<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ________ to ________
Commission file number 0-21705
SANCHEZ COMPUTER ASSOCIATES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania 23-2161560
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
40 Valley Stream Parkway, Malvern, PA 19355
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (610) 296-8877
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
As of October 31, 1997, there were outstanding 11,053,591 shares of the
issuer's Common Stock, no par value.
<PAGE>
SANCHEZ COMPUTER ASSSOCIATES, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
PART I: FINANCIAL INFORMATION
<TABLE>
ITEM 1: FINANCIAL STATEMENTS PAGE NO.
<S> <C>
---------
CONSOLIDATED BALANCE SHEETS
September 30, 1997 (Unaudited) and December 31, 1996........................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three and Nine Months Ended September 30, 1997 and 1996........................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, 1997 and 1996.................................. 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)........................... 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................ 8
PART II: OTHER INFORMATION
ITEM 2: USE OF PROCEEDS FROM REGISTERED SECURITITES.............................. 13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K......................................... 14
SIGNATURES....................................................................... 15
</TABLE>
2
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------- ------------
<S> <C> <C>
(UNAUDITED)
Current assets
Cash and cash equivalents......................................................... $ 14,026 $ 15,446
Accounts receivable, net.......................................................... 14,624 8,920
Prepaid and other current assets.................................................. 1,131 2,203
------------- ------------
Total current assets............................................................ 29,781 26,569
Property and equipment
Equipment......................................................................... 2,613 2,084
Furniture and fixtures............................................................ 249 238
Leasehold improvements............................................................ 66 64
------------- ------------
2,928 2,386
Accumulated depreciation and amortization........................................... (1,804) (1,462)
------------- ------------
Net property and equipment........................................................ 1,124 924
Capitalized software costs, net of amortization of $1,509 at September 30, 1997 and
$1,289 at December 31, 1996....................................................... 891 675
------------- ------------
Total assets.................................................................... $ 31,796 $ 28,168
------------- ------------
------------- ------------
LIABILITIES
Current liabilities
Current portion of long-term debt................................................. $ 201 $ 224
Accounts payable, trade........................................................... 939 637
Accrued expenses.................................................................. 3,966 2,474
Deferred revenue.................................................................. 3,763 3,913
------------- ------------
Total current liabilities....................................................... 8,869 7,248
Deferred revenue.................................................................... 954 1,508
Long-term debt-net of current portion............................................... 146 218
Other long-term liabilities......................................................... 232 284
------------- ------------
Total liabilities............................................................... 10,201 9,258
Commitments (Note E)
SHAREHOLDERS' EQUITY
Common stock, no par value
Authorized--50,000,000 shares
Issued and outstanding -11,041,122 and 10,865,255 shares at September 30, 1997 and
December 31, 1996, respectively................................................. 110 109
Additional paid-in capital.......................................................... 18,492 18,103
Retained earnings................................................................... 3,356 1,236
Notes due on common stock purchases................................................. (363) (538)
------------- ------------
Total shareholders' equity...................................................... 21,595 18,910
------------- ------------
Total liabilities and shareholders' equity...................................... $ 31,796 $ 28,168
------------- ------------
------------- ------------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Software license fees.................................................... $ 4,186 $ 1,929 $ 9,314 $ 5,623
Product enhancement fees................................................. 166 282 659 709
Implementation and consulting services................................... 2,628 1,249 5,821 3,294
Software maintenance fees................................................ 1,248 1,086 3,792 3,170
--------- --------- --------- ---------
Total revenues......................................................... 8,228 4,546 19,586 12,796
Operating expenses
Product development...................................................... 1,818 1,043 4,898 3,242
Product support.......................................................... 777 555 2,284 1,650
Implementation and consulting............................................ 1,835 756 4,006 2,097
Sales and marketing...................................................... 1,100 787 2,923 2,191
Royalties and sublicense fees............................................ 220 708 938 1,721
General and administrative............................................... 913 336 2,058 1,041
--------- --------- --------- ---------
Total operating expenses............................................... 6,663 4,185 17,107 11,942
--------- --------- --------- ---------
Income from operations..................................................... 1,565 361 2,479 854
Interest income, net....................................................... 232 67 684 213
--------- --------- --------- ---------
Income before income taxes................................................. 1,797 428 3,163 1,067
Income tax provision....................................................... 592 121 1,043 383
--------- --------- --------- ---------
Net income................................................................. $ 1,205 $ 307 $ 2,120 $ 684
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per average common share...................................... $ 0.10 $ 0.03 $ 0.18 $ 0.07
Weighted average common shares outstanding............................... 12,029 9,198 11,821 9,224
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
Sanchez Computer Associates, Inc.
Consolidated Satements of Cash Flows
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Cash flows from operating activities
Net income................................................................................. $ 2,120 $ 684
Adjustments to reconcile net income to cash provided by (used in) operating activities
Depreciation and amortization.............................................................. 660 513
Other...................................................................................... (40) 100
Cash provided (used) by changes in operating assets and liabilities
Accounts receivable........................................................................ (5,704) (531)
Prepaid and other current assets........................................................... 1,072 57
Accounts payable and accrued expenses...................................................... 1,794 564
Deferred revenues.......................................................................... (704) (215)
--------- ---------
Net cash provided by (used in) operating activities.......................................... (802) 1,172
Cash flows from investing activities
Capitalized computer software costs........................................................ (436) (440)
Capital expenditures....................................................................... (652) (437)
--------- ---------
Net cash used in investing activities........................................................ (1,088) (877)
Cash flows from financing activities
Borrowings under line of credit agreement.................................................. 70
Proceeds from insurance of long-term debt.................................................. 261
Repayment of notes due on common stock purchases........................................... 286 7
Principal payments under capital lease obligations......................................... (23) (68)
Principal payments under long-term notes................................................... (142) (127)
Proceeds from exercise of stock options.................................................... 279 336
--------- ---------
Net cash provided by financing activities.................................................... 470 409
--------- ---------
Net increase (decrease) in cash and cash equivalents......................................... (1,420) 704
Cash and cash equivalents at beginning of period............................................. 15,446 5,546
--------- ---------
Cash and cash equivalents at end of period................................................... $ 14,026 $ 6,250
--------- ---------
--------- ---------
Supplemental cash flow information
Interest paid................................................................................ $ 27 $ 25
Income taxes paid............................................................................ $ 224 $ 468
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
Sanchez Computer Associates, Inc.
