<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-Q/A


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2001

[ ]  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 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, PA    19406-9564
--------------------------------------------------------------------------------
         (Address of principal executive offices)           (Zip Code)

Registrant's telephone number, including area code (484) 679-2200


         Indicate by the check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 and 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
                                              ---

At June 30, 2001, there were 37,735,334 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 -- June 30, 2001 (Unaudited)
               and December 31, 2000                                       4

         Consolidated Statements of Operations -- (Unaudited)
               three months ended June 30, 2001 and 2000                   5

         Consolidated Statements of Operations -- (Unaudited)
               six months ended June 30, 2001 and 2000                     6

         Consolidated Statements of Cash Flow -- (Unaudited)
               six months ended June 30, 2001 and 2000                     7

         Notes to Consolidated Financial Statements -
               June 30, 2001                                               8-11

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations                     11-14


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, dependence
on strategic relationships, ability to raise additional capital, ability to
recruit and retain qualified professionals, customer acquisition and retention,
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)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                                               June 30            December 31
                                                                                                2001                 2000
                                                                                           ----------------     ----------------
<S>                                                                                               <C>                <C>
Assets
Current assets:
  Cash and cash equivalents                                                                       $      -            $   2,189
  Restricted cash                                                                                      105                  105
  Accounts receivable, net of allowance for doubtful accounts of $72 and $102                          357                  566
  Prepaid expenses and other current assets                                                             81                  503
                                                                                                  --------            ---------
Total current assets                                                                                   543                3,363

Property and equipment, net of accumulated depreciation and amortization                               630                  733
Restricted cash                                                                                        381                  383
Software development costs, net                                                                      2,648                2,299
Purchased software, net                                                                              1,291                1,660
Non-current assets - other                                                                               4                   30
                                                                                                  --------            ---------
Total non-current assets                                                                             4,954                5,105
                                                                                                  --------            ---------
Total assets                                                                                      $  5,497            $   8,468
                                                                                                  ========            =========

Liabilities and stockholders' equity Current liabilities:
  Accounts payable                                                                                $    550            $     602
  Accrued expenses and other current liabilities                                                       328                  304
  Dividend payable                                                                                     304                  184
  Deferred revenue                                                                                     504                  562
  Current maturities of long-term debt                                                                  36                   37
  Short-term debt - debenture                                                                        1,170                2,663
  Accrued royalties                                                                                    470                    -
                                                                                                  --------            ---------
Total current liabilities                                                                            3,362                4,352

Long-term debt, less current maturities                                                              1,000                1,025
                                                                                                  --------            ---------
Total long-term liabilities                                                                          1,000                1,025
                                                                                                  --------            ---------
Total liabilities                                                                                    4,362                5,377

Stockholders' equity:
Class A convertible preferred stock
  Authorized shares - 1,000,000 (liquidation preference $3,280 at June 30, 2001
  and December 31, 2000)
  Series A, par value $2.00, Issued and outstanding 500,000 shares                                   1,000                1,000
  Series F, par value $2.00, Issued and outstanding shares - 780                                         2                    2
  Series H, par value $2.00, Issued and outstanding shares - 1,500                                       3                    3
  Common stock, par value $0.001
  Authorized shares - 50,000,000, Issued and outstanding shares - 37,735,334 a
  nd 31,225,442 in 2001 and 2038, respectively                                                          38                   31
  Additional paid-in-capital                                                                        50,160               45,808
  Accumulated deficit                                                                              (50,068)             (43,753)
                                                                                                  --------            ---------
Total stockholders' equity                                                                           1,135                3,091
                                                                                                  --------            ---------
Total liabilities and stockholders' equity                                                        $  5,497            $   8,468
                                                                                                  ========            =========
</TABLE>

See accompanying notes.

