<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 MARCH 31, 1999.
--------------
/ / 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
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SANCHEZ COMPUTER ASSOCIATES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
PENNSYLVANIA 23-2161560
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 April 30, 1999, there were outstanding 11,785,422 shares of the issuer's
Common Stock, no par value.
<PAGE>
SANCHEZ COMPUTER ASSSOCIATES, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
CONSOLIDATED BALANCE SHEETS
March 31, 1999 (Unaudited) and December 31, 1998 3
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31, 1999 and 1998 4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1999 and 1998 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 11
PART II: OTHER INFORMATION
ITEM 5: OTHER INFORMATION 13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
</TABLE>
2
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 20,444 $ 27,177
Receivables, less allowance of $295 and $295, respectively 8,621 2,529
Contracts in process 5,228 6,778
Prepaid and other current assets 1,960 1,624
-------- --------
Total current assets 36,253 38,108
-------- --------
Property and equipment
Equipment 4,974 3,945
Furniture and fixtures 831 770
Leasehold improvements 1,202 994
-------- --------
7,007 5,709
Accumulated depreciation and amortization (3,379) (3,026)
-------- --------
Net property and equipment 3,628 2,683
Capitalized software costs, net of amortization of $1,028 at 1,014 962
March 31, 1999 and $921 at December 31, 1998
Goodwill 1,577
Investments 1,580 1,532
-------- --------
Total assets $ 44,052 $ 43,285
-------- --------
-------- --------
LIABILITIES
Current liabilities
Current debt obligations $ 194 $ 233
Accounts payable, trade 1,470 1,535
Accrued expenses 5,109 5,984
Deferred revenue 4,106 3,266
-------- --------
Total current liabilities 10,879 11,018
Deferred income taxes 327 327
Long-term debt 47 81
Other long-term liabilities 19 87
-------- --------
Total liabilities 11,272 11,513
SHAREHOLDERS' EQUITY
Common stock, no par value 118 117
Authorized - 75,000,000 shares
Issued and outstanding 11,765,725 and 11,734,569
March 31, 1999 and December 31, 1998, respectively
Additional paid-in capital 21,276 20,172
Retained earnings 12,216 11,723
Treasury stock (592)
Notes due on common stock purchases (238) (240)
-------- --------
Total shareholders' equity 32,780 31,772
-------- --------
Total liabilities and shareholders' equity $ 44,052 $ 43,285
-------- --------
-------- --------
</TABLE>
3
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------- -------
<S> <C> <C>
Revenues
Products $ 3,286 $ 4,337
Services 4,302 2,836
Software maintenance fees 2,067 1,455
------- -------
Total revenues 9,655 8,628
Operating expenses
Product development 3,488 2,470
Product support 759 836
Services 2,139 1,996
Sales and marketing 1,852 1,200
Royalties and sublicense fees 86 195
General and administrative 863 909
------- -------
Total operating expenses 9,187 7,606
------- -------
Earnings from operations 468 1,022
Interest income, net 302 203
------- -------
Earnings before income taxes 770 1,225
Income tax provision 277 392
------- -------
Net earnings $ 493 $ 833
------- -------
------- -------
Basic earnings per average common share $ 0.04 $ 0.07
Diluted earnings per average common share $ 0.04 $ 0.07
Weighed-average common shares outstanding 11,745 11,178
Average common and dilutive shares outstanding 12,494 12,177
</TABLE>
4
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net earnings $ 493 $ 833
Adjustments to reconcile net earnings to cash
provided (used) by operating activities
Depreciation and amortization 493 345
Other (2) 8
Cash provided (used) by changes in
operating assets and liabilities
Accounts receivable (5,619) 1,379
Contracts in process 1,550 170
Prepaid and other current assets (306) (18)
Accounts payable and accrued expenses (1,756) (262)
Deferred revenues 747 (554)
-------- --------
Net cash provided (used) by operating activities (4,400) 1,901
Cash used in investing activities
Investments (48)
Cost of acquisition net of cash acquired (1,000)
Capitalized computer software costs (158) (54)
Capital expenditures (1,066) (419)
-------- --------
Net cash used in investing activities (2,272) (473)
Cash flows from financing activities
Repayment of notes due on common stock purchases 1 46
Purchase of treasury stock (592)
Principal payments under long-term debt (73) (39)
Proceeds from exercise of stock options 102 185
-------- --------
-------- --------
Net cash provided (used) by financing activities (562) 192
-------- --------
Net increase (decrease) in cash and cash equivalents (7,234) 1,620
Cash and cash equivalents at beginning of period 27,678 12,827
-------- --------
Cash and cash equivalents at end of period $ 20,444 $ 14,447
-------- --------
-------- --------
Supplemental cash flow information
Interest paid $ 5 $ 10
Income taxes paid $ 1,636 $ 230
</TABLE>
5
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(A.) BASIS OF PRESENTATION
The accompanying consolidated financial statements of Sanchez Computer
Associates, Inc. ("Sanchez" or the "Company") include the accounts of
all of the Company's wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation. 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 months ended March
31, 1999 are not necessarily indicative of results for the full year.
