SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended September 30, 1999 Commission File Number 0-25025
------------------ -------
SEDONA WORLDWIDE INCORPORATED
------------------------------------------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0718104
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3840 North 16th Street, Phoenix, Arizona 85016
----------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code 602-263-9600
------------
Former name, former address, and former fiscal year, if changed since last
report.
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 the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Class Outstanding at November 12, 1999
- ------------------------------- ---------------------------------
Common Stock, without par value 4,200,000 shares
<PAGE>
PART I
ITEM I. FINANCIAL STATEMENTS
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
BALANCE SHEET
December 31, September 30,
1998 1999
------------ -------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 68,406 $ 5,013
Accounts receivable 786 391
Inventories 134,180 132,472
Prepaid and other 77,022 80,966
----------- -----------
Total current assets 280,394 218,842
Property and equipment, net 42,889 30,117
----------- -----------
TOTAL ASSETS $ 323,283 $ 248,959
=========== ===========
LIABILITIES AND CAPITAL DEFICIENCY
Accounts payable $ 32,163 $ 3,169
Due to parent 2,366,635 2,492,096
Accrued expenses 26,284 30,744
Capital lease - current 26,171 4,627
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Total current liabilities 2,451,253 2,530,636
----------- -----------
Common stock 1,000,000 1,000,000
Deficit (3,127,970) (3,281,677)
----------- -----------
Net capital deficiency (2,127,970) (2,281,677)
----------- -----------
TOTAL LIABILITIES AND CAPITAL $ 323,283 $ 248,959
=========== ===========
See notes to consolidated financial statements
2
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales:
Customers $ 9,289 $ 11,380 $ 27,377 $ 57,990
Affiliates 67,811 81,505 162,009 225,488
----------- ----------- ----------- -----------
Total net sales 77,100 92,885 189,386 283,478
----------- ----------- ----------- -----------
Cost of sales: 52,856 59,284 133,467 179,394
----------- ----------- ----------- -----------
Gross profit 24,244 33,601 55,919 104,084
Sales, General & Administrative Expense: 102,806 80,918 293,470 256,637
----------- ----------- ----------- -----------
Loss from operations (78,562) (47,317) (237,551) (152,553)
Interest expense 871 210 3,310 1,154
----------- ----------- ----------- -----------
Net Loss (79,433) (47,527) (240,861) (153,707)
=========== =========== =========== ===========
Weighted average shares of common stock
outstanding 4,200,000 4,200,000 4,200,000 4,200,000
Basic net loss per share $ (0.02) $ (0.01) $ (0.06) $ (0.04)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine months ended
September 30,
------------------------
1998 1999
--------- ---------
Cash flows from OPERATING activities:
Net loss $(240,861) $(153,707)
Depreciation and amortization 30,608 29,650
Decrease in accounts receivable 892 395
(Increase) decrease in inventory (49,866) 1,708
Increase in prepaid and other (16,407) (3,944)
Increase (decrease) in accounts payable 7,198 (28,994)
Increase (decrease) in accrued expense (9,088) 4,460
--------- ---------
Net cash used in operating activities (277,524) (150,432)
--------- ---------
Cash flows from INVESTING activities:
Purchase of property and equipment (22,034) (16,879)
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Cash flows from FINANCING activities:
Principal payments on debt and leases (22,076) (21,544)
Advances from parent 327,854 125,461
--------- ---------
Net cash provided by financing activities 305,778 103,917
--------- ---------
INCREASE/(decrease) in cash 6,220 (63,393)
Cash at beginning of period 17,296 68,406
--------- ---------
Cash at end of period $ 23,516 $ 5,013
========= =========
See notes to consolidated financial statements
4
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
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.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-QSB and Rule 10-01 of
Registration S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three- and nine-month periods ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. The accompanying financial statements should be read in conjunction with
the Company's most recent audited financial statements.
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 three months ended September 30, 1998 and 1999, the
Company incurred net losses of $(79,433) and $(47,527), respectively, and during
the nine months ended September 30, 1998 and 1999, the Company incurred net
losses of $(240,861) and $(153,707), respectively. As of December 31, 1998 and
September 30, 1999, the Company's current liabilities exceeded its current
assets by $2,170,859 and $2,311,794 respectively, and its total liabilities
exceeded its total assets by $2,127,970 and $2,281,677, 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 registration statement on Form 10-SB on November 4, 1998, to
register its common stock under the Securities Exchange Act of 1934, as amended.
