<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- -------------
COMMISSION FILE NUMBER 0-13226
SULCUS COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1369276
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
SULCUS CENTRE, 41 NORTH MAIN STREET, GREENSBURG, PA 15601
(Address of principal executive offices, including zip code)
(412) 836-2000
(Registrant's Telephone Number, including area code)
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 May 10, 1996, there were 14,820,838 shares of Common Stock, no par value,
outstanding.
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<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995.............. 3
Consolidated Statements of Operations
Three months Ended March 31, 1996 and 1995........ 4
Consolidated Statements of Cash Flows
Three months Ended March 31, 1996 and 1995........ 5
Consolidated Statements of Stockholders' Equity
Three Months Ended March 31, 1996................. 6
Notes to Consolidated Financial Statements................ 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 9-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................... 13
Item 6. Exhibits and Reports on Form 8-K.......... 14
Signatures................................................ 15
</TABLE>
<PAGE> 3
SULCUS COMPUTER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Current Assets
Cash and cash equivalents $3,000,511 $1,202,325
Short-term investments (at market) 12,232,390 12,408,075
Restricted cash 378,133 550,000
Accounts receivable, net of allowance of $2,618,013
and $2,581,020 in 1996 and 1995, respectively 7,959,404 11,134,576
Inventories 2,513,392 2,573,826
Deferred taxes 167,166 165,557
Other current assets 1,851,115 1,761,465
----------- -----------
Total current assets 28,102,111 29,795,824
Purchased and capitalized software, net of accumulated amortization
of $8,425,003 and $7,992,031 in 1996 and 1995, respectively 4,639,263 4,941,695
Property and equipment, net of accumulated depreciation of $4,190,515
and $4,247,168 in 1996 and 1995, respectively 2,409,965 2,015,816
Goodwill, net of accumulated amortization of $2,864,906
and $2,672,714 in 1996 and 1995, respectively 7,634,491 7,826,683
Deferred taxes 1,932,587 1,934,196
Other noncurrent assets 856,780 812,564
----------- -----------
Total Assets $45,575,197 $47,326,778
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short term borrowings $6,525,443 $6,382,710
Current portion of long-term debt 43,686 46,713
Current portion of obligations under capital leases 155,582 23,895
Accounts payable 3,600,038 4,352,408
Shareholder litigation liability 2,898,598 3,108,097
Deferred revenues 5,162,639 6,195,289
Customer deposits 1,187,316 1,311,408
Other accrued liabilities 2,492,998 2,954,085
----------- -----------
Total current liabilities 22,066,300 24,374,605
Long-term debt, net of current portion 15,760 27,175
Obligations under capital leases, net of current portion 263,549 30,912
Commitments and contingencies
Stockholders' equity
Common stock, no par value; 30,700,000 shares
authorized (14,960,997 and 14,227,629 shares
issued in 1996 and 1995, respectively) 38,114,272 38,016,248
Note receivable from stockholder (500,000) (500,000)
Retained earnings (deficit) (14,226,308) (14,747,712)
Foreign currency adjustment (27,583) (60,832)
Cumulative unrealized gain (loss) on investments available for sale (130,793) 186,382
----------- -----------
Total Stockholders' Equity 23,229,588 22,894,086
----------- -----------
Total Liabilities and Stockholders' Equity $45,575,197 $47,326,778
=========== ===========
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE> 4
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net revenue:
System sales $6,524,818 $6,803,287
Support revenue 4,417,170 4,213,000
Interest income and other 333,031 294,767
---------- ----------
Total revenue 11,275,019 11,311,054
---------- ----------
Cost of goods sold and services provided:
Systems 3,307,969 3,333,777
Support services 1,159,797 1,281,007
---------- ----------
Total cost of sales and services provided 4,467,766 4,614,784
Expenses:
Selling, general, and administrative 5,506,194 5,579,158
Research and development (net of capitalized
software of $240,650 and $198,433 during the
three months ended March 31, 1996 and 1995,
respectively) 267,251 366,448
Interest 128,799 142,498
Depreciation and amortization 383,605 446,314
Unrealized (gain) loss on investments ----- (881,683)
---------- ----------
Total expenses 6,285,849 5,652,735
---------- ----------
Income (loss) before income taxes 521,404 1,043,535
Income taxes ----- -----
---------- ----------
Net income (loss) $521,404 $1,043,535
========== ==========
Income (loss) per common share:
Net income (loss) $0.03 $0.07
===== =====
Weighted average number of common shares 16,614,944 14,651,262
========== ==========
</TABLE>
See notes to the consolidated financial statements.
