UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 000-15864
 SEDONA CORPORATION
  Pennsylvania
    
    95-4091769(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)1003 West Ninth Avenue, Second Floor, King of Prussia, PA
    
    19406(Address of principal executive offices)
    
    (Zip Code)
    
  o þ
 o þ
 þ o
 o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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2




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ITEM 1.
    
    BUSINESS
 Overview
         3




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Item 1.
    
    Business (continued)
   www.sedonacorp.com .
 Additional Information
 www.sedonacorp.com investorinfo@sedonacorp.com . www.sec.gov
 4




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##### 



ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
 Description of Business Strategy
       5




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##### 



ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
 www.sedonacorp.com
 
    
    A comprehensive overview of the robust SEDONA CRM/MRM technology along with features,
benefits and a quick contact form for a personalized demo;
    
    Description, features and benefits of SEDONAs professional services designed to enhance
customer marketing, revenue and profit metrics;
    
    Resources, white papers, and frequently asked questions detailing SEDONAs technology
and professional services;
    
    Partner endorsements, customer testimonials and case studies;
    
    Announcements of upcoming corporate events and developments; and
    
    Relevant industry articles and information
   
    
    Targeting the SMB market with a highly-verticalized CRM/MRM application solutionRecent 2009 studies predict that the North America SMB markets for application and software
and services will grow to a $35 billion market by 2013, with a compound annual growth rate
(CAGR) of 6% in the next five years.As a significant segment of the overall SMB market, small and mid-sized financial services
organizations, represented by community and regional banks, credit unions, savings and
loans, and brokerage firms, with total asset value below $10 billion, have identified CRM as
a strategic initiative to improve the customer retention and profitability rates in a
marketplace dominated by large national and international companies with greater resources,
services and advertising power.
 TOTAL ASSET VALUE
    
    < $100M
    
    $100M - $300M
    
    $300M - $500M
    
    $500M - $1B
    
    $1B - $3B
    
    $3B - $10B
    
    > $10BCOMMUNITY &
REGIONAL BANKS
    
    
    3,131
    
    
    
    2,921
    
    
    
    856
    
    
    
    721
    
    
    
    410
    
    
    
    151
    
    
    
    115CREDIT UNIONS
    
    
    8,688
    
    
    
    729
    
    
    
    192
    
    
    
    182
    
    
    
    113
    
    
    
    24
    
    
    
    7TOTAL NUMBER OF
INSTITUTIONS
    
    
    11,819
    
    
    
    3,650
    
    
    
    1,048
    
    
    
    903
    
    
    
    523
    
    
    
    175
    
    
    
    122
 Source: FDIC & National Credit Union Association  February 2009
 6




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##### 



ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
  
    
    Removing the barriers to purchasing and maintaining a CRM/MRM systemSEDONAs technology is designed to provide prospective customers and distribution partners
with an effective deployment of an enterprise business application in either an in-house
or software as a service (SaaS) environment.The SaaS model is especially attractive for financial institutions that lack the financial
resources and IT infrastructure to deploy an in-house enterprise business application such
as CRM/MRM.The SaaS model provides financial institutions with an immediately available, fully
integrated system, including all of the software, hardware and services required for the
deployment of a comprehensive, web-based enterprise business application, for an affordable,
fixed monthly subscription fee.The distinctive features of the SaaS model make it attractive to current and future OEM and
reseller partners because it:Shortens the sales cycle by greatly reducing the financial barriers  software, hardware
and people-ware costs  and the resource requirements on a customers existing IT
organization;Builds a recurring revenue stream, as the solution can immediately be made available to an
existing customer base with a low monthly fee to stimulate volume deployment;Generates new revenue opportunities through the upgrade of new integration and training
services as well as software upgrades; andAssists in achieving a positive return on investment more rapidly than traditional software
licensing. The immediate availability of the application enables organizations to
capitalize on its benefits right away.
    
    Marketing unique proprietary solution to target markets through multiple sales
distribution channelsHaving strategically targeted a key segment of the vast CRM/MRM market and designed and
priced its CRM/MRM application solution accordingly, SEDONAs sales strategy is to capture a
share of the small to mid-sized financial services market using multiple direct and indirect
sales distribution channels and innovative marketing programs to garner awareness and market
leadership.
 
    
    Direct Sales Distribution ChannelThe Company has established a direct sales channel to promote and sell SEDONA
CRM/MRM directly to the small to mid-sized banking and credit union markets. SEDONA
is targeting community and regional financial institutions that run banking
 7




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ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
 and credit union core systems other than the ones provided by the Companys current
distribution partners.
    
    Indirect Sales Distribution ChannelSEDONA has signed several OEM and reseller agreements with leading software and
services providers for the financial services market. Reseller agreements generally
range from three to five years in term, with OEM agreements generally ranging beyond
five years terms. Under the agreements with its current distribution partners, the
Company receives license fees and annual maintenance fees for every in-house sale of
its CRM/MRM technology, as well as multi-year, monthly subscription fees for every
sale in a SaaS environment. These fees are paid to SEDONA whether SEDONAs
distribution partners sell SEDONAs CRM/MRM technology as a component of their
partners total solution or as a stand-alone offering.The solution achieved by branding and integrating SEDONAs CRM/MRM technology into
its distribution partners core business applications, combined with their marketing
strengths, broad distribution channels and strong reputations, provides financial
institutions with the opportunity to enjoy all the benefits of implementing an
enterprise-wide CRM/MRM application.
 
    
    Staying in the forefront of CRM/MRM technologySEDONA CRM provides banks and credit unions with a comprehensive customer relationship
management solution that is tightly integrated with their business processes and back-end
systems. It enables them to optimize their return on customer relationships by
personalizing the management and interaction with their customers and ensuring that the
sales and marketing efforts are strategically aligned toward increasing company
profitability.Exploiting the ubiquity of the internet, SEDONA CRMs comprehensive set of components
provides financial institutions with a robust set of marketing analytics and operational CRM
capabilities necessary to:
 
    
    Have a 360° view of the customer by integrating the front, back and mobile
offices into one comprehensive database of information about customers and
prospects.
    
    Analyze customer and prospect data, enabling financial services organizations to
manage critical business performance such as profitability of customers, (accounts,
members and policy holders), personnel, households and products.
    
    Measure the effectiveness of the organizations lead generation and marketing
campaigns and ensure timely follow-up of referrals, customer requests and sales
leads.
    
    Improve coordination and communication between financial services organizations
and their customers, enhancing the ability to deliver effective service and improve
organizational productivity.
    
    Automate business processes that may be critical for the effective management
and monitoring of the relationships and interactions with customers at the
financial services organizations.
  8




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ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
  
    
    Create look-a-like models to effectively identify prospects that share the
same characteristics as their organizations best customers, increasing the
institutions ability to acquire new customers.
    
    Help predict customer retention and make profitable cross-sell (next best
product) recommendations.
    
    Generate alerts and automated processes to deal with critical changes in
customer status or other business indicators.
    
    Develop personalized sales, marketing and services programs aimed at retaining
the financial services organizations most profitable customers and turning
unprofitable customers into profitable ones.
  Research & Development
  
    
    Promote and cultivate a culture of team-based development:The Companys research and development organization is structured into small teams of
developers, responsible for the design, development and unit testing of each component of
the SEDONA CRM/MRM application solution. Each project team also provides technical
assistance to the systems integration group.
    
    Create efficient and predictable software development life cycle:SEDONA utilizes an industry-proven software development process that encourages component
reusability and enhances the predictability, timeliness and quality of the overall software
process.SEDONA has adopted the Base Level Integration Plan software development methodology, which
has been designed to promote an interactive and predictable process for the development,
unit and system integration testing and delivery of products. This methodology divides the
development of sophisticated products into four, pre-defined cycles per year. It also
allows the Company to react quickly to business and technical changes generated by the
marketplace and/or new customer requirements.Base levels serve as the fundamental planning and execution process that drives the
engineering activities for that time period, including the maintenance of existing products
and releases, training and education requirements, as well as new product development.
This process operates in the context of a development organization where there is a set of
small project teams cooperating to build a large, complex software product under the
guidance of the Chief Technology Officer.In addition, SEDONAs research and development efforts are focused on enhancing the
features and functionality of our products. We only provide support to our customers on
the then-current version of our software and one prior release. As a result, we do not
have to maintain
 9




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ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
   Trademarks and Copyrights
   Major Customers
    2008
    
    2007OEM distribution partner A
    
    
    29
    %
    
    
    33
    %
  2008
    
    2007OEM distribution partner A
    
    
    28
    %
    
    
    52
    %OEM distribution partner B
    
    
    45
    %
    
    
    14
    %
  10




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ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
 Backlog
  Competition
     
    
    Marketing and Sales  The Company has an entrenched marketing and sales distribution
channel through worldwide OEM partnership with leading core services providers for the
financial services market.
    
