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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/3A
{X} Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 2001 or
{ } 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
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(Exact name of Registrant as specified in its charter)
Pennsylvania 95-4091769
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
455 South Gulph Road, Suite 300, King of Prussia, PA 19406
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 484-679-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 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 { }.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K { }.
The aggregate market value of the Voting Stock held by non-affiliates of the
Registrant computed by reference to the closing price as reported on The Nasdaq
Stock Market system as of March 27, 2002 was $40,443,000.
The number of shares of the Registrant's Common Stock issued and outstanding as
of March 27, 2002 was 44,610,355 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders are incorporated by reference into Part III.
NOTE ON FORWARD-LOOKING STATEMENTS
This Form 10-K 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 Corp.") 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-K 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 attract and retain qualified personnel, 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.
PART I
ITEM 1. BUSINESS
General
SEDONA Corporation was organized as a corporation in 1992. SEDONA Corporation
develops, markets, services and supports enterprise-wide Internet Customer
Relationship Management (CRM) application solutions that enable small and
mid-sized businesses to identify, acquire, foster and retain loyal, profitable
customers.
SEDONA Corporation made significant additions to its business during 2000
through the acquisition of business and technology focusing on its core
application solution strategy. In this regard, during the third quarter of 1999,
the Company's Board of Directors decided to sell two divisions of the Company
that were not part of its realigned strategy of focusing on the development of
its Internet-based software products. Prior to disposal of Tangent and TRC
businesses in the third quarter of 1999 the Company was made up of three
components: Tangent (a manufacturing line of peripheral scanning equipment); TRC
(a business service related to the Tangent technology); and SedonaGeoservices (a
producer of a software component for mapping business data against a background
map, technology for which was acquired in 1995 and subsequently developed
further by SEDONA internally and by acquisition of other technology, principally
the CIMS business discussed further below, into the core application solution
for customer relationship management now known as Intarsia(TM)). As a result of
the Board's comprehensive review of all business sectors, it was concluded that
the company would realign its focus to the software business as it had the best
long-term prospects. On July 16, 1999 the sale of the assets of the Technology
Resource Centers to Diversified Technologies, Inc. was completed. On September
17, 1999, the sale of the Tangent Imaging Systems operation to Colortrac, Inc.
was completed. With the realignment of operations completed, the Company was now
able to focus all efforts on its business of providing enterprises with
Internet-based CRM application solutions.
To expedite the Company's plan on delivering CRM to its target market, on April
10, 2000, the Company announced that it had acquired the Customer Information
Management System (CIMS) business unit from Acxiom Corporation. The CIMS
business developed, marketed, serviced and supported CRM systems, focusing
principally on financial services markets. As a result of this transaction,
SEDONA gained a significant head start towards offering a comprehensive CRM
solution.
Since the completion of the CIMS transaction, SEDONA has continued to enhance
its offerings with several major product milestones achieved. In July, 2000,
SEDONA launched a new version of its customer relationship management software,
Intarsia(TM) Version 2, which provided a customizable portal and support for
wireless devices. In November 2001, SEDONA announced availability of its new
Version 3.2 which provides users new features to create and distribute critical
reports throughout the enterprise. Also, it provides increased functionality in
household data management as well as extended the platforms on which it operates
to the critical IBM eServer xSeries family. About 90% of the current customer
base has upgraded from the older systems to these current systems.
SEDONA's principal executive offices are located at 455 South Gulph Road, Suite
300, King of Prussia, Pennsylvania, 19406, and the telephone number is (484)
679-2200.
Description of Business and Principal Products
Intarsia
SEDONA's flagship application solution, Intarsia(TM), is a fully integrated and
customized CRM application solution priced specifically to bring a comprehensive
and seamlessly integrated set of customer relationship management components to
small and mid-sized financial services organizations, such as community banks,
credit unions, savings and loans, brokerage firms and insurance agencies.
Intarsia enables financial services organizations to create an effective
marketing, sales and services environment for customers, partners and suppliers.
Intarsia provides financial services organizations with a consolidated view of
their customer relationships and enables their customers to have a complete view
of the financial services organizations' businesses.
2
ITEM 1. BUSINESS (Continued)
Exploiting the ubiquity of the Internet, SEDONA's Intarsia combines
state-of-the-art technologies such as JAVA, personalization, mobile computing,
natural language and speech recognition for retrieving customer or prospect data
using plain English or voice.
Intarsia's comprehensive set of front office components provides financial
services organizations with a robust set of operational, analytical and
collaborative functionality necessary to:
o Integrate the front, back and mobile offices.
o Analyze customer and prospect data in real time enabling them to manage
critical business performance such as profitability of customers,
households and products and effectiveness of lead generation programs as
well as marketing and sales promotions and campaigns.
o Improve coordination and communication between financial services
organizations and their customers, greatly enhancing the financial services
organizations ability to deliver effective customer care services.
Intarsia seamlessly enhances the financial services organizations' core banking
systems customer and prospect data with user demographics, behaviors, interests
and preferences information provided by third-party content management
suppliers. This enhanced data is then filtered and analyzed to create timely and
precise "information-on-demand" or "Smart Content". This Smart Content is used
by all of Intarsia's CRM front office components in order to enable
organizations to:
o Create "look-a-like" models to identify prospects effectively who share the
same characteristics as their best customers, increasing their ability to
acquire new customers.
o Identify which are the most profitable customers, households or products in
order to improve their up-selling and cross-selling capabilities.
o Develop personalized sales, marketing and services programs aimed at
retaining their most profitable customers, and turn unprofitable customers
into profitable ones.
Intarsia includes a front-end personalized portal that allows financial service
organizations and their employees to create their own customized Web pages (and
personalized pages for select customers of the bank) using Intarsia's
components, third-party applications, and any other information that they have
been authorized to use. All this functionality is available to Intarsia users
over a wireline or wireless network using laptops and handheld PCs. With mobile
device usage on the rise, this capability will be increasingly critical as users
become less tethered to an office location and travel or conduct face-to-face
customer meetings outside their offices.
Marketing Solution Services
Introduced in February 2001, SEDONA's innovative marketing solutions services
offers customer relationship management consulting services that allow small and
mid-sized financial services organizations to outsource strategic marketing
programs such as customer retention, customer relationship expansion, new
customer acquisition, privacy management (Gramm-Leach-Bliley Act compliance),
Office of Foreign Assets Control (OFAC) compliance, and CRM strategy consulting.
SEDONA offers a menu of services including:
o Regular reporting and analysis of the financial services organization's
customer and prospect data and the related profitability of their products,
customers, households and operations;
o Recommendations for strategic marketing programs resulting from the data
analysis of the financial services organization's strategic initiative(s);
o Implementation and tracking of the actual direct marketing programs
selected by the financial services organization using sophisticated
campaign management capabilities;
o Customer relationship management consulting to help the financial services
organization manage the cultural and process changes inherent in new CRM
implementations.
3
ITEM 1. BUSINESS (Continued)
Each focus area includes detailed reporting and analysis to examine the
opportunities available to the financial organization to increase customer
satisfaction as well as overall company profitability. Based on the information
collected, SEDONA also offers services to implement and monitor recommended
marketing programs using Intarsia's campaign management software. SEDONA
provides these services in conjunction with several best-in-class partners
including Acxiom(R) Corporation; CBMS, a direct marketing company; DCMS, a
direct mail and database marketing company; and Profit Resources, a consulting
firm that specializes in assisting clients to implement and optimize
profitability management solutions.
Strategy
SEDONA has tailored its technology, services, marketing and sales strategies to
its well-defined first target audience of small to mid-sized financial services
organizations. SEDONA's overall business strategy is built upon four major
strategic initiatives:
1. Targeting CRM markets with a highly verticalized application and
marketing solutions services,
2. Marketing its unique proprietary solution to target markets through
multiple sales distribution channels,
3. Staying in the forefront of CRM technology, and
4. Achieving profitability.
The Company estimates that the market size of opportunities are large and
growing at rapid rates as businesses place increasing emphasis on knowledge
about their customer base. Having strategically targeted a key segment (there
are over 22,000 financial services organizations with less than $10 billion in
total assets, according to Thomson Financial, a leading information resource for
financial services) of the CRM market (estimated to be a $14 billion market in
2001 with a compound annual growth rate of over 30% for the next three years,
according to International Data Corporation, a leading information technology
consultant) and designed and priced its CRM application, Intarsia, and marketing
solutions services offerings accordingly, SEDONA is moving aggressively in an
attempt to capture a major share of the small to mid-sized financial services
industry. Through sales distribution channels and innovative marketing programs,
SEDONA hopes to garner awareness and market leadership.
Research & Development (In Thousands)
The main strategy of the research and development organization is to provide
high-quality, high-value products and support services in a consistent and
predictable manner as follows:
1. Promote and cultivate a culture of team-based development. The
research and development organization is structured into small teams
of developers, responsible for the design, development and unit
testing of each component of the Intarsia(TM) application solution.
Each project team also provides technical assistance to the system
integration group.
2. Implement a state-of-the-art software development process that
encourages component reusability and enhances the predictability,
timeliness and quality of the overall software process. SEDONA has
adopted the Base Level Integration Plans software development
methodology, which has been designed to promote an interactive and
predictable process for the development, unit and system integration
testing and delivery of products. This methodology breaks the
development of sophisticated products into four, pre-defined cycles
per year resulting in two major product releases on May 15 and
November 1 of each year. It also allows the company to react quickly
to business and technical changes generated by the marketplace and/or
new customer requirements.
4
ITEM 1. BUSINESS (Continued)
Base levels serve as the fundamental planning and execution process that drives
the engineering activities for that time period, including the maintenance of
existing products and releases, training and education requirements, as well as
new product development. This process operates in the context of a development
organization where there is a set of small project teams cooperating to build a
large, complex software product.
Research and development expenses were $383, $458, and $346 for the years ended
December 31, 2001, 2000 and 1999, respectively.
Patents and Copyrights
The Company believes strongly in copyrighting and trademarking its products and
servicemarking its services. The Company has a pending service mark application
for a corporate logo design which was filed with the United States Patent and
Trademark Office (USPTO) on December 4, 2000. This service mark is currently
awaiting publication review. The Company also has a pending service mark
application for the mark entitled "SEDONA", that was filed with the USPTO on
December 4, 2000. This application was initially refused registration because of
allegedly confusingly similar marks cited by the USPTO. The Company has
presented arguments to the USPTO, attempting to distinguish the respective
"SEDONA" marks.
The Company has also filed an application for the trademark "Intarsia". This
application was filed with the UPSTO on March 8, 2000 and was published for
opposition on September 4, 2001. In connection with the "Intarsia" trademark,
the Company received a Notice of Opposition on January 17, 2002 from the USPTO
Trademark Trial and Appeal Board. The Notice of Opposition was instituted by
Intarsia Corporation, located in Fremont, California. Intarsia Corporation is
opposing the Company's "Intarsia" mark for "computer software that tracks and
organizes customer and prospective customer data and organizes marketing
information, for use in customer relationship management." The Opposition deals
only with the Company's registration of the "Intarsia" mark and does not
challenge the Company's use of the mark.
If these pending applications proceed to registration, the Company will have the
exclusive right to use the logo design, "SEDONA" and "Intarsia" in connection
with those services recited in the respective registrations.
Sales and Marketing
SEDONA's sales distribution strategy is focused on an indirect sales channel
model. Under this model, the company licenses its technologies and services to
financial services' core processor providers. In order to achieve this
objective, SEDONA has built a very experienced strategic alliances organization
to create new sales channel capacity for selling SEDONA's Intarsia and marketing
solutions services. This group is responsible for leveraging and expanding OEM
(original equipment manufacturer) and VAR (value added resellers) distribution
channel partnerships. These alliances include:
Technology licensing partnerships:
o Sanchez Computer Associates, Inc. - In February, 2002, SEDONA
announced that it has entered into an agreement with Sanchez,
a global leader in developing and marketing scalable and
integrated software and services solutions for financial
institutions, to license, integrate and private-label SEDONA's
entire Intarsia(TM) software solution. Under the agreement,
SEDONA will be paid fees for the use of the product by Sanchez
based principally on the volume of CRM product sold either on
a standalone basis or as a component of the total Sanchez
package. In addition, SEDONA will earn certain service fees
based on assistance provided to Sanchez.
Marketing partnerships:
o IBM - IBM's Banking and Financial Services Group has
designated SEDONA's Intarsia(TM) as the solution of choice for
the smaller to mid-sized financial institution. IBM actively
promotes SEDONA's product to its customers and partners. One
step towards building an effective distribution channel and
creating market awareness was the December 2000 announcement
of the Customer Service Agreement (CSA) with IBM's Mid-market
Banking, Finance, and Securities Group (BFS). Under the terms
of the CSA agreement, IBM will market SEDONA's Intarsia to its
customers to run on IBM eServer (formerly AS/400) systems at
the customer's own site. This agreement followed
5
ITEM 1. BUSINESS (Continued)
an announcement earlier in 2000 under which IBM and the
Company agreed to engineer Intarsia(TM) to run on an IBM
platform that is a widely used information technology
environment in the Company's target customer base.
Subsequently, in February 2001, SEDONA was awarded by IBM an
Advanced Business Partner Designation in the IBM PartnerWorld
Program for Developers. This important status provides the
Company with additional IBM resources to expand business
opportunities. This relationship has already enabled SEDONA to
start working with IBM's channel partners such as Sanchez,
Fiserv and Alltel, to name a few. SEDONA pays IBM a commission
for every sale resulting from IBM channel efforts.
Services Partnerships:
o Profit Resources - Provide services specific to profitability
analysis used by banks. Profit Resources builds on the SEDONA
systems in order to perform its analyses and pays SEDONA a
commission on introductions.
o CBMS - Complementary services to extend use of SEDONA's
product within the CBMS customer base, including market
planning, strategic business planning and execution. By use of
such services, financial service institutions are able to
outsource various marketing functions. CBMS pays SEDONA fees
primarily based on introductions by SEDONA.
o DCMS - Complementary services to extend use of SEDONA's
product within the DCMS customer base, including market
planning, strategic business planning and execution. By use of
such services, financial service institutions are able to
outsource various marketing functions. DCMS pays SEDONA fees
primarily based on introductions by SEDONA.
o Sigma Analytics - Complementary services to extend use of
SEDONA's product within the Sigma Analytics customer base,
including modeling to help banks personalize their products
and services and develop more effective marketing strategies.
Sigma and SEDONA pay each other fees based on the work
generated through this alliance.
o Naviant - Provides data and services revolve around its core
competencies of integrated precision marketing tools that
enable SEDONA customers added capabilities in identifying,
targeting, reaching and building long-term relationships with
both online and offline customers. For example, Naviant data
helps SEDONA customers identify those online customers most
likely to conduct business on the Internet and therefore
facilitates design of online targeted marketing campaigns.
