PROSPECTUS
SEDONA CORPORATION
Formerly Scan-Graphics, Inc.
4,918,211 Shares Common Stock
----------------
The selling shareholders, listed on pages 6-8, may offer from time to
time 4,918,211 shares of our common stock under this prospectus. No underwriter
is being used in connection with this offering of common stock. The selling
shareholders may offer and sell their shares to or through broker-dealers, who
may receive compensation in the form of discounts, concessions or commissions
from the selling shareholders, the purchasers of the shares, or both. We will
not receive any of the proceeds from the sale of shares.
The price of the common stock being offered under this prospectus will
be the market price of our common stock. Our common stock, formerly traded on
the Nasdaq Small Cap Market under the symbol SCNG, is currently traded on the
Nasdaq Small Cap Market under the symbol SDNA. On December 10, 1999, the closing
price of one share of our common stock was $1.719.
--------------------
Investing in our common stock involves a high degree of risk. You
should carefully read and consider the risk factors beginning on page 2.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is December 10, 1999.
<PAGE>
TABLE OF CONTENTS
Page
----
Sedona................................................................ 1
Risk Factors.......................................................... 2
Use of Proceeds....................................................... 4
Recent Developments................................................... 5
Selling Shareholders.................................................. 6
Plan of Distribution.................................................. 9
Legal Matters......................................................... 10
Experts............................................................... 10
Where You Can Find More Information................................... 10
Forward-Looking Statements............................................ 12
<PAGE>
SEDONA
Sedona Corporation develops, markets and supports enterprise scale
knowledge management software solutions that provide non-technical business
users with the ability to intuitively access, query, visualize and analyze
information critical to making optimal business decisions. Our products are
built upon a modern technology foundation including:
* intranet and Internet compatibility;
* flexible, platform neutral technology that supports relational
databases for Oracle Corporation as well as other leading
database, content and application providers; and
* systems support for integration with Windows 95, Windows 98 and
Windows NT.
Our products are designed to scale to meet the needs of large
organizations deploying thousands of users with very large data storage and
retrieval requirements. Our applications are designed to be highly configurable,
allowing for customized industry-specific and company-specific system
deployments as well as cross-industry functional applications including customer
relationship management, supply chain management, strategic decision support,
and enterprise resource planning. Our objective is to establish and maintain a
leadership position in the market for business intelligence visually enabled
software whether used by internet-based applications, data warehousing content
providers or enterprise line-of-business applications. Our strategy is to
provide differentiating solutions to high-end enterprise applications in a broad
range of industries and achieve universally successful customer implementations
of our partner applications.
Our principal executive offices are located at 649 North Lewis Road,
Limerick, Pennsylvania 19468, and our telephone number is (610) 495-3003.
(1)
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors as well as
other information contained in this prospectus or in documents to which we refer
you before deciding to invest in shares of our common stock.
We have incurred operating losses in recent years.
As of September 30, 1999, we had an accumulated deficit of $32.95
million and stockholders' equity of $2.28 million. If our current and future
products fail to gain acceptance in the marketplace, we believe it is unlikely
that we will be able to reverse our operating loss trend or assure you of our
future profitability.
We have many warrants and options outstanding.
We have 5,984,069 warrants and 2,023,611 options to purchase our common
stock outstanding. Almost all of the warrants and one-third of the options are
exercisable. The sale of those shares into the market for our common stock may
cause our market price to decline.
We have preferred stock outstanding that converts into our common stock.
Sales of a substantial number of shares of our common stock in the
public market by holders of our series B or series F preferred stock who may
convert their preferred stock at a profit may cause our market price to decline.
Our series B preferred stock becomes convertible beginning in April, 2000 and
the series F in May, 2000.
We do not expect to pay any dividends on our common stock.
We have not paid any cash dividends on our common stock and we do not
expect to pay any dividends in the immediate future. The value of your shares
will be determined solely by the market price of our common stock.
We may require additional capital that may not be available.
We will not receive any of the proceeds from the sale of shares by the
selling shareholders. To conduct our operations as currently contemplated for a
period of at least one year, we may require additional financing. While we are
actively pursuing various sources of asset based loans and new equity infusions
we do not know if additional financing will be available to us on terms that we
can accept.
We may not be able to use our net operating loss carryforwards.
Net operating loss carryforwards may be used to offset taxable income
obtained in future years. As of December 31, 1998, we had approximately $24.1
million in NOLs at the federal level and $5.2 million at the state level. The
federal NOLs, if unused, will expire between 1999 and 2018. The state NOLs will
expire between 2005 and 2008. We cannot assure you that we will generate taxable
income to use the NOLs before some or all of them expire.