    Technology  The Companys proven CRM/MRM solution is specifically designed and priced
for the financial services market. It is fully integrated with the financial services
organizations core processing systems and designed to support the business processes and
data requirements of the multiple lines of business of those organizationsSEDONA CRM uniquely supports multiple lines of business on a single platform. It
allows organizations to accurately manage, report, analyze and interact with customers who
have portfolios that cross lines of business such as insurance and banking, without a need
for multiple servers, separate databases or additional application training.
 11




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ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
    
    
    Harland provides software solutions for financial institutions, including, but not
limited to, bank core systems, deposit and loan origination, teller, mortgage, call center,
document solution and customer relationship management.
    
    Harte-Hanks provides direct and target marketing services, including, but not limited
to, sales lead management, inbound/outbound telemarketing and web-based database marketing,
to consumers and business-to-business marketers across multiple vertical markets.
    
    Marquis is a privately-held company primarily focused on low cost Marketing Customer
Information File (MCIF), sales and services and referral tracking solutions for the
financial services market.
  Employees
   12




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ITEM 1.
    
    DESCRIPTION OF BUSINESS(continued)
 Appointment of Interim President and CEO
  Dependence Upon Key Personnel
    ITEM 2.
    
    DESCRIPTION OF PROPERTY
      13




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ITEM 3.
    
    LEGAL PROCEEDINGS
    ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  PART II
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Price of and Dividends of the Companys Common Stock
   14




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ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES(continued)
 High
    
    LowYear ended December 31, 2007:Quarter ended March 31, 2007
    
    $
    0.30
    
    
    $
    0.13Quarter ended June 30, 2007
    
    $
    0.33
    
    
    $
    0.17Quarter ended Sept. 30, 2007
    
    $
    0.31
    
    
    $
    0.21Quarter ended December 31, 2007
    
    $
    0.25
    
    
    $
    0.10Year ended December 31, 2008:Quarter ended March 31, 2008
    
    $
    0.17
    
    
    $
    0.10Quarter ended June 30, 2008
    
    $
    0.25
    
    
    $
    0.11Quarter ended Sept. 30, 2008
    
    $
    0.19
    
    
    $
    0.07Quarter ended December 31, 2008
    
    $
    0.13
    
    
    $
    0.02
 Dividends
    Recent Sales of Unregistered Securities
  ITEM 6.
    
    SELECTED FINANCIAL DATA
  15




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    Revenues
   
    
    license fees from direct sales by either the Company or its distribution partners
    
    monthly subscription fees from SaaS sales by our distribution partners
  
    
    professional services fees including set-up and installation fees, training and
mapping fees
    
    annual maintenance fees
   16




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(continued)
 Critical Accounting Policies
 Principles of Consolidation
 â
 Use of Estimates
  Cash and Cash Equivalents
  Accounts Receivable
  Property and Equipment
  Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets
 Revenue Recognition
  17




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(continued)
 Product License Revenue
   
    
    Persuasive evidence of an arrangement exists, generally by receipt of a signed
contract
    
    Delivery and acceptance of the software has been received
    
    The fee to be paid by the customer is fixed or determinable
    
    Collection of the fee is reasonably assured. (Our contracts do not contain
general rights of return)
  Services Revenue
     Software Development Costs
  18




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(continued)
    Income Taxes
 Accounting
for Income Tax Uncertainties- an interpretation of FASB Statement No 109
 Stock-Based Compensation
 Share Based Payment
  19




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(continued)
  Recent Accounting Pronouncements
 SFAS 141(R)
 Business Combinations
 SFAS 157
 Fair Value
Measurements
 SFAS 159
 The Fair Value Option for Financial Assets and
Financial Liabilities  including an amendment of FASB Statement
No. 115
 20




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(continued)
 SFAS 160
 Non-controlling Interests in Consolidated
Financial Statements  an amendment of Accounting Research
Bulletin No. 51
 SFAS 161
 Disclosures about Derivative Instruments and Hedging
Activities
 SFAS 162
 The Hierarchy of Generally Accepted Accounting
Principles
 Results of Operations
   21




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(continued)
   Cost of Revenues
   Gross Profit
  Operating Expenses
  Sales, marketing and product support
   22




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(continued)
 Research and Development
   General and Administrative
   Litigation Expenses
  23




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
 Non-operating Expenses:
 Interest Expense:
  Inducement loss on debt conversion
  Induced Conversions
of Convertible Debt  an amendent of APB Opinion No. 26
 Loss on extinguishment of debt
  Debtors Accounting for a Modification or Exchange of
Convertible Debt Instruments Debtors Accounting for a
Modification or Exchange of Debt Instruments
  24




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(continued)
 Liquidity and Capital Resources
         25




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
   (i)
    
    the first installment on or before December 31, 2008, in the amount
of $100,000;(ii)
    
    the second installment on or before January 15, 2009, in the
amount of $300,000;(iii)
    
    the third installment on or before March 18, 2009, in the amount
of $600,000;(iv)
    
    the fourth installment on or before May 1, 2009 in the amount of
$750,000; and(v)
    
    the fifth installment on or before September 30, 2009 in the
amount of $500,000.
        26




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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS(continued)
 Financial Risk Management
   Off-Balance Sheet Arrangements
  Inflation
  27




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ITEM 8. FINANCIAL STATEMENTS
   
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Financial StatementsConsolidated Balance Sheets as of December 31, 2008 and December 31, 2007
    
    F-3Consolidated Statements of Operations for each of the
two years in the period ended December 31, 2008
    
    F-4Consolidated Statements of Stockholders Deficit for each of the
two years in the period ended December 31, 2008
    
    F-5Consolidated Statements of Cash Flows for each of the
two years in the period ended December 31, 2008
    
    F-7Notes to Consolidated Financial Statements
    
    F-8
  ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
      28




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ITEM 9A(T). CONTROLS AND PROCEDURES
 Evaluation of Effectiveness of Disclosure Controls and Procedures
    Internal Control Over Financial Reporting
 Managements Annual Report on Internal Control Over Financial Reporting
   29




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ITEM 9A. CONTROLS AND PROCEDURES ( continued)
  Internal Control  Integrated
Framework
  Changes in Internal Control Over Financial Reporting
  ITEM 9B. OTHER INFORMATION
  30




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PART III
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    Name
    
    Age
    
    Position
    
    SinceDavid R. Vey
    
    
    56
    
    
    Co-Chairman of the Board
    
    
    2003Scott C. Edelman
    
    
    55
    
    
    Interim President & CEO (2008), Director (2004)
    
    
    2004David C. Bluestone
    
    
    53
    
    
    Director
    
    
    2005Jack A. Pellicci
    
    
    70
    
    
    Director
    
    
    1996Roger W. Scearce
    
    
    59
    
    
    Director
    
    
    2004Anita M. Primo
    
    
    41
    
    
    Vice President, Chief Financial Officer and Secretary
    
    
    2003Timothy A. Rimlinger
    
    
    45
    
    
    Vice President (2000), Chief Technology Officer (2003)
    
    
    2003
   Directors, Executive Officers and Control Persons
  David R. Vey
 31




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ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE(continued)
 Scott C. Edelman
 David C. Bluestone
 Brigadier General Jack A. Pellicci, USA (ret.)
 Brigadier General Roger W. Scearce, USA (ret.),
 32




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ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE(continued)
 th
 Anita M. Primo
 Timothy A. Rimlinger
 Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
  33




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ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE(continued)
 Corporate Governance
 Director Independence
   Audit Committee
  Nominations & Corporate Governance Committee
   34




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ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE(continued)
 Compensation Committee
  Executive Committee
  ITEM 11.
    
    EXECUTIVE COMPENSATION
 Employment and Separation Agreements
 Appointment of Interim President and CEO
    35




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##### 



ITEM 11.
    