Technology enabling partnerships:
o Acxiom - Principally provides data utilized by SEDONA
customers to perform such tasks as promotions and customer
segmentation. SEDONA pays Acxiom a portion of its sales
involving Acxiom data.
o DataMentors - Provides an "Advanced Householding" module as an
additional option to SEDONA customers. SEDONA shares revenues
attributable to the module with Data Mentors based on a
formula.
In order to insure a successful implementation of the Company's sales strategy,
SEDONA's marketing organization has developed a comprehensive set of marketing
programs and is implementing effective lead generation programs such as
telemarketing, competitive trade-in offers, reference rewards, and an overall
public relations effort to generate new sales opportunities efficiently and
effectively.
Customers
No single customer accounted for more than 10% of sales in 2001.
Backlog
Revenue backlog consists of unfulfilled purchase contracts, service contracts
such as those entered into with application service customers, as well as
deferred revenues, primarily for maintenance contracts where revenues are
recognized ratably over the life of the contract. At the end of 2001, the
Company had a revenue backlog of $870, substantially all of which will be
realized as sales in 2002.
6
ITEM 1. BUSINESS (Continued)
Competition
The CRM market has offerings from providers that focus on sales force
automation, call center management, contact management and other components that
address certain aspects of the customer relationship. SEDONA's offering is
unique in combining comprehensive, real-time data integration and enhancement
capability along with visualization of required business information. Further,
SEDONA delivers its capabilities over the Internet in a cost effective, usable
manner. SEDONA's principal methods of meeting competition are on the basis of
service, product functionality and attractive pricing practices. SEDONA's key
competitors currently are John Harland Company, Harte Hanks and Centrax Group.
Harland has historically been primarily a provider of checks and other financial
forms to financial institutions. Harte-Hanks is primarily focused on CRM and
Internet marketing of response management in many different market areas.
Centrax is a private vendor primarily focused on low cost solutions in the
financial services business. We believe that SEDONA maintains superior product
capabilities that provide a fully integrated, robust CRM system in contrast to
the generally older technologies of its principal competitors. Also, CRM is
SEDONA's only business and its focus on financial institutions enables it to
maintain a strong reputation in this vertical market.
SEDONA's strategic partnerships, achieved either by integrating SEDONA's
capabilities into our partners' solutions or by integrating our partners'
technologies into SEDONA's application solution, create an overall
remarketing/reselling opportunity and strengthen SEDONA's competitive position.
Because competitors can easily penetrate the software market, we anticipate
additional competition from other established and new companies as the markets
for CRM applications continue to develop. In addition, current and potential
competitors have established, or may in the future establish, cooperative
relationships among themselves or with third parties. Large software companies
may acquire or establish alliances with our smaller competitors. We expect that
the software industry will continue to consolidate. It is possible that new
competitors or alliances among competitors may emerge and rapidly acquire a
significant market share.
Increased competition may result from acquisitions of other customer
relationship management vendors. The results of increased competition, including
price reductions of our products, and reduction of market share, could
materially and adversely affect our business, operating results, and financial
condition. In several of our market segments, we believe there is a distinct
trend by competitors toward securing market share at the expense of
profitability. This trend could have an impact on the mode and success of our
ongoing business in these segments.
Some of our current and many of our potential competitors have much greater
financial, technical, marketing, and other resources. As a result, they may be
able to respond more quickly than SEDONA can to new or emerging technologies and
changes in customer needs. They may also be able to devote greater resources to
the development, promotion, and sale of their products. We may not be able to
compete successfully against current and future competitors. In addition,
competitive pressures that we face may materially and adversely affect our
business, operating results, and financial condition.
We believe that the principal competitive factors affecting our customer markets
include product features such as adaptability, scalability, ability to integrate
with third party products, functionality, ease of use, product reputation,
quality, performance, price, customer service and support, effectiveness of
sales and marketing efforts, and company reputation. Although we believe that we
currently compete favorably with respect to these factors, there can be no
assurance that we will maintain our competitive position against current and
potential competitors, especially those with greater financial, marketing,
service, support, technical, and other resources. In addition, we believe that
our future financial performance will depend in large part on our success in
continuing to expand our product line of customer relationship management
solutions and in creating organizational awareness of the benefits associated
with purchasing these solutions from a dedicated vendor. The key factors which
we believe will help us compete favorably are:
- - Management - We have many years of management-level experience dealing with
a balance of small, medium and large organizations in the financial
services and software space; we also have established processes to ensure
that we can deliver quality software on time. We also have the
infrastructure in place to grow exponentially and can operate efficiently
under this expectation.
7
ITEM 1. BUSINESS (Continued)
- - Market leadership - We have established leadership in our market sector and
have set the benchmark for others to follow.
- - Technical - We have a very advanced product and knowledge base within our
engineering group, especially in the rich domain skills in the product and
in our "Center of Excellence" cross functionally trained personnel pool.
Software Development and Services
The Company produces and services its software products from its headquarters in
King of Prussia, Pennsylvania and offices in Minneapolis, Minnesota, and
maintains a field service organization that covers all areas of the nation. In
addition, SEDONA utilizes outside contract organizations as needed to supplement
its internal resources.
Employees
As of December 31, 2001, the Company had 39 full time employees. None of these
employees are represented by a labor union. The Company believes that its
relationships with its employees are good.
Dependence Upon Key Personnel
The Company is dependent upon certain key members of its management team for the
successful operation and development of its business. The loss of the services
of one or more of its management personnel could materially and adversely affect
the operation of the Company. In addition, in order to continue its operations,
the Company must attract and retain additional technically qualified personnel
with backgrounds in engineering, production, and marketing.
There is keen competition for such highly qualified personnel and consequently
there can be no assurance that the Company will be successful in recruiting or
retaining personnel of the requisite caliber or in the numbers necessary to
enable the Company to continue to conduct its business.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its corporate offices as well as principal facilities for
operations at 455 South Gulph Road, Suite 300, King of Prussia, Pennsylvania,
19406. The lease for this facility of 16,500 square feet commenced in November
2000 and extends until 2007. The Company also leases a 6,500 square foot
facility in Minneapolis, Minnesota, principally for development and professional
services personnel, which commenced in April 2000 and extends through October
2003.
Management believes that the current facilities are adequate for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS (In Thousands)
In March 1998, an action was commenced in the Court of Common Pleas of
Montgomery County, PA, against the Company by a former employee, seeking damages
of $361, principally for alleged termination of contract. This plaintiff asserts
this sum represents the excess of market value over the exercise price of
unvested warrants held by the plaintiff which the plaintiff asserts should have
been vested and thereby available for exercise and sale. The Company believes
this claim is without merit and is defending its position.
In June 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, management determined that the project had become infeasible due to
the lack of support by the vendor and its unwillingness to meet certain contract
commitments. The Company notified the vendor of its concerns on several
occasions and has concluded that it is not appropriate to continue to accrue
certain minimum payments under the contract. Should the dispute end unfavorably,
it would result in minimum royalty payments of $1,350 and $1,500 in 2002 and
2003, respectively. The Company continues to seek a final resolution by
negotiations with the vendor but has retained counsel to assist it in defending
its position. Management's assessment is that the Company has a meritorious
defense against any vendor claim in this regard.
No other 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
Market Price of and Dividends on the Company's Common Stock
The Common Stock is quoted on The Nasdaq SmallCap Market under the symbol
"SDNA."
The following table sets forth the high and low sales prices of the Company's
Common Stock as reflected on The Nasdaq SmallCap Market for the periods
indicated.
Common Stock High Sales Price Low Sales Price
2000
1st Quarter $ 10.25 $ 2.75
2nd Quarter $ 7.25 $ 2.41
3rd Quarter $ 3.69 $ 1.34
4th Quarter $ 1.84 $ 0.63
Common Stock High Sales Price Low Sales Price
2001
1st Quarter $ 1.94 $ 0.56
2nd Quarter $ 1.42 $ 0.69
3rd Quarter $ 1.05 $ 0.35
4th Quarter $ 1.05 $ 0.25
Common Stock High Sales Price Low Sales Price
2002
1st Quarter $ 0.94 $ 0.58
As of March 27, 2002, there were approximately 11,500 Shareholders of record. On
March 27, 2002 the last reported sale price of the Company's Common Stock as
reported on The Nasdaq SmallCap Market was $0.92.
The Company has never declared or paid cash dividends on its Common Stock and
does not anticipate payment of cash dividends on its Common Stock in the
foreseeable future. It is the current intent of the Company to continue to
retain any earnings to finance the development and expansion of its business.
Recent Sales of Unregistered Securities
In January 2001, the Company sold 1,538,462 shares of Common Stock to one
outside 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 to Ladenburg Thalmann & Co., Inc., as
placement agent in connection with this offering and issued a warrant to
purchase 107,692 shares of Common Stock at an exercise price of $0.72.
In April 2001, the Company sold to one outside investor 541,363 shares of Common
Stock for an aggregate price of $502. In connection with the issuance of this
Common Stock, 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.
9
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS. (continued)
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 the Company's 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 the Company's 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 $0.51 per share to a finder in connection with this offering.
During August 2001, the Company sold 600,000 shares of common 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 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. We paid an $23 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
10
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS. (continued)
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 $0.51 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 the Company's 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 the
Company's 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 $1.02 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 these investors if, within 60 days following the closing of their
investments, the Company issues any shares of its common stock at prices below
the price at which the investors purchased their shares. 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 close of
the fifth consecutive trading day on which the closing sales price of the
Company's 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 7% 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. The Company allocated a fair value of $32 to the warrants, which was
treated as a debt discount and an addition to additional paid in capital. 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. If not redeemed at maturity, these notes would become convertible into
shares of common stock at a price of $0.20 per share at the option of the
shareholder. At maturity, $100 of the aggregate $248 was paid off. The remaining
$148 became convertible into 740,000 shares of common stock. Upon maturity of
the note, the fair value of the Company's common stock was $0.67. Consequently,
the intrinsic value of the conversion feature, capped at the face amount of the
debt outstanding, or $148, was treated as a beneficial conversion feature and is
reflected as additional interest expense and additional paid in capital. The
$148 of notes remaining at December 31, 2001 is issued to our Chairman of the
Board.
In November 2001, the Company sold 250,000 shares of common stock and issued
four-year warrants to purchase 125,000 shares of common stock at an exercise
price of $0.75 per share to an investor in private placements for an aggregate
gross purchase price of $125. These shares may not be resold or otherwise
transferred until the shares are registered. The shares underlying the warrants
may not be resold or otherwise transferred until the effectiveness of a
registration statement registering the common stock underlying the warrants. The
Company paid a $6 sales commission to a finder in connection with this offering.
11
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS. (continued)
During November and December 2001, the Company sold 142,857 shares of common
stock and issued four-year warrants to purchase 71,429 shares of common stock at
exercise prices ranging from $0.84-$1.05 per share to four investors in a
private placement for an aggregate gross purchase price of $100. Additional
shares and warrants may be issued to these investors if, within 60 days
following closing of their investments, we issue any shares of our common stock
at prices below the price at which the investors purchased their shares. 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 close of the fifth consecutive trading day on which the closing
sales price of the Company's 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 $5 sales commission and issued warrants to purchase
7,143 shares of common stock at exercise prices ranging from $0.86 to $1.00 per
share to a finder in connection with this offering.
Also during November and December 2001, the Company sold 900,000 shares of
common stock and issued four-year warrants to purchase 450,000 shares of common
stock at exercise prices of $0.81-$0.99 per share to seven investors in private
placements for an aggregate gross purchase price of $450. Additional shares and
warrants may be issued to these investors if, within 60 days following the
closing of their investments, the Company issues any shares of our common stock
at prices below the price at which the investors purchased their shares. 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 close of the fifth consecutive trading day on which the closing
sales price of our common stock is at least $2.00 per share or is less than
$0.57 per share. The shares underlying the warrants may not be resold or
otherwise transferred until the effectiveness of a registration statement
registering the common stock underlying the warrants. The Company paid a $36
sales commission and issued warrants to purchase 37,800 shares of common stock
at exercise prices ranging from $0.74 to $0.99 per share to finders in
connection with this offering.
From January first through February 28, 2002, the Company sold 1,440,000 shares
of common stock and issued four-year warrants to purchase 720,000 shares of
common stock at exercise prices ranging from $0.75-$1.50 per share to seventeen
investors in private placements for an aggregate gross purchase price of $720.
Additional shares and warrants may be issued to these investors if, within 60
days following the closing of their investments, the Company issues any shares
of its common stock at prices below the price at which the investors purchased
their shares. These shares may generally 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 is at least $2.00 per
share. The shares underlying the warrants may generally 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 $41 sales
commission and issued warrants to purchase 91,350 shares of common stock at
exercise prices ranging from $0.75 to $0.93 per share to finders in connection
with this offering.
All of the securities issued in the preceding transactions were sold in reliance
upon Rule 506 of Regulation D involving only accredited investors.
12
ITEM 6. SELECTED FINANCIAL DATA (In Thousands Except Per Share Data)
The following table sets forth selected financial information regarding the
Company for the year ended December 31, 2001 and for the four previous years.
Pursuant to the realignment of operations conducted in 1999-2000, data in the
following table has been adjusted to show operating results for the discontinued
operations separately in the applicable years. Balance sheet data in the
following tabulation also reflects accounting for discontinued operations.
This information should be read in conjunction with the financial statements and
notes thereto included in Item 8 of this Form 10-K.
(In Thousands Except Per Share Data)
---------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------------
Income Statement Data 2001 2000 1999 1998 1997
Revenue $ 2,157 $ 1,787 $ 244 $ 15 $ 260
Loss from Continuing
Operations (10,434) (10,826) (3,264) (3,879) (5,301)
Gain (Loss) from Discontinued
Operations -- 144 (2,973) (1,633) (2,216)
Loss from Continuing and
Discontinued Operations
before extraordinary item (10,434) (10,682) (6,237) (5,512) (7,517)
Extraordinary item -- -- -- -- (300)
Net Loss (10,434) (10,682) (6,237) (5,512) (7,817)
Preferred Dividends 154 (889) (601) (1,592) (182)
Net Loss applicable
to Common Stockholders (10,280) (11,571) (6,838) (7,104) (7,999)
Net Loss per share applicable
to Common Stockholders
before Extraordinary Item $ (0.28) $ (0.42) $ (0.18) $ (0.28) $ (0.34)
Extraordinary Item
per share $ -- $ -- $ -- $ -- $ (0.02)
Basic and Diluted
Net Loss per Common Share
applicable to continuing
operations $ (0.28) $ (0.42) $ (0.18) $ (0.28) $ (0.36)
Loss per Common Share
applicable to discontinued
operations -- -- $ (0.13) $ (0.08) $ (0.13)
Loss per Common Share $ (0.28) $ (0.42) $ (0.31) $ (0.36) $ (0.49)
---------------------------------------------------------------------------------
AT DECEMBER 31,
---------------------------------------------------------------------------------
Balance Sheet Data 2001 2000 1999 1998 1997
Total Assets 3,786 8,468 2,204 4,435 4,403
Net Working Capital/(Deficit) (2,462) (989) 262 179 902
Long-Term Obligations 1,025 1,025 51 215 59
Stockholders' Equity/(Deficit) (302) 3,091 1,431 3,457 3,514
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Critical Accounting Policies
Revenue Recognition
The Company's software arrangements consist of a license fees, installation
services, and maintenance. The Company has established vendor specific objective
evidence (VSOE) of fair value for its maintenance contracts based on the price
of renewals of existing maintenance contracts. The remaining value of the
software arrangement is allocated to license fee and professional services based
on contractual terms agreed upon bv the customer and based on Company-maintained
list prices.
