectively.

 

From August1999 through November 2000, the Company leased certain office space, aproduction facility, and equipment from a related party. In November 2000, theCompany terminated its office space and production facility leases with therelated party and entered into a new office and production facility lease withan outside party. The office and production facility leases with the relatedparty had been classified as operating leases. The rent expense incurred inconnection with these leases during fiscal 2001, 2000 and 1999 wasapproximately $0, $101,750, and $32,000 respectively. The Company leasedcertain production equipment from a related party. This lease expired in August2001. The office and production facility lease with an outside party expires inNovember 2003.

 

During fiscal1999, the Company’s Chairman of the Board and the Company’s President eachloaned the Company $50,000,  which bearsinterest at the rate of nine percent (9%) per annum and is due and payable onJune 2002, as amended.  The Chairmanalso contributed approximately $34,000 of inventory in exchange for a note infiscal 1999.  During fiscal 1999, theCompany’s Chairman exchanged $67,778 of his notes payable, including accruedinterest, for the same amount of the note receivable from stockholders arisingfrom the issuance of stock in June 1999, leaving a net note payable in theamount of $16,021, due on March 1, 2001. During fiscal 1999, the Company’s President exchanged $33,889 of hisnote payable, including accrued interest, for the same amount of notesreceivable arising from the issuance of stock in June 1999, leaving a net notepayable in the amount of $17,116, due in June 2002, as amended.

 

During fiscal2000, the Company’s Chairman of the Board and the Company’s President loanedthe Company $150,000 and $100,000, respectively.  Each of these loans bears interest at the rate of eight percent(8%) per annum and is due and payable in June 2002, as amended.

 

During fiscal2000, the Company’s Chairman of the Board advanced $405,514 to the Company forpurchases of inventory by the wholesale segment of the Company.  The advances bear interest at the rate of tenpercent (10%) per annum and are secured by the inventory and must be repaidwith proceeds from the sale of the inventory purchased with the advances.  The Company repaid $33,865 and $31,468 ofthe advances in fiscal 2001 and 2000, respectively.  In the fourth quarter of 2001, the Company returned $299,810 ofthe inventory at cost and reduced the loan by this amount and left a remainingbalance of $40,371 that is currently due and payable.

 

On November30, 2001, the Company’s Chairman of the Board and President each loaned theCompany $125,000 to enable the Company to pay its note payable to a bank in theamount of $250,000.  The loans from theCompany’s Chairman of the Board and President bear interest at ten percent(10%), are secured by all of the Company's assets, and are due and payableDecember 31, 2002.  Notes payable to theCompany’s Chairman of the Board and President now aggregate approximately$573,300 in principal amount and $76,000 in accrued interest and are due in2002.

 

Interestexpense incurred in connection with loans from stockholders was $62,000,$28,568 and $3,779 in fiscal 2001, 2000 and 1999, respectively.

 

Acquisition.

 

OnAugust 11, 1999, americabilia.com Nevada acquired all of the outstandingcommon stock of Veltre Enterprises, Inc. dba Unique Images.  Unique Images was wholly owned by KeithVeltre who at the time of the transaction owned 8% of the common stock ofamericabilia.com Nevada.  The purchaseprice paid for Unique Images consisted of (i) $200,000 in cash,(ii) a Promissory Note in the original principal amount of $200,000 and(iii) 100,000 shares of common stock of americabilia.com Nevada.  The Promissory Note was paid in full inNovember 1999.  As part of the purchase,the Company agreed to lease the premises that were used for Unique Images’business operations from Keith Veltre’s spouse 

 

45

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and to lease certain businessequipment from Keith Veltre.  Thepremises lease was terminated in November 2000.  The equipment lease was terminated in December 2001.  See Note 12 to the Consolidated FinancialStatements.

** **

**Item 14.                 Exhibits,Financial Statement Schedules and Reports on Form 8-K**

 

(a)           Financial Statements

 

The followingfinancial statements are being filed under Item 8 of this Annual Report on Form10-K:

 

IndependentAuditors’ Report

 

ConsolidatedBalance Sheets as of December 31, 2001 and 2000.

 

ConsolidatedStatements of Operations for the years ended December 31, 2001 and 2000 and forthe period from March 2, 1999 (Inception) through December 31, 1999.

 

ConsolidatedStatements of Stockholders’ Equity (Deficiency) for the years ended December31, 2001 and 2000 and for the period from March 2, 1999 (Inception) throughDecember 31, 1999.

 

ConsolidatedStatements of Cash Flows for the years ended December 31, 2001 and 2000 and forthe period from March 2, 1999 (Inception) through December 31, 1999.