    EXECUTIVE COMPENSATION(continued)
      2008 DIRECTOR COMPENSATION
 Non-Equity
    
    NonqualifiedFees Earned or Paid
    
    
    
    
    
    
    
    
    
    Incentive Plan
    
    Deferred Comp.Name
    
    in Cash
    
    Stock Awards
    
    Option Awards Earned
    
    Comp.
    
    Earnings
    
    All Other Comp.
    
    Total Cash Comp.David C. Bluestone
    
    $
    1,500
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,500Scott C. Edelman
    
    $
    1,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,000Jack Pellicci
    
    $
    2,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,000Roger W. Scearce
    
    $
    1,500
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,500David R. Vey
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    500
  36




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##### 



ITEM 11.
    
    EXECUTIVE COMPENSATION(continued)
  Summary Compensation Table
 Name and Principal
    
    
    
    
    
    Compensation
    
    All OtherPosition
    
    Fiscal Year
    
    Salary
    
    Compensation
    
    TotalScott C. Edelman*
    
    
    2008
    +
    
    $
    240,000
    
    
    
    
    
    
    $
    240,000President and CEO
    
    
    2007
    
    
    $
    0
    
    
    
    
    
    
    $
    Marco A. Emrich*
    
    
    2008
    +
    
    $
    225,000
    
    
    
    
    
    
    $
    225,000Former President and CEO
    
    
    2007
    
    
    $
    225,000
    
    
    
    
    
    
    $
    225,000Dean V. Bobrowski *
    
    
    2008
    +
    
    $
    170,000
    
    
    
    
    
    
    $
    170,000Vice President of Sales
    
    
    2007
    
    
    $
    170,000
    
    
    $
    1,525
    
    
    $
    171,525Anita M. Primo
    
    
    2008
    
    
    $
    114,000
    
    
    
    
    
    
    $
    114,000V.P. & Chief Financial Officer
    
    
    2007
    
    
    $
    110,000
    
    
    
    
    
    
    $
    110,000Timothy A. Rimlinger
    
    
    2008
    
    
    $
    130,000
    
    
    
    
    
    
    $
    130,000V.P. & Chief Technical Officer
    
    
    2007
    
    
    $
    130,000
    
    
    
    
    
    
    $
    130,000
 
 *
    
    S. Edelman appointed 09-08*
    
    M. Emrich terminated 09-08*
    
    D. Bobrowski terminated 06-08+
    
    If an executive served in a capacity during any part of a fiscal year with respect to the information
required, information is provided as to all compensation for the full fiscal year. Base Salary
  Annual Cash Incentive Opportunities
  37




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##### 



ITEM 11.
    
    EXECUTIVE COMPENSATION(continued)
 Long-Term Stock-Based Incentives
    38




---



##### 



Stock AwardsEquityIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity
    
    EquityPlan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    

Incentive
    
    Incentive PlanNumber of
    
    Number of
    
    Number
    
    
    
    

    
    
    
    
    
    Number of


    
    
    
    
    
    Plan Awards:
    
    Awards: MarketSecurities
    
    Securities
    
    of Securities
    
    
    
    
    

    
    
    
    
    Shares or
    
    Market Value
    
    Number of
    
    or payout Value ofUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    

    
    
    
    

    Units of
    
    of Shares or
    
    Unearned Shares,
    
    Unearned Shares,Unexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    Option
    
    Stock That
    
    Units of Stock
    
    Units or Other
    
    Units or OtherOptions #
    
    Options #
    
    Unearned
    
    Exercise
    
    Expiration
    
    Have Not
    
    That Have Not
    
    Rights That Not
    
    Rights That HaveName
    
    Exercisable
    
    Unexercisable
    

Options (#)
    
    Price
    
    Date
    
    Vested (#)
    
    Vested ($)
    
    Vested (#)
    
    Not Vested ($)Scott Edelman
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    $
    0.32
    
    
    
    12/30/15
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.0030,000
    
    
    
    20,000
    
    
    
    
    
    
    $
    0.27
    
    
    
    12/30/15
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.00100,000
    
    
    
    
    
    
    
    
    
    
    $
    0.21
    
    
    
    8/11/15
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.00100,000
    
    
    
    
    
    
    
    
    
    
    $
    0.21
    
    
    
    8/17/16
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.00Anita Primo
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    $
    1.72
    
    
    
    11/6/10
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.007,500
    
    
    
    
    
    
    
    
    
    
    $
    0.78
    
    
    
    3/29/11
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.0025,000
    
    
    
    
    
    
    
    
    
    
    $
    1.03
    
    
    
    11/6/10
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.007,500
    
    
    
    
    
    
    
    
    
    
    $
    1.03
    
    
    
    3/29/11
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.0050,000
    
    
    
    
    
    
    
    
    
    
    $
    0.19
    
    
    
    12/1/13
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.0086,227
    
    
    
    
    
    
    
    
    
    
    $
    0.15
    
    
    
    12/30/15
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.00Timothy Rimlinger
    
    
    13,500
    
    
    
    
    
    
    
    
    
    
    $
    1.35
    
    
    
    4/21/09
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.0018,000
    
    
    
    
    
    
    
    
    
    
    $
    1.53
    
    
    
    11/18/09
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.0016,200
    
    
    
    
    
    
    
    
    
    
    $
    1.03
    
    
    
    11/18/09
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.0012,150
    
    
    
    
    
    
    
    
    
    
    $
    1.03
    
    
    
    4/21/09
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.00101,905
    
    
    
    
    
    
    
    
    
    
    $
    0.15
    
    
    
    12/30/15
    
    
    
    
    
    
    $
    0.00
    
    
    
    
    
    
    $
    0.00
 39




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##### 



ITEM 11.
    
    EXECUTIVE COMPENSATION(continued)
 Compensation of Directors
 Cash Compensation
   Equity Compensation
   th
 40




---



##### 



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 Equity Compensation Plans as of December 31, 2008:
  Number of
    
    Weighted-AverageSecurities to be
    
    Exercise Price of
    
    Number of SecuritiesIssued Upon
    
    Outstanding
    
    Remaining AvailableExercise of
    
    Options,
    
    for Future IssuanceOutstanding Options,
    
    Warrants and
    
    under EquityPlan Category
    
    Warrants and Rights
    
    Rights
    
    Compensation PlansEquity compensation
plans approved by
security holders
(1)
    
    
    28,628,574
    
    
    $
    0.21
    
    
    
    16,940,512Equity compensation
plans not approved
by security holders
(2)
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    28,628,574
    
    
    $
    0.21
    
    
    
    16,940,512
 
 (1)
    
    These plans consist of the 1992 Plan and 2000 Plan which replaced the 1992 plan. The current
plan includes a formula that automatically increases the number of securities available for
issuance equal to 20% of the number of shares issued and outstanding.(2)
    
    The Company does not maintain any equity compensation plans that have not been approved by
the stockholders.     41




---



##### 



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS (continued)
   Amount and Nature ofName of Beneficial Owner
    
    Beneficial Ownership
    
    Percent of ClassDavid C. Bluestone
    
    
    230,000
    (1)
    
    
    *Scott C. Edelman
    
    
    245,000
    (1)
    
    
    *Jack Pellicci
    
    
    417,824
    (1)
    
    
    *Anita M. Primo
    
    
    266,160
    (1)
    
    
    *Timothy A. Rimlinger
    
    
    280,880
    (1)
    
    
    *Roger W. Scearce
    
    
    270,700
    (1)
    
    
    *David R. Vey
    
    
    152,731,865
    
    
    
    77.53
    %All executive officers
and Directors as a
group, (7 persons)
    
    
    154,442,424
    
    
    
    76.96
    %
 
 *
    
    Owner holds less than 1% of the class.(1)
    
    Unless otherwise indicated, each person possesses sole voting and
investment power with respect to the shares identified in the table as beneficially
owned. The table includes shares which the following directors and executive
officers have a right to acquire within 60 days from March 31, 2009, upon the
exercise of outstanding options and warrants:Mr. Bluestone  250,000 options, none of which are in the money as of 12-31-08Mr. Edelman  265,000 options, none of which are in the money as of 12-31-08Mr. Pellicci  396,500 options, none of which are in the money as of 12-31-08Ms. Primo  201,227 options, none of which are in the money as of 12-31-08Mr. Rimlinger  161,755 options, none of which are in the money as of 12-31-08Mr. Scearce  245,000 options, none of which are in the money as of 12-31-08Mr. Vey  310,000 options, none of which are in the money as of 12-31-08;
12,627,390 warrants(2)
    