The registration statement 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.
STOCK SPLIT
On August 24, 1998, the Company's shareholders approved an amendment to the
Company's Articles of Incorporation to effect a nine-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 on the date placed in service, and amortized using the
straight-line method over the term of the lease.
5
<PAGE>
SEDONA WORLDWIDE INCORPORATED
(A MAJORITY-OWNED SUBSIDIARY OF ILX RESORTS INCORPORATED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
ACCOUNTING MATTERS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which was 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. SFAS 130 was adopted by the Company in 1998. There were no
items of other comprehensive income, as that term is defined in SFAS 130, in the
nine months ended September 30, 1998 or September 30, 1999.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information," which was 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 significant customer, ILX, is reported
on the income statement under Affiliates.
NOTE 2. BUSINESS CONDITION
As shown in the accompanying financial statements, the Company incurred net
losses of $(47,527) and $(153,707) during the three- and nine-month periods
ended September 30, 1999, and as of the nine months ended September 30, 1999,
the Company's current liabilities exceeded its current assets by $2,311,794 and
its total liabilities exceeded its total assets by $2,281,677. These 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 $2,492,096 at September 30,
1999. However, 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 under
consideration that could potentially generate sufficient additional sales to
generate profits, there can be no assurance that such opportunities will be
realized or that, even if realized, they will result in a profit to the Company.
Based upon the Company's historical results, revenues generated from current
sources are insufficient to support the Company's ongoing working capital needs.
Post Spin-Off, the Company may pursue debt or equity financing or a business
combination 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, that any desired business combination will be
consummated or that the marketing and distribution efforts will be successful in
generating sufficient sales to achieve profitability. The Company does not
currently have any agreements, binding or non-binding, related to any potential
financing, business combination or marketing or distribution activities.
NOTE 3. SUBSEQUENT EVENTS
In October 1999, ILX agreed to provide up to $200,000 of working capital
financing to the Company through November 30, 2000. This agreement was executed
in anticipation of the distribution by ILX of all of its shares of the Company,
representing 80% of the Company's total outstanding shares of Common Stock. All
amounts borrowed by the Company under this agreement will bear interest equal to
the prime rate plus 3% per annum with interest payable monthly. The entire
unpaid principal amount will be due on December 31, 2000.
6
<PAGE>
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations includes certain forward-looking statements. When used in this
Form 10-QSB, the words "estimate," "projection," "intend," "anticipates" and
similar terms are intended to identify forward-looking statements that relate to
the Company's future performance. Such statements are subject to substantial
uncertainty. Readers are cautioned not to place undue reliance on the
forward-looking statements set forth below. The Company undertakes no obligation
to publicly update or revise any of the forward-looking statements contained
herein.
OVERVIEW
Sedona Worldwide Incorporated was formed in 1992 to develop, test, market
and distribute its own proprietary "Sedona Spa" branded lines of face, hair and
body care products and apparels containing ingredients or materials indigenous
to, and embodying the appeal of, the Southwestern region of the United States
and of Sedona, Arizona in particular. To date, the Company has generated revenue
primarily through the sale of its face, hair and body care products to ILX, of
which it is an 80% subsidiary. ILX distributes the Company's products as in-room
amenities at its resorts and hotels, as premiums (incentives) to its customers
for attending vacation ownership sales presentations, and for retail sales at
its resort gift shops, and at the Sedona Spa at Los Abrigados Resort & Spa. The
Company also generates revenue from direct mail sales to consumers (many of whom
were introduced to the products as in-room amenities or premiums) and from
limited retail distribution in specialty shops.
In November 1998, the Company filed a registration statement on Form 10-SB
to register its Common Stock under the Securities Exchange Act of 1934, as
amended (SEC File No. 000-25025). This registration statement was filed in
contemplation of a distribution by ILX of the 3,360,000 shares of the Company's
outstanding stock held by ILX. These shares, representing 80% of the Company's
total outstanding shares, will be distributed to ILX's shareholders on a pro
rata basis as a dividend to those shareholders (the "Spin-Off"). Subject to the
completion of that review by the SEC, ILX intends to effect the Spin-Off as of
December 1, 1999 or as soon thereafter as practicable.
