10-Q 1 a2028878z10-q.txt FORM 10-Q U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number 0-29781 AMERICABILIA.COM, INC. -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Florida 65-0142472 -------------------------------------- --------------------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 9155 LAS VEGAS BOULEVARD SOUTH, SUITE 242, LAS VEGAS, NEVADA 89123 -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 702-914-8411 -------------------------------------------------------------------------------- (ISSUER'S TELEPHONE NUMBER) Not Applicable -------------------------------------------------------------------------------- (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- As of October 30, 2000, the Company had 6,652,692 shares of its $.001 par value common stock issued and outstanding. PART I - FINANCIAL INFORMATION

Page ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) ---- Condensed Consolidated Balance Sheets (Unaudited) at September 30, 2000 and December 31, 1999..........................................3 Condensed Consolidated Statements of Operations (Unaudited) for the Three Months ended September 30, 2000 and 1999, for the Nine Months ended September 30, 2000, and for the period from March 2, 1999 (Date of Inception) to September 30, 1999..............................5 Condensed Consolidated Statement of Stockholders' Equity (Unaudited) for the Nine Months ended September 30, 2000.............................6 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months ended September 30, 2000 and for the period from March 2, 1999 (Date of Inception) to September 30, 1999.........................7 Notes to Unaudited Condensed Consolidated Financial Statements.........................9

-2- AMERICABILIA.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 --------------------------------------------------------------------------------

SEPTEMBER 30, DECEMBER 31, ASSETS 2000 1999 CURRENT ASSETS: Cash and cash equivalents $ 98,775 $ 323,127 Accounts receivable, net 330,755 236,583 Inventories 1,058,481 446,448 Prepaid expenses and deposits 16,371 23,796 ---------- ---------- Total current assets 1,504,382 1,029,954 PROPERTY AND EQUIPMENT, Net 131,372 154,399 GOODWILL, Net 191,416 282,061 OTHER ASSETS 8,354 7,494 ---------- ---------- TOTAL $1,835,524 $1,473,908 ========== ==========

See accompanying notes to condensed consolidated financial statements. (Continued) -3- AMERICABILIA.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 --------------------------------------------------------------------------------

SEPTEMBER 30, DECEMBER 31, LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 CURRENT LIABILITIES: Accounts payable and accrued expenses $ 127,375 $ 224,422 Current portion of long-term debt 9,394 9,122 Advances from stockholder 290,000 Income taxes payable 3,549 ----------- ----------- Total current liabilities 426,769 237,093 LOANS FROM STOCKHOLDERS, including accrued interest of $13,882 and $1,123 412,778 34,508 LONG-TERM DEBT, Less current portion 205,408 12,092 ----------- ----------- Total liabilities 1,044,955 283,693 ----------- ----------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $0.01 par value; authorized 50,000,000 shares; 6,652,692 shares issued and outstanding at September 30, 2000 and December 31, 1999 6,653 6,653 Additional paid-in capital 1,679,525 1,637,525 Notes receivable from stockholders for stock (111,040) (104,412) Accumulated deficit (784,569) (349,551) ----------- ----------- Total stockholders' equity 790,569 1,190,215 ----------- ----------- TOTAL $ 1,835,524 $ 1,473,908 =========== ===========

See accompanying notes to condensed consolidated financial statements. (Concluded) -4- AMERICABILIA.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999, NINE MONTHS ENDED SEPTEMBER 30, 2000 AND PERIOD FROM MARCH 2, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999 --------------------------------------------------------------------------------

