<PAGE>   1



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 ---------------
                                    FORM 10-K
(Mark One)
[ X ]    ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
           OF 1934
                   For the fiscal year ended December 31, 1997

                                       OR
[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934
                   For the transition period from           to
                                                  ---------    ---------
                         COMMISSION FILE NUMBER 0-13226

                                 ---------------

                      SULCUS HOSPITALITY TECHNOLOGIES CORP.
             (Exact name of registrant as specified in its charter)

          PENNSYLVANIA                                 25-1369276
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
incorporation or organization)

       SULCUS CENTRE, 41 NORTH MAIN STREET, GREENSBURG, PENNSYLVANIA    15601
       (Address of principal executive offices)                       (Zip Code)

                                 (724) 836-2000
              (Registrant's telephone number, including area code)

                                 ---------------

Securities registered pursuant to Section 12(b) of the Act:   NONE

Securities registered pursuant to Section 12(g) of the Act:   Common Stock,
                                                              no par value

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 March 24, 1998, 17,059,152 shares of Common Stock were outstanding. The
aggregate market value of shares held by non-affiliates as of March 24,1998 was
$37,749,077 based on the closing price of the Common Stock on the American Stock
Exchange on that date.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
                            ------

<PAGE>   2



PART I

ITEM 1. BUSINESS

GENERAL

         Sulcus Hospitality Technologies Corp. (formerly Sulcus Computer
Corporation) develops, manufactures, markets and installs computerized systems
designed to automate the creation, handling, storage and retrieval of
information and documents. The Company designs its systems primarily for the
hospitality industry. The Company's sales practices are currently systems
oriented (rather than individual sales of hardware or software) toward the
vertical marketing of its integrated products. Systems include a network of
hardware, software and cabling as well as stand alone systems for which the
hardware and software are not separately sold. The Company's systems are offered
together with full services, training, maintenance, and support. The Company has
installed systems throughout North and South America, Europe, Africa, Asia and
Australia. Customers include property management companies, condominiums,
hotels, motels, restaurants, resorts, country clubs and cruise lines.

         The Company is a Pennsylvania Corporation incorporated on November 5,
1979 and adopted its present name in August 1997. The Company's principal
offices are located at Sulcus Centre, 41 North Main Street, Greensburg,
Pennsylvania 15601. Its telephone number at such address is 724-836-2000. Unless
the context indicates otherwise, references herein to the Company or to Sulcus
refer to Sulcus Hospitality Technologies Corp. and its wholly owned
subsidiaries.

HISTORICAL DEVELOPMENT

         The Company provides its customers with computer systems which include
hardware, software, training, maintenance and support. The Company's sales
practices and trends are currently oriented to sales of systems and to the
vertical marketing of its integrated products for the worldwide hospitality
industry.

         This industry was chosen because it represents, in management's
opinion, large vertical business markets. The Company has grown by way of
expanded research and development, as well as growth through acquisitions,
mergers, joint ventures and similar alliances. Sulcus has pursued acquisition
opportunities which created additional market opportunities for existing
products, had products that complemented or expanded existing product lines, and
created additional product distribution channels. Much of Sulcus' business is
conducted through subsidiaries, most of which were acquired by the Company.

         The Company's acquisitions have included Lodgistix Inc. (1991), NRG
Management Systems Inc. (1992) and Senercomm, Inc. (1997) which are developers
of technology solutions focused in the lodging industry and Squirrel Companies,
Inc. (1992) which is a developer of technology solutions focused in the
restaurant industry. Additionally, the Company has acquired direct sales
offices which sell and support the full range of the Company's products through
the purchase of JBA (HK) Ltd. (1992), JBA Singapore Pte. Ltd. (1992), Techotel
AG (1993) and Lodgistix Scandinavia A.S. The Company also established a direct
sales office in Sydney, Australia (1991) which sells and supports the full
range of the Company's products.

         In December 1997, the Company purchased Senercomm, Inc. (Senercomm)
for approximately $2.2 million. Senercomm designs, manufactures and sells
in-room information systems which are used to gather guest data and
environmentally control the condition maintained within a hotel room. The
purchase price consisted of $.5 million of Sulcus Common Stock, $.5 million of
cash, and the balance of $1.2 million payable in three equal annual
installments including interest at the rate of 8%. The acquisition was
accounted for as a purchase and, accordingly, the balance sheet of Senercomm
was included in the consolidated financial statements of the Company at
December 31, 1997 and the results of operations of Senercomm will be
consolidated with those of the Company beginning January 1, 1998. The purchase
price was assigned to identifiable assets of working capital ($.2 million) and
purchased software ($2.0 million).

                                       2
<PAGE>   3



INTERNATIONAL OPERATIONS

         The Company has established international operations for the marketing,
support, manufacturing and/or distribution of its products as a result of its
acquisition strategy. The Company's international operations presently consist
of the following subsidiaries: Sulcus (Australia) Pty. Ltd., a direct sales
office in Australia; Squirrel Systems of Canada, Ltd., a Canadian subsidiary of
Squirrel located in Vancouver, British Columbia which manufactures and sells
Squirrel products; Sulcus Hospitality Limited located in Hong Kong, and Sulcus
Singapore, PTE. LTD., located in Singapore, each a direct sales office; Sulcus
Hospitality Group EMEA A.G. located in Switzerland; Lodgistix UK, Sulcus
Scandinavia A.S., located in Norway; Sulcus (Malaysia) Sdn Bhd; Squirrel (U.K.)
Ltd., Sulcus Hospitality (U.K.) Ltd., and NRG Management Systems (U.K.) located
in the United Kingdom, all direct sales and support offices, and Sulcus
Hospitality Group (Belgium) located in Belgium, which operates as a customer
support office.

         Sulcus localizes its products for use in other countries so that all
monetary references, user messages, and documentation reflect the monetary
units, language and other conventions of a particular country. The Company's
international operations are subject to certain risks common to foreign
operations in general, such as governmental regulations and import restrictions.

PRODUCTS

         HARDWARE
         Sulcus markets computer systems consisting of hardware, software,
training and ongoing support. The hardware platform utilized by the Company's
property management products can be obtained from Sulcus or from elsewhere,
either from a manufacturer with whom Sulcus has a value-added remarketing
agreement (whereby Sulcus purchases such hardware at a discount) or from a
completely independent supplier. The hardware platform utilized by the Company's
point-of-sale systems is manufactured by the Company from commercially available
computer components.

         In the event of a purchase in which Sulcus supplies hardware, software
and training, Sulcus offers a Hardware Service Agreement for the maintenance of
the equipment. In certain circumstances the hardware supplier provides the
equipment maintenance with no revenue accruing to Sulcus. Sulcus performs
certain remanufacturing and assembly operations at its own Wichita, Kansas and
Vancouver, Canada facilities. Sulcus is not dependent on a specific manufacturer
or supplier for its components or systems.

         SOFTWARE
         Through its in-house staff of applications programmers, systems
programmers, and software engineers, Sulcus develops and enhances its own
proprietary software. Sulcus attempts to have its software operate with
single-input (or file-integration) methods so that the user enters data once and
the computer will use that data in the various applications desired. The
following is a brief description of the Company's principal products:

         LODGING AUTOMATION SOFTWARE
         LANmark is the Company's proprietary software which uses local area
network technology and is designed for managing hotels ranging in size from 150
to more than 2,000 rooms. Customers can purchase different modules of this
system to meet their specific needs including front office operations, back
office accounting functions, credit card authorization, group room sales, and
meeting/function space and event planning.

         wINNmaxX is an easy-to-use, Windows-based Front Office system designed
specifically for the small properties such as bed & breakfasts, small hotels,
inns, highway properties and specialty chains. wINNmaxX offers the management
power of a large luxury resort or grand hotel scaled system to special property
needs. Features include a flexible rate structure, pre-defined



                                       3
<PAGE>   4



and custom reports capabilities, folio history, corporate account tracking and
travel agent tracking as well as many others. wINNmaxX is designed to be
customer-friendly and require only nominal support by the user.

         CIRIS I is the Company's proprietary centralized in-room information
system which consists of energy and room management software with applications
for HVAC management, in-room safes, mini-bar, maid status and room occupancy and
security.

         HOTELtrieve is a licensed information archival and retrieval system
tailored to hospitality industry requirements. This system allows the accurate
capture and faithful reproduction of all archivable information. This system
provides storage for up to one million pages on a single disc and gives the
benefits of reduced storage and retrieval costs, shortened access time,
distribution of information to multiple locations and integration with existing
customer electronic systems.

         wINNfinity is a proprietary program designed for automating hotels,
using a new concept for the hospitality industry. The product design allows the
most frequently used tasks to be accomplished on a single screen thus enhancing
staff productivity. Developed for Microsoft(R) Windows NT(R) platform,
wINNfinity includes the typical Property Management functions of Front Office as
well as Attribute Inventory Manager (AIM) that tracks an unlimited number of
room type attributes.

         SensorStat and innPULSE are the Company's proprietary centralized
in-room systems which consist of energy and room management software with
applications for HVAC management, in-room safes, mini-bar, maid status and room
occupancy and security.

         RESTAURANT AUTOMATION SOFTWARE
         Squirrel Restaurant Management System offers complete automation of
full-service restaurant operations. This proprietary system automates
order-entry, credit card processing, labor cost management, time and attendance,
food and beverage management and data transfer.

         Squirrelite is proprietary software for restaurant operations similar
to the Squirrel Restaurant Management System but intended for smaller
installations.

         HOSPITALITY INFORMATION MANAGEMENT

         The Company's Legacy Solution consolidates data from multiple
management systems and transforms it into the information that hoteliers and
restaurateurs can use to perform business, marketing and operational analysis.
The product collects data from diverse systems and locations, stores the data
and allows management to compile and analyze the data for strategic
applications. Management believes that its customers that use the Legacy
Solution are in a position to build comprehensive business and marketing plans,
execute those plans, measure the results, and fine tune them for the competitive
advantage.

PRODUCT SUPPORT SERVICES

         Management believes that support is fundamental to the continued
business relationship with Sulcus' customers. Software support agreements are
entered into in connection with substantially all system sales.

         Under software support agreements, Sulcus offices provide support
services with their regional personnel and, if no solution can be found at that
level, Sulcus maintains second-level support through its Wichita, Kansas or
Vancouver, British Columbia centers which are staffed by specially trained
personnel. This multi-level support is intended to ensure that customers receive
prompt response and service. Software support services are provided for a fee on
a 24-hour, seven-day-per-week basis pursuant to a Support, Maintenance and
Enhancement Agreement.

         Sulcus provides hardware support for a fee under a Hardware Service
Agreement which enables the user to call for a diagnosis and, repair or
replacement based upon the circumstances. Certain repairs and replacements come
with fees in addition to the support agreement, depending on the circumstances.
Additionally, depending upon the terms of the service agreement purchased by the
customer, hardware service may be provided at a customer's site or at
centralized facilities. The Company receives certain hardware support from
manufacturers or other service providers for a fee.

PRODUCT RESEARCH, DEVELOPMENT AND IMPROVEMENT

         The Company has a number of ongoing research and development projects
consisting of developing new hardware and software products as well as improving
existing products.

         Most of the Company's software products are developed internally
although the Company has purchased technology and has licenses for certain
intellectual property rights. Product documentation is also created internally.
Internal development enables Sulcus to maintain closer technical control over
the products and gives the Company the latitude to designate which modifications


                                       4
<PAGE>   5



and enhancements are more beneficial and when they should be implemented. The
Company has created and acquired a substantial body of development tools and
methodology for creating and enhancing its products. These tools and methodology
are intended to simplify a product's integration with different operating
systems or computers.

         By making end-user follow-up contacts and by considering and evaluating
end-user requests for additional features to products, Sulcus maintains an
information base to evaluate market feasibility of new products. Developing new
software and updating existing offerings is a continual process performed by
research and development groups in the effort to keep their products
competitive. Also, since the functions of several products are affected by
changes in tax laws and regulations, Sulcus rewrites such affected software to
meet these changes for its customers.

         Updates are made available without charge to those customers who have
purchased support or service agreements. Additionally, formally organized user
groups exist to provide input and suggestions on new features and modules for
products. These groups have periodic meetings and provide significant user
information for new product development. Neither the Company nor any of its
principal business units is dependent upon a single group of customers or a few
customers, the loss of any one or more of which would have a material adverse
effect on the Company or any of its principal business units.

MARKETS

         Sulcus offers systems consisting of hardware, software, supplies,
training, maintenance and support to the hospitality industry. These systems are
installed throughout North and South America, Europe, Africa, Australia and
Asia. Customers include property management companies, condominiums, hotels,
motels, restaurants, resorts, country clubs and cruise lines.

