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 June 30, 2000 Commission File Number 0-25025
SEDONA WORLDWIDE INCORPORATED
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(Exact name of registrant as specified in its charter)
ARIZONA 86-0718104
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3840 North 16th Street, Phoenix, Arizona 85016
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(Address of principal executive offices)
Registrant's telephone number, including area code 602-263-9600
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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 June 30, 2000
------------------------------- ----------------------------
Common Stock, without par value 4,675,800 shares
<PAGE>
PART I
ITEM I. FINANCIAL STATEMENTS
SEDONA WORLDWIDE INCORPORATED
BALANCE SHEET
December 31, June 30,
1999 2000
----------- -----------
(Unaudited)
ASSETS
Cash and cash equivalents $ 9,564 $ 20,624
Accounts receivable 12,988 17,327
Inventories 157,546 141,139
Prepaid expenses and other current assets 30,077 29,151
----------- -----------
Total current assets 210,175 208,241
Property and equipment, net 44,077 24,990
----------- -----------
TOTAL ASSETS $ 254,252 $ 233,231
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES & STOCKHOLDERS' EQUITY:
Accounts payable $ 4,523 $ 16,814
Accrued expenses 24,309 8,859
----------- -----------
Total current liabilities 28,832 25,673
----------- -----------
Common stock, no par value; 50,000,000 shares
authorized; 4,200,000 and 4,675,800 shares
issued and outstanding 1,000,000 1,009,783
Contributed capital 2,545,730 2,545,730
Deficit (3,320,310) (3,347,955)
----------- -----------
Total stockholders' equity 225,420 207,558
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 254,252 $ 233,231
=========== ===========
See notes to consolidated financial statements
2
<PAGE>
SEDONA WORLDWIDE INCORPORATED
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
-------------------------- --------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales:
Customers $ 11,860 $ 91,182 $ 46,610 $ 204,259
Affiliates 74,801 -- 143,983 --
----------- ----------- ----------- -----------
Total net sales 86,661 91,182 190,593 204,259
----------- ----------- ----------- -----------
Cost of sales: 54,761 51,822 120,110 101,443
----------- ----------- ----------- -----------
Gross profit 31,900 39,360 70,483 102,816
Selling, general & administrative expense 95,590 75,338 175,719 130,462
----------- ----------- ----------- -----------
Income (loss) from operations (63,690) (35,978) (105,236) (27,646)
Interest expense 397 -- 944 --
----------- ----------- ----------- -----------
Net Income (loss) (64,087) (35,978) (106,180) (27,646)
=========== =========== =========== ===========
Weighted average shares of common
stock outstanding 4,200,000 4,343,011 4,200,000 4,271,505
Basic income (loss) per share $ (0.02) $ (0.01) $ (0.03) $ (0.01)
=========== =========== =========== ===========
Diluted income (loss) per share $ (0.02) $ (0.01) $ (0.03) $ (0.01)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
SEDONA WORLDWIDE INCORPORATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
Six months ended June 30,
-------------------------
1999 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(106,180) $ (27,646)
Depreciation and amortization 19,744 19,088
(Increase) decrease in accounts receivable 786 (4,339)
Decrease in inventory 30,158 16,407
Decrease (increase) in prepaid and other (14,397) 926
Increase (decrease) in accounts payable (8,060) 12,291
(Decrease) increase in accrued expense 1,371 (15,450)
--------- ---------
Net cash generated by (used in) operating activities (76,578) 1,277
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (856) --
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- 9,783
Principal payments on debt and leases (14,186) --
Advances from parent 30,311 --
--------- ---------
Net cash provided by (used in) financing activities 16,125 9,783
--------- ---------
INCREASE (DECREASE) IN CASH (61,309) 11,060
CASH AT BEGINNING OF PERIOD 68,406 9,564
--------- ---------
CASH AT END OF PERIOD $ 7,097 $ 20,624
========= =========
See notes to consolidated financial statements
4
<PAGE>
SEDONA WORLDWIDE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
Sedona Worldwide Incorporated, an Arizona corporation ("SWI" or the
"Company"), was incorporated in 1992 under the name Red Rock Collection
Incorporated. In 1997, the Company changed its name to Sedona Worldwide
Incorporated. The Company was a majority-owned subsidiary of ILX Resorts
Incorporated, an Arizona corporation ("ILX") until December 31, 1999, when ILX
effected a distribution of all of the shares of the Company's Common Stock that
ILX held to the ILX shareholders of record as of December 21, 1999, on a pro
rata basis (the "Spin-Off"). As a result of the Spin-Off, ILX's shareholders
became owners of, in the aggregate, 80% of the Company's outstanding capital
stock. ILX registered the Company's Common Stock pursuant to a Registration
Statement on Form 10-SB on a voluntary basis, in order to effect the Spin-Off,
without the need to register the distribution of the Company's Common Stock to
ILX's shareholders under the Securities Act of 1933, as amended (the "Securities
Act"). In January 2000, ILX distributed an Information Statement, which contains
substantially the same kind of information as is typically found in a Proxy
Statement, to ILX shareholders. The Information Statement disclosed certain
material information about the Company and the shares of Common Stock to be
distributed to ILX shareholders in the Spin-Off.