    Mr. Vey has a right to acquire 82,000,000 shares within 60 days upon a
notice of conversion related to a $4,100,000 convertible note due January 4, 2010.
The Company and Mr. Vey have agreed that Mr. Vey shall not be permitted to
convert any portion of this convertible note until such time as the
company has adequate authorized shares. 42




---



##### 



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND, DIRECTOR INDEPENDENCE
  David Vey and Oak Harbor
 Oak Harbor Note
  Convertible Note with David Vey
  The Old Notes
      43




---



##### 



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE(continued)
 Partial Conversion of Interest and Principal
  Warrants
   The New Convertible Note
     44




---



##### 



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE(continued)
 Financing with Vey Associates
  (i)
    
    the first installment on or before December 31, 2008, in the
amount of $100,000;(ii)
    
    the second installment on or before January 15, 2009, in the
amount of $350,000;(iii)
    
    the third installment on or before February 15, 2009, in the
amount of $550,000;(iv)
    
    the fourth installment on or before April 15, 2009, in the amount
of $750,000; and(v)
    
    the fifth installment on or before September 30, 2009, in the
amount of $500,000.
   (i)
    
    the first installment on or before December 31, 2008, in the
amount of $100,000;(ii)
    
    the second installment on or before January 15, 2009, in the
amount of $300,000;(iii)
    
    the third installment on or before March 18, 2009, in the amount
of $600,000;(iv)
    
    the fourth installment on or before May 1, 2009, in the amount of
$750,0000; and(v)
    
    the fifth installment on or before September 30, 2009, in the
amount of $500,000.
       45




---



##### 



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE(continued)
  Security Agreement
  Amended and Restated Intercreditor Agreement
  Cross Default Provisions of the Notes
  Approval for Additional Shares
  46




---



##### 



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE(continued)
  Principal
    
    Accrued interestInstrument
    
    Payee
    
    Maturity Date
    
    due
    
    at December 31, 2008Promissory Note dated as
    
    Oak Harbor
    
    May 1, 2009*
    
    $
    1,040,402
    
    
    $
    200,450of August 17, 2006
    
    InvestmentProperties LLCSecured Convertible
    
    David Vey
    
    January 4, 2010
    
    $
    4,100,000
    
    
    $
    Promissory Note dated as
of December 31, 2008
 
 *
    
    On March 11, 2009, the maturity date on this note was
extended as follows: $400,000 on November 15, 2009, and $640,402 on
May 15, 2010. David Vey and OSI Litigation
    47




---



##### 



ITEM 14.
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
 Type of Service
    
    2008
    
    2007Audit Fees
    
    $
    105,000
    
    
    $
    102,000Audit-Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    $
    8,056All Other Fees
    
    
    
    
    
    
    
 Audit Fees.
 Audit-Related Fees.
 Tax Fees.
 All Other Fees.
 Pre-Approval of Audit and Non-Audit Services
    48




---



##### 



PART IV
 ITEM 15.
    
    EXHIBITS
  3.1
    
    Articles of Incorporation (2) (Exhibit 3.1)3.2
    
    Bylaws (2) (Exhibit 3.2)3.3
    
    Amendment to Articles of Incorporation (3)3.4
    
    Amendment to Articles of Incorporation (25)4.1
    
    Statement of Designation of Class A, Series F Convertible Preferred Stock (4) (Exhibit 4.0)4.2
    
    Certificate of Designations, Preferences and Rights of Class A, Series H Preferred Stock (5)
(Exhibit 4.1)10.1#
    
    Separation Agreement dated as of January 31, 2009, between Marco Emrich and the Company (36)10.25#
    
    2000 Incentive Stock Plan (10) (Appendix A)10.26#
    
    2000 Employee Stock Purchase Plan (10) (Appendix B)10.27#
    
    Employment Agreement, dated September 15, 1999, between the Company and Marco A. Emrich (11)
(Exhibit 10.1)10.35
    
    Warrant issued to Acxiom Corporation Dated April 4, 2001 (8) (Exhibit 10.35)10.36
    
    Form of Common Stock and Warrants Purchase Agreements used in August 2001 to September 2002
private placements by and among the Company and the investors signatory thereto (12) (Exhibit
10.1)10.37
    
    Form of Registration Rights Agreements used in August 2001 to September 2002 private
placements by and among the Company and the investors signatory thereto (12) (Exhibit 10.2)10.38
    
    Form of Notes dated September and October 2001 by and among the Company and investors
signatory thereto (12) (Exhibit 10.3)10.38
    
    Form of Warrants issued to investors used in August 2001 to September 2002 private sales of
common stock and notes. (12) (Exhibit 10.4)10.39
    
    Agreement and related Promissory Note dated February 14, 2002 related to retirement of
November 2000 Convertible Notes and Warrants (13)10.42
    
    Convertible note dated December 6, 2002 (14)10.43
    
    Convertible note dated January 03, 2003 (14)
 49




---



##### 



ITEM 13.
    
    EXHIBITS(continued)
 10.44
    
    Convertible note dated January 10, 2003 (14)10.45
    
    Promissory note dated January 10, 2003 (14)10.46
    
    Convertible note dated March 13, 2003 (14)10.47
    
    Promissory note dated March 13, 2003 (14)10.48
    
    Addendum dated March 31, 2004 to Master Software License Agreement by and between the
Company and Fiserv Solutions Inc. dated March 28, 2002 (15)10.49
    
    Office lease agreement dated 12-24-0210.47
    
    Convertible note dated June 4, 2004 (16)10.54
    
    Convertible note by the Company in favor of David R. Vey dated June 4, 2004 (16)10.55
    
    Convertible note by the Company in favor of David R. Vey dated July 7, 2004 (17)10.56
    
    Convertible note by the Company in favor of David R. Vey dated September 15, 2004 (17)10.57
    
    Convertible note by the Company in favor of David R. Vey dated October 8, 2004 (17)10.58
    
    Convertible note by the Company in favor of David R. Vey dated November 18, 2004 (18)10.59
    
    Convertible note by the Company in favor of David R. Vey dated January 13, 2005 (19)10.60
    
    Convertible note by the Company in favor of David R. Vey dated January 31, 2005 (19)10.61
    
    Convertible note by the Company in favor of David R. Vey dated March 16, 2005 (19)10.62#
    
    Employment Agreement dated June 25, 2004 between Company and Marco A. Emrich (20)10.64#
    
    Employment Agreement dated July 20, 2004 between Company and Anita M. Primo (20)10.65#
    
    Employment Agreement dated July 20, 2004 between Company and Timothy Rimlinger (20)10.66
    
    Convertible note by the Company in favor of David R. Vey dated March 25, 2005 (21)10.67
    
    Convertible note by the Company in favor of David R. Vey dated March 30, 2005 (21)10.68
    
    Convertible note by the Company in favor of David R. Vey dated April 14, 2005 (21)10.69
    
    Convertible note by the Company in favor of David R. Vey dated April 22, 2005 (22)10.70
    
    Amended Facility Lease for King of Prussia, PA dated January 1, 2005 (24)10.71
    
    Amended Facility Lease for Plymouth, MN dated January 1, 2005 (24)10.72
    
    Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)10.73
    
    Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)
 50




---



##### 



ITEM 13.
    
