UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

þx ANNUAL REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2008~~ 2009

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-15864

SEDONA CORPORATION

(Exact name of Registrant as specified in its charter)

Pennsylvania	95-4091769	~~95-4091769~~
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
(State or other jurisdiction of	(IRS Employer
1003 West Ninth Avenue, Second Floor, King of Prussia, PA		19406
incorporation or organization)	Identification No.)
(Address of principal executive offices)		(Zip Code)
1003 West Ninth Avenue, Second Floor, King of Prussia, PA	19406
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 610-337-8400

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

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ x.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or ~~Section~~ Section 15(d) of the Act. Yes o No þ x.

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 þ x No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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. o.

Indicate by check mark ~~whether~~if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large ~~See~~accelerated ~~the~~filer ~~definitions~~o, ofAccelerated ~~“large accelerated~~ filer o,” “Non-accelerated filer” ~~and~~o, ~~“smaller~~Smaller reporting company” ~~in Rule 12b-2 of the Exchange Act~~x. ~~(Check one):~~

~~Large~~Indicate ~~accelerated~~by ~~filer~~check omark ~~Accelerated~~whether ~~filer~~the oregistrant ~~Non-accelerated~~is ~~filer~~a ~~o(Do~~shell ~~not~~company ~~check~~(as ifdefined ain ~~smaller~~Rule 12b-2 ~~reporting~~of ~~company)~~the ~~Smaller~~Exchange ~~reporting company þ~~Act). Yes o No x.

~~Indicate~~The byaggregate ~~check~~market ~~mark~~value ~~whether~~of the ~~registrant~~voting isand anon-voting ~~shell~~common ~~company~~equity ~~(as~~held ~~defined~~by ~~in Rule 12b~~non-2affiliates of the ~~Exchange~~ ~~Act).~~registrant ~~Yes~~computed oby Noreference þto the closing price as reported on OTCBB system as of June 30, 2009 was $9,705,486.

The number of shares of the Registrant’s ~~revenues~~common ~~for~~stock, ~~its~~$.001 ~~most~~par ~~recent~~value ~~fiscal~~per ~~year~~share ~~total~~(“common $1stock”) issued and outstanding as of March 26,~~395~~ 2010 was 127,~~000~~364,064 shares.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the closing price as reported on OTCBB system as of June 30, 2008 was $11,446,651.

The number of shares of the Registrant’s common stock, $.001 par value per share (“common stock”) issued and outstanding as of April 14, 2009 was 102,047,472 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None.

NOTE ON FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning 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 “may”, “will”, “should”, “could”, “would”, “plan”, “estimates”, “projects”, “predicts”, “potential”, “believes”, “anticipates”, “intends”, “expects” or similar expressions. These forward-looking statements relate to the plans, objectives, and expectations of SEDONA® Corporation (the “Company”, “SEDONA Corp.”, “SEDONA”, “we”, “us” or “our”) for future operations. In light of the risks and uncertainties inherent in all forward-looking statements, the inclusion of such statements in this Annual Report on 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.

ITEM 1. DESCRIPTION OF BUSINESS

Overview

SEDONA® Corporation (~~OTCBB~~OTC: SDNA) (“SEDONA” or the “Company”) isdelivers ~~the~~Customer ~~developer~~and Member Relationship Management (CRM and ~~distributor~~MRM) solutions that help to improve the financial performance of banks and credit unions. The Company develops and distributes the SEDONA CRM/™ and SEDONA MRM®,™ software applications (formerly known as SEDONA Intarsia ~~CRM/MRM~~®). SEDONA aalso ~~software application and~~ delivers services ~~business~~ which, ~~provides~~combined ~~web-based,~~with ~~vertical~~its ~~Customer/Member~~software, ~~Relationship~~help ~~Management~~to ~~(CRM/MRM)~~improve ~~solutions~~bank toand credit ~~small~~union togrowth, ~~mid-sized~~stability, ~~businesses~~and ~~(SMBs)~~service.

The Company has strategically targeted ~~small to mid-sized~~ financial services organizations such as ~~the first vertical market to introduce its leading CRM/MRM application solution including, but not limited to,~~ community and regional banks, credit unions, and savings and loans, ~~and~~to ~~brokerage~~market ~~firms.~~our leading CRM/MRM solutions. Our customers are financial ~~both~~institutions ~~end-user~~with ~~organizations~~whom ~~and~~we ~~banking~~sell ~~and~~solutions ~~credit~~to ~~union~~directly ~~software~~or ~~application and~~strategic ~~service~~channel ~~solution~~partners who are providers ~~that~~of insoftware ~~turn~~applications ~~support~~and ~~small~~service solutions to ~~mid-sized~~ banks and credit unions.

~~SEDONA CRM/MRM enables financial institutions to increase the profitability of their customer and member portfolio.~~ With its state-of-the-art technology and flexible licensing options, SEDONA ~~CRM~~solutions ~~can~~are ~~help~~designed ~~increase~~to ~~overall~~be ~~sales~~installed ~~and~~directly on client ~~retention~~premises ~~while~~or ~~reducing~~offered ~~expenses~~through ~~often~~a hosting ~~incurred~~center ~~with having~~as toa ~~purchase~~SaaS ~~multiple~~(Software ~~solutions~~as ina ~~order~~Service) tosolution. Our ~~gain~~channel apartners ~~complete~~offer ~~CRM~~a SaaS solution through ~~set.~~secure, ~~The~~world-class ~~system~~facilities ~~can be~~which ~~implemented~~provide ~~within~~core ~~weeks,~~processing ~~not~~and ~~months,~~other applications to ~~assist~~the inbanking ~~delivering~~and acredit ~~rapid~~union ~~return~~industry. The onSaaS ~~investment~~solution ~~which~~is especially attractive ~~helps~~for ~~enhance~~small ~~overall~~to ~~shareholder~~mid-sized ~~value~~financial toservices ~~both~~organizations that lack the financial resources ~~services~~and ~~institution~~IT ~~and~~infrastructure ~~partner~~to deploy an in-house enterprise business ~~solution~~application ~~providers~~such as CRM/MRM.

SEDONA ~~believes~~CRM/MRM is ~~that~~designed ~~the~~to ~~key~~enable financial institutions to ~~selling~~increase the profitability of their customer and member portfolios. SEDONA CRM~~/MRM~~ ~~successfully~~can ishelp ~~finding~~increase overall sales and client retention while reducing expenses often incurred with having to purchase multiple solutions in order to gain a ~~solution~~complete ~~that~~CRM ~~not~~solution ~~only~~set. ~~meets~~SEDONA ~~the~~solutions ~~organization’s~~can ~~unique~~be ~~industry~~implemented within weeks, ~~business~~not months, ~~and~~to ~~budget~~assist in ~~requirements,~~delivering ~~but~~a ~~also~~rapid ~~provides~~return ~~the organization~~on ~~with~~investment ~~proven~~which ~~technology~~helps ~~and~~enhance ~~services~~overall shareholder ~~that~~value ~~can~~to beboth ~~cost~~the ~~effectively~~financial ~~integrated~~services ~~into~~institution ~~its~~and channel ~~business~~partner solution providers.

~~The~~SEDONA ~~current~~believes that ~~economic~~the ~~climate~~key ~~brings~~to aselling ~~growing~~CRM/MRM ~~opportunity~~successfully ~~for~~is ~~CRM~~presenting ~~application~~a ~~solutions~~solution asthat ~~banks~~not ~~and~~only ~~credit~~meets ~~unions place increasing emphasis on effectively managing~~ the ~~relationship~~organization’s ~~of,~~unique ~~and interaction with~~industry, ~~their clients. As a significant segment of the overall SMB market~~business, ~~small~~ and ~~mid-sized~~ ~~financial services organizations have identified CRM as a strategic initiative to improve~~budget ~~customer~~requirements, ~~retention~~but ~~and~~also ~~profitability~~provides ~~rates.~~the ~~These~~organization ~~organizations~~with ~~see~~proven ~~CRM~~technology ~~as a competitive weapon in an industry dominated by large national~~ and ~~international companies with greater resources,~~ services ~~and~~that ~~advertising~~can ~~power.~~be Wecost ~~have~~effectively ~~chosen~~integrated tointo ~~strategically~~its ~~market our CRM application solution to these small to mid-sized financial services organizations~~business.

~~Unlike~~The ~~most~~current economic ~~traditional,~~climate ~~general-purpose~~brings ~~CRM~~a ~~applications,~~growing ~~SEDONA~~opportunity for CRM~~/MRM~~ issolutions aas ~~customer~~banks and ~~relationship~~credit ~~management~~unions ~~application~~place ~~solution~~increasing ~~specifically~~emphasis ~~designed~~on ~~and~~effectively ~~priced~~managing ~~to meet~~ the ~~needs of~~ ~~financial~~relationship ~~institutions with multiple lines-~~of~~-business~~, ~~across~~and ~~several~~interaction ~~vertical~~with, ~~industries~~their clients. Financial ~~SEDONA CRM/MRM provides small to mid-sized financial~~ services organizations ~~with a complete view of their~~have ~~customers’~~identified ~~relationships~~CRM ~~and~~as ~~interactions.~~a ~~This~~strategic ~~information~~initiative ~~enables them~~ to ~~gain~~improve ~~knowledge~~customer ~~about their~~retention ~~customers’ preferences, needs~~ and profitability ~~characteristics,~~rates. These ~~and build the appropriate strategies to~~organizations ~~more~~see ~~effectively~~CRM ~~target~~as ~~the~~a ~~right~~competitive ~~products,~~weapon toin ~~the~~an ~~right~~industry ~~people,~~dominated atby ~~the~~large ~~right~~national ~~time. SEDONA CRM/MRM~~and ~~assists~~international ~~those~~companies ~~organizations~~with togreater ~~effectively identify~~resources, ~~acquire,~~services ~~foster~~ and ~~maintain~~advertising ~~loyal, profitable customers~~power.

Unlike most traditional, general-purpose CRM applications, SEDONA CRM/MRM is a customer relationship management application solution specifically designed ~~for~~and ~~deployment~~priced to inmeet ~~either~~the anneeds Inof financial institutions with multiple lines-~~house~~of-business across orseveral ~~Software~~vertical asindustries. SEDONA aCRM/MRM ~~Service~~provides ~~(SaaS)~~financial services organizations with a complete ~~environment.~~view ~~The~~of ~~SaaS~~their ~~model~~customers’ isrelationships ~~especially~~and ~~attractive~~interactions. This ~~for~~information ~~small~~enables them to ~~mid-sized~~gain knowledge ~~financial~~about ~~services organizations~~their ~~that~~customers’ ~~lack~~preferences, ~~the~~needs ~~financial~~and ~~resources~~characteristics, and build ITthe ~~infrastructure~~appropriate strategies to ~~deploy~~more aneffectively ~~in-house~~target the right products, ~~enterprise~~to ~~business~~the ~~application~~right ~~such~~people, asat the right time. SEDONA CRM/MRM. assists those organizations to effectively identify, acquire, foster and maintain loyal, profitable customers.

In 2007, the Company expanded its sales distribution channel by entering into the higher education market. In 2008, the Company made the decision to defer wide-spread marketing efforts of this product and focus on delivering CRM/MRM to the financial services market. The Company plans to reevaluate the market opportunity for this vertical in the latter part of fiscal year 2009. 3

3In addition to the financial services market, the Company’s products have also been tailored to support Property, Casualty, Life Insurance and Continuing Education vertical markets. Although available for sale, the Company is not actively marketing these product lines at this time in order to focus on delivering CRM/MRM to the financial services industry.

~~Item~~In 12008, the company expanded its product offerings to include SEDONA Profit Pro. This ~~Business~~additional ~~(continued)~~offering enables the financial institution to determine the most accurate customer and member account profitability. Profit Pro provides general ledger reconciliation, along with a continually updated historical funds transfer pricing database, organization and customer portfolio “What If” capabilities, along with an expanded folder of profitability reporting that enables drilling down into every component of a branch, household, customer and account profit contribution.

In ~~February 2009~~addition, the Company’s ~~elected~~services have been expanded to ~~change~~provide ~~the~~a ~~name~~complete ofIncentive ~~its~~and Call ~~CRM/MRM~~Tracking ~~product~~offering. This functionality ~~from~~includes ~~Intarsia~~specialized workflows to ensure lead follow-up, custom ~~SEDONA~~goal ~~CRM/MRM.~~and ~~The~~incentive ~~Company~~table ~~believes~~generation, ~~that~~complex, ~~SEDONA~~yet ~~CRM/MRM~~flexible, ~~provides~~goal ~~greater~~calculation algorithms, ~~brand~~and ~~recognition.~~comprehensive reporting enabled at any level from the individual, or rolled up to the organization dashboard.

The Company’s principal ~~was~~office ~~incorporated~~is inlocated ~~1992~~at as1003 ~~Scan~~West ~~Graphics,~~Ninth ~~Inc.~~Avenue, aSecond ~~manufacturer~~Floor, ofKing ~~peripheral scanning~~of ~~equipment~~Prussia, ~~and geographical information systems software. In late 1999~~Pennsylvania, ~~the~~ 19406. The Company ~~changed~~has ~~its name~~a tosoftware ~~SEDONA~~delivery ~~Corporation~~facility ~~and ceased engaging~~ in ~~its~~Plymouth, ~~original business~~MN. The ~~Instead, the~~ Company ~~focused~~’s ~~its~~principal ~~efforts~~website onaddress ~~the~~is ~~development of SEDONA CRM/MRM and the related services business~~www. sedonacorp.com.

The Company’s ~~principal~~was incorporated ~~office~~in is1992 ~~located~~as atScan ~~1003~~Graphics, Inc., ~~West~~a ~~Ninth~~manufacturer ~~Avenue,~~of ~~Second~~peripheral scanning ~~Floor,~~equipment ~~King~~and ofgeographical ~~Prussia, Pennsylvania,~~information ~~19406~~systems software. In ~~The~~late 1999, the Company ~~has~~changed aits ~~software~~name ~~delivery~~to ~~facility~~SEDONA Corporation and ceased engaging in its ~~Plymouth,~~original MNbusiness. Instead, ~~The Company’s~~the ~~principal~~Company ~~website~~focused ~~address~~its isefforts ~~www.sedonacorp.com.~~on the development of SEDONA CRM/MRM and the related services business.

~~Additional~~In ~~Information~~February 2009, the Company elected to change the name of its CRM/MRM product from Intarsia to SEDONA CRM/MRM. The Company believes that SEDONA CRM/MRM provides greater brand recognition.

~~Copies~~Additional of the Company’s Form 10-K, 10-Q, 8-K reports, proxy and information statements, and other information with the SEC, and all amendments to these filings, may be obtained free of charge from the Company’s website at www.sedonacorp.com, as soon as reasonably practicable following the filing of any of these reports with the SEC. Copies may also be obtained free of charge by contacting the Company’s Investor Relations department at investorinfo@sedonacorp.com. In addition, copies may be obtained via the SEC’s internet website, www.sec.gov. The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Information

4Copies of the Company’s Form 10-K, 10-Q, 8-K reports, proxy and information statements, and other information with the SEC, and all amendments to these filings, may be obtained free of charge from the Company’s website at www.sedonacorp.com, as soon as reasonably practicable following the filing of any of these reports with the SEC. Copies may also be obtained free of charge by contacting the Company at investorinfo@sedonacorp.com. In addition, copies may be obtained via the SEC’s internet website, www.sec.gov. The public may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F. Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

~~ITEM 1. DESCRIPTION OF BUSINESS (continued)~~4

Description of Business Strategy

SEDONA is a software application and services provider that develops and markets web-based, vertical CRM/MRM ~~solutions to small and mid-sized businesses~~. The Company has strategically targeted ~~small to mid-sized~~ financial services organizations as the ~~first~~ primary vertical market to ~~introduce~~ deliver its leading CRM/MRM application solution including, but not limited to, community and regional banks, credit unions, savings and loans~~, and brokerage firms~~. The Company’s CRM/MRM application solution, ~~SEDONA CRM/MRM,~~ enables financial services organizations to improve key performance metrics to strengthen their position in the market and obtain a greater share of the customer’s wallet.

~~Beginning~~SEDONA has insigned ~~December 2008,~~Original ~~SEDONA~~Equipment ~~added~~Manufacturer ~~sales~~(OEM) and ~~marketing~~reseller ~~personnel~~agreements ~~to the organization to~~with ~~enhance~~several ~~the~~leading ~~direct~~software ~~distribution~~and ofservices ~~SEDONA~~providers ~~CRM~~for to the financial services market, ~~industry. In addition~~including, ~~SEDONA~~ ~~has~~but ~~also~~not ~~retained~~limited anto: ~~indirect~~Fiserv; ~~distribution~~Connecticut ~~channel~~Online ~~strategy~~Computer Center, Inc.; ~~whereby~~Profit ~~the~~Technologies; ~~Company~~Bradford-Scott; ~~licenses~~CU ~~its technology~~ink; toShare ~~software~~One and EPL. In ~~services providers~~addition, ~~who~~the ~~market,~~Company ~~sell,~~also ~~distribute and support SEDONA’s~~sells ~~technology~~its ~~either~~software asapplication asolutions ~~component~~directly ofto ~~their~~banks, ~~total~~credit ~~solution~~unions, orand savings asand ~~a stand-alone offering~~loans.

For 2010, SEDONA has ~~signed~~decided ~~Original~~to ~~Equipment~~capitalize ~~Manufacturer~~on ~~(OEM) and~~its ~~reseller~~strength ~~agreements~~as ~~with~~a ~~several~~highly specialized, ~~leading~~nimble ~~software~~company ~~and~~to ~~services~~focus ~~providers~~on ~~for~~increasing ~~the~~direct ~~financial~~sales, ~~services~~channel ~~market~~sales, services and new capabilities. The Company plans to undertake a number of initiatives to accomplish this including, ~~but~~enhancing ~~not~~its ~~limited~~product suite to: ~~Fiserv~~enable ~~Solutions,~~rapid ~~Inc~~deployment and development of new capabilities.; Included ~~Open~~are ~~Solutions~~solutions for contact management, ~~Inc.;~~demographic ~~Connecticut~~and ~~Online~~psychographic ~~Computer~~information ~~Center~~services, performance ~~Inc~~assessment, profitability management and sales referral tracking.; These new product platforms ~~Profit~~will ~~Technologies;~~fully ~~Bradford-Scott;~~exploit CUthe ~~ink.~~Company’s unique capabilities in data warehousing, data mining, business intelligence and predictive analytics.

~~Subsequent to December 31~~In 2009, ~~2008,~~SEDONA engaged the ~~Company~~services ~~announced~~of ~~that~~Archemedae itManagement, ~~had~~a ~~entered~~consulting ~~into~~firm specializing ain ~~reseller agreement~~technology ~~with~~startups, ~~Share~~turnarounds, ~~One~~strategic planning, ~~Inc~~and venture financing. toThe ~~deliver~~firm ~~member~~conducted ~~relationship~~a ~~application~~thorough ~~and~~review ~~services~~of tothe ~~their~~Company’s ~~clients.~~business ~~Share~~model, ~~One~~its isproduct ~~headquartered~~and ~~in Memphis~~services, TN and ~~has~~technology ~~provided~~trends ~~technology~~in ~~solutions~~the ~~for~~CRM ~~credit~~market. ~~unions~~The ~~for~~firm ~~over~~supplied ~~30 years.~~a ~~Share~~managing ~~One~~director, ~~currently~~David ~~serves~~H. ~~over~~Tobey, 60to ~~credit~~implement ~~unions nationwide with~~a ~~credit~~number ~~unions~~of ~~ranging~~new instrategies ~~size~~intended ~~from 2,000~~ to ~~95,000~~advance ~~members~~the ~~with~~success ~~approximately~~of ~~$2 billion~~the inCompany ~~total~~and its ~~assets~~products.

~~SEDONA~~As a ~~continues~~result toof ~~work~~the torecommendations ~~broaden~~from ~~its~~this ~~direct~~engagement, ~~and~~the ~~indirect~~Company’s ~~distribution~~new ~~channels and expand~~vision ~~its~~is ~~market~~to ~~penetration~~provide ~~within~~advanced ~~financial~~technology ~~services.~~solutions ~~The~~throughout ~~Company’s~~the ~~plans~~entire ~~include:~~life ~~(i) pursuing~~cycle ~~direct~~of ~~sales~~the ~~opportunities;~~financial ~~(ii) enhancing~~institution. The ~~its~~new architecture ~~indirect~~facilitates ~~sales~~financial ~~channel~~institution performance by ~~aligning~~supporting ~~OEM~~the transition ~~agreements~~from ~~with~~processing ~~core systems~~agent ~~providers;~~to ~~(iii) expanding~~trusted ~~its~~advisor. The ~~image~~Company ~~through~~plans ~~association~~on ~~trade~~releasing ~~shows,~~a ~~leveraging~~series ~~existing~~of ~~industry-specific~~new ~~associations’~~products ~~sponsorships~~ and ~~expanding~~services ~~its~~that ~~networking~~will ~~with~~expand ~~service organizations~~the ~~for~~Company’s market presence from the ~~financial~~small ~~services~~community ~~market;~~bank and ~~(iv) fostering~~credit union to the ~~existing~~largest ~~OEM~~global ~~partnerships~~financial ~~with~~institution-improving ~~leading~~risk ~~core~~management, ~~system~~customer ~~providers~~retention, bygrowth ~~promoting~~and profitability ~~corporate-wide~~from ~~adoption~~teller ofto ~~its~~bank ~~CRM/MRM~~president ~~technology~~to banking conglomerate CEO.

The Company’s product ~~license~~strategy ~~revenues~~includes ~~currently~~offering ~~consist~~two oflicensing ~~license~~versions ~~fees~~for ~~from in-house sales by~~SEDONA ~~either~~CRM ~~the~~and ~~Company~~MRM: SEDONA orEnterprise ~~from~~and SEDONA ~~businesses~~Lite. Customers ~~with~~who ~~whom~~select the ~~Company has entered into distribution~~ ~~arrangements~~Lite ~~(distribution~~option ~~partners);~~are oropting ~~multi-year,~~for ~~monthly~~personalized ~~subscription~~portals ~~license~~with ~~fees~~back ~~from~~office ~~SaaS~~analysis, ~~deployments by its distribution partners. Services revenues are derived from professional services fees~~reports, ~~including,~~and ~~but~~front-line ~~not limited to~~capability, ~~set-up~~at ~~and~~a ~~installation~~lower ~~fees~~cost ~~and~~of ~~training~~entry. ~~fees; and annual~~Customers ~~maintenance~~selecting ~~fees.~~the ~~The~~Enterprise ~~Company~~option isadd ~~not~~robust ancampaign ~~application services provider; however~~management, ~~SEDONA~~sales ~~CRM/MRM can~~and beservice ~~deployed~~process inmanagement aand ~~services~~predictive ~~environment~~analytics ~~through~~to the ~~Company’s~~Lite ~~distribution partners~~option. Customers ~~During 2008, 57%~~ of ~~SEDONA’s~~a ~~license~~Lite ~~revenues~~application ~~were~~can ~~derived from in-house licensing and 43% were derived from~~upgrade ~~subscription~~to ~~fees~~an onEnterprise ~~SaaS~~license ~~deployments.~~whenever ~~Comparatively,~~their ~~during~~financial ~~2007,~~institution ~~62%~~is ofready ~~the Company’s license~~to ~~revenues~~expand ~~were~~its ~~derived~~use ~~from~~of ~~in-house~~CRM ~~license~~or ~~sales and 38% were derived from subscription fees on SaaS deployments~~MRM.

5SEDONA has also engaged in an effort of systematic lead generation and qualification within its target market, using a variety of sources to compile vital information to qualify prospects. This enhances the effectiveness of SEDONA’s sales efforts for both direct and channel sales. Some statistics on the bank and credit union market are provided below. From this total prospect population, SEDONA carefully chooses the most applicable prospects to pursue with sales resources. The Company targets financial institutions with assets below $10 billion, however, our products are easily implemented by financial institutions of any size.

~~ITEM 1. DESCRIPTION OF BUSINESS (continued)~~5

In September 2008, SEDONA appointed Scott Edelman, as interim President and Chief Executive Officer. Under Mr. Edelman’s leadership, the Company has hired new direct sales teams and adopted a new marketing strategy. As part of SEDONA’s 2009 business plan, a new website has been developed and was launched in February 2009. Some of the new website features, available at www.sedonacorp.com, include:

TOTAL ASSET VALUE	< $100M	$100M - $300M	$300M - $500M	$500M - $1B	$1B - $3B	$3B - $10B	> $10B
COMMUNITY & REGIONAL BANKS	3,131	2,921	856	721	410	151	115
CREDIT UNIONS	8,688	729	192	182	113	24	7
TOTAL NUMBER OF INSTITUTIONS	11,819	3,650	1,048	903	523	175	122

•Source: FDIC & ANational ~~comprehensive~~Credit ~~overview~~Union ofAssociation ~~the~~— robust SEDONA CRM/MRM technology along with features, benefits and a quick contact form for a personalized demo; • Description, features and benefits of SEDONA’s professional services designed to enhance customer marketing, revenue and profit metrics; • Resources, white papers, and frequently asked questions detailing SEDONA’s technology and professional services; • Partner endorsements, customer testimonials and case studies; • Announcements of upcoming corporate events and developments; and • Relevant industry articles and informationFebruary 2009

~~Additionally,~~SEDONA has ~~the~~also ~~Company~~enhanced ~~is expanding~~ its ~~brand~~customer ~~awareness~~care bysystem ~~attending~~to ~~several~~ensure ~~bank~~that ~~and~~all ~~credit~~employees have ~~union~~ready ~~association~~access ~~tradeshows~~to ~~and~~information ~~education~~on ~~events.~~the ~~The~~ Company’s ~~also~~direct ~~launched~~clients aand ~~series~~can ~~of nine~~provide ~~web-based~~superior ~~seminars~~service for ~~financial~~incoming ~~institutions~~calls. ~~geared~~With tothese ~~providing~~enhancements, ~~banks~~the ~~and~~Company ~~credit unions with~~sees ~~practical~~a ~~strategies~~strong topotential ~~maximize~~for ~~customer/member~~more ~~retention,~~responsive ~~acquisition~~delivery ~~and~~of ~~profitability~~client asservices ~~well~~to its ascustomer ~~improve~~base, ~~marketing~~increased ~~ROI~~cross-selling and ~~gain~~up-selling, ~~process~~and ~~efficiencies.~~improved customer retention.

~~SEDONA~~The new ~~believes~~initiatives ~~that~~for ~~the~~prospecting, ~~key~~selling, toservice ~~selling~~delivery, ~~CRM/MRM~~and ~~successfully~~customer tocare have ~~SMBs~~been isimplemented ~~finding~~using aSEDONA’s ~~solution~~own ~~that~~CRM ~~not~~technology, providing an ~~only~~outstanding ~~meets~~example ~~the~~of ~~organization’s~~how ~~unique~~a ~~industry,~~smaller ~~business,~~organization ~~and~~such ~~budget~~as ~~requirements,~~a ~~but~~community ~~also~~bank ~~provides~~or ~~the~~credit ~~organization~~union ~~with~~can ~~proven~~quickly ~~technology~~configure and ~~services~~design ~~that~~improvements ~~can~~in beits ~~cost~~CRM ~~effectively~~system ~~integrated into~~— ~~its~~making ~~business.~~ongoing ~~When~~incremental ~~these~~changes ~~needs~~— ~~are~~and ~~met,~~reap ~~SMBs~~the ~~should~~rewards ~~achieve~~within aweeks, ~~positive~~not months ~~return~~or onyears. At ~~their~~SEDONA, the SEDONA CRM~~/MRM~~ system supports customer-facing processes that include all critical ~~investment~~functions ~~(ROI)~~from marketing through delivery and payment.

	•		Targeting the SMB market with a highly-verticalized CRM/MRM application solution
			Recent 2009 studies predict that the North America SMB markets for application and software and services will grow to a $35 billion market by 2013, with a compound annual growth rate (CAGR) of 6% in the next five years.
			As a significant segment of the overall SMB market, small and mid-sized financial services organizations, represented by community and regional banks, credit unions, savings and loans, and brokerage firms, with total asset value below $10 billion, have identified CRM as a strategic initiative to improve the customer retention and profitability rates in a marketplace dominated by large national and international companies with greater resources, services and advertising power.

The Advantages of SEDONA Solutions

TOTAL ASSET VALUE	< $100M		$100M - $300M		$300M - $500M		$500M - $1B		$1B - $3B		$3B - $10B		> $10B
COMMUNITY & REGIONAL BANKS		3,131		2,921		856		721		410		151		115
CREDIT UNIONS		8,688		729		192		182		113		24		7
TOTAL NUMBER OF INSTITUTIONS		11,819		3,650		1,048		903		523		175		122

SEDONA solutions offer a number of advantages that are particularly important to the Company’s target market.

~~Source:~~· Flexible ~~FDIC~~Installation &and ~~National~~Pricing — ~~Credit~~customers ~~Union~~can ~~Association~~choose —to ~~February 2009~~host the system themselves with a perpetual license or to have the system hosted by one of SEDONA’s partners along with SaaS pricing. The hosting and SaaS pricing options appeal to community banks and credit unions, which have relatively small technology budgets and limited IT support.

6· Speed — community banks and credit unions can deploy SEDONA CRM or MRM within weeks, not months, and begin to see results — increased retention rates, more effective cross-selling, improved profitability — not in the next year but in the next quarter.

~~ITEM~~· Simplicity 1— community banks and credit unions aspire to the same CRM and MRM capabilities as the big financial institutions, but do not have the resources for specialized staff or significant system training and support. ~~DESCRIPTION~~Therefore OFthey ~~BUSINESS~~need ~~(continued)~~a solution such as SEDONA’s which is intuitive for the non-technical employees who need to use it with minimal training.

~~Following~~· Flexibility ~~the economic downturn in 2008, the Company is cautiously optimistic about the utility~~ and ~~necessity of our CRM/MRM products. The Company believes that the current economic~~Configurability ~~crisis~~— ~~did~~national ~~not~~banks ~~have~~use apainstaking ~~material~~custom ~~adverse~~programming ~~effect on the implementation of our business plans~~ to ~~date.~~build Insystems ~~today’s~~that ~~environment, customer relationship management is of heightened importance~~fit totheir ~~financial~~existing ~~institutions,~~or ~~assisting~~desired ~~them~~processes ~~in efficiently~~ and ~~effectively managing relationships with their clients~~culture. ~~However,~~ SEDONA ifsolutions ~~economic~~have ~~problems~~built-in ~~become magnified among our customer base,~~flexibility itand ~~could~~configurability ~~become~~so ~~more~~that ~~difficult~~a ~~for~~community ~~our~~bank ~~customers~~or tocredit ~~afford~~union ~~our~~can ~~products. We are continuing to~~design ~~monitor~~reports, ~~the~~departmental ~~situation~~portals, and ~~are~~sales ~~in constant contact with our partners~~ and ~~customers. No~~service ~~prediction~~processes ~~can be made as~~ to ~~whether~~suit ~~the~~how ~~ongoing financial crisis will have a material~~they ~~adverse effect on the results of future operations~~work.

• Removing the barriers to purchasing and maintaining a CRM/MRM system SEDONA’s technology is designed to provide prospective customers and distribution partners with an effective deployment of an enterprise business application in either an “in-house” or “software as a service” (SaaS) environment. The SaaS model is especially attractive for financial institutions that lack the financial resources and IT infrastructure to deploy an in-house enterprise business application such as CRM/MRM. The SaaS model provides financial institutions with an immediately available, fully integrated system, including all of the software, hardware and services required for the deployment of a comprehensive, web-based enterprise business application, for an affordable, fixed monthly subscription fee. The distinctive features of the SaaS model make it attractive to current and future OEM and reseller partners because it: Shortens the sales cycle by greatly reducing the financial barriers — software, hardware and “people-ware” costs — and the resource requirements on a customer’s existing IT organization; Builds a recurring revenue stream, as the solution can immediately be made available to an existing customer base with a low monthly fee to stimulate volume deployment; Generates new revenue opportunities through the upgrade of new integration and training services as well as software upgrades; and Assists in achieving a positive return on investment more rapidly than traditional software licensing. The immediate availability of the application enables organizations to capitalize on its benefits right away. • Marketing unique proprietary solution to target markets through multiple sales distribution channels Having strategically targeted a key segment of the vast CRM/MRM market and designed and priced its CRM/MRM application solution accordingly, SEDONA’s sales strategy is to capture a share of the small to mid-sized financial services market using multiple direct and indirect sales distribution channels and innovative marketing programs to garner awareness and market leadership.6

•· Engineering ~~Direct~~— ~~Sales~~SEDONA technology ~~Distribution~~is ~~Channel~~web-based ~~The~~and ~~Company~~database ~~has~~agnostic, ~~established~~with a ~~direct~~meticulously ~~sales~~engineered data ~~channel~~integration toengine ~~promote~~capable ~~and~~of ~~sell~~handling ~~SEDONA~~significant ~~CRM/MRM~~quantities ~~directly~~and totypes of data coming from the ~~small~~core toprocessor, ~~mid-sized~~third ~~banking~~party ~~and~~applications, ~~credit~~spreadsheets ~~union~~and text ~~markets~~files. This means that SEDONA solutions iscan ~~targeting~~fit ~~community~~into ~~and~~the ~~regional~~widely ~~financial~~varying ~~institutions~~technology ~~that~~environments ~~run~~encountered at ~~banking~~today’s varied financial institutions.

7· Data Integration Services — SEDONA’s client services professionals together have vast experience integrating data for banks and credit unions to create a complete and high quality picture of customers, members, and households.

~~ITEM~~SEDONA’s 1.Target ~~DESCRIPTION OF BUSINESS (continued)~~Market

~~and~~Banks and credit ~~union~~unions ~~core~~need ~~systems~~to ~~other~~foster ~~than the ones provided by the Company’s current distribution partners. • Indirect Sales Distribution Channel SEDONA has signed several OEM~~ and ~~reseller~~retain ~~agreements~~loyal, ~~with~~profitable ~~leading~~customers ~~software~~ and ~~services~~members by ~~providers~~understanding ~~for~~individuals the financial services market. Reseller agreements generally range from three to five years in term, with OEM agreements generally ranging beyond five years terms. Under the agreements with its current distribution partners, the Company receives license fees and ~~annual~~households ~~maintenance fees for every in-house sale of its CRM/MRM technology,~~ as well as ~~multi-year,~~the ~~monthly~~profitability ~~subscription~~of different ~~fees~~products ~~for~~and ~~every~~product ~~sale in a SaaS environment~~mixes. ~~These fees are paid to~~ SEDONA ~~whether~~and ~~SEDONA’s~~its ~~distribution~~channel partners ~~sell~~need ~~SEDONA’s~~to offer CRM~~/MRM~~ ~~technology as a component of their partner’s total solution or as a stand-alone offering. The solution achieved by branding~~ and ~~integrating SEDONA’s CRM/~~MRM ~~technology~~capabilities that ~~into~~differentiate ~~its~~them ~~distribution~~from ~~partners’ core business applications, combined with~~ their marketing strengths, broad distribution channels and strong reputations, provides financial institutions with the opportunity to enjoy all the benefits of implementing an enterprise-wide CRM/MRM applicationcompetitors.

•· Banks deal ~~Staying~~with ina ~~the~~highly ~~forefront~~unusual ofbusiness ~~CRM/MRM~~situation ~~technology~~compared ~~SEDONA~~to ~~CRM~~companies ~~provides~~in ~~banks~~other industries. In ~~and~~most ~~credit~~industries, ~~unions~~when ~~with~~a customer purchases a ~~comprehensive~~product ~~customer~~or ~~relationship~~service, ~~management~~the ~~solution~~seller ~~that~~realizes isa ~~tightly~~profit, ~~integrated~~however small, with ~~their~~the ~~business~~possible ~~processes~~exception of promotions and ~~back-end~~limited ~~systems~~time discounts. However, Itfor ~~enables~~banks, ~~them~~some toof the ~~optimize~~products ~~their~~they ~~return~~offer onare ~~customer~~profitable ~~relationships~~while byothers ~~personalizing~~are ~~the~~not. In ~~management~~addition, ~~and~~a ~~interaction~~given ~~with~~financial ~~their~~product ~~customers~~may see ~~and~~its ~~ensuring~~profitability ~~that~~vary from customer to customer depending upon the interest ~~sales~~rate, term, and ~~marketing~~fees. Therefore it ~~efforts~~is ~~are~~possible ~~strategically~~for ~~aligned~~a ~~toward~~bank ~~increasing~~customer ~~company~~to ~~profitability.~~use ~~Exploiting~~one ~~the~~or ~~ubiquity~~more offinancial ~~the internet~~products, ~~SEDONA~~such as ~~CRM’s~~a ~~comprehensive~~checking ~~set~~account ofand ~~components~~savings ~~provides~~account, ~~financial~~while ~~institutions~~costing ~~with~~the abank ~~robust~~money ~~set~~every month. Unprofitable ofcustomers ~~marketing~~or households ~~analytics~~can ~~and~~continue ~~operational~~driving ~~CRM~~down ~~capabilities~~the ~~necessary~~overall ~~to:~~returns for banks.

•· Bank customers ~~Have~~generally use a ~~360°~~mix ~~view~~ of ~~the~~accounts ~~customer~~and ~~by integrating the front~~services, ~~back~~from ~~and~~checking ~~mobile offices into one comprehensive database of information about customers~~ and savings ~~prospects. • Analyze customer and prospect data~~accounts, ~~enabling financial services organizations~~ to ~~manage~~certificates ~~critical business performance such as profitability~~ of ~~customers~~deposit, ~~(accounts~~loans, ~~members~~debit ~~and~~cards ~~policy holders), personnel, households~~ and ~~products~~internet banking. This •product ~~Measure~~mix ~~the~~includes ~~effectiveness~~both profitable ~~of the organization’s lead generation~~ and ~~marketing~~unprofitable ~~campaigns and ensure timely follow-up of referrals, customer requests and sales leads~~accounts. It is •imperative ~~Improve~~for ~~coordination~~a ~~and~~bank ~~communication~~to ~~between~~create ~~financial~~a ~~services~~unified ~~organizations~~picture ~~and~~of ~~their~~all ~~customers,~~of ~~enhancing~~a ~~the~~customer’s accounts ~~ability~~ to ~~deliver~~determine ~~effective~~how ~~service~~profitable ~~and~~that ~~improve~~customer ~~organizational~~is ~~productivity.~~overall •in ~~Automate~~order ~~business~~to ~~processes~~use the ~~that~~bank’s ~~may~~limited beresources ~~critical~~to ~~for~~retain ~~the~~highly ~~effective~~profitable ~~management~~customers and ~~monitoring~~more effectively ofpromote ~~the~~products ~~relationships~~which ~~and~~are ~~interactions~~appropriate ~~with~~and ~~customers~~appealing atto ~~the~~a ~~financial~~customer or ~~services organizations~~household.

~~SEDONA~~· Building a ~~CRM~~unified ~~seamlessly~~picture ~~enhances~~of ~~the~~a ~~bank~~customer orand ~~credit~~a ~~union~~household ~~customer~~becomes ~~and~~even ~~prospect~~more ~~data~~challenging when ~~with~~you ~~user~~consider that banks often have additional lines of business such as ~~demographics,~~trust ~~behaviors~~accounts, ~~interests~~wealth management, and ~~preferences~~insurance, ~~information~~operating ~~provided~~not byon ~~third-party~~the core ~~content~~processing ~~management~~system ~~suppliers~~but oron ~~personal~~third ~~interactions.~~party applications. This ~~enhanced~~information must also be unified with bank account data isin ~~then~~order ~~analyzed~~to fully understand the customer and household relationship with the bank. The ability to thoroughly and efficiently unify data from the core processor and third party applications is a principal strength of SEDONA solutions.

8· Credit unions are similar to banks, except that as member-owned financial institutions where profits are shared by members, considerations of profitability are secondary to the mission of the organization. Credit unions are generally smaller than banks, with over 85% having less than $100 million in assets compared to 38% of banks, and so have fewer resources in terms of money and people to devote to retaining their members and promoting to them. Consequently credit unions must be highly judicious in their promotion and retention efforts.