Notes to Unaudited Consolidated Financial Statements
(in thousands, except per share amounts)
(A.) Basis of Presentation
The accompanying consolidated financial statements of Sanchez Computer
Associates, Inc. (the "Company") include the accounts of all of the Company's
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. Certain prior period amounts have been
reclassified to conform with current period presentation. In the opinion of
management, the consolidated financial statements reflect all normal and
recurring adjustments which are necessary for a fair presentation of the
Company's financial position, results of operations, and cash flows as of the
dates and for the periods presented. The consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Consequently, these statements
do not include all the disclosures normally required by generally accepted
accounting principles for annual financial statements nor those normally made
in the Company's Annual Report on Form 10-K. Accordingly, reference should be
made to the Company's Annual Report on Form 10-K for additional disclosures,
including a summary of the Company's accounting policies, which have not
changed. The consolidated results of operations for the three and nine months
ended September 30, 1997 are not necessarily indicative of results for the
full year.
(B.) Cash and Cash Equivalents
Cash and cash equivalents at September 30, 1997 included amounts on deposit
with Safeguard Scientifics, Inc. ("Safeguard"), a shareholder of the Company, in
conjunction with a note agreement dated June 12, 1997. The demand note provides
for borrowings by Safeguard from the Company of up to a maximum of $12 million
on a revolving basis at Safeguard's effective borrowing rate minus .75%. This
rate is higher than the Company is currently earning on its money market
investments. At September 30, 1997 advances to Safeguard amounted to $9.6
million. Interest income from these advances amounted to $205 for the period
from June 12, 1997 through September 30, 1997.
(C.) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -------------
<S> <C> <C>
Accrued compensation and related items....................................... $ 1,138 $ 715
Accrued royalties............................................................ 257 728
Accrued income taxes......................................................... 1,086 210
Other........................................................................ 1,485 821
------ ------
$ 3,966 $ 2,474
</TABLE>
(D.) Net Income Per Share
Net income per common share was computed by dividing income by the weighted
average number of shares outstanding during each period, including common stock
equivalents which would arise from the exercise of stock options and warrants,
using the treasury stock method.
Stock options and warrants granted with exercise prices below the initial
public offering price during the twelve-month period preceding the initial
filing date of the offering (September 27, 1996) have been included in the
calculation of common stock equivalents using the treasury stock method,
assuming an offering price of $5.50 per share, as if they were outstanding for
all periods presented prior to the offering.
6
<PAGE>
Sanchez Computer Associates, Inc.
Notes to Unaudited Consolidated Financial Statements
(in thousands, except per share amounts)
(E.) Commitments
Effective August, 1997 the Company entered into a six year lease agreement
for a second office facility adjoining its Malvern, Pennsylvania headquarters.
Concurrently with this, the lease for the existing headquarters facility was
extended for five additional years, so that both Malvern leases will be in force
through July 31, 2003. Accordingly, future minimum lease payments under
noncancelable operating leases with remaining terms of one year or more will
average approximately $663 per year during the period October 1, 1997 through
July 31, 2003.
Commitments related to royalty obligations at September 30, 1997 were
substantially the same as those disclosed in Note 9 of the Notes to Consolidated
Financial Statements as of December 31, 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company designs, develops, markets, implements and supports
comprehensive banking software, called PROFILE, for financial services
organizations worldwide. Sanchez's integrated and highly flexible PROFILE family
of products operate on open, client-server platforms. The primary module, called
PROFILE/Anyware, is a multi-currency bank production system which supports
deposit, loan, customer, transaction processing and bank management requirements
through multiple distribution channels, including the Internet. PROFILE/FMS is a
multi-company, multi-currency, financial management and accounting system. The
PROFILE system is currently licensed to 28 clients in 11 countries serving
approximately 375 financial institutions.
The Company's operating results for the third quarter ended September 30,
1997 reflected significant increases in both revenues and net income compared to
the same period in 1996. Revenues increased by 81.0% to $8.2 million while net
income increased by $898,000 to $1,205,000 as compared to the quarter
ended September 30, 1996. Further, the Company's operating margin increased to
19.0% for the September 1997 quarter as compared to 7.9% for the September 1996
quarter, primarily due to the fact that software license fee revenues increased
by $2.3 million to $4.2 in the 1997 period. Revenue growth for the 1997 third
quarter was the result of contributions from all four of the Company's major
geographic target markets; Canada, Europe, the United States, and Asia. In
Canada, Credit Union Central of Saskatchewan ("CUCS") successfully converted the
first of their 61 member credit unions to PROFILE in September. Once the CUCS
project is complete, the Sanchez PROFILE product will service more than one
million credit union members in the various Canadian provinces. In Europe,
Sanchez signed an agreement with ING Hungary during the quarter, under the
umbrella of a recently executed global software licensing agreement with ING
Group N.V. In the US, license and service fee revenues were up significantly due
to revenues derived from two new customer projects. Finally, in Asia, the
Company continued work efforts on its two in-process implementation projects in
Malaysia and Indonesia, with initial conversions being achieved for the first
two branches of BBMB Kewangan Berhad, Malaysia's fourth-largest financial
institution.
The Company made a strategic decision in early 1996 to increase its
investment in technology and product development, in particular as it relates to
PROFILE/Anyware, as well as certain other projects such as the development of
its graphical user interface ("GUI") client and the completion of the
adaptation, or "porting," of the Company's software to operate on different
computer systems. As a direct result of these investments, the Company currently
has two clients in "live" operation on UNIX platforms (one IBM based, the other
Digital Equipment Corp. based), and is actively working toward an initial
conversion for its first GUI client in early 1998. The Company has continued
increasing its investment in these areas, and, as indicated below, product
development expenditures increased significantly on a dollar basis in the third
quarter of 1997 when compared to the same period in 1996.