(B.) ACQUISITION
Effective February 1, 1999, the Company acquired ArTech Financial
Technology Services, LLC ("ArTech") in exchange for $1 million, 35,714
shares of Sanchez common stock and a two year warrant to acquire 50,000
shares of the Company's stock. The acquisition of ArTech was accounted
for using the purchase method of accounting. The excess of the purchase
price over the fair value of the net assets acquired (goodwill) was
approximately $1.6 million and is being amortized on a straight-line
basis over 10 years.
(C.) CASH AND CASH EQUIVALENTS
Cash and cash equivalents at March 31, 1999 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 March
31, 1999 advances to Safeguard amounted to $12 million. Interest income
from these advances amounted to $165,000 during the first three months
of 1999.
(D.) CLIENT REVENUE DATA
Revenue derived from customers in various geographic regions is as
follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------ ------
<S> <C> <C>
U.S. and Caribbean $4,112 $3,393
Central Europe 1,046 2,757
Other Europe 2,459 1,360
Canada 1,724 896
Other 314 222
------ ------
$9,655 $8,628
------ ------
------ ------
</TABLE>
6
<PAGE>
(E.) EARNINGS PER SHARE
Basic earnings per share has been calculated as net earnings divided by
weighted-average common shares outstanding, while diluted earnings per
share has been computed as net earnings divided by weighted-average
common and diluted shares outstanding. The following table provides a
reconciliation of weighted-average common shares outstanding to
weighted-average common and dilutive shares outstanding (in thousands).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
------ ------
<S> <C> <C>
Weighed-average shares outstanding 11,745 11,178
Dilutive effect of
Warrants 339
Options 749 660
------ ------
Total common and dilutive shares 12,494 12,177
------ ------
------ ------
</TABLE>
Dilutive shares outstanding are computed using the weighted-average
number of shares of common and common equivalent shares (stock options
and warrants) for each period.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Sanchez Computer Associates, Inc. ("Sanchez" or "the Company") designs,
develops, markets, implements and supports comprehensive banking software
called PROFILE - Registered Trademark - for financial services organizations
worldwide. Sanchez's highly flexible PROFILE family of products is comprised
of four integrated modules which operate on open, client/server platforms.
The primary module, called PROFILE/ANYWARE, is a multi-currency,
multi-language, multi-bank transaction processing system which supports
deposit, loan, customer and bank management requirements through multiple
distribution channels. The other modules are PROFILE/FMS, a multi-company,
multi-currency, financial management and accounting system; PROFILE FOR
WINDOWS ("PFW"), a graphical user interface for PROFILE/ANYWARE; and
PROFILE/ODBC, an open connectivity database driver. The PROFILE system is
currently licensed to 37 clients in 14 countries serving in excess of 350
financial institutions.
The Company derives its revenues from product fees, which include software
license fees and product enhancements fees, service fees, which include client
implementation and consulting fees and recurring maintenance fees related to its
software products. Product and service fees are paid in stages upon the
completion by the Company of certain defined deliverables. The Company
recognizes revenue from these fees using the percentage-of-completion contract
accounting method. Typically, the client implementation projects to which these
fees relate have a 10- to 15-month duration. Recurring maintenance fees are
normally billed annually in advance and recognized into revenue ratably over the
period covered.
