<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 September 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 000-15864



                               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 October 31, 2001, there were 40,069,704 shares outstanding of the
registrant's common stock, par value $0.001 per share.




<PAGE>


                       SEDONA CORPORATION AND SUBSIDIARIES


                                      INDEX

<TABLE>
<CAPTION>

PART I. FINANCIAL INFORMATION                                                                       PAGE
-----------------------------                                                                       ----
<S>                                                                                                <C>
Item 1.    Consolidated Financial Statements

           Consolidated Balance Sheets -- September 30, 2001 (Unaudited)                               4
           and December 31, 2000

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

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

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

           Notes to Consolidated Financial Statements -
           September 30, 2001                                                                       8-13

Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations                                           14-16


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

Item 2.    Changes in Securities and Use of Proceeds                                                  17

Item 6.    Exhibits and Reports on Form 8-K.                                                          17


SIGNATURE PAGE                                                                                        18
--------------
</TABLE>

                                       2


<PAGE>


                       NOTE ON FORWARD-LOOKING STATEMENTS


This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements are statements
other than historical information or statements of current condition. Some
forward-looking statements may be identified by use of terms such as "believes",
"anticipates", "intends", or "expects". These forward-looking statements relate
to the plans, objectives, and expectations of SEDONA Corporation (the Company"
or "SEDONA") for future operations. In light of the risks and uncertainties
inherent in all forward-looking statements, the inclusion of such statements in
this Form 10-Q should not be regarded as a representation by the Company or any
other person that the objectives or plans of the Company will be achieved or
that any of the Company's operating expectations will be realized. The Company's
revenues and results of operations are difficult to forecast and could differ
materially from those projected in the forward-looking statements contained
herein as a result of certain factors including, but not limited to, 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>

--------------------------------------------------------------------------------------------------------------
                                                                            September 30           December 31
                                                                                    2001                  2000
--------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                   <C>
Assets
Current assets:
Cash and cash equivalents                                                           $ 20               $ 2,189
Restricted cash                                                                      105                   105
Accounts receivable, net of allowance for doubtful accounts of
$49 and $102                                                                         119                   566
Prepaid expenses and other current assets                                             43                   503

Total current assets                                                                 287                 3,363
Property and equipment, net of accumulated depreciation and                          514                   733
amortization
Restricted cash                                                                      383                   383
Software costs, net                                                                2,672                 3,959
Other assets                                                                           5                    30
                                                                                 -------              --------
Total assets                                                                     $ 3,861               $ 8,468
                                                                                 =======              ========
Liabilities and stockholders' equity Current liabilities:
Accounts payable                                                                   $ 918                 $ 602
Accrued expenses and other current liabilities                                       413                   304
Dividend payable                                                                     154                   184
Deferred revenue                                                                     458                   562
Current maturities of long-term debt                                                  33                    37
Short-term debt - debenture                                                          805                 2,663
                                                                                 -------              --------
Total current liabilities                                                          2,781                 4,352
Long-term debt, less current maturities                                              992                 1,025
                                                                                 -------              --------
Total long-term liabilities                                                          992                 1,025
                                                                                 -------              --------
Total liabilities                                                                  3,773                 5,377

Stockholders' equity:
Class A convertible preferred stock
Authorized shares - 1,000,000 (liquidation preference $3,280 at
September 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 - 100,000,000, Issued and outstanding shares -
39,468,667 and 31,225,442 in 2001 and 2000, respectively                              39                    31
Additional paid-in-capital                                                        51,549                45,808
Accumulated deficit                                                              (52,505)              (43,753)
                                                                                 -------              --------
Total stockholders' equity                                                            88                 3,091
                                                                                --------              --------
Total liabilities and stockholders' equity                                       $ 3,861               $ 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
                                                                                              September 30
                                                                                  --------------------------------
                                                                                         2001                 2000
                                                                                  --------------------------------
<S>                                                                              <C>                 <C>
Revenues:
Product license                                                                          $ 75                $ 176
Maintenance and services                                                                  341                  159
                                                                                  -----------          -----------
Total revenues                                                                            416                  335

Cost of revenues:
Product license                                                                           413                  414
Maintenance and services                                                                  264                  333
Write-off of purchased software                                                         1,232                    -
                                                                                  -----------          -----------
Total cost of revenues                                                                  1,909                  747