Further, the Company continues to increase its investment in sales and
marketing activities. In addition to its continuing efforts in the Emerging Bank
Market, Direct Bank Market, and Canadian Credit Union and Banking Market, the
Company has recently initiated certain sales and marketing efforts geared toward
the Global Banking Market. The Company has concluded that the flexible and
integrated architecture of its PROFILE/Anyware product makes it an excellent fit
for international financial institutions seeking a single core processing system
which can be utilized worldwide vs. supporting different systems in each
marketplace.
The Company's backlog at September 30, 1997 amounted to $18.9 million. The
components of the backlog were $5.9 million for software license, product
enhancement and implementation and consulting revenues and $13.0 million for
maintenance and support. At December 31, 1996, the Company's backlog amounted to
$19.8 million, consisting of $8.1 million for software license, product
enhancement and implementation and consulting revenues and $11.7 million for
maintenance and support.
8
<PAGE>
Results of Operations
The following table sets forth for the periods indicated selected statement
of operations data:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
Dollars in Thousands September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Software license fees................................................... $ 4,186 $ 1,929 $ 9,314 $ 5,623
Product enhancement fees................................................ 166 282 659 709
Implementation and consulting services.................................. 2,628 1,249 5,821 3,294
Software maintenance fees............................................... 1,248 1,086 3,792 3,170
--------- --------- --------- ---------
Total revenues.......................................................... $ 8,228 $ 4,546 $ 19,586 $ 12,796
--------- --------- --------- ---------
--------- --------- --------- ---------
Percentage Relationship to Total Revenue
Revenues
Software license fees................................................... 50.9% 42.4% 47.5% 43.9%
Product enhancement fees................................................ 2.0 6.2 3.4 5.6
Implementation and consulting services.................................. 31.9 27.5 29.7 25.7
Software maintenance fees............................................... 15.2 23.9 19.4 24.8
--------- --------- --------- ---------
Total revenues.......................................................... 100.0 100.0 100.0 100.0
Operating Expenses
Product Development..................................................... 22.1 22.9 25.0 25.3
Product Support......................................................... 9.4 12.2 11.7 12.9
Implementation and consulting........................................... 22.3 16.7 20.4 16.4
Sales and Marketing..................................................... 13.4 17.3 14.9 17.1
Royalties and sublicense fees........................................... 2.7 15.6 4.8 13.5
General and administrative.............................................. 11.1 7.4 10.5 8.1
--------- --------- --------- ---------
Total operating expenses................................................ 81.0 92.1 87.3 93.3
Income from operations.................................................. 19.0 7.9 12.7 6.7
Interest income, net.................................................... 2.8 1.5 3.4 1.6
--------- --------- --------- ---------
Income before income taxes.............................................. 21.8 9.4 16.1 8.3
Income tax provision.................................................... 7.2 2.6 5.3 3.0
--------- --------- --------- ---------
Net income.............................................................. 14.6 6.8 10.8 5.3
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Three Months Ended September 30, 1997, Compared to Three Months Ended
September 30, 1996
Revenues. Revenues increased $3.7 million, or 81.0%, in 1997, as license
fees, implementation and consulting and maintenance fees each improved over
the same period in the prior year. In terms of PROFILE implementation
projects, there were seven active projects in the 1997 third quarter as
compared to three during the same period in 1996. License fee revenue showed
the largest growth, increasing by over $2.3 million, or 117.0%, relative to
1996, due primarily to Canadian and US license fee revenues associated with
contracts signed in the second and third quarter of the year. Implementation
and consulting service revenues increased by $1.4 million or 110.4% in 1997
as compared to 1996. Again, most of this growth is attributable to the
increased levels of PROFILE implementation activity in the US, Canada and
Asia. Central European service revenues were relatively consistent during the
1997and 1996 periods. Software maintenance fees increased by 14.9% or
$162,000, with most of the growth attributable to European based clients.
Product development. Product development expenses increased $775,000 or
74.3%, in 1997, due to the ongoing impact of the Company's strategic decision to
increase investment in development for various technology projects. The most
significant of these investments during the third quarter of 1997 continued to
be the ongoing development of the Company's GUI client.
9
<PAGE>
Product support. Product support expenses increased by $222,000 or 40.0%,
in the quarter ended September 30, 1997, primarily due to an increase in the
average number of employees required to support the larger converted client base
in 1997 relative to 1996.
Implementation and consulting. Implementation and consulting expenses
increased by $1.1 million or 142.7% during the third quarter of 1997, in
conjunction with a corresponding increase in implementation and consulting
revenues of $1.4 million (a 110.4% increase relative to the same period in
1996). The primary reasons for this increase were the increased utilization of
third party consultants and subcontractors required to support the increased
revenue levels, increased internal staffing and related overhead, and certain
non-reimbursable project travel costs. The gross margin relative to associated
revenues decreased in the 1997 quarter to 30.2% from 39.5% in the 1996 third
quarter, due primarily to more extensive utilization of more costly third party
resources.
Sales and marketing. Sales and marketing expenses increased by $313,000, or
39.8% in the 1997 period, as the Company continued to increase its direct
coverage in this area, primarily via staffing increases in selected foreign
market locations. Further marketing expenses related to the promotional and
advertising campaign for PROFILE/Anyware which commenced in early 1996 increased
by $91,000 in the third quarter of 1997 as compared to the same period in 1996.
Royalties and sublicense fees. The Company is obligated to pay royalties
based on the collection of certain license fees. These obligations have varying
expiration terms. The Company also is obligated to pay sublicense and
maintenance fees to certain third party licensors, primarily related to Treasury
and Trade Finance product offerings and also for the M programming language and
data base. These amounts will vary depending on the applicable revenue
components subject to such fees. The $488,000 decrease in this expense caption
for the 1997 period is primarily attributable to a lower level of license fees
subject to royalty payment.
General and administrative. These expenses increased by $577,000, or 171.7%,
due to a number of factors which include additional expenses related to being a
public company, as well as increased costs related to the growth of the business
including increased staffing, increased costs related to employee recruitment,
and training costs for certain third party partners.
Interest income, net. Interest income, net, increased $165,000 in 1997 due
to income earned on higher invested cash balances.
Income tax provision. Taxes in the 1997 third quarter were 32.9% of income
before income taxes, as compared to 28.2% in the 1996 quarter. The 28.2%
effective rate in 1996 was the result of tax benefits recorded in that period
related to certain state net operating loss carryforwards.