Product License Revenue
Revenues from the sale of product licenses are recognized upon delivery and
acceptance of the software when persuasive evidence of an arrangement exists,
collection is probable, and the fee is fixed or determinable. Although the
Company's software product can be implemented on our customer's systems without
significant alterations to the features and the functionality of the software,
or without significant interfacing, the Company's license agreements are written
so that formal written acceptance of the product is received when installation
is complete. Therefore, the timing of license fee revenue recognition coincides
with the completion of the installation and the customer has accepted the
software. Software installation is usually completed very shortly (e.g. less
than 3 months) after the signing of the contract.
Services Revenue
Service revenue includes professional services (primarily installation and
training services) and maintenance revenue over periods not exceeding one year.
Installation service revenue, which consist of implementation planning, loading
of software, data conversion, mapping customer data and running test data, is
accounted for as a separate element of a software arrangement. Additionally, in
certain circumstances, we may partner with third parties to implement our
software. In those instances, the contractual fee for professional services and
may be paid directly from the customer to the third party, and we recognize the
license fee revenue component upon installation and acceptance by the customer.
o 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.
o Maintenance revenue is recognized ratably over the life of the related
contract. We establish the value of maintenance revenue based on the
price quoted and received for renewals of existing maintenance
contracts.
Software Development Costs
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." All costs incurred in the
research and development of new software products are expensed as incurred until
technological feasibility has been established. The costs incurred for testing
and coding of the new software products are capitalized. Amortization of such
costs is the greater of the amount capitalized using (a) the ratio that current
gross revenues for a product bear to the total of current and anticipated future
gross revenues of that product or (b) the straight-line method over the
remaining estimated economic life of the product not to exceed three years.
Amortization commences when the product is available for general release to
customers. The company capitalizes costs related to purchased software used for
developmental purposes and amortizes such value over three years consistent with
the amortization and capitalization policy discussed above related to
capitalized software costs.
The Company periodically reviews for impairment the carrying value of both
internally developed and purchased software costs. The Company will record an
impairment in its operating results if the carrying value exceeds the future
estimated undiscounted cash flows of the related assets.
Results of Operations (In Thousands)
Revenues
Revenues from continuing operations for the years ended December 31, 2001, 2000
and 1999 were $2,157, $1,787, and $244 respectively.
Net revenue increased to $2,157 for the year ended December 31, 2001, from
$1,787 for the year ended December 31, 2000. The growth in revenues was
primarily due to growth in installation and maintenance services revenues as
well as license fee revenue from the sale of new units of Intarsia(TM).
Net revenue increased to $1,787 for the year ended December 31, 2000, from $244
for the year ended December 31, 1999. The growth in revenues was primarily due
to acquisition of the CIMS software business from Acxiom Corporation in April
2000 as well as sale of new units of software product made by SEDONA after the
acquisition.
Cost of Revenues
Total cost of revenues increased to $3,995 for the year ended December 31, 2001
from $2,896 for the year ended December 31, 2000, reflecting principally the
write off of $1,232 of certain capitalized software development costs associated
with the acquisition of a software business in the year 2000. Total cost of
revenues increased to $2,896 for the year ended December 31, 2000 from $204 for
the year ended December 31, 1999, reflecting principally the acquisition of the
CIMS business. Other items included in costs of revenues are amortization of
capitalized software, commissions on software sales, costs associated with
implementation services.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Operating Expenses
Total operating expenses decreased to $7,638 in the year ended December 31, 2001
from $9,610 in the year ended December 31, 2000, reflecting cost control
measures, principally from two reductions in force in February and September
which reduced the full time employee count from 66 at the end of 2000 to 39 at
the end of 2001. Included in 2001 operating expenses were $373 of costs
associated with this reduction in workforce and the write-off of an investment
in ZipFinancial.com of $475. Total operating expenses increased to $9,610 in the
year ended December 31, 2000 from $3,349 in the same period a year earlier,
reflecting the addition of staffing from the CIMS acquisition as well as
infrastructure development in the areas of sales and marketing expenses.
Other Expenses
Other expense in the year ended December 31, 2001 increased to $958 from $107 in
the year ended December 31, 2000, reflecting principally higher financing costs.
Other expense in the year ended December 31, 2000 increased to $107, compared to
income of $45 in the same period a year earlier, reflecting increases in
financial costs.
Liquidity and Capital Resources (In Thousands Except Per Share and Share Data)
At December 31, 2001, cash and cash equivalents were $103, a $2,086 decrease
from the December 31, 2000 amount of $2,189. The above change in cash and cash
equivalents are explained in the discussion of cash flows from operating,
investing and financing activities.
For the year ended December 31, 2001, the cash flows used in operating
activities resulted in a net use of cash of $4,663, compared to the year ended
December 31, 2000 amount of $8,460. The decrease in use of cash for operating
activities in 2001 was primarily due to reductions in force and other operating
expenses.
For the year ended December 31, 2001 the cash flows from investing activities
resulted in a net use of cash of $1,698 compared to the year ended December 31,
2000 amount of $2,599. The use of cash in 2001 decreased $901 principally due to
lower capitalized software development costs.
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.
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
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
in certain product categories, management prioritized where marketing and future
development dollars would be spent. Since revenues were significantly less in
the purchased software acquired in the CIMS acquisition, management decided to
re-focus its available resources and develop and market newer technology.
Therefore, the expected future level of revenues from the majority of the
acquired CIMS products is not expected to materialize because, although still
maintained for those customers that have not upgraded to Intarsia, the CIMS
products will no longer be marketed to new customers. As a result, the Company
wrote-off $1,232 of capitalized and purchased software. The Company does not
believe that the impact of the write-off of purchased software will be
significant to future operations because its latest product, Intarsia, has begun
to gain market acceptance during the 1st quarter of 2002.
The decision as to whether an impairment charge should be recorded for
capitalized software should be taken is based in large part by management's
estimates of future revenues related to each product capitalized. To the extent
that future expected revenues are not realized sufficiently to justify the value
of the capitalized software recorded, an additional impairment charge may be
required.
For the year ended December 31, 2001, cash flows from financing activities
provided $4,275 compared to the year ended December 31, 2000 amount of $12,355.
The decrease in cash from financing activities in 2001 was due principally to
the lack of warrant and option exercises as well as the lower proceeds from
issuances of Company securities. See Item 5, "Recent Sales of Unregistered
Securities" for a complete description of financing transactions that occurred
during the year.
The Company believes that it can generate funds from operations and additional
sales of securities which will be sufficient to meet the Company's working
capital requirements for 2002. The Company has incurred substantial losses from
continuing operations of approximately $10,434 and $10,826 during the years
ended December 31, 2001 and 2000, respectively. Losses from operations are
continuing in 2002 and the Company may require additional financing in 2002,
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; maintaining leadership of its application, and seeking additional debt
or equity financing while continuing aggressively to control costs as was
demonstrated in 2001. 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 annual financial statements.
On January 28, 2002, the Company announced preliminary results for 2001 and also
indicated that it expected to be cash flow positive in the first quarter of
2002, guidance that the Company has now modified. While significant progress has
been made in the first quarter of 2002 in achieving the Company's target of
positive cash flow based on growth in sales and control of costs, this target is
now not expected to be met primarily as a result of the uncertainty in the
timing of cash receipts from several major contracts.
Obligations and Commitments
The Company has various short term (within 12 months) and long term (greater
than 12 months) contractual and trade obligations. Below summarizes the timing
of such obligations.
Additionally, as described below, the Company has a dispute with a software
vendor that, should the dispute end unfavorably, would result in minimum royalty
payments of $1,350 in 2002 and $1.5 million in 2003.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
2002 2003 2004 2005 Thereafter
--------------------------------------------------------
Accounts Payable & Accrued Expenses 1,546 -- -- -- --
Short Term Debt 953 -- -- -- --
Long Term Debt 75 1,014 13 -- --
Operating Lease Obligations 594 577 536 531 949
--------------------------------------------------------
Total 3,168 1,591 549 531 949
--------------------------------------------------------
In June 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, management determined that the project had become infeasible due to
the lack of support by the vendor and its unwillingness to meet certain contract
commitments. The Company has notified the vendor of its concerns on several
occasions and has concluded that it is not appropriate to continue to accrue
certain minimum payments under the contract. The Company continues to seek a
final resolution by negotiations with the vendor but has retained counsel to
assist it in defending its position. Management's assessment is that the Company
has a meritorious defense against any vendor claim in this regard.
Subsequent Events
In February, 2002, SEDONA announced that it has entered into an agreement with
Sanchez Computer, a global leader in developing and marketing scalable and
integrated software and services solutions for financial institutions, to
license, integrate and private-label SEDONA's entire Intarsia(TM) software
solution.
On November 22, 2000, the Company issued a $3,000 private placement Debenture
convertible into its Common Stock. The net proceeds were approximately $2,320,
of which $2,246 was used to redeem the outstanding shares of the Series G
convertible preferred stock with the remaining net proceeds used for working
capital purposes. On March 22, 2001, the Company obtained an extension until
April 22, 2001, related to this Convertible Debenture and on April 30, 2001 a
further extension agreement was negotiated which extended maturity until January
2002. In February, 2002, a restructuring agreement was finalized which retired
this Debenture in its entirety by allowing for conversion of $400 in principal
and payoff of accrued interest and remaining principal of $399 by cash payment
of $50 at closing, and a promissory note of $349 payable in installments over
the following 7 months to retire the remainder.
In March, 2002, the Company entered into an agreement to purchase substantially
all of the assets of Lead Factory, Inc. for a combination of warrants and cash.
Lead Factory, a Boston-based company which designs, builds, and markets computer
software and services to aid sales and marketing persons with customer
prospecting, initially became a partner in 2000 when the Company acquired a 10%
equity interest, which interest the Company has subsequently fully reserved.
Lead Factory was founded by the Chief Marketing Officer of the Company and its
product has been integrated with SEDONA's Intarsia(TM) and is provided as an
additional component or may be sold as a separate application by SEDONA to its
customer base. This purchase agreement supercedes all earlier agreements with
Lead Factory.
Inflation
Although inflation has resulted in an increase in certain operating costs during
the past three years, management believes it has not had a material effect on
the Company's results of operations or financial condition.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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 years ended December 31, 2001 and 2000, 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. See Notes
5 and 6 to the financial statements for additional information with respect to
the Company's long-term debt and convertible preferred stock.
Impact of Pending Accounting Pronouncements
At the present time, the Company is not aware of any pending accounting
pronouncements that would have a material impact on the Company's financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
See "Financial Risk Management" in Item 7, "Management's
Discussion and Analysis".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index on F-1.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
18
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES OF THE REGISTRANT
The following table sets forth-certain information regarding the directors,
executive officers and key employees of the Company.
Name Age Position
- ---- --- --------
Directors and
Executive Officers
Laurence L. Osterwise 54 Chairman of the Board
R. Barry Borden 62 Vice Chairman of the Board
Marco A. Emrich 49 CEO, President and Director
Michael A. Mulshine 62 Secretary and Director
Jack Pellicci 63 Director
James C. Sargent 86 Director
Robert M. Shapiro 56 Director
James T. Womble 58 Director
William K. Williams 60 Vice President, Chief Financial Officer
Key Employees
Alyssa S. Dver 37 Vice President, Chief Marketing Officer
Michael Crofts 47 Vice President, Sales
Robert Griffin 55 Vice President, Strategic Alliances and
Partnerships
Timothy A. Rimlinger 38 Vice President, Engineering
All Directors hold office until the next Annual Meeting of the Shareholders of
the Company and until their successors are elected and qualified.
All officers serve at the discretion of the Board of Directors subject to the
terms of their employment agreements.
The business experience, principal occupation and employment of the directors
and executive officers have been as follows:
Laurence L. Osterwise was appointed Chairman of the Board in September 1999,
after having been Chief Executive Officer, President and a Director of the
Company since April 1997. Mr. Osterwise came to the Company in November 1996 as
its Chief Operating Officer and President of SEDONA GeoServices, Inc., a
subsidiary. Before joining the Company, he was President of the Communications
Division of General Instrument Corporation, now a division of Motorola. Prior to
joining General Instrument, Mr. Osterwise was with IBM Corporation for 25 years,
where he held positions as President of Production Industries, U.S. Vice
President and Corporate Director of Market Driven Quality, and IBM Rochester
General Manager and Director of Application Business Systems. Under his
leadership, IBM Rochester was awarded the Malcomb Baldridge National Quality
Award. Mr. Osterwise received a BS in Mathematics from Duke University in 1969
and an MS in Computer Sciences from Syracuse University in 1973.
19
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES OF THE REGISTRANT
(continued)
R. Barry Borden, Vice Chairman of the Board since September 1999, was Chairman
from June 1998 to September 1999 and has been a Director of the Company since
June 1996. He has founded and managed businesses in the computer hardware and
software industry for the past 30 years. He currently serves as President of LMA
Group, a management consulting firm he founded in 1984. He also serves as
Executive Chairman of TradeAccess Corporation of Boston, MA, a supplier of
enterprise software.
From 1997 until 2001, Mr. Borden served as President of Broadbeam Corporation of
Princeton, NJ, a supplier of software for wireless data communications. Prior to
that he served as Chairman and CEO of Mergent International, a supplier of
software for data security on PC desktops and enterprise wide networks. Mr.
Borden also serves on the Board of Directors of FASTNET Corporation, an Internet
service provider, and AM Communications, a provider of technology for managing
and monitoring of broadband systems. From 1968 to 1980, Mr. Borden was the
founder, President and CEO of Delta Data Systems, a CRT Terminal manufacturer,
and from 1981 to 1984 he was founder, Chairman and CEO of Franklin Computer
Corp., a manufacturer of microcomputers. In 1989, he served as President and CEO
of Cricket Software, Inc., a supplier of graphics software. Mr. Borden received
a BSEE degree from the University of Pennsylvania in 1961.