                                       4
<PAGE>



                       SEDONA CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                  Three Months Ended
                                                                                        June 30
                                                                              ----------------------------
                                                                                 2001             2000
                                                                              -----------      -----------
<S>                                                                           <C>              <C>
Revenues:
  Product license                                                             $       248      $       132
  Services                                                                            505              106
                                                                              -----------      -----------
    Total revenues                                                                    753              238

Cost of revenues:
  Product license                                                                     411              260
  Services                                                                            294              253
                                                                              -----------      -----------
    Total cost of revenues                                                            705              513

    Gross profit                                                                       48             (275)

Operating expenses:
  Sales and marketing                                                                 936            1,378
  General and administrative                                                          865            1,159
  Research and development                                                             38               49
                                                                              -----------      -----------
    Total operating expenses                                                        1,839            2,586

Other income (expense)
  Interest income, net                                                                  3               99
  Convertible debenture interest expense                                              (76)               -
  Allowance for disputed royalties                                                   (238)               -
  Other                                                                              (153)              31
                                                                              -----------      -----------
    Total other income (expense)                                                     (464)             130

Loss from operations, before provision for income taxes                            (2,255)          (2,731)

Income taxes                                                                            -                -
                                                                              -----------      -----------
Loss from operations                                                               (2,255)          (2,731)

Preferred stock dividends                                                             (76)            (110)
                                                                              -----------      -----------
Net loss applicable to common stockholders                                    $    (2,331)     $    (2,841)
                                                                              ===========      ===========

Basic and diluted net loss from continuing
  operations applicable to common shares                                      $     (0.06)     $     (0.11)
                                                                              ===========      ===========
Basic and diluted weighted average common
  shares outstanding                                                           36,029,835       27,143,038
                                                                              ===========      ===========
</TABLE>
See accompanying notes.

                                       5


<PAGE>
                       SEDONA CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (In thousands, except share and per share data)
                                   (unaudited)
<TABLE>
<CAPTION>


                                                                                   Six Months Ended
                                                                                      June 30
                                                                             -----------------------------
                                                                                 2001             2000
                                                                             ------------     ------------
<S>                                                                          <C>               <C>
Revenues:
  Product license                                                            $        405      $       291
  Services                                                                            789              665
                                                                             ------------      -----------
    Total revenues                                                            $     1,194      $       956

Cost of revenues:
  Product license                                                                     798              328
  Services                                                                            790            1,017
                                                                             ------------      -----------
  Total cost of revenues                                                            1,588            1,345

  Gross profit                                                                       (394)            (389)

Operating expenses:
  Sales and marketing                                                               2,053            2,144
  General and administrative                                                        1,607            1,817
  Research and development                                                             80               49
                                                                             ------------      -----------
    Total operating expenses                                                        3,740            4,010

Other income (expense)
  Interest income, net                                                                 20              108
  Convertible debenture interest expense                                             (769)               -
  Allowance for note receivable                                                      (475)               -
  Allowance for disputed royalties                                                   (475)               -
  Other                                                                              (331)              30
                                                                             ------------      -----------
    Total other income (expense)                                                   (2,030)             138

Loss from operations, before provision for income taxes                            (6,164)          (4,261)

Income taxes                                                                            -                -
                                                                             ------------      -----------
Loss from operations                                                               (6,164)          (4,261)

Preferred stock dividends                                                            (151)            (187)
                                                                             ------------      -----------
Net loss applicable to common stockholders                                    $    (6,315)     $    (4,448)
                                                                              ===========       ==========

Basic and diluted net loss from continuing
  operations applicable to common shares                                      $     (0.18)     $     (0.17)
                                                                              ===========       ==========
Basic and diluted weighted average common
  shares outstanding                                                           34,212,377       26,206,413
                                                                              ===========       ==========
</TABLE>

See accompanying notes.
                                       6

<PAGE>



                       SEDONA CORPORATION AND SUBSIDIARIES
                       CONSOLDATED STATEMENTS OF CASH FLOW
                 (In thousands, except share and per share data)
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                                          Six Months Ended
                                                                                              June 30
                                                                                -----------------------------------
                                                                                   2001                     2000
                                                                                ----------               ----------
<S>                                                                             <C>                      <C>
Operating Activities
Loss from operations                                                            $  (6,164)               $  (4,261)
Adjustments to reconcile net loss
  to net cash used in operating activities:
    Depreciation and amortization                                                     970                      447
    Amortization of deferred financing fees and debt                                  708
    Increase in note receivable reserve                                               475
    Changes in operating assets & liabilities
      Accounts and notes receivable                                                  (266)                    (243)
      Prepaid expenses and other current assets                                       104                      (20)
      Other non current assets                                                         26                        -
      Accounts payable and accrued expenses                                           442                      249
      Deferred revenue and other                                                      (58)                     663
                                                                                ---------                ---------
Net cash used in operating activities                                           $  (3,763)                $ (3,165)