4
<PAGE> 5
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flow from operating activities:
Net income $521,404 $1,043,535
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 191,413 268,235
Amortization of capitalized software 555,627 550,770
Amortization of goodwill 192,192 178,079
Provision for doubtful accounts 153,571 105,101
Unrealized (gain) on investments ----- (881,683)
Realized (gain) on investments (8,750) -----
(Purchases) of trading securities ----- (1,128,688)
Change in assets and liabilities:
Restricted cash 171,867 500,000
Accounts receivable 3,021,601 3,064,133
Inventory 60,434 56,676
Other current assets (49,469) (101,104)
Other assets (44,608) 44,166
Accounts payable (752,370) (891,899)
Deferred revenues (1,032,650) (1,400,476)
Shareholder litigation liability (209,499) (10,468)
Customer deposits (124,092) (783,170)
Accrued liabilities (454,587) (380,594)
---------- ----------
Total adjustments 1,670,680 (810,922)
---------- ----------
Net cash provided by operating activities 2,192,084 232,613
---------- ----------
Cash flows from investing activities:
Purchases of available for sale securities (382,740) -----
Proceeds from sales of available for sale securities 250,000 -----
Investment in sales-type leases (68,358) (31,323)
Payments received on sales-type leases 28,569 79,148
Capital expenditures (598,107) (81,205)
Software development capitalized (240,650) (198,433)
---------- ----------
Net cash used in investing activities (1,011,286) (231,813)
---------- ----------
Cash flows from financing activities:
Short-term borrowings 142,733 36,608
Principal payments on long-term debt (14,442) (254,278)
Payments under capital lease obligations 364,324 -----
Proceeds from stock options exercised 91,524 16,571
---------- ----------
Net cash (used in) provided by financing activities 584,139 (201,099)
---------- ----------
Cumulative translation adjustment 33,249 (35,585)
---------- ----------
Net increase (decrease) in cash
and cash equivalents 1,798,186 (235,884)
Cash equivalents at beginning of period 1,202,325 1,933,895
---------- ----------
Cash equivalents at end of period $3,000,511 $1,698,011
---------- ----------
</TABLE>
See notes to the consolidated financial statements.
5
<PAGE> 6
SULCUS COMPUTER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Cumulative
Unrealized
Gain (Loss) Note
Retained Foreign on Investments Receivable Stock-
Common Earnings Currency Available From holders'
Stock (Deficit) Adjustment For Sale Stockholder Equity
----------- ------------ ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 $38,016,248 ($14,747,712) ($60,832) $186,382 ($500,000) $22,894,086
Stock options exercised 91,524 ---- ---- ---- ---- 91,524
Cumulative unrealized loss on
investments available for sale ---- ---- ---- (317,175) ---- (317,175)
Issuance of stock to consultants 6,500 ---- ---- ---- ---- 6,500
Cumulative translation adjustment ---- ---- 33,249 ---- ---- 33,249
Net income ---- 521,404 ---- ---- ---- 521,404
----------- ------------ -------- --------- --------- -----------
Balance, March 31, 1996 $38,114,272 ($14,226,308) ($27,583) ($130,793) ($500,000) $23,229,588
=========== ============ ======== ========= ========= ===========
</TABLE>
See notes to the consolidated financial statements.
6
<PAGE> 7
SULCUS COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sulcus
Computer Corporation and its wholly owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. Investments in
50% or less owned affiliates over which the Company has the ability to exercise
significant influence are accounted for using the equity method.
The accompanying unaudited interim consolidated financial statements
reflect all adjustments (consisting of normal recurring accruals) which, in the
opinion of management, are necessary for a fair presentation of the results for
the interim periods presented. These financial statements have been prepared
in accordance with both generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
These financial statements should be read in conjunction with the
Company's annual audited financial statements for the year ended December 31,
1995, as filed with the Securities and Exchange Commission on Form 10-K.