Marco A. Emrich has been Chief Executive Officer, President and a Director of
the Company since September 1999. He has over 20 years of software industry
experience. Most recently, he served as President and CEO of Cambridge-based
e-commerce application service provider Empresa Inc. Prior to joining Empresa
Inc., Mr. Emrich was President, CEO and Chairman of CenterLine Software, Inc.,
where he created and launched a web-based application that enables businesses to
monitor, manage and report on network-centric or multi-tier distributed business
applications. Prior to CenterLine, he held positions as Senior Director of
Cincom Systems, Inc.'s Advanced Technology Group and Manager of NAS Information
Network Technology Group at Digital Equipment Corporation. Mr. Emrich holds a
Bachelor's degree in Electrical Engineering with specialization in Systems
Engineering from Pontifical Catholic University of Rio De Janeiro, Brazil.
Michael A. Mulshine has been a Director and Secretary of the Company since May
1985 and has been associated with the Company on a management consulting basis
since 1979. He has been the President of Osprey Partners, a management
consulting firm, since 1977. In addition, he is a Director of VASCO Data
Security International, Inc., a global provider of enterprise-wide security
solutions that support e-business and e-commerce. Mr. Mulshine received a BSEE
degree from Newark College of Engineering in 1961.
Jack A. Pellicci, a Director of the Company since October 1996, is Group Vice
President of Oracle Service Industries where he leads the Global Business
Development Group. He is responsible for generating new business for six
industries: Public Sector, Financial Services, Communications, Utilities, Health
and Higher Education in over 140 countries. Prior to joining Oracle in 1992, Mr.
Pellicci retired as a Brigadier General with 30 years in the U.S. Army, where he
was the Commanding General of the Personnel Information Systems Command. Mr.
Pellicci is a member of the Board of Directors of the Open Geospatial Consortium
(OGC), a worldwide organization leading the initiative for interoperability of
geospatial information and location based services. He serves as a Director on
the Boards of the Fairfax County Chamber of Commerce, the United Services
Organization (USO) and is a corporate fellow of the National Governors
Association. He also serves on the Board of Directors of eShare Communications,
a leading provider of electronic Customer Relationship Management (eCRM)
collaboration solutions. He is a graduate of the U.S. Military Academy at West
Point with a Bachelor of Engineering degree, and received a Master of Mechanical
Engineering degree from Georgia Institute of Technology. He is also a member of
the Board of Directors of OGETA Services, the Fairfax County Chamber of Commerce
and the United Services Organization (USO). He currently serves as a Corporate
Fellow for the National Governors Association.
20
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES OF THE REGISTRANT
(continued)
James C. Sargent, a Director of the Company since January 1992, was Counsel to
the law firm of Opton, Handler, Gottlieb, Fieler & Katz, and was counsel to Abel
Noser Corporation, a member of the New York Stock Exchange. He was previously a
partner and counsel to Whitman Breed Abbott & Morgan, LLP, now Winston and
Strawn. He was New York Regional Administrator from 1955 to 1956, and
Commissioner of the Securities and Exchange Commission from 1956 to 1960.
Robert M. Shapiro, a Director of the Company since November 1998, is Vice
President of Global Sales and Business Development for Autoweb.com, a major
online automotive retailer. From 1995 to 1997 Mr. Shapiro was Senior Vice
President of R. L. Polk & Company, a privately owned $400 million global
information services company, where he directed worldwide marketing, product
management, and business development activities for all software products sold
to the transportation, insurance, finance, retail, fundraising, and publishing
industries. Prior to joining R. L. Polk, Mr. Shapiro was Senior Vice President,
Commercial Marketing for Prodigy, where he created the first commercially viable
interactive service including product positioning and branding. He is noted as a
pioneer in building online business-to-consumer commercial sites. Prior to
joining Prodigy, Mr. Shapiro gained his early marketing and sales experience
during seventeen years with IBM Corporation and Proctor & Gamble. Mr. Shapiro
served on the Board of Directors of Blackburn Polk Marketing Services of Canada,
and Carfax, USA. He received his BA degree from the University of San Diego in
1967.
James T. Womble, a Director of the Company since April 1999, has been a Director
of Acxiom Corporation since 1975, and is Division Leader of its Services
Division. This Division has locations in Conway and Little Rock, Arkansas,
Chicago, Atlanta, and Memphis and manages relationships around the world with
Acxiom's clients in the credit card, retail banking and retail industries. Prior
to joining Acxiom, Mr. Womble worked for IBM as a systems engineer and marketing
representative. He holds a degree in civil engineering from the University of
Arkansas.
William K. Williams was appointed Vice President and Chief Financial Officer in
April 1998. Prior to his joining the Company, Mr. Williams worked as an
independent financial consultant with emerging growth companies, served as Vice
President of Business Development for a Fortune 500 company and held various
financial management positions at DuPont, including four years as Director of
Finance for Japan operations. Mr. Williams joined DuPont upon earning an MBA
degree in Finance at the University of Maryland.
Alyssa Dver was appointed Vice President and Chief Marketing Officer upon
joining the Company in April 2000. Ms. Dver founded Lead Factory, Inc., a
Boston-based start-up for web-based lead tracking solutions. Prior to founding
Lead Factory, she was Vice President of Marketing and Customer Care for Empresa,
Inc., a company delivering electronic commerce solutions for financial services
and e-tailing organizations. She previously held senior management positions at
CenterLine Software, Cincom Systems and Digital Equipment Corporation. She has a
B.S. degree in Economics from The Wharton School, University of Pennsylvania.
Michael Crofts was appointed Vice President of Sales in February 2001 and has
more than 14 years of experience in the banking software industry, having joined
SEDONA in March 1999. Prior to joining SEDONA, he was Vice President at The John
H. Harland Company, where he sold database marketing software and direct
marketing consulting services in the southwest United States and Canada. Mr.
Crofts was also Managing Director for Latin America at Olivetti North America,
where he restructured and managed a bank branch automation software distribution
network throughout Latin America and the Caribbean. He holds a Juris Doctor from
Gonzaga University School of Law and a Bachelor of Arts from the University of
Idaho.
Robert Griffin joined SEDONA in 1997 and was appointed Vice President of
Strategic Alliances and Partnerships in February 2001. In that role, he is
responsible for developing and leveraging partnerships, which create new
marketing and sales distribution channels for SEDONA's CRM solution. Prior to
joining SEDONA, he worked 28 years at IBM Corporation, where he directed a
variety of aspects of marketing and sales, including market and brand
management, business partner recruiting and support, and field sales management.
21
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES OF THE REGISTRANT
(continued)
Mr. Griffin achieved widespread recognition for his work in introducing the
first and second generation of AS/400 systems to the worldwide marketplace. Mr.
Griffin attended DePaul University and the University of Iowa and majored in
Finance and Pre-Law.
Timothy Rimlinger was appointed Vice President of Engineering in July 2000 and
is responsible for the design, implementation and delivery of all SEDONA's
products. He served as Director of Technology Development since joining the
Company in January 1996. Before joining the Company, he was Senior Development
Engineer at Lockheed Martin. Prior to that, he was Senior Development Engineer
for GE Aerospace. He received his BS degree in Electrical Engineering from
Pennsylvania State University and his MS in Electrical Engineering from
Villanova University.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the
information under the caption "Compensation of Executive Officers and Directors"
in the Company's definitive proxy statement for the 2002 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
information under the caption "Security Ownership of Management and Certain
Beneficial Owners" in the Company's proxy statement for the 2002 Annual Meeting
of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
information under the caption "Certain Relationships and Related Transactions"
in the Company's proxy statement for the 2000 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item 14(a) 1 and 2 Financial Statements and Schedules.
See "Index to Financial Statements and Schedule" on F-1.
(b) Reports on Form 8-K
October 4, 2001
September 19, 2001
September 4, 2001
June 15, 2001
(c) Exhibits
The following is a list of exhibits filed as part of this Annual Report
on Form 10-K. Where indicated by footnote, exhibits which have been previously
filed are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parenthesis.
1.1 Placement Agent Agreement with Ladenburg Thalmann & Co., Inc., dated
January 24, 2000 (1) (Exhibit 1.1)
1.2 Amendment dated March 8, 2000 to Placement Agent Agreement with
Ladenburg Thalmann & Co., Inc. (1) (Exhibit 1.2)
3.1 Articles of Incorporation (2) (Exhibit 3.1)
3.2 Bylaws (2) (Exhibit 3.2)
3.3 Amendment to Articles of Incorporation (3)
22
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(continued)
4.1 Statement of Designation of Class A, Series F Convertible Preferred
Stock (4) (Exhibit 4.0)
4.2 Certificate of Designations, Preferences and Rights of Class A, Series
H Preferred Stock (5) (Exhibit 4.1)
4.3 5% Convertible Debenture due March 22, 2001 (8) (Exhibit 99.3)
10.1 Series F Convertible Preferred Stock and Warrants Purchase Agreement,
dated May 24, 1999, by and between the Company, Oscar Tang,
individually, and The Tang Fund (6) (Exhibit 4.0)
10.12 Convertible Debentures and Warrants Purchase Agreement, dated November
22, 2000 (7) (Exhibit 99.2)
10.13 Commitment Warrant, dated November 22, 2000 (7) (Exhibit 99.4)
10.14 Additional Warrant, dated November 22, 2000 (7) (Exhibit 99.5)
10.15 Warrant issued to Ladenburg Thalmann & Co., Inc., dated November 22,
2000 (7) (Exhibit 99.6)
10.19 Stock Purchase Agreement between AMRO International S.A. and the
Company, dated January 23, 2001 (8) (Exhibit 10.19)
10.20 Stock Purchase Warrant issued to AMRO International S.A., dated January
23, 2001 (8) (Exhibit 10.20)
10.21 Warrant issued to Ladenburg Thalmann & Co., Inc., dated January 23,
2001 (8) (Exhibit 10.21)
10.22 Lease between Teachers Insurance and Annuity Association and the
Company (9) (Exhibit 99.1)
10.25# 2000 Incentive Stock Plan (10) (Appendix A)
10.26# 2000 Employee Stock Purchase Plan (10) (Appendix B)
10.27# Employment Agreement, dated September 15, 1999, between the Company and
Marco A. Emrich (11) (Exhibit 10.1)
10.28# Employment Agreement, dated January 1, 2000, between the Company and
William K. Williams (8) (Exhibit 10.28)
10.30 Shareholder/Investor Relations Compensation Agreement between the
Company and Osprey Partners, dated January 3, 1997, with amendments
dated January 27, 2000 and December 13, 2000 (14) (Exhibit 10.30)
10.31 Finder's Fee Agreement between the Company and Osprey Partners, dated
February 24, 1999 (8) (Exhibit 10.31)
10.32 Disbursement Agreement between the Company and ZipFinancial.com, Inc.
dated December 29, 2000. (8) (Exhibit 10.32)
10.33 Promissory Note payable to the Company by ZipFinancial.com, Inc. dated
December 29, 2000. (8) (Exhibit 10.34)
10.32 Security Agreement between the Company and ZipFinancial.com, Inc. dated
December 29, 2000. (8) (Exhibit 10.32)
10.35 Warrant issed to Acxiom Corporation Dated April 4, 2001 (8) (Exhibit
10.35)
10.36 Form of Common stock and Warrants Purchase Agreements used in August
2001 to February 2002 private placements by and among the Company and
the investors signatory thereto. (12) (Exhibit 10.1)
10.37 Form of Registration Rights Agreements used in August 2001 to February
2002 private placements by and among the Company and the investors
signatory thereto. (12) (Exhibit 10.2)
23
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
10.38 Form of Notes dated September and October 2001 by and among the Company
and investors signatory thereto. (12) (Exhibit 10.3)
10.38 Form of Warrants issued to investors used in August 2001 to February
2002 private sales of common stock and notes. (12) (Exhibit 10.4)
10.39* Agreement and related Promissory Note dated February 14, 2002 related
to retirement of November 2000 Convertible Debentures and Warrants.
10.40* Agreement for purchase of assets of Lead Factory, Inc. dated March 29,
2002.
23.1* Consent of Ernst & Young, LLP
24.1 Power of attorney (included on the signature page to this Form 10-K)
* Filed herewith.
# Executive Compensation Plans and Arrangements.
(1) Filed as an Exhibit to the Registration Statement on Form S-3, filed
May 23, 2000 (File No. 333-37678).
(2) Filed as an Exhibit to the Company's Current report on Form 8-K, dated
June 15, 1992.
(3) Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
(4) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1999.
(5) Filed as an Exhibit to the Registration Statement on Form S-3 filed
June 5, 2000 (File No. 333-38578).
(6) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1999.
(7) Filed as an Exhibit to the Current Report on Form 8-K filed November
28, 2000.
(8) Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
(9) Filed as an Exhibit to the Current Report on Form 8-K filed August 31,
2000.
(10) Filed as an Appendix to the Company's Definitive Proxy Statement for
the 2000 Annual Meeting of Shareholders filed May 17, 2000.
(11) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1999.
(12) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2001.
25
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SEDONA CORPORATION
April 1, 2002 /S/ Marco A. Emrich
- ---------------- -------------------------------------
DATE Marco A. Emrich
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, in
the capacities and on the dates indicated.
Each person in so signing also makes and constitutes Laurence L. Osterwise,
Chairman of the Board of Directors, his true and lawful attorney-in-fact, in his
name, place and stead, to execute and caused to be filed with the Securities and
Exchange Commission, any or all amendments to this report.
Signatures
- ----------
BY /S/ Laurence L. Osterwise Date April 1, 2002
----------------------------------------- ---------------------
Chairman of the Board of Directors
BY /S/ R. Barry Borden Date April 1, 2002
----------------------------------------- ---------------------
R. Barry Borden
Vice Chairman of the Board of Directors
BY /S/ Marco A. Emrich Date April 1,2002
----------------------------------------- ---------------------
Chief Executive Officer and President
BY /S/ William K. Williams Date April 1, 2002
----------------------------------------- ---------------------
Chief Financial Officer and Vice President
Principal Financial and Accounting Officer
BY /S/ Michael A. Mulshine Date April 1, 2002
----------------------------------------- ---------------------
Michael A. Mulshine
Director and Secretary
BY /S/ Jack Pellicci Date April 1, 2002
----------------------------------------- ---------------------
Jack Pellicci
Director
BY /S/ James C. Sargent Date April 1, 2002
----------------------------------------- ---------------------
James C. Sargent
Director
BY /S/ Robert M. Shapiro Date April 1, 2002
----------------------------------------- ---------------------
Robert M. Shapiro
Director
BY /S/ James T. Womble Date April 1, 2002
----------------------------------------- ---------------------
James T. Womble
Director
26
Index to Financial Statements and Schedule
Contents
Report of Independent Auditors.............................................F-2
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2001 and 2000..............F-3
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 2001....................F-4
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended December 31, 2001....................F-5
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 2001....................F-8
Notes to Consolidated Financial Statements.................................F-9
All other schedules have been omitted because they are inapplicable, not
required, or the required information is included elsewhere in the financial
statements and notes thereto.