The Company is principally engaged in the development, testing, marketing,
and distribution 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 U.S.
and of Sedona, Arizona in particular. In addition, the Company has established a
marketing alliance with Robert Shields, founder of Robert Shields Design, a
jewelry and art design company based in Sedona, Arizona, whereby the Company
will be able to offer a line of Southwestern-style jewelry and artwork similar
to Mr. Shield's existing line of products. In addition, the Company has
developed a line of apparel under the brand name "Red Rock Gear." No significant
sales of apparel or jewelry have occurred to date.
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 six month periods ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. The accompanying financial statements should be read in conjunction with
the Company's most recent audited 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.
5
<PAGE>
SEDONA WORLDWIDE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
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.
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 February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS 129"), which was
effective for financial statements for periods ending after December 15, 1997
and establishes standards for disclosing information about an entity's capital
structure. SFAS 129 was adopted by the Company in 1997. There were no
significant effects on the Company's disclosures about its capital structure, as
that term is defined in SFAS 129, in the six months ended June 30, 1999 or 2000.
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. The Company adopted SFAS 130 in 1998. There were no items
of other comprehensive income, as that term is defined in SFAS 130, in the six
months ended June 30, 1999 or 2000.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS
131"), 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 statements and requires
that those enterprises report selected information about operating segments in
interim 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
Statement of Operations under Affiliates in 1999 and in Customers in 2000
following the Spin-Off.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The standard also provides specific guidance for accounting for derivatives
designated as hedging instruments. In June 1999, the Financial Accounting
Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of Statement No. 133" ("SFAS
No. 137"), which delayed the effective date of SFAS No. 133 for the Company
until 2001. The Company is currently evaluating what impact this standard will
have on its financial statements.
6
<PAGE>
SEDONA WORLDWIDE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. BUSINESS CONDITION
As shown in the accompanying financial statements, the Company operated at
a net loss of $35,978 and $27,646 during the three and six months ended June 30,
2000. As of that date, the Company's current assets exceeded its current
liabilities by $182,568 and its total assets exceeded its total liabilities by
$207,557 due to ILX contributing in excess of $2,545,000 of intercompany debt to
capital at December 31, 1999. However, the Company incurred net losses of
$376,629, $317,084 and $192,340 in 1997, 1998 and 1999, respectively, and has an
accumulated deficit of $3,347,955 at June 30, 2000. 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.
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. At the time of the Spin-Off, the Company was indebted to ILX in an
amount in excess of $2,545,000, which ILX contributed to capital in conjunction
with the Spin-Off. 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. 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. ILX has agreed to provide up to
$200,000 of additional financing following completion of the Spin-Off 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 31, 2000. At June 30, 2000, there had been no
funds advanced under this agreement.
NOTE 3. STOCKHOLDERS' EQUITY
During the six months ended June 30, 2000, the Company issued 60,000 shares
of restricted common stock, valued at $5,625, to employees in exchange for
services provided. These restricted shares of common stock issued to employees
are exempt from registration under Section 4(2) of the Securities Act of 1933.
An additional 415,800 restricted shares, valued at $4,158 were issued to Hudson
Consulting Group, Inc. in exchange for services to be provided (Note 4).
