##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 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 0-15864
 SEDONA Corporation
 (Exact name of small business issuer as specified in its charter)
 PENNSYLVANIA
    
    95-4091769(State or other jurisdiction of 
incorporation or organization)
    
    (IRS Employer
Identification No.)1003 W. 9th Avenue, Second Floor, King of Prussia, PA
    
    19406(Address of principal executive offices)
    
    (Zip Code)
  þ o
 o þ
  o þ




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##### 



SEDONA CORPORATION AND SUBSIDIARIES
  
 INDEXPAGEPART I. FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets  September 30, 2007 (Unaudited) and December 31, 2006
    
    4Condensed Consolidated Statements of Operations  (Unaudited) three months ended September 30, 2007 and 2006
    
    5Condensed Consolidated Statements of Operations  (Unaudited) nine months ended September 30, 2007 and 2006
    
    6Condensed Consolidated Statements of Cash Flows  (Unaudited) nine months ended September 30, 2007 and 2006
    
    7Notes to the Condensed Consolidated Financial Statements  September 30, 2007
    
    8-17Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    18-22Item 3.
    
    Controls and Procedures
    
    23PART II. OTHER INFORMATIONItem 1 through Item 6.
    
    24-25SIGNATURE PAGE
    
    26EXHIBIT INDEX
    
    27CERTIFICATIONS
    
    28-31Certification Section 302Certification Section 302Certification Section 906Certification Section 906Amendment to promissory note dated September 27, 2006Amendment to promissory note dated October 23, 2006Amendment to promissory note dated August 17, 2006Form of Common Stock and Warrant Purchase AgreementsForm of Registration Rights AgreementsForm of Warrants issued to InvestorsCertification of Principal Executive OfficerCertification of Principal Financial OfficerCertification of Principal Executive Officer pursuant to Section 906Certification of Principal Financial Officer pursuant to Section 906
  2




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NOTE ON FORWARD-LOOKING STATEMENTS
 ®
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 SEDONA CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except share and per share data)
 September 30,
    
    December 31,2007
    
    2006(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    11
    
    
    $
    7Accounts receivable
    
    
    469
    
    
    
    300Prepaid expenses and other current assets
    
    
    44
    
    
    
    117Total current assets
    
    
    524
    
    
    
    424Accounts receivable, non-current
    
    
    295
    
    
    
    270Property and equipment, net
    
    
    14
    
    
    
    19Non-current assets  other
    
    
    3
    
    
    
    3Total non-current assets
    
    
    312
    
    
    
    292Total assets
    
    $
    836
    
    
    $
    716Liabilities and stockholders deficitCurrent liabilities:Current maturities of long-term debt
    
    $
    2,108
    
    
    $
    1,258Short-term debt  notes and line of credit
    
    
    1,619
    
    
    
    1,439Accounts payable
    
    
    588
    
    
    
    531Accrued expenses and other current liabilities
    
    
    1,098
    
    
    
    649Deferred and unearned revenue
    
    
    381
    
    
    
    675Total current liabilities
    
    
    5,794
    
    
    
    4,552Long-term debt, less current maturities, net of debt discount of $58
    
    
    3,173
    
    
    
    3,982Deferred revenue
    
    
    295
    
    
    
    270Other non-current liabilities
    
    
    65
    
    
    
    Total long-term liabilities
    
    
    3,533
    
    
    
    4,252Total liabilities
    
    
    9,327
    
    
    
    8,804Stockholders (deficit):Class A convertible preferred stock: liquidation preference $1,000Authorized shares  1,000,000Series A, par value $2.00, Issued and outstanding shares  500,000
    
    
    1,000
    
    
    
    1,000Common stock, par value $0.001Authorized shares -175,000,000, Issued and outstanding shares 97,241,545
and 90,153,534 in 2007 and 2006, respectively
    
    
    97
    
    
    
    90Additional paid-in-capital
    
    
    64,690
    
    
    
    63,290Accumulated deficit
    
    
    (74,278
    )
    
    
    (72,468
    )Total stockholders deficit
    
    
    (8,491
    )
    
    
    (8,088
    )Total liabilities and stockholders deficit
    
    $
    836
    
    
    $
    716
 See accompanying notes.
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SEDONA CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except share and per share data)
  Three Months EndedSeptember 30,2007
    
    2006Revenues:Product licenses
    
    $
    167
    
    
    $
    248Services
    
    
    187
    
    
    
    141Total revenues
    
    
    354
    
    
    
    389Cost of revenues:Product licenses
    
    
    
    
    
    
    4Services
    
    
    82
    
    
    