F-1
Report of Independent Auditors
Board of Directors and Stockholders
SEDONA Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of SEDONA
Corporation and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform our
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of SEDONA
Corporation and subsidiaries at December 31, 2001 and December 31, 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that SEDONA
Corporation will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has incurred substantial
operating losses, has negative working capital and stockholders' equity and
anticipates that it will require additional debt and/or equity financing in
2002, which may not be readily available. These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
relating to these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Ernst & Young LLP
March 28, 2002
Philadelphia, Pennsylvania
F-2
SEDONA Corporation and Subsidiaries
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
December 31,
2001 2000
--------------- ---------------
Assets
Current assets:
Cash and cash equivalents $ 103 $ 2,189
Restricted cash 2 105
Accounts receivable, net of allowance for doubtful accounts of $49 and $102 331 566
Prepaid expenses and other current assets 165 503
--------------- ---------------
Total current assets 601 3,363
Property and equipment, net of accumulated depreciation and amortization 521 733
Restricted cash 287 383
Software development costs, net of accumulated amortization of $1,650 and $692 2,353 2,299
Purchased software, net -- 1,660
Non-current assets - other 24 30
--------------- ---------------
Total non-current assets 3,185 5,105
--------------- ---------------
Total assets 3,786 8,468
=============== ===============
Liabilities and stockholders' equity Current liabilities:
Accounts payable 1,099 602
Accrued expenses and other current liabilities 447 304
Dividend payable -- 184
Deferred revenue 509 562
Note payable to related party 148 --
Current maturities of long-term debt 55 37
Short-term debt - debenture 805 2,663
--------------- ---------------
Total current liabilities 3,063 4,352
Long-term debt, less current maturities 1,025 1,025
--------------- ---------------
Total long-term liabilities 1,025 1,025
--------------- ---------------
Total liabilities 4,088 5,377
Stockholders' equity:
Class A convertible preferred stock
Authorized shares - 1,000,000 (liquidation preference $3,280)
Series A, par value $2.00, Issued and outstanding - 500,000 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 - 41,362,561
and 31,225,442 in 2001 and 2000, respectively 41 31
Additional paid-in-capital 52,839 45,808
Accumulated deficit (54,187) (43,753)
--------------- ---------------
Total stockholders' equity (302) 3,091
--------------- ---------------
Total liabilities and stockholders' equity $ 3,786 $ 8,468
=============== ===============
See accompanying notes
F-3
SEDONA Corporation and Subsidiaries
Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Data)
For year-ended December 31,
-------------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
Revenues:
Product licenses $ 645 $ 700 $-
Services 1,512 1,087 244
--------------- --------------- ---------------
Total revenues 2,157 1,787 244
Cost of revenues
Product licenses 1,544 1,129 --
Services 1,219 1,767 --
Write-off of purchased software 1,232 -- --
--------------- --------------- ---------------
Total cost of revenues 3,995 2,896 204
--------------- --------------- ---------------
Gross profit (loss) (1,838) (1,109) 40
Expenses:
General and administrative 3,408 3,894 2,084
Sales and marketing 3,372 5,258 919
Charge for note receivable 475 -- --
Research and development 383 458 346
--------------- --------------- ---------------
Total operating expenses 7,638 9,610 3,349
--------------- --------------- ---------------
Income/(loss) from operations (9,476) (10,719) (3,309)
Other income (expense):
Interest income 54 245 80
Interest expense (1,012) (359) (35)
Other -- 7 --
--------------- --------------- ---------------
Total other income (expense) (958) (107) 45
--------------- --------------- ---------------
Loss from continuing operations before
provision for income taxes (10,434) (10,826) (3,264)
Income taxes -- -- --
--------------- --------------- ---------------
Loss from continuing operations (10,434) (10,826) (3,264)
Income /(loss) from discontinued operations -- 144 (2,973)
--------------- --------------- ---------------
Loss from continuing and discontinued
operations (10,434) (10,682) (6,237)
Preferred stock dividends 154 (889) (601)
--------------- --------------- ---------------
Loss applicable to Common Stockholders $ (10,280) $ (11,571) $ (6,838)
=============== =============== ===============
Basic and diluted net loss per share from continuing operations
applicable to common shares
$ (0.28) $ (0.42) $ (0.18)
Basic and diluted net loss per share from
discontinued operations applicable to
common shares $ -- $ -- $ (0.13)
--------------- --------------- ---------------
Basic and diluted loss per share $ (0.28) $ (0.42) $ (0.31)
Basic and diluted weighted average common shares outstanding 36,838,317 27,680,785 22,307,342
=============== =============== ===============
See accompanying notes
F-4
SEDONA Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
Class A Preferred
---------------------------------------------------------
Stock Series A Stock Series B
--------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Balance, December 31, 1998 500,000 $ 1,000 -- --
Stock warrants/options issued for consulting services -- -- -- --
Issuance of preferred stock -- -- 1,000 $ 2
Redemption on preferred stock with cash -- -- -- --
Conversion of preferred stock into Common Stock -- -- -- --
Exercise of Common Stock options -- -- -- --
Exercise of Common Stock warrants -- -- -- --
Issuance of Common Stock -- -- -- --
Expenses incurred related to issuance of preferred stock -- -- -- --
Expenses incurred related to issuance of Common Stock -- -- -- --
Preferred stock dividends -- -- -- --
Net loss, year ended December 31, 1999 -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1999 500,000 1,000 1,000 2
------------ ------------ ------------ ------------
Stock warrants/options issued for consulting services -- -- -- --
Issuance of preferred stock -- -- -- --
Redemption of preferred stock with cash -- -- -- --
Conversion of preferred stock into Common Stock -- -- (1,000) (2)
Exercise of Common Stock options -- -- -- --
Exercise of Common Stock warrants -- -- -- --
Issuance of Common Stock -- -- -- --
Expenses incurred related to issuance of preferred stock -- -- -- --
Expenses incurred related to issuance of Common Stock -- -- -- --
Preferred stock dividends -- -- -- --
Net loss, year ended December 31, 2000 -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 2000 500,000 1,000 -- --
------------ ------------ ------------ ------------
Stock warrants/options issued for consulting services -- -- -- --
Warrants issued in conjunction with debenture issue -- -- -- --
Conversion of debenture into Common Stock -- -- -- --
Exercise of Common Stock warrants -- -- -- --
Issuance of Common Stock -- -- -- --
Common Stock issued for employee stock purchase plan -- -- -- --
Expenses incurred related to issuance of Common Stock -- -- -- --
Preferred stock dividends -- -- -- --
Net loss, year ended December 31, 2001 -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 2001 500,000 $ 1,000 -- $ --
============ ============ ============ ============
Class A Preferred
---------------------------
Stock Series E
---------------------------
Shares Amount
------------ ------------
Balance, December 31, 1998 4,347 $ 4,347
Stock warrants/options issued for consulting services -- --
Issuance of preferred stock -- --
Redemption on preferred stock with cash -2,313 -2,313
Conversion of preferred stock into Common Stock -2,034 -2,034
Exercise of Common Stock options -- --
Exercise of Common Stock warrants -- --
Issuance of Common Stock -- --
Expenses incurred related to issuance of preferred stock -- --
Expenses incurred related to issuance of Common Stock -- --
Preferred stock dividends -- --
Net loss, year ended December 31, 1999 -- --
------------ ------------
Balance, December 31, 1999 -- --
------------ ------------
Stock warrants/options issued for consulting services -- --
Issuance of preferred stock -- --
Redemption of preferred stock with cash -- --
Conversion of preferred stock into Common Stock -- --
Exercise of Common Stock options -- --
Exercise of Common Stock warrants -- --
Issuance of Common Stock -- --
Expenses incurred related to issuance of preferred stock -- --
Expenses incurred related to issuance of Common Stock -- --
Preferred stock dividends -- --
Net loss, year ended December 31, 2000 -- --
------------ ------------
Balance, December 31, 2000 -- --
------------ ------------
Stock warrants/options issued for consulting services -- --
Warrants issued in conjunction with debenture issue -- --
Conversion of debenture into Common Stock -- --
Exercise of Common Stock warrants -- --
Issuance of Common Stock -- --
Common Stock issued for employee stock purchase plan -- --
Expenses incurred related to issuance of Common Stock -- --
Preferred stock dividends -- --
Net loss, year ended December 31, 2001 -- --
------------ ------------
Balance, December 31, 2001 -- $ --
============ ============
F-5
SEDONA Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
Class A Preferred
---------------------------------------------------------
Stock Series F Stock Series G
--------------------------- ---------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Balance, December 31, 1998 -- $ -- -- $ --
Stock warrants/options issued for consulting services -- -- -- --
Issuance of preferred stock 1,000 2 -- --
Redemption on preferred stock with cash -- -- -- --
Conversion of preferred stock into Common Stock -- -- -- --
Exercise of Common Stock options -- -- -- --
Exercise of Common Stock warrants -- -- -- --
Issuance of Common Stock -- -- -- --
Expenses incurred related to issuance of preferred stock -- -- -- --
Expenses incurred related to issuance of Common Stock -- -- -- --
Preferred stock dividends -- -- -- --
Net loss, year ended December 31, 1999 -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 1999 1,000 2 -- --
------------ ------------ ------------ ------------
Stock warrants/options issued for consulting services -- -- -- --
Issuance of preferred stock -- -- 3,000 $ 6
Redemption of preferred stock with cash -- -- (1,725) (4)
Conversion of preferred stock into Common Stock (220) -- (1,275) (2)
Exercise of Common Stock options -- -- -- --
Exercise of Common Stock warrants -- -- -- --
Issuance of Common Stock -- -- -- --
Expenses incurred related to issuance of preferred stock -- -- -- --
Expenses incurred related to issuance of Common Stock -- -- -- --
Preferred stock dividends -- -- -- --
Net loss, year ended December 31, 2000 -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 2000 780 2 -- --
------------ ------------ ------------ ------------
Stock warrants/options issued for consulting services -- -- -- --
Warrants issued in conjunction with debenture issue -- -- -- --
Conversion of debenture into Common Stock -- -- -- --
Exercise of Common Stock warrants -- -- -- --
Issuance of Common Stock -- -- -- --
Common Stock issued for employee stock purchase plan -- -- -- --
Expenses incurred related to issuance of Common Stock -- -- -- --
Preferred stock dividends -- -- -- --
Net loss, year ended December 31, 2001 -- -- -- --
Balance, December 31, 2001 -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 2001 780 $ 2 -- $ --
============ ============ ============ ============
Class A Preferred
---------------------------
Stock Series H
---------------------------
Shares Amount
------------ ------------
Balance, December 31, 1998 -- $ --
Stock warrants/options issued for consulting services -- --
Issuance of preferred stock -- --
Redemption on preferred stock with cash -- --
Conversion of preferred stock into Common Stock -- --
Exercise of Common Stock options -- --
Exercise of Common Stock warrants -- --
Issuance of Common Stock -- --
Expenses incurred related to issuance of preferred stock -- --
Expenses incurred related to issuance of Common Stock -- --
Preferred stock dividends -- --
Net loss, year ended December 31, 1999 -- --
------------ ------------
Balance, December 31, 1999 -- --
------------ ------------
Stock warrants/options issued for consulting services -- --
Issuance of preferred stock 1,500 $ 3
Redemption of preferred stock with cash -- --
Conversion of preferred stock into Common Stock -- --
Exercise of Common Stock options -- --
Exercise of Common Stock warrants -- --
Issuance of Common Stock -- --
Expenses incurred related to issuance of preferred stock -- --
Expenses incurred related to issuance of Common Stock -- --
Preferred stock dividends -- --
Net loss, year ended December 31, 2000 -- --
------------ ------------
Balance, December 31, 2000 1,500 3
------------ ------------
Stock warrants/options issued for consulting services -- --
Warrants issued in conjunction with debenture issue -- --
Conversion of debenture into Common Stock -- --
Exercise of Common Stock warrants -- --
Issuance of Common Stock -- --
Common Stock issued for employee stock purchase plan -- --
Expenses incurred related to issuance of Common Stock -- --
Preferred stock dividends -- --
Net loss, year ended December 31, 2001 -- --
------------ ------------
Balance, December 31, 2001 1,500 $ 3
============ ============
F-6
SEDONA Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
(In Thousands, Except Share Data)
Notes
Common Additional Receivable,
Stock Paid-In Accumulated Related
Shares Amount Capital Deficit Parties
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 19,927,789 $ 20 $ 24,977 $ (26,834) $ (53)
------------ ------------ ------------ ------------ ------------
Stock warrants/options issued for consulting services -- -- 95 -- --
Issuance of preferred stock -- -- 1,996 -- --
Redemption on preferred stock with cash -- -- -- -- --
Conversion of preferred stock into Common Stock 1,271,832 1 2,171 -- --
Exercise of Common Stock options 181,666 -- 146 -- --
Exercise of Common Stock warrants 1,441,919 2 2,259 -- --
Issuance of Common Stock 1,263,244 1 2,525 -- --
Expenses incurred related to issuance of preferred stock -- -- (30) -- --
Expenses incurred related to issuance of Common Stock -- -- (11) -- --
Preferred stock dividends -- -- (601) -- --
Net loss, year ended December 31, 1999 -- -- -- (6,237) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 24,086,450 24 33,527 (33,071) (53)
------------ ------------ ------------ ------------ ------------
Stock warrants/options issued for consulting services -- -- 123 -- --
Issuance of preferred stock -- -- 4,491 -- --
Warrants issued in conjunction with preferred stock -- -- 550 -- --
Discount on preferred stock issuance -- -- (200) -- --
Warrants issued in conjunction with debenture issue -- -- 472 -- --
Redemption of preferred stock with cash -- -- (1,725) -- --
Conversion of preferred stock into Common Stock 1,431,626 2 139 -- --
Exercise of Common Stock options 309,347 -- 726 -- --
Exercise of Common Stock warrants 2,938,501 3 6,001 -- --
Issuance of Common Stock 2,459,498 2 2,998 -- --
Expenses incurred related to issuance of preferred stock -- -- (195) -- --
Expenses incurred related to issuance of Common Stock -- -- (210) -- --
Preferred stock dividends -- -- (889) -- --
Repayment of notes receivable -- -- -- -- 53
Net loss, year ended December 31, 2000 -- -- -- (10,682) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 31,225,422 31 45,808 (43,753) --
------------ ------------ ------------ ------------ ------------
Stock warrants/options issued for consulting services -- -- 275 -- --
Warrants issued in conjunction with debenture issue -- -- 180 -- --
Conversion of debenture into Common Stock 2,498,401 2 2,116 -- --
Exercise of Common Stock warrants 56,666 -- -- -- --
Issuance of Common Stock 7,506,016 8 4,444 -- --
Common Stock issued for employee stock purchase plan 76,036 -- 25 -- --
Expenses incurred related to issuance of Common Stock -- -- (215) -- --
Repricing of warrants -- -- 52
Preferred stock dividends -- -- 154 -- --
Net loss, year ended December 31, 2001 -- -- -- (10,434) --
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 41,362,541 $ 41 $ 52,839 $ (54,187) $ --
============ ============ ============ ============ ============
F-7
SEDONA Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)
Year ended December 31
-------------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
Operating activities
Net loss from continuing operations $ (10,434) $ (10,826) $ (3,264)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,905 1,362 343
Provision for doubtful accounts -- 102 --
Charge for note receivable 475 -- --
Increase impairment reserve for cost investment -- 140 --
Option or warrant based compensation 457 -- 95
Amortization of deferred financing fees and debt discount 656 316 --
Impairment loss on capitalized software 1,232 -- --
Changes in operating assets and liabilities:
Restricted cash 199 (488) --
Accounts receivable 235 (251) 5
Prepaid expenses and other current assets 19 (94) 48
Other noncurrent assets 6 (30) --
Accounts payable and accrued expenses 640 527 77
Deferred revenue and other (53) 538 (148)
--------------- --------------- ---------------
Net cash used in continuing operating activities (4,663) (8,704) (2,844)
Net income(loss) from discontinued operations -- 144 (2,973)
Adjustments to reconcile loss from discontinued operations to
net cash used by discontinued operations:
Cash flow related to results of discontinued operations -- -- 1,568
Loss on sale of discontinued operations -- -- 235
Other reconciling items -- 100 575
--------------- --------------- ---------------
Net cash provided by/(used in) discontinued operations -- 244 (595)
--------------- --------------- ---------------
Net cash used in operating activities (4,663) (8,460) (3,439)
Investing activities
Purchase of property and equipment (74) (308) (31)
Proceeds from disposal of certain assets of discontinued
operations -- -- 105
Increase in equity investment -- (140) --
Increase in notes receivable (475)
Increase in capitalized software development costs (1,149) (2,151) (507)
--------------- --------------- ---------------
Net cash used in investing activities (1,698) (2,599) (433)
Financing activities
Payment of preferred stock dividends (30) (180) (583)
Repayments of notes receivable, related parties -- 53 --
Repayments of long-term obligations (105) (98) (29)
Proceeds from issuance of preferred stock, net -- 2,805 1,970
Repurchase of preferred stock for cash -- (2,246) (2,313)
Proceeds from the issuance of Common Stock, net 4,262 2,790 2,515
Proceeds from exercise of Common Stock warrants/options -- 6,731 2,407
Proceeds from issuance of short-term debenture and notes 248 2,500 --
Repayment of short-term debentures (100) -- --
--------------- --------------- ---------------
Net cash provided by financing activities 4,275 12,355 3,967
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (2,086) 1,296 95
Cash and cash equivalents, beginning of year 2,189 893 798
--------------- --------------- ---------------
Cash and cash equivalents, end of year $ 103 $ 2,189 $ 893
=============== =============== ===============
See accompanying notes
F-8
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In Thousands, Except Share and Per Share Amounts)
Years ended December 31, 2001, 2000 and 1999
1. Accounting Policies
Description of Business
SEDONA Corporation develops, markets, services and supports enterprise scale
Internet Customer Relationship Management (CRM) application solutions that
enable small and mid-sized businesses to optimize their return on customer
relationships by personalizing the interaction with their customers and thereby
ensuring that their sales and marketing efforts are strategically managed
towards enhancing their customer acquisition, intimacy, satisfaction and
retention capabilities.