    EXHIBITS(continued)
 10.74
    
    Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)10.75
    
    Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)10.76
    
    Convertible note and related documents by the Company in favor of William J. Rucks dated
July 1, 2005, August 1, 2005 and September 30, 2005 (23)(24)10.77
    
    Promissory Note dated August 17, 2006 in the principal amount of $1,040,402.22 from SEDONA
to Oak Harbor (26)10.78
    
    Amended and Restated Security Agreement dated August 17, 2006 between SEDONA and Oak Harbor
(26)10.79
    
    Exchange Agreement dated August 17, 2006 between SEDONA and Oak Harbor (26)10.80
    
    Secured Convertible Promissory Note dated October 23, 2006 in the principal amount of
$2,691,263 from Sedona to Vey (26)10.81
    
    Registration Rights Agreement dated August 17, 2006 between Vey and SEDONA (26)10.82
    
    Exchange Agreement dated October 23, 2006 between SEDONA and Vey (26)10.83
    
    Promissory Note dated October 23, 2006 in the principal amount of $1,213,952 from SEDONA to
Vey (26)10.84
    
    Security Agreement dated October 23, 2006 between Vey and SEDONA (26)10.85
    
    Revolving promissory note dated September 27, 2006 in the principal amount of $500,000 from
SEDONA to Vey (26)10.86
    
    Intercreditor Agreement dated October 23, 2006 between Vey and Oak Harbor (26)10.87
    
    Terms and Conditions Agreement dated September 27, 2006 (26)10.88
    
    Acknowledgment and Receipt among SEDONA, Vey and Oak Harbor (26)10.89
    
    Assignment of ACEncrypt receivable by SEDONA to Vey (26)10.90
    
    Waiver dated as of October 23, 2006 from Rucks (26)10.91
    
    Waiver dated as of October 23, 2006 from Mitchell (26)10.92
    
    Form of Common Stock and Warrants Purchase Agreement used in connection with the March 2,
2007 private placement by and among the Company and the investor signatory thereto (28)10.93
    
    Form of Registration Rights Agreements used in March 2, 2007 private placement by and among
the Company and the investor signatory thereto (28)10.94
    
    Form of Warrants issued to investor used in March 2, 2007 private sale of common stock (28)10.95
    
    Amendment to promissory note dated September 27, 2006 between SEDONA Corporation and David
Vey in the principal amount of $500,000 (29)10.96
    
    Amendment to promissory note dated October 23, 2006 between SEDONA Corporation and David Vey
in the principal amount of $1,213,952 (29)10.97
    
    Amendment to promissory note dated August 17, 2006 between SEDONA Corporation and Oak Harbor
Investment Properties, L.L.C. in the principal amount of $1,040,402 (29)10.98
    
    Form of Common Stock and Warrants Purchase Agreements used in connection with private
placement transactions entered into during fiscal year 2007 by and among the Company and the
investor signatory thereto (29)
 51




---



##### 



ITEM 13.
    
    EXHIBITS(continued)
 10.99
    
    Form of Registration Rights Agreements used in connection with private placement
transactions entered into during fiscal year 2007 by and among the Company and the investor
signatory thereto (29)10.100
    
    Form of Warrants issued to Investors used in connection with private placement transactions
entered into in fiscal year 2007 by and among the Company and the investor signatory thereto
(29)10.101
    
    Agreement between the Company and Vey Associates, Inc. dated as of September 4, 2007 (30)10.102
    
    Amendment to promissory note dated August 17, 2006 between SEDONA Corporation and Oak Harbor
Investment Properties, L.L.C. in the principal amount of $1,040,402 (33)10.103
    
    Amendment to promissory note dated September 27, 2006 between SEDONA Corporation and David
Vey in the principal amount of $500,000 (33)10.104
    
    Amendment to promissory note dated October 23, 2006 between SEDONA Corporation and David Vey
in the principal amount of $1,213,952 (33)10.105
    
    Amendment to secured convertible note dated October 23, 2006 between SEDONA Corporation and
David Vey in the principal amount of $2,691,263 (33)10.106
    
    Amendment to loan agreement dated July 5, 2005 between SEDONA Corporation and William W.
Rucks (33)10.107
    
    Amendment to promissory note dated July 1, 2005 between SEDONA Corporation and William W.
Rucks in the principal amount of $250,000 (33)10.108
    
    Amendment to promissory note dated August 1, 2005 between SEDONA Corporation and William W.
Rucks in the principal amount of $250,000 (33)10.109
    
    Amendment to promissory note dated September 29, 2005 between SEDONA Corporation and William
W. Rucks in the principal amount of $500,000 (33)10.110
    
    Amendment to promissory note dated May 31, 2006 between SEDONA Corporation and William W.
Rucks in the principal amount of $300,000 (33)10.111
    
    Amendment to convertible note dated May 31, 2006 between SEDONA Corporation and Charles
Mitchell in the principal amount of $300,000 (33)10.112#
    
    Consulting Agreement between the Company and Scott Edelman (34)10.113
    
    Loan and Refinancing Agreement between Sedona Corporation and Vey Associates, Incorporated,
dated as of December 31, 2008 (35)10.114
    
    Consolidated and Restated Convertible Promissory Note in the principal amount of $4,100,000
between David R. Vey and Sedona Corporation, dated as of December 31, 2008 (35)10.115
    
    Secured Convertible Note in the principal amount of $2,250,000.00 from Sedona Corporation to
Vey Associates Incorporated, dated as of December 31, 2008 (35)10.116
    
    Security Agreement from Sedona Corporation to Vey Associates Incorporated, dated as of
December 31, 2008 (35)10.117
    
    Intercreditor Agreement among Oak Harbor Investment Properties, L.L.C., David R. Vey, Vey
Associates Incorporated and Sedona Corporation, dated as of December 31, 2008 (35)10.118*
    
    Amendment No. 2 to Facility Lease for Plymouth, MN dated February 27, 200914.1
    
    Code of Conduct and Business Ethics, adopted by Board of Directors, June 21, 2004 (20)16.1
    
    Letter from McGladrey and Pullen, LLP, dated April 13, 2007 agreeing to the statement of the
Company under 4.01 of its Form 8-K, filed April 19, 2007 (31)
 52




---



##### 



ITEM 13.
    
    EXHIBITS(continued)
 16.2
    
    Letter from McGladrey and Pullen, LLP, dated June 20, 2007, agreeing to the statements of the
Company under Item 4.01 of its 8-KA filed on May 21, 2007 and June 20, 2007 (32)23.1*
    
    Consent of Asher & Company, Ltd.31.1*
    
    Statement Under Oath of Principal Executive Officer of the Company Pursuant to Section 302
of Sarbanes-Oxley Act of 200231.2*
    
    Statement Under Oath of Principal Financial Officer of the Company Pursuant to Section 302
of Sarbanes-Oxley Act of 200232.1*
    
    Statement Under Oath of Principal Executive Officer of the Company Pursuant to Section 906
of Sarbanes-Oxley Act of 200232.2*
    
    Statement Under Oath of Principal Financial Officer of the Company Pursuant to Section 906
of Sarbanes-Oxley Act of 200299.1
    
    Amendment to Compensation Plan for Directors99.1
    
    Surety Agreement dated as of November 2, 2006 from Vey (26)99.1
    
    Amended and Restated Surety Agreement dated as of November 2, 2006 from Vey (27)99.1
    
    Second Amended and Restated Surety Agreement dated as of March 11, 2009 (37)
 
 *
    
    Filed herewith.#
    
    Executive Compensation Plans and Arrangements.(1)
    
    Filed as an Exhibit to the Registration Statement on Form S-3, filed May 23, 2000 (File No.
333-37678).(2)
    
    Filed as an Exhibit to the Companys Current report on Form 8-K, dated June 15, 1992.(3)
    
    Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31,
1995.(4)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1999.(5)
    
    Filed as an Exhibit to the Registration Statement on Form S-3 filed June 5, 2000 (File No.
333-38578).(6)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 1999.(7)
    
    Filed as an Exhibit to the Current Report on Form 8-K filed November 28, 2000.(8)
    
    Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31,
2000.(9)
    
    Filed as an Exhibit to the Current Report on Form 8-K filed August 31, 2000. 53




---



##### 



ITEM 13.
    
    EXHIBITS(continued)
 (10)
    
    Filed as an Appendix to the Companys Definitive Proxy Statement for the 2000 Annual Meeting
of Shareholders filed May 17, 2000.(11)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1999.(12)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2001.(13)
    
    Filed as an Exhibit to the Annual Report on Form 10-K for fiscal year ended December 31,
2001.(14)
    
    Filed as an Exhibit to the Annual Report on Form 10-K/A for the fiscal year ended December
31, 2002.(15)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended Mach
31, 2004.(16)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended June
30, 2004.(17)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2004.(18)
    
    Filed as an Exhibit to the 8-K on November 24, 2005.(19)
    
    Filed as an Exhibit to the 8-K on March 17, 2005.(20)
    
    Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31,
2004.(21)
    
    Filed as an Exhibit to the 8-K on April 19, 2005.(22)
    
    Filed as an Exhibit to the 8-K on April 27, 2005.(23)
    
    Filed as an Exhibit to the 8-K on July 11, 2005.(24)
    
    Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31,
2005.(25)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2006.(26)
    
    Filed as an Exhibit to the 8-K on November 8, 2006.(27)
    
    Filed as an Exhibit to the 8-K on December 21, 2006.(28)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 2007.(29)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2007.(30)
    
    Filed as an Exhibit to the 8-K on September 10, 2007.(31)
    