         The Company markets its systems through more than 80 locations in over
20 countries. These include locations maintained by the Company as sales offices
as well as locations of distributors. Customer assistance and support services
are generally offered 24 hours a day. The Company has generally had good
experience in utilizing its internal resources as well as distributors to market
and sell its products and services. Utilizing distributors allows the Company to
take advantage of established operations, eliminate office start-up costs, and
control costs associated with sales and marketing. Management intends to
continue to build the Company's customer and product bases through current
channels and to pursue strategic growth through acquisitions, mergers, joint
ventures or other alliances.

         Financial information about foreign and domestic operations and export
sales are described in the Company's financial statement and notes thereto
which are included herein.

TRAINING

         Training of users is performed by employees of Sulcus who are
themselves required to go through a Company training program and occasionally by
distributors familiar with the business function of the user. Sulcus also trains
its personnel in applying the use of teaching techniques to user requirements.
Users are taught to customize the output for their specific needs. Sulcus
conducts training at its offices and at customers' sites.

MARKETING

         Sulcus utilizes Company owned locations and distributors for the sales
of its systems. The Company owned locations account for the majority of Sulcus'
sales and are located throughout the United States and in Australia, China, The
Philippines, Singapore, Switzerland, United Kingdom, Norway, Malaysia and
Canada. Sales personnel are employees of the Company and sell Sulcus products
directly to end-users and do not represent any other companies. The Company's
compensation arrangements with its sales employees generally provide for a
commission based on sales performance. Managers engaged in sales activities are
compensated by a combination of salary and commission. Distributors are
compensated by means of a discount on the purchase price which varies with
products offered and to a lesser extent, the territory assigned. The Company
sets minimum sales quota requirements for its sales employees and during the
past three fiscal years the Company has terminated sales employees and
distributors for failing to meet such requirements. The Company is not
materially dependent upon any individual or group of sales employees or
distributors.

         The Company has generally had favorable experience in utilizing its own
employees as well as distributors for marketing and selling the Company's
products and services. Use of distributors and dealers allow the Company to take
advantage of established operations having required experience with the
Company's products. Office start-up costs are eliminated which help in the
control of the Company's costs associated with marketing and sales. The
disadvantage to using this method of distribution is the lack of direct control
and a risk inherent with changes in business and conditions of the distributor
which could result in less sales effort and less than expected revenues.

         The Company does not provide customers or distributors with rights to
return products, extended payment terms or similar working capital items. The
Company offers limited warranties relating to the performance of its software
products and Company manufactured point-of-sale hardware products. It does
represent that when delivered, these products will conform to their published
specifications if used properly and used on equipment purchased from or approved
by the Company. The warranty


                                       5
<PAGE>   6



for hardware purchased by the Company for resale as part of a computer system is
issued by the manufacturer, and is passed on to the customer.

         The Company utilizes a sales-type lease program in which the Company
retains ownership in the residual value of the leased property and assumes
certain liability under the recourse provisions in the agreement. The Company
has recorded a reserve for the estimated liability.

COMPETITION

         Competition in the computer software market is generally intense and
competitors often attempt to emulate successful programs. Of the major
competitors, there does not appear to be a clear dominant vendor, due in part to
the increased number of competitors entering the marketplace over the past
several years. Increased competition has resulted in greater discounting of
prices with no lessening of the cost of providing systems and services.
Competitive advantages are afforded to those companies which are better
capitalized and have programming staffs which are able to meet the changing
demands of hotel and resort property owners or managers. There can be no
assurance that competitors will not develop competitive products or that Sulcus
will be able to successfully compete against such competitors or products. The
competitive position of Sulcus is not readily available because many companies
in this market are privately held and do not publish financial information.
Furthermore, there is no organization that routinely collects and evaluates
competitive information from which a competitive position can reliably be
ascertained.

         The Company believes there are approximately five to six competitive
vendors in each of the Property Management Systems and Full Service Restaurant
Management Systems marketplaces that have about the same or more installations
than Sulcus.

         Management believes that compared to competitive products, Sulcus
products are not only superior in feature and function, but in connectivity and
integration to other products. Sulcus differentiates itself in the hospitality
marketplace in two ways. First, Sulcus utilizes a state-of-the-art development
platform for its software products which allows the Company to implement its
systems on currently available operating platforms. These software development
platforms are flexible and easy to modify, allowing customization of application
programs to meet the specific needs of customers and provide less expensive
enhancements to the system over time. The Company's internal labor costs are
also reduced because of the efficient manner in which its programs can be
created and modified. Second, Sulcus offers a complete family of products to the
hospitality industry. Management believes that support is fundamental to the
continued business relationship with Sulcus' customers and that its software
support is among the industry's leaders. See "Business--Product Support
Services."

PRODUCT PROTECTION

         Sulcus regards its software and application systems as proprietary and
generally relies on a combination of trade secret laws, copyrights, contracts
and internal and external nondisclosure safeguards to protect its products. Each
of the contracts under which customers use Sulcus' products contain restrictions
on using, copying and transferring the products, and prohibit their disclosure
to other parties. Despite these restrictions, it may be possible for users or
competitors to copy aspects of the products or to obtain information that Sulcus
considers as trade secrets. Sulcus believes that any copies so obtained have
limited value without access to the product source code which is kept highly
confidential. Additionally, many of Sulcus' products contain software and
hardware security devices to prevent unauthorized use or copying. Because of the
uncertain enforcement of Sulcus' proprietary rights in foreign countries, most
products distributed internationally use internal copy protection methods. Only
certain aspects of computer software can be patented, and existing copyright
laws afford limited practical protection. Sulcus has not patented any of its
products although it may seek patent protection for future products." In
connection with it acquisition of Senercomm, Inc. Sulcus obtained all rights to
an existing patent for a HVAC control system and method. To maintain competitive
advantages, Sulcus believes that rapid technological changes in the computer
industry places greater emphasis on the knowledge and experience of its
personnel and their ability to develop, enhance and market new products, than on
patent or copyright protection of technology. Accordingly, all employees are
required to sign nondisclosure agreements at the time of their employment.

         Sulcus has registered in the United States or has been assigned and
uses the following trademarks and service marks on its products and services,
and considers each to be proprietary: SULCUS(R), LODGEMATE(R), LANmark(R),
SQUIRREL(R), LODGISTIX(R), SULCLINK(R), innPULSE(R), SensorStat(R), SensorStat
The Smart Controller(R), Soft Bypass(R) and PageLogic(R).

         Sulcus has the exclusive license and assignment of the trademark of
COMPUSOLV(R). Sulcus has applied for, or intends to apply for Federal trademark
or service mark registration for HAT...ms(TM), wINNmaxX(TM), LANEXEC(TM),
HOTELTRIEVE(TM), and wINNfinity(TM). Additionally, Sulcus has registered or
applications are pending for various product names in numerous foreign
countries.


                                       6
<PAGE>   7



PERSONNEL

         As of February 28, 1998, Sulcus employed 469 persons, including 21
executives engaged in management, 65 persons in administration and finance, 123
technical personnel, 77 persons engaged in sales and marketing and 183 persons
in training and product support. None of Sulcus' employees are subject to
collective bargaining agreements. Sulcus believes its relations with its
employees to be excellent.


ITEM 2. PROPERTIES

         Sulcus' principal executive and administrative operations are located
at Sulcus Centre, 41 N. Main Street, Greensburg, Pennsylvania 15601, in a
facility containing approximately 10,000 square feet. Sulcus leases these
offices under several leases expiring on various dates through September 30,
2001. The annual rental commitment under these leases are $180 thousand in 1998,
$104 thousand in 1999, $96 thousand in 2000, and $75 thousand in 2001.

         Lodgistix leases approximately 22,500 square feet of office space in
Wichita, Kansas. The approximate monthly costs are $23 thousand, pursuant to a
lease terminating January 31, 1998. Squirrel Systems of Canada, Inc., leases
21,000 square feet in Vancouver, British Columbia, Canada at an approximate
monthly cost of $9 thousand under a lease terminating on October 31, 2005.

ITEM 3. LEGAL PROCEEDINGS

         Sulcus Computer Corporation, NRG Management Systems, Inc., Jeffrey S.
Ratner and Frank Morrisroe were Defendants in an action filed in January 1995,
in the Fort Bend County Court in Texas, by Walter Lipski, Jr. ("Lipski"), a
former executive with the Company's Hospitality Group. Lipski had claimed that
Defendants breached the Employment Agreement and Stock Purchase Agreement
entered into between the parties. In December 1997, the Company, without
admitting or denying the claims of Mr. Lipski, settled this dispute with a cash
payment of $250,000. This settlement was recorded in the 1997 results of
operations. Full payment of this obligation was made in January 1998.

         Suits arising in the ordinary course of business are pending against
the Company and its subsidiaries. The Company cannot predict the ultimate
outcome of these actions but believes they will not result in a material adverse
effect on the Company's consolidated financial position.

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

         At the Annual Meeting of Shareholders of the Company held on November
14, 1997, the holders of a plurality of the voting shares of the Company's
common stock voted to re-elect Leon D. Harris, David H. Adler, David W. Berkus
and Robert D. Gries. In addition, (1) the holders of a majority of the votes
cast approved certain amendments to the Company's Articles of Incorporation,
adopted Amended and Restated By-Laws of the Company, and ratified the
appointment of Crowe, Chizek and Company as the Company's auditors, and (2) the
holders of a majority of the votes present or represented, in person or by
proxy, and entitled to vote, approved each of the 1997 Sulcus Hospitality
Technologies Corp. Employee Stock Purchase Plan, the 1997 Sulcus Hospitality
Technologies Corp. Long-Term Incentive Plan, and the 1997 Sulcus Hospitality
Technologies Corp. Non-Employee Directors' Stock Option Plan. The votes cast
were as follows:

Proposal 1.       Election of Directors.

     Name                  For             Against

Adler, David H.         13,196,088         181,548
Berkus, David W.        13,207,574         170,062
Gries, Robert D.        13,203,976         173,660
Harris, Leon D.         13,207,440         170,196


                                       7
<PAGE>   8



Proposal 2        The approval of certain amendments to the Company's Articles
                  of Incorporation and By-Laws to classify the Board of
                  Directors into three classes.

                  For:                      8,362,643
                  Against:                  1,028,191
                  Abstain:                    242,291

Proposal 3        The approval of certain other amendments to the Articles.

                  For:                      7,864,097
                  Against:                  1,072,149
                  Abstain:                    269,930

Proposal 4        The approval of certain amendments to and a restatement of the
                  By-Laws.

                  For:                      7,904,314
                  Against:                  1,052,000
                  Abstain:                    258,882

Proposal 5        The approval of the proposed 1997 Sulcus Hospitality
                  Technologies Corp. Employee Stock Purchase Plan.

                  For:                      9,339,360
                  Against:                    985,863
                  Abstain:                    242,439

Proposal 6        The approval of the proposed 1997 Sulcus Hospitality
                  Technologies Corp. Long-Term Incentive Plan.

                  For:                      9,141,156
                  Against:                    726,429
                  Abstain:                    263,716

Proposal 7        The approval of the proposed 1997 Sulcus Hospitality
                  Technologies Corp.  Non-Employee  Directors' Stock Option
                  Plan.

                  For:                      8,827,092
                  Against:                  1,016,220
                  Abstain:                    287,991

Proposal 8        The ratification of the appointment of the auditors of the
                  Company.

                  For:                     15,385,234
                  Against:                    121,923
                  Abstain:                    147,869


                                       8
<PAGE>   9



PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

PRICE RANGE OF SECURITIES

         Sulcus Common Stock is traded on the American Stock Exchange under
the symbol SUL.

QUARTER ENDING                       HIGH              LOW

March 1998 (through March 24)        2-5/8             2-1/4

March 1997                           2-1/8             1-7/16
June 1997                            2-3/16            1-7/16
September 1997                       2-13/16           1-9/16
December 1997                        4-3/16            2-5/16

March 1996                           2-13/16           1-7/8
June 1996                            3-13/16           2-5/8
September 1996                       3-5/16            2-3/8
December 1996                        2-1/2             1-11/16


         On March 24, 1998, the high and low prices for the Common Stock were
2-3/8 and 2-3/16, respectively.

         As of March 24, 1998, there were approximately 4,041 record holders of
Sulcus' Common Stock.

         The company has not paid cash dividends and does not presently
contemplate paying cash dividends.