    87Total cost of revenues
    
    
    82
    
    
    
    91Gross profit
    
    
    272
    
    
    
    298Expenses:General and administrative
    
    
    356
    
    
    
    491Sales, marketing and customer services
    
    
    184
    
    
    
    104Research and development
    
    
    112
    
    
    
    156Total operating expenses
    
    
    652
    
    
    
    751Loss from operations
    
    
    (380
    )
    
    
    (453
    )Other expense:Interest expense
    
    
    (158
    )
    
    
    (113
    )Total other expense
    
    
    (158
    )
    
    
    (113
    )Net loss
    
    
    (538
    )
    
    
    (566
    )Deemed dividends applicable to preferred stockholders
    
    
    (30
    )
    
    
    (30
    )Net Loss applicable to Common Stockholders
    
    $
    (568
    )
    
    $
    (596
    )Basic and diluted net loss per share applicable to common shares
    
    $
    (0.01
    )
    
    $
    (0.01
    )Basic and diluted weighted average common shares outstanding
    
    
    95,126,930
    
    
    
    89,883,319
 See accompanying notes.
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SEDONA CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In Thousands, except share and per share data)
  Nine Months EndedSeptember 30,2007
    
    2006Revenues:Product licenses
    
    $
    390
    
    
    $
    486Services- unrelated parties
    
    
    594
    
    
    
    441Services- related parties
    
    
    
    
    
    
    240Total revenues
    
    
    984
    
    
    
    1,167Cost of revenues:Product licenses
    
    
    
    
    
    
    9Services
    
    
    272
    
    
    
    230Total cost of revenues
    
    
    272
    
    
    
    239Gross profit
    
    
    712
    
    
    
    928Expenses:General and administrative
    
    
    1,208
    
    
    
    1,262Sales, marketing and customer services
    
    
    414
    
    
    
    316Research and development
    
    
    441
    
    
    
    529Total operating expenses
    
    
    2,063
    
    
    
    2,107Loss from operations
    
    
    (1,351
    )
    
    
    (1,179
    )Other expense:Interest expense
    
    
    (459
    )
    
    
    (342
    )Total other expense
    
    
    (459
    )
    
    
    (342
    )Net Loss
    
    
    (1,810
    )
    
    
    (1,521
    )Deemed dividends applicable to preferred stockholders
    
    
    (90
    )
    
    
    (90
    )Net loss applicable to Common Stockholders
    
    $
    (1,900
    )
    
    $
    (1,611
    )Basic and diluted net loss per share applicable to common shares
    
    $
    (0.02
    )
    
    $
    (0.02
    )Basic and diluted weighted average common shares outstanding
    
    
    92,330,300
    
    
    
    89,505,926
 See accompanying notes.
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SEDONA CORPORATION AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW  (In thousands, except share and per share data)
 Nine Months EndedSeptember 30,2007
    
    2006Operating activities:Net cash used in operating activities
    
    $
    (1,566
    )
    
    $
    (1,248
    )Financing activities:Issuance of convertible notes
    
    
    
    
    
    
    755Issuance of short term promissory note
    
    
    
    
    
    
    1,300Proceeds from line of credit
    
    
    180
    
    
    
    Proceeds from other non-current liabilities
    
    
    65
    
    
    
    Proceeds from sale of common stock
    
    
    1,302
    
    
    
    16Proceeds from the exercise of stock options
    
    
    23
    
    
    
    Repayments of long-term obligations
    
    
    
    
    
    
    (850
    )Net cash provided by financing activities
    
    
    1,570
    
    
    
    1,221Net increase in cash and cash equivalents
    
    
    4
    
    
    
    (27
    )Cash and cash equivalents, beginning of period
    
    
    7
    
    
    
    51Cash and cash equivalents, end of period
    
    $
    11
    
    
    $
    24
 See accompanying notes.
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SEDONA CORPORATION AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 General
      8




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Property and Equipment
  Nine Months Ending
    
    Year EndingSeptember 30, 2007
    
    December 31, 2006Machinery and equipment
    
    $
    77,276
    
    
    $
    77,276Leasehold improvements
    
    
    14,712
    
    
    
    14,712Purchased software for internal use
    
    
    30,822
    
    
    
    30,822122,810
    
    
    
    122,810Less accumulated depreciation and amortization
    
    
    108,360
    
    
    
    104,175$
    14,450
    
    
    $
    18,635
 Stockholders Equity and Other Financing Activities
 Issuance of Stock for Professional Services:
  Issuance of Stock Pursuant to Employee Stock Purchase Plan:
  Grant of Stock Pursuant to Employee 401k Plan:
  Stock Option Exercises:
  Private Placement of Common Stock:
 First Quarter
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Second Quarter
   Third Quarter
    Line of Credit:
  10