Our software may become obsolete.
Our competitors may develop technologies and software products that are
more attractive than any that we are developing and marketing which would render
some or all of our technologies and products obsolete or noncompetitive.
Our strategic relationships or a failure to establish new relationships may have
an adverse effect on our business.
We have established strategic relationships with a number of
organizations that we believe are important to our sales, marketing and support
activities and the development and implementation of our products. We have
established non-exclusive strategic relationships with companies such as Oracle
Corporation and Axicom Corporation. We also have significant relationships with
other application and content providers.
(2)
<PAGE>
Third party system integrators are integral to the success of our business.
If we do not adequately train a sufficient number of system integrators
or, if these integrators do not have or devote the resources necessary to
implement our products, our business, operating results and financial condition
could be materially and adversely affected.
The compatibility of our products with the Internet is important to our success.
Our applications communicate through public and private networks over
the Internet. The increased commercial use of the Internet could require
substantial modification and customization of our software products and the
introduction of new products. We may not be able to effectively migrate our
products to the Internet or successfully compete in the Internet-related
products and services market.
If our products fail to meet the evolving requirements of our customers, our
business may be adversely affected.
We may not be successful in developing, marketing and releasing new
products or new versions of our applications that respond to technological
developments, evolving industry standards or changing customer requirements. Our
business, operating results and financial condition could be materially and
adversely affected if we are not able to meet the changing industry standards or
customer demands.
Limited protection of proprietary information.
We rely on a combination of copyright, trade secret and trademark laws,
confidentiality procedures and contractual provisions to protect our proprietary
rights which afford only limited protection. Others may develop technologies
that are similar or superior to our technology or design around our technology.
Policing unauthorized use of our products is difficult. In addition, the laws of
some foreign countries do not protect our proprietary rights as fully as do the
laws of the United States. Our means of protecting our proprietary rights in the
United States or abroad may not be adequate.
We may experience problems from computer systems that are not ready on a timely
basis to process information associated with the year 2000.
Computer systems, software packages, and microprocessor-dependent
equipment may cease to function or may generate erroneous data when the year
2000 arrives. While we believe that most of our currently developed and actively
marketed products are year 2000 compliant for essentially all functionality, our
software products could contain errors or defects relating to year 2000.
Additionally, the systems of other companies with which we do business may not
address any year 2000 problems on a timely basis, which could have an adverse
effect on our systems or business transactions. We believe that our exposure on
year 2000 issues is not material to our business as a whole.
(3)
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of our
common stock by the selling shareholders. If any or all of the warrants held by
the selling shareholders are exercised, we intend to use the net proceeds for
product development, sales and marketing expenses, working capital and general
corporate purposes. Temporarily, we may invest the net proceeds from the
exercise of the warrants, if any, in high grade short term interest bearing
investments.
(4)
<PAGE>
RECENT DEVELOPMENTS
Equity Transactions
On September 16, 1999, we completed the repurchase of all of our class
A, series E convertible preferred stock, plus one-third of associated warrants
to purchase shares of our common stock exercisable at $2.25 per share, and
one-third of associated warrants to purchase shares of our common stock
exercisable at $4.00 per share. The purchase price for each share of our series
E preferred stock and the associated warrants equaled 110% of the principal
amount of $1,000 per share of our series E preferred stock plus all of the
dividends that had accrued through September 15, 1999. All of the shares
underlying the remaining 914,263 warrants exercisable at $4.00 per share are
being registered for resale under this prospectus. We funded the majority
portion of the repurchase of our series E preferred stock, with the proceeds of
a private placement of $2,376,487 of units of our securities. Each unit sold in
the private placement consisted of 50,000 shares of our common stock and
warrants to purchase 44,444 shares of our common stock at an exercise price of
$2.25 per share. All of these shares of our common stock, as well as the shares
of common stock issuable upon the exercise of these warrants, are being
registered for resale under this prospectus.
On August 25, 1999, we sold 1,142,858 shares of our common stock
through a negotiated partial exercise of an outstanding warrant by its holder
and realized total net proceeds of approximately $2,000,000. The outstanding
warrant originally permitted the holder to acquire 2,100,000 shares of our
common stock at an exercise price of $4.00 per share. After considering our
needs for working capital and additional funds that were required to repurchase
the series E preferred stock described above, we negotiated with the warrant
holder to permit partial exercise of the warrant at an exercise price of $1.75
per share. The portion of the proceeds not used to repurchase the series E
preferred stock will be used for our working capital needs.