                                       9
<PAGE>   10



ITEM 6. SELECTED FINANCIAL DATA

                      SULCUS HOSPITALITY TECHNOLOGIES CORP.
                            SELECTED FINANCIAL DATA
                (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

         The following table sets forth selected consolidated financial data of
the Company for the five years ended December 31, 1993 through 1997. This
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
                                                        1997              1996             1995             1994              1993
                                                        ----              ----             ----             ----              ----
STATEMENT OF OPERATIONS DATA
----------------------------
<S>                                                 <C>               <C>               <C>              <C>              <C>
Net sales                                            $53,822           $50,805          $44,693          $41,887           $47,346
Cost of goods sold and services provided              24,840            23,354           18,965           20,588            23,085
                                                     -------           -------          -------          -------           -------
Gross profit                                          28,982            27,451           25,728           21,299            24,261

Selling, general and administrative expenses(1)       28,440            23,847           22,896           24,388            21,726

Research and development                               1,501             1,398            1,199            1,597             1,878

Depreciation and amortization                          1,701             1,589            1,520            2,158             2,034

Other items(2)                                            62                --            3,434            3,663             3,207
                                                     -------           -------          -------          -------           -------

Income (loss) from operations                         (2,722)              617           (3,321)         (10,507)           (4,584)

Interest expense                                         368               571              598              556               403

Unrealized and realized (gain) loss on investments(3)    (74)               (9)          (1,462)           1,861                --

Dividend income and other                             (1,006)           (1,340)          (1,291)          (1,256)           (1,937)

Income taxes                                              --                --              203               --                --
                                                    --------           -------         --------         --------          --------

Net income (loss)                                    ($2,010)           $1,395          ($1,369)        ($11,668)          ($3,050)

PER SHARE DATA
--------------
Basic earnings (loss) per share                        ($.12)             $.08            ($.09)           ($.84)            ($.23)

Weighted average shares used in computing
    basic earnings (loss) per share                   16,842            16,720           14,720           13,872            13,509

Cash dividends                                            --                --               --               --                --

BALANCE SHEET DATA
------------------
Working capital                                      $10,507           $11,350           $5,390           $4,183            $8,643

Total assets                                          42,206            47,950           47,327           47,869            58,716

Long-term obligations                                  2,313               367               74               86               364

Stockholders' equity                                  25,488            27,318           22,894           23,087            33,373

</TABLE>

---------------------
(1) Selling, general and administrative expenses for 1997 include costs for the
settlement of severance obligations to the Company's former chairman and the
Company's former president in the amount of $1,538 thousand.

(2) In 1997, the Company realized a $188 thousand gain as a result of the sale
of its land title business and settled litigation for $250 thousand. In 1995 the
Company wrote off $515 thousand of previously capitalized software and recorded
a provision for litigation settlement of $2,919 thousand. In 1994, the Company
wrote off $1,820 thousand of previously capitalized software and $337 thousand
of investments in affiliates, wrote off $1,256 thousand of goodwill and recorded
a provision for litigation of $250 thousand. In 1993, the Company wrote off $328
thousand of previously capitalized software, $642 thousand of investments in
affiliates and recorded a provision for litigation settlements of $2,237
thousand.

(3) Prior to June 1995, the Company reported unrealized gains and losses as a
component of income. On June 5, 1995, the Company restructured its investment
portfolio, and as a result no longer reports unrealized gains or losses from the
investment portfolio in its statement of earnings.


                                       10
<PAGE>   11



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

RESULTS OF OPERATIONS

1997 AS COMPARED TO 1996

         The Company had a net loss of ($2,010) thousand in the year ended
December 31, 1997 as compared to net income of $1,395 thousand in the year ended
December 31, 1996. Gross profits increased $1,531 thousand (6%) from $27,451
thousand to $28,982 thousand as the result of a $3,017 thousand increase in
sales. This increase in gross margins was offset by an increase in operating
expenses of $4,870 thousand and a decrease in other income items of $66
thousand. In 1997, the Company reclassified the presentation of its income
statement to reflect what management believes more clearly shows the
relationships between revenues and expenses and income from operations.
Historical information has been reclassified to conform to this presentation. On
December 31, 1997, the Company consummated the purchase of Senercomm, Inc.
(Senercomm). The acquisition has been accounted for as a purchase and,
accordingly, the balance sheet of Senercomm was included in the consolidated
financial statements of the Company at December 31, 1997 and the results of
operations of Senercomm will be consolidated with those of the Company beginning
January 1, 1998.

         Net sales for the year ended December 31, 1997 were $53,822 thousand,
representing an increase of $3,017 thousand (6%) when compared to net sales of
$50,805 thousand for the same period of 1996. Net system sales for the year
ended December 31, 1997 were $33,297 thousand as compared to $31,722 thousand
for the same period of 1996, an increase of $1,575 thousand (5%) due primarily
to an increase in sales of the Company's Property Management Systems, offset in
part by decreases in sales of Point of Sales systems and the sale and closure of
certain real estate operations. Support revenues for the year ended December 31,
1997 were $20,525 thousand as compared to $19,083 thousand for the same period
of 1996, an increase of $1,442 thousand (8%) due primarily to increased
installations of the Company's Property Management Systems and an increased base
of Point of Sale installations. 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 to distributors
of the Company were $45,045 thousand (84%) and $8,777 thousand (16%),
respectively, of net sales for the year ended December 31, 1997 as compared to
$41,802 thousand (82%) and $9,003 thousand (18%) for the comparable 1996 period.

         Cost of goods sold for the year ended December 31, 1997 increased to
$24,840 thousand from $23,354 thousand, an increase of $1,486 thousand (6%) from
the comparable 1996 period. Cost of goods sold as a percentage of net sales was
46% for both of the years ended December 31, 1997 and 1996. Gross margins of the
Company increased to $28,982 thousand from $27,451 thousand, an increase of
$1,531 thousand (6%) over the same period of 1996, due to increased sales
levels, additional costs paid for hardware and reduced amortization costs on
capitalized software. Cost of system sales for the year ended December 31, 1997
was $21,100 thousand (63% of system sales) as compared to $19,598 thousand (62%
of system sales) for the same period of 1996, an increase of $1,502 thousand
(8%), due primarily to increased sales levels. The Company includes the
amortization of capitalized software costs in Systems Cost of Sales. During
1997, amortization was completed on certain software products, representing the
completion of the estimated useful lives of the products. Software amortization
costs in 1997 as compared to 1996 were therefore reduced by $955 thousand. The
hardware component of the Company's sales increased 4% in 1997 as compared to
1996, however, the related costs of this hardware increased 15%. Cost of support
for the year ended December 31, 1997 was $3,740 thousand (18% of support
revenues) as compared to $3,756 thousand (20% of support revenues) for the same
period of 1996, a decrease of $16 thousand (less than 1%).

         Total operating expenses increased $4,870 thousand in 1997 when
compared to 1996 in the areas of selling, general, and administrative ($4,593
thousand), research and development ($103 thousand), depreciation and
amortization ($112 thousand). Also included in operating expenses is a gain on
the sale of the Company's land title business of $188 thousand and a $250
thousand provision for the settlement of litigation. Total operating expenses
were 59% of net sales in 1997 as compared to 53% of net sales in 1996.

         Selling, general and administrative expenses increased $4,593 thousand
(19%) in 1997 when compared to 1996. For the year ended December 31, 1997, these
expenses were $28,440 thousand as compared to $23,847 thousand in 1996. Selling,
general, and administrative expenses as a percentage of net sales was 53% for
the year ended December 31, 1997 as compared to 47% for the same period of 1996.
The increase in selling, general and administrative expenses is primarily the
result of severance costs for the Company's former chairman and the Company's
former president of $1,538 thousand, increases in payroll and related costs of
$1,087 thousand, increases in advertising related costs of $589 thousand and
increases in travel and related costs of $392 thousand. Excluding severance, the
increases in payroll and related costs were primarily in the Company's Point of
Sale business and in international sales offices. Increases in payroll,
advertising and travel costs represent the expansion of the Company's
distribution channels as well as increased expenses for the marketing and
support of new products.


                                       11
<PAGE>   12



         Research and development expense for the year ended December 31, 1997
increased to $1,501 thousand from $1,398 thousand an increase of $103 thousand
(7%) over the same period of 1996. Total amounts expended on research and
development (including amounts expensed and amounts capitalized) was $3,069
thousand and $2,499 thousand for 1997 and 1996, respectively.

         Depreciation and amortization expense for the year ended December 31,
1997 increased to $1,701 thousand from $1,589 thousand for the same period of
1996, an increase of $112 thousand (7%).

         Effective September 30, 1997, the Company sold its land title
subsidiary for cash. The sale resulted in a gain on disposal of $188 thousand,
representing the difference between the sales price and the net assets of the
subsidiary, less costs of disposal. The impact of this disposal on gross
margins, operating expenses and net loss was not material. In the fourth
quarter, the Company accrued $250 thousand for the settlement of disputes which
arose in 1995 with regard to the purchase of the Company's NRG Management
Systems, Inc. subsidiary and the employment agreement with that Company's former
owner.

         Other income and expense consists of interest expense, realized and
unrealized gains and losses on short-term investments and dividends and other
income. Interest expense for the year ended December 31, 1997 decreased to $368
thousand from $571 thousand for the same period of 1996, a decrease of $203
thousand (36%) due to reduced borrowings. Dividends and other income for the
year ended December 31, 1997 was $1,006 thousand as compared to $1,340 thousand
for the same period of 1996, a decrease of $334 thousand (25%) due to the
liquidation of invested balances to repay borrowings.

         The Company had a net deferred tax asset amounting to $2,100 thousand,
net of valuation allowances of $8,802 thousand at December 31, 1997 and $6,969
thousand at December 31, 1996. The valuation allowance was increased in the year
ended December 31, 1997 by $1,833 thousand 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 statement for the year ended
December 31, 1997 does not reflect any income tax provision on the pre-tax
operating results for that period. The realizability of this deferred tax asset
is contingent upon a number of factors including the ability 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 actual results achieved in 1995, 1996 and 1997 and the
Company's view of expected profits in 1998 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.

1996 AS COMPARED TO 1995

         The Company had net income of $1,395 thousand in the year ended
December 31, 1996 as compared to a loss of ($1,369) thousand in the year ended
December 31, 1995 on sales which increased by $6,112 thousand (14%) for these
same periods. In 1995, the Company reported unrealized gains on its investment
portfolio of $1,462 thousand and expenses related to the write-off of assets of
$515 thousand and litigation settlement $2,919 thousand. When eliminating these
amounts for the purpose of comparability, the Company showed an improvement on
earnings from $603 thousand to $1,395 thousand, a change of $792 thousand. The
Company's results for the year ended December 31, 1996 improved over those for
the same period of 1995 primarily as a result of improvements in margins of
$1,723 thousand partially offset by increases in selling, general and
administrative costs of $951 thousand.

         Net sales for the year ended December 31, 1996 were $50,805 thousand,
representing an increase of $6,112 thousand (14%) when compared to net sales of
$44,693 thousand for the same period of 1995. Net system sales for the year
ended December 31, 1996 were $31,722 thousand as compared to $27,645 thousand
for the same period of 1995, an increase of $4,077 thousand (15%). This increase
was due primarily to increased sales of the Company's Point of Sale Systems and
the delivery of systems under significant contracts by the Company's Singapore
and Hong Kong sales offices. Support revenues for the year ended December 31,
1996 were $19,083 thousand as compared to $17,048 thousand for the same period
of 1995, an increase of $2,035 thousand (12%) due primarily to an increased base
of point-of-sale installations in 1995 and 1996. 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 to
distributors of the Company were $41,802 thousand (82%) and $9,003 thousand
(18%), respectively, of net sales for the year ended December 31, 1996 as
compared to $35,778 thousand (80%) and $8,915 thousand (20%) for the comparable
1995 period.

         Cost of goods sold for the year ended December 31, 1996 increased to
$23,354 thousand from $18,965 thousand, an increase of $4,389 thousand (23%)
from the comparable 1995 period. Cost of goods sold as a percentage of net sales
increased for the year ended December 31, 1996 to 46%, as compared to 42% for
the same period of 1995. Gross margins of the Company increased to $27,451
thousand from $25,728 thousand, an increase of $1,723 thousand (7%) over the
same period of 1995, due primarily to increases in the Company's domestic
point-of-sale systems which were partially offset by decreases in the margins of
the domestic property management subsidiary. Cost of system sales for the year
ended December 31, 1996 was $19,598 thousand (62% of system sales) as compared
to $15,459 thousand (56% of system sales) for the same period of 1995, an
increase of $4,139 thousand (27%), due primarily to the mix of software and
hardware sales. The cost of sale components for hardware sales is higher than
that for



                                       12
<PAGE>   13



software sales. Cost of support for the year ended December 31, 1996
was $3,756 thousand (20% of support revenues) as compared to $3,506 thousand
(21% of support revenues) for the same period of 1995, an increase of $250
thousand (7%).