NOTE 2. SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
On May 2, 1996, the Company entered into an agreement with the
Securities and Exchange Commission ("Commission"), resolving an investigation
which commenced in 1993. Under the terms of the May 2, 1996 agreement, without
admitting or denying any wrongdoing, the Company agreed that it would not in
the future violate Sections 17(a)(2) and 17(a)(3) of the Securities Act,
Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and
Rules 10b-5, 12b-20, 13a-1, and 13a-13 promulgated thereunder. With respect to
certain press releases issued during 1991 and 1992, the Order makes findings
against Sulcus under Section 10(b) and Rule 10b-5. The Order does not make
findings against Sulcus under Section 10(b) or Rule 10b-5 with regard to
accounting practices. In addition, a former accounting officer of the Company
and the Company's Chairman, without admitting or denying any wrongdoing agreed
that they would not in the future violate Sections 17(a)(2) and 17(a)(3) of the
Securities Act; Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act
and Rules 12b-20, 13a-1, 13a-13, and 13b 2-1 promulgated thereunder. There
were no fines or other penalties imposed upon the Company or its Chairman. The
Company's former accounting officer agreed not to practice before the
Commission as an accountant for a 30 month period.
NOTE 3. INCOME TAXES
In the three months ended March 31, 1996 the Company reflected no
provision for income taxes on pre-tax profits of $521,404. This is based upon
management's determination to reduce previously established valuation reserves
related to deferred tax assets, including tax loss carryforwards, pursuant to
SFAS 109.
7
<PAGE> 8
SULCUS COMPUTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
At March 31, 1996 and December 31, 1995, the Company had net deferred
tax assets, liabilities and valuation reserves as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets (net of deferred tax
liabilities), including tax loss carryforwards $12,501,588 $12,633,976
Valuation allowance (10,401,835) (10,534,223)
----------- -----------
Net deferred tax amounts $ 2,099,753 $ 2,099,753
=========== ===========
</TABLE>
NOTE 4. EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share is determined by dividing net
earnings (loss) by the weighted number of common shares outstanding. When
dilutive, common stock options are included in the computation. Fully diluted
net income (loss) per share is not presented as it is either anti-dilutive or
not different from primary earnings (loss) per share.
8
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO
THREE MONTHS ENDED MARCH 31, 1995
The Company had net income of $521,404 in the quarter ended March 31,
1996 as compared to $1,043,535 in the quarter ended March 31, 1995 on sales
which were virtually unchanged. In 1995, the Company reported unrealized gains
on its investment portfolio of $881,683. When eliminating this amount for the
purpose of comparability, the Company showed an improvement on earnings from
$161,852 to $521,404, a change of $359,552. The Company's results for the
quarter ended March 31, 1996 improved over those for the same period of 1995
primarily as a result of improvements in margins ($72,719), reduced selling,
general and administrative expenses ($72,964) and reduced research and
development costs ($99,197). In 1995, the Company had Trading Securities which
had unrealized market appreciation in the first quarter of $881,683. Since
that time, the Company has restructured its portfolio and, therefore, these
unrealized market changes are no longer a component of net income.
Net sales for the quarter ended March 31, 1996 were $10,941,988,
representing a decrease of $74,299 (1%) when compared to net sales of
$11,016,287 for the same period of 1995. Net system sales for the quarter
ended March 31, 1996 were $6,524,818 as compared to $6,803,287 for the same
period of 1995, a decrease of $278,469 (4%) due primarily to decreased sales of
the Company's Point of Sale Systems. Support revenues for the quarter ended
March 31, 1996 were $4,417,170 as compared to $4,213,000 for the same period of
1995, an increase of $204,170 (5%) due primarily to an increased base of Point
of Sale installations in 1995. Support revenues are billed and collected in
advance for periods of one to twelve months and are recognized as support
revenues ratably over the contract period. Sales by offices and distributors
of the Company were $9,310,093 (85%) and $1,631,895 (15%), respectively, of net
sales for the quarter ended March 31, 1996 as compared to $8,726,591 (79%) and
$2,289,696 (21%) for the comparable 1995 period.
