<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSISTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15864
Sedona Corporation
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 95-4091769
--------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
649 North Lewis Road, Limerick, Pennsylvania 19468-1234
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (610) 495-3003
--------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by the check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 and 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 [ ]
---
At June 30, 2000, there were 27,699,943 shares outstanding of the registrant's
common stock, par value $0.001 per share.
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
PART I. FINANCIAL INFORMATION PAGE
------------------------------ ----
<S> <C> <C> <C> <C> <C> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- June 30, 2000 (Unaudited) 4
and December 31, 1999
Consolidated Statements of Operations -- (Unaudited)
three months ended June 30, 2000 and 1999 5
Consolidated Statements of Operations -- (Unaudited)
six months ended June 30, 2000 and 1999 6
Consolidated Statements of Cash Flow -- (Unaudited)
six months ended June 30, 2000 and 1999 7
Notes to Consolidated Financial Statements - June 30, 2000 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-14
PART II. OTHER INFORMATION
Item 1 through Item 6. 15
SIGNATURE PAGE 16
--------------
</TABLE>
2
<PAGE>
NOTE ON FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are statements
other than historical information or statements of current condition. Some
forward-looking statements may be identified by use of terms such as "believes",
"anticipates", "intends", or "expects". These forward-looking statements relate
to the plans, objectives, and expectations of Sedona Corporation (the "Company"
or "Sedona") for future operations. In light of the risks and uncertainties
inherent in all forward-looking statements, the inclusion of such statements in
this Form 10-Q should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved or
that any of the Company's operating expectations will be realized. The Company's
revenues and results of operations are difficult to forecast and could differ
materially from those projected in the forward-looking statements contained
herein as a result of certain factors including, but not limited to, ability to
successfully integrate the Customer Information Management Systems (CIMS) unit
acquisition, dependence on strategic relationships, ability to raise additional
capital, ability to recruit and retain qualified professionals, customer
attrition and rapid technological change. These factors should not be considered
exhaustive; the Company undertakes no obligation to release publicly the results
of any future revisions it may make to forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
3
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
2000 1999
---------------------------
<S> <C> <C>
Assets
Cash $ 5,950 $ 893
Accounts receivable 587 -
Prepaid expenses and other current assets 111 91
------------------------
Total current assets 6,648 984
Property and equipment, net of accumulated depreciation
and amortization 699 377
Software development costs, net and other assets 3,384 660
Other long term assets 44 -
Net assets/(liabilities) of discontinued operations (18) 183
------------------------
Total assets $10,757 $ 2,204
========================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 827 $ 508
Dividends payable 144 139
Deferred revenue 482 24
Current maturities of long-term debt 18 51
------------------------
Total current liabilities 1,471 722
Long term debt, less current maturities 1,041 51
------------------------
Total liabilities $ 2,512 $ 773
Stockholders' equity
Class A convertible stock
Authorized Shares - 1,000,000
Series A, par value $2.00,
Issued and outstanding - 500,000 shares 1,000 1,000
Series B, par value $2.00,
Issued and outstanding - -0- and 1,000 shares
in 2000 and 1999, respectively - 2
Series F, par value $2,00,
Issued and outstanding - 1,000 shares 2 2
Series G, par value $2.00,
Issued and outstanding - 2,575 and -0-
in 2000 and 1999, respectively 5 -
Series H, par value $2.00,
Issued and outstanding - 1,500 and -0-
in 2000 and 1999, respectively 3 -
Common stock, par value $.001
Authorized Shares - 50,000,000
Issued and outstanding shares - 27,699,943 and
24,086,450 in 2000 and 1999, respectively 27 24
Additional paid-in-capital 44,540 33,527
Accumulated deficit (37,332) (33,071)
Notes receivable, related parties 0 (53)
------------------------
Total stockholders' equity 8,245 1,431
------------------------
Total liabilities and stockholders' equity $10,757 $ 2,204
========================
</TABLE>
See accompanying notes.