         When eliminating the effect of the 1995 write-off of previously
capitalized software costs ($515 thousand) and the 1995 provision for litigation
settlement ($2,919 thousand) for the purposes of comparability, total operating
expenses increased $1,219 thousand in 1996 when compared to 1995. These
increases were in the areas of selling, general, and administrative expenses
($951 thousand), research and development ($199 thousand), and depreciation and
amortization ($69 thousand). Total operating expenses were 53% of net sales in
1996 as compared to 65% of net sales in 1995 (57% of sales if the write-off of
previously capitalized software and the provision for litigation settlement are
removed).

         For the year ended December 31, 1996, selling, general and
administrative expenses were $23,847 thousand as compared to $22,896 thousand in
1995, an increase of $951 thousand (4%). Selling, general, and administrative
expenses as a percentage of net sales was 47% for the year ended December 31,
1996 as compared to 51% for the same period of 1995. The increase in selling,
general and administrative expenses is primarily on the areas of payroll and
related costs ($880 thousand ) and bad debt expense ($280 thousand). Increases
in payroll and related costs represent the expansion of the Company's
distribution channels as well as increased expenses for the marketing and
support of new products.

         Research and development expense for the year ended December 31, 1996
increased to $1,398 thousand from $1,199 thousand an increase of $199 thousand
(17%) over the same period of 1995. Total amounts expended on research and
development (including amounts expensed and amounts capitalized) was $2,499
thousand and $2,202 thousand for 1996 and 1995, respectively.

         Depreciation and amortization expense for the year ended December 31,
1996 increased to $1,589 thousand from $1,520 thousand for the same period of
1995, an increase of $69 thousand (5%).

         Other income and expense consists of interest expense, realized and
unrealized gains and losses on short-term investments and dividends and other
income. Interest expense for the year ended December 31, 1996 decreased to $571
thousand from $598 thousand for the same period of 1995, a decrease of $27
thousand (4%). Dividends and other income for the year ended December 31, 1996
was $1,340 thousand as compared to $1,291 thousand for the same period of 1995,
an increase of $49 thousand (4%).

         The Company had a net deferred tax asset amounting to $2,100 thousand,
net of valuation allowances of $6,969 thousand at December 31, 1996 and $10,534
thousand at December 31, 1995. The valuation allowance was decreased in the year
ended December 31, 1996 by $3,565 thousand 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 statement for the year ended
December 31, 1996 does not reflect any income tax provision on the pre-tax
operating results for that period.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's liquidity is primarily dependent upon its ability to
generate sufficient working capital through profitable operations. Management
believes that in order to achieve sustained 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. Total amounts which could have been borrowed under the Company's
line of credit were $2 million at December 31, 1997, of which $1.3 million was
outstanding at that date. Subsequent to year end, the Company repaid amounts
outstanding under the line of credit of $1,300 thousand.

         At December 31, 1997, Sulcus' cash and cash equivalents increased to
$8,894 thousand from $2,503 thousand at December 31, 1996, an increase of $6,391
thousand. This increase was primarily the result of cash provided by
liquidations of the Company's investment of marketable securities which were
reinvested in commercial paper at December 31, 1997. At December 31 1996, the
Company had short-term investment of $12,393 thousand and outstanding borrowings
under a margin agreement for these short-term investments of $5,827 thousand.
During 1997, substantially all of these investments were liquidated and the
margin account repaid leaving $6,000 thousand which is invested at December 31,
1997 in commercial paper with maturities of three months or less. This
commercial paper is classified as a cash equivalent. 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.

         At December 31, 1997, accounts receivable were $11,256 thousand as
compared to $12,997 thousand a year earlier. 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 be uncollectible from customers. The



                                       13
<PAGE>   14



allowance for uncollectible accounts decreased at December 31, 1997 to $1,785
thousand as compared to $1,913 thousand at December 31, 1996, due to improved
collections of accounts receivable.

         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 increased to $3,261 thousand at
December 31, 1997 as compared to $2,614 thousand a year earlier primarily
in the Company's Point of Sale business. Accounts payable decreased to
$2,645 thousand at December 31, 1997 as compared to $3,948 thousand a year
earlier.

         The Company leases facilities under operating lease agreements of
varying terms. Properties and equipment consist of leasehold improvements and
equipment used in the conduct of business. Property and equipment, net of
accumulated depreciation and amortization, was $2,142 thousand at December 31,
1997 as compared to $2,473 thousand a year earlier.

          At December 31, 1997, the Company had long-term borrowings (including
current and noncurrent portions) of $2,313 thousand, primarily related to
acquisition debt for a subsidiary and severance obligation to the Company's
former chairman of the board.

         The backlog of hardware and software orders at December 31, 1997 is
expected to be filled within one year and amounted to $7,900 thousand.

         For the years ended December 31, 1997, 1996 and 1995, 42%, 36% and 33%,
respectively, of the Company's consolidated sales were derived from customers
outside of the United States. Substantially all of the Company's sales outside
of the United States are billed and collected in functional currencies of that
subsidiary. The costs of point-of-sale systems sold by the Company's foreign
subsidiaries are denominated in United States Dollars. Substantially all other
operating expenses of these subsidiaries are incurred in the functional currency
of that subsidiary. Consequently, sales of point-of-sale and reported financial
results are affected by changes in foreign currencies against the U.S. dollar.
To demonstrate the impact of changes in foreign currencies against the U.S.
dollar, the following summarizes the changes in sales and net income had
exchange rates in effect for 1995 been applicable to 1997 and 1996 (in thousands
of dollars):

                           Pro-Forma results using 1995 Currency Exchange Rates
                           ----------------------------------------------------
                                   1997 Results      1996 Results
                                   ------------      ------------
Sales                                   $54,775           $50,710
Net Income                              ($2,018)           $1,391

         Since December 31, 1997 the U.S. Dollar has generally strengthened
against functional currencies of the Company's subsidiaries, primarily those in
Australia and Singapore. Had the rates at February 28, 1998 been in effect in
1997, reported sales would have been reduced by $1.3 million, however, net
income would not be materially impacted.

         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
expects that to meet customer needs, it must continue to invest in the
development of the Company's software products at levels consistent with those
of the past two years. To finance these needs, the Company will rely primarily
on operating cash flow over the next several years together with currently
available working capital and its line of credit. Nonetheless, if technological
changes render Sulcus' products uncompetitive or obsolete, or, if the Company
incurs operating losses, additional capital may be required. 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. Management
believes that available revenue from operations together with available capital
and lines of credit will be sufficient to support the anticipated operating and
capital requirements of the Company for at least twelve months.

         In furtherance of the Company's strategy of acquisition of computer
software products or companies that complement or expand existing business
lines, the Company intends to continue its efforts to acquire additional
businesses or software products and/or to create joint ventures related to
existing businesses for this purpose. On December 31, 1997, the Company
consummated the purchase of Senercomm, Inc. (Senercomm) for $2,174 thousand. The
purchase price consisted of $500 thousand of Sulcus Common Stock at $2.60 per
share, $500 thousand cash paid at the closing, and the balance of $1,174
thousand payable in three equal annual installments including interest at the
rate of 8%.

         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, results of operations and liquidity.


                                       14
<PAGE>   15



FORWARD-LOOKING STATEMENTS

         The foregoing discussion and the Company's consolidated financial
statements contain certain forward-looking statements that involve risks and
uncertainties, including the following: (i) the realizability of deferred tax
assets which is contingent upon a number of factors including the ability of the
Company to achieve a level of operations that will generate taxable income, (ii)
the expected useful lives of intangible assets such as purchased and capitalized
software and goodwill, (iii) management's belief that in order to be profitable,
it must continue to increase sales and improve productivity relating to selling,
general and administrative expenses, (iv) management's belief that it must
increase its distribution channels and introduce additional developed or
acquired competitive products in its current market segment in order to increase
sales, (v) the expectation that the Company must continue to invest in the
development of software products at levels generally consistent with those of
the past two years in order to meet customer demands, (vi) the adequacy of
operating cash flows over the next several years together with currently
available working capital to finance the growth needs of the Company, (vii)
rapidly changing technology, accelerated product obsolescence and rapidly
changing industry standards in the market for the Company's products, resulting
in the need to update products and introduce new products and services in a
timely manner to meet evolving customer requirements (viii) the impact of
foreign exchange on the reported results. As a result, the Company's actual
results could differ materially from the results discussed in the
forward-looking statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Not applicable

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Consolidated financial statements and the Report of Independent
Auditors thereon are listed under Item 14(a) (1) of this Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
         DISCLOSURE

         None

PART III

ITEMS 10 THROUGH 13.

         In accordance with the provisions of General Instruction G to Form
10-K, the information required by Item 10 (Directors and Executive Officers of
the Registrant), Item 11 (Executive Compensation), Item 12 (Security Ownership
of Certain Beneficial Owners and Management) and Item 13 (Certain Relationships
and Related Transactions) is not set forth herein. Reference is made to the
Company's definitive Proxy Statement for its Annual Meeting of Shareholders to
be filed with the Securities and Exchange Commission within 120 days after the
end of the fiscal year covered by this annual report for such information. Such
information is incorporated in this annual report by reference, except for the
information required to be included in the Proxy Statements by paragraphs (i),
(k) and (l) of Item 402 of Regulations S-K.


                                       15
<PAGE>   16


PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S>      <C>      <C>      <C>
(a)      1.       FINANCIAL STATEMENTS

                  *        REPORT OF INDEPENDENT AUDITORS
                  *        CONSOLIDATED BALANCE SHEETS - Years Ended December 31, 1997 and 1996
                           CONSOLIDATED STATEMENTS OF OPERATIONS - Years ended December 31, 1997, 1996 and 1995
                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - Years ended December 31, 1997, 1996 and 1995
                  *        CONSOLIDATED STATEMENTS OF CASH FLOWS - Years ended  December 31, 1997, 1996 and 1995
                  *        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         2.       FINANCIAL STATEMENT SCHEDULES ATTACHED HERETO ARE AS FOLLOWS:

                  Schedule VIII - Valuation and Qualifying Accounts, page F-20

                  All other Schedules are omitted since the required information is not present in amount sufficient to require
                  submission of the Schedules, or because the information is included in the Consolidated Financial Statements
                  and Notes thereto.

         3.       EXHIBITS INDEX

         (2)(a)            Stock Purchase Agreement and Plan of Reorganization among Sulcus, NRG and shareholders of NRG(4)

         (3)(a)            Articles of Incorporation as Amended(7)
            (b)            Certificate of Amendment to Articles of Incorporation(7)
            (c)            Amended and Restated By-Laws(7)

         (4)(a)            Form of Common Stock Certificate(1)
            (b)            Form of Preferred Stock Certificate(5)
            (c)            Rights Plan(8)

        (10)(a)            Incentive Stock Option Plan, as amended(2)
            (a)(i)         Form of 1991 Incentive Stock Option Plan as amended(3)
            (b)            Director's Stock Option Plan(2)
            (b)(ii)        Form of 1991 Directors Stock Option Plan as amended(3)
            (c)            Form of Incentive Stock Option Agreement(2)
            (d)            Form of Directors Stock Option Agreement(2)
            (e)            Form of Employee Stock Purchase Plan(7)
            (f)            Form of 1997 Long-Term Incentive Plan(7)
            (g)            Form of 1997 Non-Employee Director's Plan(7)
            (h)            Form of Distributor Agreement(2)
            (i)            Form of Support, Maintenance & Enhancement Agreement(2)
            (j)            Form of Hardware Service Agreement(2)
            (k)            Lease for premises at 41 N. Main Street, Greensburg, PA(2)
            (l)            Agreement with Horwath International(6)

           (11)            Statement RE: Computation of Per Share Earnings, filed
                           with this Report, page F-14

           (21)            Subsidiaries of Registrant, filed with this Report, page 18

           (23)(a)         Consent of Crowe Chizek & Company

           (27)            Financial Data Schedule filed with this Report.
</TABLE>


                                       16
<PAGE>   17



<TABLE>
<S>      <C>
       ---------------------

       (1)     Incorporated by reference to Form S-18 Registration Statement (No. 2-91055-W) of Registrant filed on
               May 10, 1984.

       (2)     Incorporated by reference to Form S-1 Registration Statement (No. 33-32469) of Registrant filed on
               December 7, 1989.

       (3)     Incorporated by reference to Form 10-K Annual Report (No. 0-13226) filed on May 15, 1994.

       (4)     Incorporated by reference to Form 8-K Current Report for March 1992.