Basis of Financial Statement Presentation
The financial statements of the Company have been prepared assuming the Company
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
Accordingly, the financial statements do not include any adjustments that might
be necessary should the Company be unable to continue in existence. The Company
has incurred substantial losses from continuing operations of approximately
$10,434 and $10,826 during the years ended December 31, 2001 and 2000,
respectively. Losses from operations are continuing into 2002 and the Company
anticipates that it will require additional financing in 2002, 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
alliances; targeting new application solutions; continuation of aggressive
marketing of its proprietary product through multiple sales distribution
channels; maintaining leadership of its application, and seeking additional debt
or equity financing in addition to aggressive cost containment measures as shown
in 2001.
Principles of Consolidation
The Company's consolidated financial statements include the accounts of its
wholly owned subsidiaries, SEDONA(R)GeoServices, Inc., and Technology Resource
CentersSM, Inc. During 1999, the Company sold the operations related to Tangent
Imaging Systems, and Technology Resource Centers, Inc. The financial condition
and results from operations of these entities are reflected in the financial
statements as discontinued operations for fiscal years 1999 and 2000. All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
respective assets which range from three to seven years.
F-9
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
1. Accounting Policies (continued)
Concentration of Credit Risk
Financial instruments which potentially subject the Company to credit risk
consist of cash equivalents, accounts receivable and notes receivable. The
Company's policy is to limit the amount of credit exposure to any one financial
institution and place investments with financial institutions evaluated as being
creditworthy. Concentration of credit risk, with respect to accounts and notes
receivable, is limited due to the Company's credit evaluation process. The
Company does not generally require collateral from its customers. The Company's
customers consist primarily of corporate entities.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for cash, accounts and notes
receivable, accounts payable and short-term debt approximate fair value because
of the immediate or short-term maturity of these financial instruments.
Software Development and Purchased Software Costs
Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." All costs incurred in the
research and development of new software products are expensed as incurred until
technological feasibility has been established. The costs incurred for testing
and coding of the new software products are capitalized. Amortization of such
costs is the greater of the amount capitalized using (a) the ratio that current
gross revenues for a product bear to the total of current and anticipated future
gross revenues of that product or (b) the straight-line method over the
remaining estimated economic life of the product not to exceed three years.
Amortization commences when the product is available for general release to
customers. The company capitalizes costs related to purchased software used for
developmental purposes and amortizes such value over three years consistent with
the amortization and capitalization policy discussed above related to
capitalized software costs.
The Company periodically reviews for impairment the carrying value of both
internally developed and purchased software costs. The Company will record an
impairment in its operating results if the carrying value exceeds the future
estimated undiscounted cash flows of the related assets. 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 in certain
product categories, management prioritized where marketing and future
development dollars would be spent. Since revenues were significantly less in
the purchased software acquired in the CIMS acquisition, management decided to
re-focus its available resources and develop and market newer technology.
Therefore, the expected future level of revenues from the majority of the
acquired CIMS products is not expected to materialize because, although still
maintained for those customers that have not upgraded to Intarsia, the CIMS
products will no longer be marketed to new customers. As a result, the Company
wrote-off $1,232 of capitalized and purchased software.
During 2001, 2000 and 1999, the Company capitalized $1,149, $2,151 and $507,
respectively, of software development costs related to the Company's Intarsia
business application solution software. During 2001, 2000 and 1999, $1,523,
$1,066 and $166 was charged to expense relating to amortization of software
development costs.
Revenue Recognition
The Company's software arrangements consist of license fees, installation
services, and maintenance. The Company has established vendor specific objective
evidence (VSOE) of fair value for its maintenance contracts based on the price
of renewals of existing maintenance contracts. The remaining value of the
software arrangement is allocated to license fees and professional services
based on contractual terms agreed upon by the customer and based on
Company-maintained list prices.
F-10
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
1. Accounting Policies (continued)
Product License Revenue
Revenues from the sale of product licenses are recognized upon delivery and
acceptance of the software when persuasive evidence of an arrangement exists,
collection is probable, and the fee is fixed or determinable. Although the
Company's software product can be implemented on our customer's systems without
significant alterations to the features and the functionality of the software,
or without significant interfacing, the Company's license agreements are written
so that formal written acceptance of the product is received when installation
is complete. Therefore, the timing of license fee revenue recognition coincides
with the completion of the installation and the customer has accepted the
software. Software installation is usually completed very shortly (e.g. less
than 3 months) after the signing of the contract.
Services Revenue
Service revenue includes professional services (primarily installation and
training maintenance services) and maintenance revenue over periods not
exceeding one year. Installation service revenue, which consist of
implementation planning, loading of software, data conversion, mapping customer
data and running test data, is accounted for as a separate element of a software
arrangement. Additionally, in certain circumstances, we may partner with third
parties to implement our software. In those instances, the contractual fee for
professional services may be paid directly from the customer to the third party,
and we recognize the license fee revenue component upon installation and
acceptance by the customer.
o Installation revenue is recognized upon completed installation and
customer acceptance and is based on a contractual hourly rate.
Installation is usually completed in 100 hours or less. Training
revenue is not a material element of a contract and revenue is
recognized as training services are provided.
o Maintenance revenue is recognized ratably over the life of the related
contract. We establish the value of maintenance revenue based on the
price quoted and received for renewals of existing maintenance
contracts.
Application Service Provider Revenue
The Company provides the customer the option to utilize Intarsia in an
application service provider (ASP) solution. In an ASP environment, end users of
the software do not take possession of the software; rather, Intarsia resides on
third party hardware, and the customer accesses and uses the software on an
as-needed basis over the Internet or via a dedicated line ("hosting"). The
Company's ASP contracts do not provide the customer with the right to take
possession of the software at any time during the contract. Additionally, if the
contract was terminated during the contract period, the customer would be
required to pay a termination penalty. Revenues from ASP contracts are
recognized ratably over the life of the contract. At December 31, 2001, the
Company had no ASP contracts outstanding.
Income Taxes
The Company accounts for income taxes under the liability method. Deferred tax
liabilities are recognized for taxable temporary differences and deferred tax
assets are recognized for deductible temporary differences and tax loss and
credit carryforwards. A valuation allowance is established to reduce deferred
tax assets if some, or all, of such deferred tax assets are not likely to be
realized.
Net Loss Per Common Share
Basic loss per share is calculated by dividing the net loss by the weighted
average common shares outstanding for the period. Diluted earnings per share is
calculated by dividing the net loss by the weighted average common shares
outstanding plus the dilutive effect of stock options, warrants and convertible
securities. As the Company incurred losses in 2001, 2000, and 1999, the effect
of stock options, warrants and convertible securities were anti-dilutive and
were therefore not included in the calculation of diluted earnings per share.
F-11
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
1. Accounting Policies (continued)
Stock-Based Compensation
The Company follows APB Opinion No. 25, Accounting for Stock Issued to
Employees, ("APB 25") and the related interpretations in accounting for its
stock-based compensation plans. Note 7 includes the required disclosures and
pro-forma information provided under FASB Statement No. 123, Accounting for
Stock-Based Compensation ("SFAS 123").
Under APB 25, because the exercise price of the Company's employee stock options
equals or exceeds the market price of the underlying Common Stock at the date of
grant, no compensation expense is recognized.
2. Discontinued Operations
The Company's Board of Directors decided in July 1999 to sell the two divisions
of the Company, Tangent Imaging Systems and Technology Resource Centers, which
were not part of its realigned strategy of focusing on the development of its
Internet application solutions business. Revenues from the discontinued
operations were $144, and $2,567 respectively, for the years ended December 31,
2000 and 1999. Income/(Losses) for 2000 and 1999 were $144 and $(2,973)
respectively.
3. Property and Equipment
Property and equipment in continuing operations consist of the following:
December 31,
2001 2000
--------------- ---------------
Machinery and equipment $ 1,026 $ 1,004
Equipment under capital lease 227 152
Furniture and fixtures 199 199
Leasehold improvements 64 64
Purchased software for internal use 193 120
--------------- ---------------
1,709 1,539
Less accumulated depreciation and amortization 1,188 806
--------------- ---------------
$ 521 $ 733
=============== ===============
F-12
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
3. Property and Equipment (continued)
Depreciation and amortization expense related to property and equipment and
equipment under capital lease was $382 in 2001, $296 in 2000, and $177 in 1999.
4. Long-Term Debt
Long-term debt consists of obligations with original maturities of one year or
more, as follows:
December 31,
2001 2000
--------------- ---------------
Note payable - CIMS acquisition Due 2003 (Note 14) $ 955 $ 961
Capital lease obligations (Note 11) 125 101
--------------- ---------------
1,080 1,062
Less current maturities 55 37
--------------- ---------------
Long-term debt $ 1,025 $ 1,025
=============== ===============
5. Convertible Debentures
On November 22, 2000, the Company issued a $3,000 private placement Debenture
convertible into its Common Stock. The net proceeds were approximately $2,320,
of which $2,246 was used to redeem the outstanding shares of the Series G
convertible preferred stock with the remaining net proceeds used for working
capital purposes. The Debentures were originally due and payable 120 days from
issuance or, at the Company's request, but could be extended for subsequent 30
day periods. The convertible Debentures bear interest quarterly in arrears on
the outstanding principal at the rate of 5% per annum. Prior to maturity, the
Debentures could be exercised at a strike price of $1.13 per share at any time
the Common Stock price exceeds $2.00. In the event that the Debentures were not
paid at the time of maturity, the actual purchase price of the convertible
Debenture may be converted at the option of the holder at the lesser of $1.41 or
85% of the volume-weighted average price of the Company's Common Stock over the
five trading days immediately preceding the date on which a notice of conversion
is delivered to the Company. In connection with the issuance of the convertible
Debenture, the Company also issued a warrant to the Debenture holders to
purchase up to 400,000 shares of Common Stock at an exercise price of $1.37 and
a fair value of $472, which was recorded as deferred financing costs. The
Company also issued a warrant to purchase an additional 266,667 shares of
Company Common Stock at the same exercise price, which were only exercisable if
the convertible Debenture was not paid in full within 120 days of the original
issuance. The Company also issued a warrant to purchase 167,576 shares of Common
Stock at an exercise price of $1.13 to the placement agent for this transaction.
The aggregate discount and debt issuance costs of $972 was accreted into
interest expense over the 120 day life of the Debentures. At December 31, 2000,
$316 had been recognized as interest expense, and the remaining amount was
recognized as interest expense during 2001.
On March 22, 2001, the Company obtained an extension until April 22, 2001
related to this Convertible Debenture and on April 30, 2001 a further extension
agreement was negotiated which extended maturity until January 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 December 31, 2001, $2,196 in principal value and interest of $49
regarding this debenture has been converted into 2,498,401 shares of common
stock. In February, 2002, a restructuring agreement was finalized which retired
this Debenture in its entirety by allowing for conversion of $400 in principal
and payoff of accrued interest and remaining principal of $399 by cash payment
of $50 at closing, and a promissory note of $349 payable in installments over
the following 7 months to retire the remainder.
F-13
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
5. Convertible Debentures (continued)
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.