~~ITEM 1. DESCRIPTION OF BUSINESS (continued)~~7

~~create~~· These challenges, ~~timely~~true for banks and ~~precise~~credit ~~information~~unions oneven ~~demand~~in the best economic times, are all the more daunting during turbulent times. During ~~This~~2009, ~~information~~financial isinstitutions ~~used~~saw bytheir customer ~~all~~base and membership changing unpredictably. To begin with, high unemployment and underemployment have changed which customers are profitable as deposit balances drop dramatically and loans go into delinquency and default. Furthermore, households are changing their financial product mix as they seek to build secure savings with insured deposits and shy away from credit and investments. All of ~~SEDONA~~this requires banks and credit unions ~~CRM’s~~to ~~components~~understand changing trends and demands in order to ~~enable~~offer ~~the~~suitable ~~organization to:~~products and services.

•· The challenges ~~Create~~described ~~“look-a-like”~~here ~~models~~lead tobanks ~~effectively~~and ~~identify~~credit ~~prospects~~unions ~~that~~to ~~share~~seek ~~the~~out ~~same~~vendors ~~characteristics~~who specialize asin their ~~organization’s~~industry ~~best~~because ~~customers,~~products ~~increasing~~designed ~~the~~for ~~institution’s~~other ~~ability~~industries toare not ~~acquire~~readily ~~new~~applicable ~~customers.~~to •the ~~Help~~banking ~~predict~~environment. Banks ~~customer retention~~ and ~~make~~credit ~~profitable~~unions ~~cross-sell~~look ~~(next~~for ~~best~~solutions designed ~~product)~~not ~~recommendations.~~only •for ~~Generate~~financial ~~alerts~~services, ~~and~~but ~~automated~~for ~~processes~~banks ~~to deal with critical changes in customer status~~ or ~~other~~credit ~~business indicators~~unions specifically. •This ~~Develop~~vertical ~~personalized~~specialization ~~sales,~~is ~~marketing~~another ~~and services programs aimed at retaining the financial services organization~~of SEDONA’s ~~most~~key ~~profitable customers and turning unprofitable customers into profitable ones~~strengths.

~~All~~· SEDONA’s channel ~~this~~partners ~~functionality~~are issolution ~~available~~providers to ~~SEDONA~~banks ~~CRM~~and ~~users~~credit ~~via~~unions. aThe majority ~~standard~~of ~~web~~them ~~browser~~provide core processing systems, ~~over~~which afinancial institutions ~~wire~~use ~~line~~for day-to-day account deposits and withdrawals. Once a bank or ~~wireless~~credit ~~network~~union adopts a core processor, ~~enabling~~it ~~both~~becomes ~~front~~very ~~and~~difficult ~~back~~to ~~office~~move ~~personnel~~to a competitor due to ~~have~~the effort ~~consistent~~involved ~~and~~in ~~timely~~changing ~~information~~such ~~about~~a ~~customers~~critical ~~and prospects~~system. Each ~~With~~year, ~~mobile~~the ~~device~~core ~~usage~~processing providers compete fiercely to convince a onsmall percentage of financial institutions to switch systems. When the ~~rise~~Company’s channel partners license SEDONA technology, ~~this~~they ~~capability~~offer ~~will~~value-added beservices ~~increasingly~~which ~~critical~~provide asadded incentives ~~users~~for ~~become~~institutions ~~less~~to ~~tethered~~switch core processors. They also provide leading edge capabilities to antheir ~~office~~current ~~location~~base of customers, befor ~~they~~whom ~~traveling,~~new ~~working~~features atare ~~home~~even more important due to their resistance to changing core processors. SEDONA’s tight integration with core processors, orwhile ~~conducting~~developing ~~meetings~~as atan independent and standalone ~~customers~~product, is yet another of the Company’s ~~sites~~critical competitive advantages.

~~Research~~How &SEDONA ~~Development~~ Solutions Help Financial Institutions

The ~~main~~Company’s customers ~~strategy~~utilize of SEDONA’s ~~research~~solutions ~~and~~in ~~development~~a ~~activities~~variety isof toways ~~provide~~in ~~high-quality, high-value~~order ~~products~~to ~~and~~better manage ~~support~~the ~~services~~relationship inwith atheir ~~consistent~~customers and ~~predictable~~members. ~~manner,~~A asbank ~~follows:~~or credit union may embark on any combination of the initiatives described below.

•· Retention ~~Promote~~— ~~and~~by ~~cultivate~~retaining valuable acustomers ~~culture of team-based development: The Company’s research~~ and ~~development organization is structured into small teams of developers~~members, ~~responsible~~banks ~~for the design, development~~ and ~~unit~~credit ~~testing~~unions ofcan ~~each~~enjoy ~~component~~more ofstable deposits ~~the SEDONA CRM/MRM application solution. Each project team also provides technical assistance to the systems integration group. • Create efficient~~ and ~~predictable~~long ~~software~~term ~~development life cycle: SEDONA utilizes an industry-proven software development process that encourages component reusability and enhances the predictability~~loyalty, ~~timeliness~~both ~~and quality~~ of ~~the overall software process. SEDONA has adopted the Base Level Integration Plan software development methodology,~~ which ~~has~~indirectly ~~been~~boost ~~designed~~financial stability ~~to promote an interactive~~ and ~~predictable process for the development~~profitability. Typically, 10% ~~unit and system integration testing and delivery~~ of ~~products.~~households ~~This~~contribute ~~methodology~~90% ~~divides the development~~ of ~~sophisticated~~profits; ~~products~~banks ~~into~~and ~~four,~~credit ~~pre-defined~~unions ~~cycles~~can ~~per~~use SEDONA ~~year. It also allows the Company~~ to ~~react~~identify ~~quickly~~those tohouseholds ~~business~~ and ~~technical~~track ~~changes~~efforts generated by the marketplace and/or new customer requirements. Base levels serve as the fundamental planning and execution process that drives the engineering activities for that time period, including the maintenance of existing products and releases, training and education requirements, as well as new product development. This process operates in the context of a development organization where there is a set of small project teams cooperating to ~~build~~retain ~~a large, complex software product under the guidance of the Chief Technology Officer~~them. ~~In addition,~~ SEDONA’s ~~research~~Retention ~~and~~Risk ~~development~~Predictor ~~efforts~~provides ready-made ~~are~~advanced ~~focused~~analytics oncapabilities ~~enhancing~~not ~~the~~normally ~~features~~accessible ~~and functionality of our products. We only provide support~~ to ~~our~~smaller financial ~~customers~~institutions, oncalculating ~~the~~a ~~then-current~~score ~~version~~that ofhelps ~~our~~banks ~~software~~ and ~~one~~credit ~~prior~~unions identify ~~release.~~those Asindividuals amost ~~result,~~at werisk doof ~~not~~leaving, ~~have~~before ~~to maintain~~they leave.

9· Cross-selling — SEDONA provides the ability to identify the best prospects in a customer base or membership for additional products. Marketers and front line staff can utilize the information to develop more effective and targeted direct marketing campaigns. The next best product recommendations apply advanced analytics to deliver suggestions which are designed not just to appeal to the specific individual, but also to improve individual or household profitability. Additionally, banks and credit unions use SEDONA to track referrals and incentives, increasing the number of qualified prospects for their cross-selling efforts.

~~ITEM 1. DESCRIPTION OF BUSINESS (continued)~~8

~~multiple~~· Profit ~~versions~~Pro of— ~~our~~SEDONA ~~software~~Profit Pro ~~which~~provides ~~helps~~the toability ~~keep~~for ~~our~~a ~~costs~~financial ~~for~~institution ~~maintenance~~to ~~and~~determine ~~support~~the most ~~low~~accurate account and customer profit contribution. Through the use of a continually updated historical funds transfer pricing database, along with automatic download of financial reporting, Profit Pro provides the most accurate picture of individual and household contribution to organizational profit.

~~Research~~· Acquisition ~~and~~— ~~development~~SEDONA ~~expenses~~helps profile ~~were~~the ~~$526,000~~characteristics of loyal and ~~$601~~profitable households,~~000~~ ~~for~~usually ~~the~~a ~~years~~combination of ~~ended~~location, ~~December 31~~age range, ~~2008~~household ~~and~~size, ~~2007~~lifestyle, ~~respectively~~and product mix which is specific to each financial institution. Banks ~~The~~and ~~decrease~~credit inunions ~~expenses~~use ofthis ~~$75~~profile to select prospect lists to solicit new customers and members. In addition,~~000~~ ~~was~~by ~~the~~using ~~result~~SEDONA offor on-boarding, a custom designed service where new ~~staff~~customers ~~reduction~~or inmembers ~~the~~are ~~research~~automatically ~~and~~moved ~~development~~through ~~department~~a ~~due~~standard process to welcome ~~changes~~them inand ~~the development~~to ~~requirements~~offer ~~during~~suitable ~~the~~additional ~~first~~financial ~~quarter~~products, ofbanks ~~2008.~~and credit ~~The~~unions ~~change~~can ~~did~~improve ~~not~~their ~~result~~retention ~~in any~~rates ~~decline~~for innew ~~productivity~~customers.

~~Trademarks~~· Marketing ROI — the community banks, regional banks, and ~~Copyrights~~credit unions in SEDONA’s target market generally have limited resources for marketing. It has long been difficult to justify marketing expenses because of the difficulty in measuring the return. SEDONA solutions lets financial institutions track individuals or households in a promotion and measure the return on mailing, calling, or other promotion efforts in terms of new accounts opened, total new balances or loan amounts, and additional monthly profit. Armed with this information, SEDONA’s customers can shift their resources to those initiatives which yield the best return.

~~SEDONA~~· Front ~~has~~Line ~~obtained~~Effectiveness — ~~copyright~~financial ~~and~~institutions ~~trademark~~use ~~protection~~SEDONA ~~for~~to ~~certain~~provide ofcustomer-facing ~~its products~~ and ~~services.~~ ~~The~~member-facing ~~Company~~employees ~~has~~with a ~~service~~snapshot ~~mark~~of ~~for~~information aon ~~logo~~an ~~design,~~individual’s ~~which~~and household’s ~~was~~accounts ~~registered~~and ~~with the United States~~history. SEDONA ~~Patent~~is ~~and~~also ~~Trademark~~a ~~Office~~single ~~(USPTO) on~~online ~~July 23,~~platform ~~2002~~to ~~(Registration~~deliver ~~No. 2,598,107),~~prospect alists ~~service mark~~ for ~~the~~direct ~~word~~mail ~~mark,~~and calling ~~“SEDONA”,~~campaigns ~~which~~along ~~was registered~~ with ~~the~~marketing ~~USPTO~~brochures, ontalking ~~March 24~~points, ~~2003~~and ~~(Registration~~sales Noscripts. ~~2,700,294),~~ ~~and~~Banks ~~a trademark~~ and ~~service~~credit ~~mark~~unions ~~for~~can ~~the~~use ~~word~~SEDONA ~~mark~~to ~~“INTARSIA”~~track ~~which~~their ~~was~~sales ~~registered~~pipelines ~~with~~and ~~the~~create ~~USPTO~~consistent onprocesses ~~July 12,~~for ~~2005~~prompt ~~(Registration~~and ~~No. 2,967,355).~~effective ~~The~~sales ~~Company~~and ~~shares the word mark~~service, ~~“INTARSIA”~~ with ~~Intarsia~~reminders ~~Corporation,~~and ~~who~~escalation ~~since~~of ~~2002, has accepted a co-existence agreement with the Company~~delays. ~~SEDONA has the exclusive right to use the “Intarsia®” trademark in connection with its CRM/MRM services.~~

~~The~~· Loyal, ~~Company~~Profitable ~~claims~~Relationships — banks and ~~possesses~~credit ~~rights~~unions inuse ~~various~~SEDONA’s ~~other~~unified ~~trademarks~~data and ~~services~~analytical ~~marks, and intends~~capabilities to ~~file~~identify ~~various additional trademark~~ and ~~service~~track ~~mark~~the ~~applications~~growth toof ~~register~~loyal, ~~such~~profitable ~~trademarks~~relationships, and to ~~service~~understand ~~marks~~their ~~with~~impact ~~the~~on ~~USPTO~~retention, asmarket ~~management~~penetration, ~~deems~~and ~~advisable~~profitability.

~~Major~~· SEDONA ~~Customers~~Services — can range anywhere from solution recommendations, to follow on or advanced training, through complete functionality design and custom implementation using SEDONA CRM.

~~Since~~The ~~one~~ flexibility of ~~the Company~~SEDONA’s ~~primary~~software ~~sales~~means ~~strategies~~that isfinancial toinstitutions ~~utilize~~can anselect ~~indirect~~those initiatives ~~sales~~that ~~model~~are most in line with their culture, ~~i.e.~~their priorities, and ~~the~~their ~~Company~~limited ~~distributes~~resources. Over ~~its~~time, institutions ~~products~~can ~~through~~grow ~~distribution~~into ~~partners,~~their use of the ~~Company’s~~product ~~revenues~~for ~~are~~increasing return on ~~derived~~their ~~from~~CRM aand ~~limited~~MRM ~~number~~investment. Some banks and credit unions begin their adoption of ~~partners.~~CRM ~~Consequently~~with centralized, ~~any~~back-office marketing ~~partner~~initiatives, ~~may~~expanding ~~account~~later ~~for~~to ~~more~~front ~~than~~line ~~10%~~cross-selling and other ofinteractions as resources permitted. Other financial institutions deploy SEDONA in the ~~total~~back ~~revenue~~office ~~derived~~and ~~during~~across ~~any~~the ~~given~~front ~~year~~line simultaneously.

~~License~~The ~~and~~Role ~~service revenues fluctuate as they are dependent upon many variables including the delivery requirements, size and complexity~~ of ~~the~~SEDONA’s ~~transaction~~Channel ~~with our customers.~~ Partners

AsSEDONA’s channel ofsales ~~December 31,~~strategy ~~2008~~is an important complement to its direct sales activities. SEDONA has signed Original Equipment Manufacturer (OEM) and ~~2007,~~reseller ~~the~~agreements ~~Company~~with ~~had~~several leading ~~obtained~~software ~~net~~and ~~revenues~~services ~~from~~providers ~~significant~~for the financial services market, ~~customers/OEM~~including, ~~distribution~~but ~~partners~~not aslimited ~~follows~~to: Fiserv; Connecticut Online Computer Center, Inc.; Profit Technologies; Bradford-Scott; CU ink; Share One; and EPL Inc.

		2008				2007
OEM distribution partner A			29	%			33	%

AsWhen ofthe channel ~~December 31~~partner is a core processing system provider, ~~2008~~the SEDONA offering has the added advantage of data integration which is tightly coordinated between the core system and ~~2007~~the SEDONA solution. In many cases, the ~~Company~~CRM ~~had~~or ~~accounts~~MRM ~~receivable~~system ~~from~~delivered ~~significant~~as a SaaS based offering ~~customers/OEM~~is ~~accounts~~hosted in the same secure facilities as ~~follows:~~ the core system.

	2008			2007
OEM distribution partner A		28	%		52	%
OEM distribution partner B		45	%		14	%

Many core processing providers have made attempts to provide CRM or MRM to their customers by developing capabilities as part of their core system. These capabilities run up against limitations because the provider must favor development of core system capabilities over CRM. In contrast, SEDONA’s sole focus is developing CRM and MRM capabilities and services, and therefore its solutions maintain their competitive position at the forefront of the market. As a consequence, our channel partners’ bank and credit union customers enjoy the best of both worlds — a solution that is both tightly integrated with the core processor and also leading-edge. This is another key advantage for SEDONA.

~~Substantially,~~The ~~all~~Value of ~~the Company~~SEDONA’s ~~revenues~~SaaS ~~are earned from customers in the United States.~~ Offering

10The SaaS model is especially attractive for small to mid-sized financial services organizations that lack the financial resources and IT infrastructure to deploy an in-house enterprise business application such as CRM and MRM. The SaaS model is another principal advantage of SEDONA solutions.

~~ITEM~~Just 1as attractive as the hosting of the system, is the pricing, calculated as a cost-effective monthly price charged as long as the customer uses the system. SaaS ~~DESCRIPTION~~pricing OFdoes ~~BUSINESS~~not ~~(continued)~~involve the significant up-front charges of a perpetual license and does not come out of the capital expenditures budget. SEDONA also offers a SaaS pricing option for those customers who choose to host the software on their own premises but wish to benefit from subscription pricing.

~~Backlog~~ Staying in the Forefront of CRM/MRM Technology

~~Revenue~~SEDONA ~~backlog consists of unfulfilled purchase contracts, service contracts entered into with~~CRM ~~partners~~provides ~~for~~banks ~~SaaS services~~ and ~~deferred~~credit ~~revenues,~~unions ~~primarily~~with ~~for~~a ~~advance~~comprehensive ~~royalties~~customer ~~and maintenance~~relationship ~~contracts~~management ~~where~~solution ~~revenues~~that ~~are~~is ~~recognized~~tightly ~~ratably~~integrated ~~over~~with ~~the~~their ~~life~~business ofprocesses ~~the contract which typically~~and ~~ranges~~back-end ~~from 36 to 60 months~~systems. It Asenables ofthem ~~December 31, 2008, the Company had a deferred revenue backlog~~to ofoptimize ~~$669,915,~~their ~~substantially~~return ~~all~~on ofcustomer ~~which~~relationships isby ~~expected~~personalizing ~~to be recognized as revenue in 2009. In addition, as of December 31, 2008,~~ the ~~Company had recorded a total of approximately $751,149 in~~management ~~current~~ and ~~non-current~~interaction ~~accounts~~with ~~receivable~~their customers and ~~associated~~ensuring ~~deferred~~that ~~revenue~~the ~~for~~sales ~~monthly~~and marketing ~~subscription~~efforts ~~fees~~are ~~that~~strategically ~~will~~aligned betoward ~~recognized~~increasing ~~ratably~~company ~~over the contract terms~~profitability.

~~Competition~~Exploiting the ubiquity of the internet, SEDONA CRM’s comprehensive set of components provide financial institutions with a robust set of marketing analytics and operational CRM capabilities necessary to:

~~SEDONA~~· Have ~~believes~~a ~~that~~360° ~~the~~view ~~most~~of ~~important competitive factor, which enables~~ the ~~Company~~customer ~~to differentiate~~by ~~itself~~integrating ~~from~~ the ~~competition~~ front, isback ~~its~~and ~~focus~~mobile onoffices ~~delivering~~into aone ~~specifically~~comprehensive ~~tailored CRM/MRM~~database ~~solution~~of ~~to the financial services market through a sales force with extensive financial~~information ~~services~~about ~~industry~~customers ~~knowledge~~ and ~~by partnering with a number of leading core processor providers~~prospects.

~~Since~~· Analyze ~~core~~customer ~~processor~~and ~~providers~~prospect ~~are~~data, ~~responsible~~enabling ~~for the SMB’s mission-critical business applications~~financial ~~and~~services ~~solutions,~~organizations ~~they have the information required~~ to ~~make~~manage ~~the~~critical ~~implementation~~business ofperformance asuch ~~CRM/MRM solution~~as ~~viable.~~profitability ~~Using~~of ~~the~~customers, ~~core processor providers as a sales~~(accounts, ~~marketing~~members and ~~distribution~~policy ~~channel~~holders), ~~improves~~ ~~SEDONA’s opportunity to establish itself as a leading provider of CRM/MRM application~~personnel, ~~software~~households and ~~services, as those organizations create a formidable barrier for other CRM/MRM providers to enter the market~~products.

~~There~~· Measure ~~are~~the ~~additional~~effectiveness ~~core~~of ~~processing~~the ~~providers~~organization’s ~~with whom SEDONA is seeking to establish~~lead ~~partnerships;~~generation ~~the~~and ~~Company~~marketing ~~anticipates~~campaigns ~~expanding~~and ~~its~~ensure ~~market~~timely ~~presence~~follow-up inof ~~this way. (See Item 7.~~referrals, ~~Management’s~~customer ~~Discussion~~requests and ~~Analysis~~sales ~~of Financial Condition and Results of Operations~~leads.)

~~The~~· Improve ~~Company~~coordination ~~further~~and ~~believes~~communication ~~its~~between financial ~~competitive~~services ~~advantage~~organizations inand their customers, enhancing the ~~market~~ability isto deliver ~~based~~effective onservice ~~the~~and ~~following factors:~~ improve organizational productivity.

•· Automate ~~Marketing~~business ~~and~~processes ~~Sales~~that —may ~~The~~be ~~Company~~critical ~~has an entrenched marketing and sales distribution channel through worldwide OEM partnership with leading core services providers~~ for the ~~financial~~effective ~~services~~management ~~market. • Technology — The Company’s proven CRM/MRM solution is specifically designed~~ and ~~priced~~monitoring ~~for~~of the ~~financial~~relationships ~~services~~and ~~market.~~interactions with Itcustomers isat ~~fully integrated with~~ the financial services ~~organization’s core processing systems and designed to support the business processes and data requirements of the multiple lines of business of those~~ organizations ~~SEDONA CRM uniquely supports multiple lines of business on a single platform~~. It allows organizations to accurately manage, report, analyze and interact with customers who have portfolios that cross lines of business such as insurance and banking, without a need for multiple servers, separate databases or additional application training.

11 10

~~ITEM~~SEDONA 1CRM seamlessly enhances the bank or credit union customer and prospect data with user demographics, behaviors, interests and preference information provided by third-party content management suppliers or personal interactions. This ~~DESCRIPTION~~enhanced data OFis ~~BUSINESS~~then ~~(continued)~~analyzed to create timely and precise information on demand. This information is used by all of SEDONA CRM’s components in order to enable the organization to:

~~SEDONA~~· Create ~~CRM includes highly tailorable components such as process management, campaign management, point of service, web~~“look-~~based reporting and~~ a-like” ~~personalized~~models ~~portal~~to ~~for~~effectively ~~each user.~~identify ~~Once~~prospects ~~installed,~~that ~~SEDONA~~share ~~CRM~~the ~~can~~same becharacteristics ~~fully~~as ~~configured~~their ~~for~~organization’s ~~each user reflecting his/her own~~best ~~system preferences~~customers, ~~portal~~increasing ~~and~~the ~~dashboard~~institution’s ~~contents,~~ability ~~and~~to ~~security~~acquire ~~access~~new customers.

~~The~~· Help ~~CRM/MRM~~predict ~~market has offerings from a variety of providers that focus on sales force automation, call center management, contact management, marketing~~ customer ~~information~~retention ~~file systems (MCIF)~~ and ~~other~~ ~~marketing~~make ~~solutions that address certain aspects of the management of customer relationships.~~profitable ~~The~~cross-sell ~~Company’s~~(next ~~software~~best ~~solution~~product) is unique in that it combines a CRM/MRM application solution tailored for the financial services market with a knowledgeable and experienced sales and marketing distribution channel provided by the Companyrecommendations. SEDONA’s OEM and reseller agreements with leading software and services providers for the SMB market enable the Company to leverage their marketing strengths, broad distribution channels and strong reputations. SEDONA’s direct sales channels coupled with these strategic partnerships provide SEDONA with revenue opportunities and strengthen its competitive position.

~~SEDONA’s~~· Generate ~~primary~~alerts ~~competitors~~and ~~are~~automated ~~Harland~~processes ~~Clarke~~to ~~Holdings~~deal ~~Corp.~~with critical ~~(Harland),~~changes ~~Harte-Hanks~~in ~~Inc. (Harte-Hanks),~~customer ~~and~~status ~~Marquis~~or ~~Software~~other ~~Solutions~~business ~~(Marquis)~~indicators.

•· Develop ~~Harland~~personalized provides software solutions for financial institutions, including, but not limited to, bank core systems, deposit and loan origination, teller, mortgage, call center, document solution and customer relationship management. • Harte-Hanks provides direct and target marketing services, including, but not limited to, sales ~~lead management~~, ~~inbound/outbound telemarketing and web-based database~~ marketing, ~~to consumers~~ and ~~business-to-business~~services programs ~~marketers~~aimed ~~across~~at ~~multiple~~retaining ~~vertical~~the ~~markets.~~financial •services ~~Marquis~~organization’s ismost profitable acustomers ~~privately-held company primarily focused on low cost Marketing Customer Information File (MCIF), sales~~ and ~~services~~turning ~~and~~unprofitable ~~referral~~customers ~~tracking~~into ~~solutions~~profitable ~~for the financial services market~~ones.

~~The~~SEDONA ~~Company~~believes ~~anticipates~~that ~~additional~~the ~~competition~~key ~~from~~to ~~other~~selling ~~established and new companies as the markets for~~ CRM/MRM successfully ~~applications~~is ~~continue~~finding toa ~~develop.~~solution Inthat ~~addition,~~not ~~current~~only ~~and~~meets ~~potential~~the organization’s ~~competitors~~unique ~~have~~industry, ~~established~~business, orand ~~may~~budget ~~in the future establish~~requirements, ~~cooperative~~but ~~relationships~~also ~~among~~provides the ~~themselves~~organization or with ~~third~~proven ~~parties.~~technology ~~Large~~and ~~software~~services ~~companies~~that ~~may~~can ~~acquire~~be orcost ~~establish alliances with~~effectively ~~SEDONA’s~~integrated ~~competitors.~~into ~~The~~its ~~Company expects that the software industry will continue to consolidate~~business. It When ~~is possible that new competitors or alliances among competitors may emerge and rapidly acquire~~these aneeds ~~significant~~are ~~market~~met, ~~share.~~our ~~The results of increased competition and possible reduction of the Company~~Customer’s ~~potential~~should ~~market~~achieve ~~share~~a ~~could~~positive ~~materially~~return ~~and~~on ~~adversely~~their ~~affect its business, operating~~CRM/MRM ~~results~~investment ~~and financial condition~~(ROI).

~~Employees~~ Research & Development

AsThe main strategy of ~~March 31,~~SEDONA’s ~~2009,~~research ~~the~~and ~~Company~~development ~~had~~activities 16is ~~employees.~~to ~~None~~provide high-quality, ofhigh-value ~~these~~products ~~employees~~and ~~are~~support ~~covered~~services byin a ~~collective~~ ~~bargaining~~consistent ~~agreement.~~and predictable ~~The~~manner, ~~Company~~as ~~believes that its employee relationships are good.~~ follows:

In· Promote ~~addition,~~and ~~the~~cultivate ~~Company~~a ~~hires~~culture ~~consultants~~of ~~where applicable to augment its staffing needs.~~team-based development:

12The Company’s research and development organization is structured into small teams of developers, responsible for the design, development and unit testing of each component of the SEDONA CRM/MRM application solution. Each project team also provides technical assistance to the systems integration group.

~~ITEM~~· Create efficient 1.and ~~DESCRIPTION~~predictable OFsoftware ~~BUSINESS~~development ~~(continued)~~life cycle:

~~Appointment~~SEDONA ofutilizes ~~Interim~~an ~~President~~industry-proven software development process that encourages component reusability and ~~CEO~~enhances the predictability, timeliness and quality of the overall software process.

~~Effective~~SEDONA ~~September 18,~~has ~~2008,~~adopted the ~~Company~~Base ~~appointed~~Level ~~Scott~~Integration C.Plan ~~Edelman~~software ~~as the interim Chief Executive~~development ~~Officer~~methodology, ~~and~~which ~~President~~has ofbeen ~~the~~designed ~~Company.~~to ~~Mr. Edelman~~promote ~~has~~an ~~served~~interactive asand ~~the~~predictable process ~~Co-Chairman~~for of the ~~Board~~development, ~~since May 2007~~unit and assystem aintegration ~~Director~~testing and delivery of products. This methodology divides the ~~Company~~development ~~since~~of ~~August 2004.~~sophisticated ~~Mr. Edelman~~products ~~replaces~~into ~~Marco~~specified, Apre-defined cycles. It ~~Emrich who~~also ~~resigned~~allows ~~from~~the ~~his~~Company ~~position~~to react asquickly ~~Chief~~to ~~Executive~~business ~~Officer,~~and ~~President,~~technical ~~and~~changes ~~Director~~generated ofby the ~~Company~~marketplace ~~effective~~and/or ~~September 17,~~new ~~2008~~customer requirements.

~~Dependence~~Base ~~Upon~~levels ~~Key~~serve ~~Personnel~~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

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 the Company’s management personnel could materially and adversely affect the operation of the Company. 11

~~The~~in ~~Company~~the ~~does~~context ~~not~~of ~~carry~~a ~~key~~development ~~man~~organization ~~insurance~~where onthere ~~its~~is ~~executives.~~a set of small project teams cooperating to build a large, complex software product under the guidance of the Chief Technology Officer.

In addition, inSEDONA’s ~~order~~research toand ~~continue~~development ~~its~~efforts are ~~operations,~~focused ~~the~~on ~~Company~~enhancing ~~must~~the ~~attract~~features and ~~retain~~functionality ~~additional technically~~of ~~qualified~~our ~~personnel~~products. We ~~with~~only ~~backgrounds~~provide insupport ~~finance,~~to ~~engineering,~~our ~~professional~~customers ~~services,~~on ~~and~~the ~~marketing.~~then-current ~~There~~version isof ~~keen~~our ~~competition~~software ~~for such highly-qualified personnel~~ and ~~consequently there~~one ~~can~~prior berelease. As noa ~~assurance~~result, ~~that~~we ~~the~~do ~~Company~~not ~~will~~have beto ~~successful~~maintain multiple inversions ~~recruiting or retaining personnel~~ of ~~the~~our ~~requisite~~software ~~caliber~~which orhelps ~~in the numbers necessary~~ to ~~enable~~keep ~~the~~our ~~Company~~costs tofor ~~continue to conduct~~maintenance ~~its~~and ~~business~~support low.

~~ITEM~~Research 2and development expenses were $338,000 and $526,000 for the years ended December 31, 2009 and 2008, respectively. The ~~DESCRIPTION~~decrease OFin ~~PROPERTY~~expenses of $188,000 was the result of a reduction in outside staffing costs used to supplement product development. In addition, in 2009, the research and development team dedicated more time to completing custom development projects for clients and upgrading and supporting the release of a new version of our software application; these expenses are included in cost of sales.

~~The Company’s principal offices are located in King of Prussia, PA. In December 2005, the Company~~Trademarks ~~entered into a lease for a 4,270 square foot facility to serve as its principal offices. The five (5) year lease commenced on January 1, 2006~~ and expires December 31, 2010. The initial annual base rent was $68,320 or $16.00 per sq. ft. and has increased $0.50 per sq. ft. in each of the remaining years of the lease. Annual base rent expense for the PA office is projected to be approximately $75,000 in 2009. Copyrights

SEDONA has obtained copyright and trademark protection for certain of its products and services. The Company has ~~the~~a ~~option~~service tomark for ~~terminate~~a logo design, which was registered with the ~~lease~~United ~~after~~States ~~January~~Patent and Trademark Office (USPTO) on July 123, ~~2009~~2002 (Registration No. 2,598,107), a byservice ~~giving~~mark ~~one~~for ~~hundred~~the word mark, “SEDONA”, which was registered with the USPTO ~~eighty~~on March 24, 2003 (~~180)~~Registration No. ~~days~~2,700,294), ~~prior~~and ~~written~~a ~~notice~~trademark toand service mark for the ~~Landlord~~word ~~and~~mark ~~paying~~“INTARSIA” awhich ~~sum~~was ~~equal~~registered towith the ~~unamortized~~USPTO ~~transaction~~on ~~costs~~July 12, ~~incurred~~2005 in(Registration ~~connection~~No. 2,967,355). The ~~with~~Company shares the ~~lease~~word ~~amendment~~mark “INTARSIA” with Intarsia Corporation, ~~plus~~who ~~three~~since ~~(3) months~~2002, ~~rent~~has onaccepted a co-existence ~~the~~agreement ~~term~~with ~~expiration~~the ~~date~~Company. SEDONA has the exclusive right to use the “Intarsia®” trademark in connection with its CRM/MRM services.

The Company claims ~~also has a software delivery~~ and ~~customer~~possesses ~~care~~rights ~~office located~~ in ~~Minnesota.~~various ~~In December 2005,~~other ~~the~~trademarks ~~Company~~and ~~entered~~services ~~into a lease for a 630 square foot facility in Plymouth~~marks, and ~~Minnesota.~~intends ~~The~~to ~~lease~~file ~~commenced~~various ~~January 1,~~additional ~~2006~~trademark and ~~expired~~service ~~December 31,~~mark ~~2008.~~applications ~~The initial base~~to ~~annual~~register ~~rent~~such ~~was~~trademarks ~~$5,000~~and ~~per~~service ~~year~~marks orwith ~~$8.42~~the ~~per~~USPTO ~~sq.~~as ~~ft.~~management ~~plus a yearly escalation charge of three~~deems ~~percent (3%)~~advisable.

~~Effective~~Major February 27, 2009, the Company modified its lease for its Minnesota facility. Beginning May 1, 2009, the Company will lease an 894 square foot facility in Plymouth, Minnesota. The Company and landlord agreed to holdover the old lease and allow the Company to remain in its current space from January 1, 2009 to April 30, 2009. The landlord waived any holdover charges and agreed to extend the lease at the expiring rental rates. The new lease will commence on May 1, 2009 and expires April 30, 2011. The initial base annual rent is $7,020 per year or $7.85 per sq. ft. plus an escalation charge of 3.4% annually. The Company shall have the option to renew its lease for two (2) years by providing nine (9) months written notice to the Landlord, prior to the lease expiration. Annual base rent for the Minnesota office is projected to be approximately $6,400 in 2009. Customers

~~The~~Since one of the Company’s primary ~~believes~~sales strategies is to utilize an indirect sales model, i.e., the Company distributes its ~~leased~~products ~~properties~~through its channel partners, the Company’s revenues are ~~adequately~~derived ~~insured~~from a limited number of partners. Consequently, any partner may account for more than 10% of the total revenue derived during any ~~losses~~given year.

13 License and service revenues fluctuate as they are dependent upon many variables including the delivery requirements, size and complexity of the transaction with our customers.

~~ITEM~~As 3.of ~~LEGAL~~December 31, 2009 ~~PROCEEDINGS~~and 2008, the Company had obtained net revenues from significant customers/and distribution partners as follows:

On May 5, 2003, SEDONA filed a civil action lawsuit against numerous defendants in the United States District Court for the Southern District of New York. The Company seeks damages from the defendants named and other defendants yet to be named, in the complaint for allegedly participating in the manipulation of its common stock, fraud, misrepresentation, failure to exercise fiduciary responsibility, and/or failure to adhere to SEC trading rules and regulations, tortuous interference, conspiracy and other actions set forth in the complaint. The parties are still engaged in preliminary motions and discovery has not yet commenced. As of March 26, 2009, no ruling by the United States District Court for the Southern District of New York has been made with regard to this matter. The outcome of litigation proceedings is inherently uncertain and there is no assurance that the Company will prevail in this matter.

	2009		2008
Channel Partner A	27	%	29	%
Channel Partner B	13	%	—

On June 28, 2006, SEDONA filed a civil action lawsuit against Open Solutions Inc. (OSI), in Montgomery County Court in Pennsylvania for breach of a software license agreement entered into between the parties in May, 2002. The Company alleges that since September 2004, OSI has failed to pay royalty payments required under the parties’ master software license and services agreement for licensed products and services sold by OSI to its customers. OSI removed the case to federal court and successfully moved for a change in venue from the United States District Court for the District of Pennsylvania to the District Court for the District of Connecticut. SEDONA filed an amended complaint after the case was transferred to the District of Connecticut, case no. 3:07-cv-171. In its amended complaint, SEDONA seeks a declaration and damages relating to OSI’s failure to pay royalties under the agreement for its sales of the cView product operating on the .NET platform and for breach of the agreement’s confidentiality provision. OSI served an amended answer with counterclaims asserted against SEDONA for declaratory relief and breach of contract. Discovery has been completed and each party has moved for summary judgment. Those motions are currently pending. Trial will be scheduled, if necessary, after resolution of the pending motions for summary judgment. On March 24, 2009, the action was remanded to a magistrate judge for a settlement conference between the parties. The settlement conference is currently scheduled for April 17, 2009. The outcome of litigation proceedings is inherently uncertain and there is no assurance that the Company will prevail in this matter. See Note 7 to the accompanying financial statements for a discussion regarding financing for the costs of this action. 12

NoAs ~~actions other than matters involved in the ordinary course~~ of ~~business are currently known by~~December 31, ~~Management~~2009 and ~~such~~2008, ~~ordinary~~the ~~course~~Company ~~matters~~had ~~are~~accounts ~~believed~~receivable byfrom ~~Management~~significant customers/partner ~~not~~accounts toas ~~have material significance.~~ follows:

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

	2009		2008
Channel Partner A	31	%	28	%
Channel Partner B	69	%	45	%

NoSubstantially, ~~matters~~all ~~were~~of ~~submitted~~the toCompany’s arevenues ~~vote~~are ofearned ~~security~~from ~~holders~~customers ~~during~~in the ~~fourth~~United ~~quarter of fiscal year 2008~~States.

~~PART II~~ Backlog

~~ITEM~~Revenue 5backlog consists of unfulfilled purchase contracts, service contracts entered into with partners for SaaS services and deferred revenues, primarily for advance royalties and maintenance contracts where revenues are recognized ratably over the life of the contract which typically ranges from 36 to 60 months. As ~~MARKET~~of ~~FOR~~December 31, ~~REGISTRANT’S~~2009, ~~COMMON~~the ~~EQUITY~~Company had a deferred revenue backlog of approximately $677,000, ~~RELATED~~substantially ~~STOCKHOLDER~~all ~~MATTERS~~of which ~~AND~~is ~~ISSUER~~expected ~~PURCHASES~~to OFbe ~~EQUITY~~recognized ~~SECURITIES~~as revenue in 2010. In addition, as of December 31, 2009, the Company had recorded a total of approximately $918,000 in current and non-current accounts receivable and associated deferred revenue for monthly subscription fees that will be recognized ratably over the contract terms.

~~Market Price of and Dividends of the Company’s Common Stock~~ Competition

~~The~~SEDONA ~~following~~believes that ~~table~~the ~~sets~~most ~~forth,~~important ~~for~~competitive ~~the~~factor, ~~periods~~which ~~indicated,~~enables the ~~high~~Company ~~and low closing prices of~~to ~~SEDONA’s~~differentiate ~~common~~itself ~~stock.~~from ~~The~~the ~~common~~competition, ~~stock~~is ~~has~~its ~~been~~focus ~~available for trading~~ on ~~the~~delivering ~~OTC Bulletin Board~~a ~~under~~specifically ~~SDNA.OB.~~tailored ~~The~~CRM/MRM ~~last~~solution ~~reported~~to ~~sale~~the ~~price~~financial ofservices ~~SEDONA~~market ~~common~~through a ~~stock~~sales onforce ~~March 31,~~with ~~2009~~extensive ~~was~~financial ~~$0.19~~services ~~per share.~~industry Atknowledge ~~that~~and ~~time,~~by partnering ~~there~~with ~~were~~a ~~approximately~~number ~~4,367 holders~~ of ~~record~~leading ofcore ~~SEDONA~~processor ~~common stock~~providers.

~~The~~Since ~~following~~core processor ~~table~~providers ~~reflects~~are ~~high~~responsible for mission-critical business applications and ~~low~~solutions, ~~bid~~they ~~information~~have ~~for~~the ~~SEDONA’s~~information ~~common~~required ~~stock~~to ~~for~~make the ~~periods~~implementation of ~~specified,~~a asCRM/MRM ~~reported~~solution byviable. Using the core ~~OTC~~processor ~~Bulletin~~providers ~~Board.~~as ~~These~~a ~~quotations~~sales, ~~reflect~~marketing ~~inter-dealer~~and ~~prices~~distribution channel, ~~without~~improves ~~retail~~SEDONA’s ~~mark-up,~~opportunity ~~mark-down~~to orestablish ~~commission~~itself as a leading provider of CRM/MRM application software and ~~may~~services, ~~not~~as ~~represent~~those ~~actual~~organizations ~~transactions.~~create a formidable barrier for other CRM/MRM providers to enter the market.

14There are additional core processing providers with whom SEDONA is seeking to establish partnerships; the Company anticipates expanding its market presence in this way. (See Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations.)

~~ITEM~~The 5.Company further ~~MARKET~~believes ~~FOR~~its ~~REGISTRANT’S~~competitive ~~COMMON~~advantage ~~EQUITY,~~in ~~RELATED~~the ~~STOCKHOLDER~~market ~~MATTERS~~is ~~AND~~based ~~ISSUER~~on ~~PURCHASES~~the following ~~OF EQUITY SECURITIES (continued)~~factors:

	High		Low
Year ended December 31, 2007:
Quarter ended March 31, 2007	$	0.30	$	0.13
Quarter ended June 30, 2007	$	0.33	$	0.17
Quarter ended Sept. 30, 2007	$	0.31	$	0.21
Quarter ended December 31, 2007	$	0.25	$	0.10
Year ended December 31, 2008:
Quarter ended March 31, 2008	$	0.17	$	0.10
Quarter ended June 30, 2008	$	0.25	$	0.11
Quarter ended Sept. 30, 2008	$	0.19	$	0.07
Quarter ended December 31, 2008	$	0.13	$	0.02

· Marketing and Sales - The Company has an entrenched marketing and sales distribution channel through worldwide OEM partnerships with leading core services providers for the financial services market.