Investing activities
Purchase of property and equipment                                                    (97)                    (150)
Purchase of long term investment                                                        -                      (44)
Increase in capitalized software development costs                                   (772)                    (771)
                                                                                ---------                ---------
Net cash used in investing activities                                                (869)                    (965)


Financing activities
Issuance of convertible note                                                            -
Payment of preferred stock dividends                                                  (30)                     (90)
Repayments of notes receivable, related parties                                         -                       47
Repayment of long term obligation                                                     (26)                     (43)
Proceeds from issuance of preferred stock, net                                          -                    2,805
Proceeds from issuance of common stock                                              2,499                        -
Proceeds from exercise of common stock warrants/options                                 -                    6,468
                                                                                ---------                ---------
Net cash provided by financing activities                                       $   2,443                $   9,187
                                                                                ---------                ---------
Net increase in cash and cash equivalents                                          (2,189)                   5,057
Cash and cash equivalents, at beginning of year                                     2,189                      893
                                                                                ---------                ---------
Cash and cash equivalents, at end of period                                     $       0                $   5,950
                                                                                =========                =========
</TABLE>

See accompanying notes.


                                       7

<PAGE>

                       SEDONA CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                 (In thousands, except share and per share data)


Note #1: General

The accompanying consolidated financial statements are unaudited and include the
accounts of SEDONA Corporation and subsidiaries (the "Company"). All significant
intercompany transactions and balances have been eliminated.

The consolidated financial statements included herein for the three and six
months ended June 30, 2001 and 2000 are unaudited. In the opinion of management,
all adjustments (consisting of normal recurring accruals) have been made which
are necessary to present fairly the financial position of the Company in
accordance with generally accepted accounting principles. The results of
operations experienced for the three and six month period ended June 30, 2001
are not necessarily indicative of the results to be experienced for the year
ended December 31, 2001.

The statement and related notes have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations. The accompanying notes should
therefore be read in conjunction with the Company's December 31, 2000 annual
financial statements on Form 10-K as well as the Company's Form S-3 filed June
15, 2001, Form 8-K filed June 15, 2001, and Form 10-Q filed May 15, 2001.
Certain reclassifications have been made to prior year numbers to conform to the
current year presentation.

Note #2: Property and Equipment
         ----------------------
         Property and equipment consists of:
                                                        -------      -----------
                                                        June 30      December 31
                                                         2001           2000
                                                        -------      -----------

Machinery and equipment                                 $ 1,009      $ 1,004
Equipment under capital lease                               152          152
Furniture and fixtures                                      217          199
Leasehold improvements                                       64           64
Purchased software for internal use                         194          120
                                                        -------      -------
                                                          1,636        1,539
Less accumulated depreciation and amortization            1,006          806
                                                        -------      -------
                                                        $   630      $   733
                                                        =======      =======

Note #3: Stockholders' Equity
         --------------------

During the second quarter of 2001, there were a total of 255,000 common stock
options and warrants with exercise prices ranging from $0.95 to $1.22 per share
issued to employees, consultants and directors of the Company. The exercise
prices of these options and warrants approximated the fair market value or more
of the common stock at the time of such grants.

On November 22, 2000, the Company issued a $3,000 principal value private
placement Debenture convertible into Common Stock. The aggregate discount and
debt issuance costs of $972 was accreted into interest expense over the life of
the Debenture. At March 31, 2001, the aggregate discount has been accreted. On
April 30, 2001, the Company obtained an extension until January 15, 2002,
related to this Convertible

                                       8


<PAGE>


                       SEDONA CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                 (In thousands, except share and per share data)


Note #3: Stockholders' Equity (continued)
         --------------------

Debenture by increasing the interest prospectively to 8.5% and by repricing
56,666 warrants held by the investor from an earlier transaction to $0.001 per
share. A charge of $52 has been recorded in the financial statements related to
this repricing. Through August 9, 2001, $2,196 in principal value and interest
of $49 regarding this Debenture had been converted into 2,498,399 shares of
common stock.

On January 23, 2001 the Company sold 1,538,462 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
153,846 shares of Common Stock at an exercise price of $0.91 per share. The
Company paid a $70 sales commission and issued a warrant to purchase 107,692
shares of Common Stock at an exercise price of $0.72 per share to Ladenburg
Thalmann & Co., as placement agent in connection with this offering.