THREE THREE NINE PERIOD FROM MONTHS MONTHS MONTHS MARCH 2, 1999 ENDED ENDED ENDED TO SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 REVENUES: Retail/wholesale $ 741,798 $ 210,779 $ 1,549,302 $ 232,978 Cost of sales 503,073 125,118 1,095,013 139,630 ----------- ----------- ----------- ----------- Gross profit 238,725 85,661 454,289 93,348 ----------- ----------- ----------- ----------- OPERATING EXPENSES: General and administrative expenses 210,547 114,429 671,482 162,945 Marketing expenses 26,535 63,103 87,794 63,979 Depreciation and amortization 46,430 6,301 116,114 8,518 Organization costs 32,275 34,532 ----------- ----------- ----------- ----------- Total operating expenses 283,512 216,108 875,390 269,974 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS BEFORE INTEREST AND TAXES (44,787) (130,447) (421,101) (176,626) ----------- ----------- ----------- ----------- OTHER (EXPENSE) INCOME: Interest expense (3,984) (2,067) (13,010) (2,067) Interest expense - shareholder loans (8,681) (1,765) (12,756) (1,765) Interest income and other 4,124 4,237 11,849 4,237 ----------- ----------- ----------- ----------- Total other expense, net (8,541) 405 (13,917) 405 ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS BEFORE INCOME TAXES (53,328) (130,042) (435,018) (176,221) BENEFIT FOR INCOME TAXES - Deferred tax benefit ----------- ----------- ----------- ----------- NET LOSS $ (53,328) $ (130,042) $ (435,018) $ (176,221) =========== =========== =========== =========== EARNINGS PER SHARE: Basic - Net loss $ (53,328) $ (130,042) $ (435,018) $ (176,221) =========== =========== =========== =========== Weighted-average common shares outstanding 6,652,692 5,922,564 6,652,692 3,116,098 =========== =========== =========== =========== Loss per share $ 0.01 $ 0.02 $ 0.07 $ 0.06 =========== =========== =========== ===========

See accompanying notes to condensed consolidated financial statements. -5- AMERICABILIA.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2000 --------------------------------------------------------------------------------

NOTES COMMON STOCK ADDITIONAL RECEIVABLE --------------------- PAID-IN FROM ACCUMULATED SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT TOTAL BALANCE, JANUARY 1, 2000 6,652,692 $ 6,653 $1,637,525 $ (104,412) $ (349,551) $1,190,215 Contributed services of officers and employees 42,000 42,000 Interest income from notes receivables from stockholders (6,628) (6,628) Net loss (435,018) (435,018) ---------- ---------- ---------- ---------- ---------- ---------- BALANCE, SEPTEMBER 30, 2000 6,652,692 $ 6,653 $1,679,525 $ (111,040) $ (784,569) $ 790,569 ========== ========== ========== ========== ========== ==========

See accompanying notes to condensed consolidated financial statements. -6- AMERICABILIA.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2000 AND PERIOD FROM MARCH 2, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999 --------------------------------------------------------------------------------

PERIOD FROM NINE MONTHS MARCH 2, 1999 ENDED TO SEPTEMBER 30, SEPTEMBER 30, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (435,018) $ (176,221) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 116,114 8,518 Provision for bad debts 6,763 Contributed services of officers and employees 42,000 25,000 Accrued interest on stockholder loans 12,756 1,765 Changes in operating assets and liabilities, net of effects from acquisition of businesses: Increase in trade accounts receivable (94,172) (22,311) Increase in inventories (612,033) (320,870) (Increase) decrease in prepaid assets and deposits 7,425 (39,040) Increase in other assets (860) (5,799) Decrease in trade accounts payable and accrued expenses (99,243) 82,243 Advances from stockholder 290,000 Decrease in income taxes payable (3,549) (31,249) ----------- ----------- Net cash used in operating activities (776,580) (471,201) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (2,442) (94,871) Acquisition of businesses, net of cash acquired (394,434) ----------- ----------- Net cash used in investing activities (2,442) (489,305) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase in interest receivables from loans to stockholders (6,628) Proceeds from loans 200,000 129,468 Payments on loans (4,216) Loans from stockholders 365,514 132,393 Common stock issued, net of receivable from stockholders 1,301,881 ----------- ----------- Net cash provided by financing activities 554,670 1,563,742 ----------- ----------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (224,352) 603,236 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 323,127 ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 98,775 $ 603,236 =========== ===========

See accompanying notes to condensed consolidated financial statements. (Continued) -7- AMERICABILIA.COM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2000 AND PERIOD FROM MARCH 2, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999 --------------------------------------------------------------------------------

PERIOD FROM NINE MONTHS MARCH 2, 1999 ENDED TO SEPTEMBER 30, SEPTEMBER 30, 2000 1999 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 for $500,000. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets 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 ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 13,008 $ 1,261 ======== ========= Income taxes $ 3,700 ========

