UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 2
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934
For the fiscal year ended DECEMBER 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934
For the transition period from _______________ to _______________
Commission File Number 0-25025
-------
SEDONA WORLDWIDE INCORPORATED
ARIZONA 86-0718104
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3840 North 16th Street, Phoenix, Arizona 85016
-----------------------------------------------------------------
Registrant's telephone number, including area code (602) 263-9600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Name of each Exchange
Title of Class on which registered
- ------------------------------- ---------------------
Common Stock, without par value None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate the number of shares outstanding of each of the Registrant's classes of
stock, as of the latest practicable date.
Title of Class Outstanding at February 28, 1999
- ------------------------------- --------------------------------
Common Stock, without par value 4,200,000 shares
At February 28, 1999, all of the Registrant's common shares are held by
affiliates.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 11th day of
June, 1999.
Sedona Worldwide Incorporated,
an Arizona corporation
(Registrant)
By: /s/ Patrick J. McGroder III
---------------------------
Patrick J. McGroder III
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ Patrick J. McGroder III Chairman of the Board June 11, 1999
- ----------------------------
Patrick J. McGroder III
/s/ Mia A. Martori Director, President and June 11, 1999
- ---------------------------- Treasurer
Mia A. Martori
/s/ Stephen W. Morgan Chief Financial Officer of June 11, 1999
- ---------------------------- ILX Resorts Incorporated
Stephen W. Morgan (acting principal financial
and accounting officer)
/s/ Todd Fisher Director June 11, 1999
- ----------------------------
Todd Fisher
/s/ James W. Myers Director June 11, 1999
- ----------------------------
James W. Myers
/s/ Robert Shields Director June 11, 1999
- ----------------------------
Robert Shields
<PAGE>
EXPLANATORY NOTE
This amendment to Sedona Worldwide Incorporated's Annual Report on Form 10-KSB
is filed for the sole purpose of removing the paragraph on page F-1, Index to
Financial Statements, that makes reference to unaudited 1996 and 1997 financial
statements. The 1996 and 1997 financial statements are audited.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
See the information set forth on Index to Financial Statements appearing on
page F-1 of this Report on Form 10-KSB.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets at December 31, 1997 and 1998 F-3
Statements of Operations for the years ended December 31, 1996,
1997, and 1998 F-4
Statements of Stockholders' Net Capital Deficiency for the years
ended December 31, 1996, 1997, and 1998 F-5
Statements of Cash Flows for the years ended December 31, 1996,
1997, and 1998 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
HANSEN, BARNETT & MAXWELL
A Professional Corporation
CERTIFIED PUBLIC ACCOUNTANTS
(801) 532-2200
MEMBER OF AICPA DIVISION OF FIRMS Fax (801) 532-7944
MEMBER OF SECPS 345 East Broadway, Suite 200
MEMBER OF SUMMIT INTERNATIONAL ASSOCIATES Salt Lake City, Utah 84111-2693
INDEPENDENT AUDITORS' REPORT
To the Stockholders
of Sedona Worldwide Incorporated
We have audited the accompanying balance sheets of Sedona Worldwide Incorporated
as of December 31, 1998 and 1997, and the related statements of operations,
stockholders' net capital deficiency and cash flows for each of the three years
in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sedona Worldwide Incorporated
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 2 to the
financial statements, the company has incurred net losses since inception and
has liabilities that exceed its assets. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
May 13, 1999
F-2
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A Majority-owned Subsidiary of ILX Resorts Incorporated)
BALANCE SHEETS
ASSETS
December 31,
--------------------------
1997 1998
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 17,296 $ 68,406
Accounts receivable 1,866 786
Inventories 75,933 134,180
Prepaid expenses and other current assets 37,581 77,022
----------- -----------
Total current assets 132,676 280,394
----------- -----------
Property and equipment, net (Notes 3 and 5) 53,316 42,889
----------- -----------
TOTAL ASSETS $ 185,992 $ 323,283
=========== ===========
LIABILITIES AND STOCKHOLDERS' NET CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Accounts payable $ 12,454 $ 32,163
Due to parent 1,866,583 2,333,635
Accrued expenses 29,921 26,284
Current portion of capital lease obligations
(Note 5) 30,964 26,171
----------- -----------
Total current liabilities 1,939,922 2,418,253
----------- -----------
CAPITAL LEASE OBLIGATIONS - Less current
portion (Note 5) 23,956 --
----------- -----------
Total liabilities 1,963,878 2,418,253
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' NET CAPITAL DEFICIENCY:
Preferred stock, $10 par value - authorized,
5,000,000 shares, none issued
Common stock, no par value - 50,000,000 shares
authorized, 4,200,000 shares issued and
outstanding 1,000,000 1,000,000
Deficit (2,777,886) (3,094,970)
----------- -----------
Total stockholders' net capital deficiency (1,777,886) (2,094,970)
----------- -----------
TOTAL $ 185,992 $ 323,283
=========== ===========
See notes to financial statements.