       (5)     Incorporated by reference to Amendment No. 3 to Form S-1 Registration Statement (No. 33-85244), filed on
               July 29, 1996.

       (6)     Incorporated by reference to Amendment No. 5 to Form S-1 Registration Statement (No. 33-85244), filed on
               October 23, 1996.

       (7)     Incorporated by reference to Form S-8 Registration Statement filed on December 30, 1997.

       (8)     Incorporated by reference to Form 8-A Registration Statement filed on February 3, 1998.

(b)             REPORTS OF FORM 8-K

                None

(c)             EXHIBITS ARE LISTED IN ITEM 14(a)

</TABLE>









                                       17
<PAGE>   18



22. SUBSIDIARIES OF SULCUS HOSPITALITY TECHNOLOGIES CORP.

    Sulcus Investment Corporation                                 Delaware

    Sulcus Hospitality Group, Inc.                                Pennsylvania

    Radix Systems, Inc.                                           Pennsylvania

    Lodgistix, Inc.                                               Delaware

    Sulcus (Australia) Pty. Ltd.                                  Australia

    Squirrel Companies, Inc.                                      Pennsylvania

    Squirrel Companies of Canada, Ltd.                            Canada

    NRG Management Systems, Inc.                                  Pennsylvania

    Senercomm, Inc.                                               Florida

    Sulcus Hospitality Limited                                    Hong Kong

    Sulcus Singapore, Pte. Ltd.                                   Singapore

    Sulcus (Malaysia) SDN BHD                                     Malaysia

    Sulcus Hospitality Technologies EMEA, AG                      Switzerland
     Sulcus (International) AG                                    Switzerland
     Sulcus UK                                                    United Kingdom

    Sulcus Scandinavia, A.S.                                      Scandinavia


                                       18
<PAGE>   19



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Greensburg,
Commonwealth of Pennsylvania, on March 27, 1998.

                         Sulcus Hospitality Technologies Corp
                         By:   /s/ LEON HARRIS
                               ---------------
                               Leon Harris
                               Chairman of the Board,Chief Executive Officer
                               and Principal Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities indicated on March 27, 1998.

         Signature and Title                                  Date
         -------------------                                  ----
/s/ LEON D. HARRIS                                        March 27, 1998
------------------                                        --------------
Leon D. Harris, Chairman of the Board
Chief Executive Officer and
Principal Executive Officer

/s/ ROBERT D. GRIES                                       March 27, 1998
-------------------                                       --------------
Robert D. Gries, Vice Chairman of the
Board and Director

/s/ DAVID H. ADLER                                        March 27, 1998
------------------                                        --------------
David H. Adler, Director

/s/ DAVID W. BERKUS                                       March 27, 1998
-------------------                                       --------------
David W. Berkus, Director

/s/ CHRISTINE HUGHES                                      March 27, 1998
---------------------                                     --------------
Christine Hughes, Director

/s/ H. RICHARD HOWIE                                      March 27, 1998
--------------------                                      --------------
H. Richard Howie, Chief Financial
Officer and Chief Accounting Officer



                                       19
<PAGE>   20

                              [CROWE CHIZEK LOGO]



                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Shareholders
Sulcus Hospitality Technologies Corp.

We have audited the accompanying consolidated balance sheet of Sulcus
Hospitality Technologies Corp. (formerly Sulcus Computer Corporation) as
of December 31, 1997 and 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sulcus Hospitality
Technologies, Corp. as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

Our audits referred to above also included the financial schedule listed in
answer to item 14(a)(2). In our opinion, such financial schedule presents
fairly the information required to be set forth therein.


                                            /s/ CROWE, CHIZEK AND COMPANY LLP
                                            ---------------------------------
                                                Crowe, Chizek and Company LLP

Columbus, Ohio
February 27, 1998


                                      F-1
<PAGE>   21


                      SULCUS HOSPITALITY TECHNOLOGIES CORP.
                           CONSOLIDATED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                               -------------------------
                                                                                1997                1996
                                                                                ----                ----
<S>                                                                         <C>                 <C>
Current Assets
    Cash and cash equivalents                                                $ 8,894             $ 2,503
    Short-term investments (at market)                                           259              12,393
    Accounts receivable, net of allowance of $1,785
       and $1,913 in 1997 and 1996, respectively                              11,256              12,997
    Inventories                                                                3,261               2,614
    Deferred taxes                                                               389                 208
    Other current assets                                                       1,718               1,082
                                                                              ------              ------
Total current assets                                                          25,777              31,797

Purchased and capitalized software, net of accumulated amortization
    of $11,396 and $10,661 in 1997 and 1996, respectively                      4,961               3,260

Property and equipment, net of accumulated depreciation of $4,841
    and $4,801 in 1997 and 1996, respectively                                  2,142               2,473

Goodwill, net of accumulated amortization of $4,240
    and $3,448 in 1997 and 1996, respectively                                  6,428               7,221
Deferred taxes                                                                 1,711               1,892
Other noncurrent assets                                                        1,187               1,307
                                                                             -------             -------
Total Assets                                                                 $42,206             $47,950
                                                                             =======             =======
</TABLE>


                      LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S>                                                                         <C>                 <C>
Current Liabilities
    Short-term borrowings                                                    $ 1,300             $ 5,827
    Current portion of long-term debt                                            705                  27
    Current portion of obligations under capital leases                          160                 155
    Accounts payable                                                           2,645               3,948
    Deferred revenues                                                          6,542               6,497
    Customer deposits                                                          1,666               2,102
    Other accrued liabilities                                                  2,252               1,891
                                                                              ------              ------
Total current liabilities                                                     15,270              20,447


Long-term debt, net of current portion                                         1,408                  --
Obligations under capital leases, net of current portion                          40                 185


Commitments and contingencies                                                     --                  --


Stockholders' equity
    Series B Junior Participating Preferred Stock, no par value;
       300,000 shares authorized, none issued                                     --                  --
    Common stock, no par value; 30,000,000 shares
       authorized (17,057,063 and 16,832,663 shares
       issued and issuable in 1997 and 1996, respectively)                    41,338              40,780
    Retained earnings (deficit)                                              (15,363)            (13,353)
    Foreign currency adjustment                                                 (496)               (108)
    Cumulative unrealized gain (loss) on investments available for sale            9                  (1)
                                                                             -------             -------
Total Stockholders' Equity                                                    25,488              27,318
                                                                             -------             -------
Total Liabilities and Stockholders' Equity                                   $42,206             $47,950
                                                                             =======             =======

</TABLE>

               See notes to the consolidated financial statements.

                                      F-2
<PAGE>   22




                      SULCUS HOSPITALITY TECHNOLOGIES CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                                 -------------------------------------
                                                                   1997           1996            1995
                                                                   ----           ----            ----
<S>                                                            <C>            <C>            <C>
Net sales:
    System sales                                                $33,297        $31,722         $27,645
    Support revenue                                              20,525         19,083          17,048
                                                                -------        -------         -------
       Total net sales                                           53,822         50,805          44,693

Cost of goods sold and services provided:
    Systems                                                      21,100         19,598          15,459
    Support services                                              3,740          3,756           3,506
                                                                -------        -------         -------
       Total cost of sales and services provided                 24,840         23,354          18,965

                  Gross profit                                   28,982         27,451          25,728

Expenses:
    Selling, general, and administrative                         28,440         23,847          22,896
    Research and development (net of capitalized
       software of $1,568, $1,101 and
       $1,003 for 1997, 1996 and 1995,
       respectively)                                              1,501          1,398           1,199
    Depreciation and amortization                                 1,701          1,589           1,520
    Disposal of assets                                             (188)            --             515
    Provision for litigation settlement                             250             --           2,919
                                                                -------        -------         -------
           Total operating expenses                              31,704         26,834          29,049

                  Income (loss) from operations                  (2,722)           617          (3,321)

Other (income), expense:
    Interest                                                        368            571             598
    Unrealized and realized (gains) losses on
       short-term investments                                       (74)            (9)         (1,462)
    Dividends and other                                          (1,006)        (1,340)         (1,291)
                                                                --------       --------        --------
           Total other (income), expense                           (712)          (778)         (2,155)

                  Income (loss) before income taxes              (2,010)         1,395          (1,166)

    Provision for income taxes                                       --             --             203
                                                                --------       -------          ------

    Net income (loss)                                           ($2,010)       $ 1,395         ($1,369)
                                                                ========       =======         ========

Earnings (loss) per share:
    Basic                                                         ($.12)       $   .08          ($.09)
                                                                ========       =======          ======
    Diluted                                                       ($.12)       $   .08          ($.09)
                                                                ========       =======          ======


Weighted average number of common shares (in thousands):
    Basic                                                        16,842         16,720          14,720
                                                                =======        =======         =======
    Diluted                                                      16,842         16,833          14,720
                                                                =======        =======         =======

</TABLE>

               See notes to the consolidated financial statements.




                                      F-3
<PAGE>   23




                     SULCUS HOSPITALITY TECHNOLOGIES, CORP.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                                  Cumulative
                                                                                                  Unrealized
                                                       Common Stock                                  Gain
                                                  ----------------------                           (Loss) on      Note
                                                     Number                  Retained     Foreign  Investments Receivable   Stock-
                                                   Of Shares                 Earnings    Currency  Available      From     holders
                                                  (Thousands)      Amount    (Deficit)   Adjustment For Sale   Stockholder  Equity
                                                  -----------      ------    ---------   ---------- --------   -----------  ------
<S>                                                <C>           <C>         <C>          <C>          <C>       <C>       <C>
Balance, January 1, 1995                            14,505        $37,081     ($13,379)    ($115)     $  0        ($500)   $23,087

    Stock options exercised                             18             43           --        --        --           --         43
    Issuance of stock, contingent earnouts on
       acquisitions of companies                       573            785           --        --        --           --        785
    Cumulative translation adjustment                   --             --           --        55        --           --         55
    Cumulative unrealized gain on investments
       available for sale                               --             --           --        --       186           --        186
    Issuance of stock to consultants                     8             12           --        --        --           --         12
    Issuance of stock as settlement of
       previously recorded liabilities                  42             95           --        --        --           --         95
    Net loss                                            --             --       (1,369)       --        --           --     (1,369)
                                                    ------        -------     --------     -----       ---         ----    -------
Balance, December 31, 1995                          15,146         38,016      (14,748)      (60)      186         (500)    22,894

    Stock options exercised                             84            138           --        --        --           --        138
    Issuance of stock, contingent earnouts on
       acquisitions of companies                        67            169           --        --        --           --        169
    Cancellation of shares in repayment of
       shareholder loans                              (220)          (550)          --        --        --          500        (50)
    Adjustment of shares issuable for purchase
       of Techotel A.G.                                272             --           --        --        --           --         --
    Adjustment of shares issuable under earn-out
       agreement for Lodgistix Scandinavia A.S.          8             --           --        --        --           --         --
    Cumulative translation adjustment                   --             --           --       (48)       --           --        (48)
    Change in cumulative unrealized gain (loss)
       on investments available for sale                --             --           --        --      (187)          --       (187)
    Issuance of stock to consultants                    10             26           --        --        --           --         26
    Issuance of stock as settlement of
       previously recorded liabilities               1,466          2,981           --        --        --           --      2,981
    Net income                                          --             --        1,395        --        --           --      1,395
                                                    ------        -------     --------     -----       ---         ----    -------
Balance, December 31, 1996                          16,833         40,780      (13,353)     (108)       (1)           0     27,318

    Stock options exercised                             18             32           --        --        --           --         32
    Issuance of stock, on
       acquisition of company                          192            500           --        --        --           --        500
    Cumulative translation adjustment                   --             --           --      (388)       --           --       (388)
    Change in cumulative unrealized gain (loss)
       on investments available for sale                --             --           --        --        10           --         10
    Issuance of stock to consultants                    14             26           --        --        --           --         26
    Net loss                                            --             --       (2,010)       --        --           --     (2,010)
                                                    ------        -------     --------     -----       ---         ----    -------
Balance, December 31, 1997                          17,057        $41,338     ($15,363)    ($496)      $ 9         $  0    $25,488
                                                    ======        =======     ========     =====       ===         ====    =======

</TABLE>


               See notes to the consolidated financial statements.