 

Notes toConsolidated Financial Statements

 

Financial Statement Schedules

 

Notapplicable.

 
| **Exhibits** |   |                                                                                                                                                                                                               |
|--------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1          |   | Agreement and Plan of Reorganization dated  August 31, 1999(1)                                                                                                                                                     |
|         |   |                                                                                                                                                                                                               |
| 3.1          |   | Certificate of Incorporation of  americabilia(1)                                                                                                                                                                   |
|         |   |                                                                                                                                                                                                               |
| 3.2          |   | Amended and Restated Bylaws of  americabilia(1)                                                                                                                                                                    |
|         |   |                                                                                                                                                                                                               |
| 3.3          |   | Amendment to Articles of Incorporation  filed June 20, 1996(1)                                                                                                                                                     |
|         |   |                                                                                                                                                                                                               |
| 3.4          |   | Amendment to Articles of Incorporation  filed November 15, 1996(1)                                                                                                                                                 |
|         |   |                                                                                                                                                                                                               |
| 3.5          |   | Amendment to Articles of Incorporation  filed September 7, 1999(1)                                                                                                                                                 |
|         |   |                                                                                                                                                                                                               |
| 4.1          |   | Specimen of Common Stock Certificate(1)                                                                                                                                                                            |
|         |   |                                                                                                                                                                                                               |
| 10.1         |   | americabilia's 1999 Stock Option Plan(1)                                                                                                                                                                           |
|         |   |                                                                                                                                                                                                               |
| 10.2         |   | Stock Purchase Agreement between  americabilia and Keith Veltre dated July 23, 1999(1)                                                                                                                             |
|         |   |                                                                                                                                                                                                               |
| 10.5         |   | Lease Agreement between the Company and  ProLogis Trust dated as of November 27, 2000(2)                                                                                                                           |
|         |   |                                                                                                                                                                                                               |
| 10.6         |   | Loan Agreement, Secured Promissory Note,  and Security Agreement between Veltre Enterprises, Inc. and Henry E.  Cartwright dated August 14, 2000 and Amendment No. 1 to Promissory Note dated  October 31, 2000(2) |
|         |   |                                                                                                                                                                                                               |
| 10.7         |   | Secured Promissory Notes, Security  Agreement and Guaranty dated November 30, 2001 between americabilia.com,  Inc., Worldwide Collectibles, Inc., Henry E.. Cartwright and Gary R, Moore.                          |
|         |   |                                                                                                                                                                                                               |
| 21.1         |   | Subsidiaries                                                                                                                                                                                                       |

 

----

(1)           Filedas an exhibit to the Company’s Registration Statement on Form 10 dated March 3,2000 (SEC File No. 0-29781) and incorporated herein by reference.

 

(2)           Filedas an exhibit to the Company’s Current Report on Form 8-K dated March 3, 2000and incorporated herein by reference.

 

(b)           Reports on Form 8-K.

 

The Companyfiled a report on Form 8-K dated November 30, 2001 reporting (i) theresignation of Keith Veltre as a director of the Company and as president ofthe Company’s wholly owned subsidiary, (ii) additional loans from the chairmanof the board and president of the Company and (iii) continuing losses.

 

46

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SIGNATURES

 

Pursuant tothe requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on this behalf by theundersigned, thereunto duly authorized.

 

Dated: March 26, 2002                                                                         AMERICABILIA.COM,INC.

 
|   | By:    | /s/ GARY MOORE                             |   |
|--------|--------|--------------------------------------------|--------|
|   |   | Gary Moore, President (Principal Executive |   |
|   |   | Officer and Principal Financial Officer)   |   |
|   |   |                                       |   |
|   |   |                                       |   |
|   | By:    | /s/ DIXIE L. CARTWRIGHT                    |   |
|   |   | Dixie L. Cartwright, Treasurer (Principal  |   |
|   |   | Accounting Officer)                        |   |

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, this report has beensigned below by the persons on behalf of the registrant in the capacities andon the dates indicated.

 
| Dated: March  26, 2002 | /s/ HENRY E.  CARTWRIGHT      |   |
|------------------------|-------------------------------|--------|
|                   | HENRY E. CARTWRIGHT, Director |   |
|                   |                          |   |
| Dated: March  26, 2002 | /s/ GARY  MOORE               |   |
|                   | GARY MOORE, Director          |   |
|                   |                          |   |
| Dated: March  27, 2002 | /s/ JOSEPH  P. FLYNN          |   |
|                   | JOSEPH P. FLYNN, Director     |   |
|                   |                          |   |
| Dated: March  27, 2002 | /s/ DALTON  L. CONNERS        |   |
|                   | DALTON L. CONNERS, Director   |   |

 

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