<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 September 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.)
455 South Gulph Road, Suite 300, King of Prussia, Pennsylvania 19406
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (484) 679-2200
649 N. Lewis Road, Limerick, Pennsylvania 19468
--------------------------------------------------------------------------------
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 September 30, 2000, there were 28,559,786 shares outstanding of the
registrant's common stock, par value $0.001 per share.
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
------------------------------ -----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- September 30, 2000 (Unaudited)
and December 31, 1999 4
Consolidated Statements of Operations -- (Unaudited)
three months ended September 30, 2000 and 1999 5
Consolidated Statements of Operations -- (Unaudited)
nine months ended September 30, 2000 and 1999 6
Consolidated Statements of Cash Flow -- (Unaudited)
nine months ended September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements -
September 30, 2000 8-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-14
PART II. OTHER INFORMATION
---------------------------
Item 1 through Item 6. 15
SIGNATURE PAGE 16
--------------
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)
September 30, December 31,
2000 1999
---------------------------------
<S> <C> <C>
Assets
Cash $ 3,462 $ 893
Accounts receivable 355 --
Prepaid expenses and other current assets 306 91
-----------------------------
Total current assets 4,123 984
Property and equipment, net of accumulated depreciation
and amortization 760 377
Software development costs, net 3,840 660
Other long term assets 455 --
Net assets/(liabilities) of discontinued operations -- 183
-----------------------------
Total assets $ 9,178 $ 2,204
=============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 614 $ 134
Accrued expenses 481 374
Dividends payable 179 139
Deferred revenue 477 24
Current maturities of long-term debt 36 51
-----------------------------
Total current liabilities 1,787 722
Long term debt, less current maturities 1,027 51
-----------------------------
Total liabilities $ 2,814 $ 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 - 2,290 and -0- shares
in 2000 and 1999, respectively 5 --
Series H, par value $2.00,
Issued and outstanding - 1,500 and -0- shares
in 2000 and 1999, respectively 3 --
Common stock, par value $.001
Authorized Shares - 50,000,000
Issued and outstanding shares - 28,559,786 and
23,896,450 in 2000 and 1999, respectively 29 24
Additional paid-in-capital 45,647 33,474
Accumulated deficit (40,322) (33,071)
-----------------------------
Total stockholders' equity 6,364 1,431
-----------------------------
Total liabilities and stockholders' equity $ 9,178 $ 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
SEPTEMBER 30,
-----------------------------------
2000 1999
-----------------------------------
Revenues:
<S> <C> <C>
Product license $ 176 $ 23
Services 159 --
-----------------------------------
Total revenues 335 23
Cost of revenues:
Product license 414 167
Services 333 --
-----------------------------------
Total cost of revenues 747 167
Gross profit (412) (144)
Operating expenses:
Research and development 47 121
Sales and marketing 1,680 130
General and administrative 915 551
-----------------------------------
Total operating expenses 2,642 802
Other income 39 24
Loss from continuing operations, before
provision for income taxes (3,015) (922)
Income taxes -- --
-----------------------------------
Loss from continuing operations (3,015) (922)
Discontinued operations
Income (loss) from operations of
discontinued Tangent Imaging Systems
and Technology Resource Centers 25 (1,450)
-----------------------------------
Net loss from continuing and discontinued
operations (2,990) (2,372)
Preferred stock dividends (99) (331)
-----------------------------------
Net loss applicable to common stockholders $ (3,089) $ (2,703)
===================================
Basic and diluted net loss from continuing
operations applicable to common shares $ (0.11) $ (0.05)
Basic and diluted net loss from discontinued
operations applicable to common shares $ -- $ (0.07)
-----------------------------------
$ (0.11) $ (0.12)
===================================
Basic and diluted weighted average common
shares outstanding 28,150,176 22,202,267
===================================
</TABLE>
See accompanying notes.