Disposition of Assets
On July 16, 1999, we completed the sale of the assets of our Technology
Resource Centers division to Diversified Technologies, Inc. Also, during July
1999, our board of directors decided to sell our Tangent imaging systems
division. On September 17, 1999, we completed the sale of Tangent to Colortrac,
Inc.
As a result of these transactions which were reported in a Form 8-K
filing on October 4, 1999, as amended on November 1, 1999, substantially all of
our revenue generating operations have been sold. With the completion of these
two sales, we are now wholly focused on the development of our Internet-based
business intelligence software products.
(5)
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the beneficial ownership of our common
stock by the selling shareholders as of September 30, 1999. Beneficial ownership
includes shares of outstanding common stock and shares of common stock that a
person has the right to acquire within 60 days of this prospectus. Unless
indicated in the footnotes, each person has the sole power to direct the voting
and investment over the shares owned by them.
<TABLE>
<S> <C> <C> <C> <C>
TOTAL NUMBER OF
COMMON STOCK SHARES OF COMMON STOCK
OWNED BEFORE COMMON STOCK OWNED AFTER
NAME THE OFFERING TO BE OFFERED THE OFFERING
- ---- ------------ ------------- ----------------
NUMBER PERCENT
------- -------
Richard Bruce
Rabinowitz 6,093(1) 2,886 3,207 *
American Friends of
Tiferet Tiberias
Institutions, Inc. 54,815(1) 25,965 28,850 *
Milwaukee
Kollel, Inc. 54,815(1) 25,965 28,850 *
Wayne Saker 36,543(1) 17,310 19,233 *
Keren MYCB
Elias, Inc. 54,815(1) 25,965 28,850 *
Leonard J. Adams 36,543(1) 17,310 19,233 *
The Jerusalem Fund 72,123(1) 25,965 46,158 *
Herman & Nanni
Bodenheimer 52,390(1) 13,156 39,234 *
Gabriel Bodenheimer 8,770(1) 4,154 4,616 *
Thomas Meyer 18,280(1) 8,659 9,621 *
Charles Kushner 182,717(1) 86,550 96,167 *
Richard Stadtmauer 73,087(1) 34,620 38,467 *
Murray Kushner 109,630(1) 51,930 57,700 *
Josh Berkowitz 9,137(1) 4,328 4,809 *
Michael Kule 3,654(1) 1,731 1,923 *
Rita Folger 53,851(1) 17,310 36,541 *
Vavel Corp. 109,630(1) 51,930 57,700 *
Karfunkel Family
Foundation, Inc. 53,851(1) 17,310 36,541 *
Jules Nordlicht 302,909(1) 77,895 225,014 1.03
ACE Foundation 538,513(1) 173,100 365,413 1.68
Huberfeld/Bodner
Family Foundation 142,231(1) 44,141 98,090 *
Abraham Elias 27,408(1) 12,983 14,425 *
Millennium Partners LP 365,433(1) 173,100 192,333 *
Charles Soltis(2) 5,000(1) 5,000 0 *
Barry Maser(3) 20,000(4) 10,000 10,000 *
</TABLE>
(6)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
TOTAL NUMBER OF
COMMON STOCK SHARES OF COMMON STOCK
OWNED BEFORE COMMON STOCK OWNED AFTER
NAME THE OFFERING TO BE OFFERED THE OFFERING
- ---- ------------ ------------- ----------------
NUMBER PERCENT
------- -------
George Griffin(5) 150,000(1) 150,000 0 *
Michael G. Cunniff(6) 30,000(1) 12,000 18,000 *
Osprey Partners(7) 747,083(1) 232,500 514,583 2.36
Laurence L.
Osterwise(8) 1,438,888(1) 888,888 550,000 2.52
Marco Emrich(9) 725,000(4) 525,000 200,000 *
C&F Global
Enterprises, Inc.(10) 246,874(1) 30,000 216,874 *
G3 Capital, LLC (11) 472,220(1) 472,220 0 *
Steve Ficyk (12) 50,800(1) 35,000 15,800 *
David S. Hirsch (13) 389,017(4) 60,000 329,017 1.51
Jared A. Davis 47,222(1) 47,222 0 *
A. David Davis 23,611(1) 23,611 0 *
Robert DiSilvestro 25,016(1) 25,016 0 *
Shane Tritsch 23,611(1) 23,611 0 *
Michael D. Theye 23,611(1) 23,611 0 *
Todd C. Tritsch 23,611(1) 23,611 0 *
Michael L.