Nine Months Ended September 30, 1997, Compared to Nine Months Ended
September 30, 1996
Revenues. Revenues increased $6.8 million, or 53.1%, in 1997, as license
fees, implementation and consulting and maintenance fees each improved over the
same period in the prior year. License fee revenue increased by $3.7 million or
65.6%, relative to 1996 due to substantially increased activity in the Canadian
and U.S. marketplaces as well as increased activity in the Asian markets
relative to the same period in 1996. Implementation and consulting service
revenues increased by $2.5 million, or 76.7% in 1997 as compared to 1996. Most
of this growth is attributable to the increased levels of PROFILE implementation
activity in the Canadian marketplace, as well as in the U.S., Central Europe and
Asia. Software maintenance fees increased by 19.6% or $622,000, attributable
primarily to an ongoing growth in the European customer maintenance base
Product development. Product development expenses increased $1.65 million or
51.1%, in 1997, due to the ongoing impact of the Company's strategic decision to
increase investment in development for various technology projects. In
particular, the Company continued to invest heavily in the development of its
GUI client, which resulted in sharply increased expenditures for technical
resources.
Product Support. Product support expenses increased by $634,000 or 38.4% in
the nine months ended September 30, 1997, primarily due to an increase in
staffing in 1997 versus 1996, required to support the larger converted client
base. Also, the 1997 period included a higher level of overhead costs related to
the Prague support office, which was opened in April of 1996.
10
<PAGE>
Implementation and consulting. Implementation and consulting expenses
increased by $1.9 million or 91.0% during 1997, in conjunction with a
corresponding increase in implementation and consulting revenues of $2.5 million
(a 76.7% increase relative to the same period in 1996). Of the $1.9 million
increase in expenses, $932,000 was related to increased utilization of third
party consultants and subcontractors required to support the increased revenue
levels. The remaining increase in expenses resulted from increased internal
staffing and related overhead costs and certain non-reimbursable project travel
costs. The heavier 1997 utilization of third party consultants and
subcontractors was a significant factor in the decrease in gross margin relative
to associated revenues, which declined from 36.3% in 1996 to 31.2% in 1997.
Sales and marketing. Sales and marketing expenses increased by $732,000, or
33.4% in the 1997 period, as the Company continued to increase its direct
coverage in this area, primarily via increased staffing, particularly in
selected foreign market locations. Further, the increased staffing in these
areas coupled with the increased corporate revenue levels for the 1997 period
resulted in increases in both travel related expenses and sales commission
expense in the 1997 period as compared to 1996.
Royalties and sublicense fees. For the nine months ended September 30, 1997,
these fees decreased by $783,000 or 45.5%, mainly as a result of a $667,000
reduction in royalty expense in 1997 as compared to the same period in 1996. The
1997 period decrease in royalty expense is due to a lower level of license fees
subject to royalty payment.
General and administrative. These expenses increased by $1.0 million or
97.7%, due to a number of factors which include additional expenses related to
being a public company, as well as increased costs related to the growth of the
business including increased staffing, increased costs related to employee
recruitment, and increased facility costs in the 1997 period as compared to
1996.
Interest income, net. Interest income, net, increased $471,000 in 1997 due
to income earned on higher invested cash balances, which averaged approximately
$14.5 million for the nine months ended September 1997, as compared to
approximately $5.8 million in 1996.
Income tax provision (benefit). Taxes in 1997 were 33.0% of income before
income taxes, as compared to 35.9% in the 1996 nine month period. This reduced
effective rate is primarily the result of the Company's establishment of a
Foreign Sales Corporation (FSC) in late 1996, as well as certain state net
operating loss carryforwards.
Liquidity and Capital Resources
Cash and cash equivalents were $14.0 million at September 30, 1997. During
December of 1996, the Company raised $11.8 million (net of direct expenses) from
its initial public offering. Cash flow from operations for the nine months ended
September 30, 1997 was ($802,000) as compared to $1.17 million in 1996. The
decreased rate of cash flow in the 1997 period was primarily attributable to the
timing of significant contract milestone billings and subsequent payments,
coupled with a significantly increased investment in both staffing and use of
third party contractors during the 1997 nine month period. The Company continues
to expect a certain amount of variability in the timing of major contract
milestone payments which will impact cash flow from operations during any given
quarter.
The Company's business is not capital intensive and capital asset
expenditures for the 1997 nine month period amounted to $652,000 as compared to
$437,000 during the same period in 1996. These expenditures consisted primarily
of personal computers and upgrades to the Company's network systems. As
mentioned previously, the Company is currently in the process of outfitting and
occupying a second office facility (15,000 square feet) adjacent to its Malvern,
Pennsylvania headquarters. This will result in a short-term increase in the
Company's capital asset expenditures during the fourth quarter of the year. The
Company expects to finance these expenditures via a combination of existing cash
balances, cash generated from operations, and its current revolving line of
credit.
Effective June 12, 1997, the Company entered into a demand note agreement
with Safeguard Scientifics, Inc. ("Safeguard"), a major shareholder of the
Company. The note provides for borrowings by Safeguard from the Company of up to
a maximum of $12 million on a revolving basis at Safeguard's effective borrowing
rate less .75%. At September 30, 1997, advances to Safeguard under this note
amounted to $9.6 million, which is included in "Cash and Cash Equivalents" on
the accompanying balance sheet.
Additionally, in July 1997, the Company both renewed and restructured its
bank borrowing agreements. Under the revised agreement, the Company converted
approximately $300,000 outstanding under its revolving credit facility for
capital equipment purchases to a 24 month term loan. In conjunction with this, a
new $500,000 revolving credit facility for capital purchases was established
($430,000 available at September 30, 1997).
11
<PAGE>
The Company currently anticipates that cash generated from operations and
existing cash balances will be sufficient to satisfy its operating and capital
cash needs for the foreseeable future and at a minimum through the next twelve
months. Should the Company's business expand more rapidly than expected, the
Company believes that additional bank credit would be available to fund such
operating and capital requirements. In addition, the Company could consider
seeking additional public or private debt or equity financing to fund future
growth opportunities.