F-3
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A Majority owned Subsidiary of ILX Resorts Incorporated)
STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------------------------
1996 1997 1998
----------- ----------- -----------
NET SALES (Note 7):
Customers $ 157,123 $ 66,472 $ 42,964
Affiliates 384,874 274,501 258,052
----------- ----------- -----------
Total net sales 541,997 340,973 301,016
COST OF SALES 341,233 237,503 195,895
----------- ----------- -----------
Gross profit 200,764 103,470 105,121
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (Note 7) 514,772 438,222 415,843
----------- ----------- -----------
LOSS FROM OPERATIONS (314,008) (334,752) (310,722)
INTEREST EXPENSE 17,256 8,877 6,362
----------- ----------- -----------
NET LOSS ($ 331,264) ($ 343,629) ($ 317,084)
=========== =========== ===========
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING 4,200,000 4,200,000 4,200,000
=========== =========== ===========
BASIC AND DILUTED NET LOSS
PER SHARE ($ 0.08) ($ 0.08) ($ 0.08)
=========== =========== ===========
See notes to financial statements.
F-4
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A Majority-owned Subsidiary of ILX Resorts Incorporated)
STATEMENTS OF STOCKHOLDERS' NET CAPITAL DEFICIENCY
COMMON STOCK
---------------------
SHARES AMOUNT DEFICIT TOTAL
------ ------ ------- -----
BALANCE, JANUARY 1, 1996 4,200,000 $1,000,000 ($2,102,993) ($1,102,993)
Net loss 0 0 (331,264) (331,264)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996 4,200,000 1,000,000 (2,434,257) (1,434,257)
Net loss 0 0 (343,629) (343,629)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1997 4,200,000 1,000,000 (2,777,886) (1,777,886)
Net loss 0 0 (317,084) (317,084)
--------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1998 4,200,000 $1,000,000 ($3,094,970) ($2,094,970)
========= ========== =========== ===========
See notes to financial statements.
F-5
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A Majorityowned Subsidiary of ILX Resorts Incorporated)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1997 1998
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($331,264) ($343,629) ($317,084)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 59,064 62,404 40,929
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,677) 3,725 1,080
(Increase) decrease in inventory (21,013) 82,948 (58,247)
Increase in prepaid expenses and other assets (18,573) (14,107) (39,441)
Decrease (increase) in accounts payable (33,249) (4,745) 19,709
Decrease in accrued expenses (35,370) (14,179) (3,637)
--------- --------- ---------
Net cash used in operating activities (383,082) (227,583) (356,691)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (890) (21,138) (30,502)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital
lease obligations (58,816) (45,759) (28,749)
Advances from parent 446,964 289,450 467,052
--------- --------- ---------
Net cash provided by financing activities 388,148 243,691 438,303
--------- --------- ---------
INCREASE (DECREASE) IN CASH 4,176 (5,030) 51,110
CASH, BEGINNING OF PERIOD 18,150 22,326 17,296
--------- --------- ---------
CASH, END OF PERIOD $ 22,326 $ 17,296 $ 68,406
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION Cash paid during the period for interest $ 29,644 $ 8,877 $ 6,362
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES Notes payable assumed by
buyer of property and equipment with net book value
of $180,000 (Note 7) ($180,000) -- --
========= ========= =========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. Sedona Worldwide Incorporated, formerly Red Rock
Collection Incorporated (the "Company"), commenced operations in April 1992, and
is incorporated in the State of Arizona. The Company is an 80 percent-owned
subsidiary of ILX Resorts Incorporated ("ILX").
The Company markets and distributes skin and hair care products through ILX
resorts located in Arizona, Colorado and Indiana and on a limited basis through
sales primarily in the southwestern United States.