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the
Company:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1999 1998 1999
----- ----- ----- -----
Net sales:
Sales to affiliates (1) 88.0% 87.7% 85.5% 79.5%
Sales to non-affiliates 12.0% 12.3% 14.5% 20.5%
----- ----- ----- -----
Total sales 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
As a percentage of net sales:
Cost of sales 68.6% 63.8% 70.5% 63.3%
Contribution margin 31.4% 36.2% 29.5% 36.7%
Sales, general and administrative
expense 133.3% 87.1% 155.0% 90.5%
Net Loss 103.0% 51.2% 127.2% 54.2%
- ----------
(1) Sales to affiliates consist of sales made to ILX. Sales to ILX are made at
lower prices (generally cost plus a small mark up) than sales to
non-affiliates.
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1999
Net sales increased 20% or $15,785 to $92,885 for the three months ended
September 30, 1999 from $77,100 for the same period in 1998 and increased 50% or
$94,092 to $283,478 for the nine months ended September 30, 1999 from $189,386
for the same period in 1998, reflecting the emphasis on additional channels of
distribution, use of products as premiums by an additional ILX sales office and
higher product pricing.
Cost of sales as a percentage of sales decreased to 63.8% for the three
months ended September 30, 1999 from 68.6% for the same period in 1998 and
decreased to 63.3% for the nine months ended September 30, 1999 from 70.5% for
the same period in 1998, reflecting higher product prices.
7
<PAGE>
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Sales, general and administrative expenses decreased $21,888 to $80,918 for
the three months ended September 30, 1999 from $102,806 for the same period in
1998 and decreased $36,833 to $256,637 for the nine months ended September 30,
1999, from $293,470 for the same period in 1998, reflecting cost reductions in
printing, supplies and advertising.
Interest expense decreased to $210 for the three months ended September 30,
1999 from $871 for the same period in 1998, and decreased to $1,154 for the nine
months ended September 30, 1999 from $3,310 for the same period in 1998,
reflecting declining capital lease obligations.
There is no income tax benefit recorded in 1998 or 1999 because the Company
has recorded a valuation allowance equal to its deferred tax asset at
December 31, 1998 and September 30, 1999, respectively. Under SFAS No. 109,
deferred tax assets and liabilities are recognized for the estimated future tax
effects attributable to differences between the amounts of the Company's
existing assets and liabilities and their respective tax basis. Because the
Company has not yet generated taxable income, and therefore sufficient evidence
does not exist that differences in financial and taxable income and net
operating loss carryforwards will be utilized to reduce future income taxes, no
income tax benefit has been recorded for the three- and nine-month periods ended
September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH
The Company generates cash primarily from the sale of its own proprietary
"Sedona Spa" branded lines of face, hair and body care products and apparels
containing ingredients or materials indigenous to, and embodying the appeal of,
the Southwestern region of the United States and of Sedona, Arizona in
particular. During the nine-month periods ended September 30, 1998 and 1999,
cash used in operations was $277,524 and $150,432, respectively. Historically
the Company's cash flows from product sales have not been sufficient to fund its
operations, and shortfalls have been funded by its majority parent, ILX. ILX
advanced the Company $327,854 and $125,461 in the nine-month periods ended
September 30, 1998 and 1999, respectively. ILX has funded the Company's cash
shortfalls since inception and has agreed to continue to do so until the
completion of the Spin-Off, although it has no obligation to do so. As of
September 30, 1999, the Company was indebted to ILX in an amount in excess of
$2,492,000, which is expected to be forgiven in conjunction with the Spin-Off.
Following the Spin-Off ILX has agreed to provide up to $200,000 of working
capital financing through November 30, 2000. All amounts borrowed by the Company
will bear interest equal to the prime rate plus 3% per annum and is payable
monthly. The entire unpaid principal will be due on December 21, 2000. Without
such a commitment, or other sources of working capital financing which at
present do not exist, the Company's current cash flows will be insufficient to
meet its liquidity, operating and capital requirements. The Company currently
has no credit facility with a bank or other financial institution. The Company
will attempt to obtain a credit facility to address its cash flow needs;
however, there can be no assurance that any such financing will be available if
needed, or, if available will be on terms acceptable to the Company.