    Filed as an Exhibit to the 8-K on April 19, 2007.(32)
    
    Filed as an Exhibit to the 8-K on June 20, 2007.(33)
    
    Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31,
2007.(34)
    
    Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 2008.(35)
    
    Filed as an Exhibit to the 8-K on January 7, 2009.(36)
    
    Filed as an Exhibit to the 8-K on February 6, 2009.(37)
    
    Filed as an Exhibit to the 8-K on March 17, 2009. 54




---



##### 



SIGNATURES
  April 15, 2009
    SEDONA CORPORATIONDATE
    /S/ Scott C. EdelmanScott C. EdelmanChief Executive Officer and President  Signatures
 BY
    
    /S/ David R. Vey

David R. Vey
Chairman of the Board
    
    
    
    Date: April 15, 2009BY
    
    /S/ Scott C. Edelman

Scott C. Edelman
President, Chief Executive Officer and
Director
    
    
    
    Date: April 15, 2009BY
    
    /S/ David C. Bluestone

David C. Bluestone
Director
    
    
    
    Date: April 15, 2009BY
    
    /S/ Jack A. Pellicci

Jack A. Pellicci
Director
    
    
    
    Date: April 15, 2009BY
    
    /S/ Anita M. Primo

Anita M. Primo
Chief Financial Officer and Vice President
Principal Financial and Accounting Officer
    
    
    
    Date: April 15, 2009BY
    
    /S/ Roger W. Scearce

Roger W. Scearce
Director
    
    
    
    Date: April 15, 2009
 55




---



##### 



Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Financial StatementsConsolidated Balance Sheets as of December 31, 2008 and December 31, 2007
    
    F-3Consolidated Statements of Operations for each of the
two years in the period ended December 31, 2008
    
    F-4Consolidated Statements of Stockholders Deficit for each of the
two years in the period ended December 31, 2008
    
    F-5Consolidated Statements of Cash Flows for each of the
two years in the period ended December 31, 2008
    
    F-7Notes to Consolidated Financial Statements
    
    F-8
  F-1




---



##### 



/s/   ASHER & COMPANY, Ltd. 
 F-2




---



##### 



SEDONA Corporation and Subsidiary
Consolidated Balance Sheets  (In Thousands, Except Share and Per Share Data)
 December 31,Assets
    
    2008
    
    
    2007Current assets:Cash and cash equivalents
    
    $
    34
    
    
    $
    49Accounts receivable, net
    
    
    410
    
    
    
    560Prepaid expenses and other current assets
    
    
    62
    
    
    
    68Total current assets
    
    
    506
    
    
    
    677Accounts receivable, non-current
    
    
    474
    
    
    
    325Property and equipment, net
    
    
    13
    
    
    
    13Other non-current assets
    
    
    3
    
    
    
    3Total non-current assets
    
    
    490
    
    
    
    341Total assets
    
    $
    996
    
    
    $
    1,018Liabilities and stockholders deficitCurrent liabilities:Current maturities of long-term debt, net of discount
    
    $
    2,008
    
    
    $
    8Accounts payable
    
    
    663
    
    
    
    433Accounts payable, litigation
    
    
    622
    
    
    
    315Accrued expenses and other current liabilities
    
    
    2,053
    
    
    
    1,238Deferred and unearned revenue
    
    
    882
    
    
    
    789Total current liabilities
    
    
    6,228
    
    
    
    2,783Long-term debt, less current maturities, net of discount
    
    
    2,280
    
    
    
    6,906Other non-current liabilities
    
    
    
    
    
    
    74Deferred and unearned revenue
    
    
    474
    
    
    
    325Total long-term liabilities
    
    
    2,754
    
    
    
    7,305Total liabilities
    
    
    8,982
    
    
    
    10,088Stockholders deficit:Class A convertible preferred stock (liquidation preference $1,000)
Authorized shares  1,000,000
Series A, par value $2.00, Issued and outstanding shares 500,000
    
    
    1,000
    
    
    
    1,000Common stock, par value $0.001
Authorized shares 175,000,000, Issued and outstanding shares 
101,004,818 and 97,649,350 in 2008 and 2007, respectively
    
    
    101
    
    
    
    98Additional paid-in-capital
    
    
    71,274
    
    
    
    64,880Accumulated deficit
    
    
    (80,361
    )
    
    
    (75,048
    )Total stockholders deficit
    
    
    (7,986
    )
    
    
    (9,070
    )Total liabilities and stockholders deficit
    
    $
    996
    
    
    $
    1,018
 See accompanying notes to consolidated financial statements.
 F-3




---



##### 



SEDONA Corporation and Subsidiary
Consolidated Statements of Operations  (In Thousands, Except Share and Per Share Data)
 For years ended December 31,2008
    
    
    2007Revenues:Product licenses
    
    $
    538
    
    
    $
    441Services
    
    
    857
    
    
    
    774Total revenues
    
    
    1,395
    
    
    
    1,215Cost of revenues:Services
    
    
    241
    
    
    
    328Total cost of revenues
    
    
    241
    
    
    
    328Gross profit
    
    
    1,154
    
    
    
    887Expenses:General and administrative
    
    
    1,281
    
    
    
    1,255Litigation expenses
    
    
    1,010
    
    
    
    403Sales, marketing and customer services
    
    
    513
    
    
    
    586Research and development
    
    
    526
    
    
    
    601Total operating expenses
    
    
    3,330
    
    
    
    2,845Loss from operations
    
    
    (2,176
    )
    
    
    (1,958
    )Other income (expense):Interest expense
    
    
    (682
    )
    
    
    (622
    )Inducement loss on debt conversion
    
    
    (1,299
    )
    
    
    Loss on extinguishment of debt
    
    
    (1,156
    )
    
    
    Total other expenses
    
    
    (3,137
    )
    
    
    (622
    )Net Loss
    
    
    (5,313
    )
    
    
    (2,580
    )Deemed dividends applicable to preferred stockholders
    
    
    (120
    )
    
    
    (120
    )Loss applicable to Common Stockholders
    
    $
    (5,433
    )
    
    $
    (2,700
    )Basic and diluted net loss per share applicable to common shares
    
    $
    (0.05
    )
    
    $
    (0.03
    )Basic and diluted weighted average common shares outstanding
    
    
    99,942,670
    
    
    
    93,627,042
 See accompanying notes to consolidated financial statements.
 F-4




---



##### 



SEDONA Corporation and Subsidiary
Consolidated Statements of Stockholders Deficit  (In Thousands, Except Share and Per Share Data)
 Stock Series AShares
    
    AmountBalance, December 31, 2006
    
    
    500,000
    
    
    $
    1,000Common stock issued for consulting services
    
    
    
    
    
    
    Common stock issued in private placement transactions
    
    
    
    
    
    
    Common stock issued from the exercise of stock options
    
    
    
    
    
    
    Common stock issued to employee 401(k) savings plan
    
    
    
    
    
    
    Common stock issued for employee stock purchase plan
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    Net loss, year ended December 31, 2007
    
    
    
    
    
    
    Balance, December 31, 2007
    
    
    500,000
    
    
    
    1,000Common stock issued for consulting services
    
    
    
    
    
    
    Common stock issued in private placement transactions
    
    
    
    
    
    
    Common stock issued from the exercise of stock options
    
    
    
    
    
    
    Common stock issued to employee 401(k) savings plan
    
    
    
    
    
    
    Common stock issued for employee stock purchase plan
    
    
    
    
    
    
    Common stock issued for conversion of debt and related
accrued interest
    
    
    
    
    
    
    Warrants issued in conjunction with debt extinguishments
    
    
    
    
    
    
    Beneficial conversion feature on convertible debt issuance
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    Net loss, year ended December 31, 2008
    
    
    
    
    
    
    Balance, December 31, 2008
    
    
    500,000
    
    
    $
    1,000
 See accompanying notes to consolidated financial statements
 F-5




---



##### 



SEDONA Corporation and Subsidiary
Consolidated Statements of Stockholders Deficit  (In Thousands, Except Share Data)
 AdditionalCommon Stock
    
    Paid-In
    
    AccumulatedShares
    
    Amount
    
    Capital
    
    DeficitBalance, December 31, 2006
    
    
    90,153,534
    
    
    $
    90
    
    
    $
    63,290
    
    
    $
    (72,468
    )Common stock issued for consulting services
    
    
    94,176
    
    
    