In the 2nd quarter 2001, the Company issued to an outside investor 541,363
shares of common stock at $0.93 per share. The Company also issued a warrant to
the investor to purchase up to 350,000 shares of Common Stock at an exercise
price of $0.75 per share.

In May 2001, the Company sold 1,875,000 shares of Common Stock in a private
placement to investors for an aggregate purchase price of $1,125. One-fourth of
these shares may not be resold or otherwise transferred until (a) the shares are
registered for resale and (b) the earlier of (x) 180 days after the issuance of
the shares and (y) the close of the fifth consecutive trading day on which the
closing sales price of our Common Stock on the Nasdaq SmallCap Market is at
least $2.00 per share. Three-fourths of these shares may not be resold or
otherwise transferred until (a) the shares are registered for resale and (b) the
earlier of (x) one year after the issuance of the shares and (y) the close of
the fifth consecutive trading day on which the closing sales price of our Common
Stock on the Nasdaq SmallCap Market is at least $3.00 per share. The Company
also issued to the purchasers of these shares of Common Stock four year warrants
to purchase 937,500 shares of Common Stock at an exercise price of $1.25 per
share and four year warrants to purchase 937,500 shares of Common Stock at an
exercise price of $1.50 per share. The shares underlying these warrants may not
be resold or otherwise transferred until the later of: (a) the effectiveness of
a registration statement registering for resale the Common Stock underlying the
Warrants and (b) six months from the issuance of the warrants. A registration
statement registering for resale the shares of Common Stock issued in the
private placement and the shares underlying the warrant was declared effective
by the SEC on July 3, 2001.

The Company paid a $56 sales commission and issued a warrant to purchase 300,000
shares of Common Stock at an exercise price of $1.50 per share to a placement
agent in connection with this offering.

In July 2001, the Company sold 666,667 shares of Common Stock in a private
placement to investors for an aggregate purchase price of $400. One-fourth of
these shares may not be resold or otherwise transferred until (a) the shares are
registered for resale and (b) the earlier of (x) 180 days after the issuance of
the shares and (y) the close of the fifth consecutive trading day on which the
closing sales price of our Common Stock on the Nasdaq SmallCap Market is at
least $2.00 per share. Three-fourths of these shares may not be resold or
otherwise transferred until (a) the shares are registered for resale and (b) the
earlier of (x) one year after the issuance of the shares and (y) the close of
the fifth consecutive trading day on



                                       9
<PAGE>


                       SEDONA CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                 (In thousands, except share and per share data)


Note #3: Stockholders' Equity (continued)
         --------------------

which the closing sales price of our Common Stock on the Nasdaq SmallCap Market
is at least $3.00 per share. The Company also issued to the purchasers of these
shares of Common Stock four year warrants to purchase 166,667 shares of Common
Stock at an exercise price of $1.25 per share and four year warrants to purchase
166,667 shares of Common Stock at an exercise price of $1.50 per share. The
shares underlying these warrants may not be resold or otherwise transferred
until the later of: (a) the effectiveness of a registration statement
registering for resale the Common Stock underlying the Warrants and (b) six
months from the issuance of the warrants.

The Company paid a $6 sales commission and issued a warrant to purchase 6,000
shares of Common Stock at an exercise price of $0.85 per share to a placement
agent in connection with this offering.

Note #4: Supplemental Disclosures of Cash Flow Information

                                                         Six months ended
                                                              June 30
                                                     -----------------------
                                                        2001         2000
                                                     ----------   ----------

Cash paid during period for interest                 $     9      $    48
                                                     -------      -------
Cash expenses incurred relative to Issuance
    of convertible preferred stock                         -      $   195
                                                     -------      -------
Cash expenses incurred relative to
    new equity                                       $   126      $     -
                                                     -------      -------
Non-cash financing activities are as follows:
    Conversion of debenture interest into
    common stock                                     $    51      $     -
                                                     -------      -------
    Conversion of debenture and preferred
    stock to common stock                            $ 1,830      $ 1,517
                                                     -------      -------


Note #5: Pending Accounting Pronouncements
         ---------------------------------

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill will no longer be amortized but
will be subject to annual impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. As of June 30, 2001,
the Company had no goodwill on its balance sheet.