~~Dividends~~· Technology — The Company’s proven CRM/MRM solution is specifically designed and priced for the financial services market. It is fully integrated with the financial services organization’s core processing systems and designed to support the business processes and data requirements of the multiple lines of business of those organizations

~~The~~SEDONA ~~Company~~CRM ~~has~~uniquely ~~never~~supports ~~declared~~multiple orlines ~~paid any cash dividends on its common stock and does not anticipate declaration or payment~~ of ~~cash~~business ~~dividends~~ on ~~its~~a ~~common stock in the foreseeable future.~~single platform. It isallows ~~the~~organizations ~~current intent of the Company~~ to accurately ~~continue~~manage, toreport, ~~retain~~analyze ~~future~~and ~~earnings,~~interact ifwith ~~any,~~customers towho ~~finance~~have ~~the~~portfolios ~~expansion,~~that ~~development~~cross ~~and~~lines ~~growth~~ of ~~its~~ business. ~~Payment~~such ofas ~~future~~insurance ~~dividends,~~and ~~if any~~banking, ~~will~~without bea atneed ~~the~~for ~~discretion~~multiple ofservers, ~~the~~separate ~~Board~~databases ofor ~~Directors~~additional ~~after~~application training. SEDONA ~~taking~~CRM ~~into~~includes ~~account~~highly tailorable ~~various~~components ~~factors,~~such ~~including the~~as ~~Company’s~~process ~~financial condition~~management, ~~operating~~campaign ~~results~~management, ~~current~~point ~~and anticipated cash needs and plans~~of ~~for expansion.~~ service,

In addition, SEDONA’s outstanding Series A Preferred Stock has a preference on the payment of any dividends. SEDONA must pay all accrued and unpaid dividends, if any, on its outstanding preferred stock before it can pay dividends on its common stock. 13

~~The~~web-based ~~Company~~reporting ~~ceased~~and toa ~~declare~~personalized ~~preferred~~portal ~~stock~~for ~~dividends~~each asuser. Once ~~of January 1~~installed, ~~2001~~SEDONA onCRM ~~the~~can ~~issued~~be ~~and~~fully ~~outstanding~~configured ~~series~~for ofeach ~~the~~user ~~Class A~~reflecting ~~Convertible~~his/her ~~Preferred~~own ~~Stock.~~system ~~Cumulative but undeclared dividends on the Series A Preferred Stock at December 31~~preferences, ~~2008,~~portal ~~equaled $960,000 or $1.92 per share compared~~and todashboard ~~at December 31~~contents, ~~2007~~and ~~which~~security ~~equaled $840,000 or $1~~access.~~68 per share.~~

~~Recent~~The ~~Sales~~CRM/MRM market has offerings from a variety of ~~Unregistered~~providers ~~Securities~~that focus on sales force automation, call center management, contact management, marketing customer information file systems (MCIF) and other marketing solutions that address certain aspects of the management of customer relationships. The Company’s software solution is unique in that it combines a CRM/MRM application solution tailored for the financial services market with a knowledgeable and experienced sales and marketing distribution channel provided by the Company. SEDONA’s OEM and reseller agreements with leading software and services providers enable the Company to leverage their marketing strengths, broad distribution channels and strong reputations. SEDONA’s direct sales channels coupled with these strategic partnerships provide SEDONA with revenue opportunities and strengthen its competitive position.

~~The~~SEDONA’s primary ~~Company~~competitors ~~has~~are ~~effected~~Harland ~~sales~~Clarke ofHoldings ~~unregistered~~Corp. ~~securities~~(Harland), ~~from time to time during the past three~~Harte-Hanks ~~years~~Inc. ~~Each of these sales has previously been reported in the Company’s periodic filings on Form 10~~(Harte-KHanks), ~~Form~~and ~~10-KSB,~~Marquis ~~Form 10Q,~~Software ~~Form~~Solutions ~~10-QSB or on Form 8-K~~(Marquis).

~~ITEM~~· Harland provides 6.software ~~SELECTED~~solutions ~~FINANCIAL~~for ~~DATA~~financial institutions, including, but not limited to, bank core systems, deposit and loan origination, teller, mortgage, call center, document solution and customer relationship management.

~~This~~· Harte-Hanks provides ~~item~~direct isand target marketing services, including, but not ~~required~~limited byto, sales ~~smaller~~lead ~~reporting~~management, ~~companies~~inbound/outbound intelemarketing ~~its~~and ~~Form~~web-based 10database marketing, to consumers and business-Kto-business ~~filing.~~marketers across multiple vertical markets.

15· Marquis is a privately-held company primarily focused on low cost Marketing Customer Information File (MCIF), sales and services and referral tracking solutions for the financial services market.

~~ITEM~~The 7Company anticipates additional competition from other established and new companies as the markets for CRM/MRM applications continue to develop. In ~~MANAGEMENT~~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 SEDONA’Ss ~~DISCUSSION~~competitors. The ~~AND~~Company ~~ANALYSIS~~expects OFthat ~~FINANCIAL~~the ~~CONDITION~~software ~~AND~~industry ~~RESULTS~~will OFcontinue ~~OPERATIONS~~to consolidate. It is possible that new competitors or alliances among competitors may emerge and rapidly acquire a significant market share. The results of increased competition and possible reduction of the Company’s potential market share could materially and adversely affect its business, operating results and financial condition.

SEDONA is a software application and services provider that develops and markets web-based, vertical CRM/MRM solutions. The Company has strategically targeted small to mid-sized financial services organizations (SMBs) as the first vertical market to introduce its leading CRM/MRM application solution including, but not limited to, community and regional banks, credit unions, savings and loans, and brokerage firms. SEDONA defines the SMB market as any financial services institution with total asset values below $10 billion; however, SEDONA’s technology has and may be sold to institutions whose total asset values exceed $10 billion. The Company’s CRM/MRM application solution enables financial services organizations to improve key performance metrics to strengthen their position in the market and obtain greater share of the customer’s wallet. Employees

~~Beginning~~As of ~~in December~~March ~~2008~~31, ~~SEDONA~~2010, ~~added sales and marketing staff to~~ the ~~organization~~Company tohad ~~enhance the~~13 ~~direct distribution of SEDONA CRM to the financial services industry~~employees. In addition, ~~SEDONA~~the ~~also retained its indirect distribution channel strategy. The~~ Company ~~licenses~~hires ~~its~~consultants where ~~CRM/MRM~~applicable ~~technology~~ to ~~software~~ ~~and~~augment ~~services~~its ~~providers,~~staffing ~~who~~requirements. None ~~market,~~of ~~sell,~~the ~~distribute and support SEDONA~~company’s ~~technology either~~employees asare acovered by ~~component of their total solution or as~~ a ~~stand-alone~~collective ~~offering.~~bargaining agreement. The Company isbelieves ~~not~~that ~~an application~~its ~~service~~employee ~~provider~~relationships ~~(SaaS),~~are ~~however, SEDONA CRM/MRM can be deployed in a SaaS environment through the Company’s distribution partners~~good.

SEDONA has signed Original Equipment Manufacturer (OEM) and reseller agreements with several leading software and services providers for the financial services market, including, but not limited to: Fiserv Solutions, Inc.; Open Solutions, Inc.; Connecticut Online Computer Center, Inc.; Profit Technologies; Bradford-Scott, CU ink and Share One. 14

~~Revenues~~ Appointment of Interim President and CEO

~~The~~Effective September 18, 2008, the Company’s ~~revenues~~appointed ~~currently~~Scott ~~consist~~C. Edelman as the interim Chief Executive Officer and President of ~~product~~the ~~license~~Company. Mr. Edelman had ~~revenue~~served as the Co-Chairman of the Board since May 2007 and ~~service~~as ~~license~~a Director ~~revenue~~of the Company since August 2004. Mr. Edelman served as Interim Chief Executive Officer until May 2009 when David R. Vey was appointed Chief Executive Officer.

~~Product~~Dependence ~~license~~Upon ~~revenue~~Key ~~includes:~~ Personnel

•The Company ~~license~~is ~~fees~~dependent ~~from~~upon ~~direct~~certain ~~sales~~key bymembers ~~either~~of its management team for the successful ~~Company~~operation orand development of its ~~distribution~~business. The ~~partners~~loss •of ~~monthly~~the ~~subscription~~services ~~fees~~of ~~from~~one ~~SaaS~~or ~~sales~~more byof the ~~our~~Company’s ~~distribution~~management ~~partners~~personnel could materially and adversely affect the operation of the Company.

~~Service~~The Company ~~license~~does ~~revenue~~not ~~includes:~~ carry key man insurance on its executives.

•In addition, ~~professional~~in ~~services~~order ~~fees~~to ~~including~~continue ~~set-up~~its operations, the Company must attract and retain ~~installation~~additional ~~fees~~technically qualified personnel with backgrounds in business development, ~~training~~consulting, engineering and ~~mapping~~finance. There ~~fees~~is •keen ~~annual~~competition ~~maintenance~~for ~~fees~~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.

~~The~~ITEM ~~following~~2. isDESCRIPTION aOF discussion and analysis of the Company’s results of operations and financial condition for the years ended December 31, 2008 and December 31, 2007 and should be read in conjunction with the Company’s audited financial statements as of December 31, 2008 and 2007 along with the notes to those financial statements. PROPERTY

The Company’s ~~discussion~~principal ~~and~~offices ~~analysis~~are oflocated ~~financial~~in ~~condition~~King ~~and results~~ of ~~operations~~Prussia, isPA. In ~~based~~December 2005, ~~upon~~ the ~~consolidated~~ ~~financial~~Company ~~statements,~~entered into ~~which~~a ~~have~~lease ~~been~~for ~~prepared~~a in4,270 ~~accordance~~square ~~with~~foot ~~accounting principles~~facility ~~generally~~to ~~accepted~~serve inas ~~the~~its ~~United States~~principal offices. The ~~preparation~~five of(5) year ~~these~~lease ~~financial~~commenced ~~statements requires~~on ~~the Company to make estimates and judgments that affect the reported amounts of assets~~January 1, ~~liabilities,~~2006 ~~revenues~~ and ~~expenses~~expires ~~and related disclosures of contingencies. We evaluate~~December 31, ~~on an~~2010. ~~on-going~~The ~~basis,~~initial ~~our~~annual ~~estimates~~base ~~and~~rent ~~judgments,~~was ~~including those related to bad debts~~$68,320 ~~income~~or ~~taxes, contingencies~~$16.00 ~~and~~per ~~litigation~~sq. ~~Our~~ft. ~~estimates are based on historical experience~~ and ~~assumptions~~has ~~that~~increased we$0.50 ~~believe~~per tosq. beft. ~~reasonable~~in ~~under~~each ~~the circumstances, the results~~ of ~~which form~~ the ~~basis~~remaining ~~for making~~years ~~judgments~~of ~~about~~ the ~~carrying~~lease. Annual ~~values~~base ofrent ~~assets~~expense ~~and~~for ~~liabilities~~the ~~that~~PA ~~are~~office ~~not readily apparent~~is ~~from~~projected ~~other~~to ~~sources.~~be ~~Actual~~approximately ~~results~~$77,000 ~~may~~in ~~differ from these estimates under different assumptions or conditions~~2010.

16The Company has the option to terminate the lease after January 1, 2009, by giving one hundred eighty (180) days prior written notice to the Landlord and paying a sum equal to the unamortized transaction costs incurred in connection with the lease amendment, plus three (3) months rent on the term expiration date.

~~ITEM~~The Company also has a software delivery and customer care office located in Minnesota. Effective May 2009, the Company entered into a lease for an 894 square foot facility in Plymouth, Minnesota. The lease commenced May 1, 2009 and expires April 30, 2011. The initial base annual rent is $7,020 per year or $7.85 ~~MANAGEMENT’S~~per ~~DISCUSSION~~sq. ~~AND~~ft. plus ~~ANALYSIS~~an OFescalation ~~FINANCIAL~~charge ~~CONDITION~~of ~~AND~~3.4% ~~RESULTS~~annually. The OFCompany ~~OPERATIONS~~has the option to renew its lease for two (~~continued~~2) years by providing nine (9) months written notice to the Landlord, prior to the lease expiration. Annual base rent for the Minnesota office is projected to be approximately $7,000 in 2010.

~~Critical~~The Company ~~Accounting~~believes ~~Policies~~ its leased properties are adequately insured for any losses.

~~Principles of Consolidation~~ 15

~~The~~ITEM ~~Company’s consolidated financial statements include the accounts of its wholly owned subsidiary, SEDONAâGeoServices, Inc~~3. ~~All~~LEGAL ~~significant inter-company accounts and transactions have been eliminated in consolidation.~~ PROCEEDINGS

~~Use~~On May 5, 2003, SEDONA filed a civil action lawsuit against numerous defendants in the United States District Court for the Southern District of ~~Estimates~~New York. The Company sought damages from the defendants named, and other defendants yet to be named, in the complaint for allegedly participating in the manipulation of its common stock, fraud, misrepresentation, failure to exercise fiduciary responsibility, and/or failure to adhere to SEC trading rules and regulations, tortuous interference, conspiracy and other actions set forth in the complaint.

~~The~~On March 27, ~~preparation~~2009, ofthe ~~financial~~Honorable ~~statements~~Judge Laura Swain, a federal judge in ~~conformity~~the United ~~with~~States UDistrict Court for the Southern District of New York, issued an opinion dismissing several of the defendants from the civil action lawsuit filed by SEDONA on May 5, 2003.S SEDONA was granted the right and has filed a third amended petition against the remaining defendants and is aggressively pursuing these claims. On ~~generally~~May 1, ~~accepted~~2009, ~~accounting~~Amro International, ~~principles~~S.A., ~~requires~~Rhino ~~management~~Advisors, Inc., toRoseworth ~~make~~Group., ~~estimates~~LTD., and ~~assumptions~~Cambois ~~that~~Finance, Inc., all ~~affect~~defendants in the ~~amounts~~May 5, ~~reported~~ 2003 action, filed suit against SEDONA and several ~~disclosures~~of its former directors in Federal Court in the ~~consolidated~~Southern ~~financial~~District ~~statements~~of New York alleging breach of a settlement agreement seeking unspecified damages and ~~accompanying~~attorney’s ~~notes.~~fees ~~Actual~~and ~~results~~expenses. The ~~could~~suit ~~differ~~is ~~from~~being ~~those~~vigorously ~~estimates~~defended by SEDONA and its former directors. The outcome of litigation proceedings is inherently uncertain and there is no assurance that the Company will prevail in either of these matters.

~~Cash~~On September 28, 2006, SEDONA filed a civil action lawsuit against Open Solutions Inc. (OSI), in Montgomery County Court in Pennsylvania for breach of a software license agreement entered into between the parties in May, 2002. In the lawsuit, the Company alleges that since September 2004, OSI has failed to pay royalty payments required under the parties’ master software license and ~~Cash~~services ~~Equivalents~~ agreement for licensed products and services sold by OSI to its customers. OSI removed the case to federal court and successfully moved for a change in venue from the United States District Court for the District of Pennsylvania to the United States District Court for the District of Connecticut. SEDONA filed an amended complaint after the case was transferred to the District of Connecticut, case no. 3:07-cv-171. In its amended complaint, SEDONA seeks a declaration and damages relating to OSI’s failure to pay royalties under the agreement for its sales of the cView product operating on the .NET platform and for breach of the agreement’s confidentiality provision. OSI served an amended answer with counterclaims asserted against SEDONA for declaratory relief and breach of contract. Discovery was completed and each party has moved for summary judgment. The parties participated in oral argument before the Court concerning the summary judgment motions on September 19, 2008.

~~The~~In ~~Company~~a ~~considers~~ruling ~~all~~filed ~~unencumbered~~August 19, ~~highly~~2009, ~~liquid~~the ~~investments~~court ~~with~~denied ~~original~~SEDONA’s ~~maturities~~motion offor ~~three (3) months~~summary orjudgment ~~less~~on ~~when~~claims ~~purchased~~that OSI was required to bepay ~~cash~~royalties ~~equivalents.~~on ~~Cash~~the sale of the cView product and ~~cash~~that ~~equivalents,~~failure ~~which primarily~~to ~~consist~~pay such royalties and disclosure of ~~cash~~confidential oninformation ~~deposit~~to ~~and~~the ~~money~~offshore ~~market~~development ~~funds~~company constituted a breach of contract. Further, ~~are~~the ~~stated~~court atdenied ~~cost~~OSI’s motion for summary judgment on claims that SEDONA was in breach of contract for demanding royalty payments, ~~and~~while ~~approximate fair~~accepting ~~value~~OSI’s claim that cView was a license enhancement not subject to royalties.

~~Accounts~~No actions ~~Receivable~~other than the matters set forth above or matters involved in the ordinary course of business are currently known by Management and such other matters are believed by Management not to have material significance.

~~Trade~~ITEM ~~receivables are generated primarily from the Company’s customers and distribution partners~~4. ~~Receivables~~ are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. A valuation allowance is provided for known and anticipated credit losses, as determined by Management in the course of regularly evaluating individual customer receivables. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received. RESERVED

~~Property and Equipment~~ 16

~~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 (3)~~PART ~~to seven (7) years.~~ II

~~Impairment~~ITEM of5. ~~Long-Lived~~MARKET ~~Assets~~ FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~The~~Market ~~Company~~Price ~~evaluates the recoverability~~ of ~~its~~and ~~long-lived~~Dividends ~~assets in accordance with Statement~~ of ~~Financial~~ ~~Accounting Standards No. 144, Accounting for~~ the ~~Impairment or Disposal of Long-Lived~~Company’s ~~Assets.~~Common Assets are periodically reviewed for possible impairment whenever circumstances or events indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of the asset is not recoverable, the carrying amount of such asset will be reduced to fair value. Stock

~~Revenue~~The following ~~Recognition~~table sets forth, for the periods indicated, the high and low closing prices of SEDONA’s common stock. The common stock has been available for trading on the OTC Bulletin Board under SDNA.OB. The last reported sale price of SEDONA common stock on March 26, 2010 was $0.06 per share. At that time, there were approximately 3,375 holders of record of SEDONA common stock.

The following ~~Company’s~~table ~~revenues~~reflects ~~from~~high ~~software~~and ~~arrangements~~low ~~currently~~bid ~~consist~~information ~~of license fees, fees~~ for ~~installation~~ ~~services~~SEDONA’s ~~and~~common ~~maintenance. The Company has established vendor specific objective~~stock ~~evidence of fair value~~ for ~~its maintenance contracts based on~~ the ~~price~~periods ofspecified, ~~renewals~~as ofreported ~~existing maintenance~~by ~~contracts. The remaining value of~~ the ~~software~~OTC ~~arrangement~~Bulletin isBoard. These ~~allocated~~quotations toreflect ~~license~~inter-dealer prices, ~~fees~~without ~~and~~retail ~~professional~~mark-up, ~~services~~mark-down ~~based~~or oncommission ~~contractual terms agreed upon by the customer~~ and ~~based~~may onnot ~~Company-maintained list~~represent ~~prices.~~actual transactions.

	High		Low

Year ended December 31, 2008:
Quarter ended March 31, 2008	$	0.17	$	0.10
Quarter ended June 30, 2008	$	0.25	$	0.11
Quarter ended Sept. 30, 2008	$	0.19	$	0.07
Quarter ended December 31, 2008	$	0.13	$	0.02

Year ended December 31, 2009:
Quarter ended March 31, 2009	$	0.19	$	0.06
Quarter ended June 30, 2009	$	0.20	$	0.12
Quarter ended Sept. 30, 2009	$	0.15	$	0.05
Quarter ended December 31, 2009	$	0.12	$	0.06

~~ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)~~Dividends

~~Product~~The Company ~~License~~has ~~Revenue~~never declared or paid any cash dividends on its common stock and does not anticipate declaration or payment of cash dividends on its common stock in the foreseeable future. It is the current intent of the Company to continue to retain future earnings, if any, to finance the expansion, development and growth of its business. Payment of future dividends, if any, will be at the discretion of the Board of Directors after taking into account various factors, including the Company’s financial condition, operating results, current and anticipated cash needs and plans for expansion.

~~The~~In ~~Company utilizes both a direct sales model and an indirect sales model whereby it distributes its product through its distribution partners~~addition, ~~for~~SEDONA’s ~~which~~outstanding ~~the~~Series A ~~Company~~Preferred ~~receives~~Stock ~~royalty~~has ~~payments~~a ~~based~~preference on ~~percentages of~~ the ~~license~~payment ~~fees~~of ~~charged~~any ~~by the distribution partners~~dividends. ~~Under the direct~~ ~~sales~~SEDONA ~~model,~~must ~~revenue~~pay isall ~~not~~accrued ~~recognized until the software is installed. The Company either receives written acceptance from its clients that the software has been installed~~ and ~~has~~unpaid ~~been accepted~~dividends, orif ~~provides receipts for the electronic delivery of the software. Under the indirect sales model~~any, ~~royalty~~on ~~fees~~its ~~are recognized by SEDONA when the Company receives written~~outstanding ~~acknowledgement~~preferred ~~from~~stock ~~the~~before ~~distribution~~it ~~partners~~can ~~that~~pay adividends ~~contract~~on ~~has~~its ~~been~~common ~~signed with an end-user and monies are owed to SEDONA from the distribution partner~~stock.

~~Revenues~~The ~~from~~Company ceased to declare preferred stock dividends as of January 1, 2001 on the ~~sale~~issued and outstanding series of ~~product~~the ~~licenses~~Class A ~~are~~Convertible ~~recognized~~Preferred asStock. Cumulative ~~follows:~~ but undeclared dividends on the Series A Preferred Stock at December 31, 2009, equaled $1,080,000 or $2.16 per share compared to at December 31, 2008 which equaled $960,000 or $1.92 per share.

• Persuasive evidence of an arrangement exists, generally by receipt of a signed contract • Delivery and acceptance of the software has been received • The fee to be paid by the customer is fixed or determinable • Collection of the fee is reasonably assured. (Our contracts do not contain general rights of return)17

~~Since~~Equity ~~SEDONA~~Compensation ~~CRM/MRM~~Plans ~~can~~as ~~be implemented on the Company’s customers’ systems without significant alterations to the features and the functionality~~ of ~~the software~~December 31, ~~and 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 acceptance of the software by the customer. 2009:

~~Services~~Equity ~~Revenue~~ Compensation Plan Information

Services revenue includes revenue from professional services (primarily installation and training services) and maintenance revenue. Installation service revenue is earned from implementation planning, hardware and software set-up, data integration including data aggregation, conversion, cleansing and analysis, and testing and quality assurance. Installation service revenue is accounted for as a separate element of a software arrangement.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans

Equity compensation plans approved by security holders (1)	25,084,288	$	0.23	22,726,215
Equity compensation plans not approved by security holders (2)	—	—		—
Total	25,084,288	$	0.23	22,726,215

The Company recognizes service revenue as follows:

(1)	These plans consist of the 1992 Plan and 2000 Plan which replaced the 1992 plan. The current plan includes a formula that automatically increases the number of securities available for issuance equal to 20% of the number of shares issued and outstanding.
(2)	The Company does not maintain any equity compensation plans that have not been approved by the stockholders.

~~Installation~~Recent ~~revenue~~Sales ~~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~~Unregistered ~~and related revenue is recognized as training services are provided.~~ Securities

~~Annual~~The Company ~~maintenance~~has ~~revenue~~effected issales ~~recognized~~of ~~ratably~~unregistered ~~over~~securities ~~the~~from ~~life~~time ofto ~~the~~time ~~related contract.~~during ~~The~~the ~~Company~~past ~~establishes~~three ~~the~~years. Each ~~value~~ of ~~maintenance~~these ~~revenue~~sales ~~based~~has onpreviously been reported in the ~~price~~Company’s ~~quoted~~periodic ~~and received~~filings ~~for~~on ~~renewals~~Form 10-K, ofForm 10-KSB, ~~existing~~Form 10Q, Form 10-QSB ~~maintenance~~or ~~contracts~~on Form 8-K.

~~Software~~ITEM ~~Development~~6. ~~Costs~~ SELECTED FINANCIAL DATA

~~Software development costs are accounted for in accordance with Statement of Financial Accounting~~This ~~Standards~~item ~~No. 86,~~is ~~“Accounting~~not ~~for~~required ~~the Costs of Computer Software~~ to be ~~Sold,~~furnished ~~Leased,~~by orsmaller ~~Otherwise Marketed.”~~reporting ~~All costs incurred in the research and development of new software products are expensed as incurred until technological feasibility has been established~~companies.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ~~(continued)~~

~~The~~SEDONA is ~~costs~~a ~~incurred~~software ~~for~~application ~~testing~~ and ~~coding~~services ofprovider ~~the~~that ~~new~~develops ~~software~~and ~~products are capitalized.~~markets ~~Amortization~~web-based, ofvertical ~~such~~Customer ~~costs~~and isMember ~~the~~Relationship ~~greater~~Management ofsolutions. The ~~the~~Company ~~amount~~has ~~capitalized~~strategically ~~using: (a) the ratio in which~~targeted ~~current~~financial ~~gross~~services ~~revenues~~organizations ~~for~~such aas ~~product~~community ~~bear to the total of current~~ and ~~anticipated~~regional ~~future~~banks, ~~gross~~credit ~~revenues~~unions, ofand ~~that~~savings ~~product~~and orloans ~~(b) the~~to ~~straight-line~~market ~~method~~our ~~over~~leading ~~the~~CRM/MRM ~~remaining~~solutions. The ~~estimated~~Company ~~economic~~targets ~~life~~financial institutions ofwith ~~the~~assets ~~product~~below ~~not~~$10 tomillion, ~~exceed~~however, ~~three~~our ~~years.~~products ~~Amortization~~are ~~commences~~easily ~~when~~implemented ~~the product is available for~~by ~~general~~financial ~~release~~institutions toof ~~customers.~~any size. The Company’s ~~capitalizes~~CRM/MRM ~~costs~~application ~~related~~solution toenables ~~purchased~~financial ~~software~~services ~~used for~~organizations ~~developmental~~to ~~purposes~~improve ~~and~~key ~~amortizes~~performance ~~such~~metrics ~~value~~to ~~over~~strengthen ~~three~~their ~~years~~position ~~consistent~~in ~~with~~ the ~~amortization~~market and ~~capitalization~~obtain ~~policy~~greater ~~discussed~~share ~~above~~of ~~related to capitalized software costs. During 2008 and 2007,~~ the ~~Company expensed its software development costs related to the Company~~customer’s ~~SEDONA CRM/MRM enterprise business application software because the recoverability of these costs in future periods is uncertain~~wallet.

The Company ~~periodically~~licenses ~~reviews~~its ~~the~~CRM/MRM ~~carrying~~applications ~~value~~to ofsoftware ~~both~~and ~~internally~~services ~~developed~~providers, who market, sell, distribute and ~~purchased~~support SEDONA’s technology either as a ~~software~~component ~~costs~~of ~~for~~their ~~impairment.~~total solution or as a stand-alone offering. The Company ~~will~~is ~~record~~not an ~~impairment~~application ~~charge~~service provider in(SaaS), ~~its~~however, ~~operating results~~SEDONA ifCRM/MRM ~~the~~can ~~carrying~~be ~~value~~deployed ~~exceeds~~in ~~the~~a ~~future~~SaaS ~~estimated~~environment through ~~undiscounted~~the ~~cash~~Company’s ~~flows~~channel ofdistribution ~~the related assets~~partners.

AsSEDONA has ofsigned ~~December 31,~~Original ~~2004,~~Equipment ~~all~~Manufacturer ~~software~~(OEM) ~~development~~and ~~costs~~reseller ~~have~~agreements ~~been~~with several ~~fully~~leading ~~amortized~~software and services providers for the ~~Company~~financial services ~~has~~market, ~~not~~including, ~~capitalized~~but ~~any~~not ~~additional~~limited ~~costs~~to: ~~since~~Fiserv; ~~that~~Connecticut ~~time~~Online Computer Center, Inc.; Profit Technologies; Bradford-Scott, CU ink, Share One and EPL.

~~Income Taxes~~ Revenues

The Company’s isrevenues ~~taxed~~currently asconsist ~~a domestic U.S. Corporation under the Internal Revenue Code. Deferred income tax assets and liabilities are recognized for the expected future tax consequences~~ of ~~events that~~product ~~have~~license ~~been~~revenue ~~included in the consolidated financial statements or tax returns. Deferred income tax assets~~ and ~~liabilities~~service ~~are~~license determined based upon the differences between the financial statements and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverserevenue. Deferred tax assets are evaluated and a valuation allowance is established if it is more likely than not that all or a portion of the tax assets will not be utilized. In 2007, the Company adopted FASB Interpretation No 48, Accounting for Income Tax Uncertainties- an interpretation of FASB Statement No 109. The adoption of such did not have a significant impact on the Company’s consolidated financial statements. For additional information, see Note 12 to the Consolidated Financial Statements.

~~Stock-Based~~Product ~~Compensation~~ license revenue includes:

~~Effective~~· license ~~January 1,~~fees ~~2006,~~from ~~the~~direct ~~Company~~sales ~~adopted~~by either the ~~Statement of Financial Accounting Standards (SFAS) Statement No. 123 (R), Share Based Payment, as required. The~~ Company isor ~~applying~~its ~~the provisions~~distribution under the modified-prospective transition method which requires companies to recognize compensation cost beginning with the effective date of adoption based on requirements of Statement No. 123(R) for all share-based payments granted after the effective date of adoption and for all awards granted to employees prior to the effective date of adoption that remain unvested on the date of adoption. partners

~~SFAS~~· monthly ~~No. 123(R)~~subscription ~~requires~~fees ~~all~~from ~~share~~SaaS ~~based~~sales ~~payments~~by toour ~~employees,~~channel ~~including~~distribution ~~grants of employee stock options and warrants, to be recognized as expenses in the statement of operations based on their fair values and vesting periods.~~ partners

19 Service license revenue includes:

~~ITEM~~· professional 7.services ~~MANAGEMENT’S~~fees ~~DISCUSSION~~including ~~AND~~set-up ~~ANALYSIS~~and OFinstallation ~~FINANCIAL~~fees, ~~CONDITION~~training ~~AND~~and ~~RESULTS~~mapping ~~OF OPERATIONS (continued)~~fees

~~The~~· annual ~~Company~~maintenance estimates the fair value of options and warrants at the grant date using the Black-Scholes option pricing model. The model takes into consideration weighted average assumptions related to the following: risk-free interest rates; expected life; expected volatility; and expected dividend rates. fees

~~Recent~~The ~~Accounting~~following ~~Pronouncements~~is a discussion and analysis of the Company’s results of operations and financial condition for the years ended December 31, 2009 and December 31, 2008 and should be read in conjunction with the Company’s audited financial statements as of December 31, 2009 and 2008 along with the notes to those financial statements.

~~SFAS~~The ~~141(R)~~ discussion and analysis of financial condition and results of operations is based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingencies. We evaluate, on an on-going basis, our estimates and judgments, including those related to bad debts, income taxes, contingencies and litigation. Our estimates are based on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS No. 141(R)”). In SFAS No. 141(R), the FASB retained the fundamental requirements of SFAS No. 141 to account for all business combinations using the acquisition method (formerly the purchase method) and for an acquiring entity to be identified in all business combinations. However, the new standard requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires transaction costs to be expensed as incurred; and requires the acquirer to disclose to investors and other users, all of the information they need to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) is effective for annual periods beginning on or after December 15, 2008. Accordingly, any business combinations will be recorded and disclosed following existing GAAP until January 1, 2009. The Company expects that SFAS No. 141(R) will have an impact on its consolidated financial statements when effective assuming any acquisitions are consummated after the effective date, but the nature and magnitude of the specific effects will depend upon the nature, terms and size of any business combination. 19

~~SFAS~~Critical ~~157~~ Accounting Policies

~~In September 2006,~~Principles the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position No. 157-2, which deferred the effective date of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until January 1, 2009. Accordingly, our adoption of this standard on January 1, 2008 was limited to financial assets and liabilities. The adoption of SFAS 157 did not have a material effect on our financial condition or results of operations. The Company is still in the process of evaluating this standard with respect to its effect on non-financial assets and liabilities and has not yet determined the impact that it will have on our financial statements upon full adoption in 2009. Consolidation

~~SFAS~~The ~~159~~ Company’s consolidated financial statements include the accounts of its wholly owned subsidiary, SEDONAâGeoServices, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.

~~In February 2007,~~Use ~~the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment~~ of FASB Statement No. 115 (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS 159 also establishes presentation and disclosure requirements to facilitate comparisons between companies that choose different measurement attributes for similar assets and liabilities. The adoption of SFAS 159 did not have an effect on our financial condition or results of operations as we did not elect this fair value option, nor is it expected to have a material impact on future periods as the election of this option for our financial instruments is expected to be limited. Estimates

20 The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosures in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

~~ITEM~~Cash 7.and ~~MANAGEMENT’S~~Cash ~~DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)~~Equivalents

~~SFAS~~The ~~160~~ Company considers all unencumbered highly liquid investments with original maturities of three (3) months or less when purchased to be cash equivalents. Cash and cash equivalents, which primarily consist of cash on deposit and money market funds, are stated at cost, and approximate fair value.

~~In December 2007,~~Accounts the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest, and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of this standard on January 1, 2009 to have a material impact on its consolidated financial statements. Receivable

~~SFAS~~Trade ~~161~~ receivables are generated primarily from the Company’s customers and channel distribution partners. Receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. A valuation allowance is provided for known and anticipated credit losses, as determined by Management in the course of regularly evaluating individual customer receivables. Receivables are written off when deemed uncollectible. Recoveries of receivables previously written off are recorded when received.

~~In March 2008,~~Property ~~the FASB issued SFAS No. 161, Disclosures about Derivative Instruments~~ and Hedging Activities (“SFAS 161”). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. We will be required to provide enhanced disclosures about (a) how and why derivative instruments are used, (b) how derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Certain Hedging Activities (“SFAS 133”), and its related interpretations, and (c) how derivative instruments and related hedged items affects our financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the impact of the adoption of SFAS 161 on its consolidated financial statements. Equipment

~~SFAS~~Property ~~162~~ 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 (3) to seven (7) years.

~~In May 2008,~~Impairment ~~the FASB issued SFAS No. 162, The Hierarchy~~ of ~~Generally~~Long-Lived Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements. Assets

~~Results~~The Company evaluates the recoverability of ~~Operations~~ its long-lived assets in accordance with ASC Topic 360, Property, Plant and Equipment. Assets are periodically reviewed for possible impairment whenever circumstances or events indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of the asset is not recoverable, the carrying amount of such asset will be reduced to fair value.

~~Total~~Revenue ~~revenues from operations for the years ended December 31, 2008 and 2007 were $1,395,000 and $1,215,000, respectively. The increase of 15% or $180,000 in revenues is explained below.~~ Recognition

InThe ~~2008,~~Company’s ~~the~~revenues ~~Company~~from ~~sold~~software ~~more~~arrangements ~~product~~currently ~~licenses~~consist of license ~~its~~fees, ~~CRM/MRM~~fees ~~application~~for ~~than~~installation inservices ~~2007~~and maintenance. The ~~Revenues increased~~Company inhas ~~both~~established ~~the~~vendor ~~direct~~specific objective ~~and~~evidence ~~indirect~~of ~~sales~~fair ~~channels.~~value ~~Revenues~~for ~~from~~its ~~product~~maintenance ~~licenses~~contracts ~~increased~~based on the byprice ~~22%~~of orrenewals ~~$97,000~~of toexisting ~~$538,000~~maintenance ~~compared~~contracts. The toremaining ~~$441,000~~value of ~~revenue~~the ~~reported~~software arrangement inis ~~2007.~~ allocated to license fees and professional

21 20

~~ITEM~~services 7.based ~~MANAGEMENT’S~~on ~~DISCUSSION~~contractual ~~AND~~terms ~~ANALYSIS~~agreed OFupon ~~FINANCIAL~~by ~~CONDITION~~the ~~AND~~customer ~~RESULTS~~and based OFon ~~OPERATIONS~~Company-maintained ~~(continued)~~list prices.

~~Service~~Product ~~fee~~License revenues from the Company’s client base increased by 11% or $83,000 to $857,000 compared to $774,000 of revenue reported in 2007. The increase is attributable to greater demand for professional services, training and project support delivered to a larger customer base. Revenue

InThe Company ~~addition,~~utilizes ~~the~~both ~~Company~~a ~~experienced~~direct sales model and an ~~increase~~indirect ofsales ~~36%~~model orwhereby it ~~$199~~distributes its product through its channel distribution partners,~~000~~ infor ~~subscription~~which the ~~revenues~~Company ~~from~~receives royalty payments based on percentages of the license fees ~~our~~charged by the distribution partners’. Under ~~SaaS~~the direct sales. ~~These~~model, ~~sales~~revenue ~~are~~is not recognized ~~ratably~~until ~~over~~the software ~~their~~is ~~contract~~installed. The Company ~~terms~~either ~~which~~receives ~~generally~~written ~~range~~acceptance from ~~three~~its toclients ~~five~~that ~~years.~~the Assoftware ofhas ~~December 31,~~been installed ~~2008,~~and ~~the~~has ~~Company~~been ~~has recorded~~accepted aor ~~total~~provides receipts for the electronic delivery of ~~approximately~~the ~~$751~~software. Under the indirect sales model,~~000~~ inroyalty ~~current~~fees ~~and~~are ~~non-current~~recognized ~~accounts~~by ~~receivable~~SEDONA ~~and associated~~when ~~deferred~~the ~~revenue~~Company receives ~~for~~written ~~monthly~~acknowledgement ~~subscription~~from ~~fees~~the ~~compared~~distribution topartners ~~approximately~~that ~~$552,000~~a contract ~~reported~~has asbeen ofsigned ~~December 31,~~with ~~2007.~~an end-user and monies are owed to SEDONA from the distribution partner.

~~Cost~~Revenues from the sale of ~~Revenues~~ product licenses are recognized as follows:

~~Cost~~· Persuasive evidence of ~~revenues~~an ~~includes~~arrangement ~~the cost associated with providing professional services such as data mapping~~exists, ~~programming~~generally ~~services,~~by ~~training,~~receipt ~~customer~~of ~~support, installation and consulting services. These services are typically billed on~~ a ~~time~~signed ~~and materials basis.~~ contract

As· Delivery aand acceptance ~~percentage~~ of ~~revenue, cost of sales related to services was 28% of revenue or $241,000 for~~ the ~~year~~software ~~ended~~has ~~December 31,~~been 2008. In comparison, cost of sales equaled 42% of revenues or $328,000 in 2007. The stability of our CRM/MRM application as well as efficiencies in delivering our products and services resulted in lower cost of revenues in 2008 as compared to 2007. received

~~Gross~~· The ~~Profit~~fee to be paid by the customer is fixed or determinable

~~For the year ended December 31, 2008, the Company reported a gross profit~~ · Collection of ~~$1,154,000 or 83% of revenue compared to~~ the ~~year~~fee ~~ended~~is ~~December 31,~~reasonably ~~2007,~~assured. in(Our ~~which~~contracts ~~the~~do ~~Company~~not ~~reported~~contain ageneral ~~gross profit~~rights of ~~$887,000, or 73% of revenue due to the changes in revenues and cost of revenues explained above.~~ return)

~~Operating~~Since SEDONA ~~Expenses~~CRM/MRM solutions can be implemented on the Company’s customers’ systems without significant alterations to the features and the functionality of the software, and 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 acceptance of the software by the customer.

~~Operating~~During 2009, ~~expenses~~11% ~~generally~~of ~~consists~~SEDONA’s license revenues were derived from in-house licensing and 89% were derived from subscription fees on SaaS deployments. Comparatively, during 2008, 57% of the Company’s ~~following:~~license revenues were derived from in-house license sales and 43% were derived from subscription fees on SaaS deployments.