4
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
--------- -------
<S> <C> <C>
Revenues:
Product license $ 132 $ 197
Services 106 -
-------------------------------
Total revenues 238 197
Cost of revenues:
Product license 260 89
Services 253 -
-------------------------------
Total cost of revenues 513 89
Gross profit (275) 108
Operating expenses:
Research and development 49 -
Sales and marketing 1,378 114
General and administrative 1,159 501
-------------------------------
Total operating expenses 2,586 615
Total other income 99 13
Loss from continuing operations, before
provision for income taxes ($2,762) (494)
Income taxes - -
Loss from continuing operations ($2,762) (494)
-------------------------------
Discontinued operations
Income (loss) from operations of
discontinued Tangent Imaging Systems
and Technology Resource Centers 31 (671)
-------------------------------
Net loss from continuing and discontinued $ (2,731) (1,165)
Operations
Preferred stock dividends (110) (103)
-------------------------------
Net loss applicable to common stockholders $ (2,841) $(1,268)
===============================
Basic and diluted net loss from continuing
operations applicable to common shares $ (0.11) $ (.03)
Basic and diluted net loss from discontinued
operations applicable to common shares $ - $ (.03)
-------------------------------
$ (0.11) $ (.06)
===============================
Basic and diluted weighted average common
shares outstanding 27,143,038 21,294,414
===============================
</TABLE>
See accompanying notes.
5
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------
2000 1999
-------- ----------
<S> <C> <C>
Revenues:
Product license $ 291 $ 198
Services 665 -
-------------------------------------
Total revenues 956 198
Cost of revenues:
Product license 328 117
Services 1,017 -
-------------------------------------
Total cost of revenues 1,345 117
Gross profit (389) 81
Operating expenses:
Research and development 49 135
Sales and marketing 2,144 357
General and administrative 1,817 861
-------------------------------------
Total operating expenses 4,010 1,353
Total other income 108 13
Loss from continuing operations, before
provision for income taxes (4,291) (1,259)
Income taxes - -
Loss from continuing operations (4,291) (1,259)
-------------------------------------
Discontinued operations
Income (loss) from operations of
discontinued Tangent Imaging Systems
and Technology Resource Centers 30 (1,538)
-------------------------------------
Net loss from continuing and discontinued
Operations (4,261) (2,797)
Preferred stock dividends (187) (200)
-------------------------------------
Net loss applicable to common stockholders $ (4,448) $ (2,997)
=====================================
Basic and diluted net loss from continuing
operations applicable to common shares $ (0.17) $ (.07)
Basic and diluted net loss from discontinued
operations applicable to common shares $ - $ (.07)
$ (0.17) $ (.14)
=====================================
Basic and diluted weighted average common
shares outstanding 26,206,413 20,827,515
=====================================
</TABLE>
See accompanying notes.
6
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLDATED STATEMENTS OF CASH FLOW
(In thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Operating Activities
Loss from continuing operations (4,291) $(1,259)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 447 65
Changes in operating assets & liabilities
Accounts and notes receivable, net (243) 81
Prepaid expenses and other current assets (20) 9
Other non current assets - 102
Accounts payable and accrued expenses 249 (50)
Deferred revenue and Other 458 67
---------------------------------
Net cash used in continuing operating activities (3,400) (985)
Income (loss) from discontinued operations 30 (1,538)
Adjustments to reconcile income from
discontinued operations to net cash
used by discontinued operations:
Cash flow related to results of
discontinued operations 205 926
--------------------------------
Net cash provided by(used in) discontinued operations 235 (612)
--------------------------------
Net cash used in operating activities (3,165) (1,597)
Investing activities
Purchase of property and equipment (150)
Purchase of long term investment (44)
Increase in capitalized software development costs (771) (224)
--------------------------------
Net cash used in investing activities (965) (224)
Financing activities
Payment of preferred stock dividends (90) (71)
Repayments of notes receivable, related parties 47 (161)
Repayment of long term obligation (43)
Proceeds from issuance of preferred stock, net 2,805 1,925
Proceeds from exercise of common stock
warrants/options 6,468 341
--------------------------------
Net cash provided by financing activities 9,187 2,034
--------------------------------
Net increase in cash and cash equivalents 5,057 213
Cash and cash equivalents, at beginning of year 893 798
--------------------------------
Cash and cash equivalents, at end of period $ 5,950 $ 1,011
================================
</TABLE>
See accompanying notes.