O'Shaughnessy 23,611(1) 23,611 0 *
Sol-Rich Capital
Group, LLC 141,666(1) 141,666 0 *
Alan L. Scott 47,222(1) 47,222 0 *
Todd R. Ricker 9,444(1) 9,444 0 *
Paul K. Nguyen 9,444(1) 9,444 0 *
Vu Phat Lam 9,444(1) 9,444 0 *
Josh Adler 9,444(1) 9,444 0 *
Anthony J. Suraci
& Donna S. Suraci 94,444(1) 94,444 0 *
M. Jay Walkingshaw 94,444(1) 94,444 0 *
Joseph Matarazzo 14,167(1) 14,167 0 *
William J. Ritger 241,388(1) 188,888 52,500 *
Claudia H. O'Donnell 141,666(1) 141,666 0 *
Terrell H. Spraggins
& Patricia E.
Spraggins 94,444(1) 94,444 0 *
A. Judson Hill
& Kathryn
V. Hill 37,778(1) 37,778 0 *
David C. Brown 94,444(1) 94,444 0 *
Robert K. Brooks 47,222(1) 47,222 0 *
Security Trust
Company FBO
</TABLE>
(7)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
TOTAL NUMBER OF
COMMON STOCK SHARES OF COMMON STOCK
OWNED BEFORE COMMON STOCK OWNED AFTER
NAME THE OFFERING TO BE OFFERED THE OFFERING
- ---- ------------ ------------- ----------------
NUMBER PERCENT
------- -------
J. Glen McLeod
IRA 47,222(1) 47,222 0 *
Allen B. Aker, MD 188,888(1) 188,888 0 *
Security Trust
Company FBO
Paul H. Dragul
IRA 47,222(1) 47,222 0 *
Nelson G. Griffin 9,444(1) 9,444 0 *
Toan D. Bui 9,444(1) 9,444 0 *
Bert D. Siegel &
Marion Lee
Siegel JT TEN 141,666(1) 141,666 0 *
</TABLE>
<TABLE>
<S> <C>
- ----------------------------------------
* Represents beneficial ownership of one percent or less of the outstanding shares of common stock.
(1) Includes shares issuable upon exercise of outstanding warrants.
(2) Charles Soltis provides business development consulting services to us.
(3) Barry Maser provides business development consulting services to us.
(4) Includes shares issuable upon exercise of outstanding warrants, and of outstanding options.
(5) Mr. Griffin provides management consulting services to us.
(6) Mr. Cunniff provides management consulting services to us.
(7) Osprey Partners provides management consulting services to us.
(8) Mr. Osterwise is our chairman of the board of directors.
(9) Mr. Emrich is our president, chief executive officer and a director.
(10) C&F Global Enterprises, Inc. provides certain management consulting services to us.
(11) G3 Capital, LLC provides management consulting services to us.
(12) Mr. Ficyk provides management consulting services to us.
(13) Mr. Hirsch is a director.
</TABLE>
(8)
<PAGE>
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling shareholders.
The shares being registered are owned or may be acquired by the selling
shareholders upon exercise of warrants. Selling shareholders, as used in this
prospectus, includes donees, pledgees, transferees or other successors in
interest who may receive shares from a named selling shareholder after the date
of this prospectus. The selling shareholders may offer their shares of our
common stock at various times in one or more of the following transactions:
* in ordinary broker's transactions on Nasdaq or any national
securities exchange on which our common stock may be listed at
the time of sale;
* in the over-the-counter market;
* in private transactions other than in the over-the-counter
market;
* in connection with short sales of other shares of our common
stock in which shares are redelivered to close out positioning;
* by pledge to secure debts and other obligations;
* in connection with the writing of non-traded and exchange-traded
call options, in hedge transactions and in settlement of other
transactions in standardized or over-the-counter options; or
* in a combination of any of the above transactions.
The selling shareholders may sell their shares at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices or at fixed prices. The selling shareholders may
use broker-dealers to sell their shares. If this happens, broker-dealers will
either receive discounts or commissions from the selling shareholders, or they
will receive commissions from purchasers of shares for whom they acted as
agents.
Selling shareholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Exchange
Act. Shareholders must meet the criteria and conform to the requirements of that
rule. The selling shareholders and the broker-dealers to or through whom sale of
the shares may be made could be deemed to be underwriters within the meaning of
the Securities Exchange Act, and their commissions or discounts and other
compensation received in connection with the sale of the shares may be regarded
as underwriters' compensation, if the SEC determines that they purchased the
shares in order to resell them to the public.