Revenues for the quarter ended March 31, 1999 increased 12% to $9.7 million,
compared to $8.6 million recorded for the same period in 1998. Net earnings for
the quarter totaled $493,000 or $.04 per diluted share, compared to $833,000 or
$.07 per diluted share for the same period in 1998.
During the quarter, the Company acquired ArTech Financial Technology Services,
LLC, a banking technology service center located outside of Pittsburgh,
Pennsylvania. In conjunction with the purchase, the Company announced the
formation of a new outsourcing subsidiary - e-PROFILE.com ("e-PROFILE"),
designed to provide financial services providers with the ability to offer
differentiated direct banking services to customers through a dedicated
e-banking service utility. The Company believes that e-PROFILE will provide a
new and significant avenue by which the PROFILE product can be introduced to
top-tier institutions with a lower initial capital hurdle, rapid time-to-market
and effectively no disruption to existing legacy systems. The Company believes
that the growth of electronic commerce will result in a large increase in the
volume of financial transactions which occur on-line, as well as a greater
demand for customized products and services. Furthermore, the Company believes
that the capabilities of PROFILE, particularly e-PROFILE, will provide financial
services providers with the technology to strategically respond to this consumer
banking evolution with a minimal "up-front" investment and the ability to
quickly enter the market with selected product offerings. Under this model, the
Company will be partnering with leading-edge third party technology partners for
each component in the e-PROFILE solution. From Web browser applications to data
warehousing capabilities, financial service customers utilizing e-PROFILE will
have a choice of various technology options with each component of their
customized solution. This "menu-driven" approach allows subscribers to tailor
their e-PROFILE environment to best suit their particular customer base and
marketing objectives.
The Company has had preliminary discussions with certain technology and service
partners regarding potential investments in e-PROFILE, which the Company will
seek to finalize by the end of the third quarter. The Company intends to raise
additional equity capital to fund this business through an initial public
offering within the next 12 months, assuming market conditions and other factors
permit.
The Company's estimated backlog at March 31, 1999 amounted to $33.2 million. The
components of the backlog were $7.0 million for product and service revenues and
$26.2 million for maintenance fees. The Company anticipates recognizing $16.1
million of this backlog over the next twelve months. At December 31, 1998, the
Company's estimated backlog amounted to $33.9 million, consisting of $6.7
million for product and service revenues and $27.2 million for maintenance fees.
The Company's business/financial model is evolving, however,
8
<PAGE>
and the Company ultimately expects to derive a greater proportion of its revenue
stream from variable sources rather than fixed-fee contracts, both in its
traditional licensing business and in the e-PROFILE service bureau business
described above. Over time, the Company believes that this evolution will make
its fixed contractual backlog figure a less meaningful measure of future revenue
potential.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected statement of
operations data:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
--------------------------
DOLLARS IN THOUSANDS 1999 1998
-------- --------
<S> <C> <C>
Revenues
Products $ 3,286 $ 4,337
Services 4,302 2,836
Software maintenance fees 2,067 1,455
-------- --------
Total revenues $ 9,655 $ 8,628
-------- --------
-------- --------
Percentage Relationship to Total Revenues
Revenues
Products 34.0% 50.3%
Services 44.6 32.9
Software maintenance fees 21.4 16.8
-------- --------
Total revenues 100.0 100.0
Operating expenses
Product development 36.1 28.6
Product support 7.9 9.7
Services 22.1 23.1
Sales and marketing 19.2 13.9
Royalties and sublicense fees .9 2.3
General and administrative 8.9 10.6
-------- --------
Total operating expenses 95.1 88.2
Earnings from operations 4.9 11.8
Interest income, net 3.1 2.4
-------- --------
Earnings before income taxes 8.0 14.2
Income tax provision 2.9 4.5
-------- --------
Net earnings 5.1% 9.7%
-------- --------
-------- --------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999, COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES. Revenues increased $1.0 million, or 11.9%, in the first quarter of
1999 as compared to the first quarter of 1998. The most significant growth was
in service revenue, which increased by $1.5 million or 51.7% in the 1999 March
quarter. This increase was driven by increased activity in the U.S. and Western
Europe and the acquisition of ArTech. Product revenues decreased by $1.1 million
or 24.2%, relative to the first quarter of 1998. The decrease in product
revenues was the result of fewer implementing clients in the Central Europe
marketplace, due to the successful conversion of two clients in that region and
the delay of a third project. The decrease in Central Europe was partially
offset by an increase in product revenues in Canada as a result of the American
Express contract and a license expansion from a converted client. Software
maintenance fees increased by $612,000 or 42.1% in the 1999 first quarter, due
to an overall increase in the Company's supported client base and additional
maintenance generated by license expansion fees.