See accompanying notes to condensed consolidated financial statements. (Concluded) -8- AMERICABILIA.COM, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited financial statements include the consolidated accounts of americabilia.com, Inc. together with its subsidiaries (collectively referred to herein as the "Company"). All material intercompany balances and transactions have been eliminated. These statements have been prepared in conformity with accounting principles generally accepted in the United States of America and used in preparing the Company's annual audited consolidated financial statements but do not contain all of the information and disclosures that would be required in a complete set of audited financial statements. They should, therefore, be read in conjunction with the Company's audited consolidated financial statements and related notes thereto for the period from March 2, 1999 (inception) to December 31, 1999. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial results for the interim periods presented. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 clarifies existing accounting principles related to revenue recognition in financial statements. The Company is required to comply with the provisions of SAB 101 by the fourth quarter of 2000. Management does not believe that the implementation of SAB 101 will have a material impact on the Company's results of operations. The Financial Accounting Standards Board recently issued FAS No. 137, "Deferral of FAS 133 Accounting for Derivatives," which delays the implementation of that pronouncement to June 15, 2000. The Company has not determined what effect, if any, that FAS 133 may have on its financial position or results of operations. 2. LONG-TERM DEBT During the first and second quarters of 2000, the Company's chairman and president each loaned the Company $50,000 under terms similar to their previous loans (see Note 6 - Related Party Transactions). The Company secured a $350,000 line of credit in April 2000 and has drawn down approximately $200,000 for inventory purchases. The line of credit bears interest at nine percent and must be paid in full for at least 30 days during any 12-month period. 3. LEASES During the first quarter of 2000, the Company rented production equipment under a three-year operating lease for $1,600 per month, which included maintenance and certain supplies. 4. STOCKHOLDERS' EQUITY EARNINGS PER SHARE - Basic earnings per share ("EPS") is computed by dividing net income or loss by the weighted-average number of common shares outstanding for the period. Diluted EPS is -9- computed by dividing net income by common and common equivalent shares outstanding for the period. Options to purchase common stock, whose exercise price was greater than the average market price for the period, have been excluded from the computation of diluted EPS. For the interim periods presented, there were no dilutive options, as the options would have been anti-dilutive due to the net loss for the periods. 5. INCOME TAXES Statement of Financial Accounting Standards No. 109 requires a valuation allowance to be recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. A valuation allowance has been established for the deferred tax asset at September 30, 2000 and December 31, 1999 due to the uncertainties associated with realizing such assets in the future. 6. RELATED PARTY TRANSACTIONS During the first and second quarters of 2000, the Company's chairman and president each loaned the Company $50,000 under terms similar to their previous loans. During the second and third quarters of 2000, the Company's chairman also advanced approximately $100,000 and $190,000, respectively, to the Company for purchases of inventory by the wholesale segment of the Company. The advances are secured by the inventory and must be repaid by proceeds from inventory purchased with the advances. In any event, the advances are due January 31, 2001. The Company expects to be able to pay these advances on or before January 31, 2001. 7. COMMITMENTS AND CONTINGENCIES The Company, through its wholly owned subsidiary, Unique Images, entered into a supply contract with Art Vivant, Ltd. of Japan. Under the contract, Unique Images will grant Art Vivant, Ltd. of Japan the exclusive right to market Unique Images' sports and movie collectibles in Japan. The Company expects to satisfy the contract with its existing manufacturing capacity. 8. SEGMENT REPORTING The Company has two reportable segments based upon products offered: retail sales and corporate operations, and wholesale distribution and manufacturing. The Company evaluates each segment's performance based on segment operating profit. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. -10- Information pertaining to the operations of reportable segments is as follows:

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 WHOLESALE RETAIL AND DISTRIBUTION AND CORPORATE MANUFACTURING TOTAL Revenues from external customers $ 156,250 $ 585,548 $ 741,798 Intersegment revenues 15,305 7,645 22,950 Depreciation and amortization 41,651 4,779 46,430 Interest income and other 1,233 2,891 4,124 Intersegment interest income 4,758 -- 4,758 Interest expense 5,572 7,093 12,665 Intersegment interest expense -- 4,758 4,758 Segment profit (loss) before interest and taxes (134,859) 90,072 (44,787) Net profit (loss) before taxes (139,198) 85,870 (53,328) Income tax (benefit) provision -- -- -- Net property and equipment 50,760 80,612 131,372 RECONCILIATION OF SEGMENT REVENUES TO CONSOLIDATED REVENUES Total revenues for reportable segments $ 764,748 Elimination of intersegment revenues (22,950) --------- Total consolidated revenues $ 741,798 =========

Significantly all (over 95 percent) of the Company's sales are in the United States. -11-