7
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #1: General
-------
The accompanying consolidated financial statements are unaudited and include the
accounts of Sedona Corporation and subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated.
The consolidated financial statements included herein for the three and six
months ended June 30, 2000 and 1999 are unaudited. In the opinion of management,
all adjustments (consisting of normal recurring accruals) have been made which
are necessary to present fairly the financial position of the Company in
accordance with generally accepted accounting principles. The results of
operations experienced for the three and six month period ended June 30, 2000
are not necessarily indicative of the results to be experienced for the year
ended December 31, 2000.
The statement and related notes have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying notes should
therefore be read in conjunction with the Company's December 31, 1999 annual
financial statements on Form 10-K as well as the Company's Form 8-K filed
October 4, 1999, as amended November 2, 1999, Form 8-K filed April 25, 2000, as
amended June 23, 2000, Form 8-K filed August 7, 2000 and Form S-3 filed April
10, 2000, Form S-3 filed May 23, 2000, as amended June 26, 2000 and Form S-3
filed June 5, 2000 as amended June 28, 2000. Certain reclassifications have been
made to prior year numbers to conform to the current year presentation.
Note #2: Discontinued Operations
-----------------------
As earlier reported in Form 8-K filed on October 4, 1999, as amended, during the
third quarter of 1999, the Company's Board of Directors decided to sell the two
divisions of the Company which were not part of its realigned strategy of
focusing on the development of its Internet-based software products.
Accordingly, on July 16, 1999 the sale of the assets of the Technology Resource
Centers to Diversified Technologies, Inc. was completed. On September 17, 1999,
the sale of the Tangent Imaging Systems operation to Colortrac, Inc. was
completed.
For all periods presented, these financial statements reflect the results of the
Tangent Imaging Systems and Technology Resource Centers as discontinued
operations.
Revenues from the discontinued operations were $123 and $884, respectively, for
the six months ended June 30, 2000 and 1999 and represented substantially all of
the Company's revenues in the 1999 period. The decreased losses from
discontinued operations in 2000 periods reflects the substantial completion of
discontinued operations.
Note #3: Property and Equipment
----------------------
Property and equipment consists of:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
Machinery & equipment $ 886 $ 636
Equipment under capital lease 94 94
Furniture & fixtures 196 72
Leasehold improvements 61 9
Purchased software 90 76
------ -------
1,327 887
Less accumulated
depreciation and amortization 628 510
------ -------
$ 699 $ 377
====== =======
</TABLE>
8
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #4: Stockholders' Equity
--------------------
During the second quarter of 2000, there were a total of 127,500 common stock
options with exercise prices ranging from $3.13 to $6.00 per share issued to
employees and directors of the Company. The exercise prices of these options and
warrants approximated the fair market value or more of the common stock at the
time of such grants.
On May 5, 2000, all of the Class A, Series B Convertible Preferred Stock and
accrued dividends of $88 were converted into 473,091 shares of common stock. No
additional warrants were issued in connection with the Class A Series B
provisions.
On February 28, 2000, the Company closed a $3.0 million private placement
purchase agreement for the issuance of 3,000 shares of Series G convertible
preferred stock. The investors can convert the preferred stock to common stock
at the lower of: 1) 130% of the closing bid price of the Company's common stock
as of the closing date, or 2) 95% of the low three day average closing bid price
of the Company's common stock for the twenty trading days prior to the notice of
conversion. The conversion amount shall be the principal amount of the preferred
stock being converted, plus a 3% premium accruing from the closing date to the
conversion date. In addition, the investors received three-year warrants to
purchase 100,000 shares of common stock at an exercise price of $5.04 per share.
Mandatory conversion of the preferred stock shall occur on the second
anniversary after closing. The Company shall have a right to redeem any portion
of the Series G preferred stock upon a 30-day written notice.