Note #6: Vendor Dispute
         --------------

Included in other income (expense) on the consolidated statement of operations
for the three months ended June 30, 2001, is a $238 charge pertaining to a
vendor contract dispute. A total charge of $475 for the six months ended June
30, 2001 is reflected in the financial statements. This charge is not carried as
a cost of revenue item as the vendor has not performed in compliance with the
contract and hence minimum payments under the agreement have been suspended. The
Company has notified the vendor and is seeking to terminate the contract. Until
such time as the contract is terminated satisfactorily, the Company will
continue to accrue the minimum payments required and to the extent not required,
will reverse such charges upon dispute resolution.


                                       10
<PAGE>



                       SEDONA CORPORATION AND SUBSIDIARIES
                   CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                 (In thousands, except share and per share data)


Note #7:  Recent Accounting Pronouncements
          --------------------------------

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25." The Company adopted the
Interpretation on July 1, 2000, without significant effect. The Interpretation
clarifies certain issues that arose in the application of APB Opinion No. 25,
"Accounting for Stock Issued to Employees."

In June 2001, the Financial Accounting Standards Board approved the issuance of
Statements of Financial Accounting Standards No. 141, "Business Combinations,"
and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and indefinite
lived intangible assets will no longer be amortized but will be subject to
annual impairment tests. Other intangible assets will continue to be amortized
over their useful lives. At June 30, 2001, the Company does not have any
goodwill or indefinite lived intangibles recorded on its statement of financial
condition.


                       SEDONA CORPORATION AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 (In thousands, except share and per share data)


Results of Operations
---------------------

Total revenues increased to $753 for the three months ended June 30, 2001, from
$238 for the three months ended June 30, 2000. Revenues for the six months ended
June 30, 2001 and 2000 were $1,194 and $956, respectively. The growth in
revenues was primarily due to growth in the installation of new units of
Intarsia(TM) application as well as increasing service revenues related to the
application.

Total cost of revenues increased to $705 for the three months ended June 30,
2001 from $513 for the three months ended June 30, 2000. Total cost of revenues
increased to $1,588 for the six months ended June 30, 2001 from $1,345 for the
six months ended June 30, 2000. Cost of revenues increased in the 2001 periods
reflecting principally the higher amortization of capitalized software
development costs.

Total operating expenses declined to $1,839 in the three months ended June 30,
2001 from $2,586 in the same period a year earlier. Total operating expenses in
the six months ended June 30, 2001 declined to $3,740 from a level of $4,010 in
the six months ended June 30, 2000. These expenses have decreased in the 2001
periods compared to the same periods in 2000 reflecting principally savings from
staff reductions.

Other income (expense) in the three months ended June 30, 2001 increased to
$(464) compared to $130 in the same period a year ago. For the six months ended
June 30, 2001 other income (expense) increased to $(2,030) compared to $138 in
the period ended June 30, 2000. The increase in other expenses in the 2001
periods were due principally to the lack of interest income in the 2001 periods
as well as several non recurring expenses including financing costs
amortization, allowance for a note receivable, severance cost, and expenses
related to a vendor dispute (see Footnote 6 in Financials).



                                       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)


Liquidity and Capital Resources
-------------------------------

At June 30, 2001, cash and cash equivalents decreased to $0, a $2,189 decrease
compared to the December 31, 2000 amount of $2,189. For the six months ended
June 30, 2001, the cash flows from operating activities resulted in a net use of
cash of $3,763. As discussed below, the Company raised $400 through a private
placement in July 2001.

This use of cash was primarily due to the operating losses sustained by
operations.

The cash flows from investing activities during the same period resulted in a
use of cash of $869 primarily due to increases in software development costs and
purchases of equipment. Also, during the third quarter of 2000, the Company
entered into a licensing agreement with ZipFinancial, Inc., a national alliance
of community banks, which had selected SEDONA's Intarsia(TM) application
solution to expand its online marketing and Internet banking offerings. Receipts
under this agreement and certain reimbursements of SEDONA expenses total $85.
During the fourth quarter of 2000, the Company entered into an agreement to loan
up to $1,000 to ZipFinancial upon ZipFinancial reaching certain sales milestones
and committing to meet certain minimum payments pursuant to the licensing
agreement. In January 2001, SEDONA lent $475 to ZipFinancial under this
agreement, which amount is secured by ZipFinancial's intellectual property. In
February 2001, ZipFinancial announced it was ceasing operations and liquidating
its assets. It is unknown what the probability of collection of the $475 from
Zip Financial, Inc. is, or the value of any of the collateral and, accordingly,
the Company recorded a charge in the first quarter of 2001 to reserve for the
entire $475.