~~Sales,~~Services ~~marketing and product support~~ Revenue

~~Sales,~~Services revenue ~~marketing~~includes ~~and~~revenue ~~product~~from ~~support~~professional ~~expenses~~services ~~generally~~(primarily ~~consist~~installation ~~of salaries, employee benefits~~ and ~~related~~training ~~expenses~~services) ~~for~~and ~~business~~maintenance ~~development activities~~revenue. Installation Weservice ~~anticipate~~revenue ~~that~~is ~~our~~earned ~~expenditures~~from inimplementation ~~this~~planning, ~~area~~hardware ~~will~~and ~~grow~~software inset-up, ~~future~~data ~~years~~integration asincluding wedata ~~increase~~aggregation, conversion, ~~our~~cleansing ~~market~~and ~~penetration~~analysis, ~~with~~and ~~new~~testing ~~direct sales opportunities~~ and ~~expand~~quality ~~the~~assurance. Installation ~~opportunities~~service ~~within~~revenue ~~our~~is ~~indirect~~accounted ~~channel~~for as ~~through~~a ~~the~~separate ~~addition~~element of ~~new partners~~a ~~and~~software ~~resellers~~arrangement.

Sales, marketing and product support cost decreased by $73,000 or 12% to $513,000 in 2008, compared to $586,000 in 2007 due to the reorganization of our sales team, including the termination of our Vice President of Sales in June 2008. The ~~position remained opened through December 31, 2008. To~~ ~~minimize~~Company ~~the~~recognizes ~~impact~~service ofrevenue ~~the~~as ~~termination, the duties of the Vice President of Sales were assumed by other employees within the organization, including the President and CEO.~~ follows:

22Installation 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 related revenue is recognized as training services are provided.

~~ITEM~~Annual 7maintenance revenue is recognized ratably over the life of the related contract. The ~~MANAGEMENT’S~~Company establishes ~~DISCUSSION~~the ~~AND~~value ~~ANALYSIS~~of OFmaintenance ~~FINANCIAL~~revenue ~~CONDITION~~based ~~AND~~on ~~RESULTS~~the OFprice ~~OPERATIONS~~quoted ~~(continued)~~and received for renewals of existing maintenance contracts.

~~Research and Development~~ 21

~~Research~~Software ~~and~~Development development expenses generally consist of salaries, employee benefits and related overhead expenses for product development of our CRM/MRM application. Research and development costs relate to future products as well as the redesign and maintenance of current products. We charge all research and development expenses to operations as incurred. We anticipate that our expenditures in this area will increase significantly in the future as we continue to upgrade and improve our technology to compete effectively with other providers of CRM/MRM applications. Costs

~~Research and~~ Software development ~~expenses~~costs ~~were~~are ~~$526,000~~accounted ~~and $601,000~~ for ~~the~~in ~~years~~accordance ~~ended~~ASC ~~December 31~~985, ~~2008 and 2007, respectively~~Software. All ~~The~~costs ~~decrease~~incurred in ~~expenses of $75,000 was~~ the ~~result of a staff reduction in the~~ research and development ~~department~~of ~~due~~new tosoftware ~~changes~~products inare ~~the~~expensed ~~development~~as ~~requirements~~incurred ~~during~~until ~~the~~technological ~~first~~feasibility ~~quarter~~has ofbeen ~~2008~~established.

~~General~~The costs incurred for testing and ~~Administrative~~coding of the new software products are capitalized. Amortization of such costs is the greater of the amount capitalized using: (a) the ratio in which 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. During 2009 and 2008, the Company expensed its software development costs related to the Company’s SEDONA CRM/MRM enterprise business application software because the recoverability of these costs in future periods is uncertain.

~~General~~The Company ~~and~~periodically ~~administrative~~reviews ~~expenses~~the ~~generally~~carrying ~~consist~~value of ~~salaries,~~both ~~employee~~internally ~~benefits~~ developed and ~~related overhead~~purchased ~~expenses~~software costs for ~~executive,~~impairment. The ~~financing,~~Company ~~accounting~~will ~~and~~record ~~human~~an ~~resource~~impairment ~~personnel.~~charge Inin ~~addition, major~~its ~~components~~operating ofresults ~~these~~if the ~~expenses~~carrying ~~include~~value ~~other~~exceeds ~~corporate~~the ~~expenses~~future ~~such~~estimated ~~legal,~~undiscounted ~~accounting, professional~~cash ~~services,~~flows ~~insurance~~of ~~and~~the related ~~facilities expenses~~assets.

~~General~~As of ~~and administrative expenses were $1,281,000 and $1,255,000 for the years ended~~ December 31, ~~2008~~ ~~and 2007~~2004, ~~respectively.~~all ~~The~~software ~~increase~~development incosts ~~expenses~~have ofbeen ~~$26,000 or 2% was generally attributable~~fully toamortized ~~additional compensation~~ and ~~benefits expenses of $64,000 related to~~ the ~~separation agreement between the~~ Company’s ~~former~~has ~~President~~not ~~and~~capitalized ~~Chief~~any ~~Executive Officer. (See Item 11, Employment and Separation Agreements for~~ additional ~~information). In addition, the Company did incur an 18% increase in its employee benefits~~ costs. ~~The~~since ~~Company offset the impact of rising health care costs~~that ~~and separation expenses in other areas such general insurance where it renegotiated its insurance premiums without sacrificing levels of coverage~~time. ~~The Company continues its efforts to monitor its expenses and attain savings, whenever possible.~~

~~Litigation~~Income ~~Expenses~~ Taxes

~~Litigation~~The Company ~~expenses~~is ~~related~~taxed toas a domestic U.S. Corporation under the ~~OSI~~Internal ~~case~~Revenue Code. Deferred ~~were~~income ~~$1,010,000~~tax assets and liabilities ~~$403,000~~are recognized for the ~~years~~expected ~~ended~~future tax consequences of events ~~December 31,~~that ~~2008~~have ~~and~~been ~~2007,~~included ~~respectively.~~in ~~Litigation~~the ~~expenses~~consolidated ~~relate~~financial tostatements aor ~~civil~~tax returns. Deferred ~~action~~income ~~lawsuit~~tax assets and ~~filed~~liabilities byare determined based upon the ~~Company~~differences ~~against~~between ~~Open~~the ~~Solutions~~financial statements ~~Inc.~~and ~~(OSI) for~~tax ~~breach~~basis of aassets ~~software~~and ~~license~~liabilities ~~agreement~~using currently enacted tax ~~entered~~rates ~~into~~in ~~between~~effect for the ~~parties~~years in ~~May,~~which ~~2002~~the ~~(See~~differences ~~Item 3.~~are ~~Legal~~expected ~~Proceedings~~to reverse. Deferred ~~for~~tax ~~additional~~assets are ~~information).~~evaluated ~~Litigation~~and ~~expenses~~a ~~have~~valuation ~~increased~~allowance ~~from~~is ~~the~~established ~~prior~~if ~~year,~~it asis ~~the~~more ~~discovery~~likely ~~phase~~than not that all or a portion of the ~~litigation~~tax ~~was completed~~assets inwill ~~2008,~~not be utilized. The Company utilizes a two-step approach to recognizing and ~~each~~measuring ~~party~~uncertain intax ~~the~~positions ~~case~~(tax ~~has~~contingencies). The ~~moved~~first step is to evaluate the tax position for ~~summary~~recognition ~~judgment.~~by ~~Trial~~determining if the weight of available evidence indicates it is more likely than not that the position will be ~~scheduled,~~sustained ifon ~~necessary~~audit, ~~after~~including resolution of related appeals or litigation processes. The second step is to measure the ~~pending~~tax ~~motions~~benefit as ~~for~~the ~~summary~~largest ~~judgment~~amount which is more than 50% likely of being realized upon ultimate settlement. The Company includes interest and penalties related to its tax contingencies as operating expenses in its consolidated statement of operations. For additional information, see Note 12 to the Consolidated Financial Statements.

23 Stock-Based Compensation

~~ITEM~~The 7.Company ~~MANAGEMENT’S~~accounts ~~DISCUSSION~~for ~~AND~~stock-based ~~ANALYSIS~~compensation OFin accordance ~~FINANCIAL~~with ~~CONDITION~~the ~~AND~~recognition ~~RESULTS~~and OFmeasurement ~~OPERATIONS~~provisions of Accounting Standards Codification (~~continued~~ASC) Topic 718, “Compensation — Stock Compensation”.

~~Non-operating~~ASC ~~Expenses:~~Topic 718 requires all share based payments to employees, including grants of employee stock options or warrants, to be recognized as expenses in the statement of operations based on their fair values and vesting periods.

~~Interest Expense:~~ 22

InThe ~~2008,~~Company ~~interest~~estimates ~~expense~~the ~~increased~~fair tovalue ~~$682,000~~of ~~compared~~options toand warrants ~~$622,000~~at ~~reported~~the ingrant ~~2007,~~date anusing ~~increase of~~the ~~$60,000~~Black-Scholes oroption ~~10%.~~pricing model. The ~~increase~~model ~~reflects~~takes ~~additional~~into ~~interest~~consideration ~~expense~~weighted average ~~from~~assumptions ~~advances~~related ~~under~~to the ~~line of~~following: ~~credit~~risk-free ~~with David Vey and~~ interest ~~on the funded OSI litigation expenses as fully explained in~~rates; ~~Note~~expected 4term; ofexpected ~~the~~volatility; ~~accompanying~~and ~~financial~~expected ~~statements~~dividend rates.

~~Inducement~~Recent ~~loss on debt conversion~~Accounting Pronouncements

~~For~~In September 2009, the ~~year~~Company ~~ended~~adopted ~~December 31,~~ASC ~~2008~~105-10-05, which provides for the ~~Company~~FASB ~~recorded~~Accounting Standards anCodification™ ~~inducement~~(the ~~loss~~“Codification”) onto ~~debt~~become ~~conversion~~the ofsingle official $1source of authoritative,~~299,000~~ ~~related~~nongovernmental U.S. generally accepted accounting principles (“GAAP”) to ~~the~~be ~~conversion~~applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. The Codification does not change GAAP, but combines all authoritative standards into a comprehensive, ~~portion~~topically organized online database. ASC 105-10-05 explicitly recognizes rules and interpretative releases of the ~~outstanding~~Securities ~~principal~~and Exchange Commission under federal securities laws as authoritative GAAP for SEC registrants. Subsequent revisions to GAAP will be incorporated into the ASC through Accounting Standards Updates (ASU). ASC 105-10-05 is effective for interim and ~~interest~~annual onperiods ending after September 15, 2009, and was effective for the Company in the third quarter of 2009. The adoption of ~~debt~~ASC ~~obligations~~105-10-05 impacted the Company’s financial statement disclosures, as all references to authoritative accounting literature were updated to and in accordance with ~~David~~the ~~Vey~~Codification. The adoption of ASC 105-10-05 did not have a material impact on the Company’s consolidated results of operations and financial condition.

AsIn June ~~part of David Vey’s debt refinancing transaction on December 31,~~ 2008, ~~Mr. Vey~~the ~~converted principal~~FASB ~~and~~issued ~~accrued~~new ~~interest~~guidance ofregarding ~~his existing outstanding convertible debt in~~ the ~~amount~~classification of ~~$1,262,738~~financial ~~into~~instruments ~~shares~~that ofare ~~the~~indexed ~~Company~~to a company’s ~~common~~own stock ~~at the rate of $0~~.05 The ~~per~~new ~~share,~~guidance ~~for~~revised athe ~~total~~criteria offor ~~25,254,781~~determining ~~shares~~whether ofan ~~common~~instrument ~~stock.~~is Inindexed ~~accordance~~to ~~with~~a ~~SFAS~~company’s ~~No. 84~~own ~~(“SFAS~~stock ~~84”),~~and ~~Induced Conversions~~the ofresultant ~~Convertible~~accounting ~~Debt~~treatment ~~— an amendent~~ of ~~APB~~those ~~Opinion No~~instruments. ~~26,~~ The ~~due~~new toguidance ~~the~~is ~~reduction~~effective offor ~~the conversion~~annual ~~price~~periods ~~from~~beginning ~~$0.14~~after ~~per~~December ~~share~~15, ~~under the existing debt arrangement to $0~~2008.05 The ~~per~~adoption ~~share,~~of ~~the~~this ~~Company recorded~~new aguidance ~~charge~~on ofJanuary $1,~~299,000~~ as2009 andid ~~inducement~~not ~~loss~~have ~~upon~~a material ~~conversion~~impact ofon the ~~principal~~Company’s ~~and~~consolidated ~~interest on~~financial ~~December 31, 2008~~statements.

~~Loss~~In December 2007, the FASB issued an accounting standard codified within ASC 805, “Business Combinations” which changed the accounting for business acquisitions. Under this standard, business combinations continue to be required to be accounted for at fair value under the acquisition method of accounting, but the standard changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date, until either abandoned or completed, at which point the useful lives will be determined; and restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date. The standard is effective on ~~extinguishment~~a prospective basis for all business combinations for which the acquisition date is on or after the beginning of ~~debt~~the first annual period subsequent to December 15, 2008. Adoption of the standard did not have a significant impact on the Company’s financial position and results of operations; however, any business combination entered into after the adoption may significantly impact the Company’s financial position and results of operations when compared to acquisitions accounted for under prior GAAP and result in more earnings volatility and generally lower earnings due to the expensing of deal costs and restructuring costs of acquired companies.

~~For~~In February 2009, the ~~year~~FASB ~~ended~~issued ~~December 31,~~an ~~2008~~accounting standard codified within ASC 805, “Business Combinations” which amends the ~~Company~~provisions ~~recorded~~related to the initial recognition and measurement, subsequent measurement, and disclosure of assets and liabilities arising from contingencies in a ~~loss~~business oncombination. ~~debt~~The ~~extinguishment~~standard applies to all assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of ASC $1450,~~156~~ “Contingencies”,~~000~~ ~~related~~if not acquired or assumed in a business combination, except for assets or liabilities arising from contingencies that are subject to specific guidance in ASC 805. The standard applies prospectively to business combinations for which the ~~refinancings~~acquisition date is on or after the beginning of ~~its~~the first ~~debt~~annual ~~obligations~~reporting ~~with~~period beginning on or after December 15, 2008. The ~~David~~adoption ~~Vey~~of the standard effective January 1, 2009 did not have an impact on the Company’s financial position and ~~William~~results ~~Rucks~~of operations.

Effective December 31, 2008, the Company modified the terms of its existing debt obligations with David Vey. Under the revised agreement, Mr. Vey was granted one four-year warrant to purchase 12,637,390 shares of the Company’s common stock at an exercise price of $0.05 per share. In accordance with EITF No. 06-6 (“EITF 06-6”), Debtor’s Accounting for a Modification or Exchange of Convertible Debt Instruments, and EITF No. 96-19 (“EITF 96-19”), Debtor’s Accounting for a Modification or Exchange of Debt Instruments, the modification was accounted for as a debt extinguishment and the fair value of the stock purchase warrant was included in determining the debt extinguishment loss to be recognized. The fair value of the warrant in the amount of $909,000 was determined using the Black-Scholes option pricing model and was recorded as a loss on extinguishment of debt. 23

~~Effective~~In March 6, 2008, the FASB ~~Company~~issued ~~modified~~an ~~the~~accounting ~~terms~~standard ofrelated ~~the~~to ~~$1,000,000~~disclosures inabout ~~convertible notes~~derivative ~~payable~~instruments ~~with~~and ~~William~~hedging ~~Rucks.~~activities, ~~Under~~codified ~~the~~within ~~revised~~ASC ~~agreement~~815, Mr“Derivatives and Hedging”. ~~Rucks~~ Provisions ~~was~~of ~~granted~~this ~~one~~standard ~~four-year~~change the disclosure ~~warrant~~requirements tofor ~~purchase~~derivative ~~2,777,777~~instruments ~~shares~~and ofhedging ~~the~~activities ~~Company’s~~including enhanced ~~common~~disclosures ~~stock~~about at(a) how anand ~~exercise~~why ~~price~~derivative ofinstruments ~~$0.30~~are ~~per~~used, ~~share.~~(b) how Inderivative ~~accordance~~instruments ~~with EITF 06-6~~ and ~~EITF~~related ~~96-19,~~hedged ~~the~~items ~~modification was~~ are accounted for asunder ~~a debt~~ASC ~~extinguishment~~815 and ~~the~~its ~~fair~~related ~~value~~interpretations, ofand ~~the~~(c) how derivative ~~stock~~instruments ~~purchase~~and ~~warrant~~related ~~was~~hedged ~~included~~items inaffect ~~determining the~~our ~~debt~~financial ~~extinguishment~~position, financial ~~loss~~performance, toand becash ~~recognized~~flows. ~~The~~This ~~fair~~statement ~~value~~was ofeffective ~~the~~for ~~warrant in the amount of~~financial ~~$247,000~~statements ~~was~~issued ~~determined~~for ~~using~~fiscal ~~the~~years ~~Black-Scholes~~and ~~option~~interim ~~pricing~~periods ~~model~~beginning ~~and~~after ~~was~~November 15, 2008. ~~recorded~~The asCompany aadopted ~~loss~~the standard on ~~extinguishment~~January 1, ~~of debt~~2009.

24In April 2008, the FASB issued an accounting standard codified within ASC 350, “Intangibles - Goodwill and Other” which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset Under this standard, entities estimating the useful life of a recognized intangible asset must consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, must consider assumptions that market participants would use about renewal or extension. The intent of the standard is to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. Adoption of the standard was effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company adopted the standard on January 1, 2009. The Company does not expect the standard to have a material impact on its accounting for future acquisitions of intangible assets.

~~ITEM~~In 7November 2008, the FASB issued an accounting standard codified within ASC 350, “Intangibles - Goodwill and Other” that applies to defensive assets which are acquired intangible assets which the acquirer does not intend to actively use, but intends to hold to prevent its competitors from obtaining access to the asset. The ~~MANAGEMENT’S~~standard ~~DISCUSSION~~clarifies ~~AND~~that ~~ANALYSIS~~defensive OFintangible ~~FINANCIAL~~assets ~~CONDITION~~are ~~AND~~separately identifiable ~~RESULTS~~and OFshould ~~OPERATIONS~~be ~~(continued)~~accounted for as a separate unit of accounting in accordance with guidance provided within ASC 805, “Business Combinations” and ASC 820, “Fair Value Measurements and Disclosures”. The standard was effective for intangible assets acquired in fiscal years beginning on or after December 15, 2008. The Company adopted this standard effective January 1, 2009 and will apply the provisions of this guidance to intangible assets acquired on or after that date. The Company does not expect the standard to have a material impact on its accounting for future acquisitions of intangible assets.

~~Liquidity~~In April 2009, the FASB issued an accounting standard codified within ASC 825, “Financial Instruments” that requires disclosures about the fair value of financial instruments that are not reflected in the consolidated balance sheets at fair value whenever summarized financial information for interim reporting periods is presented. Entities are required to disclose the methods and ~~Capital~~significant assumptions ~~Resources~~used to estimate the fair value of financial instruments and describe changes in methods and significant assumptions, if any, during the period. The standard was effective for interim reporting periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009.

~~SEDONA’s~~In ~~operations~~April 2009, ~~have~~the FASB ~~been~~issued ~~financed~~an ~~through~~accounting ~~the~~standard ~~private~~codified ~~placement~~within ofASC ~~equity~~820, “Fair Value Measurements and ~~short-term~~Disclosures,” which provides guidance on determining fair ~~notes~~value when there is no active market or where the price inputs being used represent distressed sales. The Instandard reaffirms the ~~fiscal~~objective ~~year~~of fair ~~ended~~value ~~December 31~~measurement, ~~2008~~which is to reflect how much an asset would be sold for in an orderly transaction. It also reaffirms the need to use judgment to determine if a formerly active market has become inactive, ~~SEDONA~~as ~~received~~well ~~net~~as ~~proceeds~~to determine offair ~~approximately~~values when markets have become inactive. The standard is ~~$393~~effective for interim and annual periods ending after June 15,~~000~~ ~~from~~2009 and was adopted by the ~~sale~~Company in the second quarter of ~~shares~~2009. The adoption of ~~common~~this accounting ~~stock~~pronouncement ~~and~~did ~~from~~not ~~the~~have ~~borrowings~~a ~~under~~material ~~its~~impact ~~line~~on the Company’s consolidated results of ~~credit~~operations and financial condition.

For the year ended December 31, 2008, the Company used net cash of $1,097,000 for operating activities compared to $1,725,000 in 2007, a decrease of $628,000 or 36%. The decrease in net cash used in operating activities was primarily driven by a $1,359,000 increase in accounts payable and accrued expenses, specifically, accrued legal expenses related to the litigation with Open Solutions Inc. and an increase in deferred revenue from the prior year in the amount of $242,000, offset by an increase in net loss. 24

~~Net~~In ~~cash~~May 2009, ~~used~~the inFASB ~~investing~~issued ~~activities~~an ~~increased~~accounting standard bycodified $6within ASC 855 “Subsequent Events,~~000~~” ~~due~~which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the ~~purchase~~disclosure of ~~new~~the ~~property~~date through which an entity has evaluated subsequent events and the basis for that date, that is, ~~equipment~~whether that date represents the date the financial statements were issued or were available to be issued. The standard was effective for interim or annual periods ending after June 15, 2009 and was adopted by the Company in ~~2008~~the second quarter of 2009. In ~~There~~February 2010, ~~were~~the FASB noissued ~~investing~~Accounting ~~activities~~Standards Update No. 2010-09 (“ASC Update 2010-09”) “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements.” This ASU amends FASB Codification topic 855. The amendments in ASU 2010-09 remove the requirement in ASC 855-10 for a SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. This ASU was effective upon issuance and the ~~year~~Company ~~ended~~adopted this ASU as of December 31, ~~2007~~ 2009. Except for the removal of disclosure requirements in ASC 855-10, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

~~Net~~In ~~cash~~August 2009, ~~provided~~the FASB byissued ~~financing~~ASU ~~activities~~No. 2009-05, ~~decreased~~“Fair byValue ~~$679,000~~Measurements toand ~~$1,088,000~~Disclosures in— Measuring ~~2008,~~Liabilities ~~compared~~at toFair Value.” The ASU provides additional guidance for ~~$1,767,000~~the infair ~~2007~~value measurement of liabilities under ASC 820 “Fair Value Measurements and Disclosures”. The InASU ~~2008,~~provides ~~the~~clarification ~~proceeds~~that in ~~were~~circumstances ~~derived~~in ~~from~~which ~~$686,000~~a quoted price in ~~payments~~an ~~advanced~~active bymarket for the identical ~~David~~liability ~~Vey~~is not available, ~~related~~a reporting entity is required to ~~the~~measure ~~OSI~~fair value ~~litigation,~~using ~~plus~~certain ~~$285,000~~techniques. inThe ~~proceeds~~ASU ~~from~~also clarifies that when estimating the fair ~~line~~value of ~~credit~~a ~~and $117~~liability,~~000~~ ~~from~~a reporting entity is not required to include a separate input or adjustment to other inputs relating to the ~~sale~~existence of ~~common~~a restriction ~~stock~~that ~~and~~prevents ~~exercise~~the transfer of ~~stock~~a ~~options~~liability. InIt ~~comparison,~~also clarifies that both a quoted price in ~~2007,~~an active market for the ~~proceeds~~ ~~were~~identical ~~principally~~liability ~~derived~~at ~~from~~the measurement date and the ~~sale~~quoted ofprice ~~$1,490,000~~for ofthe ~~common~~identical ~~stock.~~liability Inwhen ~~addition~~traded as an asset in ~~2007,~~ ~~the~~an ~~Company~~active ~~borrowed~~market ~~$180,000~~when ~~under~~no ~~its~~adjustments ~~line~~to the quoted price of ~~credit,~~the asset ~~received~~are ~~$74,000~~required inare ~~payments~~Level ~~advanced by~~1 ~~David~~fair ~~Vey,~~value ~~related~~measurements. The toCompany adopted the ~~OSI~~ASU ~~litigation,~~in ~~and~~the ~~collected~~fourth ~~proceeds~~fiscal quarter of ~~$23,000~~2009. The ~~from~~adoption of the ~~exercise~~ASU ofdid not have a material impact on the Company’s consolidated results ~~stock~~of ~~options~~operations and financial condition.

~~The~~Standards ~~Company~~Issued ~~anticipates~~But ~~that~~Not itYet will continue to incur litigation expenses related to the OSI matter and will exceed the $750,000 limit in the agreement with Vey Associates. The Company is currently negotiating an increase in the funding limit with Vey Associates, however, there can be no assurances that Vey Associates will agree to advance funds in excess of the $750,000 limit. Adopted

~~Previously~~In June 2009, the ~~Company~~FASB ~~had~~ issued aan ~~promissory~~accounting ~~note~~standard tocodified ~~Oak~~within ~~Harbor~~ASC ~~dated~~860, “Transfers asand ofServicing.” ~~August 17,~~This ~~2006~~standard in amends the ~~principal~~existing ~~amount~~guidance on transfers of ~~$1,040,402~~financial ~~(the~~assets. ~~“Oak~~The ~~Harbor~~amendments ~~Note”~~include: (1). ~~Effective~~eliminating ~~March 11,~~the qualifying ~~2009~~special-purpose entity concept, ~~the~~(2) ~~Oak Harbor~~a ~~Note~~new ~~was~~unit ~~extended~~of ~~and~~account ~~has~~definition that amust ~~maturity~~be ~~date~~met for transfers of ~~May 15,~~portions ~~2010.~~of ~~The~~financial ~~Company~~assets ~~will~~to be ~~required~~eligible for sale accounting, (3) clarifications and changes to the derecognition ~~make~~criteria for a ~~principal~~transfer ~~payment~~to inbe ~~the~~accounted for as a sale, (4) a change to the amount of ~~$400,000~~recognized gain or loss on ~~November 15,~~ ~~2009,~~a ~~and~~transfer ~~the~~of ~~remaining~~financial assets accounted ~~principal~~for ofas ~~$640~~a sale when beneficial interests are received by the transferor,~~402~~ and ~~all~~(5) extensive ~~accrued~~new ~~but~~disclosures. ~~unpaid~~This ~~interest~~standard ~~will~~is beeffective ~~due~~for new transfers of financial assets occurring on ~~maturity,~~or atafter ~~May 15~~January 1, 2010. The ~~Oak~~adoption ~~Harbor~~of ~~Note~~this standard ~~bears~~is ~~interest~~not atexpected to have a ~~rate~~material ofimpact ~~eight~~on ~~percent~~the ~~(8%)~~Company’s consolidated ~~per~~financial ~~year.~~statements; however, it could impact future transactions entered into by the Company.

~~Charles F. Mitchell (“Mitchell”)~~In ~~extended~~June a2009, ~~loan to~~ the ~~Company,~~FASB ~~which~~issued ~~was~~an ~~evidenced~~accounting bystandard acodified ~~convertible~~within ~~promissory~~ASC ~~note dated May 31~~810, ~~2006,~~ ~~in the principal amount of $300,000, with a conversion price of $0.20 per share (the~~ “~~Mitchell Convertible Note”)~~Consolidation. ~~William Rucks (“Rucks~~”~~) extended several loans to the~~ ~~Company~~This ~~which~~standard ~~were~~amends ~~evidenced by~~ the ~~following~~consolidation ~~convertible~~guidance ~~promissory~~for ~~notes:~~variable-interest ~~(i) note~~entities ~~dated~~under ~~July~~FIN 146(R), ~~2005~~“Consolidation ~~in the principal sum~~ of ~~$250,000;~~Variable ~~(ii)~~Interest ~~note~~Entities ~~dated~~- ~~August 2, 2005 in~~an ~~the~~interpretation ~~principal sum~~ of ~~$250,000;~~ARB ~~and~~No. ~~(iii)~~51.” ~~$500,000~~The ~~note~~amendments ~~dated~~include: ~~September 29, 2005 and~~ (iv1) a ~~note in~~ the ~~amount~~elimination of ~~$300,000 dated May 31, 2006 (collectively~~ the ~~“Rucks~~exemption ~~Notes”). The~~for ~~Notes~~qualifying ~~designated~~special aspurpose ~~(i)~~entities, (ii2), ~~and (iii) each had~~ a ~~conversion~~new ~~price~~approach ~~of $0.18 per share,~~for ~~while~~determining ~~the~~who ~~note~~should ~~designated~~consolidate ~~as (iv) had~~ a ~~conversion~~variable-interest ~~price of $0.20 per share. The Notes designated as (i)~~entity, ~~(ii),~~ and (~~iii~~3), ~~in the total sum of $1,000,000 shall mature and are~~changes ~~payable~~to onwhen ~~January~~it 1,is ~~2009,~~necessary ~~unless~~to ~~theretofore~~reassess ~~converted.~~who ~~The~~should ~~two~~consolidate ~~$300,000~~a ~~convertible notes~~variable-interest ~~shall~~entity. ~~mature~~This ~~and~~standard ~~are~~is ~~payable~~effective onJanuary ~~October 23~~1, ~~2009, unless theretofore converted~~2010. The convertible notes bear interest on the principal outstanding at a rate of 8% per year, annually in arrears, from the date of the convertible notes until the earlier of maturity or the date upon which the unpaid balance is paid in full or is converted into shares of common stock. The Company is currently evaluating ~~in negotiations with Mr. Rucks to modify~~ the ~~agreement~~impact ~~to extend the maturity date~~ of ~~the~~ ~~$1,000,000~~this instandard ~~notes payable currently due~~ on ~~January~~its 1,consolidated ~~2009.~~financial statements.

AsIn ~~more~~October 2009, ~~fully~~the FASB ~~described~~issued inASU ~~Item~~ 2009-13, ~~the~~“Multiple-Deliverable ~~Company~~Revenue ~~refinanced~~Arrangements, (amendments ~~its~~to ~~existing~~ASC ~~debt obligations~~Topic ~~with~~605, ~~David~~Revenue ~~Vey~~Recognition)” on(ASU ~~December~~2009-13) 31and ASU 2009-14, ~~2008. As~~“Certain ~~part~~Arrangements ofThat ~~the~~Include ~~refinancing~~Software Elements, (amendments to ~~the~~ASC ~~Company~~Topic ~~issued~~985, MrSoftware)” (ASU 2009-14). ASU ~~Vey~~2009-13 arequires ~~consolidated~~entities ~~secured~~to allocate ~~convertible~~revenue ~~promissory~~in ~~note, dated~~an asarrangement ofusing ~~December~~estimated ~~31,~~selling ~~2008,~~prices inof the delivered ~~principal~~goods ~~amount~~and ~~$4,100,000~~services based on a selling price hierarchy. The ~~New Convertible~~amendments ~~Note~~eliminate ~~has~~the aresidual ~~maturity~~method ~~date~~ of ~~January~~revenue 4,allocation ~~2010,~~and ~~unless~~require ~~theretofore~~revenue ~~converted,~~to be ~~and~~allocated ~~bears~~using ~~interest~~the atrelative ~~the~~selling ~~rate~~price ofmethod. ASU ~~eight~~2009-14 ~~percent~~removes tangible ~~(8%)~~products ~~per~~from ~~year,~~the ~~which~~scope ~~interest~~of software revenue guidance and provides ~~will~~guidance beon ~~due~~determining ~~upon~~whether ~~maturity.~~software ~~Mr.~~deliverables ~~Vey~~in ~~has~~an ~~the~~arrangement ~~option~~that includes toa ~~convert,~~tangible atproduct ~~any~~are ~~time,~~covered ~~all or~~by ~~part~~the scope of the ~~unpaid~~software ~~principal~~revenue guidance. ASU 2009-13 and ~~accrued~~ASU ~~but~~2009-14 ~~unpaid~~should ~~interest~~be ofapplied ~~the~~on ~~New~~a prospective ~~Convertible~~basis ~~Note~~for ~~into~~revenue ~~shares~~arrangements ofentered ~~Company~~into ~~common~~or ~~stock~~materially atmodified ain ~~conversion~~fiscal years ~~price~~beginning ofon ~~$0.05 per~~or ~~share. The~~after ~~number~~June 15, of2010, ~~shares~~with ~~which~~early ~~would~~adoption bepermitted. The ~~issuable~~Company ~~upon~~is currently evaluating the ~~conversion~~impact of the ~~$4,100,000~~ ~~principal~~adoption ~~balance~~ of ~~the~~these ~~New~~ASUs ~~Convertible~~on its ~~Note~~consolidated isresults ~~presently~~of ~~82,000,000~~operations or financial condition.

25In December 2009, the FASB issued ASU No. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” which amends ASC 810, “Consolidation” to address the elimination of the concept of a qualifying special purpose entity. The standard also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE whereas previous accounting

~~ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)~~25

~~The~~guidance ~~Company~~required reconsideration ~~will~~of ~~require~~whether ~~additional~~an ~~financing~~enterprise inwas ~~2009~~the ~~and~~primary ~~has~~beneficiary ~~entered~~of ~~into~~ a ~~financing agreement~~VIE ~~with~~only ~~Vey~~when ~~Associates~~specific toevents ~~borrow~~had ~~up to $2,250,000~~occurred. The ~~loan~~standard isprovides ~~evidenced by a secured convertible~~more ~~promissory~~timely ~~note~~and ~~having~~useful ainformation ~~principal~~about ~~amount~~an ofenterprise’s upinvolvement towith ~~$2,250,000~~a ~~(the “Vey Associates Convertible~~variable ~~Note”).~~interest ~~The~~entity ~~Vey~~and ~~Associates~~will ~~Convertible~~be ~~Note~~effective ~~has~~as aof ~~maturity~~the ~~date~~beginning of ~~January 4,~~interim ~~2010,~~and ~~unless~~annual ~~theretofore~~reporting ~~converted,~~periods ~~and~~that ~~bears~~begin ~~interest~~after atNovember 15, ~~the rate of eight percent (8%) per year~~2009, which for the ~~interest~~Company ~~will~~would be ~~due upon maturity. Once $~~January 1,~~750,000~~ of2009. The ~~the loan has been paid to the~~ Company, ~~Vey Associates~~does ~~has~~not expect the ~~option~~adoption ~~to convert all or part~~ of ~~the~~this ~~unpaid~~standard ~~principal~~to ~~and~~have ~~accrued but unpaid interest of the Vey Associates Convertible Note into shares at~~ a ~~conversion~~material ~~price~~effect ofon ~~$0.05~~its ~~per~~consolidated ~~share.~~results ~~The number~~ of ~~shares~~operations ~~which~~and ~~would~~financial ~~be issuable upon the conversion of the $2,250,000 principal balance is presently 45,000,000~~condition.

~~Vey~~In January 2010, the ~~Associates~~FASB ~~had~~issued ~~agreed~~ASU No. 2010-6, as“Improving ~~previously~~Disclosures ~~amended~~About onFair ~~March 18~~Value Measurements,” ~~2009~~which provides amendments to ASC 820 “Fair Value Measurements and Disclosures,” including requiring reporting entities to ~~fund~~make more robust disclosures about (1) the ~~loan~~different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in ~~five~~Level 3 fair value measurements including information on purchases, sales, issuances, and settlements on a gross basis and (54) ~~installments~~the astransfers between ~~follows:~~Levels 1, 2, and 3. The standard is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

(i) the first installment on or before December 31, 2008, in the amount of $100,000; (ii) the second installment on or before January 15, 2009, in the amount of $300,000; (iii) the third installment on or before March 18, 2009, in the amount of $600,000; (iv) the fourth installment on or before May 1, 2009 in the amount of $750,000; and (v) the fifth installment on or before September 30, 2009 in the amount of $500,000.26

~~Payment~~Results of the fifth installment is subject to the Company achieving a certain profitability level, referred to as “EBITDA Break Even”, at the end of the third quarter of Fiscal year 2009, (September 30, 2009). Operations

Total ~~The~~revenues ~~first~~from ~~installment~~operations offor ~~this~~the ~~financing~~years ~~agreement~~ended ~~was~~December 31, ~~not~~2009 ~~received~~and 2008 ~~until~~were ~~January~~$1,250,000 ~~2009~~and $1,395,000, respectively. The ~~There~~decrease isof no10% ~~outstanding~~or ~~balance~~$145,000 onin ~~this~~total ~~loan~~revenues ~~at December~~is ~~31,~~explained ~~2008~~below.

AsOver the last year, the turmoil and uncertainty of ~~April~~the economy, specifically the financial services industry has had an impact the Company’s license sales. For the year ended December 1431, 2009, revenues ~~the~~from ~~Company~~product ~~has~~licenses ~~received~~decreased aby ~~total~~25% or $137,000 to $401,000 compared to product license revenues of $~~750~~538,000 reported for 2008. License fee revenue from the sale of in-house software applications decreased 86% in the $1year ended December 31,~~000~~ 2009,~~000~~ however ~~currently~~this ~~due~~decrease was offset by a 55% increase in license fee revenue from ~~under~~the sale of SaaS based license (Software as a Service) revenues for the ~~amended~~year ended ~~funding~~December 31, ~~schedule.~~2009, as compared to the 2008. The ~~Independent~~Company ~~Committee~~expects ofthat the ~~Board~~SaaS ofbased licensing ~~Directors~~model will continue to show strong results through 2010 as this model provides financial institutions with an immediately available, fully integrated system, including all of the software, hardware and services required for the ~~Company~~deployment of a comprehensive, web-based enterprise business application, for an affordable, fixed monthly subscription fee. SaaS based pricing is ~~working~~especially ~~with~~attractive to financial institutions who lack the ~~Lender~~resources and IT infrastructure to ~~negotiate~~deploy an in-house enterprise business application. In addition, it does not involve the significant up-front charges of a ~~new~~perpetual ~~funding~~license ~~schedule~~and does not come out of an organization’s capital expenditures budget. SaaS based licensing helps the Company build a predictable, recurring revenue stream because the subscription fee is received monthly over a three to five year period.

~~The~~As of ~~financial~~December 31, ~~statements~~2009, of the Company ~~have~~has ~~been~~recorded ~~prepared~~a ~~assuming~~total ~~the~~of ~~Company will continue as a~~approximately ~~going concern~~$918,000 ~~which~~in ~~contemplates~~current ~~the~~and ~~realization~~non-current ofaccounts ~~assets~~receivable and ~~the~~associated ~~satisfaction of liabilities in~~deferred ~~the~~revenue ~~normal~~for ~~course~~SaaS ofbased ~~business~~subscription fees. ~~Accordingly,~~This ~~the~~represents ~~financial~~a ~~statements~~22% doincrease ~~not include any adjustment~~over ~~that might be necessary should~~ the ~~Company~~approximately be$751,000 ~~unable~~reported toas ~~continue~~of inDecember ~~existence~~31, 2008.

~~For 2008, the~~ The Company ~~reported~~also abelieves ~~net~~that ~~loss~~the ofdemand ~~$5,313,000~~for ~~which includes non~~in-~~cash~~house ~~charges~~software ofapplications will ~~$2,455,000~~increase ~~related~~in to2010 ~~the~~as ~~restructuring~~financial ofinstitutions ~~its~~seek ~~debt~~solutions ~~obligations~~to ~~and~~help ~~$1,010,000 for litigation~~them ~~expenses~~effectively ~~related~~promote tothe aspecific ~~contract~~products ~~dispute~~that ~~with~~will ~~Open~~increase ~~Solutions Inc. In addition, the Company had~~their ~~negative~~profitability ~~working capital of $5,722,000~~ and aretain ~~stockholders’~~their ~~deficit~~loyal ~~of $7,986,000 as of December 31, 2008~~customers. ~~These factors raise substantial doubt about our ability to continue as a going concern.~~

~~Presently,~~Service fee ~~our~~ revenues ~~are~~changed ~~not~~by ~~sufficient~~less tothan ~~meet~~1% ~~our~~to ~~operating and capital expenses and as explained above~~$849,000 wecompared ~~have~~to ~~approximately~~ $2857,000~~,000~~ offor ~~convertible and non-convertible debt obligations which~~the ~~become~~years ~~due~~ended inDecember 31, 2009. Asand ~~stated above~~2008, ~~there~~respectively. During isthe ~~substantial~~last ~~doubt~~fiscal ~~about~~quarter ~~our~~of ~~ability~~2009, ~~to continue as a~~the ~~going~~Company ~~concern~~noted ~~since~~an ~~the~~increased ~~continuation~~interest offrom ~~our~~its ~~business~~clients isfor ~~dependent~~customized ~~upon~~services and ~~obtaining~~profitability ~~additional~~analysis. We ~~financing~~anticipate ~~(both~~that ~~short~~this ~~and~~trend ~~long-term),~~will ~~successful~~continue ~~and~~in ~~sufficient~~2010 ~~market~~as ~~acceptance~~we ofcontinue ~~our~~to ~~products~~expand our ~~and~~service ~~achieving~~offerings aspecifically ~~profitable~~tailored ~~level~~to the needs of ~~operations~~financial institutions.