Note #5: Supplemental Disclosures of Cash Flow Information
-------------------------------------------------
<TABLE>
<CAPTION>
Three months ended June 30,
-------------------------------
2000 1999
--------- ------
<S> <C> <C>
Cash paid during period for interest $ 13 $ 20
========= ======
Cash expenses incurred relative to
Issuance of convertible preferred
stock $ 195 $ 30
========= ======
Non-cash financing activities
are as follows:
Conversion of debenture interest
and preferred stock dividends
into common stock $ - $ 48
========= ======
Conversion of preferred stock to
Common stock $ 1,517 $ 617
========= ======
</TABLE>
9
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #6: CIMS Purchase
-------------
In February, 2000, the Company signed an operating agreement with the Acxiom
Corporation whereas SEDONA assumed the management of all the operations of the
Customer Information Management Systems (CIMS) business unit of Acxiom. Under
the terms of the operating agreement, the Company earned revenue based on the
gross billings of the unit during the term of the operating agreement. The
Company defers the portion of the revenues that relate to maintenance and
services to be performed in future periods. Such portion is amortized into
revenue as services are performed or in the case of the maintenance contracts,
ratably over the life of the maintenance agreement. SEDONA also is responsible
for all direct expense associated with the CIMS unit, and is required to
reimburse Acxiom for such expenses. During the 1st quarter ended March 31, 2000,
the Company recorded revenues of $695, deferred revenue of $59, and incurred
expenses of $893 related to the operating agreement.
In April 2000, the Company consummated a transaction to purchase the CIMS
business unit for total potential consideration of $4.35 million, $1.3 million
(with face value of 1.5 million) paid in preferred stock, $1 million of which
will be paid by the third anniversary of the transaction, and the remainder of
which will be paid contingent on the future performance of the business unit
acquired. In addition, 247,934 five-year warrants valued at $550 with an
exercise price of $3.025 per share were issued in connection with this
transaction. The series H preferred stock issued as part of the transaction
yields 8% and is convertible at the Company's option for the first 33 months of
the 36 month life.
The total purchase price of the CIMS acquisition has been allocated to acquired
assets based on estimates of their fair values. The purchase price of
approximately $2.85 million has been assigned to the assets acquired as follows
(in thousands):
Tangible net assets acquired:
Accounts receivable (net of receivables retained
by Acxiom) $ 344
Property, plant, and equipment 291
Total fair value of net tangible assets acquired $ 635
Estimated direct costs associated with merger (68)
Total preliminary allocation of purchase price 567
Value ascribed to purchase software 2,283
------
$2,850
======
The following pro forma financial information has been developed from SEDONA
data and financial statements from the CIMS business unit.
<TABLE>
<CAPTION>
SEDONA CIMS ADJUSTMENTS COMBINED
----------------- ----------- --------
(historical)
<S> <C> <C> <C> <C>
Six months ended June 30, 2000
------------------------------
Revenue $ 956 $ 559 $(443) (A) $1,072
Net Income $(4,448) $(619) $ 276 (B) $(4,791)
Six months ended June 30, 1999
------------------------------
Revenue $ 198 $ 1,503 - $1,701
Net Income $(2,997) $(635) - $(3,632)
</TABLE>
10
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #6: CIMS Purchase (Continued)
-------------
The adjustments to the pro forma combined condensed statements of operations for
the year ended December 31, 1999 and for the six months ended June 30, 2000
assume the acquisition occurred as of January 1, 1999 and are as follows (in
thousands)
(A) To reflect adjustments from an operating agreement with Acxiom Corporation
whereby SEDONA assumed the management of the CIMS business unit in February
2000. These adjustments eliminate intercompany revenue and expenses that
were included in the results of the CIMS business unit and SEDONA
operations.
(B) To reflect the amortization of approximately $2,283 of purchased software
acquired in the acquisition. The purchased software will be amortized
ratably over an estimated useful life of 3 years.