For the six months ended June 30, 2001, the cash flows from financing activities
resulted in net cash provided by financing activities of $2,443. The decrease in
cash provided when compared to the same period a year ago was due principally to
lower proceeds from the sale of new securities and the lack of proceeds from
exercises of options and warrants.

On January 23, 2001 the Company sold 1,538,462 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
153,846 shares of Common Stock at an exercise price of $0.91 per share. The
Company paid a $70 sales commission and issued a warrant to purchase 107,692
shares of Common Stock at an exercise price of $0.72 per share to Ladenburg
Thalmann & Co., as placement agent in connection with this offering.

In the 2nd quarter 2001, the Company issued to an outside investor 541,363
shares of common stock at $0.93 per share. The Company also issued a warrant to
the investor to purchase up to 350,000 shares of Common Stock at an exercise
price of $0.75 per share.

In May 2001, the Company sold 1,875,000 shares of Common Stock in a private
placement to investors for an aggregate purchase price of $1,125. One-fourth of
these shares may not be resold or otherwise transferred until (a) the shares are
registered for resale and (b) the earlier of (x) 180 days after the issuance of
the shares and (y) the close of the fifth consecutive trading day on which the
closing sales price of our Common Stock on the Nasdaq SmallCap Market is at
least $2.00 per share. Three-fourths of these shares may not be resold or
otherwise transferred until (a) the shares are registered for resale and (b) the
earlier of (x) one year after the issuance of the shares and (y) the close of
the fifth consecutive trading day on which the closing sales price of our Common
Stock on the Nasdaq SmallCap Market



                                       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  (continued)
-------------------------------

is at least $3.00 per share. The Company also issued to the purchasers of these
shares of Common Stock four year warrants to purchase 937,500 shares of Common
Stock at an exercise price of $1.25 per share and four year warrants to purchase
937,500 shares of Common Stock at an exercise price of $1.50 per share. The
shares underlying these warrants may not be resold or otherwise transferred
until the later of: (a) the effectiveness of a registration statement
registering for resale the Common Stock underlying the Warrants and (b) six
months from the issuance of the warrants. A registration statement registering
for resale the shares of Common Stock issued in the private placement and the
shares underlying the warrant was declared effective by the SEC on July 3, 2001.

The Company paid a $56 sales commission and issued a warrant to purchase 300,000
shares of Common Stock at an exercise price of $1.50 per share to a placement
agent in connection with this offering.

In July 2001, the Company sold 666,667 shares of Common Stock in a private
placement to investors for an aggregate purchase price of $400. One-fourth of
these shares may not be resold or otherwise transferred until (a) the shares are
registered for resale and (b) the earlier of (x) 180 days after the issuance of
the shares and (y) the close of the fifth consecutive trading day on which the
closing sales price of our Common Stock on the Nasdaq SmallCap Market is at
least $2.00 per share. Three-fourths of these shares may not be resold or
otherwise transferred until (a) the shares are registered for resale and (b) the
earlier of (x) one year after the issuance of the shares and (y) the close of
the fifth consecutive trading day on which the closing sales price of our Common
Stock on the Nasdaq SmallCap Market is at least $3.00 per share. The Company
also issued to the purchasers of these shares of Common Stock four year warrants
to purchase 166,667 shares of Common Stock at an exercise price of $1.25 per
share and four year warrants to purchase 166,667 shares of Common Stock at an
exercise price of $1.50 per share. The shares underlying these warrants may not
be resold or otherwise transferred until the later of: (a) the effectiveness of
a registration statement registering for resale the Common Stock underlying the
Warrants and (b) six months from the issuance of the warrants.

The Company paid a $6 sales commission and issued a warrant to purchase 6,000
shares of Common Stock at an exercise price of $0.85 per share to a placement
agent in connection with this offering.