The Company believes that its business is generally not seasonal;
however, the Company has historically experienced, and can be expected to
continue to experience, a certain degree of variability in its quarterly
revenue and earnings patterns. This variability is typically driven by
significant events which directly impact the recognition of project related
revenues. Examples of such events include the timing of new business contract
closings and the initiation of license and service fee revenue recognition,
"one-time" payments from existing clients relative to license expansion
rights (required to process a greater number of customer accounts or expand
the number of permitted users), and completion of a significant
implementation project roll out and the related revenue recognition. The
timing of revenues is difficult to forecast because the Company's sales cycle
is relatively long in the case of new clients and may depend on factors such
as the size and scope of the project, length of contract negotiations, and
general economic conditions in a particular sales prospect's country of
origin. Because a high percentage of the Company's expenses are relatively
fixed, a variation in the timing of the initiation or the completion of
client projects, particularly at or near the end of any quarter, can cause
significant variations in operating results from quarter to quarter.
The Company's forward-looking statements about its revenues, earnings, and
business development have been derived from its operating budgets and forecasts,
which are based upon detailed assumptions about many important factors. Several
important factors may cause the Company's actual results to differ materially
from those contemplated by any forward-looking statements made by the Company.
These factors include the course of business in the financial services industry,
competition among software companies serving that industry, the Company's
management of the long sales cycle for its products, the timing of new contract
closings and other significant events of revenue recognition affecting the
Company's quarterly results, the development of the Direct, Emerging and Global
Banking Markets and market acceptance of the Company's products within these
markets, the Company's ability to continue to improve its product, and the
Company's ability to manage the concentration of sales to financial service
companies in foreign markets (particularly Central Europe and Asia).
Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock (as defined). This Statement is effective for
financial statements issued for periods ending after December 15, 1997. Earlier
application is not permitted. This Statement requires restatement of all
prior-period EPS data presented. The Company has calculated both basic and
diluted earnings per share, as such terms are defined in SFAS No. 128, for the
periods presented herein, and has determined that diluted earnings per share
amounts are identical to the earnings per common share amounts as currently
reported on Exhibit 11. Basic earnings per share calculations under SFAS No. 128
result in amounts which are .01 per share higher than the amounts reported in
Exhibit 11 for all periods presented.
Also during 1997, the FASB issued pronouncements relating to the
presentation and disclosure of information related to the Company's capital
structure, comprehensive income and segment data. The Company is required to
adopt the provisions relating to capital structure for the year ending December
31, 1997, if applicable, and the provisions of the other pronouncements, if
applicable, for the year ending December 31, 1998. The adoption of these
pronouncements will not have an impact on the Company's financial position and
results of operations, but may change the presentation of certain of the
Company's financial statements and related notes and data thereto.
12
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC.
PART II--OTHER INFORMATION
ITEM 2: USE OF PROCEEDS FROM REGISTERED SECURITIES
(a). The Company made its initial public offering through a registration
statement on Form S-1 (File # 333-12863) which was declared effective
November 13, 1996.
(b). The offering commencement date was November 14, 1996.
(c). The offering was successfully completed, resulting in the sale of all
securities registered. The managing underwriters were J.P. Morgan &
Co. and Wheat First Butcher Singer.
(d). Title of security sold: Sanchez Computer Associates, Inc. Common Stock
<TABLE>
<S> <C>
Shares Registered by Issuer.................................................... 2,309,500
Aggregate Price of Amount Registered........................................... $12,702,250
Shares Sold.................................................................... 2,309,500
Aggregate Price of Shares Sold................................................. $12,702,250
Shares Registered by Selling Security Holders.................................. 1,224,500
Aggregate Price of Amount Registered........................................... $ 6,734,750
Shares Sold.................................................................... 1,224,500
Aggregate Price of Shares Sold................................................. $ 6,734,750
</TABLE>
(e). Expenses incurred in connection with issuance and distribution of
securities:
<TABLE>
<S> <C>
Underwriters Discounts and Commissions............................................ $ 414,398
Expenses paid to Underwriters..................................................... 125,000
Other Expenses.................................................................... 410,587
---------
Total Direct and Indirect Payments................................................ $ 949,985
</TABLE>
None of the above listed payments were made to directors, officers or
persons owning ten (10%) percent or more of any class of equity
securities of the Company, or to any affiliates of the Company.
The net offering proceeds to the Company after deducting expenses
amounted to $11,752,265.
(f). From the effective date of the registration through September 30, 1997,
the Company has utilized the net offering proceeds from the offering
for the following purposes:
<TABLE>
<S> <C>
Purchases of Equipment......................................................... $ 581,670
Product Development............................................................ 5,235,800
Sales and Marketing............................................................ 2,923,135
---------
Subtotal Expenditures...................................................... 8,740,605
Temporary Investments - Provident
Institutional Temporary Investment Fund, Inc................................... 3,011,660
---------
Total Expenditures and Investments......................................... $11,752,265
</TABLE>
None of the above listed expenditures were made to directors,
officers, or persons owning ten (10%) percent or more of any class
of equity securities of the Company, or to any affiliates of the
Company.
13
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8--K
(a) Exhibits
Exhibit 10--Demand Note and Pledge Agreement dated September 19, 1997
made by Ronald J. Zlatoper in favor of the Company.
Exhibit 11--Computation of net income per share
Exhibit 27--Financial Data Schedule
(b) Reports on Form 8-K
NONE
No other applicable items.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SANCHEZ COMPUTER ASSOCIATES, INC.
/S/ Joseph F. Waterman
---------------------------------------
Joseph F. Waterman
Senior Vice-President & Chief
Financial Officer
Date: November 12, 1997
15
<PAGE>
Exhibit 10
DEMAND NOTE
$ 176,592.50 September 19, 1997
In consideration of the loan (hereinafter referred to as a "Loan") SANCHEZ
COMPUTER ASSOCIATES, INC., a Pennsylvania corporation (the "Lender"), has made
to RONALD J. ZLATOPER (the "Borrower"), and for value received, the Borrower
hereby promises to pay to the order of the Lender, at the Lender's office
located at 40 Valley Stream Parkway, Malvern, PA 19355, or at such other place
in the continental United States as the Lender may designate in writing, in
lawful money of the United States of America, and in immediately available
funds, the principal sum of One Hundred Seventy Six Thousand and Five Hundred
Ninety Two and 50/100 Dollars ($ 176,592.50).