The Company anticipates that its expenses will increase in the future as it
attempts to expand its business by acquiring new products and increasing sales
and marketing efforts and other operations. The Company expects to continue to
incur losses until such time, if ever, as it is able to sell a sufficient volume
of products at prices that provide adequate gross profit to cover operating
costs. The Company's working capital requirements will depend upon numerous
factors, including payment cycles for its shipped products, credit arrangements
with suppliers, the scale-up of its sales and marketing resources, acquisition
of new products and the terms upon which such products are acquired, competitive
factors, and marketing activities. There can be no assurance when, if ever, the
Company will be able to generate sufficient revenues from its operations to
offset its expenses or to secure additional capital commitments. IF THE COMPANY
IS UNABLE TO GENERATE MORE CASH FLOWS THAN IT DOES CURRENTLY, IT WILL BE
INSOLVENT AND MAY HAVE TO DISCONTINUE ITS BUSINESS OPERATIONS.
In light of the Company's inability to operate profitably, its independent
auditors have qualified their opinion as to the Company's financial statements
for the years ended December 31, 1997 and 1998 with a statement that the Company
may be unable to continue as a "going concern." The Company's management
believes that the principal reason for its inability to generate additional
revenues is the lack of a larger customer base and the marketing resources
needed to attract such customers. The Company intends to address these issues by
seeking to obtain third party financing to be used to more aggressively market
its products and services and/or by seeking to identify a suitable third party
with whom it may enter into a merger, acquisition or other business combination.
However, the Company currently has no agreement, binding or non-binding, of any
nature for any such financing or any such business combination and there can be
no assurance that it will be able to complete any such transaction or that, even
if completed, they will adequately address the Company's liquidity problems. As
discussed below, if the Company is unable to generate revenues in excess of its
expenses it may be unable to continue as a going concern.
8
<PAGE>
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company has historically filed its income tax returns as a member of
the ILX consolidated income tax return. There is no formal income tax sharing
agreement to allocate income taxes among the members of the group and,
historically, the Company has not recorded an income tax benefit for losses it
has incurred that were utilized or may be utilized by ILX.
At December 31, 1998, the Company had approximately $1,117,000 of federal
and state net operating loss ("NOL") carryforwards which will begin to expire in
2011 for federal income tax purposes and 2001 for state income tax purposes.
Section 382 of the Internal Revenue Code imposes limitations on the utilization
of NOLs by a corporation following various types of ownership changes which
result in more than a 50% change in ownership of a corporation within a
three-year period. Such a change is expected to result from the Spin-Off of the
Company's Common Stock. As a result, following the Spin-Off, the limitations of
Section 382 are expected to apply and may limit or deny the future utilization
of the NOL by the Company.
USES OF CASH
Investing activities typically reflect a net use of cash for equipment
purchases. Net cash used in investing activities in the nine-month periods ended
September 30, 1998 and 1999 was $22,034 and $16,879, respectively.
CREDIT FACILITIES AND CAPITAL
The Company has never accessed commercial financing and to date, all of its
working capital needs have been financed by ILX. However, following the
Spin-Off, ILX does not intend to fund the Company's future cash shortfalls. As a
result, the Company will need to secure alternative financing sources if it
continues to operate at a loss or, even if profitable, it pursues a growth
strategy. There can be no assurance that such resources will be available to the
Company when needed and on favorable terms. In addition, any commercial
financing obtained is likely to impose certain financial and other restrictive
covenants upon the Company and result in increased interest expense. Further,
any issuance of additional equity or debt securities by the Company to raise
additional capital or in connection with any future business combination could
result in further dilution to the Company's stockholders, including those who
receive shares as a result of the Spin-Off. Although the Company anticipates the
need for additional financing, it does not presently have any plans to engage in
an equity or debt financing transaction.
SEASONALITY
Presently the Company's revenues are only minimally seasonal, with slightly
increased sales during the second and third quarters and December, reflecting
seasonality in resort guests of its major customer, ILX. If the Company is able
to expand its customer base and marketing and distribution methods, it may
experience different seasonality dynamics that may cause operating results to
fluctuate.
CONCENTRATION
The substantial majority of the Company's revenues to date have been
generated from its parent company, ILX. There are no long-term commitments to
purchase by ILX and, in the event ILX ceased to be a customer of the Company,
revenues would be significantly impacted. If ILX remains a customer, revenues
are expected to increase as ILX adds more resorts (which utilize in-room
amenities) and sales offices (which offer premiums to touring guests), although
there can be no assurances in this regard.
YEAR 2000 ISSUES
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit calendar year is commonly referred to as the "Year 2000 Compliance"
issue. As the calendar year 2000 approaches, such systems may be unable to
accurately process certain date-based information, resulting in program
malfunctions and interruptions.