Gross profit                                                                          (1,493)                (412)

Operating expenses:

Sales and marketing                                                                       817                1,680
General and administrative                                                              1,081                  915
Research and development                                                                   40                   47
                                                                                  -----------          -----------
Total operating expenses                                                                1,938                2,642

Other income (expense)
Interest income(expense), net                                                             (3)                   39
Convertible debenture interest expense                                                   (17)                    -
Recovery of allowance for contract dispute                                                474                    -
Other                                                                                    (37)                   25
                                                                                  -----------          -----------
Total other income (expense)                                                              417                   64

Loss from operations, before provision for income taxes                               (3,014)              (2,990)
Income taxes                                                                                -                    -
                                                                                  -----------          -----------
Loss from operations                                                                  (3,014)              (2,990)
Preferred stock dividends                                                                 151                 (99)
                                                                                  -----------          -----------
Net loss applicable to common stockholders                                          $ (2,863)            $ (3,089)
                                                                                  ===========          ===========
Basic and diluted net loss from continuing
operations applicable to common shares                                               $ (0.07)             $ (0.11)
                                                                                  ===========          ===========
Basic and diluted weighted average common
shares outstanding                                                                 38,395,407           28,150,176
                                                                                  ===========          ===========
------------------------------------------------------------------------------------------------------------------
</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>

-----------------------------------------------------------------------------------------------------------------
                                                                                    Nine Months Ended
                                                                                       September 30
                                                                                 --------------------------------
                                                                                   2001                   2000
                                                                                 --------------------------------
<S>                                                                               <C>                   <C>
Revenues:
Product license                                                                      $ 480                 $ 467
Maintenance and services                                                             1,130                   825
                                                                                  --------               -------
Total revenues                                                                       1,610                 1,292

Cost of revenues:
Product license                                                                      1,211                   655
Maintenance and services                                                             1,054                 1,438
Write-off of purchased software                                                      1,232                     -
                                                                                  --------               -------
Total cost of revenues                                                               3,497                 2,093

Gross profit                                                                        (1,887)                 (801)

Operating expenses:
Sales and marketing                                                                  2,870                 3,824
General and administrative                                                           2,688                 2,733
Research and development                                                               120                    96
                                                                                  --------               -------
Total operating expenses                                                             5,678                 6,653

Other income (expense)
Interest income, net                                                                    17                   147
Convertible debenture interest expense                                                (786)                    -
Recovery of allowance for note receivable                                             (475)                    -
Other                                                                                 (368)                   55
                                                                                  --------               -------
Total other income (expense)                                                        (1,612)                  202

Loss from operations, before provision for income taxes                             (9,177)               (7,252)
Income taxes                                                                             -                     -
                                                                                  --------               -------
Loss from operations                                                                (9,177)               (7,252)
Preferred stock dividends                                                                -                  (286)
                                                                                  --------               -------
Net loss applicable to common stockholders                                        $ (9,177)             $ (7,538)
                                                                                  ========              ========
Basic and diluted net loss from continuing
operations applicable to common shares                                            $  (0.26)              $ (0.27)
                                                                                  ========              ========
Basic and diluted weighted average common
shares outstanding                                                              35,778,468            27,724,191
                                                                                ==========           ===========
----------------------------------------------------------------------------------------------------------------
</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>

-----------------------------------------------------------------------------------------------------------------
                                                                                      Nine Months Ended
                                                                                        September 30
                                                                                ----------------------------------
                                                                                     2001                     2000
                                                                                ----------------------------------

<S>                                                                             <C>                       <C>
Operating Activities
Loss from operations                                                            $  (9,177)                $ (7,307)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization                                                       1,524                      906
Reserve for partnership investment                                                    475                        -
Amortization of deferred financing fees and debt                                      656                        -
Valuation of non-employee warrants                                                    406                        -
Changes in operating assets & liabilities
Accounts and notes receivable                                                         448                      (11)
Prepaid expenses and other current assets                                             186                     (215)
Other non current assets                                                               26                     (413)
Accounts payable and accrued expenses                                                 424                      550
Deferred revenue and other                                                           (104)                     771
                                                                                ---------                 --------
Net cash used in operating activities                                           $  (5,136)                $ (5,719)