We allocated a fair value of $32 to the warrants, which was treated as a debt
discount and an addition to additional paid in capital. 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. If
not redeemed at maturity, these notes would become convertible into shares of
common stock at a price of $0.20 per share at the option of the shareholder. At
maturity, $100 of the aggregate $248 was paid off. The remaining $148 became
convertible into 740 shares of common stock. Upon maturity of the note, the fair
value of the Company's common stock was $0.67. Consequently, the intrinsic value
of the conversion feature, capped at the face amount of the debt outstanding, or
$148, was treated as a beneficial conversion feature and is reflected as
additional interest expense and additional paid in capital. The $148 of notes
remaining at December 31, 2001 is issued to our Chairman of the Board.
6. Stockholders' Equity
Class A Convertible Preferred Stock
Series A, B, D, E, F, G and H
Class A preferred stock is issuable in various series and is convertible in
accordance with the terms of the issued series. The Board of Directors has the
authority to fix by resolution all other rights. The Class A Series A preferred,
when declared, shares pay quarterly dividends at the rate of twelve percent
(12%) per annum, when declared have cumulative rights and have a liquidation
preference at the par value of the preferred shares. Each share is convertible
at the election of the holder into one share of Common Stock at any time. Each
holder has the same right to vote each share on all corporate matters as the
holder of one share of Common Stock.
During 2000, all 1,000 shares of Class A Series B convertible preferred stock
and the related accrued dividends of $88 were converted into 473,091 shares of
Common Stock.
During 1999, all remaining 4,347 shares of Class A Series E convertible
preferred stock and the related accrued dividends were redeemed for cash or
converted into shares of Common Stock. Of the total remaining shares, 2,034 and
related accrued dividends payable of $139 were converted to 1,271,832 shares of
Common Stock. In total, cash of $2,776 was utilized to redeem the final
remaining 2,313 shares of Class A Series E convertible preferred shares and pay
$463 in accrued dividend and redemption premium regarding the retirement.
On May 24, 1999, the Company entered into a $1.0 million private placement
purchase agreement for the issuance of 1,000 shares of Class A Series F
convertible preferred stock. After a period of 12 months from May 24, 1999
(anniversary date), the investor can convert the preferred stock to Common Stock
at the lower of: 1) $1.41 (the "Closing Price"), or 2) 100% of the Common
Stock's average last trade price during the 25 trading days preceding the
Conversion Date (the "Conversion Date Price"). In no event can the conversion
price be below $1.00. The conversion amount shall be the principal amount of the
preferred stock being converted, plus an 8% premium accruing from the closing
date to the conversion date. Mandatory conversion of the preferred stock shall
occur on the third anniversary after closing using the conversion terms
referenced above. During 2000, 220 shares of Class A Series F convertible
preferred stock and the related accrued dividends payable of $24 were converted
into 172,500 shares of Common Stock.
F-14
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
6. Stockholders' Equity (continued)
In February 2000, the Company closed a $3,000 private placement by issuing 3,000
shares of Series G convertible preferred stock. The then outstanding Series G
convertible preferred stock was redeemed in November 2000 in connection with the
issuance of the $3,000 principal amount Convertible Debenture.
During the remainder of 2000, all of the Class A Series G convertible preferred
stock shares and the related accrued dividends were redeemed for cash or
converted into shares of Common Stock. Of the total remaining shares, 1,275 and
related accrued dividends payable of $40 were converted to 786,035 shares of
Common Stock. In total, cash proceeds from the Debenture issue (Note 5 above) of
$2,246 were utilized to redeem the final remaining 1,725 shares of Class A
Series G convertible preferred shares and pay $519 in accrued dividends and
redemption premium.
In conjunction with the CIMS acquisition transaction completed in April 2000
(see Note 14 below), 1,500 shares of Class A Series H preferred stock with a
face value of $1,500 (book value $1,300) were issued as part of the transaction
consideration. The series H preferred stock yields 8% in semi-annual cash
dividends, when declared, and is convertible at the Company's option for the
first 33 months of its 36 month life.
Common Equity
In January 2001, the Company sold 1,538,462 shares of Common Stock to one
outside 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 to Ladenburg Thalmann & Co., Inc., as
placement agent in connection with this offering and issued a warrant to
purchase 107,692 shares of Common Stock at an exercise price of $0.72.
In April 2001, the Company sold to one outside investor 541,363 shares of Common
Stock for an aggregate price of $502. In connection with the issuance of this
Common Stock, 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.
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 the Company's 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 the Company's common stock is at least $2.00 per share.
F-15
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
6. Stockholders' Equity (continued)
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 the Company's 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 $0.51 per share to a finder in connection with this offering.
During August 2001, the Company sold 600,000 shares of common 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 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 the Company's 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 an $23 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. 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 the Company's 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 $0.51 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 the Company's 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 these investors if, within 60 days following the closing of their
investments, the Company issues any shares of its common stock at prices below
the price at which the investors purchased their shares. 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 close of
the fifth consecutive trading day on which the closing sales price of the
F-16
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
6. Stockholders' Equity (continued)
Company's 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.
In November 2001, the Company sold 250,000 shares of common stock and issued
four-year warrants to purchase 125,000 shares of common stock at an exercise
price of $0.75 per share to an investor in private placements for an aggregate
gross purchase price of $125. These shares may not be resold or otherwise
transferred until the shares are registered. The shares underlying the warrants
may not be resold or otherwise transferred until the effectiveness of a
registration statement registering the common stock underlying the warrants. The
Company paid a $6 sales commission to a finder in connection with this offering.
During November and December 2001, the Company sold 142,857 shares of common
stock and issued four-year warrants to purchase 71,429 shares of common stock at
exercise prices ranging from $0.84-$1.05 per share to four investors in a
private placement for an aggregate gross purchase price of $100. Additional
shares and warrants may be issued to these investors if, within 60 days
following closing of their investments, the Company issues any shares of its
common stock at prices below the price at which the investors purchased their
shares. 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 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 $5 sales commission and issued warrants to purchase
7,143 shares of common stock at exercise prices ranging from $0.86 to $1.00 per
share to a finder in connection with this offering.
Also during November and December 2001, the Company sold 900,000 shares of
common stock and issued four-year warrants to purchase 450,000 shares of common
stock at exercise prices of $0.81-$0.99 per share to seven investors in private
placements for an aggregate gross purchase price of $450. Additional shares and
warrants may be issued to these investors if, within 60 days following the
closing of their investments, the Company issues any shares of our common stock
at prices below the price at which the investors purchased their shares.
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 close of the fifth consecutive trading day on which the closing
sales price of the Company 'scommon stock is at least $2.00 per share or is less
than $0.57 per share. The shares underlying the warrants may not be resold or
otherwise transferred until the effectiveness of a registration statement
registering the common stock underlying the warrants. The Company paid a $36
sales commission and issued warrants to purchase 37,800 shares of common stock
at exercise prices ranging from $0.74 to $0.99 per share to finders in
connection with this offering.
All of the securities issued in the preceding transactions were sold in reliance
upon Rule 506 of Regulation D involving only accredited investors.
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 December 31, 2001 equaled $456. In 2001, the
Company paid $30 of dividends and reversed $154 of previously accrued but
undeclared dividends.
F-17
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
7. Stock Options and Warrants
Long-Term Incentive Plans
During 1992, the stockholders of the Company approved a Long-Term Incentive Plan
for the issuance of options for the purchase of up to 1,000,000 restricted
Common Stock shares in the aggregate, or such other number of shares as are
subsequently approved by the Company's stockholders. The shares, which were
related to the unexercised or undistributed portion of any terminated, expired
or forfeited award, will also be made available for distribution in connection
with future grants under the Plan. During 1997, the Plan was amended to increase
the number of options available for future grants to 3,000,000. The Long-Term
Incentive Plan provides for the granting of both incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, and
nonqualified stock options which do not so qualify. Unless the Plan is
terminated earlier by the Board of Directors, the Plan will terminate in March
2002. At December 31, 2001, 2000, and 1999, there were -0-, -0-, and 90,190
options available for future grant.
During 2000, the stockholders of the Company approved the 2000 Incentive Stock
Option Plan (the "2000 Plan"). This plan has replaced the 1992 Long-Term
Incentive Plan (the "1992 Plan") under which no further options will be issued.
Significant changes in the 2000 Plan, when compared to the 1992 Plan include:
reserving 15% of the outstanding shares for awards that may be outstanding at
any one time, rather than the 3 million shares currently set aside for issuance
throughout the life of the 1992 Plan; authorizing restricted stock, deferred
stock, stock appreciation rights, performance awards settleable in cash or
stock, and other types of awards based on stock or factors influencing the value
of stock; adding provisions so that options and other performance-based awards
will qualify for tax deductions; and, specifying obligations relating to
non-competition and proprietary information that may be imposed on optionees.
Options outstanding under the Long-Term Incentive Plan and the 2000 Plan have
been granted to officers, directors, employees, and others and expire between
January 2002 and June 2011. All options were granted at or above the fair market
value on the grant date. Transactions under this Plan were as follows:
Weighted Average
Shares Exercise Price
--------------- ---------------
Outstanding at December 31, 1998 1,597,276 $ 2.44
Canceled or expired (335,939) 2.46
Granted 1,085,000 1.71
Exercised (181,666) .80
--------------- ---------------
Outstanding at December 31, 1999 2,164,671 $ 2.19
Canceled or expired (165,499) 2.75
Granted 807,000 3.58
Exercised (309,347) 2.58
--------------- ---------------
Outstanding at December 31, 2000 2,496,825 $ 2.59
Canceled or expired (687,500) 2.91
Granted 2,169,232 1.03
Exercised -- --
--------------- ---------------
Outstanding at December 31, 2001 3,978,557 $ 1.69
=============== ===============
Exercise Price Weighted Average
Options Range Per Share Exercise Price
------------- ------------------- ------------------
Exercisable at year-end
1999 1,051,089 $1.00 to $4.00 $2.61
2000 1,143,381 $1.16 to $9.13 $2.66
2001 2,104,027 $0.72 to $6.00 $1.79
F-18
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
7. Stock Options and Warrants (continued)
The following table summarizes information about stock options outstanding at
December 31, 2001:
Ranges Total
------------------------------------------------------------------------
Range of exercise prices $0.72 to $1.22 $1.35 to $2.25 $2.35 to $6.00 $0.72 to $6.00
------------------------------------------------------------------------
Options outstanding 2,091,732 990,250 896,575 3,978,557
Weighted average remaining contractual 7.5 7.5 6.4 7.3
life (years)
Weighted average exercise price $1.01 $1.69 $3.27 $1.69
Exercisable 1,093,634 349,131 661,262 2,104,027
Weighted average exercise price $1.00 $1.71 $3.13 $1.79
------------------------------------------------------------------------
Warrants
Warrants outstanding have been granted to officers, directors, stockholders and
others to purchase Common Stock at prices ranging from $0.40 to $5.04 per share
and expiring between March 2002 and December 2011. All warrants were granted at
or above the fair market value on the grant date. Transactions under the plan
were as follows:
Weighted Average
Shares Exercise Price
--------------------------------------
Outstanding at December 31, 1998 9,827,669 $ 3.11
Canceled or expired (1,225,936) 3.36
Granted 2,322,872 2.20
Exercised (1,395,169) 1.59
--------------------------------------
Outstanding at December 31, 1999 9,529,436 $ 2.58
Canceled or expired (470,377) 1.74
Granted 524,122 3.08
Exercised (2,938,501) 2.04
--------------------------------------
Outstanding at December 31, 2000 6,644,680 $ 2.94
Canceled or expired (863,368) 3.91
Granted 8,708,437 1.09
Exercised (56,666) 0.00
--------------------------------------
Outstanding at December 31, 2001 14,433,083 $ 1.75
======================================
Weighted
Exercise Price Average
Warrant Shares Range Per Share Exercise Price
------------------- -------------------- -----------------
Exercisable at year-end
1999 7,673,072 $1.00 to $4.00 $2.78
2000 5,713,757 $1.16 to $5.04 $3.02
2001 12,922,971 $0.40 to $5.04 $1.75
F-19
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
7. Stock Options and Warrants (continued)
During 2001, 1,138,410 warrants were issued to non-employees for certain
consulting services, and in the case of 184,569, had contingent vesting
provisions based on achievement of certain performance services levels. The 2001
statement of operations reflects charges of $275, for those non-employee stock
warrants where such service levels were performed. The Company established fair
value of the warrants issued using the measurement criteria at the date of
grant, as outlined below.
Assumptions used:
Life of warrants: 3-10 years
Volatility: 0.93
Vesting period: Immediate except in cases
of performance service levels
Fair value of stock at date of grant: $0.89
Expected dividend yield: 0%
Fair value of warrant: $0.24
During 2001, 2000, and 1999, 0, 0, and 668,888 warrants, respectively, were
issued to employees in lieu of compensation. These warrants were issued at
exercise prices at or above fair market value at the date of grant and therefore
there were no charges to earnings.
The following table summarizes information about stock warrants outstanding at
December 31, 2001:
Ranges Total
--------------------------------------------------------------------------
Range of exercise prices $0.40 to $1.25 $1.31 to $2.25 $2.38 to $5.04 $0.40 to $5.04
Outstanding 6,623,846 4,746,374 3,062,863 14,433,083
Weighted average remaining 4.7 3.6 3.4 4.1
contractual life (years)
Weighted average exercise price $0.97 $1.84 $3.32 $1.75
Exercisable 5,890,907 4,208,874 2,823,190 12,922,971
Weighted average exercise price $0.97 $1.79 $3.34 $1.75
The Company estimates the fair value of each stock option and warrant at the
grant date by using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 2001, 2000, and 1999,
respectively: no dividends paid for all years; expected volatility of 93% for
all periods; risk-free interest rates range from 5.25% to 7.81%; and expected
lives range from 1.00 to 10.00 years.
Utilizing the above assumptions, the weighted average fair market value of
employee stock options and warrants granted are as follows:
Year ended December 31
2001 2000 1999
------------------------------------------------
Stock options $ 0.72 $ 3.19 $ 1.54
Warrants $ n/a $ n/a $ 1.01
F-20
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
7. Stock Options and Warrants (continued)
During 2001, there were a total of 3,867,732 common stock options and warrants
with exercise prices ranging from $.56 to $1.03 per share granted to employees
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. Additionally, 5,871,527 million of warrants were issued related to
investors, as described in Note 6, to 2001 debt and equity offerings.