The Company believes that, if it can generate funds from operations and
additional sales of securities, those funds, along with the proceeds from the
sale of securities in July 2001, will be sufficient to meet the Company's
working capital requirements for 2001. The Company has incurred substantial
losses from operations of approximately $6,164, $10,682 and $6,237 during the
six months ended June 30, 2001 and the years ended December 31, 2000 and 1999,
respectively. Losses from operations will continue through 2001 and the Company
will require additional financing in 2001, which may not be readily available.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. The Company's plans include expanding the sale and acceptance
of its business solutions through its strategic partnerships; targeting new
application solutions; continuation of aggressive marketing of its proprietary
product through multiple sales distribution channels; and maintaining leadership
of its application, and seeking additional debt or equity financing.


                                       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
---------

There can be no assurance that the Company's business will not be affected by
inflation in the future, however, management believes the inflation did not have
a material effect on the results of operations or financial condition of the
Company during the period presented herein.


Financial Risk Management
-------------------------

The Company invests its cash in variable rate money market securities, which are
not subject to interest rate or market risk.

From time to time the Company also has issued fixed-rate debt and preferred
stock, which is convertible into its Common Stock at a predetermined conversion
price. Convertible debt has characteristics that give rise to both interest-rate
risk and market risk because the fair value of the convertible security is
affected by both the current interest-rate environment and the price of the
underlying Common Stock. For the period ended June 30, 2001, the Company's
convertible debt, on an if-converted basis, was not dilutive and, as a result,
had no impact on the Company's net income per share -(assuming dilution). In
future periods, the debt may be converted, or the if-converted method may be
dilutive and net income per share -(assuming dilution) would be reduced.
























                                       14
<PAGE>





PART II - OTHER INFORMATION
---------------------------

         Item 1 - Legal Proceedings

                      No actions other than matters involved in the ordinary
                      course of business are currently known by management and
                      none of these are believed by management to have potential
                      significance.

         Item 2 - Changes in Securities - None

         Item 3 - Default Upon Senior Securities - None

         Item 4 - Submission of Matters to a Vote of Security Holders

         Proposal #1
         -----------
         In the Election of Directors to Terms Expiring in 2002
<TABLE>
<CAPTION>

                                                 FOR               WITHHELD         TOTAL
                                                 ----------        --------         ----------
<S>                                              <C>               <C>              <C>
         Laurence L. Osterwise                   30,337,891        557,178          30,895,069
         R. Barry Borden                         30,280,031        615,038          30,895,069
         Marco A. Emrich                         30,350,706        544,363          30,895,069
         Michael A. Mulshine                     30,310,026        585,043          30,895,069
         Jack Pellicci                           30,250,116        644,953          30,895,069
         James C. Sargent                        30,354,791        540,278          30,895,069
         Robert M. Shapiro                       30,353,656        541,413          30,895,069
         James T. Womble                         30,358,206        536,863          30,895,069
</TABLE>


         Proposal #2
         -----------
         To increase the authorized number of shares of Common Stock from fifty
         (50) to one hundred (100) million.
<TABLE>
<CAPTION>

                                                 FOR               AGAINST           ABSTAIN
                                                 ----------        ---------         -------
<S>                                              <C>               <C>               <C>
         Street Vote:                            28,831,039        1,540,805         156,707
         Registered Vote:                           348,377           17,641             500
         Total Shares:                           29,179,416        1,558,446         157,207
         % of Outstanding:                           84.88%            4.53%           0.46%
</TABLE>

         Item 5 - Other Information - None

         Item 6 - Exhibits

                      Exhibit 10.1  Common Stock and Warrants Purchase Agreement
                                    dated July 5, 2001 by and among the Company
                                    and the investors signatory thereto

                      Exhibit 10.2  Registration Rights Agreement dated July 5,
                                    2001 by and among the Company and the
                                    investors signatory thereto


                      Exhibit 10.3  Form of Warrant issued to investors in July
                                    2001 sale of common stock

                      Reports on Form 8-K - Form 8-K filed June 15, 2001



                                       15
<PAGE>






                                   SIGNATURES
                                   ----------


Pursuant to the requirements of Section 13 or 15 (d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned,


Thereunto duly authorized.


                                    SEDONA CORPORATION



DATE: February 8, 2002              /S/ Marco A. Emrich
      ----------------              --------------------------------------------
                                    Marco A. Emrich
                                    President and Chief Executive Officer




DATE: February 8, 2002              /S/ William K. Williams
     -----------------              --------------------------------------------
                                    William K. Williams
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

















                                       16