Investing activities
Purchase of property and equipment                                                   (101)                    (294)
Purchase of long term investment                                                        -                     (122)
Decrease/(Increase) in software development costs                                      83                   (1,600)
Partnership investment                                                               (475)                       -
                                                                                ---------                 --------
Net cash used in investing activities                                            $   (493)               $  (2,016)

Financing activities
Issuance of convertible note                                                          117                        -
Payment of preferred stock dividends                                                  (30)                    (120)
Repayments of notes receivable, related parties                                         -                       47
Repayment of long term obligation                                                     (26)                     (99)
Proceeds from issuance of preferred stock, net                                          -                    2,805
Proceeds from issuance of common stock                                              3,399                      940
Proceeds from exercise of common stock warrants/options                                 -                    6,731
                                                                                ---------                 --------
Net cash provided by financing activities                                         $ 3,460                 $ 10,304
                                                                                ---------                 --------
Net increase/decrease in cash and cash equivalents                                 (2,169)                   2,569
Cash and cash equivalents, at beginning of year                                     2,189                      893
                                                                                ---------                 --------
Cash and cash equivalents, at end of period                                          $ 20                  $ 3,462
                                                                                =========                =========
------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

                                       7


<PAGE>

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

Note #1: General

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

The consolidated financial statements included herein for the three and nine
months ended September 30, 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 nine month period ended September 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-Ks filed June 15, 2001, September 4, 2001, September 19, 2001
and October 4, 2001 and Form 10-Q filed May 15, 2001 and August 14, 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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                           September 30             December 31
                                                                   2001                    2000
                                                    -------------------------------------------
<S>                                                             <C>                     <C>
Machinery and equipment                                         $ 1,027                 $ 1,004
Equipment under capital lease                                       152                     152
Furniture and fixtures                                              199                     199
Leasehold improvements                                               64                      64
Purchased software for internal use                                 198                     120
                                                           ------------             -----------
                                                                  1,640                   1,539
Less accumulated depreciation and amortization                  (1,126)                   (806)
                                                           ------------             -----------
                                                                  $ 514                   $ 733
                                                           ============             ===========
-----------------------------------------------------------------------------------------------
</TABLE>


                                       8
<PAGE>

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

Note #3: Stockholders' Equity

During the third quarter of 2001, there were a total of 4,324,308 common stock
options and warrants with exercise prices ranging from $.56 to $1.03 per share
granted to employees, consultants and directors of the Company. The exercise
prices of these options and warrants equaled the fair market value or more of
the common stock at the time of such grants.

In July 2001, we granted a consultant 563 thousand warrants with expiration
dates ranging from April, 2006 through December, 2010, of which 411 thousand
vested immediately and 152 thousand vested over future periods. We established
fair value of the warrants issued using the measurement criteria at the date of
grant, as outlined below, as July, 2001 was determined to be the date at which a
commitment for performance by the consultant to earn the equity instruments was
reached. These warrants had a fair value of 481, of which $380 was recognized in
the third quarter statement of operations, and the remainder will be recognized
over the vesting period. Additionally, 59 thousand warrants were issued during
August and September to 6 separate consultants for services rendered during that
period. The fair value of such warrants was determined on the date of grant, as
that was the date at which a commitment for performance by the consultant to
earn the equity instruments was reached. We recognized $26 thousand during the
3rd quarter related to these warrants in the third quarter statement of
operations.

       Assumptions Used
       Life of warrants:                           Various
       Volatility:                                 .93
       Vesting period:                             Various
       Fair value of stock at date of grant:       $.82
       Expected dividend yield:                    0
       Fair value of option:                       $0.57 to $0.82

The Company ceased to declare preferred stock dividends as of January 1, 2001 on
the outstanding series of its Class A Convertible Preferred Stock. Cumulative
but undeclared dividends at September 30, 2001 equaled $226. To the extent such
dividends are declared and paid they will then be reflected appropriately in the
Company's financial statements.