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 WHOLESALE RETAIL AND DISTRIBUTION AND CORPORATE MANUFACTURING TOTAL Revenues from external customers $ 70,209 $ 140,570 $ 210,779 Intersegment revenues -- 45,130 45,130 Depreciation and amortization 4,533 1,768 6,301 Interest income and other -- 4,237 4,237 Intersegment interest income 428 -- 428 Interest expense 1,765 2,067 3,832 Intersegment interest expense -- 428 428 Segment loss before interest and taxes (117,548) (12,899) (130,447) Net loss before taxes (115,831) (14,211) (130,042) Income tax (benefit) provision -- -- -- Net property and equipment 58,199 95,706 153,905 RECONCILIATION OF SEGMENT REVENUES TO CONSOLIDATED REVENUES Total revenues for reportable segments $ 255,909 Elimination of intersegment revenues (45,130) --------- Total consolidated revenues $ 210,779 =========

Significantly all (over 95 percent) of the Company's sales are in the United States. Prior to August 11, 1999, the Company had no wholesale distribution and manufacturing segment. -12-

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 WHOLESALE RETAIL AND DISTRIBUTION AND CORPORATE MANUFACTURING TOTAL Revenues from external customers $ 467,400 $ 1,081,902 $ 1,549,302 Intersegment revenues 19,438 83,214 102,652 Depreciation and amortization 102,270 13,844 116,114 Interest income and other 7,812 4,037 11,849 Intersegment interest income 11,567 -- 11,567 Interest expense 14,741 11,025 25,766 Intersegment interest expense -- 11,567 11,567 Segment loss before interest and taxes (357,300) (63,801) (421,101) Net loss before taxes (364,229) (70,789) (435,018) Income tax (benefit) provision -- -- -- Net property and equipment 50,760 80,612 131,372 RECONCILIATION OF SEGMENT REVENUES TO CONSOLIDATED REVENUES Total revenues for reportable segments $ 1,651,954 Elimination of intersegment revenues (102,652) ----------- Total consolidated revenues $ 1,549,302 ===========

Significantly all (over 95 percent) of the Company's sales are in the United States. -13-

WHOLESALE FOR THE PERIOD FROM MARCH 2, 1999 (DATE OF RETAIL AND DISTRIBUTION AND INCEPTION) TO SEPTEMBER 30, 1999 CORPORATE MANUFACTURING TOTAL Revenues from external customers $ 92,408 $ 140,570 $ 232,978 Intersegment revenues -- 45,130 45,130 Depreciation and amortization 6,750 1,768 8,518 Interest income and other 3,494 743 4,237 Intersegment interest income 428 -- 428 Interest expense 1,765 2,067 3,832 Intersegment interest expense -- 428 428 Segment loss before interest and taxes (163,727) (12,899) (176,626) Net loss before taxes (162,000) (14,221) (176,221) Income tax (benefit) provision -- -- -- Net property and equipment 58,199 95,706 153,905 RECONCILIATION OF SEGMENT REVENUES TO CONSOLIDATED REVENUES Total revenues for reportable segments $ 278,108 Elimination of intersegment revenues (45,130) --------- Total consolidated revenues $ 232,978 =========