5
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share and per share data)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2000 1999
----------------------------
Revenues:
Product license $ 467 $ 222
Services 825 --
----------------------------
Total revenues 1,292 222
Cost of revenues:
Product license 655 284
Services 1,438 --
----------------------------
Total cost of revenues 2,093 284
Gross profit (801) (62)
Operating expenses:
Research and development 96 255
Sales and marketing 3,824 487
General and administrative 2,733 1,414
----------------------------
Total operating expenses 6,653 2,156
Other income 147 37
Loss from continuing operations, before
provision for income taxes (7,307) (2,181)
Income taxes -- --
----------------------------
Loss from continuing operations (7,307) (2,181)
Discontinued operations
Income (loss) from operations of
discontinued Tangent Imaging Systems
and Technology Resource Centers 55 (2,988)
----------------------------
Net loss from continuing and discontinued
operations (7,252) (5,169)
Preferred stock dividends (286) (531)
----------------------------
Net loss applicable to common stockholders $ (7,538) $ (5,700)
============================
Basic and diluted net loss from continuing
operations applicable to common shares $ (.27) $ (0.13)
Basic and diluted net loss from discontinued
operations applicable to common shares $ -- (0.14)
----------------------------
$ (.27) $ (0.27)
============================
Basic and diluted weighted average common
shares outstanding 27,724,191 21,290,801
============================
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>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
-----------------------------
Operating Activities
<S> <C> <C>
Loss from continuing operations $ (7,307) $ (2,181)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 906 115
Changes in operating assets & liabilities
Accounts and notes receivable, net (11) (80)
Prepaid expenses and other current assets (215) (74)
Other non current assets (413) 6
Accounts payable and accrued expenses 550 (254)
Deferred revenue and other 453 102
-----------------------------
Net cash used in continuing operating activities (6,037) (2,366)
Income (loss) from discontinued operations 55 (2,988)
Adjustments to reconcile income from
discontinued operations to net cash
used by discontinued operations:
Cash flow related to results of
discontinued operations 263 2,701
-----------------------------
Net cash provided by(used in) discontinued operations 318 (287)
-----------------------------
Net cash used in operating activities (5,719) (2,653)
Investing activities
Purchase of property and equipment (294) (34)
Purchase of long term investment (122) --
Increase in capitalized software development costs (1,600) (88)
-----------------------------
Net cash used in investing activities (2,016) (122)
Financing activities
Payment of preferred stock dividends (120) (553)
Repayments of notes receivable, related parties 47 --
Repayment of long term obligation (99) (63)
Proceeds from issuance of preferred stock, net 2,805 1,970
Repurchase of Series E preferred stock for cash -- (2,313)
Proceeds from issuance of common stock 940 2,366
Proceeds from exercise of common stock
warrants/options 6,731 2,361
-----------------------------
Net cash provided by financing activities 10,304 3,768
-----------------------------
Net increase in cash and cash equivalents 2,569 993
Cash and cash equivalents, at beginning of year 893 798
-----------------------------
Cash and cash equivalents, at end of period $ 3,462 $ 1,791
=============================
</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 nine
months ended September 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 nine month period ended September 30,
2000 are not necessarily indicative of the results to be experienced for the
year ended December 31, 2000.
The statements 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, Form 8-K filed August 31,
2000, 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 $1,836, respectively,
for the nine months ended September 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:
September 30, December 31,
2000 1999
------------ ------------
Computer equipment $ 946 $ 636
Equipment under capital lease 152 94
Furniture & fixtures 197 72
Leasehold improvements 62 9
Purchased software 115 76
------ ------
1,472 887
Less accumulated
depreciation & amortization 712 510
------ ------
$ 760 $ 377
====== ======
8
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #4: Stockholders' Equity
On October 23, 2000 the Company sold 952,380 shares of common stock for an
aggregate purchase price of $1,000. The Company also issued to the purchaser of
these shares of common stock a four year warrant to purchase 95,238 shares of
common stock at an exercise price of $1.47 per share. The Company paid a $60
sales commission to Ladenburg Thalmann & Co., Inc., as placement agent in
connection with this offering. The Company also issued Ladenburg Thalmann a
warrant to purchase 66,667 shares of common stock at an exercise price of $1.16
per share.
On August 22, 2000 the Company sold 476,190 shares of common stock to an
investor for an aggregate purchase price of $1,000. The Company also issued to
the purchaser of these shares of common stock a four year warrant to purchase
47,619 shares of common stock at an exercise price of $2.96 per share. The
Company paid a $60 sales commission to Ladenburg Thalmann, as placement agent in
connection with this offering. The Company also issued Ladenburg Thalmann a
warrant to purchase 33,333 shares of common stock at an exercise price of $2.38
per share.
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 $3,000 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 the Series G
preferred stock upon a 30-day written notice.