On November 22, 2000, the Company issued a $3,000 principal amount convertible
debenture and three-year warrants to purchase 666,667 shares of common stock at
an exercise price of $1.37 per share to an investor for an aggregate purchase
price of $2,500. The aggregate discount and debt issuance costs of $972 were
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 of the debenture's maturity date until January 15, 2002 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 October 2001, $2,196 in principal value and interest of $49 regarding
this debenture had been converted into 2,498,399 shares of common stock. Two
further conversion notices regarding this debenture dated September 25, 2001 and
October 15, 2001 have been suspended as of the date of this report pending the
investigation of information received by the Company. The Company continues to
carry the principal value of $805 on the balance sheet and accrues interest on
this debenture.

                                       9
<PAGE>

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

Note #3: Stockholders' Equity  (continued)

On January 23, 2001 the Company sold 1,538,462 shares of Common stock and a
four-year warrant to purchase 153,846 shares of common stock at an exercise
price of $0.91 per share to an investor for an aggregate purchase price of
$1,000. 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.
On May 1, 2001, the Company sold 541,363 shares of common stock and issued a
warrant to a private investor to purchase 350,000 shares of common stock at an
exercise price of $0.75 per share for an aggregate purchase price of $500.

On May 11, 2001, the Company sold 1,875,000 shares of common stock to private
investors and issued 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 stock at an exercise price of $1.50 per share for an aggregate
purchase price of $1,125. One-fourth of the shares of common stock may not be
resold or otherwise transferred until (a) the shares are registered 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 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 is at least $3.00 per share. The shares
underlying the warrants may not be resold or otherwise transferred until the
later of: (a) the effectiveness of a registration statement for the underlying
common stock, or (b) six months from the issuance of the warrants. A
registration statement registering the shares of common stock issued in the
private placement and the shares underlying the warrants was declared effective
by the SEC on July 3, 2001.

The Company paid a $56 sales commission and issued warrants to purchase 300,000
shares of common stock at an exercise price of $1.50 per share to a finder in
connection with this offering.

During July 2001, the Company sold 666,667 shares of common stock in a private
placement and issued 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 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 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 is at least $3.00 per share. The shares
underlying the warrants may not be resold or otherwise transferred until the
later of: (a) the effectiveness of a registration statement registering 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 finder in
connection with this offering.

During August 2001, the Company sold 600,000 shares of stock and issued
four-year warrants to purchase 300,000 shares of common stock at an exercise
price of $1.00 per share in a private placement to investors for an aggregate
purchase price of $300. These shares may not be resold or

                                       10
<PAGE>

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

Note #3: Stockholders' Equity  (continued)

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 is at least $2.00 per share. The shares underlying the warrants may not be
resold or otherwise transferred until the later of: (a) the effectiveness of a
registration statement registering the common stock underlying the warrants and
(b) six months from the issuance of the warrants.

The Company paid a $18 sales commission and issued a warrant to purchase 30,000
shares of common stock at exercise prices ranging from $0.59 to $0.67 per share
to finders in connection with this offering.

In September 2001, the Company sold 466,667 shares of common stock and issued
four-year warrants to purchase 233,333 shares of common stock at an exercise
price of $0.62 per share to investors in a private placement for an aggregate
purchase price of $200. Additionally, the Company reduced the exercise price of
166,667 warrants with exercise prices of $1.25-$1.50 previously issued to these
investors to $0.62. 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 is at least
$2.00 per share. The shares underlying the warrants may not be resold or
otherwise transferred until the later of: (a) the effectiveness of a
registration statement registering 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 $0.56 per share to a finder in
connection with this offering.

In October 2001, the Company sold 125,000 shares of common stock and issued
four-year warrants to purchase 31,250 shares of common stock at an exercise
price of $1.00 per share and 31,250 shares of common stock at an exercise price
of $1.25 per share in a private placement to investors for an aggregate purchase
price of $50. 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 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 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 is
at least $3.00 per share. The shares underlying the warrants may not be resold
or otherwise transferred until the later of: (a) the effectiveness of a
registration statement for the common stock underlying the warrants and (b) six
months from the issuance of the warrants.

The Company paid $1 in sales commissions to a finder in connection with this
offering.

