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, 2000 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 September 30, 2000
----- ---------------------------------
Common Stock, without par value 4,675,800 shares
<PAGE>
PART I
ITEM I. FINANCIAL STATEMENTS
SEDONA WORLDWIDE INCORPORATED
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, September 30,
1999 2000
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,564 $ 2,396
Accounts receivable 12,988 17,410
Inventories 157,546 153,180
Prepaid expenses and other current assets 30,077 64,051
----------- -----------
Total current assets 210,175 237,037
Property and equipment, net 44,077 16,660
----------- -----------
TOTAL ASSETS $ 254,252 $ 253,697
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,523 $ 48,226
Accrued expenses 24,309 12,649
Note payable - related party -- 35,000
----------- -----------
Total current liabilities 28,832 95,875
----------- -----------
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) (3,397,691)
----------- -----------
Total stockholders' equity 225,420 157,822
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 254,252 $ 253,697
=========== ===========
</TABLE>
See notes to condensed financial statements
2
<PAGE>
SEDONA WORLDWIDE INCORPORATED
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
---------------------------- ----------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales:
Customers $ 11,380 $ 65,510 $ 57,990 $ 269,769
Affiliates 81,505 -- 225,488 --
----------- ----------- ----------- -----------
Total net sales 92,885 65,510 283,478 269,769
----------- ----------- ----------- -----------
Cost of sales 59,284 39,875 179,394 141,318
----------- ----------- ----------- -----------
Gross profit 33,601 25,635 104,084 128,451
Selling, general & administrative expense 80,918 74,650 256,637 205,112
----------- ----------- ----------- -----------
Income (loss) from operations (47,317) (49,015) (152,553) (76,661)
Interest expense 210 719 1,154 719
----------- ----------- ----------- -----------
Net Income (loss) (47,527) (49,734) (153,707) (77,380)
=========== =========== =========== ===========
Weighted average shares of common stock
outstanding 4,200,000 4,675,800 4,200,000 4,471,273
=========== =========== =========== ===========
Basic and diluted income (loss) per share $ (0.01) $ (0.01) $ (0.04) $ (0.02)
=========== =========== =========== ===========
</TABLE>
See notes to condensed financial statements
3
<PAGE>
SEDONA WORLDWIDE INCORPORATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 2000
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(153,707) $(77,380)
Depreciation and amortization 29,650 27,418
Stock issued for compensation -- 9,783
Expenses paid with borrowings -- --
(Increase) decrease in accounts receivable 395 (4,423)
Decrease in inventory 1,708 4,366
Decrease (increase) in prepaid and other (3,944) (33,974)
Increase (decrease) in accounts payable (28,994) 43,703
(Decrease) increase in accrued expense 4,460 (11,661)
--------- --------
Net cash generated by (used in) operating activities (150,432) (42,167)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (16,879) --
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock -- --
Net proceeds from note payable - related party -- 35,000
Principal payments on debt and leases (21,544) --
Advances from parent 125,461 --
--------- --------
Net cash provided by (used in) financing activities 103,917 35,000
--------- --------
INCREASE (DECREASE) IN CASH (63,393) (7,167)
CASH AT BEGINNING OF PERIOD 68,406 9,564
--------- --------
CASH AT END OF PERIOD $ 5,013 $ 2,397
========= ========
</TABLE>
See notes to condensed financial statements
4
<PAGE>
SEDONA WORLDWIDE INCORPORATED
NOTES TO CONDENSED 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 nine month periods ended September 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 CONDENSED 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 nine months ended September 30, 1999 or
2000.
In September 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 nine months ended September 30, 1999 or 2000.
In September 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 September 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 September 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 CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. BUSINESS CONDITION
As shown in the accompanying financial statements, the Company operated
at a net loss of $49,734 and $77,380 during the three and nine months ended
September 30, 2000. As of that date, the Company's current assets exceeded its
current liabilities by $141,162 and its total assets exceeded its total
liabilities by $157,822 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 $3,397,691 at September 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, although the Company
will request an extension on the repayment obligation. At September 30, 2000,
there had been $35,000 advanced under this agreement.