In accordance with SFAS 123, the estimated fair value of the Company's options
and warrants should be amortized over the vesting period. Had this expense been
charged to operations, the Company's pro-forma net loss and net loss per common
share would have been as follows:
Year ended December 31
2001 2000 1999
----------------------------------------------
Net loss
As reported $ (10,434) $ (10,682) $ (6,237)
Pro forma $ (11,946) $ (11,235) $ (7,328)
Net loss applicable to
common shares
As reported $ (0.28) $ (.42) $ (.31)
Pro forma $ (0.32) $ (.44) $ (.36)
Options to Directors and Officers
Included in the options and warrants granted above are the following:
During 2001, 2,448,232 options and warrants of the Company's Common Stock were
granted to certain Officers and Directors of the Company for services. These
options were issued at or above the fair market value of the Common Stock on the
grant date at a weighted average exercise price of $0.99 per share, expiring no
later than January, 2011. As of December 31, 2001, none of these options or
warrants were exercised.
During 2000, 117,500 options of the Company's Common Stock were granted to
certain Officers and Directors of the Company for services. These options were
issued at or above the fair market value of the Common Stock on the grant date
at an exercise price of $3.16 per share, expiring on January 3, 2010. As of
December 31, 2001, none of these options was exercised.
During 1999, 1,598,888 options and warrants of the Company's Common Stock were
granted to Directors of the Company for services. The options and warrants were
issued at or above the fair market value of the Common Stock on the grant date
at exercise prices ranging between $1.31 and $2.59 per share, expiring through
November 19, 2009. As of December 31, 2001, none of these options or warrants
was exercised.
Shares reserved for future issuance of Common Stock approximate 58,600,000 as of
December 31, 2001.
F-21
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
8. Contingencies
In March 1998, an action was commenced in the Court of Common Pleas of
Montgomery County, PA, against the Company by a former employee, seeking damages
of $361, principally for alleged termination of contract. This plaintiff asserts
this sum represents the excess of market value over the exercise price of
unvested warrants held by the plaintiff which the plaintiff asserts should have
been vested and thereby available for exercise and sale. The Company believes
this claim is without merit and is defending its position. Accordingly, no
provision has been made in the accompanying financial statements.
In June 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, management determined that the project had become infeasible due to
the lack of support by the vendor and its unwillingness to meet certain contract
commitments. The Company notified the vendor of its concerns on several
occasions and has concluded that it is not appropriate to continue to accrue
certain minimum payments under the contract. Should the dispute end unfavorably,
it would result in minimum royalty payments of $1,350 and $1,500 in 2002 and
2003, respectively. The Company continues to seek a final resolution by
negotiations with the vendor but has retained counsel to assist it in defending
its position. Management's assessment is that the Company has a meritorious
defense against any vendor claim in this regard.
9. Related Party Transactions
The Company incurred consulting and commission fees, and out-of-pocket expenses
of $245, $42, and $11, for the years ended December 31, 2001, 2000, and 1999,
respectively, to an organization whose president is a director of the Company.
10. Profit Sharing Plan
Starting in fiscal year 1999, a 401(k) Plan was made available to all eligible
SEDONA employees, but there were no contribution matches by the Company.
During 2001, the plan was modified to allow the Board of Directors to consider,
on an annual basis, a discretionary match for the Plan participants in the form
of Company stock at a rate of up to 50% of employee contribution but not in
excess of 3% of employee base compensation. At the February 2002 Board meeting,
a decision was made to make such a match with regards to the 2001 contributions,
which match was valued at $76 and resulted in the issuance of 96,262 shares to
participants, valued at the year end closing price of $0.79.
11. Commitments
The Company has employment agreements with certain key employees which expire at
various dates through 2002. The agreements provide for minimum salary levels,
plus any additional compensation as directed by the Board of Directors.
The Company is obligated to pay up to $100 to an individual if the Company is
successful in obtaining financing up to $1.5 million.
The Company leases certain office equipment under various noncancelable
operating and capital lease arrangements which expire from 2002 to 2007. In
August 2000, the Company entered into a long-term operating lease agreement
commencing in October 2000, for office space in King of Prussia, Pennsylvania.
In April 2000, the Company entered into a long-term operating lease agreement in
Bloomington, Minnesota. Future minimum lease payments under these lease
obligations consist of the following:
2002 $594
2003 577
2004 536
2005 531
2006 539
Thereafter 410
-------------
Total minimum lease payments $ 3,187
=============
Rent expense for 2001 and 2000 was $673 and $333 respectively.
F-22
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
11. Commitments (continued)
The terms of the King of Prussia lease agreement require the Company to maintain
a letter of credit agreement with a financial institution as a security deposit
on the leased property for the entire term of the lease agreement. The Company
has recorded restricted cash of $289, which represents the cash on deposit at
the financial institution as of December 31, 2001. The agreement allows for
annual reductions of the letter of credit requirement.
Future minimum lease payments under capital lease obligations consist of the
following:
Year ending December 31: Capital
------------
2002 $ 75
2003 60
2004 13
2005 0
------------
Total minimum lease payments 148
Less amount representing interest (23)
------------
Present value of net minimum capital lease payments $125
============
12. Income Taxes
No provision for federal and state income taxes has been recorded as the Company
has incurred net operating losses through December 31, 2000.
At December 31, 2001 and 2000 the Company had a recorded deferred tax asset of
$19.7 million and $15.6 million, respectively, which primarily related to net
operating loss carryforwards for federal and state income tax purposes and
certain other reserves. The Company provided valuation allowances for the full
amount of the deferred tax assets as the Company believes sufficient uncertainty
exists regarding its realization.
At December 31, 2001 and 2000, the Company had approximately $50.5 million and
$40.3 million, respectively, in federal net operating loss carryforwards that
expire in various years beginning in 2002 through 2021. Additionally, the
Company has approximately $36.6 million and $26.2 million, respectively, of
state net operating loss carryforwards that expire in various years beginning in
2005 through 2010.
The timing and manner in which the Company will utilize the net operating loss
carryforwards in any year, or in total, may be limited by the provision of the
Internal Revenue Service Code section 382. Such limitation may have an impact on
the ultimate realization and timing of these net operating loss carryforwards.
F-23
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
13. Supplemental Disclosures of Cash Flow Information
Year ended December 31
2001 2000 1999
---------------------------------------
Cash paid during the year for interest $ 2 $ 27 $ 35
Cash expenses incurred relative to issuance of stock 215 405 41
Noncash investing and financing activities are as follows:
Conversion of preferred stock/debenture dividends/
interest into Common Stock 49 139 138
Conversion of preferred stock/debenture to Common
Stock 2,196 1,499 2,034
Fixed asset purchases through assumption of
capital lease obligation 75 65 58
14. 2000 CIMS Purchase
In April 2000, the Company consummated a transaction to purchase the Customer
Information Management Systems (CIMS) business unit of Acxiom Corporation for
total potential consideration of $4,350, $1,300 (with face value of $1,500) of
which was paid in preferred stock, $1,000 of which will be paid by the third
anniversary of the transaction, and the remainder of $1,500 will be paid
contingent on the future performance of the business unit acquired. The
additional costs will be amortized over the remaining life of the original
capitalized software acquired, which had an original life of 3 years. In
addition, 247,934 five-year warrants valued at $550 with an exercise price of
$3.025 per share were issued in connection with this transaction. The series H
preferred stock issued as part of the transaction yields 8% and is convertible
(based on the fair market value of the Company's stock) into common stock at the
Company's option for the first 33 months of the 36 month life.
In the third quarter of 2001, the Company wrote off $1.2 million of purchased
software acquired in the CIMS acquisition.
15. Subsequent Events
Alliance Agreement
In February, 2002, SEDONA announced that it has entered into an agreement with
Sanchez Computer Associates (Sanchez), a global leader in developing and
marketing scalable and integrated software and services solutions for financial
institutions, to license, integrate and private-label SEDONA's entire
Intarsia(TM) software solution.
Equity Issuances
From January 1 through February 28, 2002, the Company sold 1,440,000 shares of
common stock and issued four-year warrants to purchase 720,000 shares of common
stock at exercise prices ranging from $0.75-$1.50 per share to seventeen
investors in private placements for an aggregate gross purchase price of $720.
Additional shares and warrants may be issued to these investors if, within 60
days following the closing of their investments, the Company issues any shares
of its common stock below $.50 per share the price at which the investors
purchased their shares. These shares may generally 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 the Company's common stock is at
least $2.00 per share. The shares underlying the warrants may generally 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 $41 sales
commission and issued warrants to purchase 91,350 shares of the Company's common
stock at exercise prices ranging from $0.75 to $0.93 per share to finders in
connection with this offering.
F-24
SEDONA Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(In Thousands, Except Share and Per Share Amounts)
Warrant exercises
During March 2002, SEDONA sold 1,127,869 shares of its common stock through a
negotiated partial exercise of outstanding warrants associated with two
financings whereby the Company realized total proceeds of approximately $573.
The outstanding warrants originally permitted the holders to acquire shares of
Company common stock at exercise prices ranging from $2.25 to 4.00 per share.
After considering needs for working capital, the Company further negotiated with
the warrant holders to permit exercise of the warrants at exercise prices
ranging from $0.50 to $0.55 per share.
All of the securities issued in the preceding transactions were sold in reliance
upon Rule 506 of Regulation D involving only accredited investors.
Lead Factory, Inc.
In March, 2002, the Company entered into an agreement to purchase substantially
all of the assets of Lead Factory, Inc. for a combination of warrants and cash.
Lead Factory, a Boston-based company which designs, builds, and markets computer
software and services to aid sales and marketing persons with customer
prospecting, initially became a partner in 2000 when the Company acquired a 10%
equity interest, which interest the Company has subsequently fully reserved.
Lead Factory was founded by the Chief Marketing Officer of the Company and its
product has been integrated with SEDONA's Intarsia(TM) and is provided as an
additional component or may be sold as a separate application by SEDONA to its
customer base. This purchase agreement supercedes all earlier agreements with
Lead Factory.
F-25
EXHIBIT INDEX
1.1 Placement Agent Agreement with Ladenburg Thalmann & Co., Inc., dated
January 24, 2000 (1) (Exhibit 1.1)
1.2 Amendment dated March 8, 2000 to Placement Agent Agreement with
Ladenburg Thalmann & Co., Inc. (1) (Exhibit 1.2)
3.1 Articles of Incorporation (2) (Exhibit 3.1)
3.2 Bylaws (2) (Exhibit 3.2)
3.3 Amendment to Articles of Incorporation (3)
4.1 Statement of Designation of Class A, Series F Convertible Preferred
Stock (4) (Exhibit 4.0)
4.2 Certificate of Designations, Preferences and Rights of Class A,
Series H Preferred Stock (5) (Exhibit 4.1)
4.4 5% Convertible Debenture due March 22, 2001 (8) (Exhibit 99.3)
10.1 Series F Convertible Preferred Stock and Warrants Purchase Agreement,
dated May 24, 1999, by and between the Company, Oscar Tang,
individually, and The Tang Fund (6) (Exhibit 4.0)
10.12 Convertible Debentures and Warrants Purchase Agreement, dated November
22, 2000 (7) (Exhibit 99.2)
10.13 Commitment Warrant, dated November 22, 2000 (7) (Exhibit 99.4)
10.14 Additional Warrant, dated November 22, 2000 (7) (Exhibit 99.5)
10.15 Warrant issued to Ladenburg Thalmann & Co., Inc., dated November 22,
2000 (7) (Exhibit 99.6)
10.19 Stock Purchase Agreement between AMRO International S.A. and the
Company, dated January 23, 2001 (8) (Exhibit 10.19)
10.20 Stock Purchase Warrant issued to AMRO International S.A., dated January
23, 2001 (8) (Exhibit 10.20)
10.21 Warrant issued to Ladenburg Thalmann & Co., Inc., dated January 23,
2001 (8) (Exhibit 10.21)
10.22 Lease between Teachers Insurance and Annuity Association and the
Company (9) (Exhibit 99.1)
10.25# 2000 Incentive Stock Plan (10) (Appendix A)
10.26# 2000 Employee Stock Purchase Plan (10) (Appendix B)
10.27# Employment Agreement, dated September 15, 1999, between the Company and
Marco A. Emrich (11) (Exhibit 10.1)
10.28# Employment Agreement, dated January 1, 2000, between the Company and
William K. Williams (8) (Exhibit 10.28)
10.30 Shareholder/Investor Relations Compensation Agreement between the
Company and Osprey Partners, dated January 3, 1997, with amendments
dated January 27, 2000 and December 13, 2000 (14) (Exhibit 10.30)
10.31 Finder's Fee Agreement between the Company and Osprey Partners, dated
February 24, 1999 (8) (Exhibit 10.31)
10.32 Disbursement Agreement between the Company and ZipFinancial.com, Inc.
dated December 29, 2000. (8) (Exhibit 10.32)
10.33 Promissory Note payable to the Company by ZipFinancial.com, Inc. dated
December 29, 2000. (8) (Exhibit 10.34)
EXHIBIT INDEX (continued)
10.32 Security Agreement between the Company and ZipFinancial.com, Inc. dated
December 29, 2000. (8) (Exhibit 10.32)
10.35 Warrant issed to Acxiom Corporation Dated April 4, 2001 (8) (Exhibit
10.35)
10.39 Form of Common stock and Warrants Purchase Agreements used in August
2001 to February 2002 private placements by and among the Company and
the investors signatory thereto. (12) (Exhibit 10.1)
10.40 Form of Registration Rights Agreements used in August 2001 to February
2002 private placements by and among the Company and the investors
signatory thereto. (12) (Exhibit 10.2)
10.38 Form of Notes dated September and October 2001 by and among the Company
and investors signatory thereto. (12) (Exhibit 10.3)
10.41 Form of Warrants issued to investors used in August 2001 to February
2002 private sales of common stock and notes. (12) (Exhibit 10.4)
10.39* Agreement and related Promissory Note dated February 14, 2002 related
to retirement of November 2000 Convertible Debentures and Warrants.
10.40* Agreement for purchase of assets of Lead Factory, Inc. dated
March 29, 2002.
23.1* Consent of Ernst & Young, LLP
24.1 Power of attorney (included on the signature page to this Form 10-K)
* Filed herewith.
# Executive Compensation Plans and Arrangements.
(1) Filed as an Exhibit to the Registration Statement on Form S-3, filed
May 23, 2000 (File No. 333-37678).
(2) Filed as an Exhibit to the Company's Current report on Form 8-K, dated
June 15, 1992.
(3) Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1995.
(4) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1999.
(5) Filed as an Exhibit to the Registration Statement on Form S-3 filed
June 5, 2000 (File No. 333-38578).
(6) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1999.
(7) Filed as an Exhibit to the Current Report on Form 8-K filed November
28, 2000.
(8) Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal
year ended December 31, 2000.
(9) Filed as an Exhibit to the Current Report on Form 8-K filed August 31,
2000.
(10) Filed as an Appendix to the Company's Definitive Proxy Statement for
the 2000 Annual Meeting of Shareholders filed May 17, 2000.
(11) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1999.
(12) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2001.