Also during October 2001, the Company sold 400,000 shares of common stock and
issued four-year warrants to purchase 200,000 shares of common stock at an
exercise price of $0.50 per share to an investor in a private placement for an
aggregate gross purchase price of $200. Additional shares and warrants may be
issued to this investor if fundings within the 60 days following closure are
issued at lower prices. These shares may not be resold or otherwise transferred
until (a) the shares are registered and (b) the earlier of (x) 180 days after
the issuance of the shares and (y) the

                                       11
<PAGE>

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

Note #3: Stockholders' Equity (continued)

close of the fifth consecutive trading day on which the closing sales price of
our common stock is at least $2.00 per share. The shares underlying the warrants
may not be resold or otherwise transferred until the later of: (a) the
effectiveness of a registration statement registering 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 $0.91 per share to a finder in
connection with this offering.

During the period September through October 2001, the Company sold 60 day notes
with a face value of $248 and issued 124,000 four-year warrants at an exercise
price of $0.40 per share to investors for an aggregate purchase price of $248.
If not redeemed at maturity, these notes may be convertible into shares of
common stock at a price of $0.20 per share. The shares underlying the warrants
may not be resold or otherwise transferred until the later of: (a) the
effectiveness of a registration statement registering the common stock
underlying the warrants and (b) six months from the issuance of the warrants. Of
these notes and warrants, $148 were issued to the Chairman of the Board of the
Company for aggregate consideration of $148.

All of the securities issued in the preceding transactions were sold in reliance
upon Rule 506 of Regulation D involving only accredited investors.

Note #4: Supplemental Disclosures of Cash Flow Information

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                                                Nine months ended
                                                                                  September 30
                                                                    ------------------------------------------
                                                                                    2001                 2000
                                                                    ------------------------------------------
<S>                                                                              <C>                  <C>
Cash paid during period for interest                                             $    13              $    20
                                                                       -----------------    -----------------
Cash expenses incurred relative to Issuance of convertible
preferred stock                                                                        -              $   195
                                                                       -----------------    -----------------
Cash expenses incurred relative to new equity                                    $   151              $    60
                                                                       -----------------    -----------------
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              $ 1,806
                                                                       -----------------    -----------------

-------------------------------------------------------------------------------------------------------------
</TABLE>

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

Note #5: Vendor Dispute

In mid 2000, the Company entered into a contract with a software vendor to
incorporate a component of that vendor's software into SEDONA's Intarsia(TM). By
April 2001, it had become apparent that, despite a $277K expenditure on the part
of the Company in integrating this product into Intarsia(TM), the project had
become infeasible due to the lack of support by the vendor and

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<PAGE>

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

Note #5: Vendor Dispute  (continued)

its unwillingness to meet certain contract commitments. The Company notified the
vendor of its concerns in April 2001 and has concluded that it is not
appropriate to continue to accrue certain minimum payments under the contract.
As a result, to-date accruals in the regard of $480 have been reversed.
Management's assessment is that the Company has a meritorious defense against
any vendor claim in this regard.

Note #6  Capitalized Software

During the third quarter of 2001, the Company completed a review of its
capitalized and purchased software to determine if any of its products were
impaired. Based on the reduction in the overall level of expected software
revenue levels, management prioritized where marketing and future development
dollars would be spent. Since revenues were significantly less in certain
previously acquired CIMS products, management decided to re-focus its available
resources and develop and market newer technology. Therefore, the expected level
of revenues from the majority of the CIMS products was substantially reduced and
no longer could support the recoverability of certain elements of capitalized
software. As a result, the Company wrote-off $1,232 of capitalized and purchased
software.

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 September 30, 2001, the Company does not have any
goodwill or indefinite lived intangibles recorded on its statement of financial
condition.





















                                       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)

Results of Operations

Total revenues increased to $416 for the three months ended September 30, 2001,
from $335 for the three months ended September 30, 2000. Revenues for the nine
months ended September 30, 2001 and 2000 were $1,610 and $1,292, respectively.
The growth in revenues was primarily due to service revenues related to the
Intarsia application, as well as sale of new units of Intarsia.