The Company will use any additional financing to: (i) increase our research and development efforts; (ii) expand our marketing and sales activities; (iii) hire additional personnel across all disciplines to support our revenue growth and continued market acceptance of our services; and (iv) repay short-term convertible debt obligations. Any additional financing may result in the issuance of additional equity securities by the Company which could cause significant dilution in the equity interests of our current stockholders. 27

26 Cost of Revenues

~~ITEM~~Cost of 7.revenues ~~MANAGEMENT’S~~includes ~~DISCUSSION~~the ~~AND~~cost ~~ANALYSIS~~associated OFwith ~~FINANCIAL~~providing ~~CONDITION~~professional ~~AND~~services such ~~RESULTS~~as OFdata ~~OPERATIONS~~mapping, ~~(continued)~~programming services, training, customer support, installation and consulting services. These services are typically billed on a time and materials basis.

~~Financial~~As a ~~Risk~~percentage ~~Management~~of service revenue, cost of sales related to services was 44% of revenue or $374,000 for the year ended December 31, 2009. In comparison, cost of sales equaled 28% of revenues or $241,000 in 2008. The increase in cost of sales was a result of a change in the mix of services which were delivered to our clients. During 2009, a major portion of services revenues were generated from complex projects which required the expert resources of our most senior development staff. In addition, cost of sales increased due to upgrade and support costs associated with the release of a new version of our software application.

~~From~~Gross time to time, the Company 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, 2008 and 2007, 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 loss per share assuming dilution. In future periods, the debt may be converted, which may be dilutive and net income per share (assuming dilution) may be reduced. Profit

~~See~~For the ~~Notes~~year 4ended ~~and~~December 31, 52009, the Company reported a gross profit of $876,000 or 70% of revenue compared to the ~~accompanying~~year ~~financial~~ended ~~statements~~December 31, ~~for~~2008, in ~~additional~~which ~~information~~the ~~with~~Company ~~respect~~reported a gross profit of $1,154,000, or 83% of revenue due to the ~~Company’s~~changes ~~long-term~~in ~~debt~~revenues and ~~convertible~~cost ~~preferred~~of ~~stock~~revenues explained above.

~~Off-Balance~~Operating ~~Sheet Arrangements~~ Expenses

~~SEDONA~~Operating ~~had~~expenses nogenerally ~~off-balance~~consists ~~sheet~~of ~~arrangements during 2008 or 2007.~~the following:

~~Inflation~~ Sales, marketing and product support

~~Although~~Sales, ~~there~~marketing ~~can~~and beproduct nosupport ~~assurance~~expenses generally ~~that~~consist ~~SEDONA’s~~of salaries, employee benefits and related expenses for business ~~will~~development ~~not~~activities. We anticipate bethat ~~affected~~our byexpenditures ~~inflation~~in this area will grow in ~~the~~ future, ~~Management~~years ~~believes~~as ~~inflation~~we increase ~~did~~our ~~not~~market ~~have~~penetration awith ~~material~~new ~~effect~~direct onsales ~~the~~opportunities ~~Company’s~~and ~~results of~~expand ~~operations~~the oropportunities ~~financial~~within ~~condition~~our ~~during~~indirect channel through the ~~periods~~addition ~~presented~~of ~~herein.~~new partners and resellers.

27Sales, marketing and product support cost increased by $322,000 or 63% to $835,000 in 2009, compared to $513,000 in 2008. The increase in expenses is mainly attributable labor and employee benefit costs associated with the expansion of the Company’s direct sales initiatives beginning in December 2008.

~~ITEM~~Research 8.and ~~FINANCIAL STATEMENTS~~ Development

~~The~~Research ~~Company’s~~and ~~financial~~development ~~statements~~expenses generally consist of salaries, ~~and~~employee ~~the~~benefits ~~report~~and ofrelated ~~Asher~~overhead &expenses ~~Company,~~for product ~~Ltd,~~development of our ~~independent registered~~CRM/MRM ~~public~~application ~~accounting~~solutions. Research ~~firm,~~and ~~referred~~development costs relate to future inproducts as well as the ~~Index~~redesign and maintenance of current products. We charge all research and development expenses to ~~Financial~~operations ~~Statements,~~as ~~appear~~incurred. ~~elsewhere~~We anticipate that our expenditures in this ~~Form~~area ~~10-K~~will onincrease significantly in the ~~pages~~future ~~set~~as ~~forth~~we ~~below.~~continue to upgrade and improve our technology to compete effectively with other providers of CRM/MRM applications.

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

Research and development expenses were $338,000 and $526,000 for the years ended December 31, 2009 and 2008, respectively. The decrease in expenses of $188,000 is the result of a reduction in outside staffing costs used to supplement product development. In addition in 2009, the research and development team dedicated more time to completing complex custom development projects for clients and upgrading and supporting the release of a new version of our software application; these expenses are included in cost of sales and reduced research and development expenses.

~~ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES~~28

OnGeneral ~~April 16,~~and 2007, SEDONA Corporation received a letter dated April 13, 2007 from McGladrey & Pullen, LLP (“McGladrey”) informing the Company that they were declining to stand for re-election as the Company’s independent auditors. McGladrey’s role as the Company’s independent auditors ceased upon the completion of the review of the quarterly financial data on Form 10-QSB for the quarter ending March 31, 2007, which was filed on May 18, 2007. Administrative

~~The~~General ~~audit~~and ~~report~~administrative ofexpenses ~~McGladrey on the Company’s consolidated financial statements for the years~~generally ~~ended~~consist ~~December 31,~~of ~~2006 and December 31~~salaries, ~~2005,~~employee ~~did~~benefits ~~not contain an adverse opinion or a disclaimer of opinion~~ and ~~was~~related ~~not~~overhead ~~qualified~~expenses ~~or modified as to uncertainty, audit scope or accounting~~for ~~principles~~executive, ~~except that~~financing, inaccounting ~~their~~and ~~report~~human ~~dated~~resource ~~April 17,~~personnel. In ~~2007~~addition, ~~McGladrey’s~~major ~~opinion~~components ~~was~~of ~~modified to~~these expenses include aother ~~change~~corporate inexpenses ~~accounting~~such ~~principle~~legal, ~~regarding the method of~~ accounting, ~~for stock-based~~professional ~~compensation in accordance with guidance provided in Statement of Financial Accounting Standards No. 123(R)~~services, ~~“Share-Based~~insurance ~~Payment”~~ and anfacilities ~~uncertainty about the Company’s ability to continue as a going concern~~expenses.

~~During~~General ~~its~~and ~~audit~~administrative ofexpenses ~~the~~were $1,112,000 ~~fiscal~~and $1,281,000 for the years ended December 31, ~~2006~~2009 and ~~December 31~~2008, respectively. The ~~2005~~decrease in expenses of $169,000 ~~and~~or ~~during~~13% ~~its review~~was ofgenerally attributable to the ~~subsequent~~Company’s continuing ~~interim~~efforts ~~period~~to ~~through~~monitor ~~May 18~~its expenses and attain savings, ~~2007~~whenever possible. During 2009, ~~(i)~~ the Company achieved ~~had~~savings noby ~~disagreements with~~reducing ~~McGladrey~~its onprofessional ~~any~~services ~~matters~~fees offor ~~accounting~~legal ~~principles~~and investor orrelation ~~practices,~~services. The ~~financial~~savings were ~~statement~~also ~~disclosure or~~offset ~~auditing~~by ~~scope~~an ~~and~~increase ~~procedure,~~in ~~which,~~travel ifcost. In ~~not~~the ~~resolved~~fourth toquarter ~~McGladrey’s~~of ~~satisfaction~~2009, ~~would~~the ~~have~~Company launched an initiative for ~~caused~~on-site ~~McGladrey~~visits towith ~~make~~our ~~reference~~clients to ~~the~~gain ~~matter~~a incomplete ~~their~~understanding ~~reports,~~of the challenges they face and ~~(ii) there~~determine ~~have~~ways ~~been~~in nowhich the Company can help them ~~“reportable~~overcome ~~events,”~~the aschallenges ~~defined~~and inachieve ~~Item 304(a)(1)~~their offuture ~~Regulation S-K~~goals and objectives.

~~The~~Litigation ~~Company’s Audit Committee accepted McGladrey’s decision not to stand for re-election as the Company’s independent auditors, effective May 18, 2007.~~ Expenses

~~Effective~~Litigation ~~August 3,~~expenses ~~2007,~~related to the ~~Company’s~~OSI ~~audit~~legal case ~~committee~~were ~~appointed~~$131,000 ~~Asher~~and ~~& Company~~$1,010,000 ~~Ltd.~~for asthe ~~its~~years ~~new~~ended December 31, 2009 ~~independent~~and ~~accountants~~2008, ~~beginning~~respectively. Litigation expenses ~~with~~relate to a civil action lawsuit filed by the ~~review~~Company against Open Solutions Inc. (OSI) for breach of a software license agreement entered into between the ~~quarterly~~parties ~~financial~~in ~~data~~May, on2002 ~~Form~~(See ~~10-QSB~~Item 3. Legal Proceedings for additional information). Litigation expenses have decreased from the ~~quarter~~prior ~~ending~~year ~~June 30,~~as ~~2007~~the matter was settled in August 2009.

28 Non-operating Expenses:

~~ITEM~~Interest ~~9A(T). CONTROLS AND PROCEDURES~~ Expense:

~~Evaluation~~In 2009, ofinterest ~~Effectiveness~~expense increased to $4,100,000 compared to $682,000 reported in 2008. The increase in interest expense mainly reflects $3,402,000 of ~~Disclosure~~non-cash ~~Controls~~interest ~~and~~charges ~~Procedures~~related to the accretion of debt discount on convertible notes as fully explained in Item 13.

~~Our~~Inducement ~~disclosure~~loss controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information we are required to disclose in our reports filed under the Exchange Act, such as this Annual Report on ~~Form~~debt 10-K, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. Our disclosure controls and procedures also are designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. conversion

InFor ~~order~~the toyear ~~monitor~~ended ~~compliance with this system of controls~~December 31, ~~our Board of Directors~~2008, ~~which performs~~ the ~~audit~~Company ~~committee~~recorded ~~function~~an ~~for~~inducement ~~the~~loss ~~company,~~on ~~oversees~~debt ~~management’s~~conversion ~~discharge~~ of ~~its financial reporting responsibilities. The Board of Directors meets regularly with SEDONA’s independent registered public accounting firm~~$1, ~~Asher & Company~~299,000 ~~Ltd.,~~related ~~and representatives of management~~ to ~~review~~ ~~accounting, auditing, internal control, and financial reporting matters. The Board of Directors is responsible for~~ the ~~engagement~~conversion of ~~our~~a ~~independent~~portion ~~registered public accounting firm. The consolidated financial statements in this Annual Report on Form 10-K have been audited by Asher & Company, Ltd., for the purpose~~ of ~~determining that~~ the ~~consolidated~~outstanding ~~financial~~principal ~~statements~~and ~~are presented~~interest ~~fairly, in all material respects, in conformity with accounting principles generally accepted in the United States of America. Asher & Company, Ltd.’s, report~~ on the ~~financial statements~~debt isobligations ~~set~~with ~~forth~~David ~~in “Financial Statements and Schedule” of this Annual Report on Form 10-K~~Vey.

~~Our~~As ~~Management,~~part ~~under the supervision and with the participation~~ of ~~our~~David ~~Chief~~Vey’s ~~Executive~~debt ~~Officer~~refinancing ~~and~~transaction ~~Chief~~on ~~Financial~~December 31, ~~Officer~~2008, ~~evaluated~~Mr. Vey ~~the~~converted ~~effectiveness~~principal and accrued interest of ~~our~~his ~~disclosure~~existing ~~controls~~outstanding ~~and~~convertible ~~procedures~~debt in ~~effect~~ asthe ofamount ~~December 31~~of $1,262,738 ~~2008.~~into ~~Based~~shares onof ~~this~~the ~~evaluation,~~Company’s ~~our~~common ~~Chief~~stock ~~Executive~~at ~~Officer~~the ~~and~~rate ~~Chief Financial~~of ~~Officer~~$0.05 ~~concluded that~~per share, asfor a total of ~~December 31~~25, ~~2008~~254,781 ~~our~~shares ~~disclosure~~of ~~controls~~common ~~and~~stock. Due ~~procedures were effective~~ to ~~provide~~the ~~reasonable~~reduction ~~assurance~~of ~~that~~the ~~material~~conversion ~~information relating to SEDONA and its~~price ~~consolidated~~from ~~subsidiaries~~$0.14 ~~required~~per toshare beunder ~~included~~the inexisting ~~our~~debt ~~Exchange~~arrangement ~~Act~~to ~~reports,~~$0.05 ~~including~~per ~~this~~share, ~~Annual~~the ~~Report~~Company onrecorded ~~Form~~a ~~10-K,~~charge isof ~~recorded~~$1, ~~processed~~299,000 ~~summarized, and reported~~ as ~~required,~~an ~~and~~inducement isloss upon ~~made~~conversion ~~known~~of ~~to Management, including~~ the ~~Chief~~principal ~~Executive Officer~~ and ~~Chief~~interest ~~Financial~~on ~~Officer~~December 31, ~~on a timely basis~~2008.

~~Internal~~Loss ~~Control~~on ~~Over~~extinguishment ~~Financial~~of ~~Reporting~~ debt

~~Management’s~~For ~~Annual~~the ~~Report~~year ended December 31, 2008, the Company recorded a loss on ~~Internal~~debt ~~Control~~extinguishment ~~Over~~of ~~Financial~~$1,156,000 ~~Reporting~~ related to the refinancings of its debt obligations with David Vey and William Rucks.

The Management of SEDONA is responsible for the preparation of the financial statements and related financial information appearing in this Annual Report on Form 10-K. The financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America. 29

~~The~~Effective ~~Management~~December 31, of2008, ~~SEDONA~~the ~~also~~Company ismodified ~~responsible~~the ~~for~~terms ~~establishing~~of ~~and~~its ~~maintaining~~existing ~~adequate~~debt ~~internal control~~obligations ~~over~~with ~~financial~~David ~~reporting,~~Vey. asUnder ~~defined~~the inrevised ~~Rules 13a-15(f)~~agreement, ~~and 15d-15(f) under the Exchange Act~~Mr. Vey Awas ~~company’s~~granted ~~internal~~one ~~control~~four-year warrant ~~over financial reporting is defined as a process designed~~ to ~~provide~~ ~~reasonable~~purchase ~~assurance~~12,637,390 ~~regarding~~shares ~~the reliability~~ of ~~financial reporting and~~ the ~~preparation of~~Company’s ~~financial~~common ~~statements~~stock ~~for~~at ~~external~~an ~~purposes~~exercise inprice ~~accordance~~of ~~with~~$0.05 ~~generally~~per ~~accepted accounting principles~~share. ~~Our~~The ~~internal~~modification ~~control~~was ~~over~~accounted ~~financial~~for ~~reporting~~as ~~includes~~a ~~those~~debt ~~policies~~extinguishment and ~~procedures that (1) pertain to~~ the ~~maintenance~~fair ofvalue ~~records that in reasonable detail accurately and fairly reflect the transactions and dispositions~~ of the ~~assets~~stock ofpurchase ~~SEDONA;~~warrant ~~(2) provide~~was ~~reasonable~~included ~~assurance that~~in ~~transactions~~determining ~~are~~the ~~recorded~~debt asextinguishment ~~necessary~~loss to ~~permit~~be ~~preparation~~recognized. ofThe ~~financial~~fair ~~statements~~value ~~in accordance with generally accepted accounting principles and that receipts and expenditures~~ of the ~~issuer~~ ~~are~~warrant ~~being made only~~ in ~~accordance~~the ~~with~~amount ~~authorizations~~ of ~~management~~$909,000 ~~and~~was ~~directors~~determined ofusing ~~SEDONA; and~~the ~~(3) provide~~Black-Scholes ~~reasonable~~option ~~assurance~~pricing ~~regarding~~model ~~prevention~~and orwas ~~timely~~recorded ~~detection~~as ~~of unauthorized acquisition, use or disposition of SEDONA’s assets that could have~~ a ~~material~~loss ~~effect~~ on ~~the financial~~extinguishment ~~statements~~of debt.

29 Effective March 6, 2008, the Company modified the terms of the $1,000,000 in convertible notes payable with William Rucks. Under the revised agreement, Mr. Rucks was granted one four-year warrant to purchase 2,777,777 shares of the Company’s common stock at an exercise price of $0.30 per share. The modification was accounted for as a debt extinguishment and the fair value of the stock purchase warrant was included in determining the debt extinguishment loss to be recognized. The fair value of the warrant in the amount of $247,000 was determined using the Black-Scholes option pricing model and was recorded as a loss on extinguishment of debt.

~~ITEM~~Liquidity ~~9A.~~and ~~CONTROLS~~Capital ~~AND PROCEDURES (continued)~~ Resources

~~Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that~~ SEDONA’s operations ~~disclosure~~have ~~controls~~been ~~and~~financed ~~internal~~through ~~controls~~the ~~will~~issuance ~~prevent~~of ~~all~~short-term ~~error and all fraud~~convertible notes. For ~~Because~~the ~~of its~~fiscal ~~inherent~~year ~~limitations,~~ended ~~a system of internal control over financial reporting can provide only~~December 31, ~~reasonable~~2009, ~~not~~SEDONA ~~absolute,~~received ~~assurance~~net ~~that~~proceeds ~~the objectives~~ of ~~the~~approximately ~~control system are met and may not prevent or detect misstatements. Further~~$1, ~~over time~~625,000 ~~controls~~from ~~may become inadequate because of~~borrowings ~~changes~~under inconvertible ~~conditions or the degree of compliance with the policies or procedures may deteriorate~~notes.

~~With~~ For the ~~participation~~year ofended ~~the~~December 31, ~~Chief~~2009, ~~Executive~~the ~~Officer~~Company ~~and~~used ~~Chief~~net ~~Financial~~cash ~~Officer,~~of ~~our Management~~$1,620,000 ~~evaluated~~for ~~the~~operating ~~effectiveness~~activities ofcompared ~~SEDONA’s~~to ~~internal~~$1,097,000 ~~control~~in ~~over~~2008, ~~financial~~an ~~reporting~~increase as of ~~December~~ 31$523,000 ~~2008~~or 48%. The Inincrease ~~making~~in ~~this~~net cash ~~evaluation, Management~~ used ~~the~~in ~~criteria~~operating ~~set~~activities ~~forth~~was byprimarily the ~~Committee~~result of ~~Sponsoring~~ ~~Organizations~~increased ofsales and ~~the~~marketing ~~Treadway~~activities ~~Commission~~engaged ~~(COSO)~~ in ~~Internal~~by ~~Control~~the —Company ~~Integrated Framework.~~as ~~Based~~it onentered ~~that~~the ~~evaluation,~~direct sales ~~our~~market ~~management~~as ~~has~~well ~~concluded~~as ~~that,~~a asreduction ofin ~~December 31,~~the ~~2008, SEDONA~~Company’s ~~internal~~accrued ~~control~~expenses specifically ~~over~~related ~~financial~~to ~~reporting~~salary, ~~was~~benefits ~~effective~~and severance.

~~This~~For the ~~annual~~year ~~report~~ended ~~does~~December 31, ~~not~~2009, ~~include~~net ancash ~~attestation~~used ~~report~~in ofinvesting ~~SEDONA’s~~activities ~~registered public accounting~~for ~~firm~~the ~~regarding~~acquisition ~~internal~~of ~~control~~property ~~over~~and ~~financial~~equipment ~~reporting.~~decreased ~~Management’s report was not subject to attestation~~ by ~~SEDONA’s~~$1,000 ~~registered public accounting firm pursuant~~ to ~~temporary rules of the~~$5,000 ~~Securities~~compared ~~and Exchange Commission that permit us~~ to ~~provide~~$6,000 ~~only management’s report~~ in ~~this Annual Report on Form 10-K~~2008.

~~Changes~~Net cash provided by financing activities increased to $1,628,000 in ~~Internal~~2009, ~~Control~~compared to ~~Over~~$1,088,000 ~~Financial~~in ~~Reporting~~2008. In 2009, the proceeds were derived from the issuance of $1,625,000 in short-term convertible notes. In addition, the Company received proceeds of $3,000 from the sale of common stock through its employee stock purchase plan.

~~There~~In 2008, ~~were~~the noproceeds ~~changes~~were inderived ~~our~~from ~~internal~~$686,000 ~~control~~in ~~over~~payments ~~financial~~advanced ~~reporting~~by ~~that~~David Vey, ~~occurred~~related ~~during~~to the ~~quarter~~ ~~ended~~OSI ~~December 31~~litigation, ~~2008~~plus $285,000 ~~that~~in ~~have~~proceeds ~~materially~~from ~~affected,~~the orline ~~are~~of credit ~~reasonably~~and ~~likely~~$117,000 ~~to materially~~from ~~affect,~~the ~~our~~sale ~~internal~~of ~~control~~common ~~over~~stock ~~financial~~and ~~reporting.~~exercise of stock options.

~~ITEM~~Charles 9BF. ~~OTHER~~Mitchell ~~INFORMATION~~(“Mitchell”) extended a loan to the Company, which was evidenced by a convertible promissory note dated May 31, 2006, in the principal amount of $300,000, with a conversion price of $0.20 per share (the “Mitchell Convertible Note”). William Rucks (“Rucks”) extended several loans to the Company which were evidenced by the following convertible promissory notes: (i) note dated July 1, 2005 in the principal sum of $250,000; (ii) note dated August 2, 2005 in the principal sum of $250,000; and (iii) $500,000 note dated September 29, 2005 and (iv) a note in the amount of $300,000 dated May 31, 2006 (collectively the “Rucks Notes”). The Notes designated as (i), (ii), and (iii) each had a conversion price of $0.18 per share, while the note designated as (iv) had a conversion price of $0.20 per share. The Notes designated as (i), (ii), and (iii), in the total sum of $1,000,000 mature and are payable on May 31, 2010, unless theretofore converted. The two $300,000 convertible notes mature and are payable on

~~None.~~ 30

30May 31, 2010. The convertible notes bear interest on the principal outstanding at a rate of 8% per year, annually in arrears, from the date of the convertible notes until the earlier of maturity or the date upon which the unpaid balance is paid in full or is converted into shares of common stock.

~~PART~~As ~~III~~more fully described in Item 13, the Company refinanced its existing debt obligations with David Vey on December 31, 2008. As part of the refinancing, the Company issued Mr. Vey a consolidated secured convertible promissory note, dated as of December 31, 2008, in the principal amount $4,100,000. The New Convertible Note has a maturity date of May 31, 2010, unless theretofore converted, and bears interest at the rate of eight percent (8%) per year, which interest will be due upon maturity. Mr. Vey has the option to convert, at any time, all or part of the unpaid principal and accrued but unpaid interest of the New Convertible Note into shares of Company common stock at a conversion price of $0.05 per share. The number of shares which would be issuable upon the conversion of the $4,100,000 principal balance of the New Convertible Note is presently 82,000,000.

~~ITEM~~In 10addition, the Company has entered into a financing agreement with Vey Associates to borrow up to $2,250,000. The ~~DIRECTORS~~loan is evidenced by a secured convertible promissory note having a principal amount of up to $2,250,000 ~~EXECUTIVE~~(the ~~OFFICERS~~“Vey ~~AND~~Associates ~~CORPORATE~~Convertible ~~GOVERNANCE~~Note”). The Vey Associates Convertible Note has a maturity date of May 31, 2010, unless theretofore converted, and bears interest at the rate of eight percent (8%) per year, which interest will be due upon maturity. Once $1,750,000 of the loan has been paid to the Company, Vey Associates has the option to convert all or part of the unpaid principal and accrued but unpaid interest of the Vey Associates Convertible Note into shares at a conversion price of $0.05 per share. The number of shares which would be issuable upon the conversion of the $2,250,000 principal balance is 45,000,000. As of December 31, 2009, the Company has borrowed $1,625,000 of the $2,250,000. The number of shares which would be issuable upon conversion of the $1,625,000 principal balance is presently 32,500,000.

The financial ~~By-laws~~statements ~~provide~~of ~~that~~ the Company have abeen ~~Board~~prepared ofassuming ~~Directors~~the ofCompany will ~~not~~continue ~~less~~as ~~than~~a ~~three~~going ~~or more than nine directors~~concern, ~~with~~which contemplates the ~~number~~realization of ~~directors~~assets and ~~to be fixed by~~ the ~~Board~~satisfaction ~~from time to time. The number~~ of ~~directors~~liabilities isin ~~presently~~the ~~fixed~~normal atcourse ~~seven. The Board~~ of ~~Directors~~business. Accordingly, ~~currently~~the ~~consists~~financial ofstatements ~~five~~do not ~~directors~~include ~~due~~any toadjustment ~~the~~that ~~vacancies~~might ~~created~~be ~~upon~~necessary should the ~~resignation~~Company ofbe ~~Victoria~~unable ~~V. Looney in February 2008~~to ~~and~~continue ~~March A. Emrich~~ in ~~September 2008~~existence.

~~The~~For 2009, the Company isreported ~~currently~~a ~~evaluating~~net ~~whether~~loss itof is$5,640,000 ~~going~~which toincludes ~~fill~~non-cash interest charges of $3,402,000 related to the ~~vacancies~~restructuring ~~created~~of onits debt obligations. In addition, the ~~Board~~Company had negative working capital of ~~Directors~~$11,733,000 ~~following~~and ~~the~~a ~~resignations~~stockholders’ deficit of $11,718,000 as of December 31, 2009. These factors raise substantial doubt about our ability to continue as a going concern.

~~The~~Presently, our ~~following~~revenues ~~table~~are ~~presents~~not ~~the~~sufficient ~~names~~to meet our operating and ~~positions~~capital ofexpenses ~~the~~and as ~~persons~~explained ~~who~~above, ~~serve~~we ashave ~~SEDONA’s directors~~approximately $8,332,000 ~~executive~~of ~~officers~~convertible and non-convertible ~~key~~debt ~~employees~~obligations which become due in 2010, ~~their~~unless ~~ages~~converted asto Preferred ofStock, ~~March~~(See Note ~~31,~~13). As stated ~~2008~~above, ~~and~~there is substantial doubt about our ability to continue as a going concern since the ~~length~~continuation of our business is dependent upon successfully ~~time~~negotiating ~~they~~with ~~have~~existing ~~served~~lenders into ~~such~~refinance ~~positions:~~or extend the maturity dates of existing debt, obtaining additional financing (both short and long-term), successful and sufficient market acceptance of our products and achieving a profitable level of operations.

Name	Age		Position	Since
David R. Vey		56	Co-Chairman of the Board		2003
Scott C. Edelman		55	Interim President & CEO (2008), Director (2004)		2004
David C. Bluestone		53	Director		2005
Jack A. Pellicci		70	Director		1996
Roger W. Scearce		59	Director		2004
Anita M. Primo		41	Vice President, Chief Financial Officer and Secretary		2003
Timothy A. Rimlinger		45	Vice President (2000), Chief Technology Officer (2003)		2003

~~All~~The Company ~~directors~~will ~~hold~~use ~~office~~any ~~until~~additional ~~the~~financing ~~next~~to: ~~Annual~~(i) increase ~~Meeting~~our research and development efforts; (ii) expand our marketing and sales activities; (iii) hire additional personnel across all disciplines to support our revenue growth and continued market acceptance of our services. Any additional financing may result in the ~~Shareholders~~issuance of additional equity securities by the Company ~~and~~which ~~until~~could ~~their~~cause ~~successors~~significant ~~are~~dilution ~~elected~~in ~~and~~the ~~qualified.~~equity interests of our current stockholders.

~~All~~Financial ~~officers serve at the discretion of the Board of Directors, subject to the terms of their~~Risk ~~employment agreements.~~ Management

~~Directors~~From time to time, ~~Executive~~the ~~Officers~~Company has issued fixed-rate debt and ~~Control~~preferred ~~Persons~~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, 2009 and 2008, 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 loss per share assuming dilution. In future periods, the debt may be converted, which may be dilutive and net income per share (assuming dilution) may be reduced.

~~The~~See Notes ~~business~~4 ~~experience,~~and ~~principal~~5 ~~occupation~~to ~~and~~the ~~employment~~accompanying offinancial statements for additional information with respect to the Company’s ~~Directors,~~long-term ~~executive officers~~debt and ~~Key~~convertible ~~Employees~~preferred ~~are as follows:~~ stock.

~~David~~Off-Balance R.Sheet Vey has served as Chairman of the Board since May 2003 and has been a Director of the Company since March 2003. Mr. Vey founded Vey Development, Inc., a privately held residential and commercial real estate development company, with primary real estate holdings in Louisiana and has served as President since 1983. Mr. Vey is a managing member in Oak Harbor Investments. Mr. Vey holds a Bachelor of Arts, Landscape Architecture and a Bachelor of Science, Forest Management from Louisiana State University. Arrangements

31SEDONA had no off-balance sheet arrangements during 2009 or 2008.

~~ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)~~Inflation

~~Scott C. Edelman was appointed interim Chief Executive Officer and President of the Company,~~Although ~~effective~~there ~~September 18,~~can ~~2008.~~be ~~Mr. Edelman~~no ~~has~~assurance served as a Director of the Company since August 2004 and Co-Chairman of the Board since his appointment May 9, 2007. Mr. Edelman has over 25 years experience in launching successful small to intermediate size application software companies with various types of direct and indirect channel management strategies. Since July 2002, Mr. Edelman was the President and CEO of CellzDirect, a privately held bioscience company that ~~provides bio/pharmaceutical~~SEDONA’s ~~companies~~business ~~with~~will ~~hepatic~~not ~~cell~~be ~~products~~affected ~~and contract laboratory services focused~~by ~~primarily~~inflation ~~on drug metabolism and toxicology. CellzDirect was sold to Invitrogen Corporation (now Life Technologies)~~ in ~~January 2008 after achieving a 73% compounded annual growth rate for each of its five years since inception. For~~ the ~~preceding 15 years~~future, ~~Mr. Edelman~~Management ~~managed,~~believes asinflation ~~President~~did ~~or Chief~~not ~~Operating~~have Officer, numerous software company turnaround opportunities including GroupSystems.com (January 1999 to July 2002), ResLink (1996 to 1998), Hotel Information Systems (1993 to 1996), and acted in various senior management capacities for Integral Systems (1987 to 2002). Mr. Edelman is a ~~growth and results-oriented, strategic planner with strong, metric-based~~material ~~operating~~effect skills. Repeatedly, Mr. Edelman has demonstrated an ability to meet or exceed shareholder expectations and an ability to secure necessary financing in tough economic times. Mr. Edelman currently serves on the ~~Board~~Company’s ofresults ~~Directors~~ of ~~IntelliCyt~~operations inor ~~Albuquerque,~~financial ~~New~~condition ~~Mexico.~~during ~~Mr. Edelman~~the ~~has~~periods apresented ~~Bachelor of Science degree in Business Administration from the Pennsylvania State University~~herein.

David C. Bluestone was elected to the Board of Directors in August 2005. Mr. Bluestone has been with Keybank, N.A. since October 1996, where he is currently a Senior Real Estate Credit Officer with responsibility for structuring and approval of credit exposure for commercial real estate relationships, maintaining asset quality and portfolio management and has held the position of Team Leader, Chicago Real Estate Loan Production Officer. Prior to Keybank, Mr. Bluestone served as Senior Relationship Manager with Mellon Bank N.A.’s Real Estate Department and Section Manager, Credit Review Department from September 1986 to October 1996 with emphasis on new and restructuring of existing multi-million dollar real estate transactions, new business development, as well as underwriting, credit, financial, market and valuation analysis. From September 1982 to August 1986, he was a Real Estate Representative and Project Manager for the Southland Corporation. Mr. Bluestone holds a Masters of Business Administration from University of California, Berkley, and a Bachelors of Landscape Architecture from Louisiana State University. 32

~~Brigadier~~ITEM ~~General Jack A~~8. ~~Pellicci,~~FINANCIAL USA (ret.) has served as a Director since 1996. Mr. Pellicci joined Intergraph Corporation in September 2006 as the Senior Vice President Security, Government and Infrastructure and General Manager, Federal Security and Intelligence Business Units. Prior to this, he spent over 14 years at Oracle Corporation where his most recent position was as Group Vice President, North America Public Sector. In this position, he led the Business Development and Program Management Group where he was responsible for positioning Oracle’s products and solutions with customers and partners to generate and then capture new business in the Federal/State and Local/Provincial Government markets in the US and Canada. Mr. Pellicci joined Oracle in 1992 after retiring from the U.S. Army as a Brigadier General with 30 years experience leading and training people, managing technology and improving productivity in command and staff assignments in both peace and war. 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. STATEMENTS

~~Brigadier~~The ~~General Roger W. Scearce, USA (ret.), has served as a Director of the~~ Company ~~since August 2004. Mr. Scearce is a founding member and senior partner with Vanguard Advisors, LLC. Vanguard~~’s ~~mission~~financial isstatements, ~~to provide world-class advisory~~ and ~~consulting~~the ~~services~~report toof ~~business and government leaders. Mr.~~Asher ~~Scearce~~& ~~has~~Company, ~~been with Vanguard since May 2003. Prior to forming Vanguard~~Ltd, ~~Mr. Scearce~~our ~~was~~independent aregistered ~~Senior~~public ~~Vice~~accounting ~~President with American Management Systems (AMS)~~firm, ~~from April 1999~~referred to ~~April 2003,~~in ~~where he led their Department of Defense (DoD) Strategic Account Group. While at AMS, Mr. Scearce also served as~~ the ~~Deputy~~Index ~~Program~~to ~~Manager, DoD~~ Financial ~~Management Enterprise~~Statements ~~Architecture~~appear aselsewhere ~~a key executive member of “Team IBM”~~ in ~~support~~this ~~of the DoD’s Business Management Modernization Program. Before joining AMS, Mr.~~Form ~~Scearce~~10-K ~~was~~on ~~a career military officer, rising to~~ the ~~rank~~pages set offorth ~~Brigadier~~ below.

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008		F-3
Consolidated Statements of Operations for each of the two years in the period ended December 31, 2009		F-4
Consolidated Statements of Stockholders’ Deficit for each of the two years in the period ended December 31, 2009		F-5
Consolidated Statements of Cash Flows for each of the two years in the period ended December 31, 2009		F-7
Notes to Consolidated Financial Statements		F-8

ITEM 109. ~~DIRECTORS,~~CHANGES ~~EXECUTIVE~~IN ~~OFFICERS~~ AND ~~CORPORATE~~DISAGREEMENTS ~~GOVERNANCE~~WITH ~~(continued)~~ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

~~General, U~~None.S. Army. His last active duty assignment was Deputy Director of the Defense Finance and Accounting Service. Mr. Scearce managed the day-to-day finance and accounting operations and activities of the Defense Department worldwide. Earlier leadership roles and assignments included serving as Commandant of the U.S. Army Finance School and Chief of the U.S. Army Finance Corps and Commander 266th Theater Finance Command, U.S. Army, Europe. Mr. Scearce graduated from Florida Southern College with a Bachelor of Science degree in Accounting and earned an MBA from Syracuse University. He is a past National Vice President of the American Society of Military Comptrollers and past President of the Association of Syracuse Army Comptrollers. He is also an active member of the Association of Government Accountants. Mr. Scearce is the past Chairman of the Board of Directors of Andrews Federal Credit Union, Andrews AFB, Maryland, where he still serves as Treasurer.

~~Anita~~ITEM M9A(T). ~~Primo has served as Vice President and Chief Financial Officer since December 2003. Ms.~~ CONTROLS ~~Primo~~AND is charged with leading the Company’s finance and administrative departments. She was appointed Secretary of the Company in July 2003. Ms. Primo previously served as the Company’s Controller since December 2000. Prior to joining SEDONA, Ms. Primo was Vice President of Finance and Administration for the Zoological Society of Philadelphia from 1998 to 2000. She also served as Controller and Treasurer for Action Manufacturing, a major manufacturer of precision ordnance products for the U.S. government, U.S. approved foreign governments and numerous domestic and international commercial firms from 1989 to 1998. Ms. Primo received a B.S. Degree in Accounting and a B.S. Degree in Business Law from Temple University in Philadelphia, PA. PROCEDURES

~~Timothy~~Evaluation ~~A. Rimlinger has served as Vice President~~ of ~~Engineering~~Effectiveness ~~since July 2000 and Chief Technology Officer since December 2003. Mr. Rimlinger is responsible for the design, implementation and delivery~~ of ~~all components of the Company’s CRM application strategy.~~ ~~Previously,~~Disclosure heControls ~~served as Director of Technology Development since joining the Company in January 1996. Before joining SEDONA, he was Senior Development Engineer at GE Aerospace~~ and Lockheed Martin from 1985 to 1996. Mr. Rimlinger received his B.S. Degree in Electrical Engineering from Pennsylvania State University and his M.S. in Electrical Engineering from Villanova University. Procedures

~~Section~~Our disclosure controls and procedures (as defined in Rules13a-15(e) 16and 15d-15(ae) under ~~Beneficial~~the Exchange ~~Ownership~~Act) ~~Reporting~~are ~~Compliance~~designed to ensure that information we are required to disclose in our reports filed under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. Our disclosure controls and procedures also are designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

~~Section 16(a)~~In oforder ~~the~~to ~~Securities~~monitor compliance ~~Exchange~~with ~~Act~~this system of ~~1934~~controls, ~~requires~~our ~~the~~Board ~~Company’s~~of Directors, ~~and~~which ~~Officers,~~performs ~~and~~the ~~persons~~audit ~~who~~committee ~~beneficially~~function ~~own~~for ~~more~~the ~~than~~company, ~~10%~~oversees management’s discharge of its ~~common~~financial ~~stock,~~reporting toresponsibilities. ~~file~~The ~~reports~~Board onof ~~their~~Directors meets ~~ownership~~regularly ~~and~~with ~~changes~~SEDONA’s inindependent ~~ownership~~registered ~~with~~public ~~the~~accounting ~~Securities~~firm, Asher & Company, Ltd., and ~~Exchange~~representatives ~~Commission~~of ~~and~~management to ~~furnish~~review ~~the~~accounting, ~~Company~~auditing, ~~with~~internal ~~copies~~control, ofand ~~any~~financial ~~reports~~reporting ~~that they file~~matters. ~~Based~~The ~~solely~~Board onof Directors ~~review~~is ofresponsible for the ~~copies~~engagement of ~~these~~our independent registered ~~reports~~public ~~received~~accounting orfirm. The ~~written~~consolidated ~~representations~~financial ~~that~~statements noin this ~~reports~~Annual Report on Form 510-K ~~were~~have ~~required,~~been ~~the~~audited ~~Company~~by Asher & ~~believes~~Company, ~~that~~Ltd., for the ~~year~~purpose ~~ended~~of ~~December 31~~determining that the consolidated financial statements are presented fairly, ~~2008~~in all ~~reporting~~material ~~persons~~respects, ~~except~~in ~~David~~conformity Rwith accounting principles generally accepted in the United States of America. Asher & ~~Vey~~Company, ~~complied~~ Ltd.’s, report on athe ~~timely~~financial statements ~~basis~~is ~~with~~set ~~the~~forth ~~filing~~in ~~requirements~~“Financial ~~applicable~~Statements toand ~~them.~~Schedule” of this Annual Report on Form 10-K.

~~Code~~Our Management, under the supervision and with the participation of ~~Ethics~~our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures in effect as of December 31, 2009. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2009, our disclosure controls and procedures were effective to provide reasonable assurance that material information relating to SEDONA and its consolidated subsidiaries required to be included in our Exchange Act reports, including this Annual Report on Form 10-K, is

On June 1, 2004, the Board of Directors adopted a Code of Conduct and Business Ethics pursuant to Section 406 of the Sarbanes-Oxley Act that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, and any other persons performing similar functions. The Code is posted on the Company’s internet website at www.sedonacorp.com. Copies may be obtained by following the instructions in Item 1. Available Information. 33

33recorded, processed, summarized, and reported as required, and is made known to Management, including the Chief Executive Officer and Chief Financial Officer, on a timely basis.

~~ITEM~~Internal ~~10.~~Control ~~DIRECTORS,~~Over ~~EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)~~Financial Reporting

~~Corporate Governance~~Management’s Annual Report on Internal Control Over Financial Reporting

~~Director~~The ~~Independence~~Management of SEDONA is responsible for the preparation of the financial statements and related financial information appearing in this Annual Report on Form 10-K. The financial statements and notes have been prepared in conformity with accounting principles generally accepted in the United States of America.