Cost of goods sold for the quarter ended March 31, 1996 decreased to
$4,467,766 from $4,614,784, a decrease of $147,018 (3%) from the comparable
1995 period. As a consequence, cost of goods sold as a percentage of net sales
improved for the quarter ended March 31, 1996 to 41%, as compared to 42% for
the same period of 1995. Gross margins of the Company increased to $6,474,222
from $6,401,503, an increase of $72,719 (1%) over the same period of 1995. Cost
of system sales for the quarter ended March 31, 1996 was $3,307,969 (51% of
system sales) as compared to $3,333,777 (49% of system sales) for the same
period of 1995, a decrease of $25,808 (1%), due primarily to the mix of
software and hardware sales. Cost of support for the quarter ended March 31,
1996 was $1,159,797 (26% of support revenues) as compared to $1,281,007 (30% of
support revenues) for the same period of 1995, a decrease of $121,210 (9%),
primarily as the result of the Company's ability to control such costs.
Selling, general, and administrative expenses decreased in 1996 when
compared to 1995. For the quarter ended March 31, 1996, these expenses were
$5,506,194 as compared to $5,579,158 a decrease of $72,964 (1%) from the same
period of 1995. Selling, general, and administrative expenses as a percentage
of net sales was 50% for the quarter ended March 31, 1996 as compared to 51%
for the same period of 1995.
Research and development expense for the quarter ended March 31, 1996
decreased to $267,251 from $366,448, a decrease of $99,197 (27%) from the same
period of 1995. This decrease is attributable primarily to greater amounts
capitalized in 1996 as compared to 1995 ($42,217) and governmental grant
amounts received by the Company to support research and development ($41,238).
In 1996, the Company's Canadian subsidiary entered into an agreement with
National Research Council Canada which provides financial support
9
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for development carried out under an approved program. Total amounts expended
on research and development (including amounts expensed, amounts subsidized by
government support and amounts capitalized) was $549,139 and $564,881 for the
quarters ended March 31, 1996 and 1995, respectively.
Depreciation and amortization expense for the quarter ended March 31,
1996 decreased to $383,605 from $446,314 for the same period of 1995, a
decrease of $62,709 (14%).
Interest income for the quarter ended March 31, 1996 was $333,031 as
compared to $294,767 for the same period of 1995, an increase of $38,264 (13%),
due primarily to higher rates earned on invested balances.
Interest expense for the quarter ended March 31, 1996 decreased to
$128,799 from $142,498 for the same period of 1995, a decrease of $13,699 (10%)
due primarily to lower interest rates on outstanding borrowings.
The Company conducts its worldwide operations through separate
geographic area organizations which represent major markets or combinations of
related markets. Transfers between markets are valued at cost. Financial
information by geographic area for the quarters ended March 31, 1996 and 1995
and as of March 31, 1996 and December 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net revenues(1):
North America $ 8,221,523 $ 8,936,491
Pacific Region 1,518,945 935,481
Europe 1,534,551 1,439,082
----------- -----------
Consolidated net revenues $11,275,019 $11,311,054
=========== ===========
Net income (loss):
North America $614,233 $1,564,540
Pacific Region (69,330) (399,335)
Europe (23,499) (121,670)
-------- ----------
Consolidated net income $521,404 $1,043,535
======== ==========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
Identifiable assets:
North America $37,511,061 $39,208,729
Pacific Region 3,276,192 3,437,539
Europe 4,787,944 4,680,510
----------- -----------
Consolidated identifiable assets $45,575,197 $47,326,778
=========== ===========
</TABLE>
(1) Sales between geographic areas and export sales are not material.
The Company had a net deferred tax asset amounting to $2,099,753, net
of valuation allowances of $10,401,835 at March 31, 1996 and $10,534,223 at
December 31, 1995. The valuation allowance was decreased in the quarter ended
March 31, 1996 by $132,388 and was decreased in the quarter ended March 31,
1995 by $621,071 reflecting the Company's estimate of the valuation allowance
necessary to reduce the net deferred tax asset to the net recoverable amount.
As a result, the income statements for the quarters ended March 31, 1996 and
1995 do not reflect any income tax provision on the pre-tax operating results
for those periods. The realizability of this deferred tax asset is contingent
upon a number of factors including the ability
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<PAGE> 11
of the Company to maintain a level of operations that will generate taxable
income. Management believes that it is more likely than not that the Company
will generate taxable income sufficient to realize a portion of the tax
benefits associated with net operating losses and tax credit carryforwards
prior to their expiration. This belief is based upon the Company's view of
expected profits in 1996 and the next several years. If the Company is unable
to generate sufficient taxable income in the future through operating results,
increases in the valuation allowance will be required through a non-cash charge
to expense. However, if the Company achieves sufficient profitability to
utilize a greater portion of the deferred tax asset, the valuation allowance
will be reduced through a non-cash credit to income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is dependent upon its ability to generate
sufficient working capital through profitable operations. Management believes
that in order to sustain profitability, it must continue to increase sales and
improve productivity related to selling, general and administrative expenses.