NOTE 4. OTHER
On June 1, 2000, the Company entered into an Advisory Agreement with Hudson
Consulting Group, Inc., a Nevada corporation ("Hudson"), under the terms of
which Hudson will assist the Company in (i) its effecting the purchase of
businesses and assets relative to its business and growth strategy, (ii)
preparation of documents for its listing on the OTC Bulletin Board, and (iii)
its introduction to brokers and dealers, potential investors, public relations
firms, consultants and others that may assist the Company in its plans and
future developments. In exchange for these services, the Company delivered
415,800 shares of non-restricted SWI common stock, registered by the Company
7
<PAGE>
SEDONA WORLDWIDE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
with the Securities and Exchange Commission, to Hudson upon execution of the
Agreement. SWI and Hudson intend for the agreement to remain in effect for a
minimum of one year, with automatic extension on an annual basis until
termination by either party.
NOTE 5. SUBSEQUENT EVENTS
On June 29, 2000, the Company entered into a Distributor Agreement with
TSEuro, Inc., an Arizona based corporation ("TSEI"), under the terms of which
the Company exclusively engaged TSEI to solicit and obtain purchase orders for
its product and to assist the Company in the marketing, promotion and sale of
its products, and in the exhibition of its products in industry trade shows and
exhibits, throughout Europe, with the exception of England and Italy, with
initial marketing efforts expected to be focused in Germany. The parties intend
for the agreement to remain in effect for a minimum of one year.
Effective July 1, 2000, the Company commenced retail operations at a second
location in Sedona, Arizona.
8
<PAGE>
SEDONA WORLDWIDE INCORPORATED
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. 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.
RESULTS OF OPERATIONS
The following table sets forth certain operating information for the
Company:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1999 2000 1999 2000
---- ---- ---- ----
Net sales:
Sales to ILX (1) 82.8% 72.6% 83.9% 63.0%
Sales to customers other than ILX 17.2% 27.4% 16.1% 30.4%
Sales previously deferred (2) 0.0% 0.0% 0.0% 6.6%
----- ----- ----- -----
Total sales 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
As a percentage of net sales:
Cost of sales 70.5% 56.8% 71.8% 49.7%
Contribution margin 29.5% 43.2% 28.2% 50.3%
Sales, general and administrative
expense 170.2% 82.6% 169.8% 63.9%
Net loss (140.6%) (39.5%) (141.6%) (13.5%)
----------
(1) Sales made to ILX are made at lower prices (generally cost plus a small
mark up) than sales made to customers other than ILX.
(2) Sales previously deferred refers to a one-time recognition of revenue
related to unredeemed product certificates.
COMPARISON OF THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 TO THE THREE AND SIX
MONTHS ENDED JUNE 30, 2000
Net sales increased 5.2% or $4,521 to $91,182 for the quarter ended
June 30, 2000 from $86,661 for the same period in 1999 and increased 7.2% or
$13,666 to $204,259 for the six months ended June 30, 2000 from $190,593 for the
same period in 1999. The small increase in the current quarter is due to a
9
<PAGE>
SEDONA WORLDWIDE INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
larger percentage of sales to customers other than ILX. Sales made to ILX are
generally at lower prices than sales to customers other than ILX. The increase
for the year to date is due to a combination of increased sales to non-ILX
customers and to a one-time realization of previously deferred revenue related
to unredeemed product certificates.
Cost of sales as a percentage of sales decreased to 56.8% for the three
months ended June 30, 2000 from 70.5% for the same period in 1999 and decreased
to 49.7% for the six months ended June 30, 2000 from 71.8% for the same period
in 1999 because of a lower percentage of sales to ILX resorts, which have a
lower profit margin, reduced product costs as a result of discounts achieved
through higher volume purchasing, as well as the one-time recognition of
previously deferred income.
Sales, general and administrative expenses decreased $20,252 to $75,338 for
the three months ended June 30, 2000 from $95,590 for the same period in 1999
and decreased $45,257 to $130,462 for the six months ended June 30, 2000 from
$175,719 for the same period in 1999, due to decreased overhead expenses related
to the Spin-Off.
Interest expense decreased to $0 for the three and six months ended
June 30, 2000 from $397 and $944 for the same periods in 1999, respectively,
reflecting the fulfillment of capital lease obligations.
There is no income tax benefit recorded in 1999 or 2000. The Company has
recorded a valuation allowance equal to its deferred tax asset at June 30, 2000.
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 six
month periods ended June 30, 2000.