The ~~Board~~Management of ~~Directors~~SEDONA also ~~annually~~is ~~determines~~responsible ~~the~~for ~~independence~~establishing ofand ~~directors~~maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. NoA ~~director~~company’s internal control over financial reporting is ~~considered~~defined ~~independent~~as ~~unless~~a ~~the~~process ~~Board~~designed ~~has~~to ~~determined~~provide ~~that~~reasonable heassurance orregarding ~~she~~the reliability ~~has~~of nofinancial ~~material~~reporting ~~relationship~~and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that (1) pertain to the ~~Company,~~maintenance ~~either~~of ~~directly~~records that orin asreasonable adetail ~~partner,~~accurately ~~shareholder,~~and orfairly ~~officer~~reflect the transactions and dispositions of anthe ~~organization~~assets ~~that~~of SEDONA; (2) provide reasonable assurance ~~has~~that atransactions ~~material~~are ~~relationship~~recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the ~~Company~~issuer orare ~~otherwise.~~being ~~Material~~made ~~relationships~~only ~~can~~in ~~include~~accordance with ~~commercial,~~authorizations ~~banking,~~of ~~consulting,~~management ~~legal,~~and ~~accounting,~~directors ~~charitable,~~of SEDONA; and ~~familial~~(3) provide reasonable ~~relationships~~assurance regarding prevention or timely detection of unauthorized acquisition, ~~among~~use or disposition of SEDONA’s assets that could have a material ~~others~~effect on the financial statements.

~~Independent~~Management, ~~directors~~including ~~are~~the Chief ~~directors~~Executive ~~who~~Officer and Chief Financial Officer, indoes ~~the~~not ~~view~~expect ofthat SEDONA’s ~~the~~disclosure ~~Board~~controls and internal controls will prevent all error and all fraud. Because of ~~Directors~~its inherent limitations, ~~are~~a ~~free~~system of ~~any~~internal control ~~relationship~~over ~~that~~financial ~~would~~reporting ~~interfere~~can ~~with~~provide only reasonable, not absolute, assurance that the ~~exercise~~objectives of ~~independent~~the ~~judgment.~~control ~~The~~system ~~Board~~are ofmet and may not prevent or detect ~~Directors~~misstatements. Further, ~~has~~over ~~adopted~~time, ~~the~~controls ~~standards~~may ~~for~~become ~~“independent~~inadequate because ~~directors”~~of ~~defined~~changes ~~under~~in ~~Rule 5605(a)(2)~~conditions or the degree of compliance with the policies ~~NASDAQ~~or procedures may deteriorate.

~~Audit~~With the participation of the Chief Executive Officer and Chief Financial Officer, our Management evaluated the effectiveness of SEDONA’s internal control over financial reporting as of December 31, 2009. In making this evaluation, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on that evaluation, our management has concluded that, as of December 31, 2009, SEDONA’s internal control over financial reporting was effective.

~~The~~This ~~Board~~annual ofreport ~~Directors~~does not ~~has~~include an ~~Audit~~attestation ~~Committee~~report ~~consisting~~ of: ~~Roger~~SEDONA’s W.registered ~~Scearce~~public ~~(Chair),~~accounting ~~David C.~~firm ~~Bluestone~~regarding ~~and~~internal ~~Jack~~control A.over ~~Pellicci. The Board of Directors has determined that Roger W. Scearce qualifies as an “audit committee~~ financial ~~expert” under SEC rules~~reporting. ~~The function of the Audit~~ Management’s ~~Committee~~report iswas ~~guided~~not bysubject ~~its charter~~ to ~~assist~~attestation ~~the Board of Directors in preserving the integrity of the financial information published~~ by ~~the~~SEDONA’s ~~Company~~registered ~~through~~public ~~the review of financial and~~ accounting ~~controls~~firm ~~and~~pursuant ~~policies,~~to ~~financial~~temporary ~~reporting~~rules of ~~systems, alternative accounting principles that could be applied and~~ the ~~quality~~Securities and ~~effectiveness~~Exchange ~~of the independent public accountants. In addition, the~~Commission ~~function~~that ofpermit ~~the~~us ~~Audit Committee includes recommending~~ to ~~the~~provide ~~Board~~only ~~of Directors, the engagement or discharge of the independent auditors, discussing with the auditors their review of the Company~~management’s ~~quarterly~~ ~~results~~report ~~and~~in ~~their~~this ~~annual~~Annual ~~audit~~Report ofon ~~the financial statements. The Board has made a determination that Messrs.~~Form ~~Scearce, Bluestone and Pellicci qualify as independent directors under the independence requirements of NASDAQ~~10-K.

~~Nominations~~Changes &in Internal ~~Corporate~~Control ~~Governance~~Over ~~Committee~~ Financial Reporting

~~The~~There ~~Board~~were ofno ~~Directors~~changes ~~has a Nominating & Corporate Governance Committee, consisting of Jack A.~~in ~~Pellicci~~our ~~(Chair)~~internal ~~and~~control ~~David~~over C.financial ~~Bluestone.~~reporting ~~The Board has made a determination~~ that ~~Mr. Pellicci~~occurred ~~and Mr. Bluestone~~during ~~qualify as independent directors under~~ the ~~independence requirements of NASDAQ. The~~quarter ~~function~~ended ~~of the Nominations & Corporate Governance Committee is: (i)~~December to31, ~~establish~~2009, ~~criteria~~that ~~for selecting~~have ~~candidates~~materially ~~for nomination to the Board of Directors; seeking candidates to meet those criteria; and making recommendations to the Board of Directors of nominees to fill vacancies on~~affected, or as ~~additions~~are ~~to, the Board of Directors; (ii) serve as an independent and objective component of~~reasonably ~~the~~likely ~~Board~~ to ~~facilitate~~materially ~~Board stewardship of its responsibilities to shareholders and all other constituencies consistent with best corporate governance practices; and (iii) monitor~~affect, ~~review~~our ~~and appraise~~internal ~~the~~control ~~corporate~~over ~~governance~~financial ~~systems of checks and balances, including the Company’s code of ethics and standards of conduct~~reporting.

~~The~~ITEM Nominations & Corporate Governance Committee will consider director candidates who have relevant business experience, are accomplished in their respective fields and who possess the skills and expertise to make a significant contribution to the Board of Directors, the Company and its Shareholders9B. ~~Director~~OTHER nominees should have high-leadership business experience, knowledge about issues affecting the Company and the ability and willingness to apply sound and independent business judgment. The Nominations & Corporate Governance Committee applies the same criteria to nominees recommended by the shareholders. INFORMATION

34 None.

~~ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)~~34

~~Compensation Committee~~ PART III

~~The~~ITEM ~~Board of Directors also has a Compensation Committee, consisting of Scott C~~10. ~~Edelman~~DIRECTORS, ~~Jack~~EXECUTIVE ~~A. Pellicci~~OFFICERS ~~and~~AND ~~David~~CORPORATE Bluestone (Chair). The Board has made a determination that Mr. Pellicci and Mr. Bluestone qualify as independent directors under the independence requirements of the NASDAQ. The Board has made a determination that Mr. Edelman does not qualify as an independent director under the independence requirements of the NASDAQ because of his appointment as Interim President and Chief Executive Officer in September 2008. David Bluestone replaced Mr. Edelman as Chairman of the Committee. The Compensation Committee is responsible for developing and executing plans for the compensation of the Company’s executive officers, including the Chief Executive Officer of the Company. Additionally, the Compensation Committee administers the 1992 Plan and the SEDONA Corporation 2000 Incentive Stock Option Plan (the “2000 Plan”), including the determination, subject to the 2000 Plan’s provisions, of the individuals eligible to receive awards, the individuals to whom awards should be granted, the nature of the awards to be granted, the number of awards to be granted, the exercise price, vesting schedule, term and all other conditions and terms of the awards to be granted. GOVERNANCE

~~Executive~~The By-laws ~~Committee~~provide that the Company have a Board of Directors of not less than three or more than nine directors, with the number of directors to be fixed by the Board from time to time. The number of directors is presently fixed at seven. The Board of Directors currently consists of five directors due to the vacancies created upon the resignation of Victoria V. Looney in February 2008 and March A. Emrich in September 2008.

The Company ~~function of the committee~~ is tocurrently ~~exercise~~evaluating ~~the~~whether ~~powers~~it ofis ~~the~~going ~~Board between meetings~~ to fill the ~~extent~~vacancies ~~permitted~~created byon ~~law. The committee members consist of David R. Vey (Chair), Scott C. Edelman and Roger W. Scearce. Mr. Scearce qualifies as an independent director under~~ the ~~independence requirements~~Board of ~~applicable~~Directors ~~law~~following ~~and of~~ the ~~NASDAQ but Mr~~resignations. ~~Vey and Mr. Edelman do not qualify as independent directors under the independence requirements (See “Certain Relationship and Related Transaction”).~~

~~ITEM~~The following ~~11.~~table ~~EXECUTIVE~~presents ~~COMPENSATION~~the names and positions of the persons who serve as SEDONA’s directors, executive officers and key employees, their ages as of March 31, 2010, and the length of time they have served in such positions:

Employment and Separation Agreements

Name	Age	Position	Since
David R. Vey	57	Chairman of the Board	2003
David C. Bluestone	54	Director	2005
Jack A. Pellicci	71	Director	1996
Roger W. Scearce	60	Director	2004
Anita M. Primo	42	Executive Officer, Chief Financial Officer and Secretary	2003
Timothy A. Rimlinger	46	Executive Officer, Chief Technology Officer	2003
Kimberly M. Thomas	52	Executive Officer, Sr. Development Engineer	2010

~~Appointment~~All directors hold office until the next Annual Meeting of ~~Interim~~the ~~President~~Shareholders ~~and~~of ~~CEO~~the Company and until their successors are elected and qualified.

~~Effective September 18, 2008, the Company appointed Scott C. Edelman as the interim Chief Executive~~All ~~Officer~~officers ~~and~~serve ~~President~~at of the ~~Company.~~discretion ~~Mr. Edelman has served as the Co-Chairman~~ of the Board ~~since May 2007 and as a Director~~ of ~~the~~Directors, ~~Company~~subject ~~since~~to ~~August 2004. Mr. Edelman replaces Marco A. Emrich~~the ~~who~~terms ~~resigned from his position as Chief Executive Officer, President, and Director~~ of ~~the~~their ~~Company effective~~employment ~~September 17, 2008~~agreements.

~~Mr. Edelman and the Company entered into a three month consulting agreement effective September 18~~Directors, ~~2008~~ ~~and~~Executive ~~expiring~~Officers ~~December 18, 2008. Under the agreement, Mr. Edelman’s duties include but are not limited to: (1) directing the day to day management of the Company; (2) formulating~~ and ~~executing~~Control the Company’s business strategy; (3) providing senior level counsel as to the business and operations of the Company; (4) representing the Company in relationships and business dealings within the financial services industry and other markets pursued by the Company; and (5) supporting the activities of the Board of Directors. The agreement is renewable on a monthly basis unless written notice of cancellation is received. Persons

~~Mr. Edelman~~The business ~~has received compensation of $60~~experience,~~000~~ ~~under~~principal ~~the~~occupation ~~three~~and ~~month~~employment ~~consulting agreement. Upon extension~~ of the ~~agreement, Mr. Edelman receives compensation equal to $20,000 per month. In addition, the~~ Company ~~will reimburse Mr. Edelman for COBRA health insurance premiums, not to exceed~~’s $1Directors,~~200~~ ~~per~~executive ~~month,~~officers ~~during~~and ~~the~~Key ~~term~~Employees ofare ~~the~~as ~~consulting engagement. The Company plans to negotiate terms of a definitive employment agreement with Mr. Edelman during the second quarter of 2009.~~ follows:

35David R. Vey has served as Chairman of the Board since May 2003 and has been a Director of the Company since March 2003. Mr. Vey also serves as the Company’s Chief Executive Officer effective May 2009. Mr. Vey founded Vey Development, Inc., a privately held residential and commercial real estate development company, with primary real estate holdings in Louisiana and has served as President since 1983. Mr. Vey is a managing member in Oak Harbor Investments. Mr. Vey holds a Bachelor of Arts, Landscape Architecture and a Bachelor of Science, Forest Management from Louisiana State University.

~~ITEM 11. EXECUTIVE COMPENSATION (continued)~~35

~~Separation~~David ~~Agreement~~ C. Bluestone was elected to the Board of Directors in August 2005. Mr. Bluestone had been with Keybank, N.A. since October 1996, where he was a Senior Real Estate Credit Officer with responsibility for structuring and approval of credit exposure for commercial real estate relationships, maintaining asset quality and portfolio management, and has held the position of Team Leader, Chicago Real Estate Loan Production Officer. Prior to Keybank, Mr. Bluestone served as Senior Relationship Manager with Mellon Bank N.A.’s Real Estate Department and Section Manager, Credit Review Department from September 1986 to October 1996 with emphasis on new and restructuring of existing multi-million dollar real estate transactions, new business development, as well as underwriting, credit, financial, market and valuation analysis. From September 1982 to August 1986, he was a Real Estate Representative and Project Manager for The Southland Corporation. Mr. Bluestone holds a Masters of Business Administration from the University of California, Berkley and a Bachelors of Landscape Architecture from Louisiana State University.

~~Effective~~Jack ~~January 31,~~A. Pellicci has ~~2009,~~served ~~the~~as ~~Company~~a ~~entered~~Director ~~into~~since a1996. ~~separation~~Jack Pellicci ~~agreement~~joined ~~with~~Intergraph ~~Marco~~Corporation ~~Emrich,~~in September 2006 as the Senior ~~Company’s~~Vice ~~former~~ President Security, ~~Chief~~Government ~~Executive~~and ~~Officer~~Infrastructure and ~~Director~~General ofManager, Federal ~~the~~Solutions ~~Company~~and Intelligence Business Units. ~~Marco~~Prior ~~Emrich~~to this he spent over ~~resigned~~14 years at Oracle Corporation where his ~~positions~~most atrecent ~~the~~position ~~Company~~was ~~effective~~as ~~September 17~~Group Vice President, ~~2008~~North America Public Sector. ~~Under~~In ~~the~~this ~~terms~~position ofhe led the ~~separation~~Business ~~agreement,~~Development ~~Mr. Emrich~~and ~~will~~Program ~~receive~~Management aGroup ~~total~~where ofhe ~~$63,176~~was responsible for positioning ~~services~~Oracle’s products and solutions with customers and partners to generate and then capture new business in the ~~Company~~Federal/State and ~~through~~Local/Provincial Government markets in the US and ~~including~~Canada. ~~September~~Mr. ~~17,~~Pellicci joined ~~2008.~~Oracle ~~The~~in ~~Company~~1992 ~~will~~after ~~also~~retiring ~~pay~~from Mrthe U. ~~Emrich~~S. ~~severance~~Army ~~based~~as ona Brigadier General ~~three~~with ~~month’s~~30 years ~~salary,~~experience ~~totaling~~leading ~~$56~~and training people,~~250.~~ ~~The~~managing ~~wages~~technology and improving productivity in command and ~~severance~~staff ~~amounts~~assignments ~~will~~in beboth ~~paid~~peace toand war. MrHe is a graduate of the U. ~~Emrich on~~S. Military Academy at West Point with a Bachelor ~~biweekly~~of ~~basis~~Engineering ~~over~~degree, and received a ~~one~~Master ~~year~~of ~~period.~~Mechanical Engineering degree from Georgia Institute of Technology.

InRoger W. ~~addition,~~Scearce has inserved as ~~lieu~~a Director of ~~cash~~the ~~compensation~~Company ~~for~~since ~~accrued~~August 2004. Mr. Scearce ~~vacation~~is a senior partner with Vanguard Advisors, ~~the~~LLC. Vanguard’s mission ~~Company~~is ~~will~~to ~~grant~~provide world-class advisory and consulting services to business and government leaders. He is a founding member and has been with Vanguard Advisors, LLC since May 2003. Prior to forming Vanguard Advisors, Mr. ~~Emrich~~Scearce ~~450~~was a Senior Vice President with American Management Systems (AMS),~~000~~ ~~shares~~from April 1999 to April 2003, where he led their Department of ~~unrestricted~~Defense ~~common~~(DoD) ~~stock~~Strategic Account ~~under~~Group. While at AMS, Mr. Scearce also served as the ~~Company’s~~Deputy ~~2000~~Program ~~Plan.~~Manager, ~~These~~DoD ~~shares~~Financial ~~were~~Management Enterprise ~~issued~~Architecture as a key executive member of “Team IBM” in ~~March~~support of the DoD’s Business Management Modernization Program. ~~2009~~ Before joining AMS, Mr. Scearce ~~The~~was ~~Company~~a ~~will~~career ~~also~~military ~~pay~~officer, rising ~~for~~to the ~~cost~~rank of ~~six~~Brigadier ~~months~~General, ofU.S. ~~medical,~~Army. His ~~dental~~last ~~and~~active duty assignment was Deputy ~~vision~~Director ~~coverage~~of ~~for~~the Defense Finance and Accounting Service. Mr. ~~Emrich~~Scearce managed the day-to-day finance and ~~his~~accounting ~~spouse~~operations and activities of the Defense Department worldwide. Earlier leadership roles and assignments included serving as Commandant of the U.S. Army Finance School and Chief of the U.S. Army Finance Corps; and Commander 266th Theater Finance Command, U.S. Army, Europe.

MrAnita M. ~~Emrich~~ Primo has ~~agreed~~served as toVice ~~act~~President asand aChief ~~consultant~~Financial toOfficer since December 2003. Ms. Primo is charged with leading the Company,’s onfinance aand ~~limited~~administrative ~~basis,~~departments. She ~~should~~was appointed Secretary of the Company ~~require~~ ~~his~~in ~~services,~~July 2003. Ms. Primo ~~through~~previously served as the Company’s Controller since December 312000. Prior to joining SEDONA, ~~2009~~Ms. Primo was Vice President of Finance and Administration for the Zoological Society of Philadelphia from 1998 to 2000. She also served as Controller and Treasurer for Action Manufacturing, a major manufacturer of precision ordnance products for the U.S. government, U.S. approved foreign governments and numerous domestic and international commercial firms from 1989 to 1998. Ms. Primo received a B.S. Degree in Accounting and a B.S. Degree in Business Law from Temple University in Philadelphia, PA.

Under the terms of his Separation Agreement, Mr. Emrich is subject to certain covenants, including a non-disclosure covenant with respect to the Company’s confidential information, non-competition and non-solicitation covenants, a non-disparagement covenant, and certain other covenants. 36

~~2008~~Timothy ~~DIRECTOR~~A. ~~COMPENSATION~~Rimlinger has served as Vice President of Engineering since July 2000 and Chief Technology Officer since December 2003. Mr. Rimlinger is responsible for the design, implementation and delivery of all components of the Company’s CRM application strategy. Previously, he served as Director of Technology Development since joining the Company in January 1996. Before joining SEDONA, he was Senior Development Engineer at GE Aerospace and Lockheed Martin from 1985 to 1996. Mr. Rimlinger received his B.S. Degree in Electrical Engineering from Pennsylvania State University and his M.S. in Electrical Engineering from Villanova University. Mr. Rimlinger is the spouse of Kimberly Thomas.

							Non-Equity		Nonqualified
	Fees Earned or Paid						Incentive Plan		Deferred Comp.
Name	in Cash		Stock Awards		Option Awards Earned		Comp.		Earnings		All Other Comp.		Total Cash Comp.
David C. Bluestone	$	1,500	$	—	$	—	$	—	$	—	$	—	$	1,500
Scott C. Edelman	$	1,000	$	—	$	—	$	—	$	—	$	—	$	1,000
Jack Pellicci	$	2,000	$	—	$	—	$	—	$	—	$	—	$	2,000
Roger W. Scearce	$	1,500	$	—	$	—	$	—	$	—	$	—	$	1,500
David R. Vey	$	500	$	—	$	—	$	—	$	—	$	—	$	500

Kimberly M. Thomas was promoted to an Executive Officer of SEDONA effective February 2010. She has been with the Company since 1996 serving as a Senior Software Engineer. Prior to joining SEDONA, Ms. Thomas served as a Senior Software Engineer for Lockheed-Martin from 1989-1996 and as a Software Developer for General Electric from 1980-1989. Ms. Thomas received her B.S. Degree in Management Science/Operations Research and Marketing from Shippensburg University and her MBA in Finance from Temple University. Ms. Thomas is the spouse of Timothy Rimlinger.

The Directors of the Company elected to defer the issuance of a total of 200,000 non-qualified stock options each, which were earned in 2007 and 2008. When the incentive stock options are issued, the value of the award is calculated based upon the fair value of each common stock option issued on the date of grant, in accordance with Statement of Financial Accounting Standards Section 16(~~SFAS~~a) ~~123R.~~Beneficial ~~The~~Ownership ~~fair~~Reporting ~~value estimate is calculated using the Black-Scholes model.~~ Compliance

36Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s Directors and Officers, and persons who beneficially own more than 10% of its common stock, to file reports on their ownership and changes in ownership with the Securities and Exchange Commission and to furnish the Company with copies of any reports that they file. Based solely on review of the copies of these reports received or written representations that no reports on Form 5 were required, the Company believes that, for the year ended December 31, 2009 all reporting persons, except David R. Vey, complied on a timely basis with the filing requirements applicable to them.

~~ITEM~~Code ~~11.~~of ~~EXECUTIVE COMPENSATION (continued)~~Ethics

~~The~~On June 1, ~~following~~2004, ~~table~~the ~~sets~~Board ~~forth~~of ~~certain~~Directors ~~compensation~~adopted ~~information~~a ~~awarded~~Code ~~to,~~of ~~earned~~Conduct ~~by,~~and Business orEthics pursuant ~~paid~~to ~~for~~Section 406 ~~services~~of ~~rendered~~the Sarbanes-Oxley Act that applies to the Company’s inprincipal ~~all capacities~~executive officer, ~~for~~principal ~~the~~financial ~~full~~officer, ~~fiscal~~principal ~~year~~accounting ~~two~~officer ~~years ended~~or ~~December 31~~controller, ~~2008~~ and ~~2007~~any ~~for~~other ~~the~~persons ~~Company’s~~performing ~~President~~similar ~~and~~functions. The ~~Chief~~Code ~~Executive~~is ~~Officer~~posted ~~and~~on the ~~top three most highly compensated~~ Company’s ~~Vice~~internet website ~~Presidents,~~at ~~whose aggregate salary for such years~~www.sedonacorp.com. Copies ~~exceeded~~may ~~$100,000,~~be ~~(no~~obtained ~~bonus~~by ~~was~~following ~~paid to~~ the ~~named~~instructions ~~executive~~in ~~officers~~Item in1. ~~such~~Available ~~years):~~ Information.

~~Summary~~Corporate ~~Compensation Table~~ Governance

Name and Principal				Compensation		All Other
Position	Fiscal Year			Salary		Compensation		Total
Scott C. Edelman*		2008	+	$	240,000		—	$	240,000
President and CEO		2007		$	0		—	$	—
Marco A. Emrich*		2008	+	$	225,000		—	$	225,000
Former President and CEO		2007		$	225,000		—	$	225,000
Dean V. Bobrowski *		2008	+	$	170,000		—	$	170,000
Vice President of Sales		2007		$	170,000	$	1,525	$	171,525
Anita M. Primo		2008		$	114,000		—	$	114,000
V.P. & Chief Financial Officer		2007		$	110,000		—	$	110,000
Timothy A. Rimlinger		2008		$	130,000		—	$	130,000
V.P. & Chief Technical Officer		2007		$	130,000		—	$	130,000

Director Independence

*The Board S.of ~~Edelman~~Directors ~~appointed~~annually ~~09-08~~determines *the Mindependence of directors. No ~~Emrich~~director ~~terminated~~is ~~09-08~~considered *independent D.unless the ~~Bobrowski~~Board ~~terminated~~has ~~06-08~~determined +that Ifhe anor ~~executive~~she ~~served~~has inno material relationship with the Company, either directly or as a ~~capacity~~partner, ~~during~~shareholder, ~~any~~or ~~part~~officer of aan organization ~~fiscal~~that ~~year~~has ~~with~~a ~~respect~~material torelationship with the ~~information~~Company ~~required,~~or otherwise. Material ~~information~~relationships iscan include ~~provided~~commercial, asbanking, toconsulting, ~~all~~legal, ~~compensation~~accounting, ~~for~~charitable, ~~the~~and familial ~~full~~relationships, ~~fiscal~~among ~~year~~others.

~~Base~~Independent ~~Salary~~directors are directors who, in the view of the Board of Directors, are free of any relationship that would interfere with the exercise of independent judgment. The Board of Directors has adopted the standards for “independent directors” defined under Rule 5605(a)(2) of NASDAQ.

~~Base~~Audit ~~salaries for all executive officers, including the Company’s Chief Executive Officer, are reviewed by the Compensation~~ Committee on an annual basis. In determining appropriate base salaries, the Compensation Committee considers external competitiveness, the roles and responsibilities of the individual, the internal equity of compensation relationships and the contributions of the individual to the Company’s success.

~~Annual~~The Board ~~Cash~~of ~~Incentive~~Directors ~~Opportunities~~has an Audit Committee consisting of: Roger W. Scearce (Chair), David C. Bluestone and Jack A. Pellicci. The Board of Directors has determined that Roger W. Scearce qualifies as

The Compensation Committee believes that executive officers should be rewarded for their contributions to the success and profitability of SEDONA and as such, approves the annual cash incentive awards. Incentive awards are linked to the achievement of revenue and net income goals by SEDONA and/or specific business units and the achievement by the executive officers of certain assigned objectives. The individual objectives set for the Company’s executive officers are generally objective in nature and include such goals as revenue, profit and budget objectives, and increased business unit productivity. The Compensation Committee believes that these arrangements tie the Executive’s performance closely to key measures of the success of SEDONA or the executive officer’s business unit. All executive officers, including the Chief Executive Officer, are eligible to participate in this program. 37

37an “audit committee financial expert” under SEC rules. The function of the Audit Committee is guided by its charter to assist the Board of Directors in preserving the integrity of the financial information published by the Company through the review of financial and accounting controls and policies, financial reporting systems, alternative accounting principles that could be applied and the quality and effectiveness of the independent public accountants. In addition, the function of the Audit Committee includes recommending to the Board of Directors, the engagement or discharge of the independent auditors, discussing with the auditors their review of the Company’s quarterly results and their annual audit of the financial statements. The Board has made a determination that Messrs. Scearce, Bluestone and Pellicci qualify as independent directors under the independence requirements of NASDAQ.

~~ITEM~~Nominations & ~~11.~~Corporate ~~EXECUTIVE~~Governance ~~COMPENSATION (continued)~~Committee

~~Long-Term~~The Board ~~Stock-Based~~of ~~Incentives~~Directors has a Nominating & Corporate Governance Committee, consisting of Jack A. Pellicci (Chair) and David C. Bluestone. The Board has made a determination that Mr. Pellicci and Mr. Bluestone qualify as independent directors under the independence requirements of NASDAQ. The function of the Nominations & Corporate Governance Committee is: (i) to establish criteria for selecting candidates for nomination to the Board of Directors; seeking candidates to meet those criteria; and making recommendations to the Board of Directors of nominees to fill vacancies on, or as additions to, the Board of Directors; (ii) serve as an independent and objective component of the Board to facilitate Board stewardship of its responsibilities to shareholders and all other constituencies consistent with best corporate governance practices; and (iii) monitor, review and appraise the corporate governance systems of checks and balances, including the Company’s code of ethics and standards of conduct.

The Nominations & ~~Compensation~~Corporate Governance Committee ~~also~~will ~~believes~~consider ~~that~~director candidates itwho ishave ~~essential~~relevant tobusiness ~~align~~experience, ~~the~~are ~~interests~~accomplished ofin ~~executive~~their ~~officers~~respective fields and ~~the~~who ~~shareholders~~possess of the ~~Company.~~skills ~~The~~and ~~Compensation~~expertise ~~Committee~~to ~~grants~~make ~~options as~~ a ~~component~~significant ofcontribution ~~executive~~to ~~compensation.~~the AsBoard ~~such,~~of ~~from time to time~~Directors, the ~~Compensation~~Company ~~Committee grants stock options to executive officers~~ and ~~other employees under the 2000 Plan~~its Shareholders. Director Innominees ~~determining actual~~should ~~awards,~~have ~~the~~high-leadership ~~Compensation~~business ~~Committee~~experience, ~~considers~~knowledge ~~the~~about ~~externally~~issues ~~competitive~~affecting ~~market,~~ the ~~contributions~~ ofCompany ~~the~~and ~~individual to~~ the ~~Company’s~~ability ~~success~~ and ~~the~~willingness ~~need~~ to ~~retain~~apply ~~the~~sound ~~individual~~and ~~over~~independent ~~time. All~~business ~~executive officers, including the Chief Executive Officer, are eligible to participate in this program~~judgment. The ~~exercise~~Nominations & Corporate ~~price~~Governance ofCommittee ~~any~~applies ~~long-term~~the ~~stock-based~~same ~~incentives~~criteria ~~granted is equal~~ to ~~the fair~~nominees ~~market~~recommended ~~value~~by on the ~~date of grant~~shareholders.

~~The~~Compensation ~~Company did not issue any long-term stock based incentives during 2008.~~ Committee

~~During~~The Board ~~2007,~~of ~~the~~Directors ~~Company~~also ~~issued~~has ~~100,000~~a ~~stock~~Compensation ~~options to Dean Bobrowski~~Committee, ~~the~~consisting ~~Company’s Vice President~~ of ~~Sales,~~Jack inA. Pellicci ~~accordance~~and ~~with~~David ~~the~~Bluestone ~~terms~~(Chair). The ofBoard ~~his~~has ~~employment~~made ~~agreement~~a ~~dated~~determination ~~May~~that Mr. ~~21,~~Pellicci ~~2007~~and Mr. Bluestone ~~The~~qualify ~~exercise~~as ~~price~~independent ofdirectors under the ~~options~~independence ~~were~~requirements $0of the NASDAQ.18 The ~~per~~Compensation ~~share~~Committee inis responsible ~~which~~for ~~12,500~~developing ~~shares~~and ~~vest~~executing atplans for the ~~six~~compensation ~~month anniversary~~ of the Company’s ~~employment~~executive ~~agreement~~officers, ~~and~~including the ~~balance~~Chief Executive Officer of the Company. Additionally, ~~stock~~the ~~options~~Compensation Committee ~~vest~~administers on the ~~first~~1992 ~~day of~~Plan ~~each~~and ~~month following~~ the ~~sixth~~SEDONA ~~month~~Corporation ~~anniversary~~2000 atIncentive Stock ~~2,083~~Option ~~shares~~Plan ~~per~~(the ~~month~~“2000 ~~until~~Plan”), ~~fully~~including ~~vested~~the determination, ~~over~~ asubject ~~four-year~~to the ~~period.~~2000 InPlan’s ~~addition~~provisions, ~~Dean~~of ~~Bobrowski~~the ~~was~~individuals ~~entitled~~eligible to receive ~~400~~awards,~~000~~ ~~incentive~~the ~~stock~~individuals ~~options.~~to ~~The~~whom ~~options~~awards ~~vest~~should ~~upon~~be granted, the ~~employee~~nature ~~achieving~~of ~~his~~the ~~annual~~awards ~~sales~~to ~~quota~~be granted, ofthe ~~$1,500,000 and~~number ~~vest~~of onawards ato ~~monthly~~be ~~basis~~granted, ~~over~~the aexercise ~~two-year~~price, ~~period.~~vesting schedule, ~~The~~term ~~options~~and ~~did~~all ~~not~~other ~~vest~~conditions and ~~expired~~terms inof ~~June, 2008 at~~ the ~~time~~awards ofto ~~Mr. Bobrowski’s~~be ~~termination~~granted.

38 Executive Committee

~~OUTSTANDING~~The function ~~EQUITY~~of ~~AWARDS~~the ATcommittee ~~FISCAL~~is ~~YEAR-END~~to ~~2008~~exercise the powers of the Board between meetings to the extent permitted by law. The committee members consist of David R. Vey (Chair) and Roger W. Scearce. Mr. Scearce qualifies as an independent director under the independence requirements of applicable law and

											Stock Awards
					Equity
					Incentive										Equity		Equity
					Plan Awards:										Incentive		Incentive Plan
	Number of		Number of		Number						Number of				Plan Awards:		Awards: Market
	Securities		Securities		of Securities						Shares or		Market Value		Number of		or payout Value of
	Underlying		Underlying		Underlying						Units of		of Shares or		Unearned Shares,		Unearned Shares,
	Unexercised		Unexercised		Unexercised		Option		Option		Stock That		Units of Stock		Units or Other		Units or Other
	Options #		Options #		Unearned		Exercise		Expiration		Have Not		That Have Not		Rights That Not		Rights That Have
Name	Exercisable		Unexercisable		Options (#)		Price		Date		Vested (#)		Vested ($)		Vested (#)		Not Vested ($)
Scott Edelman		15,000		—		—	$	0.32		12/30/15		—	$	0.00		—	$	0.00
		30,000		20,000		—	$	0.27		12/30/15		—	$	0.00		—	$	0.00
		100,000		—		—	$	0.21		8/11/15		—	$	0.00		—	$	0.00
		100,000		—		—	$	0.21		8/17/16		—	$	0.00		—	$	0.00
Anita Primo		25,000		—		—	$	1.72		11/6/10		—	$	0.00		—	$	0.00
		7,500		—		—	$	0.78		3/29/11		—	$	0.00		—	$	0.00
		25,000		—		—	$	1.03		11/6/10		—	$	0.00		—	$	0.00
		7,500		—		—	$	1.03		3/29/11		—	$	0.00		—	$	0.00
		50,000		—		—	$	0.19		12/1/13		—	$	0.00		—	$	0.00
		86,227		—		—	$	0.15		12/30/15		—	$	0.00		—	$	0.00
Timothy Rimlinger		13,500		—		—	$	1.35		4/21/09		—	$	0.00		—	$	0.00
		18,000		—		—	$	1.53		11/18/09		—	$	0.00		—	$	0.00
		16,200		—		—	$	1.03		11/18/09		—	$	0.00		—	$	0.00
		12,150		—		—	$	1.03		4/21/09		—	$	0.00		—	$	0.00
		101,905		—		—	$	0.15		12/30/15		—	$	0.00		—	$	0.00

39of the NASDAQ but Mr. Vey does not qualify as an independent director under the independence requirements (See “Certain Relationship and Related Transaction”). In addition, Mr. Vey currently serves as the Company’s Principal Executive Officer and Chairman of the Board.

ITEM 11. EXECUTIVE COMPENSATION ~~(continued)~~

~~Compensation~~Employment ofand ~~Directors~~ Separation Agreements

~~Cash~~Appointment ~~Compensation~~ of Interim President and CEO

~~Any~~Effective ~~board~~September 18, ~~member~~2008, ~~participating~~the Company onappointed aScott ~~board~~C. ~~committee~~Edelman ~~will~~as bethe ~~reimbursed~~interim ~~$500~~Chief ~~per~~Executive ~~year~~Officer ~~for their~~and ~~participation,~~President ~~with~~of the ~~exception~~Company. Mr. Edelman served ofas the ~~members~~interim Chief Executive Officer of the ~~Audit~~Company ~~Committee~~until ~~who~~the appointment ~~will~~of beDavid ~~reimbursed $1,000~~R. ~~per~~Vey ~~year~~as ~~for~~Chief ~~their~~Executive ~~participation~~Officer in ~~that committee~~May 2009. Mr. Edelman ~~The~~replaced ~~reimbursement~~Marco ~~will~~A. beEmrich ~~made at the~~who ~~end~~resigned offrom ~~the~~his ~~twelve-month~~position ~~period~~as ~~following~~Chief ~~participation~~Executive inOfficer, ~~the~~President, ~~various~~and ~~board committees administered~~Director ~~from~~of the ~~annual~~Company ~~shareholders’~~effective ~~meeting~~September 17, ~~date each year~~2008.

~~As of December~~Mr. ~~31,~~Edelman ~~2008,~~and ~~there~~the ~~was~~Company entered into a ~~total~~three ofmonth ~~$140,434~~consulting ~~accrued~~agreement ~~compensation~~effective ~~due~~September 18, to2008 ~~current~~ and ~~past~~ ~~members~~expiring ofDecember 18, 2008. Under the ~~Board~~agreement, ofMr. Edelman’s ~~Directors~~duties ~~for~~included ~~prior~~but ~~service.~~were Asnot oflimited ~~December~~to: (1) ~~31,~~directing the ~~2007,~~day ~~there~~to ~~was~~day amanagement ~~total~~ of ~~$133,767~~ ~~accrued~~the ~~compensation~~Company; ~~due~~(2) formulating ~~to current~~ and ~~past~~executing the ~~members~~Company’s ofbusiness ~~the~~strategy; ~~Board~~(3) providing ofsenior ~~Directors~~level ~~for~~counsel ~~prior~~as to ~~service.~~the ~~Since~~business ~~2007,~~and operations of the ~~Directors~~Company; of(4) representing the Company in ~~elected~~relationships toand ~~defer~~business dealings within the ~~issuance~~financial ofservices ~~200,000~~industry ~~non-qualified~~and ~~stock~~other ~~options~~markets ~~each,~~pursued ~~which~~by ~~were~~the ~~earned~~Company; inand ~~2008~~(5) supporting ~~and~~the activities ~~2007~~of the Board of Directors.

~~Equity~~Mr. Edelman ~~Compensation~~received compensation of $60,000 under the three month consulting agreement. Upon extension of the agreement, Mr. Edelman received compensation equal to $20,000 per month. In addition, the Company provided reimbursement to Mr. Edelman for COBRA health insurance premiums, not to exceed $1,200 per month, during the term of the consulting engagement.

~~As of the date of each annual shareholder meeting, each existing board member, who is not an~~Separation employee of the Company, will be granted the option to purchase 100,000 incentive stock options under the Company’s 2000 Incentive Stock Option Plan at the fair market value on the date of grant, as determined in accordance with the Plan. The options will vest and become fully exercisable upon grant. Agreement

InEffective January 31, ~~addition~~2009, ~~any~~the ~~new~~Company ~~Director~~entered ~~elected~~into toa separation agreement with Marco Emrich, the Company’s ~~Board~~former ~~of Directors~~President, ~~who~~Chief isExecutive ~~not~~Officer ~~an employee~~and Director of the Company,. Marco ~~will~~Emrich resigned behis ~~granted~~positions anat ~~option~~the toCompany ~~purchase~~effective 50September 17,~~000~~ ~~shares~~2008. Under ofthe ~~common~~terms ~~stock,~~of at the ~~then current~~separation ~~fair~~agreement, ~~market value~~Mr. Emrich received ~~The~~a ~~shares~~total ~~underlying~~of ~~these~~$63,176 ~~options~~for ~~will~~services ~~vest~~to at the ~~rate~~Company ofthrough 10and including September 17,~~000~~ ~~shares~~2008. The ~~per~~Company ~~year~~also ~~for~~paid ~~five~~Mr. Emrich severance ~~years,~~based on ~~the~~three ~~anniversary~~month’s ~~date~~salary, oftotaling ~~the~~$56,250. The ~~new~~wages ~~Director’s~~and ~~election~~severance amounts were paid to ~~the~~Mr. Emrich ~~Company’s~~on ~~Board~~a ofbiweekly ~~Directors~~basis over a one year period.

~~If unexercised~~In addition, ~~each~~in ~~option~~lieu ~~shall~~of ~~expire~~cash oncompensation ~~the~~for ~~tenth~~accrued ~~(10th)~~vacation, ~~anniversary of~~ the ~~date of~~Company ~~grant~~granted Mr. Emrich ~~Once vested~~450,000 ~~options~~shares ~~shall~~of ~~remain~~unrestricted ~~fully~~common ~~exercisable~~stock ~~until~~under the Company’s ~~earlier~~2000 ~~of:~~Plan. These ~~(i) the~~shares were ~~expiration~~issued ofin ~~their term; (ii)~~March ~~three~~2009. The ~~years~~Company also ~~following~~paid for the ~~optionee’s~~cost ~~separation~~of ~~from~~six ~~Board~~months of ~~Directors~~ ~~service for any reason~~medical, ~~other~~dental ~~than~~and ~~death;~~vision orcoverage ~~(iii)~~for Mr. ~~one~~Emrich ~~year~~and ~~following~~his ~~the death of the optionee~~spouse.