In order to increase sales, the Company believes that it must increase its
distribution channels and introduce additional developed or acquired
competitive products in its current market segment.
Current short-term capital needs will be funded primarily through
internal working capital and anticipated operating revenues from new sales,
continuing and new support services revenue, and a backlog of orders received
and pending. The Company has no significant unused lines of credit at either
March 31, 1996 or December 31, 1995. To date, bank credit lines have not been
a significant component of the Company's liquidity and capital resources.
At March 31, 1996, Sulcus' cash and cash equivalents increased to
$3,000,511 from $1,202,325 at December 31, 1995, an increase of $1,798,186.
This increase is primarily the result of cash received during the first quarter
of 1996 related to annual customers support agreements. This cash will be used
to support operations throughout the remainder of 1996. Since the Company
operates in a number of countries, cash and cash equivalents are maintained by
the various operating subsidiaries in the local currencies of these countries
for the purpose of paying expenses as they are due.
The Company maintains a portfolio of short-term investments (primarily
in the form of preferred stocks) which may be used for the purpose of providing
liquidity. At March 31, 1996, the Company's short-term investment portfolio
decreased to $12,232,390 from $12,408,075 at December 31, 1995, a decrease of
$175,685 (1%) primarily related to declines in market value. These investments
are subject to risk, most notably the risk that the market value of these
assets will decline as the result of general market fluctuations, increases in
interest rates or changes in the underlying operations of the investee.
Company policy does not require temporary investments to be investment grade as
determined by a nationally recognized statistical rating organization nor does
it require that such investments have any additional safety feature such as
insurance. Through the first five months of 1995, the Company maintained its
investment philosophy of actively buying and selling investments with the
objective of generating profits of short-term differences in price ("Trading").
Management sold a portion of these investments in May and June of 1995 and
invested the proceeds of these sales in securities which will be held for the
generation primarily of dividend and interest income ("Available for Sale").
Additionally, the remaining investments were reclassified in 1995 from Trading
to Available for Sale. The Company had borrowings at March 31, 1996, and
December 31, 1995, of $6,313,889 and $6,062,905 respectively, on margin against
its investments at the brokers internally established floating interest rate
which was 7.875% at March 31, 1996.
At March 31, 1996, accounts receivable decreased to $7,959,404, as
compared to $11,134,576 at December 31, 1995, a decrease of $3,175,172 (29%)
primarily due to collections on annual support contracts. The Company's gross
accounts receivable includes hardware and software support contracts as well as
amounts due on system installations. The Company records a provision for
amounts which it estimates may ultimately
11
<PAGE> 12
be uncollectible from customers. The allowance for uncollectible accounts
remained relatively constant at March 31, 1996, increasing slightly to
$2,618,013 as compared to $2,581,020 at December 31, 1995.
The Company purchases computer hardware and other equipment from
vendors under open accounts payable for the purpose of including these items in
systems sold to customers. Hardware and equipment are readily available in the
marketplace and therefore it is not necessary for the Company to maintain large
quantities of inventories to meet customer needs. Inventories of computers,
computer components and computer peripherals decreased to $2,513,392 at March
31, 1996 as compared to $2,573,826 at December 31, 1995, a decrease of $60,434
(2%). Accounts payable decreased to $3,600,038 at March 31, 1996 as compared
to $4,352,408 at December 31, 1995, a decrease of $752,370 (17%).
The Company leases facilities under operating lease agreements of
varying terms. Properties and equipment consist primarily of leasehold
improvements and equipment used in the conduct of business. Property and
equipment, net of accumulated depreciation and amortization, increased to
$2,409,965 at March 31, 1996 from $2,015,816 at December 31, 1995, an increase
of $394,149.