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Stock Dividends:
  Subsequent Events:
   Major Customer Transactions and Geographic Information
     Supplemental Disclosures of Cash Flow Information
 Nine months endedSeptember 30,2007
    
    2006Cash paid during period for interest
    
    $
    1,710
    
    
    $
    105,671Conversion of accrued interest into common stock
    
    $
    
    
    
    $
    309,324Settlement of Acxiom Obligations
    
    $
    
    
    
    $
    2,577,712
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Earnings Per Share
 Earnings Per Share
 Litigation
       12




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Related Party Transactions
 David Vey and Oak Harbor
 Revolving Line of Credit with David Vey
  Bridge Loan with David Vey
   Oak Harbor Note
  13




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Interest Expense Related to David Vey and Oak Harbor
   Principal sum
    
    Accrued interestInstrument
    
    Payee
    
    Maturity Date
    
    due
    

at 9-30-07Promissory
Note dated as
    
    Oak Harbor
    
    May 1, 2009
    
    $
    1,040,402
    
    
    $
    94,561of August 17, 2006
    
    InvestmentProperties, LLCSecured Convertible
    
    David Vey
    
    October 23, 2008
    
    $
    2,691,263
    
    
    $
    204,536Promissory
Note dated as 
of October 23, 2006Promissory
Note dated as of October
23, 2006
    
    David Vey
    
    August 1, 2008
    
    $
    1,213,952
    
    
    $
    92,260Revolving Promissory Note
(Line of Credit)
dated as of
September 27, 2006
    
    David Vey
    
    February 18, 2008
    
    $
    405,000
    
    
    $
    22,508
 David Vey and OSI Litigation
   Stock Options & Warrants
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WeightedAverage Value ofWeighted
    
    remaining
    
    Aggregate intrinsicAverage
    
    contractual terms
    
    value of in-the-Shares
    
    Exercise Price
    
    (years)
    
    money optionsStock Options:Outstanding at December 31, 2006
    
    
    4,313,049
    
    
    $
    0.59Canceled or expired
    
    
    (344,800
    )
    
    $
    0.87Granted
    
    
    500,000
    
    
    $
    0.18Exercised
    
    
    (150,506
    )
    
    $
    0.15Outstanding at September 30, 2007
    
    
    4,317,743
    
    
    $
    0.54
    
    
    
    3.81
    
    
    $
    158,154Exercisable at September 30, 2007
    
    
    3,704,618
    
    
    $
    0.60
    
    
    
    3.54
    
    
    $
    126,598
  Ranges
    
    TotalRange of exercise prices
    

$0.15
to $1.16
    

$1.35
to $2.25
    

$2.50
to $5.13
    

$0.15
to $5.13Options outstanding
    
    
    3,809,743
    
    
    
    415,000
    
    
    
    93,000
    
    
    
    4,317,743Weighted average remaining
contractual life (years)
    
    
    5.33
    
    
    
    1.99
    
    
    
    2.00
    
    
    
    3.81Weighted average exercise price
    
    $
    0.33
    
    
    $
    1.86
    
    
    $
    3.07
    
    
    $
    0.54Exercisable
    
    
    3,196,618
    
    
    
    415,000
    
    
    
    93,000
    
    
    
    3,704,618Weighted average exercise price
    
    $
    0.36
    
    
    $
    1.86
    
    
    $
    3.07
    
    
    $
    0.60
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WeightedWeighted
    
    Average Value of
    
    Aggregate intrinsicAverage
    
    remaining
    
    value of in-the-Shares
    
    Exercise Price
    
    contractual terms (years)
    
    money warrantsWarrants:Outstanding at December 31, 2006
    
    
    7,587,881
    
    
    $
    1.09Canceled or expired
    
    
    (2,730,000
    )
    
    $
    0.77Granted
    
    
    4,341,221
    
    
    $
    0.27Exercised
    
    
    
    
    
    
    Outstanding at September 30, 2007
    
    
    9,199,102
    
    
    $
    0.80
    
    
    
    1.74
    
    
    $
    14,843Exercisable at September 30, 2007
    
    
    8,975,051
    
    
    $
    0.78
    
    
    
    1.56
    
    
    $
    14,843
  Ranges
    
    TotalRange of exercise prices
    

$0.23
to $1.13
    

$1.21
to $2.25
    

$2.50
to $3.75
    

$0.23
to $3.36Outstanding
    
    
    7,454,102
    
    
    
    1,303,000
    
    
    