The unpaid principal balance of the Note shall be paid UPON DEMAND, but in
any event, it shall automatically become payable in Full within fifteen (15)
business days after the Borrower sells the Stock (as hereinafter defined).
The Borrower hereby further promises to pay to the order of the Lender
interest on the outstanding principal amount from the date hereof, at a per
annum rate equal to 5.81%. In
addition, the Borrower shall pay on demand interest on any overdue payment of
principal and interest (to the extent legally enforceable) at 7.81%.
Interest shall be payable in arrears on March 31st of each year and at
maturity.
This Note and all of the Borrower's obligations hereunder are secured by
the pledge by Borrower of certain options granted to Borrower to purchase shares
of Common Stock of the Lender (the "Pledged Securities") pursuant to the terms
and conditions of a Pledge Agreement (the "Pledge Agreement") of even date
herewith between the Borrower and the Lender. Notwithstanding the foregoing,
the Borrower shall remain liable to the Lender for any deficiency remaining
after any foreclosure of the pledge pursuant to the Pledge Agreement.
All payments made on this Note (including, without limitation, prepayments)
shall be applied, at the option of the Lender, first to late charges and
collection costs, if any, then to accrued interest and then to principal.
Interest payable hereunder shall be calculated for actual days elapsed on the
basis of a 360-day year. Accrued and unpaid interest shall be due and payable
upon maturity of this Note. After maturity or in the event of default, interest
shall continue to accrue on the Note at the rate set forth above and shall be
payable on demand of the Lender.
The outstanding principal amount of this Note may be prepaid in whole or in
part without any prepayment penalty or premium at any time or from time to time
by the Borrower upon notice to the Lender; provided, that upon such payment any
interest due to the date of such prepayment on such prepaid amount shall also be
paid.
1
<PAGE>
Notwithstanding anything in this Note, the interest rate charged hereon
shall not exceed the maximum rate allowable by applicable law. If any stated
interest rate herein exceeds the maximum allowable rate, then the interest rate
shall be reduced to the maximum allowable rate, and any excess payment of
interest made by the Borrower at any time shall be applied to the unpaid balance
of any outstanding principal of this Note.
An event of default hereunder shall consist of:
(i) a default in the payment by the Borrower to the Lender of principal or
interest under this Note as and when the same shall become due and payable;
(ii) an event of default by the Borrower under any other obligation,
instrument, note or agreement for borrowed money, beyond any applicable notice
and/or grace period;
(iii) institution of any proceeding by or against the Borrower under any
present or future bankruptcy or insolvency statute or similar law and, if
involuntary, if the same are not stayed or dismissed within 60 days, or the
Borrower's assignment for the benefit of creditors or the appointment of a
receiver, trustee, conservator or other judicial representative for the
Borrower or the Borrower's property or the Borrower's being adjudicated
bankrupt or insolvent.
Upon the occurrence of any event of default, interest shall accrue on the
outstanding balance of this Note at 7.81%, the entire unpaid principal amount of
this Note and all unpaid interest accrued thereon shall, at the sole option of
the Lender, without notice, become immediately due and payable, and the Lender
shall thereupon have all the rights and remedies provided hereunder or now or
hereafter available at law or in equity.
The Borrower hereby waives presentment, demand, protest and notice of
dishonor and protest, and also waives all other exemptions; and agrees that
extension or extensions of the time of payment of this Note or any installment
or part thereof may be made before, at or after maturity by agreement by the
Lender. Upon default hereunder the Lender shall have the right to offset the
amount owed by the Borrower against any amounts owed by the Lender in any
capacity to the Borrower, whether or not due, and the Lender shall be deemed to
have exercised such right of offset and to have made a charge against any such
account or amounts immediately upon the occurrence of an event of default
hereunder even though such charge is made or entered on the books of the Lender
subsequent thereto. The Borrower shall pay to the Lender, upon demand, all
costs and expenses, including, without limitation, attorneys' fees and legal
expenses, that may be incurred by the Lender in connection with the enforcement
of this Note.
Any failure by the Lender to exercise any right hereunder shall not be
construed as a waiver of the right to exercise the same or any other right at
any time. No amendment to or modification of this Note shall be binding upon
the Lender unless in writing and signed by it.
Notices required to be given hereunder shall be deemed validly given (i)
three business days after sent, postage prepaid, by certified mail, return
receipt requested, (ii) one business day
2
<PAGE>
after sent, charges paid by the sender, by Federal Express Next Day Delivery
or other guaranteed delivery service, (iii) when sent by facsimile
transmission or (iv) when delivered by hand:
If to the Lender, to:
Sanchez Computer Associates, Inc.
40 Valley Stream Parkway
Malvern, PA 19355
Attention: Chief Financial Officer
If to the Borrower, to:
Ronald J. Zlatoper
824 Caldwell Road
Wayne, PA 19087
(Mark "Personal and Confidential")
or to such other address, or in care of such other person, as the holder or the
Borrower shall hereafter specify to the other from time to time by due notice.
Any provision hereof found to be illegal, invalid or unenforceable for any
reason whatsoever shall not affect the validity, legality or enforceability of
the remainder hereof.
This Note shall apply to and bind the successors of the Borrower and shall
inure to the benefit of the Lender, its successors and assigns.
The Note shall be governed by and interpreted in accordance with the laws
of the Commonwealth of Pennsylvania.
The Borrower has duly executed this Note as of the date first above
written.