BASIS OF PRESENTATION. The accompanying financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As shown
in the financial statements, during the years ended December 31, 1997 and 1998,
the Company incurred net losses of $343,629 and $317,084, respectively, and, as
of those dates, the Company's current liabilities exceeded its current assets by
$1,807,246 and $2,137,859 respectively, and its total liabilities exceeded its
total assets by $1,777,886 and $2,094,970, respectively.
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely basis, to
obtain financing as may be required, and ultimately to attain profitable
operations. ILX has funded the Company's cash shortfalls since inception. The
Company filed a Form 10-SB Registration on November 4, 1998, which became
effective by lapse of time on January 3, 1999. ILX intends to make a
distribution of all of the shares of the Company's common stock which ILX holds
to the ILX shareholders on a pro rata basis ("the Spin-Off"). The Company is
attempting to obtain a credit facility to address its cash flow needs.
SIGNIFICANT ACCOUNTING POLICIES.
STOCK SPLIT
On August 24, 1998, the Company's shareholders approved an amendment to the
Company's Articles of Incorporation to effect a six-for-one stock split of the
Company's issued and outstanding shares of common stock. The stock split has
been retroactively reflected in the accompanying financial statements.
INVENTORIES
Inventories are recorded at the lower of cost (first-in, first-out) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from three to five years. Property and equipment under capitalized leases
are stated at the lesser of fair value or the present value of future minimum
lease payments at the date placed in service, and amortized on the straight-line
method over the term of the lease.
INCOME TAXES
Income taxes are accounted for using Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting For Income Taxes." Under SFAS No. 109,
deferred tax assets and liabilities are recognized for the estimated future tax
effects attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis. The
Company provides for taxes as if the Company had operated on a stand-alone
basis.
REVENUE RECOGNITION
The Company recognizes sales of products when the products are shipped.
Revenue from consigned goods is recognized when sold and is not considered
significant to the operations of the Company.
F-7
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
ACCOUNTING MATTERS
In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which is effective for fiscal years beginning
after December 31, 1996. During 1997, SFAS No. 125 was adopted and had no impact
on the Company's financial position, results of operations or of cash flows.
The Company has adopted SFAS No. 128, "Earnings Per Share." Loss per share
data in 1996 has been restated to reflect the adoption of SFAS No. 128. Basic
and diluted net loss per common share is computed by dividing net loss by the
weighted average number of common shares outstanding during the year.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure," which is effective for financial statements for
periods ending after December 15, 1997 and establishes standards for disclosing
information about an entity's capital structure. During 1997, SFAS No. 129 was
adopted and had no significant effect on the Company's disclosures about its
capital structure.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for financial statements for periods beginning after
December 15, 1997 and establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. During 1998, SFAS No. 130
was adopted and had no material impact on the Company's financial statement
presentation or related disclosures.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997 and establishes standards for the way that
public business enterprises report information about operating segments in
annual financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The Company has a single segment in the personal care products
industry. Revenue from the Company's only major customer is reported on the
income statement under Affiliates.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. BUSINESS CONDITION
As shown in the accompanying financial statements, the Company incurred a
net loss of $317,084 during the year ended December 31, 1998, and as of that
date, the Company's current liabilities exceeded its current assets by
$2,137,859 and its total liabilities exceeded its total assets by $2,094,970.
Those factors create an uncertainty about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
In conjunction with the Spin-Off, the Company believes ILX will forgive the
intercompany indebtedness from the Company to ILX of $2,333,635 at December 31,
1998. The Company has incurred net losses since its inception. In order to
achieve profitability it will be necessary for the Company to substantially
increase its revenue. While there are presently some opportunities in progress
that may generate sufficient additional sales to generate profits, there can be
no assurance that such revenues will be generated from current sources. Post
Spin-Off, the Company may pursue debt or equity financing that will enable it to
invest in marketing and distribution geared toward generating greater revenues.
However, there can be no assurance that such financing will be available or that
the marketing and distribution efforts will be successful in generating
sufficient sales to achieve profitability.