Note #7: Recent and Pending Accounting Pronouncements
--------------------------------------------
During fiscal year 2000, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition" (SAB 101). The SAB provides
examples of how the staff applies the criteria to specific fact patterns such as
bill-and-hold transactions, up-front fees when the seller has significant
continuing involvement, long-term service transactions, refundable membership
fees, retail layaway sales, and contingent rental income. The SAB also addresses
whether revenue should be presented on a gross or net (e.g., a commission) basis
for certain transactions, such as sales on the Internet. In addition, the SAB
provides guidance on the disclosures registrants should make about their revenue
recognition policies and the impact of events and trends on revenue. The Company
is required to adopt the provisions of SAB 101 by the fourth quarter of fiscal
year 2000. The adoption of SAB 101 is not expected to have a significant impact
on the Company's results of operations.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25 ." The Interpretation
clarifies guidance for certain issues that arose in the application of APB 25
"Accounting for Stock Issued to Employees", such as repricing of employee stock
options and options issued to outside vendors. The company adopted the
Interpretation on July 1, 2000.
11
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #8 - Subsequent Event
----------------
In August, 2000, the Company entered into a long-term operating lease agreement
for office space in King of Prussia, Pennsylvania. Future minimum lease payments
under this lease obligation are expected to commence in October, 2000, and
consist of the following:
Year 1 $ 496
Year 2 504
Year 3 512
Year 4 521
Year 5 529
Thereafter 1,082
------
Total minimum lease payments $3,624
======
12
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share and per share data)
Realignment of Operations
-------------------------
As earlier reported in Form 8-K filed on October 4, 1999, as amended, during the
third quarter, the Company's Board of Directors decided to sell the two
divisions of the Company which were not part of its realigned strategy of
focusing on the development of its Internet-based software products.
Accordingly, on July 16, 1999 the sale of the assets of the Technology Resource
Centers to Diversified Technologies, Inc. was completed. On September 17, 1999,
the sale of the Tangent Imaging Systems operation to Colortrac, Inc. was
completed.
On April 10, 2000, the Company announced that it had acquired the Customer
Information Management System (CIMS) business unit form Acxiom Corporation. The
CIMS business develops, markets, services and supports Customer Relations
Management (CRM) systems, focusing principally on financial services markets. As
a result of this transaction, SEDONA will enhance the development of its
Internet-based CRM strategy by obtaining a comprehensive CRM product suitable
for smaller to mid-sized businesses and approximately 80 client accounts.
The purchase price for the acquired assets included issuance of $1.3 million
(with face value of $1.5 million) in preferred stock of the Company yielding an
8% dividend and convertible at the Company's option for the first 33 months of
the 36 month life; 247,934 five-year warrants of the Company valued at $550
at an exercise price of $3.025 per share; payment by the Company of a 10%
royalty fee on collections of CIMS license fees, such royalties to be not less
than $1 million over the three year period following closing; and, assumption of
certain liabilities related principally to the service and warranty contracts
assigned by Acxiom to the Company.
On February 9, 2000, the Company committed to acquire a 10% equity interest for
a total of $140, payable at various times in the future, in Lead Factory, a
start-up company which designs, builds, and markets computer software and
services to aid sales and marketing persons with their customer prospecting.
This lead generation and management product will be integrated with SEDONA's
visual CRM profiling and CIMS application solutions to provide further value to
its customers.
With the realignment of operations completed, the Company is now able to focus
all efforts on its business of providing enterprises with Internet-based
application solutions enabling marketing and sales organizations to more quickly
and precisely identify and visualize new market opportunities and improve sales
results and market penetration.
The remainder of management's discussion and analysis of financial condition and
results of operations reflects principally the continuing operations of the
Company.
Results of Operations
---------------------
Revenues for the three months and six months ended June 30, 2000 were $238 and
$956 respectively, reflecting principally revenues from the CIMS business unit
acquired from Acxiom Corporation.
During these period, gross margins were not meaningful reflecting the
realignment of the Company's continuing operations. Expenses in continuing
operations have increased in the first six months of 2000 compared to the same
period in 1999 reflecting principally additional staff and facilities associated
with the CIMS unit. Discontinued operations loss decreased in 2000 reflecting
substantial disposal of the discontinued operations.
13
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share and per share data)
Liquidity and Capital Resources
-------------------------------
At June 30, 2000, cash and cash equivalents increased to $5,950, a $5,057
increase compared to the December 31, 1999 amount of $893. For the six months
ended June 30, 2000 the cash flows from operating activities resulted in a net
use of cash of $3,165.