Significantly all (over 95 percent) of the Company's sales are in the United States. Prior to August 11, 1999, the Company had no wholesale distribution and manufacturing segment. ****** -14- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OVERVIEW SPECIAL FACTORS AFFECTING THE COMPARABILITY OF CURRENT PERIOD AND PRIOR PERIOD OPERATING RESULTS The following discussion should be read in conjunction with, and is qualified in its entirety by our unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2000 and for the period from March 2, 1999 (Date of Inception) through September 30, 1999. The Company was formed on March 2, 1999. The Company did not achieve substantial operations until after September 30, 1999. Further, the Company acquired Unique Images in the third quarter of 1999. The period presented in the unaudited condensed consolidated financial statements from March 2, 1999 through September 30, 1999 is not a full nine months of operations and was during the development stage of the Company. Such period may not be comparable to the nine months ended September 30, 2000. The period from March 2, 1999 through September 30, 1999 is referred to herein as the "September 1999 period" while the period from January 1, 2000 through September 30, 2000 is referred to herein as the "September 2000 period". The period from July 1, 1999 through September 30, 1999 is referred to herein as the "September 1999 quarter" while the period from July 1, 2000 through September 30, 2000 is referred to herein as the "September 2000 quarter". DESCRIPTION OF BUSINESS The Company is engaged in direct internet merchandising of American-themed collectibles, gifts, and memorabilia. The Company manufactures and assembles its own products and also purchases products from a number of sources. The Company's products are marketed on an internet shopping site, www.americabilia.com. The Company strives to offer its customers a broad selection of products, a convenient shopping experience, and a competitive price. The Company commenced with organizational and operational activities on March 2, 1999 in Nevada as americabilia.com. The Company offers both framed memorabilia which it manufactures and products which it acquires from suppliers. Generally, the products acquired from suppliers are purchased by the Company, shipped by the supplier to the Company's facilities in Nevada and held in inventory until sale and shipment to customers. In selected instances, the Company purchases products from suppliers which drop ship the products to the Company's customers. In each instance, the Company acquires title to the product from the supplier and has all risks and rewards of ownership of the product. In each instance, the Company and not the supplier bears the risk of collection. In the case the customer returns the product, the product is returned to the Company and held by the Company in inventory for sale to a future customer. The Company acts as principal and not agent in connection with all product sales. -15- On August 11, 1999, the Company acquired the outstanding capital stock of Veltre Enterprises, Inc. dba Unique Images. Unique Images designs and manufactures Hollywood and sports memorabilia for fine art and memorabilia galleries. Unique Images also provides high volume and custom picture framing services. Unique Images uses computerized joiner and mat cutting equipment. The purchase price 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 the Rule 506 common stock of americabilia.com Nevada. The stock was issued at its fair value on the issue date of $1.00 per share or $100,000 in total. The Promissory Note was paid in full in November 1999. As part of the purchase, americabilia.com Nevada agreed to lease from Keith Veltre and his affiliates the premises that are used for Unique Images' business operations as well as certain business equipment. The Company was originally organized under the laws of the state of Florida on August 22, 1989 under the name First Zurich Investments, Inc. On November 15, 1996, the name of the entity was changed to Terra International Pharmaceuticals, Inc. On September 7, 1999, the entity's name was changed to americabilia.com, Inc. On September 17, 1999, the Company conducted a recapitalization through the merger of americabilia.com Nevada with and into Worldwide Collectibles, Inc., a Nevada corporation and a wholly owned subsidiary of the Company formed for the purpose of the merger. Pursuant to an Agreement of Merger dated September 14, 1999, each of the former stockholders of americabilia.com Nevada received one (1) share of Common Stock, in exchange for their shares of americabilia.com Nevada. As a result of the acquisition, a total of 6,115,000 shares of common stock were issued to the former shareholders of americabilia.com Nevada. Prior to its acquisition of americabilia.com Nevada, the Company did not have any operations. For accounting purposes, the acquisition has been treated as a recapitalization of americabilia.com with americabilia.com as the acquirer (reverse merger). As a result of this transaction the Company became a publicly traded company. The recapitalization was accounted for by adjusting common stock by $537 for the 537,692 shares of common stock held by the shareholders at the time that the entity was known as Terra International Pharmaceuticals, Inc. In addition, because the net assets of Terra International Pharmaceuticals, Inc. were $0, paid in capital was decreased by an amount equal to the par value of the 537,692 shares. Prior to the reverse merger, Terra Pharmaceuticals had no operations. The companies involved in the recapitalization included Terra Pharmaceuticals, Terra's wholly owned subsidiary, Worldwide Collectibles, and americabilia.com Nevada. Unique Images is a wholly owned subsidiary of Worldwide Collectibles. RESULTS OF OPERATIONS - SEPTEMBER 2000 QUARTER COMPARED TO