The selling shareholders have not advised us of any specific plans for
the distribution of the shares covered by this prospectus. When and if we are
notified by any of the selling shareholders that any material arrangement has
been entered into with a broker-dealer or underwriter for the sale of a material
portion of the shares covered by this prospectus, a prospectus supplement or
post-effective amendment to the registration statement will be filed within the
SEC. This supplement or amendment will include the following information:
* the name of the participating broker-dealer(s) or underwriters;
* the number of shares involved; the price or prices at which the
shares were sold by the selling shareholders;
* the commissions paid or discounts or concessions allowed by the
selling shareholders to the broker-dealers or underwriters; and
* other material information.
We have advised the selling shareholders that the anti-manipulation
rules promulgated under the Securities Exchange Act, including Regulation M, may
apply to sales of the shares offered by the selling shareholders. We have agreed
to pay all costs relating to the registration of the shares. Any commissions or
other fees payable to broker-dealers in connection with any sale of the shares
will be paid by the selling shareholders or other party selling the shares.
(9)
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered was passed upon for
us by Schnader Harrison Segal & Lewis LLP.
EXPERTS
The consolidated financial statements and schedules of Sedona
Corporation at December 31, 1998, and for the year then ended, incorporated by
reference in this prospectus and registration statement, have been audited by
Ernst & Young LLP, independent auditors, and at December 31, 1997, and for each
of the two years in the period then ended, by BDO Seidman, LLP, independent
certified public accountants, as described in the reports of the firms
incorporated by reference elsewhere in this prospectus and registration
statement, and are included in reliance upon these reports given on the
authority of the firms as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Sedona is subject to the informational requirements of the Securities
Exchange Act of 1934. We file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference rooms at the SEC's principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SEC's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may obtain operation information for this public
reference room by calling 1-800-SEC-0330. Our SEC filings are also available to
the public from the SEC's website at http://www.sec.gov. In addition, any of our
SEC filings may also be inspected and copied at the offices of The Nasdaq Stock
Market, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
We have filed with the SEC a registration statement on Form S-3
covering the common stock offered by this prospectus. You should be aware that
this prospectus does not contain all of the information contained or
incorporated by reference in that registration statement and its exhibits and
schedules, particular portions of which have been omitted as permitted by the
SEC rules. For further information about Sedona and our common stock, we refer
you to the registration statement and its exhibits and schedules. You may
inspect and obtain the registration statement, including exhibits, schedules,
reports and other information filed by Sedona with the SEC, as described in the
preceding paragraph. Statements contained in this prospectus concerning the
contents of any document we refer you to are not necessarily complete and in
each instance we refer you to the applicable document filed with the SEC for
more complete information.
The SEC allows us to incorporate by reference the information we file
with them, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is
considered to be part of this prospectus, and the information that we file at a
later date with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below as well as
any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d)
of the Securities Exchange Act of 1934:
(a) Our annual report on Form 10-K for the fiscal year ended December
31, 1998.
(b) Our quarterly report on Form 10-Q for the period ended March 31,
1999.
(c) Our quarterly report on form 10-Q for the period ended June 30,
1999.
(d) Our quarterly report on form 10-Q for the period ended September
30, 1999.
(e) All other reports under Section 13(a) or 15(d) of the Securities
Exchange Act, since the end of our fiscal year ended December 31,
1998.
(f) The description of our common stock which is contained in our
registration statement on Form 8-B filed under the Securities
Exchange Act, including any amendment or reports filed for the
purpose of updating this description.
(10)
<PAGE>
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Sedona Corporation, 649 North Lewis
Road Limerick, PA 19468 Attention: Michael A. Mulshine, Corporate Secretary
(610) 495-3003.
We have not authorized anyone to provide you with information or to
represent anything to you not contained in this prospectus. You must not rely on
any unauthorized information or representations. The selling stockholders are
offering to sell, and seeking offers to buy, only the shares of our common stock
covered by this prospectus, and only under circumstances and in jurisdictions
where it is lawful to do so.
(11)
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operation or financial condition
or state other forward-looking information. Forward-looking statements can be
identified by the use of progressive terminology, such as may, will, expect,
anticipate, estimate, continue or other similar words. These statements are
subject to known and unknown risks and uncertainties that could cause our actual
results to differ materially from those contemplated by the statements. Factors
that might cause such a difference include those discussed in the section titled
Risk Factors beginning on page __. The information contained in this prospectus
is current only as of its date, regardless of the time of delivery of this
prospectus or of any sale of the shares. You should read carefully the entire
prospectus, as well as the documents incorporated by reference in the
prospectus, before making an investment decision. All references to the terms we
or us in this prospectus means Sedona Corporation and its subsidiaries, except
where it is clear that the term means only the parent corporation.
(12)
<PAGE>