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 six month period ended June 30, 1999, cash used in
operations was $76,578. During the six month period ended June 30, 2000, cash
generated by operations was equal to $1,277. Historically the Company's cash
flows from product sales have not been sufficient to fund its operations, and
shortfalls have been funded by ILX. ILX advanced the Company $30,311 in the six
months ended June 30, 1999; no funds were advanced in the six months ended
June 30, 2000. ILX has funded the Company's cash shortfalls since inception. At
the time of the Spin-Off, the Company was indebted to ILX in an amount in excess
of $2,545,000, which ILX contributed to capital in conjunction with the
Spin-Off. ILX has agreed to provide up to $200,000 of additional financing
following completion of the Spin-Off through November 30, 2000. All amounts
borrowed by the Company will bear interest equal to the prime rate plus 3% per
annum, with interest payable monthly. The entire unpaid principal will be due on
December 31, 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
10
<PAGE>
SEDONA WORLDWIDE INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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.
The Company had historically filed its income tax returns as a member of
its former parent's, ILX, consolidated income tax return. There was no formal
income tax sharing agreement to allocate income taxes among the members of the
group and, historically, the Company had not recorded an income tax benefit for
losses it had incurred that were utilized or may be utilized by ILX.
As part of the consolidated financial statements of ILX the Company
recorded a valuation allowance equal to its deferred tax asset at December 31,
1998. At December 31, 1999, as a result of the Spin-Off, the Company recorded no
deferred tax asset nor a corresponding valuation allowance because all tax
benefits created by the Company's net operating losses were retained by ILX.
This treatment results in no income tax benefit being recorded at either
June 30, 1999 or at June 30, 2000.
USES OF CASH
Investing activities typically reflect a net use of cash for equipment
purchases. Net cash used in investing activities in the six months ended
June 30, 1999 was $856. There were no purchases of property and equipment during
the six months ended June 30, 2000.
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,
except as follows: In October 1999, ILX agreed to provide up to $200,000 of
working capital financing to the Company through November 30, 2000. 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, and the entire
unpaid principal amount due on December 31, 2000. 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. 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.
11
<PAGE>
SEDONA WORLDWIDE INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
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 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.
INFLATION
Inflation and changing prices have not had a material impact on the
Company's revenues, income or loss from operations or net income or loss for the
six months ended June 30, 1999 or 2000.
12
<PAGE>
SEDONA WORLDWIDE INCORPORATED
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
On June 22, 2000, the Company held its Annual Meeting of Shareholders. At
this Annual Meeting the shareholders were asked to vote on the following
proposal:
To elect five (5) directors to serve until the next annual meeting of
shareholders of the Company, or until their successors are duly elected and
qualified. Prior to the meeting Robert Shields resigned as a director of
the Company and, by consent action, Saundra J. McFadden was appointed by
the Company's Board of Directors to fill the vacancy.
The voting results were as follows:
Nominees recommended in the Proxy Statement:
Votes Against
Votes For or Withheld Non-votes
--------- ----------- ---------
Todd Fisher 3,115,051 0 81,548
Mia A. Martori 3,113,843 0 82,756
Saundra J. McFadden 3,109,387 0 87,212
Patrick J. McGroder III 3,106,897 0 89,702
James W. Myers 3,115,394 0 81,205
As a result of the vote, the following five directors will serve until the
next annual meeting or until his or her successor is elected and qualified:
Todd Fisher Mia A. Martori Saundra J. McFadden
Patrick J. McGroder III James W. Myers
ITEM V. OTHER INFORMATION
None
13
<PAGE>
SEDONA WORLDWIDE INCORPORATED
PART II
ITEM VI. EXHIBITS AND REPORTS ON FORM 8-K
(i) Exhibits
Exhibit No. Description
----------- -----------
10.1 ADVISORY AGREEMENT between Hudson Consulting Group,
Inc., a Nevada corporation and Sedona Worldwide
Incorporated, an Arizona corporation dated as of
June 1, 2000
10.2 DISTRIBUTOR AGREEMENT between Sedona Worldwide
Incorporated, an Arizona corporation and TSEuro, Inc.,
an Arizona based corporation dated as of June 29, 2000
27 Financial Data Schedule
(ii) Reports on Form 8-K
None
14
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SEDONA WORLDWIDE INCORPORATED
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/ Margaret M. Eardley
---------------------------------
Margaret M. Eardley
Chief Financial Officer of
ILX Resorts Incorporated
(acting principal financial
and accounting officer)
Date: As of August 7, 2000
15