SEPTEMBER 1999 QUARTER REVENUES The Company's revenues increased $531,019 from $210,779 in the September 1999 quarter to $741,798 in the September 2000 quarter. The increase is due to increased sales of Unique Images for the September 2000 quarter compared to the September 1999 quarter. In the September 1999 quarter, the Company's sales were limited due to the fact that the Company's retail sales outlet at that time was not yet well recognized. Additionally, Unique Images customer base was not as developed at that time. In the September 2000 quarter, Worldwide -16- Collectibles sales were $156,250 compared to $70,209 for the September 1999 quarter. Unique Images sales for the September 2000 quarter were $585,548 compared to $140,570 for the September 1999 quarter. EXPENSES Costs of sales in the September 2000 quarter were $503,073, or 68% of sales compared to $125,118, or 59% of sales in the September 1999 quarter. The increase in the costs of sales compared to 1999 activity relates to the fact that the September 2000 quarter includes operations from both Worldwide Collectibles and Unique Images for a full three months; whereas, the 1999 results included three months of Worldwide Collectibles activity, but only one and one-half months of Unique Images activity. Additionally, during the September 1999 quarter, the Company was not renting inventory warehouse space and had limited operations and inventory. General and administrative expenses increased $96,118 from $114,429 in the September 1999 quarter to $210,547 in the September 2000 quarter due to the Company adding significant staff and operations for the reasons mentioned above. Marketing expenses decreased $36,568 from $63,103 in the September 1999 quarter to $26,535 in the September 2000 quarter. Marketing was 4% of revenues for the September 2000 quarter vs. 30% for the September 1999 quarter. The decrease was a result of focused marketing in 2000 by the Company. Several officers of the Company are currently not receiving salaries. However, contributed salary expense has been recognized in the form of contributed capital during the September 2000 quarter ($14,000) and the September 1999 quarter ($14,000). Depreciation and amortization increased in 2000 compared to 1999 as a result of a full period of operations in 2000 and the expected amortization of goodwill from the purchase of Unique Images in August of 1999. OTHER INCOME (EXPENSE) Interest expense in the September 2000 quarter was $12,665 due to debt carried by the Company that did not exist in the September 1999 quarter. Approximately $8,600 of this expense relates to shareholder loans to the Company. Interest income for the September 2000 quarter was $4,124 due to available and interest bearing cash in the September 2000 quarter that did not exist in the September 1999 quarter as well as interest earned on the loans to shareholders of $2,192. The loans to shareholders related to stock issued in exchange for loans receivable in 1999. NET LOSS The Net Loss in the September 2000 quarter compared to the September 1999 quarter decreased by $76,714 from $130,042 to $53,328 as a result of reduced marketing expenses and due to the results of operations for Worldwide Collectibles and from Unique Images whose operations were acquired on August 11, 1999 as discussed above. -17- RESULTS OF OPERATIONS - SEPTEMBER 2000 PERIOD COMPARED TO SEPTEMBER 1999 PERIOD REVENUES The Company's revenues increased $1,316,324 from $232,978 in the September 1999 period to $1,549,302 in the September 2000 period. The increase is due to the fact that in the September 2000 period, the Company had nine months of operations from both Worldwide Collectibles as well as Unique Images. In the September 1999 period, however, the Company's sales were limited due to the short operating period and the fact that the Company's only sales outlet at that time was through Ebay and a retail outlet that was not yet well recognized. In the September 2000 period, Worldwide Collectibles sales were $467,400 compared to $92,408 for the September 1999 period. Unique Images sales for the September 2000 period were $1,081,902. EXPENSES Cost of sales in the September 2000 period were $1,095,013, or 71% of sales compared to $139,630 or 60% of sales in the September 1999 period. The increase in cost of sales compared to 1999 activity relates to the fact that the September 2000 period includes operations from both Worldwide Collectibles and Unique Images whereas the 1999 results included only Worldwide Collectibles activity. Additionally, during the September 1999 period, the Company was not renting inventory warehouse space and had limited operations and inventory. General and administrative expenses increased $508,537 from $162,945 in the September 1999 period to $671,482 in the September 2000 period due to the Company adding significant staff and operations for the reasons mentioned above. Marketing expenses increased $23,815 from $63,979 in the September 1999 period to $87,794 in the September 2000 period as the Company increased its marketing efforts once a viable Internet and retail showroom were available for customers to visit. Marketing was 6% of revenues for the September 2000 period compared to 27% in the September 1999 period due to a more focused marketing effort in 2000. Several officers of the Company are currently not receiving salaries. However, contributed salary expense has been recognized in the form of contributed capital during the September 2000 period ($42,000) and the September 1999 period ($25,000). Depreciation and amortization increased in 2000 compared to 1999 as a result of a full period of operations in 2000 and the expected amortization of goodwill from the purchase of Unique Images in August of 1999. OTHER INCOME (EXPENSE) Interest expense in the September 2000 period was $25,766 due to debt carried by the Company that did not exist in the September 1999 period. Interest income for the September 2000 period was $11,849 due to available and interest bearing cash in the September 2000 period that did not -18- exist in the September 1999 period as well as interest earned on the loans to shareholders of $6,628. The loans to shareholders related to stock issued in exchange for loans receivable in 1999. NET LOSS The Net Loss in the September 2000 period compared to the September 1999 period increased by $258,797 from $176,221 to $435,018 primarily due to the September 1999 period having only seven months of expenses, compared to nine months of expenses in the September 2000 period. See also revenue and expense fluctuations described above. Additionally, the results of operations for the Unique Images operations were acquired on August 11, 1999 as discussed above. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000, the Company had cash and cash equivalents of $98,775. The Company had working capital of $1,077,613 and stockholders' equity of $790,569. The cash decreased at September 30, 2000 as compared to December 31, 1999 due to increased inventory purchases and normal activity with accounts payable. The Company's debt increased approximately $280,000 due to increased bank loans and loans from related parties in the September 2000 period. During the September 2000 period, cash used in operating activities increased from $471,201 in the September 1999 period to $776,580. The increase is due, primarily, to increased purchases in inventory for pending sales. Cash flow from operations is expected to be sufficient to pay operating costs of the Company during the remainder of fiscal 2000. However the Company expects to raise additional funds through a combination of private placements, public offerings of its stock or bank loans in order to expand operations and increase its technical infrastructure and inventory. However, there can be no assurance that any additional financing, if needed to meet liquidity needs, will be available to us on favorable terms or at all. There can be no assurance that our estimate of foreseeable liquidity needs is accurate or that no new business developments or other unforeseen events will not occur, any of which could result in the need to raise additional funds. We expect that the adequacy of our operating cash flow will depend upon: - customer acceptance of our products; - the continued development of the Internet market as a source for our products; - the intensity of our competition; - the efficiency of operations; - the depth of customer demand, and the effectiveness of our marketing and promotional efforts. -19- LOANS FROM RELATED PARTIES During the September 2000 period, Henry E. Cartwright, the Company's Chairman of the Board and Gary Moore, the Company's President, each loaned the Company $50,000. Each of these loans bear interest at the rate of eight percent (8%) per annum and are due and payable on February 28, 2001. During the September 2000 period, Henry E. Cartwright, also agreed to loan up to $500,000 to the Company's wholly owned subsidiary, Unique Images, for purchases of specific inventory items. The loan bears interest at the rate of ten percent per annum and is payable as the inventory purchased is sold and on or before January 31, 2001 or upon the earlier sale of securities of the Company resulting in gross proceeds in excess of $1,000,000. The note is secured by a pledge of the specific inventory items purchased with the loan proceeds. At September 30, 2000, Mr. Cartwright had loaned the Company $290,000 pursuant to this arrangement. RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards Board recently issued FAS No. 137, "Deferral of FAS 133 Accounting for Derivatives" which delays the implementation of that pronouncement to June 15, 2000. The Company has not determined what effect, if any, that FAS 133 may have on its financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 clarifies existing accounting principles related to revenue recognition in financial statements. The Company is required to comply with the provisions of SAB 101 by the fourth quarter of 2000. Management does not believe that the implementation of SAB 101 will have a material impact on the Company's results of operations. FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act provides a "safe harbor" for certain forward-looking statements. Certain matters discussed in this filing could be characterized as forward-looking statements such as statements relating to plans for future expansion, as well as other capital spending, financing sources and effects of regulation and competition. Such forward-looking statements involve important risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company invests its cash and cash equivalents in FDIC insured savings accounts which, by their nature, are not subject to interest rate fluctuation. As of September 30, 2000, the Company had $917,580 in borrowings, including accrued interest of $13,882. The borrowings are related to bank loans, capitalized leases and loans from officers and directors which, by their nature, are not subject to interest rate fluctuations. -20- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Inapplicable. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Inapplicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable. ITEM 5. OTHER INFORMATION. Inapplicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS 27.1 Financial Data Schedule (B) REPORTS ON FORM 8-K None. -21- SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICABILIA.COM, INC. (Registrant) Dated: November 1, 2000 By: /s/ HENRY E. CARTWRIGHT ----------------------------------- Henry E. Cartwright, Chairman of the Board Dated: November 1, 2000 By: /s/ DIXIE L. CARTWRIGHT ----------------------------------- Dixie L. Cartwright, Treasurer (Principal Financial Officer) -22-