40Mr. Emrich agreed to act as a consultant to the Company, on a limited basis, should the Company require his services, through December 31, 2009.

~~ITEM~~Under the 12terms of his Separation Agreement, Mr. Emrich ~~SECURITY~~is ~~OWNERSHIP~~subject OFto ~~CERTAIN~~certain covenants, ~~BENEFICIAL~~including ~~OWNERS~~a ~~AND~~non-disclosure ~~MANAGEMENT~~covenant ~~AND~~with ~~RELATED~~respect ~~STOCKHOLDER~~to ~~MATTERS~~the Company’s confidential information, non-competition and non-solicitation covenants, a non-disparagement covenant, and certain other covenants.

~~Equity Compensation Plans as of December 31, 2008:~~ 39

~~Equity~~2009 ~~Compensation~~DIRECTOR ~~Plan Information~~ COMPENSATION

	Number of			Weighted-Average
Name	Fees Earned or Paid in Cash		Stock Awards			Option Awards Earned			Non- Equity Incentive Plan Comp.		Nonqualified Deferred Comp. Earnings		All Other Comp.		Total Cash Comp.
	Securities to be			Exercise Price of				Number of Securities
David C. Bluestone	$	1,500	$	—		$	—		$	—	$	—	$	—	$	1,500
	Issued Upon			Outstanding				Remaining Available
Scott C. Edelman	$	400	$	—		$	—		$	—	$	—	$	—	$	400
	Exercise of			Options,				for Future Issuance
Jack Pellicci	$	2,000	$	—		$	—		$	—	$	—	$	—	$	2,000
	Outstanding Options,			Warrants and				under Equity
Roger W. Scearce	$	1,500	$	—		$	—		$	—	$	—	$	—	$	1,500
Plan Category	Warrants and Rights			Rights				Compensation Plans
David R. Vey	$	500	$	—		$	—		$	—	$	—	$	—	$	500
Equity compensation plans approved by security holders (1)		28,628,574		$	0.21				16,940,512
Equity compensation plans not approved by security holders (2)		—			—				—
Total		28,628,574		$	0.21				16,940,512

(1)		These plans consist of the 1992 Plan and 2000 Plan which replaced the 1992 plan. The current plan includes a formula that automatically increases the number of securities available for issuance equal to 20% of the number of shares issued and outstanding.
(2)		The Company does not maintain any equity compensation plans that have not been approved by the stockholders.

The Directors of the Company elected to defer the issuance of a total of 300,000 non-qualified stock options each, which were earned in 2007, 2008 and 2009. When the incentive stock options are issued, the value of the award is calculated based upon the fair value of each common stock option issued on the date of grant, in accordance with Statement of Financial Accounting Standards (SFAS) 123R. The fair value estimate is calculated using the Black-Scholes model.

The following table sets forth certain compensation information ~~regarding~~awarded ~~the~~to, ~~beneficial~~earned ~~ownership~~by, ofor paid for services rendered to the ~~common~~Company ~~stock~~in all capacities, for the full asfiscal ofyear ~~April~~two years ended December 531, 2009 ~~with~~and ~~respect~~2008 for the Company’s President and Chief Executive Officer and the top three most highly compensated Company Vice Presidents, whose aggregate salary for such years exceeded $100,000, (no bonus was paid to the named executive officers in such years):

~~Each~~Summary ~~person~~Compensation ~~or group known to the Company who beneficially owns five (5%) percent or more of the outstanding shares of the Company’s common stock;~~ Table

Each Director and named executive officer; and

Name and Principal Position	Fiscal Year	Salary		All Other Compensation		Total
Scott C. Edelman*	2009	$	240,000	$	7,200	$	247,200
Former Interim Pres. & CEO	2008+	$	240,000	$	7,200	$	247,200

Marco A. Emrich*	2009	—		—		$	—
Former President and CEO	2008+	$	225,000	$	6,750	$	231,750

Dean V. Bobrowski *	2009	—		—		$	—
Vice President of Sales	2008+	$	170,000	$	5,100	$	175,100

Anita M. Primo	2009	$	125,000	$	3,750	$	128,750
V.P. & Chief Financial Officer	2008	$	114,000	$	3,420	$	117,420

Timothy A. Rimlinger	2009	$	130,000	$	3,900	$	133,900
V.P. & Chief Technical Officer	2008	$	130,000	$	3,900	$	133,900

~~The~~* ~~Company’s~~S. ~~executive~~Edelman ~~officers~~terminated ~~and members of its Board of Directors as a group.~~ 05-09

41 * M. Emrich terminated 09-08

~~ITEM~~* 12D. ~~SECURITY~~Bobrowski ~~OWNERSHIP~~terminated ~~OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (continued)~~06-08

~~Except~~+If asan ~~indicated~~executive inserved ~~the footnotes to the table, the persons named~~ in ~~the~~a ~~table~~capacity ~~have~~during ~~sole voting~~any ~~and~~part ~~investment~~of ~~power~~a fiscal year with respect to ~~all shares beneficially owned. The business address of each person named in~~ the ~~table~~information ~~below is c/o SEDONA Corporation~~required, ~~1003~~information ~~West~~is provided ~~Ninth~~as ~~Avenue,~~to ~~Second~~all ~~Floor, King~~compensation offor ~~Prussia,~~the ~~Pennsylvania~~full ~~19406~~fiscal year.

Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. Shares of common stock subject to options that are currently exercisable or exercisable within 60 days of the date of this annual report, are deemed outstanding for the purpose of computing the percentage ownership of any person. These shares, however, are not considered outstanding when computing the percentage ownership of any other person. 40

	Amount and Nature of
Name of Beneficial Owner	Beneficial Ownership			Percent of Class
David C. Bluestone		230,000	(1)		*
Scott C. Edelman		245,000	(1)		*
Jack Pellicci		417,824	(1)		*
Anita M. Primo		266,160	(1)		*
Timothy A. Rimlinger		280,880	(1)		*
Roger W. Scearce		270,700	(1)		*
David R. Vey		152,731,865			77.53	%
All executive officers and Directors as a group, (7 persons)		154,442,424			76.96	%

Base Salary

*		Owner holds less than 1% of the class.
(1)		Unless otherwise indicated, each person possesses sole voting and investment power with respect to the shares identified in the table as beneficially owned. The table includes shares which the following directors and executive officers have a right to acquire within 60 days from March 31, 2009, upon the exercise of outstanding options and warrants:
		Mr. Bluestone — 250,000 options, none of which are in the money as of 12-31-08
		Mr. Edelman — 265,000 options, none of which are in the money as of 12-31-08
		Mr. Pellicci — 396,500 options, none of which are in the money as of 12-31-08
		Ms. Primo — 201,227 options, none of which are in the money as of 12-31-08
		Mr. Rimlinger — 161,755 options, none of which are in the money as of 12-31-08
		Mr. Scearce — 245,000 options, none of which are in the money as of 12-31-08
		Mr. Vey — 310,000 options, none of which are in the money as of 12-31-08; 12,627,390 warrants
(2)		Mr. Vey has a right to acquire 82,000,000 shares within 60 days upon a notice of conversion related to a $4,100,000 convertible note due January 4, 2010. The Company and Mr. Vey have agreed that Mr. Vey shall not be permitted to convert any portion of this convertible note until such time as the company has adequate authorized shares.

Base salaries for all executive officers, including the Company’s Chief Executive Officer, are reviewed by the Compensation Committee on an annual basis. In determining appropriate base salaries, the Compensation Committee considers external competitiveness, the roles and responsibilities of the individual, the internal equity of compensation relationships and the contributions of the individual to the Company’s success.

42Annual Cash Incentive Opportunities

~~ITEM~~The Compensation 13Committee believes that executive officers should be rewarded for their contributions to the success and profitability of SEDONA and as such, approves the annual cash incentive awards. ~~CERTAIN~~Incentive ~~RELATIONSHIPS~~awards ~~AND~~are ~~RELATED~~linked ~~TRANSACTIONS~~to ~~AND~~the achievement of revenue and net income goals by SEDONA and/or specific business units and the achievement by the executive officers of certain assigned objectives. The individual objectives set for the Company’s executive officers are generally objective in nature and include such goals as revenue, ~~DIRECTOR~~profit ~~INDEPENDENCE~~and budget objectives, and increased business unit productivity. The Compensation Committee believes that these arrangements tie the Executive’s performance closely to key measures of the success of SEDONA or the executive officer’s business unit. All executive officers, including the Chief Executive Officer, are eligible to participate in this program.

~~The Company has entered into the following financing agreements to provide working capital with Mr.~~Long-Term ~~David~~Stock-Based ~~R. Vey, Chairman of the Board of Directors. Mr. Vey is a shareholder who directly or indirectly owns approximately 32% of the Company’s outstanding common stock at April 14, 2009.~~ Incentives

~~David~~The Compensation ~~Vey~~Committee also believes that it is essential to align the interests of executive officers and ~~Oak~~the ~~Harbor~~shareholders of the Company. The Compensation Committee grants options as a component of executive compensation. As such, from time to time, the Compensation Committee grants stock options to executive officers and other employees under the 2000 Plan. In determining actual awards, the Compensation Committee considers the externally competitive market, the contributions of the individual to the Company’s success and the need to retain the individual over time. All executive officers, including the Chief Executive Officer, are eligible to participate in this program. The exercise price of any long-term stock-based incentives granted is equal to the fair market value on the date of grant.

~~Oak~~The Company ~~Harbor~~did ~~Note~~ not issue any long-term stock based incentives during 2009.

As part of a refinancing of certain obligations to Oak Harbor Investment Properties LLC (“Oak Harbor”), the Company issued a promissory note to Oak Harbor dated as of August 17, 2006 in the principal amount of $1,040,402 (the “Oak Harbor Note”). Oak Harbor is a limited liability company in which David Vey and Richard T. Hartley are managing members. The Oak Harbor Note has a maturity date of May 1, 2009, at which time all outstanding principal and interest is due. The Oak Harbor Note bears interest at a rate of eight percent (8%) per year. Effective March 11, 2009, the Oak Harbor Note was amended and the note is payable as follows: a) $400,000 of principal due on November 15, 2009; $640,402 of principal plus accrued interest will be due on May 15, 2010. 41

~~Convertible~~OUTSTANDING ~~Note~~EQUITY ~~with~~AWARDS ~~David~~AT ~~Vey~~ FISCAL YEAR-END 2009

On December 31, 2008, the Independent Committee of the Company’s Board of Directors recommended to the Board of Directors that the Company consolidate, amend and extend the term of three existing promissory notes previously issued to David Vey into a single secured convertible promissory note in the principal amount of $4,100,000. On December 31, 2008, the Board of Directors approved such consolidation, amendment and extension and the parties executed a Loan and Refinancing Agreement setting forth the terms of the Refinancing Transaction (the “Refinancing Agreement”).

							Stock Awards
Name	Number of Securities Underlying Unexercised Options # Exercisable	Number of Securities Underlying Unexercised Options # Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Not Vested (#)	Equity Incentive Plan Awards: Market or payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Scott Edelman	15,000	—	—	$	0.32	12/30/15	—	$	0.00	—	$	0.00
	30,000	20,000	—	$	0.27	12/30/15	—	$	0.00	—	$	0.00
	100,000	—	—	$	0.21	8/11/15	—	$	0.00	—	$	0.00
	100,000	—	—	$	0.21	8/17/16	—	$	0.00	—	$	0.00

Anita Primo	25,000	—	—	$	1.72	11/6/10	—	$	0.00	—	$	0.00
	7,500	—	—	$	0.78	3/29/11	—	$	0.00	—	$	0.00
	25,000	—	—	$	1.03	11/6/10	—	$	0.00	—	$	0.00
	7,500	—	—	$	1.03	3/29/11	—	$	0.00	—	$	0.00
	50,000	—	—	$	0.19	12/1/13	—	$	0.00	—	$	0.00
	86,227	—	—	$	0.15	12/30/15	—	$	0.00	—	$	0.00

Timothy Rimlinger	101,905	—	—	$	0.15	12/30/15	—	$	0.00	—	$	0.00

~~The~~Compensation ~~Old~~of ~~Notes~~ Directors

~~Pursuant~~Cash to the terms of the Refinancing Agreement, the following old notes, issued by the Company to Mr. Vey, having a total principal amount of $4,595,216, immediately prior to the Refinancing Transaction, were consolidated, amended and extended: Compensation

1.Any board Amember ~~convertible~~participating ~~promissory~~on ~~note,~~a ~~dated~~board ascommittee ofwill ~~October 23,~~be ~~2006,~~reimbursed in$500 ~~the principal amount~~per ~~$2,691,263~~year ~~(the~~for ~~“Old~~their ~~Convertible Note”)~~participation, ~~which~~with ~~had~~the aexception ~~maturity date, as previously extended,~~ of ~~January 1,~~ ~~2009, unless theretofore converted, and bore interest at~~ the ~~rate~~members of ~~eight~~the ~~percent (8%)~~Audit ~~per~~Committee ~~year,~~who ~~which~~will ~~interest~~be ~~was~~reimbursed ~~due~~$1,000 ~~upon~~per ~~maturity.~~year ~~Pursuant~~for totheir ~~the~~participation ~~Old~~in that ~~Convertible Note, Mr~~committee. ~~Vey~~ The ~~had the~~reimbursement ~~option~~will ~~to convert all or part of the unpaid principal and accrued but unpaid interest~~be ~~thereunder~~made ~~into shares~~ at athe ~~conversion~~end ~~price~~ of ~~$0.14~~the ~~per~~twelve-month ~~share.~~period ~~The~~following ~~number~~participation ofin ~~shares which would~~the ~~have~~various ~~been~~board ~~issuable~~committees ~~upon~~administered ~~the~~from ~~conversion of~~ the ~~$2,691,263~~annual ~~principal~~shareholders’ ~~balance of the Old~~meeting ~~Convertible~~date ~~Note~~each ~~was 19,223,309~~year.

2.As of ADecember 31, ~~promissory note~~2009, ~~dated~~there aswas a total of ~~October 23~~$146,351 ~~2006,~~ in ~~the~~accrued compensation ~~principal~~due ~~amount~~to ofcurrent ~~$1,213,952~~and (past members of the Board of Directors for ~~“Bridge~~prior ~~Note”)~~service. As of December 31, 2008, ~~which~~there ~~had~~was a ~~maturity~~total ~~date~~of $140,434 asaccrued ~~previously~~compensation ~~extended,~~due to current and past members of ~~January 1~~the Board of Directors for prior service. Since 2007, ~~2009~~the ~~and~~Directors ~~bore~~of the Company ~~interest~~elected atto adefer ~~rate~~the issuance of ~~eight~~300,000 ~~percent~~non-qualified ~~(8%)~~stock ~~per~~options ~~year.~~each, which were earned in 2009, 2008 and 2007.

3.Equity A secured revolving promissory note dated as of September 27, 2006, in the principal amount of $690,000 (the “Revolving Note”). The Revolving Note was payable by application of the proceeds of the receivables of the Company, together with accrued interest at the rate of eight percent (8%) per year. The Revolving Note, as previously extended, has a maturity date of January 1, 2009. Compensation

~~The~~As of ~~Old~~the ~~Convertible~~date ~~Note~~of each annual shareholder meeting, ~~the~~each ~~Bridge~~existing ~~Note~~board ~~and~~member, who is not an employee of the ~~Revolving~~Company, ~~Note~~will ~~are~~be ~~collectively~~granted ~~referred~~the option to ~~below~~purchase as100,000 incentive stock options under the ~~“Old~~Company’s ~~Notes~~2000 Incentive Stock Option Plan at the fair market value on the date of grant, as determined in accordance with the Plan.” The options will vest and become fully exercisable upon grant.

43In addition, any new Director elected to the Company’s Board of Directors, who is not an employee of the Company, will be granted an option to purchase 50,000 shares of common stock, at the then current fair market value. The shares underlying these options will vest at the rate of 10,000 shares per year for five years, on the anniversary date of the new Director’s election to the Company’s Board of Directors.

~~ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE (continued)~~42

~~Partial~~If unexercised, ~~Conversion~~each option shall expire on the tenth (10th) anniversary of ~~Interest~~the ~~and~~date ~~Principal~~of grant. Once vested, options shall remain fully exercisable until the earlier of: (i) the expiration of their term; (ii) three years following the optionee’s separation from Board of Directors service for any reason, other than death; or (iii) one year following the death of the optionee.

~~In connection~~ITEM ~~with the Refinancing Transaction, Mr~~12. ~~Vey~~ ~~converted principal~~SECURITY ~~and~~OWNERSHIP ~~interest~~OF ofCERTAIN ~~$1,262,739~~BENEFICIAL ~~into~~OWNERS ~~shares~~AND atMANAGEMENT ~~the~~AND ~~rate~~RELATED ofSTOCKHOLDER $0.05 per share, for a total of 25,254,781 shares (the “Conversion”). After the Conversion, as described below, the Company issued to Mr. Vey a new convertible note in the amount of $4,100,000.00, which represented the total balance of the principal currently due and owing to Mr. Vey by the Company under the Old Notes. In accordance with SFAS 84, due to a decrease in the conversion prices from the old notes to the new notes, the Company recorded a charge of $1,298,817 as an inducement loss upon conversion of the principal and interest on December 31, 2008. MATTERS

~~Warrants~~Equity Compensation Plans as of December 31, 2009:

InEquity ~~consideration~~Compensation ~~for~~Plan Mr. Vey’s agreement to refinance the Old Notes and to effect the Conversion, the Company agreed to grant to Mr. Vey a warrant to purchase 12,627,390 shares of Company common stock at a price of $0.07 per share, which warrant shall expire four (4) years from the date of issuance. The Company incurred a $909,172 charge for the fair value of the warrants granted on December 31, 2008. Information

The warrants have anti-dilution and other additional terms consistent with other warrants previously issued by the Company to Mr. Vey.

Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights	Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans
Equity compensation plans approved by security holders (1)	25,084,288	$	0.23	22,726,215
Equity compensation plans not approved by security holders (2)	—	—		—
Total	25,084,288	$	0.23	22,726,215

(1) These plans consist of the 1992 Plan and 2000 Plan which replaced the 1992 plan. The ~~New~~current ~~Convertible~~plan ~~Note~~includes a formula that automatically increases the number of securities available for issuance equal to 20% of the number of shares issued and outstanding.

~~In exchange for the Old Notes, the Company issued to Mr. Vey a consolidated secured convertible promissory note, dated as of December 31, 2008, in the principal amount $4,100,000~~ (~~the “New Convertible Note”~~2). The ~~New~~Company ~~Convertible Note has a maturity date of January 4, 2010, unless~~does ~~theretofore~~not ~~converted,~~maintain ~~and bears interest at the rate of eight percent (8%) per year, which interest will be due upon maturity. Mr. Vey has the option to convert, at~~ any ~~time,~~equity ~~all~~compensation orplans ~~part~~that ~~of the~~have ~~unpaid~~not ~~principal~~been ~~and~~approved accrued but unpaid interest of the New Convertible Note into shares of Company common stock at a conversion price of $0.05 per share. The number of shares which would be issuable upon the conversion of the $4,100,000 principal balance of the New Convertible Note is presently 82,000,000. The New Convertible Note is secured by ~~substantially all of~~ the ~~assets of the~~ ~~Company pursuant to the terms of a Security Agreement between Mr~~stockholders. ~~Vey and the Company, dated as of October 23, 2006.~~

The ~~Company calculated the beneficial conversion feature on the new convertible note which was~~ ~~recorded~~following astable asets ~~debt~~forth ~~discount~~information ofregarding ~~$2,460,000 on~~ the ~~new~~beneficial ~~convertible~~ownership ~~note which reduces the carrying amount~~ of ~~the obligation on December 31, 2008. The discount will be accreted into interest expense~~ ~~over~~ the ~~one~~common ~~year~~stock ~~life~~as of ~~the convertible note~~March 26, ~~beginning~~2010 ~~January 1,~~with ~~2009.~~ respect to:

~~The~~Each ~~New~~person ~~Convertible~~or ~~Note~~group ~~contains~~known ~~certain~~to ~~mandatory prepayment provisions. In~~ the ~~event that the~~ Company ~~receives~~who ~~total~~beneficially ~~net~~owns ~~proceeds from (i) sales of the Company’s securities (other than to Mr.~~five ~~Vey and his affiliates) and~~ (ii5%) ~~litigation~~ ~~awards~~percent ~~exceeding $1,000,000;~~ or inmore ~~the~~of ~~event that~~ the ~~Company~~ ~~maintains~~outstanding ~~current~~shares ~~cash on hand in excess~~ of ~~$2,000,000 for a period exceeding thirty (30) days, an amount equal to fifty percent of such proceeds or cash shall be paid by~~ the Company to’s ~~Mr. Vey~~common ~~as a mandatory prepayment.~~ stock;

~~The~~Each ~~New~~Director ~~Convertible Note contains customary anti-dilution provisions~~ and ~~the~~named ~~Company~~executive ~~has~~officer; ~~agreed that it will use its best efforts to register for resale with the Securities~~ and ~~Exchange Commission on or before April 30, 2009 all shares to be issued under the New Convertible Note.~~

44The Company’s executive officers and members of its Board of Directors as a group.

~~ITEM~~Except as 13indicated in the footnotes to the table, the persons named in the table have sole voting and investment power with respect to all shares beneficially owned. The ~~CERTAIN~~business ~~RELATIONSHIPS~~address ~~AND~~of ~~RELATED~~each ~~TRANSACTIONS~~person ~~AND~~named ~~DIRECTOR~~in ~~INDEPENDENCE~~the ~~(continued)~~table below is c/o SEDONA Corporation, 1003 West Ninth Avenue, Second Floor, King of Prussia, Pennsylvania 19406.

~~Financing with Vey Associates~~ 43

OnBeneficial ownership ~~December~~is determined in accordance with SEC rules ~~31,~~and ~~2008,~~generally includes ~~the~~voting ~~Independent~~or ~~Committee~~investment ~~recommended~~power with respect to ~~the~~securities. ~~Board~~Shares of common ~~Directors~~stock subject to options that ~~the Company~~are ~~enter~~currently ~~into~~exercisable aor ~~new~~exercisable within ~~agreement~~60 todays ~~borrow~~of upthe todate $2of this annual report,~~250,000~~ ~~from~~are ~~Vey~~deemed ~~Associates~~outstanding (for the ~~“New Loan”).~~purpose ~~Vey~~of ~~Associates~~computing ~~had~~the ~~agreed~~percentage toownership ~~fund~~of ~~the~~any ~~New~~person. ~~Loan~~These inshares, however, ~~five~~are ~~(5) installments~~not asconsidered ~~follows:~~outstanding when computing the percentage ownership of any other person.

(i) the first installment on or before December 31, 2008, in the amount of $100,000; (ii) the second installment on or before January 15, 2009, in the amount of $350,000; (iii) the third installment on or before February 15, 2009, in the amount of $550,000; (iv) the fourth installment on or before April 15, 2009, in the amount of $750,000; and (v) the fifth installment on or before September 30, 2009, in the amount of $500,000.

Name of Beneficial Owner	Amount and Nature of Beneficial Ownership		Percent of Class
David C. Bluestone	240,000	(1)	*
Jack Pellicci	417,824	(1)	*
Anita M. Primo	272,966	(1)	*
Timothy A. Rimlinger	227,836	(1)	*
Roger W. Scearce	270,700	(1)	*
David R. Vey	185,231,860	(1,2)	72.70	%
All executive officers and Directors as a group, (6 persons)	186,661,186		72.36	%

~~Payment~~* Owner ~~of the fifth installment is subject to the Company achieving a certain profitability level,~~holds ~~referred~~less tothan as1% ~~“EBITDA Break Even”, at the end~~ of the ~~third quarter of Fiscal year 2009 (September 30, 2009)~~class.

On(1) Unless otherwise indicated, each person possesses sole voting and investment power with respect to the shares identified in the table as beneficially owned. The table includes shares which the following directors and executive officers have a right to acquire within 60 days from March 1126, ~~2009~~2010, upon the ~~funding~~exercise ~~schedule~~of ~~was~~outstanding options ~~amended~~and ~~as follows~~warrants:

~~(i)~~Mr. Bluestone ~~the~~— ~~first installment on or before December 31~~250, ~~2008, in the amount of $100,~~000; ~~(ii) the second installment on or before January 15~~options, ~~2009,~~none ~~in the amount~~ of ~~$300,000;~~which ~~(iii)~~are ~~the third installment on or before March 18, 2009,~~ in the ~~amount~~money as of ~~$600,000; (iv) the fourth installment on or before May 1, 2009, in the amount of $750,0000; and (v) the fifth installment on or before September 30, 2009, in the amount of $500,000.~~12-31-09

~~Payment~~Mr. Pellicci of— ~~the fifth installment is subject to the Company achieving a certain profitability level~~396, ~~referred~~500 ~~to as “EBITDA Break Even”~~options, atnone ~~the end~~ of ~~the~~which ~~third~~are ~~quarter~~in ofthe ~~Fiscal~~money ~~year 2009 (September 30, 2009).~~as of 12-31-09

AsMs. Primo of— ~~April 14~~201,227 ~~2009~~options, ~~the~~none ~~Company has received a total~~ of ~~$750,000~~which ofare ~~the~~in ~~$1,000,000 currently due under~~ the ~~amended~~money ~~funding~~as ~~schedule. The Independent Committee~~ of ~~the Board of Directors of the~~ ~~Company is working with the Lender to negotiate a new funding schedule.~~ 12-31-09

~~The New Loan is evidenced by a secured convertible promissory note having a principal amount of up to $2,250,000 (the “Vey Associates Convertible Note”)~~Mr. Rimlinger ~~The~~— ~~Vey Associates Convertible Note has a maturity date of January 4~~101,905 ~~2010~~options, ~~unless~~none ~~theretofore converted, and bears interest at the rate~~ of ~~eight~~ ~~percent (8%) per year,~~ which ~~interest~~are ~~will~~in ~~be due upon maturity. Once $1,750,000 of~~ the ~~New Loan~~money ~~has been paid to the Company, Vey Associates has the option to convert all or part of the~~as ~~unpaid principal and accrued but unpaid interest~~ of the Vey Associates Convertible Note into shares at a conversion price of $0.05 per share. The number of shares which would be issuable upon the conversion of the $2,250,000 principal balance is presently 45,000,000. 12-31-09

~~The Vey Associates Convertible Note contains certain mandatory prepayment provisions. In the event that total net proceeds received by the Company from (i) sales of Company securities (other than to~~ Mr. ~~Vey~~Scearce ~~and~~— ~~his affiliates) and (ii) litigation awards exceed $1~~245,000~~,000;~~ ~~or the Company maintains current cash on hand in excess of $2~~options,~~000,000~~ ~~for~~none ~~a period exceeding thirty (30) days, an amount equal to fifty percent~~ of ~~such~~which ~~proceeds~~are orin ~~cash shall be paid by~~ the ~~Company~~money ~~to Vey Associates~~ as ~~a mandatory prepayment.~~ of 12-31-09

~~The~~ Mr. Vey ~~Associates~~— ~~Convertible~~310,000 ~~Note~~options, isnone ~~secured by substantially all~~ of ~~the~~which ~~assets~~are ofin the ~~Company pursuant~~money ~~to a Security Agreement dated~~ as of ~~December~~ 12-31-09; 12,627,390 ~~2008 between the Company and Vey Associates (the “Vey Associates Security Agreement”).~~ warrants

~~The~~ (2) Mr. Vey ~~Associates~~has ~~Convertible~~a ~~Note~~right ~~contains~~to acquire ~~customary~~82,000,000 ~~anti-dilution~~shares ~~provisions~~within ~~and~~60 ~~the~~days ~~Company~~upon ~~has~~a notice of conversion related to ~~agreed~~a ~~that~~$4,100,000 itconvertible ~~will~~note ~~use~~due ~~its~~January 4, ~~best~~2010 ~~efforts~~and toan ~~register~~additional 32,500,000 ~~for~~shares ~~resale~~upon ~~with~~notice ~~the~~of ~~Securities~~conversion ~~and~~related ~~Exchange Commission~~to ona or$1,625,000 ~~before~~convertible note ~~April~~due January 304, ~~2009~~2010. The Company ~~for~~and ~~all~~Mr. Vey ~~shares~~have toagreed that Mr. Vey shall not be ~~issued~~permitted to ~~under~~convert ~~the~~any ~~Vey~~portion ~~Associates~~of this convertible note until such time as the Company ~~Convertible~~has ~~Note~~adequate authorized shares.

45 44

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND, DIRECTOR INDEPENDENCE ~~(continued)~~

OnThe ~~December~~Company has entered into the following financing agreements to provide working capital with Mr. ~~31,~~David ~~2008~~R. Vey, Chairman of the Board of Directors ~~approved~~and ~~the~~currently ~~terms~~its ofChief ~~the~~Executive ~~New~~Officer. Mr. Vey ~~Loan~~is ~~and~~a ~~the~~shareholder ~~parties executed~~who directly or indirectly owns approximately 38% of the ~~Refinancing~~Company’s ~~Agreement~~outstanding common stock at March 26, 2010.

~~Security~~David ~~Agreement~~Vey and Oak Harbor

~~The New~~ Oak Harbor Note is secured by substantially all of the assets of the Company pursuant to an Amended and Restated Security Agreement dated as of August 17, 2006 between the Company and Oak Harbor (the “Amended Security Agreement”). The Amended Security Agreement amends and restates the Security Agreement between Oak Harbor and the Company effective as of January 13, 2003, which granted to Oak Harbor a lien and security interest in the assets of the Company (the “Oak Harbor Security Agreement”). The changes to the Security Agreement were effected by the Amended and Restated Security Agreement which include: (i) the modification of the term “Obligations” to mean all of the obligations, indebtedness and liabilities of the Company to Oak Harbor and Vey; (ii) the acknowledgement and consent of Oak Harbor to the grant of a subordinate security interest in the assets of the Company set forth in the Amended Security Agreement (the “Collateral”) to Vey; and (iii) the modification of Appendix A to the Security Agreement to reflect the current outstanding permitted liens in the Collateral and references the subordinate security interest to the Collateral granted to Vey pursuant to the Security Agreement between the Company and Vey dated as of October 23, 2006 (the “Vey Security Agreement”).

~~Amended~~As part of a refinancing of certain obligations to Oak Harbor Investment Properties LLC (“Oak Harbor”), the Company issued a promissory note to Oak Harbor dated as of August 17, 2006 in the principal amount of $1,040,402 (the “Oak Harbor Note”). Oak Harbor is a limited liability company in which David Vey and ~~Restated~~Richard ~~Intercreditor~~T. ~~Agreement~~Hartley are managing members. The Oak Harbor Note has a maturity date of May 31, 2010, at which time all outstanding principal and interest was due. The Oak Harbor Note bears interest at a rate of eight percent (8%) per year.

~~Mr. Vey,~~Convertible ~~Vey Associates, the Company and Oak Harbor, a company in which Mr. Vey is a managing~~Note member and 35% owner, entered into an Amended and Restated Intercreditor Agreement, dated as of December 31, 2008 (the “Intercreditor Agreement”). The Intercreditor Agreement provides (i) that Oak Harbor shall have a first priority interest in substantially all of the assets of the Company with ~~regard~~David ~~to the obligations of Sedona to Oak Harbor under an existing promissory note and related security agreement, and (ii) that the security interests of~~ Vey ~~Associates under the Vey Associates Convertible Note shall be junior to those of Oak Harbor but senior to those of Mr. Vey.~~

~~Cross~~On ~~Default~~December 31, ~~Provisions~~2008, the Independent Committee of the ~~Notes~~ Company’s Board of Directors recommended to the Board of Directors that the Company consolidate, amend, and extend the term of three existing promissory notes previously issued to David Vey into a single secured convertible promissory note in the principal amount of $4,100,000. On December 31, 2008, the Board of Directors approved such consolidation, amendment and extension and the parties executed a Loan and Refinancing Agreement setting forth the terms of the Refinancing Transaction (the “Refinancing Agreement”).

The ~~New~~Old ~~Consolidated~~ Notes contain cross default provisions. Consequently an event of default under any of the Notes would constitute an event of default under each of the Notes. An event of default under the Notes will also have occurred if a default occurs under any other loan, extension of credit, security right, instrument, document, agreement or obligation from the Company to Vey or Oak Harbor.

~~Approval~~Pursuant ~~for~~to ~~Additional~~the ~~Shares~~ terms of the Refinancing Agreement, the following old notes, issued by the Company to Mr. Vey, having a total principal amount of $4,595,216, immediately prior to the Refinancing Transaction, were consolidated, amended and extended:

~~The~~1. ~~Articles~~A ofconvertible ~~Incorporation~~promissory ~~of the Company provides for 175~~note,~~000,000~~ ofdated ~~which 102,047,472 were issued and outstanding~~ as of ~~April~~October 1423, ~~2009.~~2006, Atin the ~~present~~principal ~~time~~amount $2,691,263 (the ~~Company~~“Old ~~does~~Convertible ~~not~~Note”), ~~have sufficient~~which ~~authorized~~had ~~shares~~a tomaturity ~~issue~~date, ~~all of the shares to Mr. Vey and Vey Associates~~ as ~~required upon~~previously ~~full~~extended, ~~conversion~~ of ~~notes~~January 1, ~~and~~2009, ~~exercise~~unless oftheretofore ~~options~~converted, and ~~warrants.~~bore ~~The~~interest ~~Company~~at ~~intends~~the torate ~~seek approval~~ of ~~its~~eight ~~shareholders~~percent ~~for~~(8%) anper ~~amendment to its Articles of Incorporation~~year, towhich ~~increase~~interest ~~its~~was ~~authorized~~due ~~shares~~upon bymaturity. Pursuant ~~at least an amount necessary~~ to ~~cover~~ ~~its~~the ~~share~~Old ~~issuance~~Convertible ~~obligations~~Note, ~~at its next annual shareholders’ meeting.~~ Mr. Vey ~~and~~had ~~Vey Associates~~the ~~have~~option ~~agreed~~ to ~~refrain~~convert ~~from~~all ~~converting~~or ~~any~~part ~~notes~~of orthe ~~exercising~~unpaid ~~any~~principal ~~options~~and oraccrued ~~warrants which~~but ~~they~~unpaid ~~respectively~~interest ~~hold~~thereunder ~~until~~into ~~the~~shares ~~Company~~at ~~has~~ a ~~sufficient~~conversion ~~number~~price of ~~authorized~~$0.14 ~~shares~~per ~~in exchange~~share. The ~~for~~number anof ~~agreement~~shares bywhich ~~the~~would ~~Company~~have tobeen ~~allow~~issuable ~~Vey~~upon ~~Associates~~the toconversion ~~pledge~~of the ~~Vey~~$2,691,263 ~~Associates Convertible~~principal ~~Note~~balance orof ~~Mr. Vey to pledge~~ the ~~New~~Old Convertible Note inwas ~~the future~~19,223,309.

46 2. A promissory note, dated as of October 23, 2006, in the principal amount of $1,213,953 (the “Bridge Note”), which had a maturity date, as previously extended, of January 1, 2009 and bore interest at a rate of eight percent (8%) per year.

~~ITEM~~3. 13A secured revolving promissory note dated as of September 27, 2006, in the principal amount of $690,000 (the “Revolving Note”). The ~~CERTAIN~~Revolving ~~RELATIONSHIPS~~Note ~~AND~~was ~~RELATED~~payable ~~TRANSACTIONS~~by ~~AND~~application ~~DIRECTOR~~of ~~INDEPENDENCE~~the proceeds of the receivables of the Company, together with accrued interest at the rate of eight percent (~~continued~~8%) per year. The Revolving Note, as previously extended, had a maturity date of January 1, 2009.

The ~~table~~Old ~~below~~Convertible ~~details~~Note, the ~~total~~Bridge ~~outstanding~~Note ~~principal balance~~ and ~~accrued~~the ~~interest~~Revolving ~~expense~~Note ~~owed to~~are ~~David~~collectively ~~Vey~~referred ~~and~~to ~~Oak~~below ~~Harbor~~ as ofthe ~~December 31,~~“Old ~~2008~~Notes. ”

Principal

Accrued interest

Instrument

Payee

Maturity Date

due

at December 31, 2008

Promissory Note dated as

Oak Harbor

May 1, 2009*

1,040,402

200,450

of August 17, 2006

Investment

Properties LLC

Secured Convertible

David Vey

January 4, 2010

4,100,000

—

Promissory Note dated as of December 31, 2008

*Partial OnConversion ~~March~~of Interest ~~11, 2009, the maturity date on this note was extended as follows: $400,000 on November 15, 2009,~~ and ~~$640,402 on May 15, 2010.~~Principal

~~David~~In connection with the Refinancing Transaction, Mr. Vey converted principal and ~~OSI~~accrued ~~Litigation~~ interest under the Existing Notes in the amount of $1,262,739 into shares of the Company’s common stock at the rate of $0.05 per share, for a total of 25,254,781 shares (the “Conversion”). After the Conversion, as described below, the Company issued to Mr. Vey a new convertible note in the amount of $4,100,000, which represented the total balance of the principal currently due and owing to Mr. Vey by the Company under the Old Notes. Due to the fact that the original conversion price on the existing convertible note was $0.14 per share and interest and principal were converted at $0.05 per share, the Company recorded an inducement loss of $1,298,817 on December 31, 2008.

On September 4, 2007, SEDONA entered into an agreement with Vey Associates, Inc. in which Vey Associates agreed to provide funding to assist SEDONA in the payment of certain fees and expenses related to the lawsuit captioned Sedona Corp. v. Open Solutions, Inc., Action No. 3:07-CV-00171-VLB (the “litigation”), currently pending in the United States District Court for the District of Connecticut. David Vey, the Chairman and a shareholder of SEDONA, is an officer, director and majority shareholder of Vey Associates, Inc. Warrants

~~Under~~In consideration ~~the~~for ~~agreement,~~ Mr. Vey’s ~~Associates~~agreement ~~will advance up~~ to ~~$750,000~~refinance tothe ~~SEDONA~~Existing toNotes ~~pay fees~~ and ~~expenses~~ into ~~connection~~effect ~~with~~ the ~~litigation. Any proceeds received from the settlement~~Conversion, ~~verdict or other conclusion of~~ the ~~litigation~~Company ~~will~~granted ~~be first applied to repay~~ Mr. Vey ~~Associates~~one ~~and~~warrant ~~SEDONA for expenses~~to ~~incurred.~~purchase ~~Thereafter~~12,627,390 ~~SEDONA~~shares ~~will~~of ~~receive~~Company ~~twenty-five~~common ~~(25%)~~stock ~~percent~~at ofa ~~any~~price ~~proceeds~~of ~~and~~$0.07 ~~Vey~~per ~~Associates~~share. The ~~will~~warrant ~~receive~~expires ~~seventy-five~~in ~~(75%) percent of the proceeds~~December 2012. This Inmodification ~~the~~was ~~event~~accounted ~~that~~for ~~SEDONA~~as isa debt ~~unsuccessful~~extinguishment inand the ~~litigation~~fair ~~and~~value ~~does~~of ~~not~~the ~~receive~~stock ~~any~~purchase ~~litigation~~warrant ~~proceeds,~~was itincluded ~~will have no~~in ~~obligation~~determining tothe ~~repay~~debt ~~any~~extinguishment ~~sums~~loss to ~~Vey~~be ~~Associates~~recognized. The ~~All~~fair ~~amounts~~value ~~advanced by Vey Associates to SEDONA shall accrue interest at a rate~~ of ~~ten~~warrant ~~(10%)~~in ~~percent~~the ~~per~~amount ~~year. As~~ of ~~December 31~~ $909,172 ~~2008,~~was ~~included~~determined ~~in accrued~~using ~~expenses~~the ~~and other~~Black-~~current~~Scholes ~~liabilities~~option ~~are~~pricing ~~advances~~model ~~received~~ and ~~accrued~~was recorded ~~interest~~as ina ~~the amount~~loss ofon ~~$798,000~~extinguishment ~~under~~of ~~this agreement~~debt.

The ~~Company~~ ~~anticipates~~warrants ~~that~~have itanti-dilution ~~will continue to incur litigation expenses related to the OSI matter~~ and ~~will~~other ~~exceed~~additional ~~the~~terms ~~$750,000~~consistent ~~limit in the agreement~~ with ~~Vey~~other ~~Associates.~~warrants ~~The~~previously ~~Company~~issued isby ~~currently negotiating an increase in~~ the ~~funding~~Company ~~limit with Vey Associates; however, there can be no assurances that Vey Associates will agree~~ to ~~advance funds in excess of the $750,000 limit~~Mr. Vey.