PRODUCT DEVELOPMENT. Product development expenses increased $1.0 million or
41.2% in the first quarter of 1999, due to costs associated with increased
staffing , expanded facilities and other associated overhead costs. Staffing
increased 46%
9
<PAGE>
for this area of the Company primarily due to the Company's strategic decision
to increase our products' flexibility to better serve the future needs or our
customers, the requirements of e-banking and to assist with various evaluation
activities. The significant increased investment in this category caused the
percent relationship to total revenues to increase from 28.6% in the first
quarter of 1998 to 36.1% in the first quarter of 1999.
PRODUCT SUPPORT. Product support expenses decreased by $77,000, or 9.2%, in the
quarter ended March 31, 1999, primarily due to certain resources which
previously concentrated on support issues, now working full time on billable
service activities. As a percentage of total revenues, product support expenses
dropped to 7.9% in the 1999 first quarter vs. 9.7% in the 1998 first quarter.
SERVICES. Service expenses increased by $143,000, or 7.2% during the first
quarter of 1999. This expense category reflected only a slight increase despite
a significant increase in service revenues. This is due to a higher percentage
of the services being delivered by the Company's increased direct staff versus
more costly third parties. Consequently, the gross margin relative to associated
revenues increased to 50.3% for the 1999 first quarter as compared to 29.6% for
the 1998 first quarter.
SALES AND MARKETING. Sales and marketing expenses increased by $652,000, or
54.3% in the 1999 period due to the costs associated with increased staffing,
commissions and spending relative to the brand awareness advertising and
promotion campaign for PROFILE/Anyware and e-PROFILE.com. Sales and marketing
expenses as a percent of total revenues increased from 13.9% in the first
quarter of 1998 to 19.2% for the same period in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by
$46,000, or 5.1% in 1999. Although staffing increased, this was offset by less
travel related expenses incurred by the executive group. Since these expenses
were relatively flat in absolute dollars, general and administrative expenses
decreased from 10.6% in the March 1998 quarter to 8.9% in the March, 1999
quarter.
INCOME TAX PROVISION. Taxes in the 1999 first quarter were 36.0% of income
before income taxes, as compared to 32.0% in the 1998 first quarter. The 1999
increase is primarily due to the Company's increased U.S. revenues, resulting in
higher state income taxes.
YEAR 2000
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 failures. Accordingly, the Company has been
actively evaluating the impact of the Year 2000 on both its PROFILE product line
as well as its internal systems and hardware. Relative to the PROFILE product
line, all versions of PROFILE sold and installed since late 1996 are Year 2000
compliant upon completion of installation and testing by the clients. Further,
due to system retrofits provided for the Company's Canadian credit union clients
during 1997 and early 1998, the Company believes that these systems will be Year
2000 compliant upon completion of installation and testing by the clients. All
other clients using software installed prior to late 1996 are entitled to
receive a version of the software which is Year 2000 compliant, as part of their
software support agreements with the Company, and they have been encouraged to
upgrade. For the most part, these clients have upgraded (or otherwise
remediated) or are scheduled to upgrade in a timely manner. To the extent the
Company is directly involved in any such upgrade process, the client pays for
professional services and expenses. Accordingly, the Company believes it will
not be materially impacted by the Year 2000 situation relative to any of its
product offerings. As to its own internal software systems and hardware,
including IT and non-IT systems, the Company has identified and reviewed all key
areas, and believes that there is no significant exposure to the Year 2000
issue.