Total cost of revenues increased to $1,909 for the three months ended September
30, 2001 from $747 for the three months ended September 30, 2000. Total cost of
revenues increased to $3,497 for the nine months ended September 30, 2001 from
$2,093 for the nine months ended September 30, 2000. The cost of revenues
increased in the third quarter of 2001 primarily because of the write-off of
purchased software. During the third quarter of 2001, the Company completed a
review of its capitalized and purchased software to determine if any of its
products were impaired. Based on the reduction in the overall level of expected
software revenue levels, management prioritized where marketing and future
development dollars would be spent. Since revenues were significantly less in
certain previously acquired CIMS products, management decided to re-focus its
available resources and develop and market newer technology. Therefore, the
expected level of revenues from the majority of the CIMS products was
substantially reduced and no longer could support the recoverability of certain
elements of capitalized software. As a result, the Company wrote-off $1,232 of
capitalized and purchased software.

Cost of revenues increased in the 2001 year-to-date period reflecting
principally the higher amortization and write-off of capitalized software
development costs.

Total operating expenses decreased to $1,938 in the three months ended September
30, 2001 from $2,642 in the same period a year earlier. Total operating expenses
in the nine months ended September 30, 2001 declined to $5,678 from a level of
$6,653 in the nine months ended September 30, 2000. These expenses have
decreased in 2001 periods compared to the same periods in 2000 reflecting
principally savings from staff reductions.

Other income in the three months ended September 30, 2001 increased to $417,
compared to $64 in the same period a year ago. For the nine months ended
September 30, 2001 other (expense) increased to $(1,612), compared to income of
$202 in the period ended September 30, 2000. The increase in other expenses in
the 2001 year period was due principally to the lack of interest income as well
as several non-recurring expenses including financing costs amortization,
allowance for notes receivable and severance costs.

Liquidity and Capital Resources

At September 30, 2001, cash and cash equivalents were $20, a $2,169 decrease
compared to the December 31, 2000 amount of $2,189. For the nine months ended
September 30, 2001, the cash flows from operating activities resulted in a net
use of cash of $5,136. This use of cash was primarily due to operating losses.

The cash flows from investing activities for the nine months ended September 30,
2001 resulted in a use of cash of $493 primarily due to a partnership
investment. 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

                                       14
<PAGE>

Liquidity and Capital Resources  (continued)

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 nine months ended September 30, 2001, the cash flows from financing
activities resulted in net cash provided by financing activities of $3,460. 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.

The Company raised $1,017 through private equity placements and promissory notes
in the three months ended September 30, 2001, and has raised an additional $380
in October 2001 from private equity placements and promissory notes.

Information with respect to sales of common stock and notes as part of the
Company's financing activities during this period is incorporated by reference
to Note #3 of the consolidated notes to financial statements included herein.

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 2001, will be sufficient to meet the Company's working
capital requirements for 2001. The Company has incurred substantial losses from
operations of approximately $9,177 for the nine-month period ended September 30,
2001 $10,682 and $6,237 during the years ended December 31, 2000 and 1999,
respectively. Losses from operations are expected to continue into 2002 and the
Company will require additional financing for the foreseeable future, 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 management,
however, maintains and periodically updates a long range (beyond one year) as
well as shorter-term (next 12 months) business plan to anticipate and meet
financial needs, which we believe to be feasible. Such plans take into account
all funding requirements of the Company, including any material contingent
liabilities and anticipated timing. 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. The Company has no material capital expenditures,
payment obligations, demands or commitments (including off-balance sheet items)
to be incurred beyond the next 12 months other than those disclosed in the notes
to the financial statements.

                                       15
<PAGE>

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 September 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.




























                                       16
<PAGE>

PART II - OTHER INFORMATION


         Item 2 -   Changes in Securities
                    Incorporated herein by reference to Note #3 of the
                    consolidated notes to financial statements included herein.

         Item 6 -   Exhibits

                    Exhibit 10.1      Form of Common stock and Warrants
                                      Purchase Agreements in August, September
                                      and October 2001 by and among the Company
                                      and the investors signatory thereto.

                    Exhibit 10.2      Form of Registration Rights
                                      Agreements in August, September and
                                      October 2001 by and among the Company and
                                      the investors signatory thereto.

                    Exhibit 10.3      Form of Notes dated September and October
                                      2001 by and among the Company and
                                      investors signatory thereto.

                    Exhibit 10.4      Form of Warrants issued to investors
                                      in August, September and October 2001
                                      sales of common stock and notes.

         Reports on Form 8-K - Forms 8-K filed:  September 4, 2001
                                                 September 19, 2001
                                                 October 4, 2001









<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)




















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