    
    
    
    
    18
    
    
    
    Common stock issued in private placement transactions
    
    
    6,862,448
    
    
    
    7
    
    
    
    1,474
    
    
    
    Common stock issued from the exercise of stock options
    
    
    150,506
    
    
    
    
    
    
    
    23
    
    
    
    Common stock issued to employee 401(k) savings plan
    
    
    347,065
    
    
    
    1
    
    
    
    53
    
    
    
    Common stock issued for employee stock purchase plan
    
    
    41,621
    
    
    
    
    
    
    
    8
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    Net loss, year ended December 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,580
    )Balance, December 31, 2007
    
    
    97,649,350
    
    
    
    98
    
    
    
    64,880
    
    
    
    (75,048
    )Common stock issued for consulting services
    
    
    325,436
    
    
    
    1
    
    
    
    48
    
    
    
    Common stock issued in private placement transactions
    
    
    2,660,668
    
    
    
    1
    
    
    
    99
    
    
    
    Common stock issued from the exercise of stock options
    
    
    58,791
    
    
    
    
    
    
    
    9
    
    
    
    Common stock issued to employee 401(k) savings plan
    
    
    258,363
    
    
    
    
    
    
    
    44
    
    
    
    Common stock issued for employee stock purchase plan
    
    
    52,210
    
    
    
    1
    
    
    
    7
    
    
    
    Common stock issued for conversion of debt and related
accrued interest
    
    
    
    
    
    
    
    
    
    
    2,562
    
    
    
    Warrants issued in conjunction with debt extinguishments
    
    
    
    
    
    
    
    
    
    
    1,156
    
    
    
    Beneficial conversion feature on convertible debt issuance
    
    
    
    
    
    
    
    
    
    
    2,460
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    Net loss, year ended December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,313
    )Balance, December 31, 2008
    
    
    101,004,818
    
    
    $
    101
    
    
    $
    71,274
    
    
    $
    (80,361
    )
 See accompanying notes to consolidated financial statements.
 F-6




---



##### 



SEDONA Corporation and Subsidiary
Consolidated Statements of Cash Flows  (In Thousands)
 Year ended December 31,2008
    
    2007Operating activities:Net loss
    
    $
    (5,313
    )
    
    $
    (2,580
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    5
    
    
    
    6Bad debt expense
    
    
    
    
    
    
    4Charge for employer 401(K) stock contribution
    
    
    44
    
    
    
    54Common stock issued for legal, consulting services and placement agent
    
    
    49
    
    
    
    18Stock-based compensation
    
    
    9
    
    
    
    14Accretion of debt discount
    
    
    45
    
    
    
    55Loss on extinguishment of debt
    
    
    1,156
    
    
    
    Inducement loss on debt conversion
    
    
    1,299
    
    
    
    Loss on the sale of assets
    
    
    1
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    1
    
    
    
    (320
    )Prepaid expenses and other current assets
    
    
    6
    
    
    
    49Accounts payable and accrued expenses
    
    
    1,359
    
    
    
    806Deferred revenue
    
    
    242
    
    
    
    169Net cash used in operating activities
    
    
    (1,097
    )
    
    
    (1,725
    )Investing activities:Purchase of fixed assets
    
    
    (6
    )
    
    
    Net cash used in investing activities
    
    
    (6
    )
    
    
    Financing activities:Proceeds from line of credit
    
    
    285
    
    
    
    180Proceeds from other non-current liabilities
    
    
    686
    
    
    
    74Proceeds from sale of common stock
    
    
    108
    
    
    
    1,490Proceeds from the exercise of stock options
    
    
    9
    
    
    
    23Net cash provided by financing activities
    
    
    1,088
    
    
    
    1,767Net increase/(decrease) in cash and cash equivalents
    
    
    (15
    )
    
    
    42Cash and cash equivalents, beginning of year
    
    
    49
    
    
    
    7Cash and cash equivalents, end of year
    
    $
    34
    
    
    $
    49
 See accompanying notes to consolidated financial statements.
 F-7




---



##### 



F-8




---



##### 



(continued)
    â
       F-9




---



##### 



(continued)
      Accounting for the Impairment or Disposal of Long-Lived
Assets
     F-10




---



##### 



(continued)
  , Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed.
   Revenue Recognition
  Product License Revenue
    F-11




---



##### 



(continued)
  Services Revenue
      Accounting for
Income Tax Uncertainties- an interpretation of FASB Statement No 109
  Earnings Per Share
 F-12




---



##### 



Share Based Payment
    SFAS 141(R)
 Business Combinations
 F-13




---



##### 



(continued)
 SFAS 157
 Fair Value Measurements
 SFAS 159
 The Fair Value Option for Financial Assets and
Financial Liabilitiesincluding an amendment of FASB Statement No. 115
 SFAS 160
 Non-controlling Interests in Consolidated Financial
Statements  an amendment of Accounting Research Bulletin No. 51
 SFAS 161
 Disclosures about Derivative Instruments and Hedging
Activities
 F-14




---



##### 



(continued)
  SFAS 162
 The Hierarchy of Generally Accepted Accounting
Principles
 Off-Balance Sheet Arrangements
   Disclosures About Segments of an Enterprise and Related Information
 F-15




---



##### 



December 31,2008
    
    
    2007Machinery and equipment
    
    $
    78
    
    
    $
    76Leasehold improvements
    
    
    15
    
    
    
    15Purchased software for internal use
    
    
    35
    
    
    
    31128
    
    
    
    122Less accumulated depreciation and amortization
    
    
    115
    
    
    
    109$
    13
    
    
    $
    13
       December 31,2008
    
    
    2007Oak Harbor note
    
    $
    1,040
    
    
    $
    1,040Consolidated convertible note with David Vey, dated
December 31, 2008, net of discount of $2,460
    
    
    1,640
    
    
    
    Convertible notes with William Rucks
    
    
    1,000
    
    
    
    Bridge loan with David Vey
    
    
    
    
    
    
    1,214Convertible note with David Vey, net of discount of $45
at December 31, 2007
    
    
    
    
    
    
    2,647Convertibles notes with Rucks & Mitchell
    
    
    600
    
    
    
    1,600Line of credit
    
    
    
    
    
    
    405Capital lease obligations
    
    
    8
    
    
    
    8Total debt obligations
    
    
    4,288
    
    
    
    6,914Less current maturities
    
    
    2,008
    
    
    
    8Long-term debt
    
    $
    2,280
    
    
    $
    6,906
 F-16




---



##### 



(continued)
  Years ending December 31,2009
    
    2010$
    2,008
    
    
    $
    4,740
  David Vey and Oak Harbor
 Oak Harbor Note
  Convertible Note with David Vey
  The Old Notes
   F-17




---



##### 



(continued)
    Partial Conversion of Interest and Principal
 Induced Conversions of Convertible Debt - an Amendment of APB
Opinion No. 26.
 Warrants
 Debtors Accounting for a Modification or Exchange of Convertible Debt
Instruments Debtors Accounting for a Modification or Exchange of Debt
Instruments
  The New Convertible Note
  F-18




---



##### 



Accounting for Convertible Securities with Beneficial
Conversion Features or Contingently Adjustable Conversion Ratios 00-27, Application of Issue
No. 98-5 to Certain Convertible Instruments
   Financing with Vey Associates
  (i)
    
    the first installment on or before December 31, 2008, in the amount
of $100,000;(ii)
    
    the second installment on or before January 15, 2009, in the
amount of $350,000;(iii)
    
    the third installment on or before February 15, 2009, in the
amount of $550,000;(iv)
    
    the fourth installment on or before April 15, 2009, in the amount
of $750,000; and(v)
    
    the fifth installment on or before September 30, 2009, in the
amount of $500,000.
    i)
    
    the first installment on or before December 31, 2008, in the amount
of $100,000;(ii)
    
    the second installment on or before January 15, 2009, in the
amount of $300,000;(iii)
    
    the third installment on or before March 18, 2009, in the amount
of $600,000;(iv)
    
    the fourth installment on or before May 1, 2009, in the amount of
$750,000; and(v)
    
    the fifth installment on or before September 30, 2009, in the
amount of $500,000.
    F-19




---



##### 



(continued)
      Security Agreement
  Amended and Restated Intercreditor Agreement
  F-20




---



##### 



(continued)
  Cross Default Provisions of the Notes
  Approval for Additional Shares
  F-21