9
<PAGE>
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company has identified all significant in-house applications that will
require modifications or upgrades to ensure Year 2000 Compliance. Internal and
external resources are being used to make the required modifications and
upgrades and to test Year 2000 Compliance. The modification and upgrade of all
significant applications has been completed. In addition, the Company will seek
to ensure that computer applications that it purchases in the future will not
have any Year 2000 Compliance issues.
Furthermore, the Company has communicated with others with whom it does
significant business to determine their Year 2000 Compliance readiness and the
extent to which the Company is vulnerable to any third party Year 2000
Compliance issues. The Company expects to have completed these determinations by
the end of the third fiscal quarter of 1999. However, there can be no guarantee
that the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company's business or financial condition.
The total cost to the Company of these Year 2000 Compliance activities has
not been and is not anticipated to be material to its financial position or
results of operations in any given year. Since the Company commenced its
assessment of its Year 2000 Compliance during early 1998, it has expended
approximately $18,000, consisting primarily of software purchases and associated
training and consultation services. In addition, certain employees of the
Company and ILX have devoted a portion of their time to assessing and
implementing the Company's Year 2000 Compliance, the costs of which have not
been separately allocated by the Company. The Company anticipates that its
additional expenses to be incurred in the future related to Year 2000 Compliance
will not exceed $10,000. These costs and the date on which the Company plans to
complete the Year 2000 Compliance modifications, upgrades and testing processes
are based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources and other factors. However, there can be no guarantee that these
estimates will be achieved and actual results could differ from those plans.
The Company has developed a contingency plan in the event that any of its
systems or the systems of any third party with which it has a material
relationship are not Year 2000 compliant. In the event that the Company is
vulnerable to any such Year 2000 Compliance issue, the worst case scenario could
include an inability to process orders or properly bill and collect its accounts
receivable and it could be forced to suspend its operations and/or become unable
to collect certain accounts owed to it.
INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, loss from operations or net loss for the three- and
nine-month periods ended September 30, 1998 or 1999.
10
<PAGE>
PART II
ITEM I. LEGAL PROCEEDINGS
The Company is not currently the subject of any pending or, to its
knowledge, threatened legal claims.
ITEM II. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM III. DEFAULTS UPON SENIOR SECURITIES
None
ITEM IV. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM V. OTHER INFORMATION
None
ITEM VI. EXHIBITS AND REPORTS ON FORM 8-K
(i) Exhibits
Exhibit No. Description
----------- -----------
10 Letter agreement, dated as of October 28, 1999, among
the Company and ILX Resorts Incorporated (incorporated
by reference from Amendment No. 2 to the Company's
registration statement on Form 10-SB, File No.
000-25025, filed November 12, 1999)
27 Financial Data Schedule (filed herewith)
(ii) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused its quarterly report on Form 10-Q to be
signed on its behalf by the undersigned thereunto duly authorized.
SEDONA WORLDWIDE INCORPORATED
(Registrant)
/s/ Patrick J. McGroder III
---------------------------------
Patrick J. McGroder III
Chairman of the Board
/s/ Mia A. Martori
---------------------------------
Mia A. Martori
Director, President and Treasurer
/s/ Stephen W. Morgan
---------------------------------
Stephen W. Morgan
Chief Financial Officer of
ILX Resorts Incorporated
(acting principal financial
and accounting officer)
Date: As of November 10, 1999
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS THIRD QUARTER 1999 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,013
<SECURITIES> 0
<RECEIVABLES> 391
<ALLOWANCES> 0
<INVENTORY> 132,472
<CURRENT-ASSETS> 218,842
<PP&E> 305,196
<DEPRECIATION> 275,078
<TOTAL-ASSETS> 248,959
<CURRENT-LIABILITIES> 2,530,636
<BONDS> 0
0
0
<COMMON> 1,000,000
<OTHER-SE> (3,281,677)
<TOTAL-LIABILITY-AND-EQUITY> 248,959
<SALES> 283,478
<TOTAL-REVENUES> 283,478
<CGS> 179,394
<TOTAL-COSTS> 179,394
<OTHER-EXPENSES> 256,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,154
<INCOME-PRETAX> (153,707)
<INCOME-TAX> 0
<INCOME-CONTINUING> (153,707)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (153,707)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