    442,000
    
    
    
    9,199,102Weighted average remaining
contractual life (years)
    
    
    2.19
    
    
    
    1.53
    
    
    
    .91
    
    
    
    1.74Weighted average exercise price
    
    $
    0.46
    
    
    $
    2.15
    
    
    $
    2.56
    
    
    $
    0.80Exercisable
    
    
    7,328,901
    
    
    
    1,303,000
    
    
    
    343,150
    
    
    
    8,975,051Weighted average exercise price
    
    $
    0.45
    
    
    $
    2.15
    
    
    $
    2.58
    
    
    $
    0.78
   For the period endedSeptember 30, 2007
    
    September 30, 2006Stock options
    
    $
    
    
    
    $
    0.11
  Segment Information
  16




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Recent Accounting Pronouncements
 Accounting for Certain Hybrid
Instruments.
    17




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Business Overview
    Recent Business Developments
   Revenues
   
    
    license fees from direct sales
    
    monthly subscription fees from our distribution partners ASP sales
  
    
    professional services fees including set-up and installation fees, training and mapping
fees
    
    annual maintenance fees.
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Revenue Recognition
   
    
    Persuasive evidence of an arrangement exists
    
    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
   Product License Revenue
  Services Revenue
   
    
    Installation revenue is recognized upon completed installation and customer acceptance and is
based on a contractual hourly rate. Training revenue is not a material element of a contract
and revenue is recognized as training services are provided.
    
    Annual maintenance revenue is recognized ratably on a monthly
basis, over the life of the related contract. The
Company establishes the value of annual maintenance revenue based on
the historical price for renewals of existing maintenance contracts.
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Results of Operations
  Total Revenues
   Cost of Revenues; Gross Profit
  Total Operating Expenses
  20




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21




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Liquidity and Capital Resources
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Item 3. Controls and Procedures
    23




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PART II  OTHER INFORMATION
 
 Item 1   Legal Proceedings  None not previously reported.
 Item 2  Unregistered Sale of Equity Securities and Use of Proceeds  None not previously
reported.Item 3  Default Upon Senior Securities  NoneItem 4  Submission of Matters to a Vote of Security HoldersAt the Companys Annual Meeting of Stockholders held on August 16, 2007, the
Shareholders of the Company elected seven directors to the Board to serve for the 
ensuing year until their successors are elected and qualified.The voting results for the election
of directors were as follows:
 Name
    
    For
    
    WithheldDavid R. Vey
    
    
    79,263,827
    
    
    
    2,098,504Marco A. Emrich
    
    
    79,064,970
    
    
    
    2,297,361Victoria V. Looney
    
    
    79,009,750
    
    
    
    2,352,581Jack A. Pellicci
    
    
    79,264,289
    
    
    
    2,098,042Scott C. Edelman
    
    
    79,332,969
    
    
    
    2,029,362Roger W. Scearce
    
    
    79,220,787
    
    
    
    2,141,544David C. Bluestone
    
    
    79,291,169
    
    
    
    2,071,162
 Item 5  Other InformationItem 6  Exhibits
 Exhibit 31.1*
    
    Certification of Principal Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2*
    
    Certification of Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1*
    
    Certification of Principal Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2*
    
    Certification of Principal Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002Exhibit 10.95*
    
    Amendment to promissory note dated September 27, 2006 between
SEDONA Corporation and David Vey in the principal amount of $500,000Exhibit 10.96*
    
    Amendment to promissory note dated October 23, 2006 between SEDONA
Corporation and David Vey in the principal amount of $1,213,952Exhibit 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
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Exhibit 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.Exhibit 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.Exhibit 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.
 
 *
    
    Filed herewith 25




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SIGNATURES
   SEDONA CORPORATIONDATE: November 13, 2007
    
    /S/ Marco A. EmrichMarco A. EmrichPresident and Chief Executive OfficerDATE: November 13, 2007
    
    /S/ Anita M. PrimoAnita M. PrimoVice President and Chief Financial Officer
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EXHIBIT INDEX
 Exhibit No.
    
    DescriptionExhibit 31.1*
    
    Certification of Principal Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2*
    
    Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.1*
    
    Certification of Principal Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.2*
    
    Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 10.95*
    
    Amendment to promissory note dated September 27, 2006
between SEDONA Corporation and David Vey in the principal
amount of $500,000Exhibit 10.96*
    
    Amendment to promissory note dated October 23, 2006
between SEDONA Corporation and David Vey in the principal
amount of $1,213,952Exhibit 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 $1,040,402Exhibit 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.Exhibit 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.Exhibit 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.
 
 *
    
    Filed herewith 27