NOTE 3. STOCKHOLDERS' EQUITY
During the nine months ended September 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
7
<PAGE>
SEDONA WORLDWIDE INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
future developments. In exchange for these services, the Company delivered
415,800 shares of restricted SWI common stock, registered by the Company 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 July 31, 2000 the Company entered into a Vendor Participation
Agreement with Buyers Shopping Network ("BSN") of Deerfield Beach, Florida,
under the terms of which the Company has engaged BSN to render the following
services; to feature Sedona Spa Face, Hair and Body Care Packages in 60, 90 and
120 second direct response commercials, a combination of which will air a
combined total of at least two hundred (200) times, to air commercials through a
combination of any or all of the following: ABC affiliates, NBC affiliates, CBS
affiliates, FOX affiliates, WB affiliates, UPN affiliates, Independent
affiliates, Cable and Cable Networks and shall have a minimum potential
household reach of 20 million homes, to furnish a complete production and media
team to cover all aspects of the pre-production, production, post production,
promotion and distribution of the program. It is expected that the commercials
will begin airing on or around November 22, 2000.
Effective October 6, 2000 the Board of Directors accepted the
resignation of Joelle Ciardella as Vice President and Secretary of the
Corporation and elected Viki J. Nelson as Secretary of the Corporation.
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 2000 1999 2000
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales:
Sales to ILX (1) 87.7% 73.0% 79.5% 66.9%
Sales to customers other than ILX 12.3% 27.0% 20.5% 33.1%
----- ----- ----- -----
Total sales 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
As a percentage of net sales:
Cost of sales 63.8% 60.9% 63.3% 52.4%
Contribution margin 36.2% 39.1% 36.7% 47.6%
Sales, general and administrative expense 87.1% 114.0% 90.5% 76.0%
Net loss (52.6%) (75.9%) (54.2%) (28.7%)
</TABLE>
----------
(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.
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 TO THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 2000
Net sales decreased 29% or $27,375 to $65,510 for the quarter ended
September 30, 2000 from $92,885 for the same period in 1999 and decreased 4.8%
or $13,709 to $269,769 for the nine months ended September 30, 2000 from
$283,478 for the same period in 1999.
9
<PAGE>
SEDONA WORLDWIDE INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cost of sales as a percentage of sales decreased to 60.9% for the three
months ended September 30, 2000 from 63.8% for the same period in 1999 and
decreased to 52.4% for the nine months ended September 30, 2000 from 63.3% for
the same period in 1999 because of a lower percentage of sales to ILX resorts,
which have a lower profit margin. Product costs were also reduced as a result of
discounts achieved through higher volume purchasing.
Sales, general and administrative expenses decreased $6,268 to $74,650
for the three months ended September 30, 2000 from $80,918 for the same period
in 1999 and decreased $51,525 to $205,112 for the nine months ended September
30, 2000 from $256,637 for the same period in 1999, due to decreased overhead
expenses related to the Spin-Off.
Interest expense was $719 for the three and nine months ended September
30, 2000 from $210 and $1,154 for the same periods in 1999, respectively,
reflecting the fulfillment of capital lease obligations.
The Company has recorded a valuation allowance equal to its deferred
tax asset at September 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 nine month periods ended September 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 nine month period ended September 30, 1999, cash used
in operations was $150,432. During the nine month period ended September 30,
2000, cash used in operations was equal to $42,167. 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 $125,461 in the
nine months ended September 30, 1999; $35,000 was advanced in the nine months
ended September 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, although the Company will request an extension on the
payment obligation. 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
10
<PAGE>
SEDONA WORLDWIDE INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
September 30, 1999 or at September 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
September 30, 1999 was $16,879. There were no purchases of property and
equipment during the nine months ended September 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, although the Company will
request an extension on the payment obligation. 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.
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.
11
<PAGE>
SEDONA WORLDWIDE INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
nine months ended September 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
During the nine months ended September 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.
ITEM III. DEFAULTS UPON SENIOR SECURITIES
None
ITEM IV. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 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
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<PAGE>
ITEM V. OTHER INFORMATION
None
ITEM VI. EXHIBITS AND REPORTS ON FORM 8-K
(i) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule (filed herewith)
(ii) Reports on Form 8-K
None
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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 September 30, 2000
15