Note #5: Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
2000 1999
--------- ----------
<S> <C> <C>
Cash paid during period for interest $ 20 $ 28
========= ==========
Cash expenses incurred relative to
Issuance of convertible preferred
stock $ 195 $ 41
========= ==========
Cash expenses incurred relative to
new equity $ 60 $ --
========= ==========
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 $ 1,806 $ 614
========= ==========
</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 pursuant to which 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 was responsible for all direct expense associated with the CIMS
unit, and was required to reimburse Acxiom for such expenses. During the 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 $4,350, $1,300 (with face
value of $1,500) of which was paid in preferred stock, $1,000 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 $2,918 (including deal costs) has been assigned to the assets
acquired as follows (in thousands):
Accounts receivable (net of certain receivables
retained by Acxiom) $ 344
Furniture and equipment 291
Capitalized software 2,283
------
$2,918
======
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)
-----------------
Nine months ended September 30, 2000
<S> <C> <C> <C> <C>
Revenue $ 1,292 $ 559 $ (443) $ 1,408
Net Income $(7,538) (619) $ 276 $(7,881)
Nine months ended September 30, 1999
Revenue $ 222 $1,963 - $ 2,185
Net Income $(5,700) $ (942) - $(6,642)
</TABLE>
The adjustments to the pro forma combined condensed statements of operations for
the year ended December 31, 1999 and for the nine months ended September 30,
2000 assume the acquisition occurred as of January 1, 1999 and are as follows
(in thousands):
10
<PAGE>
SEDONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
Note #6: CIMS Purchase (Continued)
-------------
(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, and contingent 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.
Note #8: Commitments
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 $3,644
======
In June 2000, the Company signed an agreement with E.piphany, a leading provider
of customer interaction software, whereby the Company would integrate
E.piphany's campaign management application as a new component of Intarsia(TM),
the Company's Internet customer relationship management solution for small and
mid-sized financial services companies. In addition to costs related to
licensing and integrating the E.piphany product in 2000, starting in 2001 there
are future minimum payments regarding expected resales of the E.piphany product
as part of Intarsia as follows:
Year 1 $ 450
Year 2 900
Year 3 1,500
-----
Total payments $2,850
=====
11
<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 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.
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 $1,300(with face
value of $1,500) 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 $1,000 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. To date, $122 has been paid pursuant to the Lead Factory
Agreement.
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 that assist 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 and nine months ended September 30, 2000 were $335 and
$1,292, respectively, reflecting principally revenues from the CIMS business
unit acquired from Acxiom Corporation.
During these periods, gross margins were not meaningful reflecting the
realignment of the Company's continuing operations. Expenses in continuing
operations have increased in the first nine 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.
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)
Liquidity and Capital Resources
At September 30, 2000, cash and cash equivalents increased to $3,462, a $2,569
increase compared to the December 31, 1999 amount of $893. For the nine months
ended September 30, 2000, the cash flows from operating activities resulted in a
net use of cash of $5,719.
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 $2,016 primarily due to increases in
software development costs, purchases of equipment and other investments.
For the nine months ended September 30, 2000, the cash flows from financing
activities resulted in net cash provided by financing activities of $10,304. 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 $6,731 during the first nine months of 2000 related to
option and warrant exercises, resulting in 3,247,848 additional common shares
being issued.
On February 28, 2000, the Company closed a $3,000 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.
On August 22, 2000 the Company sold 476,190 shares of common stock to an
investor for an aggregate purchase price of $1,000. The Company also issued to
the purchaser of these shares of common stock a four year warrant to purchase
47,619 shares of common stock at an exercise price of $2.96 per share. The
Company paid a $60 sales commission to Ladenburg Thalmann, as placement agent in
connection with this offering. The Company also issued Ladenburg Thalmann a
warrant to purchase 33,333 shares of common stock at an exercise price of $2.38
per share.
On October 23, 2000 the Company sold 952,380 shares of common stock for an
aggregate purchase price of $1,000. The Company also issued to the purchaser of
these shares of common stock a four year warrant to purchase 95,238 shares of
common stock at an exercise price of $1.47 per share. The Company paid a $60
sales commission to Ladenburg Thalmann & Co., Inc., as placement agent in
connection with this offering. The Company also issued Ladenburg Thalmann a
warrant to purchase 66,667 shares of common stock at an exercise price of $1.16
per share.
The Company believes that proceeds from the option and warrant exercises and the
stock sales 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.
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)
Inflation
Although there can be no assurance that the Company's business will not be
affected by inflation in the future, management believes inflation did not have
a material effect on the results of operations or financial condition of the
Company during the periods presented herein.
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<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 be material to
the Company's financial condition or results of
operations.
Item 2 - Changes in Securities - None
Item 3 - Default Upon Senior Securities - None
Item 4 - Submission of Matters to a Vote of Security Holders - None
Item 5 - Other Information - None
Item 6 - Exhibits and Reports on Form 8-K
Form 8-K filed August 7, 2000
Form 8-K filed August 31, 2000
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<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.
<TABLE>
<CAPTION>
SEDONA CORPORATION
<S> <C>
DATE: November 13, 2000 /S/Marco A. Emrich
----------------------- ----------------------------------------------
Marco A. Emrich
President and Chief Executive Officer
DATE: November 13, 2000 /S/ William K. Williams
------------------- ----------------------------------------------
William K. Williams
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
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