/S/ Ronald J. Zlatoper
Ronald J. Zlatoper
3
<PAGE>
PLEDGE AGREEMENT
For good and valuable consideration and intending to be legally bound,
RONALD J. ZLATOPER ("Pledgor") hereby assigns, pledges and grants to SANCHEZ
COMPUTER ASSOCIATES, INC, a Pennsylvania corporation ("Pledgee"), a security
interest in the options granted pursuant to certain Option Agreements with
Pledgor to purchase shares of capital stock of Pledgee ("Option Agreements") in
which Pledgor has a legal or beneficial interest as described on Schedule A
attached hereto and made a part hereof, as the same may from time to time be
amended in writing by the parties hereto (all such options and securities being
hereinafter referred to as the "Securities," and such Securities together with
all additions thereto, substitutions or exchanges therefor, proceeds thereof and
distributions thereon being hereinafter referred to collectively as the
"Collateral"), as collateral security for the payment and performance of all
indebtedness, liability and obligations of Pledgor to Pledgee, whether for
principal, interest, fees, expenses or otherwise, now existing or hereafter
created or arising under the Note (the "Note") of even date herewith issued by
Pledgor to Pledgee, and any other documents, agreements and instruments executed
thereunder or in connection therewith including this Pledge Agreement
(collectively, the "Obligations," and such agreements, documents and instruments
evidencing and documenting the Obligations being hereinafter referred to
collectively as the "Documents"), all on the following terms and conditions.
A. Pledgor represents and warrants that:
1. Pledgor has good title to the Securities free and clear of all
liens and encumbrances except the security interest created hereby and as
described on Schedule A.
2. The Securities are not subject to any statutory, contractual or
other restrictions governing their issuance, transfer, ownership or control
except as indicated in the Option Agreements for the Securities and as described
on Schedule A.
3. Pledgor has delivered to Pledgee all stock certificates,
promissory notes, bonds, debentures or other instruments or documents
representing or evidencing the Securities, together with corresponding
assignment or transfer powers duly executed in blank by Pledgor, and this Pledge
Agreement and such powers have been duly and validly executed and are binding
and enforceable against Pledgor in accordance with their terms; and the pledge
of the Securities in accordance with the terms hereof creates a valid and
perfected first priority security interest in the Securities securing payment of
the Obligations.
4. No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required either
(i) for the pledge by Pledgor of the Securities pursuant to this Pledge
Agreement or for the execution, delivery or performance of this Pledge Agreement
by Pledgor or (ii) for the exercise by Pledgee of the voting or other rights
provided for in this Pledge Agreement or the remedies in respect of the
Collateral
1
<PAGE>
pursuant to this Pledge Agreement (except as may be required in connection
with such disposition by laws affecting the offering and sale of securities
generally).
B. Pledgor agrees not to (i) sell or otherwise dispose of, or grant any
option with respect to, any of the Collateral, or (ii) create or permit to exist
any lien, security interest, or other charge or encumbrance upon or with respect
to any of the Collateral, except the security interest under this Pledge
Agreement.
C. Prior to the full payment and performance of the Obligations, Pledgee
shall be entitled to receive, as additional Collateral any and all additional
shares of stock or any other property of any kind distributable on or by reason
of the Securities pledged hereunder, whether in the form of or by way of stock
dividends, warrants, partial liquidation, conversion, prepayments or redemptions
(in whole or in part), liquidation or otherwise, with the sole exception of
normal, regularly declared cash dividends or cash interest payments as the case
may be. If any of such property, other than such cash dividends or interest,
shall come into the possession or control of Pledgor, Pledgor shall hold or
control the same for the benefit of Pledgee and forthwith transfer and deliver
the same to Pledgee subject to the provisions hereof.
D. So long as no default has occurred under any of the Obligations or
Documents and Pledgor is in full compliance with the terms hereof:
1. Pledgor shall be entitled to receive and retain any normal,
regularly declared cash dividends or interest payments (as the case may be) paid
on the Securities pledged hereunder.
2. Pledgor may exercise all voting rights, if any, pertaining to the
Securities for any purpose not inconsistent with the terms hereof or of the
Obligations or Documents. In the event the Securities have been transferred
into the name of Pledgee or a nominee or nominees of Pledgee prior to default,
Pledgee or its nominee will execute and deliver upon request of Pledgor an
appropriate proxy in order to permit Pledgor to vote, if applicable, the same.
E. Pledgor shall take all actions (and execute and deliver from time to
time all instruments and documents) necessary or appropriate or requested by
Pledgee, to continue the validity, enforceability and perfected status of the
pledge of Securities hereunder.
F. Pledgee shall be under no obligation to take any actions and shall
have no liability (except for gross negligence or willful misconduct) with
respect to the preservation or protection of the pledged Securities or any
underlying interests represented thereby as against any prior or other parties.
In the event Pledgor requests that Pledgee take or omit to take action(s) with
respect to the Collateral, Pledgee may refuse to do so with impunity if Pledgor
does not, upon request of Pledgee, post sufficient, creditworthy indemnities
with Pledgee which, in Pledgee's sole discretion, are sufficient to hold it
harmless from any possible liability of any kind in connection therewith.
2
<PAGE>
G. After the occurrence of a default under any of the Obligations or the
Documents or if any representation, warranty or agreement of Pledgor hereunder
is breached or proves to be false:
1. Pledgee may exercise or cause to be exercised any of the Pledged
Securities and transfer or cause to be transferred any of the shares issued upon
such exercise into its own or a nominee's or nominees' names.
2. Pledgee shall be entitled to receive and apply in payment of the
Obligations any cash dividends, interest or other payment on the pledged
Securities.
3. Pledgee shall be entitled to exercise in Pledgee's discretion all
voting rights, if any, pertaining thereto and in connection therewith and at the
written request of Pledgee, Pledgor shall execute any appropriate dividend,
payment or brokerage orders or proxies.
4. Pledgor shall take any action necessary or required or requested
by Pledgee, in order to allow Pledgee fully to enforce the pledge of the
Securities hereunder and realize thereon to the fullest possible extent,
including but not limited to the filing of any claims with any court, liquidator
or trustee, custodian, receiver or other like person or party.
5. Pledgee shall have all the rights and remedies granted or
available to it hereunder, under the Uniform Commercial Code as in effect from
time to time in the Commonwealth of Pennsylvania, under any other statute or the
common law, or under any of the Documents, including the right to sell the
pledged Securities or any portion thereof at one or more public or private sales
upon fifteen days' written notice and to bid thereat or purchase any part or all
thereof in its own or a nominee's or nominees' names, free and clear of any
equity of redemption; and to apply the net proceeds of the sale, after deduction
for any expenses of sale, including the payment of all Pledgee's reasonable
attorneys' fees in connection with the Obligations and the sale, to the payment
of the Obligations in any manner or order which Pledgee in its sole discretion
may elect, without further notice to or consent of Pledgor and without regard to
any equitable principles of marshaling or other like equitable doctrines.