In light of the above information, the Company does not anticipate any
significant Year 2000 problems. The Company will, however, continue to assess
this situation and develop contingency plans as necessary. The Company's
expectations with respect to these Year 2000 issues are based on the assumption
that there will be no general failure of external systems, including power,
communications, transportation, or financial systems, necessary for the ordinary
conduct of business.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $20.4 million at March 31, 1999. Cash used by
operating activities for the three months ended March 31, 1999 was $4.4 million
as compared to $1.9 million provided by operating activities during the same
period in 1998. Net cash used by operating activities in 1999 was primarily due
to an increase in accounts receivable and decreases in accounts payable and
accrued expenses. The significant receivable increase in 1999 is due to the
combination of a $1.6 million shifting from contracts in process to reflect
items billed, the timing of milestone and time and material
10
<PAGE>
invoices and the billing in advance of annual maintenance fees. The decreases in
accounts payable and accrued expenses is primarily due to a large income tax
payment. Partially offsetting this was a reduction in contracts in process, as
mentioned above, and an increase in deferred revenues as a result of the annual
in advance maintenance billings. The Company continues to expect a certain
amount of variability in the timing of payment of major contract milestones
which will impact cash flow from operations during any given period.
During the three months ended March 31, 1999 the Company used $2.3 million for
investing activities, including $1 million as part of the ArTech purchase price.
The Company's business is generally not capital intensive. Capital asset
expenditures for the three months ended March 31, 1999 amounted to $1.1 million
as compared to $419,000 during the same period of 1998. The increase in capital
expenditures during 1999 is attributable to purchases of equipment and furniture
required by the significant growth in employees during the year, as well as the
leasehold improvements completed to accommodate the additional staff. The
primary component of the cash used for financing activities was the purchase of
30,000 shares of treasury stock during the first quarter of 1999.
As mentioned above, the Company intends to raise capital to finance the
development of e-PROFILE through an initial public offering of the shares of the
subsidiary conducting that business within the next 12 months, assuming market
conditions and other factors permit. The Company currently anticipates that cash
generated from operations and existing cash balances will be sufficient to
satisfy its operating and capital cash needs until the initial public offering.
Should the Company's business expand more rapidly than expected, or conditions
cause a delay in the public offering, the Company believes that additional bank
credit, if necessary, would be available to fund operating and capital
requirements.
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, earnings
and cash flow patterns. This variability is typically driven by significant
events which directly impact the recognition and billing of project-related
revenues. Examples of such events include the timing of new business contract
closings and the initiation of product 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 implementation project roll outs 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. As noted earlier, however, the Company believes that over the course of
time the ongoing monthly revenue stream associated with the e-PROFILE
outsourcing alternative will result in more predictable quarter-to-quarter
revenues.
FORWARD-LOOKING STATEMENTS
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, the success of the Company's e-PROFILE business model and other
significant events of revenue recognition affecting the Company's quarterly
results, the development of the top-tier, direct and emerging banking markets,
market acceptance of the Company's products within these markets and the
Company's ability to continue to improve its products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's cash equivalents. The Company does not have any
derivative financial instruments in its portfolio. The Company is adverse to
principal loss and ensures the safety and preservation of its invested funds by
limiting default risk, market risk and reinvestment risk. The Company does not
expect any material loss with respect to its cash equivalents.
11
<PAGE>
FOREIGN CURRENCY RISK
The Company does not use foreign exchange forward contracts. All contractual
arrangements with international customers are denominated in U.S. dollars.
12
<PAGE>
SANCHEZ COMPUTER ASSOCIATES, INC.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In late April, 1999, the Company announced key changes to its management team.
Frank R. Sanchez, formerly President and Chief Operating Officer, became the
Chief Executive Officer. Ronald J. Zlatoper joined Michael A. Sanchez as
Co-chairman, relinquishing his position as Chief Executive Officer. Mr. Zlatoper
and Mr. Michael Sanchez will continue their active involvement in the business.
Joseph F. Waterman, previously Chief Financial Officer and Senior Vice
President, assumed the role of President and Chief Operating Officer.
Michael Sanchez is assuming the CEO position at e-PROFILE, with John H. Teaford,
currently Senior Vice President of Strategic Alliances of the Company, also
serving as Chief Operating Officer. Alex W. "Pete" Hart, the former CEO of
MasterCard International, will serve as Chairman.
Due to other commitments, Mr. Ira M. Lubert resigned from the board of directors
effective February 22, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
No other applicable items.
13
<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
President, Chief Operating Officer
and acting Chief Financial Officer
Date: May 17, 1999
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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