This use of cash was primarily due to the operating losses sustained by
continuing operations. The cash flows from investing activities during the same
period resulted in a use of cash of $965 primarily due to increases in software
development costs, purchases of equipment and other investments.
For the six months ended June 30, 2000, the cash flows from financing activities
resulted in net cash provided by financing activities of $9,187. The increase in
cash provided when compared to the same period a year ago was due principally to
greater proceeds on the sale of a new series of preferred stock and by greater
proceeds from exercises of options and warrants.
The Company received $6,468 during the first half of 2000 related to option and
warrant exercises, resulting in 2,992,850 additional common shares being issued.
On February 28, 2000, the Company closed a $3.0 million private placement
purchase agreement for the issuance of 3,000 shares of Series G convertible
preferred stock. The investors can convert the preferred stock to common stock
at the lower of: 1) 130% of the closing bid price of the Company's common stock
as of the closing date, or 2) 95% of the low three day average closing bid price
of the Company's common stock for the twenty trading days prior to the notice of
conversion. The conversion amount shall be the principal amount of the preferred
stock being converted, plus a 3% premium accruing from the closing date to the
conversion date. In addition, the investors received three-year warrants to
purchase 100,000 shares of common stock at an exercise price of $5.04 per share.
Mandatory conversion of the preferred stock shall occur on the second
anniversary after closing. The Company shall have a right to redeem any portion
of the Series G preferred stock upon a 30-day written notice.
The Company believes that proceeds from the option and warrant exercises and the
private placement noted above as well as funds generated from operations will be
sufficient to meet the Company's working capital requirements for the remainder
of 2000.
Inflation
---------
There can be no assurance that the Company's business will not be affected by
inflation in the future, however, management believes the inflation did not have
a material effect on the results of operations or financial condition of the
Company during the period presented herein.
14
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except share and per share data)
PART II - OTHER INFORMATION
---------------------------
Item 1 - Legal Proceedings
No actions other than matters involved in the ordinary
course of business are currently known by management and
none of these are believed by management to have potential
significance.
Item 2 - Changes in Securities - None
Item 3 - Default Upon Senior Securities - None
Item 4 - Submission of Matters to a Vote of Security Holders
Proposal #1
-----------
In the Election of Directors to Terms Expiring in 2001:
<TABLE>
<CAPTION>
FOR ABSTAIN TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Laurence L. Osterwise 23,816,985 1,616,498 25,433,483
R. Barry Borden 23,816,685 1,616,798 25,433,483
Marco A. Emrich 24,788,638 644,845 25,433,483
David S. Hirsch 24,330,222 1,103,261 25,433,483
Michael A. Mulshine 25,215,830 217,653 25,433,483
Jack Pellicci 25,328,155 105,328 25,433,483
James C. Sargent 25,338,555 94,928 25,433,483
Robert M. Shapiro 25,311,755 121,728 25,433,483
James T. Womble 25,335,655 97,828 25,433,483
</TABLE>
Proposal #2
------------
2000 Incentive Stock Option Plan:
<TABLE>
<CAPTION>
FOR WITHHELD ABSTAIN
--------- -------- ---------
<S> <C> <C> <C>
8,366,282 797,120 387,449
</TABLE>
Proposal #3
-----------
Tax-Qualified Employee Stock Purchase Plan:
<TABLE>
<CAPTION>
FOR WITHHELD ABSTAIN
--- -------- ---------
<S> <C> <C> <C>
8,965,008 323,466 255,097
</TABLE>
Item 5 - Other Information - None
Item 6 - Exhibits and Reports on Form 8-K
Form 8-K filed April 25, 2000
Form 8-K/A filed June 23, 2000
Form 8-K filed August 7, 2000
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned,
Thereunto duly authorized.
SEDONA CORPORATION
DATE: August 14, 2000 /S/Marco A. Emrich
------------------- --------------------------------------
Marco A. Emrich
President and Chief Executive Officer
DATE: August 14, 2000 /S/ William K. Williams
------------------- ---------------------------------------
William K. Williams
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
16