6. Pledgee may increase, in its sole discretion, but shall not be
required to do so, the Obligations by making additional advances or incurring
expenses for the account of Pledgor deemed appropriate or desirable by Pledgee
in order to protect, enhance, preserve or otherwise further the sale or
disposition of the Collateral or any other property it holds as security for the
Obligations.
H. Pledgor recognizes that Pledgee may be unable to effect a sale to the
public of all or part of the Securities by reason of certain prohibitions or
restrictions in the federal or state securities laws and regulations (herein
collectively called the "Securities Laws"), or the provisions of other federal
and state laws, regulations or rulings, but may be compelled to resort
3
<PAGE>
to one or more sales to a restricted group of purchasers who will be required
to agree to acquire the Securities for their own account, for investment and
not with a view to the further distribution or resale thereof without
restriction. Pledgor agrees that any sales(s) so made may be at prices and
on other terms less favorable to Pledgor than if the Securities were sold to
the public, and that Pledgee has no obligation to delay sale of the
Securities for period(s) of time necessary to permit the issuer thereof to
register the Securities for sale to the public under any of the Securities
Laws. Pledgor agrees that negotiated sales whether for cash or credit made
under the foregoing circumstances shall not be deemed for that reason not to
have been made in a commercially reasonable manner. Pledgor shall cooperate
with Pledgee and shall satisfy any requirements under the Securities Laws
applicable to the sale or transfer of the Securities by Pledgee.
In connection with any sale or disposition of the Collateral, Pledgee
is authorized to comply with any limitation or restriction as it may be advised
by its counsel is necessary or desirable in order to avoid any violation of
applicable law or to obtain any required approval of the purchaser(s) by any
governmental regulatory body or officer and it is agreed that such compliance
shall not result in such sale being considered not to have been made in a
commercially reasonable manner nor shall Pledgee be liable or accountable by
reason of the fact that the proceeds obtained at such sale(s) are less than
might otherwise have been obtained.
Pledgee may elect to obtain the advice of any reputable independent
investment banking firm or investment advisor with respect to the method and
manner of sale or other disposition of any of the Collateral, the best price
reasonably obtainable therefor, the consideration of cash and/or credit terms,
or any other details concerning such sale or disposition.
I. Pledgor will pay Pledgee the amount of any reasonable expenses
including counsel fees and expenses incurred by Pledgee in connection with (i)
the administration of this Pledge Agreement, (ii) the custody, preservation,
sale or collection or realization of the Collateral, (iii) the exercise or
enforcement of Pledgee's rights hereunder, or (iv) the failure of Pledgor to
perform hereunder.
J. Notwithstanding any other provision hereof, Pledgor shall remain
liable to Pledgee for any deficiency remaining after any sale, transfer or other
disposition of the Collateral hereunder.
K. This Pledge Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns and shall be governed as to its
validity, interpretation and effect by the laws of the Commonwealth of
Pennsylvania; and any terms used herein which are defined in the Uniform
Commercial Code as enacted in the Commonwealth of Pennsylvania shall have the
meanings therein set forth.
L. If Pledgee shall waive any rights or remedies arising hereunder or
under any applicable law, such waiver shall not be deemed to be a waiver upon
the later occurrence or
4
<PAGE>
recurrence of any of said events. No delay by Pledgee in the exercise of any
right or remedy shall under any circumstances constitute or be deemed to be a
waiver, express or implied, of the same and no course of dealing between the
parties hereto shall constitute a waiver of Pledgee's rights or remedies.
M. Pledgor hereby irrevocably appoints Pledgee as its attorney-in-fact to
execute, deliver and record, if appropriate, from time to time any instruments
or documents in connection with the Collateral, in Pledgor's or Pledgee's name.
N. This Pledge Agreement represents the entire understanding of the
parties with respect to the subject matter and no modification or change herein
shall be effective unless contained in a writing signed by the parties hereto.
O. If more than one Pledgor signs this Pledge Agreement, all references
herein to Pledgor shall include all such Pledgors and each shall be jointly and
severally bound by the terms and provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Pledge Agreement
as of the 19th day of September, 1997.
PLEDGOR:
/s/ Ronald J. Zlatoper
----------------------------------
Ronald J. Zlatoper
5
<PAGE>
SCHEDULE A TO PLEDGE AGREEMENT
THE SECURITIES
Options to purchase 25,000 shares of Common Stock, no par value per
share, of Sanchez Computer Associates, Inc. pursuant to certain Option
Agreements dated April 28, 1997.
6
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended Sept. 30, Nine Months Ended Sept. 30,
------------------------------- ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Earnings $ 1,205 $ 307 $ 2,120 $ 684
------------ ------------ ------------ ------------
Average common shares outstanding 10,972 8,478 10,918 8,435
Average common share equivalents 1,057 720 903 789
------------ ------------ ------------ ------------
Average number of common shares and
common share equivalents outstanding 12,029 9,198 11,821 9,224
------------ ------------ ------------ ------------
Earnings per common share (1) $ 0.10 $ 0.03 $ 0.18 $ 0.07
------------ ------------ ------------ ------------
</TABLE>
(1) Primary and fully diluted income per share are the same for both periods
presented.
(2) Earnings per common share calculations for each of the Company's quarters
are based on the weighted average number of shares outstanding in each
quarter. Accordingly, the sum of the earnings per share for each of the
quarters in a fiscal year (or period) may not equal the actual
year-to-date earnings per share.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 14,026
<SECURITIES> 0
<RECEIVABLES> 14,664
<ALLOWANCES> 40
<INVENTORY> 0
<CURRENT-ASSETS> 29,781
<PP&E> 2,928
<DEPRECIATION> 1,804
<TOTAL-ASSETS> 31,796
<CURRENT-LIABILITIES> 8,869
<BONDS> 0
0
0
<COMMON> 110
<OTHER-SE> 21,485
<TOTAL-LIABILITY-AND-EQUITY> 31,796
<SALES> 0
<TOTAL-REVENUES> 19,586
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (684)
<INCOME-PRETAX> 3,163
<INCOME-TAX> 1,043
<INCOME-CONTINUING> 2,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,120
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