---



##### 



Rucks and Mitchell
     F-22




---



##### 



Common Stock Issuances
 Issuance of Stock for Professional Services:
   Issuance of Stock Pursuant to Employee Stock Purchase Plan:
   F-23




---



##### 



(continued)
 Grant of Stock Pursuant to Employee 401k Plan:
   Stock Option Exercises:
   Financing
Activities with David R. Vey:
  Private Placement of Common Stock:
 First Quarter 2008
  Second Quarter 2008
  F-24




---



##### 



(continued)
  Third Quarter 2008
  Fourth Quarter 2008
  First Quarter 2007
   F-25




---



##### 



(continued)
  Second Quarter 2007
   Third Quarter 2007
   Fourth Quarter 2007
  F-26




---



##### 



(continued)
   Registration Rights Agreements
     F-27




---



##### 



(continued)
    WeightedAverageWeighted
    
    RemainingAverage
    
    Contractual
    
    AggregateShares
    
    Exercise Price
    
    Term (Years)
    
    Intrinsic ValueOutstanding at December 31, 2006
    
    
    4,313,049
    
    
    $
    0.59Canceled or expired
    
    
    (344,800
    )
    
    
    0.87Granted
    
    
    500,000
    
    
    
    0.18Exercised
    
    
    (150,506
    )
    
    
    0.15Outstanding at December 31, 2007
    
    
    4,317,743
    
    
    $
    0.54
    
    
    
    3.56
    
    
    $
    0Canceled or expired
    
    
    (998,500
    )
    
    
    0.83Granted
    
    
    
    
    
    
    Exercised
    
    
    (58,791
    )
    
    
    0.15Outstanding at December 31, 2008
    
    
    3,260,452
    
    
    $
    0.46
    
    
    
    3.11
    
    
    $
    0
 WeightedAverageWeighted
    
    RemainingExercisable at
    
    
    
    
    
    Exercise Price
    
    Average
    
    Contractual
    
    AggregateYear-end
    
    Options
    
    Range Per Share
    
    Exercise Price
    
    Term (Years)
    
    Intrinsic Value2007
    
    
    3,722,326
    
    
    $
    0.15 to $5.13
    
    
    $
    0.59
    
    
    
    3.29
    
    
    $
    02008
    
    
    3,190,452
    
    
    $
    0.15 to $5.13
    
    
    $
    0.46
    
    
    
    3.09
    
    
    $
    0
  Ranges
    
    TotalRange of exercise prices
    
    $0.15 to $1.05
    
    $1.35 to $2.25
    
    $2.50 to $5.13
    
    $0.15 to $5.13Options outstanding
    
    
    2,974,952
    
    
    
    215,000
    
    
    
    70,500
    
    
    
    3,260,452Weighted average remaining
contractual life (years)
    
    
    4.37
    
    
    
    .84
    
    
    
    1.02
    
    
    
    3.11Weighted average exercise price
    
    $
    0.32
    
    
    $
    1.49
    
    
    $
    3.12
    
    
    $
    0.46Exercisable
    
    
    2,904,952
    
    
    
    215,000
    
    
    
    70,500
    
    
    
    3,190,452Weighted average exercise price
    
    $
    0.32
    
    
    $
    1.49
    
    
    $
    3.12
    
    
    $
    0.46
 F-28




---



##### 



(continued)
       WeightedAverageWeighted
    
    RemainingAverage
    
    Contractual
    
    AggregateShares
    
    Exercise Price
    
    Term (Years)
    
    Intrinsic ValueOutstanding at December 31, 2006
    
    
    7,587,881
    
    
    $
    1.09Canceled or expired
    
    
    (2,754,611
    )
    
    
    0.77Granted
    
    
    4,963,575
    
    
    
    0.26Exercised
    
    
    Outstanding at December 31, 2007
    
    
    9,796,845
    
    
    $
    0.76
    
    
    
    1.51
    
    
    $
    0Canceled or expired
    
    
    (2,920,300
    )
    
    
    1.66Granted
    
    
    15,803,145
    
    
    
    0.11Exercised
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    22,679,690
    
    
    $
    0.19
    
    
    
    2.25
    
    
    $
    126,274
 WeightedAverageWeighted
    
    RemainingExercisable at
    
    
    
    
    
    Exercise Price
    
    Average
    
    Contractual
    
    AggregateYear-end
    
    Warrant Shares
    
    Range Per Share
    
    Exercise Price
    
    Term (Years)
    
    Intrinsic Value2008
    
    
    22,491,875
    
    
    $
    0.07 to $2.50
    
    
    $
    0.18
    
    
    
    2.25
    
    
    $
    126,2742007
    
    
    9,593,280
    
    
    $
    0.1896 to $3.36
    
    
    $
    0.74
    
    
    
    1.51
    
    
    $
    0
 F-29




---



##### 



(continued)
  Ranges
    
    TotalRange of exercise prices
    
    $0.07 to $1.21
    
    $1.53 to $2.25
    
    $2.50
    
    $0.07 to $2.25Outstanding
    
    
    22,499,690
    
    
    
    78,000
    
    
    
    102,000
    
    
    
    22,679,690Weighted average remaining
contractual life (years)
    
    
    2.45
    
    
    
    .56
    
    
    
    .71
    
    
    
    2.25Weighted average exercise price
    
    $
    0.18
    
    
    $
    1.86
    
    
    $
    2.50
    
    
    $
    0.19Exercisable
    
    
    22,410,725
    
    
    
    78,000
    
    
    
    3,150
    
    
    
    22,491,875Weighted average exercise price
    
    $
    0.18
    
    
    $
    1.86
    
    
    $
    2.50
    
    
    $
    0.18
   Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Companys Own Stock
    F-30




---



##### 



(continued)
    David Vey and OSI Litigation
    F-31




---



##### 



(continued)
 David Vey and Oak Harbor
        Employment agreements
  Severance agreement
  F-32




---



##### 



continued)
     Lease commitments
     F-33




---



##### 



continued)
  2009
    
    2010
    
    2011
    
    TotalCorporate Headquarters
    
    $
    75
    
    
    $
    77
    
    
    $
    
    
    
    $
    152Plymouth, MN
    
    $
    7
    
    
    $
    7
    
    
    $
    2
    
    
    $
    16Total
    
    $
    82
    
    
    $
    84
    
    
    $
    2
    
    
    $
    168
    Year ending December 31,2008
    
    
    2007Accrued payroll, benefits and severance
    
    $
    294
    
    
    $
    144Accrued rent
    
    
    6
    
    
    
    7Accrued fees and other expenses to Directors for
professional services and other expenses
    
    
    260
    
    
    
    167Note payable, general insurance
    
    
    53
    
    
    
    60Accrued interest on debt obligations
    
    
    602
    
    
    
    796Accrued OSI litigation expenses, including accrued interest
    
    
    798
    
    
    
    Miscellaneous
    
    
    40
    
    
    
    64Total
    
    $
    2,053
    
    
    $
    1,238
     F-34




---



##### 



(continued)
  Accounting for Uncertainty in
Income Taxes  an interpretation of FASB Statement No. 109 Accounting for Income Taxes
    Total(In thousands)Balance at January 1, 2008
    
    $
    37Settlements / lapses in statutes of limitation
    
    
    (35
    )Balance at December 31, 2008
    
    $
    2
    Year Ended December 312008
    
    
    2007Cash paid during the year for interest
    
    $
    2
    
    
    $
    10Conversion of debt into common stock
    
    $
    495
    
    
    $
    Conversion of accrued interest into common stock
    
    $
    768
    
    
    $
    Beneficial conversion on debt refinancings
    
    $
    2,460
    
    
    $
    
 F-35




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##### 



2008
    
    
    2007OEM distribution partner A
    
    
    29
    %
    
    
    33
    %
  2008
    
    
    2007OEM distribution partner A
    
    
    28
    %
    
    
    52
    %OEM distribution partner B
    
    
    45
    %
    
    
    14
    %
   Extension to Oak Harbor Note due May 15, 2009
  (i)
    
    $400,000 of principal shall be due on November 15, 2009;(ii)
    
    $640,402 of principal plus accrued interest will be due on May 15, 2010.
 Amendment of Surety Agreement dated November 2, 2006
  F-36




---



##### 



(continued)
 Common Stock Issuances
   Refinancing with William Rucks
 
       Rucks Conversion
  Warrants
  The New Rucks Convertible Note
   F-37