In addition to borrowings on margin against its investments, the
Company has outstanding short and long-term borrowings from various financial
institutions. At March 31, 1996, the Company had short-term borrowings
(excluding borrowings under margin) of $211,554 as compared to $319,805 at
December 31, 1995, a decrease of $108,251 (34%). At March 31, 1996, the
Company had long-term borrowings (including current and noncurrent portions) of
$478,577 as compared to $128,695 at December 31, 1995, an increase of $349,882.
This increase is primarily the result of 1996 capitalized lease obligations for
equipment.
The backlog of hardware and software orders at March 31, 1996 is
expected to be filled within one year and amounted to $3,632,000 as compared to
$3,353,000 at December 31, 1995.
The Company's ability to develop and expand its presence in the
hospitality industry and expand existing business lines for its other markets
depends, in a large part, on the availability of adequate funds. Management
believes that anticipated revenues from the operations together with available
capital will be sufficient to support the anticipated operating and capital
requirements of the Company for at least 12 months. Nonetheless, if
technological changes render Sulcus' products uncompetitive or obsolete, or, if
the Company incurs operating losses, it may be forced to seek additional
financing. There can be no assurance that any financing will be available when
needed, or, if available, that it can be obtained on terms satisfactory to the
Company.
Certain lawsuits arising in the ordinary course of business are pending
against the Company and its subsidiaries. The Company believes that the
ultimate outcome of these actions will not result in a material adverse effect
on the Company's consolidated financial position and liquidity.
12
<PAGE> 13
PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SEC PROCEEDING
On May 2, 1996, the Company entered into an agreement with the
Securities and Exchange Commission ("Commission") resolving the previously
disclosed investigation of the Company by the Commission. Without admitting or
denying any wrongdoing, the Company agreed that it would not in the future
violate Sections 17(a)(2) and (a)(3) of the Securities Act, Sections 10(b),
13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20,
13a-1 and 13a-13 promulgated thereunder. With respect to certain press
releases issued during 1991 and 1992, the Order makes findings against Sulcus
under Section 10(b) and Rule 10b-5. The Order does not make findings against
Sulcus under Section 10(b) or Rule 10b-5 with regard to accounting practices.
In addition, John Picardi, a Sulcus employee and former Chief Financial Officer
of Sulcus' Hospitality Group, and Jeffrey Ratner, Sulcus' Chairman, without
admitting or denying any wrongdoing, agreed that they would not in the future
violate Sections 17(a)(2) and (a)(3) of the Securities Act, Sections 13(a),
13(b)(2)(A) and 13(b)(2) (B) of the Exchange Act and Rules 12b-20, 13a-1,
13a-13 and 13b 2-1 promulgated thereunder. There were no fines or other
penalties imposed upon the Company or Mr. Ratner. Mr. Picardi agreed not to
practice before the Commission as an accountant for a 30 month period.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 15
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.
SULCUS COMPUTER CORPORATION
DATE: May 14, 1996 BY: /s/ H. RICHARD HOWIE
---------------- --------------------------------
H. Richard Howie
Chief Financial Officer
(Mr.Howie is the Principal Financial
Officer and has been duly authorized
to sign on behalf of the Registrant)
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from interim
financial statements for the three months ended March 31, 1996, as submitted in
the Company's 10-Q for that period and is qualified in its entirety by reference
to such 10-Q.
</LEGEND>
<CIK> 0000726712
<NAME> SULCUS COMPUTER CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,000,511
<SECURITIES> 12,232,390
<RECEIVABLES> 10,577,417
<ALLOWANCES> 2,618,013
<INVENTORY> 2,513,392
<CURRENT-ASSETS> 28,102,111
<PP&E> 13,064,266
<DEPRECIATION> 8,425,003
<TOTAL-ASSETS> 45,575,197
<CURRENT-LIABILITIES> 22,066,300
<BONDS> 279,309
<COMMON> 38,114,272
0
0
<OTHER-SE> (14,884,684)
<TOTAL-LIABILITY-AND-EQUITY> 45,575,197
<SALES> 10,941,988
<TOTAL-REVENUES> 11,275,019
<CGS> 4,467,766
<TOTAL-COSTS> 6,285,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 153,571
<INTEREST-EXPENSE> 128,799
<INCOME-PRETAX> 521,404
<INCOME-TAX> 0
<INCOME-CONTINUING> 521,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 521,404
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