F-8
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
NOTES TO FINANCIAL STATEMENTS
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 consist of the following:
1997 1998
--------- ---------
Leasehold improvements (Note 5) $ 2,600 $ 2,600
Furniture and fixtures (Note 5) 178,128 183,610
Computer equipment 77,087 102,107
--------- ---------
Total 257,815 288,317
Less accumulated depreciation (204,499) (245,428)
--------- ---------
Property and equipment, net $ 53,316 $ 42,889
========= =========
NOTE 4. INCOME TAXES
Deferred income taxes are provided for temporary differences between
financial statement and income tax reporting for certain transactions, primarily
net operating loss carryover and amortization of start-up costs capitalized. Net
deferred income taxes at December 31, 1998 consist of the following:
1997 1998
--------- ---------
Deferred income tax assets $ 467,012 $ 462,785
Valuation allowance (467,012) (462,785)
--------- ---------
Net deferred income tax asset $ -- $ --
========= =========
The Company files its income tax returns as a member of the ILX
consolidated income tax return. However, there is no formal income tax sharing
agreement to allocate income taxes among the members of the consolidated group.
Historically, the Company has not recorded an income tax benefit for losses it
has incurred that were utilized or may be utilized by ILX.
The Company has recorded a valuation allowance equal to its deferred tax
asset at December 31, 1997 and 1998 because, on a stand-alone basis, the Company
has never generated taxable income and there is insufficient evidence that
temporary differences between financial and taxable income, as well as net
operating loss carryovers, can be utilized to reduce future income taxes. This
treatment results in no income tax benefit being recorded in 1997 and 1998.
The Company has approximately $1,117,000 of federal and state net operating
loss carryovers which will begin to expire in 2011 for federal and 2001 for
state.
NOTE 5. LEASE COMMITMENTS
OPERATING LEASES. The Company leases its facilities under an operating
lease. The facilities are currently being leased under a renewable one-year
option at an annual rate of $48,000. The Company also has an option to renew its
lease annually through December 2000. Total rent expense for the years ended
December 31, 1997 and 1998 was $48,000.
CAPITAL LEASES. The Company leases furniture and fixtures and computer
equipment under capital leases. Capital lease assets and accumulated
amortization included in property and equipment in the accompanying financial
statements as of December 31 are as follows:
1997 1998
------- -------
Furniture and fixtures and computer
equipment $97,400 $97,400
Less accumulated amortization 67,700 71,200
------- -------
Net $29,700 $26,200
======= =======
F-9
<PAGE>
Capital lease obligations at December 31 consist of the following
1997 1998
------- -------
Obligations under capital leases $60,736 $27,702
Less amount representing interest 5,816 1,531
------- -------
54,920 26,171
Less current portion 30,964 26,171
------- -------
Long-term portion of capital lease
obligations $23,956 $ --
======= =======
NOTE 6. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that the Company disclose estimated fair values for its financial
instruments. Fair value estimates are made at a specific point in time and are
based on relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties, matters of
judgment and, therefore, cannot be determined with precision. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular instrument. Because the
fair value is estimated as of December 31, 1998, the amounts that will actually
be realized or paid in settlement of the instruments could be significantly
different.
For the Company's cash, the carrying amount is the fair value. The carrying
amount is assumed to be the fair value for accounts receivable, accounts payable
and other accrued expenses because of the short maturity of the portfolios. The
fair value of the Company's capital lease obligations approximates the terms in
the marketplace under which they could be replaced. Therefore, the fair value
approximates the carrying value of these financial instruments.
NOTE 7. RELATED PARTIES
Sales to affiliates for the years ended December 31, 1997 and 1998 were
$274,501 and $258,052 representing approximately 81% and 86%, respectively, of
total sales.
Certain administrative expenses aggregating $19,800 and $9,800 during the
years ended December 31, 1997 and 1998, respectively, have been allocated to the
Company by ILX based on a budget formula that was agreed upon by ILX and its
subsidiaries at the beginning of the respective year. Management of the Company
believes that such allocation is reasonable.
In December 1995, the Company sold its building to an affiliate for
$500,000. The purchase price consisted of a reduction in the principal balance
of the Company's note payable to the affiliate of $320,000 in December 1995 and,
in January 1996, payment by the affiliate of the $180,000 note collateralized by
a deed of trust on the building. The Company leased back the building for a
one-year term, with four one-year options to renew through December 2000. Rent
of $48,000 was paid in 1997 and in 1998.
NOTE 8. SHAREHOLDERS' EQUITY
On October 13, 1998, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation to increase the number of the Company's
authorized shares of common stock to 50,000,000.
F-10