47 The New Convertible Note

~~ITEM~~In 14exchange for the Old Notes, the Company issued to Mr. Vey ~~PRINCIPAL~~a ~~ACCOUNTING~~consolidated ~~FEES~~secured ~~AND~~convertible ~~SERVICES~~promissory note, dated as of December 31, 2008, in the principal amount $4,100,000 (the “New Convertible Note”). The New Convertible Note has a maturity date of May 31, 2010, unless theretofore converted, and bears interest at the rate of eight percent (8%) per year, which interest will be due upon maturity. Mr. Vey has the option to convert, at any time, all or part of the unpaid principal and accrued but unpaid interest of the New Convertible Note into shares of Company common stock at a conversion price of $0.05 per share. The number of shares which would be issuable upon the conversion of the $4,100,000 principal balance of the New Convertible Note is presently 82,000,000. The New Convertible Note is secured by substantially all of the assets of the Company pursuant to the terms of a Security Agreement between Mr. Vey and the Company, dated as of October 23, 2006.

Type of Service	2008		2007
Audit Fees	$	105,000	$	102,000
Audit-Related Fees		—		—
Tax Fees		—	$	8,056
All Other Fees		—		—

Since the fair value of the Company’s common stock was $0.08 per share on December 31, 2008, the intrinsic value of the beneficial conversion feature for the difference between the fair value per share and the conversion price was $2,460,000. The Company is accreting this debt discount to interest expense over the one year term of the New Convertible Note, beginning with the funding of the first installment on January 5, 2009. For the year ended December 31, 2009, the Company recorded accretion of the debt discount of approximately $2,440. For the year ended December 31, 2008, there was no accretion of the debt discount.

~~Audit~~The ~~Fees.~~New ~~This~~Convertible ~~category~~Note ~~includes:~~contains ~~the~~certain ~~audit~~mandatory ofprepayment provisions. In the ~~Company’s~~event ~~annual~~that ~~financial statements included in~~ the Company’s ~~reports~~receives ontotal ~~10-K;~~net ~~the~~proceeds ~~timely~~from ~~review~~(i) sales of the ~~interim financial statements included in the~~ Company’s ~~quarterly~~securities ~~reports~~(other onthan ~~Form~~to ~~10-Q~~Mr. Vey orand ~~10-QSB~~his ~~for~~affiliates) ~~the periods ended March 31, June 30~~ and ~~September~~(ii) ~~30,~~litigation ~~2008~~awards ~~and~~exceeding ~~2007~~$1,000,000; ~~and~~or ~~services~~in ~~that~~the ~~are~~event ~~normally~~that ~~provided by~~ the ~~independent auditors~~Company inmaintains ~~connection~~current ~~with~~cash ~~engagements~~on ~~for~~hand ~~those~~in ~~fiscal~~excess ~~periods.~~of ~~This~~$2,000,000 ~~category~~for ~~may~~a ~~also~~period ~~include advice~~exceeding onthirty ~~audit~~(30) ~~and~~days, ~~accounting~~an ~~matters~~amount ~~that~~equal ~~arose~~to ~~during,~~fifty orpercent ~~as a result~~ of, ~~the~~such ~~audit~~proceeds or ~~review~~cash ~~of interim~~shall ~~financial~~be ~~statements.~~paid ~~This~~by ~~category~~the ~~also~~Company ~~includes~~to ~~services~~Mr. Vey inas ~~connection~~a ~~with~~mandatory ~~statutory and regulatory filings or engagements~~prepayment.

Audit-Related Fees. This category consists of assurance and related services by the independent auditors that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported above under “Audit Fees”. The services for the fees disclosed under this category include financial information systems design and implementation services rendered by the independent auditor. 46

~~Tax~~The ~~Fees.~~New ~~This~~Convertible ~~category~~Note ~~consists~~contains ofcustomary ~~professional~~anti-dilution ~~services~~provisions ~~rendered by the independent auditors for tax compliance~~ and ~~tax advice. The services for~~ the ~~fees~~Company ~~disclosed~~has ~~under~~agreed ~~this~~that ~~category~~it ~~include~~will ~~tax return~~use ~~preparation~~its ~~and~~best ~~technical~~efforts ~~tax~~to ~~advice.~~register ~~The~~for ~~independent~~resale ~~auditors do not assist the Company~~ with the ~~preparation~~Securities ofand ~~its~~Exchange ~~corporate~~Commission ~~taxes;~~all ~~the~~shares ~~Company~~to ~~retains~~be ~~another~~issued ~~firm~~under ~~for~~the ~~tax~~New ~~compliance and~~Convertible ~~advice~~Note.

~~All~~Financing ~~Other~~with ~~Fees.~~Vey ~~This category includes services rendered by the independent auditors other than for services reported above.~~ Associates

~~Pre-Approval~~On December 31, 2008, the Independent Committee recommended to the Board of ~~Audit~~Directors ~~and~~that ~~Non-Audit~~the ~~Services~~ Company enter into a new agreement to borrow up to $2,250,000 from Vey Associates (the “New Loan”). Vey Associates has agreed to fund the New Loan in five (5) installments as follows:

~~All~~(i) ~~audit~~the ~~and~~first ~~non-audit~~installment ~~services~~on ~~provided~~or bybefore ~~independent~~December ~~accountants~~31, to2008, ~~the~~in ~~Company are pre-approved by~~ the ~~Audit~~amount ~~Committee.~~of ~~The~~$100,000; ~~Audit~~(ii) ~~Committee utilizes~~ the ~~following~~second ~~procedures~~installment ~~in pre-approving~~on ~~all audit and non-audit services. At~~ or before ~~the~~January ~~first~~15, ~~meeting~~2009, ofin the ~~Audit Committee~~amount ~~each~~of ~~year~~$350,000; ~~the~~(iii) ~~Audit Committee is presented with a proposal of~~ the ~~cost~~third ~~for~~installment ~~audit~~on ~~and non-audit~~or ~~services~~before ~~expected~~February to15, be2009, ~~performed~~in by the ~~principal~~amount ~~accountant~~of ~~during the year. Quarterly~~$550,000; ~~the~~(iv) ~~Audit Committee is presented with~~ the ~~total~~fourth ~~fees~~installment ~~assessed~~on ~~for~~or ~~such~~before ~~services~~April ~~during the~~15, ~~quarter~~2009, ~~with~~in ~~a comparison to~~ the ~~amounts~~amount ~~previously presented. An explanation~~ of ~~any variances is presented~~$750,000; ifand ~~necessary.~~(v) ~~The~~the ~~Audit~~fifth ~~Committee~~installment ison ~~also presented with an update of any new audit~~ or ~~non-audit~~before ~~services~~September to30, be2009, ~~performed.~~in ~~The Audit Committee reviews~~ the ~~update~~amount ~~and~~of ~~approves the services outlined therein if such services are acceptable to the Audit Committee~~$500,000.

ToOn ~~ensure the prompt response of any unexpected matters~~March 11, ~~the Audit Committee may delegate to a designated member or members of the Audit Committee~~2009, the ~~authority~~funding toschedule ~~amend~~was ~~or modify the audit and non-audit services and fees; provided however, that such additional or~~ amended ~~services~~as ~~may not affect the independence under applicable SEC rules. The member or members of the Audit Committee must report any such action taken to the Audit Committee at its next scheduled meeting.~~ follows:

~~All~~(i) ~~audit~~the ~~and~~first ~~other~~installment ~~fees~~on inor ~~fiscal~~before ~~year~~December 31, 2008, in the amount of $100,000; (ii) the second installment on or before January 15, 2009, in the amount of $300,000; (iii) the third installment on or before March 18, 2009, in the amount of $600,000; (iv) the fourth installment on or before May 1, 2009, in the amount of $750,000; and ~~2007~~(v) ~~were~~the ~~pre-approved~~fifth byinstallment on or before September 30, 2009, in the ~~Audit~~amount ~~Committee~~of $500,000.

48 Payment of the fifth installment was subject to the Company achieving a certain profitability level, referred to as “EBITDA Break Even”, at the end of the third quarter of Fiscal year 2009, which was not achieved.

~~PART~~The IV first installment of this financing agreement was not received until January 2009. As of December 31, 2009, the outstanding balance on this loan was $1,625,000. Subsequent to December 31, 2009 the Company received an additional $225,000 in proceeds bringing the outstanding balance on this loan to $1,850,000 as of April 15, 2010.

~~ITEM~~The 15New Loan is evidenced by a secured convertible promissory note having a principal amount of up to $2,250,000 (the “Vey Associates Convertible Note”). ~~EXHIBITS~~The Vey Associates Convertible Note has a maturity date of May 31, 2010, unless theretofore converted, and bears interest at the rate of eight percent (8%) per year, which interest will be due upon maturity. Once $1,750,000 of the New Loan has been paid to the Company, Vey Associates has the option to convert all or part of the unpaid principal and accrued but unpaid interest of the Vey Associates Convertible Note into shares at a conversion price of $0.05 per share. The number of shares which would be issuable upon the conversion of the $2,250,000 principal balance is presently 45,000,000.

~~The~~Since ~~following~~the isfair avalue ~~list~~ of ~~exhibits~~the ~~filed~~Company’s ascommon ~~part~~stock ofwas ~~this~~$0.08 ~~Annual~~per ~~Report~~share on ~~Form~~December 31, ~~10-K~~2008, the intrinsic value of the beneficial conversion feature for the difference between the fair value per share and the conversion price was $.03 ~~Where indicated~~per byshare. The ~~footnote,~~Company ~~exhibits,~~is ~~which~~accreting ~~have~~this ~~been~~debt ~~previously~~discount ~~filed~~to interest expense over the one year term of the New Convertible Note, ~~are~~beginning ~~incorporated~~on bythe ~~reference~~date each respective tranche was funded to the Company. For ~~exhibits~~the ~~incorporated~~year byended ~~reference~~December 31, 2009, the ~~location~~Company recorded accretion of the ~~exhibit~~debt indiscount of approximately $962,000. For the ~~previous~~year ~~filing~~ended ~~is indicated~~December 31, in2008, ~~parenthesis~~there was no accretion of the debt discount.

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

The Vey Associates Convertible Note contains certain mandatory prepayment provisions. In the event that total net proceeds received by the Company from (i) sales of Company securities (other than to Mr. Vey and his affiliates) and (ii) litigation awards exceed $1,000,000; or the Company maintains current

49 47

~~ITEM~~cash ~~13.~~on ~~EXHIBITS~~hand in excess of $2,000,000 for a period exceeding thirty (~~continued~~30) days, an amount equal to fifty percent of such proceeds or cash shall be paid by the Company to Vey Associates as a mandatory prepayment.

10.44		Convertible note dated January 10, 2003 (14)
10.45		Promissory note dated January 10, 2003 (14)
10.46		Convertible note dated March 13, 2003 (14)
10.47		Promissory note dated March 13, 2003 (14)
10.48		Addendum dated March 31, 2004 to Master Software License Agreement by and between the Company and Fiserv Solutions Inc. dated March 28, 2002 (15)
10.49		Office lease agreement dated 12-24-02
10.47		Convertible note dated June 4, 2004 (16)
10.54		Convertible note by the Company in favor of David R. Vey dated June 4, 2004 (16)
10.55		Convertible note by the Company in favor of David R. Vey dated July 7, 2004 (17)
10.56		Convertible note by the Company in favor of David R. Vey dated September 15, 2004 (17)
10.57		Convertible note by the Company in favor of David R. Vey dated October 8, 2004 (17)
10.58		Convertible note by the Company in favor of David R. Vey dated November 18, 2004 (18)
10.59		Convertible note by the Company in favor of David R. Vey dated January 13, 2005 (19)
10.60		Convertible note by the Company in favor of David R. Vey dated January 31, 2005 (19)
10.61		Convertible note by the Company in favor of David R. Vey dated March 16, 2005 (19)
10.62#		Employment Agreement dated June 25, 2004 between Company and Marco A. Emrich (20)
10.64#		Employment Agreement dated July 20, 2004 between Company and Anita M. Primo (20)
10.65#		Employment Agreement dated July 20, 2004 between Company and Timothy Rimlinger (20)
10.66		Convertible note by the Company in favor of David R. Vey dated March 25, 2005 (21)
10.67		Convertible note by the Company in favor of David R. Vey dated March 30, 2005 (21)
10.68		Convertible note by the Company in favor of David R. Vey dated April 14, 2005 (21)
10.69		Convertible note by the Company in favor of David R. Vey dated April 22, 2005 (22)
10.70		Amended Facility Lease for King of Prussia, PA dated January 1, 2005 (24)
10.71		Amended Facility Lease for Plymouth, MN dated January 1, 2005 (24)
10.72		Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)
10.73		Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)

The Vey Associates Convertible Note is secured by substantially all of the assets of the Company pursuant to a Security Agreement dated as of December 31, 2008 between the Company and Vey Associates (the “Vey Associates Security Agreement”).

50 The Vey Associates Convertible Note contains customary anti-dilution provisions and the Company has agreed that it will use its best efforts to register for resale the shares with the Securities and Exchange Commission all shares to be issued under the Vey Associates Convertible Note.

~~ITEM~~On ~~13.~~December 31, ~~EXHIBITS~~2008, ~~(continued)~~the Board of Directors approved the terms of the New Loan and the parties executed the Refinancing Agreement.

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

Security Agreement

51The New Oak Harbor Note is secured by substantially all of the assets of the Company pursuant to an Amended and Restated Security Agreement dated as of August 17, 2006 between the Company and Oak Harbor (the “Amended Security Agreement”). The Amended Security Agreement amends and restates the Security Agreement between Oak Harbor and the Company effective as of January 13, 2003 which granted to Oak Harbor a lien and security interest in the assets of the Company (the “Oak Harbor Security Agreement”). The changes to the Security Agreement were effected by the Amended and Restated Security Agreement which include: (i) the modification of the term “Obligations” to mean all of the obligations, indebtedness, and liabilities of the Company to Oak Harbor and Vey; (ii) the acknowledgement and consent of Oak Harbor to the grant of a subordinate security interest in the assets of the Company set forth in the Amended Security Agreement (the “Collateral”) to Vey; and (iii) the modification of Appendix A to the Security Agreement to reflect the current outstanding permitted liens in the Collateral and references the subordinate security interest to the Collateral granted to Vey pursuant to the Security Agreement between the Company and Vey dated as of October 23, 2006 (the “Vey Security Agreement”).

~~ITEM~~Amended ~~13.~~and Restated ~~EXHIBITS~~Intercreditor ~~(continued)~~Agreement

10.99		Form of Registration Rights Agreements used in connection with private placement transactions entered into during fiscal year 2007 by and among the Company and the investor signatory thereto (29)
10.100		Form of Warrants issued to Investors used in connection with private placement transactions entered into in fiscal year 2007 by and among the Company and the investor signatory thereto (29)
10.101		Agreement between the Company and Vey Associates, Inc. dated as of September 4, 2007 (30)
10.102		Amendment to promissory note dated August 17, 2006 between SEDONA Corporation and Oak Harbor Investment Properties, L.L.C. in the principal amount of $1,040,402 (33)
10.103		Amendment to promissory note dated September 27, 2006 between SEDONA Corporation and David Vey in the principal amount of $500,000 (33)
10.104		Amendment to promissory note dated October 23, 2006 between SEDONA Corporation and David Vey in the principal amount of $1,213,952 (33)
10.105		Amendment to secured convertible note dated October 23, 2006 between SEDONA Corporation and David Vey in the principal amount of $2,691,263 (33)
10.106		Amendment to loan agreement dated July 5, 2005 between SEDONA Corporation and William W. Rucks (33)
10.107		Amendment to promissory note dated July 1, 2005 between SEDONA Corporation and William W. Rucks in the principal amount of $250,000 (33)
10.108		Amendment to promissory note dated August 1, 2005 between SEDONA Corporation and William W. Rucks in the principal amount of $250,000 (33)
10.109		Amendment to promissory note dated September 29, 2005 between SEDONA Corporation and William W. Rucks in the principal amount of $500,000 (33)
10.110		Amendment to promissory note dated May 31, 2006 between SEDONA Corporation and William W. Rucks in the principal amount of $300,000 (33)
10.111		Amendment to convertible note dated May 31, 2006 between SEDONA Corporation and Charles Mitchell in the principal amount of $300,000 (33)
10.112#		Consulting Agreement between the Company and Scott Edelman (34)
10.113		Loan and Refinancing Agreement between Sedona Corporation and Vey Associates, Incorporated, dated as of December 31, 2008 (35)
10.114		Consolidated and Restated Convertible Promissory Note in the principal amount of $4,100,000 between David R. Vey and Sedona Corporation, dated as of December 31, 2008 (35)
10.115		Secured Convertible Note in the principal amount of $2,250,000.00 from Sedona Corporation to Vey Associates Incorporated, dated as of December 31, 2008 (35)
10.116		Security Agreement from Sedona Corporation to Vey Associates Incorporated, dated as of December 31, 2008 (35)
10.117		Intercreditor Agreement among Oak Harbor Investment Properties, L.L.C., David R. Vey, Vey Associates Incorporated and Sedona Corporation, dated as of December 31, 2008 (35)
10.118*		Amendment No. 2 to Facility Lease for Plymouth, MN dated February 27, 2009
14.1		Code of Conduct and Business Ethics, adopted by Board of Directors, June 21, 2004 (20)
16.1		Letter from McGladrey and Pullen, LLP, dated April 13, 2007 agreeing to the statement of the Company under 4.01 of its Form 8-K, filed April 19, 2007 (31)

Mr. Vey, Vey Associates, the Company and Oak Harbor, a company in which Mr. Vey is a managing member and 35% owner, entered into an Amended and Restated Intercreditor Agreement, dated as of December 31, 2008 (the “Intercreditor Agreement”). The Intercreditor Agreement provides (i) that Oak Harbor shall have a first priority interest in substantially all of the assets of the Company with regard to the obligations of Sedona to Oak Harbor under an existing promissory note and related security agreement, and (ii) that the security interests of Vey Associates under the Vey Associates Convertible Note shall be junior to those of Oak Harbor but senior to those of Mr. Vey.

52Cross Default Provisions of the Notes

~~ITEM~~The 13New Consolidated Notes contain cross default provisions. Consequently ~~EXHIBITS~~an ~~(continued)~~event of default under any of the Notes would constitute an event of default under each of the Notes. An event of default under the Notes will also have occurred if a default occurs under any other loan, extension of credit, security right, instrument, document, agreement or obligation from the Company to Vey or Oak Harbor.

16.2		Letter from McGladrey and Pullen, LLP, dated June 20, 2007, agreeing to the statements of the Company under Item 4.01 of its 8-KA filed on May 21, 2007 and June 20, 2007 (32)
23.1*		Consent of Asher & Company, Ltd.
31.1*		Statement Under Oath of Principal Executive Officer of the Company Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
31.2*		Statement Under Oath of Principal Financial Officer of the Company Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
32.1*		Statement Under Oath of Principal Executive Officer of the Company Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2*		Statement Under Oath of Principal Financial Officer of the Company Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
99.1		Amendment to Compensation Plan for Directors
99.1		Surety Agreement dated as of November 2, 2006 from Vey (26)
99.1		Amended and Restated Surety Agreement dated as of November 2, 2006 from Vey (27)
99.1		Second Amended and Restated Surety Agreement dated as of March 11, 2009 (37)

*		Filed herewith.
#		Executive Compensation Plans and Arrangements.
(1)		Filed as an Exhibit to the Registration Statement on Form S-3, filed May 23, 2000 (File No. 333-37678).
(2)		Filed as an Exhibit to the Company’s Current report on Form 8-K, dated June 15, 1992.
(3)		Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
(4)		Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999.
(5)		Filed as an Exhibit to the Registration Statement on Form S-3 filed June 5, 2000 (File No. 333-38578).
(6)		Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1999.
(7)		Filed as an Exhibit to the Current Report on Form 8-K filed November 28, 2000.
(8)		Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
(9)		Filed as an Exhibit to the Current Report on Form 8-K filed August 31, 2000.

Approval for Additional Shares

53 The Articles of Incorporation of the Company provides for 175,000,000 of which 127,364,064 were issued and outstanding as of March 26, 2010. At the present time, the Company does not have sufficient authorized shares to issue all of the shares to Mr. Vey and Vey Associates as required upon full conversion of notes and exercise of options and warrants. The Company intends to seek approval of its shareholders for an amendment to its Articles of Incorporation to increase its authorized shares by at least an amount necessary to cover its share issuance obligations at its next annual shareholders’ meeting. Mr. Vey and Vey Associates have agreed to refrain from converting any notes or exercising any options or warrants which they respectively hold until the Company has a sufficient number of authorized shares in exchange for an agreement by the Company to allow Vey Associates to pledge the Vey Associates Convertible Note or Mr. Vey to pledge the New Convertible Note in the future.

~~ITEM~~The ~~13.~~table ~~EXHIBITS~~below ~~(continued)~~details the total outstanding principal balance and accrued interest expense owed to David Vey and Oak Harbor as of December 31, 2009.

(10)	Filed as an Appendix to the Company’s Definitive Proxy Statement for the 2000 Annual Meeting of Shareholders filed May 17, 2000.
			Principal		Accrued interest
(11)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999.
Instrument	Payee	Maturity Date	due		at December 31, 2009
(12)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2001.
Promissory Note dated as of August 17, 2006	Oak Harbor Investment Properties LLC	May 31, 2010	$	1,040,402	$	283,683
(13)	Filed as an Exhibit to the Annual Report on Form 10-K for fiscal year ended December 31, 2001.
Secured Convertible Promissory Note dated as of December 31, 2008	David Vey	May 31, 2010	$	4,100,000	$	328,000
(14)	Filed as an Exhibit to the Annual Report on Form 10-K/A for the fiscal year ended December 31, 2002.
Secured Convertible Promissory Note dated as of December 31, 2008	Vey & Associates	May 31, 2010	$	1,625,000	$	88,575
(15)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended Mach 31, 2004.
(16)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2004.
(17)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004.
(18)	Filed as an Exhibit to the 8-K on November 24, 2005.
(19)	Filed as an Exhibit to the 8-K on March 17, 2005.
(20)	Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2004.
(21)	Filed as an Exhibit to the 8-K on April 19, 2005.
(22)	Filed as an Exhibit to the 8-K on April 27, 2005.
(23)	Filed as an Exhibit to the 8-K on July 11, 2005.
(24)	Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2005.
(25)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2006.
(26)	Filed as an Exhibit to the 8-K on November 8, 2006.
(27)	Filed as an Exhibit to the 8-K on December 21, 2006.
(28)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2007.
(29)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2007.
(30)	Filed as an Exhibit to the 8-K on September 10, 2007.
(31)	Filed as an Exhibit to the 8-K on April 19, 2007.
(32)	Filed as an Exhibit to the 8-K on June 20, 2007.
(33)	Filed as an Exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
(34)	Filed as an Exhibit to the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2008.
(35)	Filed as an Exhibit to the 8-K on January 7, 2009.
(36)	Filed as an Exhibit to the 8-K on February 6, 2009.
(37)	Filed as an Exhibit to the 8-K on March 17, 2009.

54David Vey and OSI Litigation

~~SIGNATURES~~On September 4, 2007, SEDONA entered into an agreement with Vey Associates, Inc. in which Vey Associates agreed to provide funding to assist SEDONA in the payment of certain fees and expenses related to the lawsuit captioned Sedona Corp. v. Open Solutions, Inc., Action No. 3:07-CV-00171-VLB (the “litigation”), in the United States District Court for the District of Connecticut. David Vey, the Chairman, CEO and a shareholder of SEDONA, is an officer, director and majority shareholder of Vey Associates, Inc.

~~Pursuant~~Under the agreement, Vey Associates agreed to advance up to $750,000 to SEDONA to pay fees and expenses in connection with the ~~requirements~~litigation. ofAny ~~Sections 13~~proceeds received from the settlement, verdict or ~~15(d)~~other conclusion of the ~~Securities~~litigation ~~Exchange~~will ~~Act~~to ofbe ~~1934~~first applied to repay Vey Associates and SEDONA for expenses incurred. Thereafter, ~~the~~SEDONA would ~~Registrant~~receive ~~has~~twenty-five ~~duly~~(25%) ~~caused~~percent ~~this~~of ~~report~~any toproceeds beand ~~signed~~Vey onAssociates ~~its~~will receive ~~behalf~~seventy-five by(75%) percent of the ~~undersigned~~proceeds. In the event that SEDONA is unsuccessful in the litigation and does not receive any litigation proceeds, ~~thereunto~~it ~~duly~~will ~~authorized~~have no obligation to repay any sums to Vey Associates.

April 15, 2009	SEDONA CORPORATION
DATE	/S/ Scott C. Edelman
	Scott C. Edelman
	Chief Executive Officer and President

In a ruling filed August 19, 2009, the court denied SEDONA’s motion for summary judgment. In accordance with the terms of the litigation support agreement, the Company had no obligation to repay any sums to Vey Associates and reclassified approximately $846,000 of principal and accrued interest to additional paid in capital.

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. 49

~~Signatures~~ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

BY	/S/ David R. Vey David R. Vey Chairman of the Board			Date: April 15, 2009
Type of Service	2009		2008
BY	/S/ Scott C. Edelman Scott C. Edelman President, Chief Executive Officer and Director			Date: April 15, 2009
Audit Fees	$	106,500	$	105,000
BY	/S/ David C. Bluestone David C. Bluestone Director			Date: April 15, 2009
Audit-Related Fees	—		—
BY	/S/ Jack A. Pellicci Jack A. Pellicci Director			Date: April 15, 2009
Tax Fees	—		—
BY	/S/ Anita M. Primo Anita M. Primo Chief Financial Officer and Vice President Principal Financial and Accounting Officer			Date: April 15, 2009
All Other Fees	—		—
BY	/S/ Roger W. Scearce Roger W. Scearce Director			Date: April 15, 2009

55Audit Fees. This category includes: the audit of the Company’s annual financial statements included in the Company’s reports on 10-K; the timely review of the interim financial statements included in the Company’s quarterly reports on Form 10-Q for the periods ended March 31, June 30 and September 30, 2009 and 2008; and services that are normally provided by the independent auditors in connection with engagements for those fiscal periods. This category may also include advice on audit and accounting matters that arose during, or as a result of, the audit or review of interim financial statements. This category also includes services in connection with statutory and regulatory filings or engagements.

~~Index~~Audit-Related Fees. This category consists of assurance and related services by the independent auditors that are reasonably related to ~~Financial~~the ~~Statements~~performance of the audit or review of the Company’s financial statements and ~~Schedule~~are not reported above under “Audit Fees”. The services for the fees disclosed under this category include financial information systems design and implementation services rendered by the independent auditor.

~~Contents~~Tax Fees. This category consists of professional services rendered by the independent auditors for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice. The independent auditors do not assist the Company with the preparation of its corporate taxes; the Company retains another firm for tax compliance and advice.

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

All Other Fees. This category includes services rendered by the independent auditors other than for services reported above.

~~All~~The only ~~schedules~~fees ~~have~~paid ~~been~~to ~~omitted~~Asher ~~because~~& ~~they are inapplicable~~Company, ~~not~~Ltd. ~~required,~~were oraudit ~~the required information is included elsewhere in the financial statements and notes thereto~~fees.

FPre-1Approval of Audit and Non-Audit Services

~~Report~~All audit and non-audit services provided by independent accountants to the Company are pre-approved by the Audit Committee. The Audit Committee utilizes the following procedures in pre-approving all audit and non-audit services. At or before the first meeting of ~~Independent~~the ~~Registered~~Audit Committee ~~Public~~each ~~Accounting~~year, ~~Firm~~the Audit Committee is presented with a proposal of the cost for audit and non-audit services expected to be performed by the principal accountant during the year. Quarterly, the Audit Committee is presented with the total fees assessed for such services during the quarter with a comparison to the amounts previously presented. An explanation of any variances is presented, if necessary. The Audit Committee is also presented with an update of any new audit or non-audit services to be performed. The Audit Committee reviews the update and approves the services outlined therein if such services are acceptable to the Audit Committee.

~~The~~To ~~Board~~ensure the prompt response of ~~Directors~~any unexpected matters, the Audit Committee may delegate to a designated member or members of the Audit Committee, the authority to amend or modify the audit and ~~Stockholders~~non-audit services ~~SEDONA~~and ~~Corporation~~fees; provided however, that such additional or amended services may not ~~King~~affect the independence under applicable SEC rules. The member or members of ~~Prussia,~~the ~~Pennsylvania~~Audit Committee must report any such action taken to the Audit Committee at its next scheduled meeting.

WeAll ~~have~~audit ~~audited~~fees ~~the~~in ~~accompanying~~fiscal ~~consolidated~~year ~~balance~~2009 ~~sheets of SEDONA Corporation~~ and ~~its subsidiary (the “Company”) as of December 31,~~ 2008 ~~and~~were ~~2007,~~pre-approved ~~respectively~~by ~~and~~ the ~~related~~ ~~consolidated~~Audit ~~statements of operations, stockholders’ deficit and cash flows for the years then ended~~Committee. ~~The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.~~

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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. 50

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SEDONA Corporation and its subsidiary as of DecemberPART 31, 2008 and 2007, respectively and the consolidated results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. IV

~~The~~ITEM ~~accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern~~15. As discussed in Note 1 to the consolidated financial statements, the Company has incurred substantial operating losses, has negative working capital and a stockholders’ deficit and anticipates that it will require additional debt and/or equity financing in 2009, 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. EXHIBITS

~~/s/~~The ~~ASHER~~following &is ~~COMPANY~~a list of exhibits filed as part of this Annual Report on Form 10-K. Where indicated by footnote, ~~Ltd~~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.

Philadelphia, Pennsylvania April 15, 2009

3.1	Articles of Incorporation (2) (Exhibit 3.1)

3.2	Bylaws (2) (Exhibit 3.2)

3.3	Amendment to Articles of Incorporation (3)

3.4	Amendment to Articles of Incorporation (25)

4.1	Statement of Designation of Class A, Series F Convertible Preferred Stock (4) (Exhibit 4.0)

4.2	Certificate of Designations, Preferences and Rights of Class A, Series H Preferred Stock (5) (Exhibit 4.1)

10.1#	Separation Agreement dated as of January 31, 2009, between Marco Emrich and the Company (36)

10.25#	2000 Incentive Stock Plan (10) (Appendix A)

10.26#	2000 Employee Stock Purchase Plan (10) (Appendix B)

10.27#	Employment Agreement, dated September 15, 1999, between the Company and Marco A. Emrich (11) (Exhibit 10.1)

10.35	Warrant issued to Acxiom Corporation Dated April 4, 2001 (8) (Exhibit 10.35)

10.36	Form of Common Stock and Warrants Purchase Agreements used in August 2001 to September 2002 private placements by and among the Company and the investors signatory thereto (12) (Exhibit 10.1)

10.37	Form of Registration Rights Agreements used in August 2001 to September 2002 private placements by and among the Company and the investors signatory thereto (12) (Exhibit 10.2)

10.38	Form of Notes dated September and October 2001 by and among the Company and investors signatory thereto (12) (Exhibit 10.3)

10.38	Form of Warrants issued to investors used in August 2001 to September 2002 private sales of common stock and notes. (12) (Exhibit 10.4)

10.39	Agreement and related Promissory Note dated February 14, 2002 related to retirement of November 2000 Convertible Notes and Warrants (13)

10.42	Convertible note dated December 6, 2002 (14)

10.43	Convertible note dated January 03, 2003 (14)

~~F-2~~ 51

SEDONA Corporation and Subsidiary Consolidated Balance Sheets (In Thousands, Except Share and Per Share Data)

10.44	Convertible note dated January 10, 2003 (14)

10.45	Promissory note dated January 10, 2003 (14)

10.46	Convertible note dated March 13, 2003 (14)

10.47	Promissory note dated March 13, 2003 (14)

10.48	Addendum dated March 31, 2004 to Master Software License Agreement by and between the Company and Fiserv Solutions Inc. dated March 28, 2002 (15)

10.49	Office lease agreement dated 12-24-02

10.47	Convertible note dated June 4, 2004 (16)

10.54	Convertible note by the Company in favor of David R. Vey dated June 4, 2004 (16)

10.55	Convertible note by the Company in favor of David R. Vey dated July 7, 2004 (17)

10.56	Convertible note by the Company in favor of David R. Vey dated September 15, 2004 (17)

10.57	Convertible note by the Company in favor of David R. Vey dated October 8, 2004 (17)

10.58	Convertible note by the Company in favor of David R. Vey dated November 18, 2004 (18)

10.59	Convertible note by the Company in favor of David R. Vey dated January 13, 2005 (19)

10.60	Convertible note by the Company in favor of David R. Vey dated January 31, 2005 (19)

10.61	Convertible note by the Company in favor of David R. Vey dated March 16, 2005 (19)

10.62#	Employment Agreement dated June 25, 2004 between Company and Marco A. Emrich (20)

10.64#	Employment Agreement dated July 20, 2004 between Company and Anita M. Primo (20)

10.65#	Employment Agreement dated July 20, 2004 between Company and Timothy Rimlinger (20)

10.66	Convertible note by the Company in favor of David R. Vey dated March 25, 2005 (21)

10.67	Convertible note by the Company in favor of David R. Vey dated March 30, 2005 (21)

10.68	Convertible note by the Company in favor of David R. Vey dated April 14, 2005 (21)

10.69	Convertible note by the Company in favor of David R. Vey dated April 22, 2005 (22)

10.70	Amended Facility Lease for King of Prussia, PA dated January 1, 2005 (24)

10.71	Amended Facility Lease for Plymouth, MN dated January 1, 2005 (24)

10.72	Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)

10.73	Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)

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

See accompanying notes to consolidated financial statements.

10.74	Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)

10.75	Convertible note by the Company in favor of David R. Vey dated December 6, 2005 (24)

10.76	Convertible note and related documents by the Company in favor of William J. Rucks dated July 1, 2005, August 1, 2005 and September 30, 2005 (23)(24)

10.77	Promissory Note dated August 17, 2006 in the principal amount of $1,040,402.22 from SEDONA to Oak Harbor (26)

10.78	Amended and Restated Security Agreement dated August 17, 2006 between SEDONA and Oak Harbor (26)

10.79	Exchange Agreement dated August 17, 2006 between SEDONA and Oak Harbor (26)

10.80	Secured Convertible Promissory Note dated October 23, 2006 in the principal amount of $2,691,263 from Sedona to Vey (26)

10.81	Registration Rights Agreement dated August 17, 2006 between Vey and SEDONA (26)

10.82	Exchange Agreement dated October 23, 2006 between SEDONA and Vey (26)

10.83	Promissory Note dated October 23, 2006 in the principal amount of $1,213,952 from SEDONA to Vey (26)

10.84	Security Agreement dated October 23, 2006 between Vey and SEDONA (26)

10.85	Revolving promissory note dated September 27, 2006 in the principal amount of $500,000 from SEDONA to Vey (26)

10.86	Intercreditor Agreement dated October 23, 2006 between Vey and Oak Harbor (26)

10.87	Terms and Conditions Agreement dated September 27, 2006 (26)

10.88	Acknowledgment and Receipt among SEDONA, Vey and Oak Harbor (26)

10.89	Assignment of ACEncrypt receivable by SEDONA to Vey (26)

10.90	Waiver dated as of October 23, 2006 from Rucks (26)

10.91	Waiver dated as of October 23, 2006 from Mitchell (26)

10.92	Form of Common Stock and Warrants Purchase Agreement used in connection with the March 2, 2007 private placement by and among the Company and the investor signatory thereto (28)

10.93	Form of Registration Rights Agreements used in March 2, 2007 private placement by and among the Company and the investor signatory thereto (28)

10.94	Form of Warrants issued to investor used in March 2, 2007 private sale of common stock (28)

10.95	Amendment to promissory note dated September 27, 2006 between SEDONA Corporation and David Vey in the principal amount of $500,000 (29)

10.96	Amendment to promissory note dated October 23, 2006 between SEDONA Corporation and David Vey in the principal amount of $1,213,952 (29)

10.97	Amendment to promissory note dated August 17, 2006 between SEDONA Corporation and Oak Harbor Investment Properties, L.L.C. in the principal amount of $1,040,402 (29)

10.98	Form of Common Stock and Warrants Purchase Agreements used in connection with private placement transactions entered into during fiscal year 2007 by and among the Company and the investor signatory thereto (29)

~~F-3~~ 53

SEDONA Corporation and Subsidiary Consolidated Statements of Operations (In Thousands, Except Share and Per Share Data)

10.99	Form of Registration Rights Agreements used in connection with private placement transactions entered into during fiscal year 2007 by and among the Company and the investor signatory thereto (29)

10.100	Form of Warrants issued to Investors used in connection with private placement transactions entered into in fiscal year 2007 by and among the Company and the investor signatory thereto (29)

10.101	Agreement between the Company and Vey Associates, Inc. dated as of September 4, 2007 (30)

10.102	Amendment to promissory note dated August 17, 2006 between SEDONA Corporation and Oak Harbor Investment Properties, L.L.C. in the principal amount of $1,040,402 (33)

10.103	Amendment to promissory note dated September 27, 2006 between SEDONA Corporation and David Vey in the principal amount of $500,000 (33)

10.104	Amendment to promissory note dated October 23, 2006 between SEDONA Corporation and David Vey in the principal amount of $1,213,952 (33)

10.105	Amendment to secured convertible note dated October 23, 2006 between SEDONA Corporation and David Vey in the principal amount of $2,691,263 (33)

10.106	Amendment to loan agreement dated July 5, 2005 between SEDONA Corporation and William W. Rucks (33)

10.107	Amendment to promissory note dated July 1, 2005 between SEDONA Corporation and William W. Rucks in the principal amount of $250,000 (33)

10.108	Amendment to promissory note dated August 1, 2005 between SEDONA Corporation and William W. Rucks in the principal amount of $250,000 (33)

10.109	Amendment to promissory note dated September 29, 2005 between SEDONA Corporation and William W. Rucks in the principal amount of $500,000 (33)

10.110	Amendment to promissory note dated May 31, 2006 between SEDONA Corporation and William W. Rucks in the principal amount of $300,000 (33)

10.111	Amendment to convertible note dated May 31, 2006 between SEDONA Corporation and Charles Mitchell in the principal amount of $300,000 (33)

10.112#	Consulting Agreement between the Company and Scott Edelman (34)

10.113	Loan and Refinancing Agreement between Sedona Corporation and Vey Associates, Incorporated, dated as of December 31, 2008 (35)

10.114	Consolidated and Restated Convertible Promissory Note in the principal amount of $4,100,000 between David R. Vey and Sedona Corporation, dated as of December 31, 2008 (35)

10.115	Secured Convertible Note in the principal amount of $2,250,000.00 from Sedona Corporation to Vey Associates Incorporated, dated as of December 31, 2008 (35)

10.116	Security Agreement from Sedona Corporation to Vey Associates Incorporated, dated as of December 31, 2008 (35)

10.117	Intercreditor Agreement among Oak Harbor Investment Properties, L.L.C., David R. Vey, Vey Associates Incorporated and Sedona Corporation, dated as of December 31, 2008 (35)

10.118	Amendment No. 2 to Facility Lease for Plymouth, MN dated February 27, 2009 (38)

14.1	Code of Conduct and Business Ethics, adopted by Board of Directors, June 21, 2004 (20)

16.1	Letter from McGladrey and Pullen, LLP, dated April 13, 2007 agreeing to the statement of the Company under 4.01 of its Form 8-K, filed April 19, 2007 (31)

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

See accompanying notes to consolidated financial statements.

16.2	Letter from McGladrey and Pullen, LLP, dated June 20, 2007, agreeing to the statements of the Company under Item 4.01 of its 8-KA filed on May 21, 2007 and June 20, 2007 (32)

23.1*	Consent of Asher & Company, Ltd.

31.1*	Statement Under Oath of Principal Executive Officer of the Company Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2*	Statement Under Oath of Principal Financial Officer of the Company Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1*	Statement Under Oath of Principal Executive Officer of the Company Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

32.2*	Statement Under Oath of Principal Financial Officer of the Company Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

99.1	Amendment to Compensation Plan for Directors

99.1	Surety Agreement dated as of November 2, 2006 from Vey (26)

99.1	Amended and Restated Surety Agreement dated as of November 2, 2006 from Vey (27)

99.1	Second Amended and Restated Surety Agreement dated as of March 11, 2009 (37)

F-4

*	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.

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