                                      F-4
<PAGE>   24




                      SULCUS HOSPITALITY TECHNOLOGIES CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                                                Years Ended December 31,
                                                                                           -----------------------------------
                                                                                           1997           1996            1995
                                                                                           ----           ----            ----
<S>                                                                                    <C>            <C>            <C>
Cash flows from operating activities:
    Net income (loss)                                                                   ($2,010)        $1,395         ($1,369)

Adjustments to reconcile net income (loss) to net cash from operating
activities:
    Depreciation                                                                            908            814             835
    Amortization of capitalized software                                                  1,849          2,803           2,447
    Amortization of goodwill                                                                793            775             685
    Provision for doubtful accounts                                                         545            859             573
    Unrealized and realized (gain) on investments                                           (74)            (9)         (1,462)
      (Gain) on disposal of subsidiary                                                     (188)            --              --
    Accrued severance obligations                                                         1,538             --              --
    Loss on write-off of assets                                                              --             --             515
    (Purchases) of trading securities                                                        --             --            (852)
    Change in assets and liabilities, net of effects of acquisitions and
          disposals:
       Restricted cash                                                                       --            550             (50)
       Accounts receivable                                                                1,423         (2,721)            (68)
       Inventories                                                                         (504)           (41)           (180)
       Other current assets                                                                (583)           175             249
       Other assets                                                                         600            162            (235)
       Accounts payable                                                                  (1,572)          (404)         (1,484)
       Deferred revenues                                                                    142            302            (727)
       Shareholder litigation liability                                                      --           (308)          2,668
       Customer deposits                                                                   (437)           791            (585)
       Accrued liabilities                                                                   --           (933)            166
                                                                                        -------        -------         -------
       Total adjustments                                                                  4,440          2,815           2,495
                                                                                        -------        -------         -------
Net cash provided by operating activities                                                 2,430          4,210           1,126
                                                                                        -------        -------         -------

Cash flows from investing activities:
    Purchase of subsidiary, net of cash acquired                                           (467)            --              --
    Purchases of available for sale securities                                              (11)          (414)         (4,342)
    Proceeds from sales of available for sale securities                                 12,229            250           4,758
    Investment in sales-type leases                                                        (671)          (287)           (618)
    Payments received on sales-type leases                                                  162            135             190
    Proceeds from disposal of subsidiary, net of costs                                      191             --              --
    Proceeds from the sale of building                                                      399             --              --
    Capital expenditures                                                                   (966)          (886)           (660)
    Software development capitalized                                                     (1,568)        (1,101)         (1,003)
                                                                                        -------        -------         -------
Net cash provided by (used in) investing activities                                       9,298         (2,303)         (1,675)
                                                                                        -------        -------         -------

Cash flows from financing activities:
    Change in short term borrowings                                                      (4,527)          (556)            200
    Principal payments on long-term debt                                                   (314)           (47)           (481)
    Payments under capital lease agreements                                                (140)           (93)             --
    Proceeds from stock options exercised                                                    32            138              43
                                                                                            ---           ----             ---
Net cash (used in) financing activities                                                  (4,949)          (558)           (238)
                                                                                        -------        -------         -------

Effect of exchange rate changes on cash and cash equivalents                               (388)           (48)             55
                                                                                        -------        -------         -------

Net increase (decrease) in cash
    and cash equivalents                                                                  6,391          1,301            (732)

Cash and cash equivalents at beginning of year                                            2,503          1,202           1,934
                                                                                        -------        -------         -------

Cash and cash equivalents at end of year                                                $ 8,894        $ 2,503         $ 1,202
                                                                                        =======        =======         =======

</TABLE>

               See notes to the consolidated financial statements.


                                      F-5
<PAGE>   25



                      SULCUS HOSPITALITY TECHNOLOGIES CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1997, 1996 AND 1995

NOTE 1. LINE OF BUSINESS

        Sulcus Hospitality Technologies Corp. (the "Company") (formerly known as
Sulcus Computer Corporation) designs, develops, and markets technology solutions
that are used in the hospitality industry to improve the management of business
critical information and data.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        USE OF ESTIMATES
        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
including contingencies, as well as the reported amounts of revenues and
expenses during the financial statement period. Actual results could differ from
those estimates. Examples of significant estimates include the collectability of
receivables, the future benefit of capitalized computer software costs, lives
assigned to goodwill, the net recoverability of deferred tax assets and
contingencies relating to sales-type leases. These estimates are particularly
susceptible to material changes in the near term.

        PRINCIPLES OF CONSOLIDATION
        The consolidated financial statements include the accounts of Sulcus
Hospitality Technologies Corp. 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.

        CASH AND CASH EQUIVALENTS
        The Company considers as cash and cash equivalents amounts on deposits
in banks and cash invested temporarily in various instruments with maturities of
three months or less at the time of purchase.

        SHORT-TERM INVESTMENTS
        During 1995, the Company changed its investment philosophy and
consequently bought and sold certain investments to realign its investment
portfolio. From January 1, 1994 (effective date of current accounting standards)
through June 5, 1995, the Company actively bought and sold investments in
corporate preferred stocks and mutual funds consisting primarily of corporate
and U.S. government securities with the objective of generating profits on
short-term differences in price, and accordingly, classified its investments as
"Trading Securities" whereby they were carried at market with unrealized gains
or losses reflected in current earnings. During the second quarter of 1995, the
Company restructured its investments in short-term marketable securities and
changed its investment philosophy to one of holding securities for the
generation primarily of dividend and interest income. As a result, investments
and changes in the market value of the investments arising subsequent to this
change (June 5, 1995) are accounted for as "Available for Sale". Available for
sale investments are carried at market value with unrealized gains and losses on
investments treated as a component of Stockholders' Equity. Realized gains and
losses on sales of investments, as determined on a specific identification
basis, are included in the consolidated statement of operations.

        INVENTORIES
        Inventories consist substantially of software and hardware products in
finished form and are valued at the lower of cost or market. Cost is determined
by the specific identification method. Market is net realizable value.

        PURCHASED AND CAPITALIZED SOFTWARE
        Purchased software has been developed by third parties to the stage of
technological feasibility at the date of acquisition. Software development costs
incurred prior to establishing technological feasibility are charged to
operations and included in research and development costs. Software development
costs incurred after establishing technological feasibility are capitalized.
Amortization of purchased and capitalized software is provided for when the
product is available for general release to customers over the greater of the
amount computed using the remaining estimated economic life of the product or
the ratio that current gross revenues for a product bear to the total of current
and anticipated revenues for that product. The products are generally being
amortized over 3 to 7 years.

        PROPERTY AND EQUIPMENT
        Property and equipment is comprised of office furniture, fixtures,
service equipment, leasehold improvements, and land and building and are
recorded at cost. Depreciation, which includes amortization of assets under
capital leases, is based upon the straight-line method over the estimated useful
lives of the related assets. Maintenance and repairs are charged to expense as
incurred.


                                      F-6
<PAGE>   26



        GOODWILL
        Goodwill, which represents the excess of the cost of purchased companies
over the fair value of their net assets at the date of acquisition, is being
amortized on a straight-line basis over lives ranging from 10 to 20 years. The
Company annually evaluates the carrying value of goodwill based on current
operating results and forecasts of undiscounted cash flows of the specific
businesses acquired.

        INCOME TAXES
        Income tax expense includes U.S. and international income taxes. Certain
items of income and expense are not reported in tax returns and financial
statements in the same year. The tax effect of the difference is reported as
deferred income taxes. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the periods in which
the deferred tax asset or liability is expected to be realized or settled. A
valuation allowance is provided to reduce deferred tax assets to an amount more
likely than not to be realized. Non-U.S. subsidiaries compute taxes in effect in
the various countries. Earnings of these subsidiaries may also be subject to
additional income and withholding taxes when they are distributed as dividends.
Undistributed earnings of non-U.S. subsidiaries are not material.

        REVENUE RECOGNITION
        The Company recognizes revenue on sales of systems including software
and hardware upon delivery or installation and when all obligations of the
respective contract have been fulfilled. Support services revenues are billed in
advance and recorded as deferred revenue and recognized as income ratably over
the service period of the Software Support and Hardware Maintenance Agreement.

        TRANSLATION OF NON-U.S. CURRENCY AMOUNTS
        For non-U.S. subsidiaries which operate in a local currency environment,
assets and liabilities are translated to U.S. dollars at the current exchange
rates at the balance sheet date. Income and expense items are translated at
average rates of exchange prevailing during the year. Translation adjustments
are accumulated in a separate component of stockholders' equity.

        EARNINGS (LOSS) PER SHARE
        The Company adopted the Financial Accounting Standards Board Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, for the
period ended December 31, 1997. SFAS No. 128 requires the Company to present
basic and diluted earnings per share (EPS) on the face of the income statement.
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing net income by the sum of the
weighted-average number of common shares outstanding for the period end plus the
assumed exercise of all dilutive securities, such as stock options. Earnings per
share for the periods presented is not materially different under SFAS No. 128
than that presented under previous accounting standards.

        RECENT ACCOUNTING PRONOUNCEMENTS
        During 1997, the Financial Accounting Standards Board issued several
Statements of Financial Account Standards including the following:

                SFAS No. 130, "Reporting Comprehensive Income," is effective for
                fiscal years beginning after December 15, 1997. This Statement
                establishes standards for reporting and display of comprehensive
                income and its components. Comprehensive income includes net
                income and all other changes in shareholders' equity except
                those resulting from investments and distributions to owners.

                SFAS No. 131, "Disclosures about Segments of an Enterprise and
                Related Information," is effective for financial statements
                issued for periods beginning after December 15, 1997. This
                Statement requires financial and descriptive information about
                an entity's operating segments to be included in the annual
                financial statements.

        Additionally, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
97-2 "Software Revenue Recognition." This Statement of Position is effective for
transactions entered into in fiscal years beginning after December 15, 1997.
This statement provides guidance on when revenue should be recognized and in
what amounts for licensing, selling, leasing and otherwise marketing computer
software.

        None of these authoritative pronouncements, when implemented, is
expected to impact the reported financial position or results of operations of
the Company. The Company is currently evaluating how it will present
comprehensive income and segment information in future financial statements.

        RECLASSIFICATION
        Certain prior year amounts have been reclassified to conform with
current year reporting practices.


                                      F-7
<PAGE>   27



NOTE 3. CASH AND CASH EQUIVALENTS

         At December 31, 1997 and 1996, respectively, the Company has cash and
cash equivalents as follows (thousands of dollars):

                                                            December 31,
                                                   ----------------------------
                                                     1997                  1996
                                                     ----                  ----
Cash in bank                                       $2,894                $2,503
Commercial paper (due within 30 days)               6,000                    --
                                                   ------                ------
         Total cash and cash equivalents           $8,894                $2,503
                                                   ======                ======

NOTE 4.  SHORT-TERM INVESTMENTS

         Securities available for sale at December 31, 1997 consisted of
preferred stocks at a cost of $250 thousand and unrealized gains of $9 thousand:

         Securities available for sale at December 31, 1996, are summarized as
follows (thousands of dollars):

<TABLE>
<CAPTION>
                                                                      Gross Unrealized
                                                                      -----------------      Market
                                                               Cost   Gains      Losses       Value
                                                               ----   -----      ------       -----
<S>                                                       <C>          <C>     <C>         <C>
 U.S. Government Securities
   maturing between 1 and 5 years                           $   515     $--     $    14     $   501
 Mutual Funds                                                 1,596       5          --       1,601
 Preferred Stocks                                            10,283       8          --      10,291
                                                            -------     ---     -------     -------
                                                            $12,394     $13     $    14     $12,393
                                                            =======     ===     =======     =======

</TABLE>

        During 1997, the Company entered into a plan to reduce its investments
in marketable securities to settle borrowings on the brokerage margin account
and to provide liquidity. At December 31, 1997, the investments in marketable
securities were reduced by $12,134 thousand. The Company's short-term investment
portfolio had been pledged as collateral against borrowings under a brokerage
margin account (See "Short-Term Borrowings").

         Proceeds, realized gains and realized losses from the sales of
securities classified as available for sale for the year ended December 31, 1997
were $12,229 thousand, $175 thousand and $101 thousand, respectively. Proceeds,
realized gains and realized losses from the sales of securities classified as
available for sale for the year ended December 31, 1996 were $250 thousand, $9
thousand and $0, respectively. Proceeds, realized gains and realized losses from
the sales of securities classified as trading securities for the year ended
December 31, 1995 were $4,758 thousand, $130 thousand and $2 thousand,
respectively. Unrealized gains on trading securities amounted to $1,271 thousand
through June 5, 1995.

NOTE 5. PURCHASED AND CAPITALIZED SOFTWARE

        Purchased and capitalized software consists of the following (thousands
of dollars):

                                                           December 31,
                                                   ------------------------
                                                       1997            1996
                                                       ----            ----
Purchased software                                   $8,632          $6,898
         Capitalized software                         7,725           7,023
         Accumulated amortization                   (11,396)        (10,661)
                                                   --------         -------
         Net purchased and capitalized software    $  4,961         $ 3,260
                                                   ========         =======

NOTE 6. PROPERTY AND EQUIPMENT

         Property and equipment consists of the following (thousands of
dollars):
                                                           December 31,
                                                    ------------------------
                                                       1997            1996
                                                       ----            ----
         Buildings and leasehold improvements       $   361         $ 1,107
         Furniture and equipment                      6,622           6,167
         Accumulated depreciation                    (4,841)         (4,801)
                                                    -------         -------
         Net property and equipment                 $ 2,142         $ 2,473
                                                    =======         =======

        The Company leases certain equipment under agreements, which are
classified as capital leases. These equipment leases have purchase options at
the end of the original lease term which range from 3 to 5 years. Leased capital
assets are included in property, plant and equipment at December 31, 1997 and
1996 with a cost of $557 thousand and $532 thousand, respectively, and
accumulated amortization of $340 thousand and $190 thousand, respectively.


                                      F-8
<PAGE>   28



NOTE 7. LEASES

         AS LESSOR
         The Company has a sales-type lease program with a finance company
whereby it receives 100% of the discounted minimum lease payments at inception
of the lease, assigns the lease payments to the finance company, grants the
finance company a security interest in the leased equipment and accepts certain
recourse liability in event of default by the lessee. The Company retains
ownership in the residual value of the leased property and has recorded a
reserve for the estimated liability under the recourse agreement. At December
31, 1997 and 1996, the Company had the following net investment in these
financed sales-type leases (thousands of dollars):

                                                            December 31,
                                                      ----------------------
                                                        1997            1996
                                                        ----            ----
Estimated residual value of leased property           $1,733          $1,533
Unearned income                                         (302)           (292)
                                                      ------          ------
Net investment in financed sales-type leases          $1,431          $1,241
                                                      ======          ======

         At December 31, 1997, the Company has accrued $522 thousand
representing estimated amounts contingently payable related to sales-type leases
financed under this agreement. Since the inception of the program in 1995,
actual losses from recourse provisions have been $609 thousand.

         AS LESSEE
         The Company has operating leases with third parties for office space
and office equipment. Future minimum payments by year and in the aggregate under
noncancelable capital leases and operating leases with initial or remaining
terms of one year or more consist of the following as of December 31, 1997
(thousands of dollars):

                                       Capital              Operating
                                        Leases                Leases
                                        ------                ------
     1998                                 $182                $1,092
     1999                                   35                   829
     2000                                    6                   565
     2001                                    2                   355
     2002                                   --                   290
     Thereafter                             --                   939
                                          ----                  ----
     Total minimum lease payments          225                $4,070
                                                              ======
     Amounts representing interest          25
                                          ----
     Present value of net
        minimum payments                   200
     Current portion                       160
                                          ----
     Long-term portion                    $ 40
                                          ====

                Rent expense under these agreements and other operating leases
was $1,595 thousand, $1,563 thousand, and $1,611 thousand for the years ended
December 31, 1997, 1996, and 1995 respectively. See "Related Party Transactions"
for additional discussions of operating leases.

NOTE 8. SHORT-TERM BORROWINGS

         The Company's short-term borrowings consists of the following
(thousands of dollars):

                                                             December 31,
                                                      ------------------------
                                                        1997              1996
                                                        ----              ----
Borrowings with brokerage firm on margin against
the Company's short term investment portfolio         $   --            $5,827

Borrowings on the Company's line of credit             1,300                --
                                                       -----            ------
Total short-term borrowings                           $1,300            $5,827
                                                      ======            ======

         At December 31, 1997, the Company has available a $3 million line of
credit under a commercial revolving note, expiring in April 1998, bearing
interest at the bank's prime rate of interest plus 1% for an effective interest
rate of 9.5%. Borrowings under the note are secured by the Company's equipment,
accounts receivable and inventories located in the United States.



                                      F-9
<PAGE>   29



Available borrowings are based on a formula of eligible accounts receivable and
inventory. The total amount which could have been borrowed at December 31,
1997 was approximately $2 million.

NOTE 9. LONG-TERM DEBT

The Company's long-term debt consists of the following (thousands of dollars):

                                                              December 31,
                                                         --------------------
                                                           1997          1996
                                                           ----         -----
Unsecured note payable to Jeffrey Ratner (the
  Company's former chairman) as evidence
   of a severance obligation at 5%                       $  939        $   --

Note payable to financial institution at 12%                 --            27

Note payable pursuant to the Company's
   acquisition of Senercomm, Inc. at  8%
   ("See Acquisitions")                                   1,174            --
                                                         ------        ------
                                                          2,113            27
Current portion                                             705            27
                                                         ------        ------
Long-term debt                                           $1,408        $   --
                                                         ======        ======


Scheduled maturities of long-term debt at December 31, 1997 are $705 in 1998,
$751 in 1999 and $657 in 2000.

NOTE 10. INCOME TAXES

         The provision for income taxes consists of the following (thousands of
dollars):

                                                  Year Ended December 31,
                                           ----------------------------------
                                             1997          1996         1995
                                             ----          ----         ----

         Current:
                  Domestic                 $   --        $   --         $150
                  Foreign                      --            --           53

         Deferred:
                  Domestic                     --            --           --
                                           ------        ------         ----
                  Total                    $   --        $   --         $203
                                           ======        ======         ====

         A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows:

                                                        Year Ended December 31,
                                                        -----------------------
                                                         1997     1996    1995
                                                        -----     ----    ----
U.S. federal statutory tax rate                         (35%)     35%     (35%)
State income taxes, net of federal income tax effect     (6%)      6%       8%
Benefits not recorded (benefits recognized)
          due to net carryforward position               39%     (43%)     39%
Foreign and other                                         2%       2%       5%
Tax credits generated                                     0%       0%       0%
                                                          --       --       --
                                                          0%       0%      17%
                                                          ==       ==      ===

         The Company's U.S. federal effective rate is generally unaltered by the
rates applicable to its foreign operations as a U.S. foreign tax credit would be
generated for taxes paid in those jurisdictions. Foreign taxes are recognized on
foreign taxable income for which no foreign tax credit is generated.

         Permanent differences include tax-free dividend income and amortization
of goodwill. No tax benefits were recorded for non-deductible write-offs of
goodwill and certain other expenses. Due to the net operating losses, no
material tax payments have been made.


                                      F-10
<PAGE>   30



The following summarizes the significant components of the Company's deferred
tax assets and liabilities (thousands of dollars):
<TABLE>
<CAPTION>
                                                        Deferred Tax Consequences at December 31, 1997
                                                        ----------------------------------------------
                                                          Assets         Liabilities           Total
                                                          ------         -----------           -----
<S>                                                       <C>            <C>                <C>
         Accounts receivable allowance                   $   469               --            $   469
         Unrealized loss on investments                        4               --                  4
         Inventory writedowns                                321               --                321
         Accrued expenses not currently deductible         1,003               --              1,003
         Less valuation allowance                         (1,408)              --             (1,408)
                                                         -------          -------            -------
         Current                                             389               --                389
                                                         -------          -------            -------

         Property and equipment book/tax
            cost differential                                 45               --                 45
         Tax loss carryforwards                            9,721               --              9,721
         Tax credits                                       1,232               --              1,232
         Software costs capitalized for financial
            reporting purposes                                --           (1,893)            (1,893)
         Less valuation allowance                         (7,394)              --             (7,394)
                                                         -------          -------            -------
         Noncurrent                                        3,604           (1,893)             1,711
                                                         -------          -------            -------
         Total                                           $ 3,993          ($1,893)           $ 2,100
                                                         =======          =======            =======



                                                        Deferred Tax Consequences at December 31, 1996
                                                        ----------------------------------------------
                                                          Assets         Liabilities           Total
                                                          ------         -----------           -----
         Accounts receivable allowance                   $   485               --            $   485
         Unrealized loss on investments                       62               --                 62
         Inventory writedowns                                271               --                271
         Accrued expenses not currently deductible            80               --                 80
         Less valuation allowance                           (690)              --               (690)
                                                         -------          -------            -------
         Current                                             208               --                208
                                                         -------          -------            -------

         Property and equipment book/tax
            cost differential                                 24               --                 24
         Tax loss carryforwards                            7,979               --              7,979
         Tax credits                                       1,232               --              1,232
         Software costs capitalized for financial
            reporting purposes                                --           (1,064)            (1,064)
         Less valuation allowance                         (6,279)              --             (6,279)
                                                         -------          -------            -------
         Noncurrent                                        2,956           (1,064)             1,892
                                                         -------          -------            -------
         Total                                           $ 3,164          ($1,064)           $ 2,100
                                                         =======          =======            =======



                                                        Deferred Tax Consequences at December 31, 1995
                                                        ----------------------------------------------
                                                          Assets         Liabilities           Total
                                                          ------         -----------           -----
         Accounts receivable allowance                   $   751          $    --            $   751
         Unrealized loss on investments                       72               --                 72
         Inventory writedowns                                108               --                108
         Accrued expenses not currently deductible            66               --                 66
         Less valuation allowance                           (831)              --               (831)
                                                         -------          -------            -------
         Current                                             166               --                166
                                                         -------          -------            -------

         Property and equipment book/tax
            cost differential                                 --              (35)               (35)
         Tax loss carryforwards                           11,618               --             11,618
         Tax credits                                       1,800               --              1,800
         Software costs capitalized for financial
            reporting purposes                                --           (1,746)            (1,746)
         Less valuation allowance                         (9,703)              --             (9,703)
                                                         -------          -------            -------
         Noncurrent                                        3,715           (1,781)             1,934
                                                         -------          -------            -------
         Total                                           $ 3,881          ($1,781)           $ 2,100
                                                         =======          =======            =======

</TABLE>


                                      F-11
<PAGE>   31



          Management believes that it is more likely than not that it 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 fact that the Company had taxable
income in 1996 and the Company's view of expected profits in 1998 and the next
several years.

         The $1,833 thousand increase in the valuation allowance in the year
ended December 31, 1997 represents net operating loss carryforwards obtained
through the purchase of Senercomm, Inc. and the temporary differences and net
operating loss carryforwards generated in that year that the Company believed
were not likely to result in tax benefits. The $3,565 thousand and $524 thousand
decreases in the valuation allowance in the years ended December 31, 1996 and
1995, respectively, represents the realization of tax benefits of temporary
difference and net operating loss carryforwards which reversed during these
years through the generation of taxable income. Management believes that the
valuation allowance is appropriate given the current estimates of future taxable
income. 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 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 credit to income.

         The Company has approximately $27,775 thousand of net operating losses
at December 31, 1997, a portion of which are subject to certain limitations
under the Internal Revenue Code Section 382, and $1,200 thousand of tax credits
($1,100 thousand of research activities credits and $100 thousand of investment
tax credits) available to offset future federal tax liabilities. The utilization
of net operating losses is limited by certain rules which limit the utilization
of losses incurred by group members prior to their acquisition by the Company,
post-acquisition taxable income generated by specific members of the group and
the passage of time. The net operating loss carryforwards expire as follows
(thousands of dollars):

                2001                            $933
                2002                           1,632
                2003                           5,957
                2004                           2,377
                2005                           2,077
                2006                             723
                2007                           1,566
                2008                           4,498
                2009                           4,703
                2010                             846
                2011                             712
                2012                           1,751
                                               -----
                Total                        $27,775
                                             =======

NOTE 11. RELATED PARTY TRANSACTIONS

         The Company leases office space in Greensburg, Pennsylvania from a
trust established by the Company's former Chairman. The leases commenced on
various dates from March 1, 1983 and expire on various dates through September
30, 2001. Rent expense under these agreements was $228 thousand, $234 thousand,
and $225 thousand for the years ended December 31, 1997, 1996, and 1995,
respectively. As of December 31, 1997, the future annual rental commitments
under these leases are $180 thousand in 1998, $104 thousand in 1999, $96
thousand in 2000, and $75 thousand in 2001.

NOTE 12. COMMITMENTS AND CONTINGENCIES

         Employment agreements are in place with certain executive officers and
management personnel. These agreements generally continue until terminated by
either party and contain certain change of control provisions.

NOTE 13. INCENTIVE STOCK OPTION PLANS

         The Company has stock option plans under which certain directors,
officers, and employees are participants. In 1997, stockholders of the Company
approved the addition of a long-term incentive plan, a non-employee directors'
stock option plan and an employee stock purchase plan.

         At December 31, 1997, stock option plans consist of the 1983 Incentive
Stock Option Plan for Officers and Other Key Employees (the "1983 Plan"), the
1991 Incentive Stock Option Plan for Officers and Other Key Employees (the "1991
Plan"), the 1991 Stock Option Plan for Directors (the "1991 Director Plan"), and
the 1997 Non-Employee Directors' Stock Option Plan (the "1997 Directors' Plan").
Options can no longer be granted under the 1983 Plan. The 1991 Plan and the 1991
Directors Plan allow for 3 million and 500 thousand stock options available for
grant under the plans, respectively, which extends through January 1, 2001. The
1997 Directors' Plan allows for 500 thousand stock options available for grant
under the plan with extends through October 12, 2007. The price of options
granted under 1991 Plan, the 1991 Directors' Plan and the 1997 Directors Plan
may not be less than the



                                      F-12
<PAGE>   32



fair market value of the Company's common stock on the date of grant. Options
granted under the 1991 Plan and the 1991 Directors' Plan generally become
available to be exercised upon a five-year vesting schedule. Options granted
under the 1997 Directors' Plan generally become available to be exercised upon a
three-year vesting schedule.

Stock option activity under all plans for the years ended December 31, 1997,
1996, and 1995 is as follows (options in thousands):

                                                Outstanding            Price
                                                -----------            -----
[S]                                              [C]              [C]
         Outstanding, January 1, 1995             2,096            $1.000-$9.250
                                                 ------            -------------

         1995
         ----
         Granted                                    462            $2.000-$3.500
         Exercised                                  (18)           $2.125-$3.500
         Canceled                                  (569)           $2.281-$8.625
                                                 ------            -------------
         Outstanding, December 31, 1995           1,971            $1.000-$9.250
                                                 ------            -------------
         Exercisable at December 31, 1995         1,200            $1.000-$9.250
                                                 ------            -------------

         1996
         ----
         Granted                                    553            $1.937-$3.250
         Exercised                                  (84)           $2.500-$3.312
         Canceled                                  (607)           $2.187-$8.625
                                                 ------            -------------
         Outstanding, December 31, 1996           1,833            $1.000-$9.250
                                                 ------            -------------
         Exercisable at December 31, 1996         1,064            $1.000-$9.250
                                                 ------            -------------

         1997
         ----
         Granted                                  1,360            $1.625-$3.312
         Exercised                                  (18)           $1.750-$3.250
         Canceled                                (1,083)           $1.750-$9.250
                                                 ------            -------------
         Outstanding, December 31, 1997           2,092            $1.000-$6.130
                                                 ======            =============
         Exercisable at December 31, 1997           874            $1.000-$6.130
                                                 ======            =============

         In accordance with the provisions of SFAS 123, the Company applies APB
Opinion 25 and related Interpretations in accounting for its stock option plans
and, accordingly, does not recognize compensation cost. If the Company had
elected to recognize compensation cost based on the fair value of the options
granted at grant date as prescribed by SFAS 123, net income and earnings per
share would have been reduced to the pro forma amounts indicated in the table
below (thousands of dollars except per share amounts):

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                           ------------------------------------------
                                                              1997              1996             1995
                                                              ----              ----             ----
<S>                                                        <C>                <C>             <C>
         Net income-as reported                            ($2,010)           $1,395          ($1,369)
         Net income-pro forma                              ($2,468)             $991          ($1,473)

         Earnings per share-as reported                      ($.12)             $.08            ($.09)
         Earnings per share-pro forma                        ($.15)             $.06            ($.10)

</TABLE>

         The fair value of each options grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

         Expected dividend yield                                     0%
         Expected stock price volatility                     30% to 60%
         Risk-free interest rate                                     6%
         Expected life of options                         1 to 5 years

         The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts.

         The 1997 Long-Term Incentive Plan allows for the issuance of
500 thousand shares in the form of stock options, stock appreciation rights,
restricted stock, stock bonus awards or performance plan awards under the plan
which extends through October 12, 2007. At December 31, 1997, no awards were
outstanding under this plan.


                                      F-13
<PAGE>   33



         Effective October 13, 1997, the Company adopted an Employee Stock
Purchase Plan to provide substantially all employees who have been employed by
the Company for one year an opportunity to purchase shares of its common stock
through payroll deductions, up to 10% of compensation. Semi-annually on June 30
and December 31, participant account balances are used to purchase shares of
stock at the lesser of 85% of the fair market value of shares at the beginning
or end of the semi-annual period. The plan expires on October 12, 2007 and a
total of 500 thousand shares can be issued under the plan. At December 31, 1997,
no shares had been issued under the plan.

NOTE 14. NOTE RECEIVABLE FROM STOCKHOLDER

         During 1993, the Company extended a loan to the former principal
stockholder and current president of Sulcus Hospitality Group EMEA AG in the
amount of $500,000, pending the registration of the stock of the Company
issuable to him under terms of the agreement for the purchase of Techotel. The
note was intended to be repaid upon the registration by the Company for the
stock issuable to him. Based on the nature of the note, it was reflected as a
reduction of equity. In May 1996, the Company and the former stockholders of
Techotel agreed to the repayment of the note through the cancellation of 200,000
shares issuable under the purchase agreement.

NOTE 15. EARNINGS PER SHARE

         The computation of earning per share is as follows (in thousands except
per share):

<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                                       ----------------------------------
                                                         1997         1996          1995
                                                         ----         ----          ----
<S>                                                   <C>           <C>          <C>
         Basic earnings (loss) per share:
              Net income (loss)                        ($2,010)     $ 1,395       ($1,369)

         Weighted average number of
         common shares outstanding                      16,842       16,720        14,720
                                                       -------      -------       -------

         Basic earnings per share                        ($.12)     $   .08         ($.09)
                                                       =======      =======       =======

         Diluted earnings (loss) per share
              Net income (loss)                        ($2,010)      $1,395       ($1,369)

         Weighted average number of
         common shares outstanding                      16,842       16,720        14,720

         Effect of dilutive securities (options)            --          113            --
                                                       -------      -------       -------
                                                        16,842       16,833        14,720
                                                       -------      -------       -------

         Diluted earnings per share                      ($.12)        $.08         ($.09)
                                                       =======      =======       =======

</TABLE>

         Options to purchase 2.1 million, 1.7 million, and 2.0 million shares of
Common stock were outstanding in 1997, 1996 and 1995, respectively, but were not
included in the computation of diluted earning per share because the options
exercise price exceeded the average market price of the common shares.

NOTE 16. PREFERRED SHARES AUTHORIZED PURSUANT TO A SHAREHOLDER'S RIGHTS PROGRAM

         In 1997, the Company authorized 300,000 shares of non redeemable no par
value Series B Junior Participating Preferred Stock("Preferred Stock"). These
shares are reserved for issuance upon exercise of Preferred Stock Purchase
Rights ("Rights"). These Rights were issued in 1997 on each share of common
stock. The Right entitle common shareholders to purchase .01 share of Preferred
Stock for $50, following any public announcement that 10% or more of Sulcus'
shares have been acquired or is tendered for by a person or group of persons.
Series B preferred shares will have annual dividends of $4 per share or 100
times the dividend per common share, and have a liquidation preference of $100
per share or 100 times the payment made per common share. In a business
combination, each exercised Right will receive common stock of an acquiring
company equal to $100. Rights owned by an Acquiring Person will be void. The
Rights may be redeemed by the Board of Directors at $.01 per Right.

NOTE 17. ACQUISITIONS

         In December 1997, the Company consummated the purchase of Senercomm,
Inc. (Senercomm) for approximately $2,174 thousand. Senercomm designs,
manufactures and sells in-room information systems which are used to gather
guest data and environmentally control the condition maintained within a hotel
room. The purchase price consisted of $500 thousand of Sulcus



                                      F-14
<PAGE>   34



Common Stock at $2.60 per share, $500 thousand cash paid at the closing, and the
balance of $1,174 thousand payable in three equal annual installments including
interest at the rate of 8%. Payment on the $1,174 thousand note is secured by a
stock pledge. As part of the purchase price the Company will also pay in cash an
amount equal to the excess, if any, of $2.809 over the Company's closing share
price on the last trading day before December 31, 1998.

         The acquisition has been accounted for as a purchase and, accordingly,
the balance sheet of Senercomm was included in the consolidated financial
statements of the Company at December 31, 1997 and the results of operations of
Senercomm will be consolidated with those of the Company beginning January 1,
1998. The purchase price was assigned to identifiable assets of working capital
($188 thousand) and purchased software ($1,986 thousand).

         The following unaudited pro forma consolidated results of operations
for the years ended December 31, 1997 and 1996 assume the Senercomm acquisition
occurred as of January 1, 1996 (in thousands except per share data):

                                      1997                           1996
                                      ----                           ----
         Net sales                 $55,547                        $51,848
         Net income (loss)         ($2,650)                          $166
         Earnings per share
              Basic                  ($.16)                          $.01
              Diluted                ($.16)                          $.01

         The pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisition been consummated as of the above date,
nor are they necessarily indicative of future operating results.

         In October of 1993, the Company completed its acquisition of Lodgistix
Scandinavia A.S., a distributor of the company's products in Norway, Sweden and
Denmark. The purchase price consisted of Sulcus Common Stock having a value of
$300 thousand. In addition, the former stockholders of Lodgistix Scandinavia
were entitled to receive additional shares of the Company's stock upon attaining
certain earnings over a three year period. Lodgistix Scandinavia achieved such
earnings for 1993, 1995 and 1996. As a result, the Company issued to the former
stockholders of Lodgistix Scandinavia a total of 125 thousand shares having a
value of $270 thousand for 1993 and 1995. For 1996, under the terms of the
Agreement, the Company issued to the former stockholders of Lodgistix
Scandinavia 67 thousand shares valued at $169 thousand ($2.525 per share). This
additional consideration was recorded as goodwill at December 31, 1996.

         Effective January 1, 1993, Sulcus acquired Techotel AG of Switzerland.
The purchase agreement (as amended) provided for the issuance of $500 thousand
of Common Stock and the payment of $500 thousand in cash. In addition, the
shareholders were entitled to receive shares of Sulcus based upon attaining
certain earnings over a three-year period ending December 31, 1995. Techotel
achieved such earnings for 1993 and 1995. As a result, the Company issued to the
former stockholders of Techotel a total of 174 thousand shares of Sulcus Common
Stock for an aggregate value of $867 thousand for those two years. This
additional consideration was recorded as goodwill at December 31, 1995.

         Effective March 1, 1992, Sulcus acquired all of the outstanding stock
of Squirrel Companies, Inc. ("Squirrel"). The purchase price consisted of $500
thousand in cash and 401 thousand shares of the Company's stock having a value
of $1,955 thousand, net of issuance costs of $352 thousand, in exchange for all
of the outstanding common stock of Squirrel. In addition, the shareholders of
Squirrel were entitled to receive additional shares of Sulcus based upon
attaining certain earnings over a three-year period ending in 1994. Squirrel
achieved such earnings for 1992 and 1994 and, as a result, the Company issued to
the former shareholders of Squirrel 53 thousand shares for an aggregate value of
$703 thousand for 1992 and 71 thousand shares for an aggregate value of $177
thousand for 1994. These additional amounts are recorded as a component of
goodwill. On March 20, 1996, the Company resolved disputes with the former
owners of Squirrel with regard to the calculation of earnouts in 1992 through
1994. The Company issued 498 thousand shares under the terms of the agreement
and cancelled 120 thousand earnout shares. To reflect this settlement, the
Company recorded an increase in goodwill and capital stock in the amount of $391
thousand.




                                      F-15
<PAGE>   35



NOTE 18. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>

                                                                                          Years  Ended December 31,
                                                                                          -------------------------
                                                                                    1997              1996             1995
                                                                                    ----              ----             ----
                                                                                            (thousands of dollars)
<S>                                                                              <C>               <C>               <C>
         Interest paid                                                            $  369            $  572             $596

         Income taxes paid                                                            82                94               --

         Non-cash activities:

            Equipment purchased under capital
              lease agreements                                                         25              406               --

            Common stock issued in settlement
              of shareholder litigation                                                --             2,800              --

            Common stock issued for contingency
              payments on acquisitions                                                 --               169             393

            Issuance of stock to consultants                                           26                26              12

            Issuance of stock as settlement of
              previously recorded liabilities                                          --               181              95

            Issuance of stock as settlement
              of Squirrel litigation                                                   --                --             391

            Issuance of note payable as evidence
              of severance obligation                                               1,245                --              --

            Issuance of stock pursuant for purchase
              of subsidiary                                                           500                --              --

            Assumption of debt pursuant for purchase
              of subsidiary                                                         1,174                --              --

            Cancellation of shares in repayment
              of shareholder loans                                                     --               550              --

            Unrealized (loss) gain on investments
              available for sale                                                        9              (187)            186

</TABLE>


                                      F-16
<PAGE>   36



NOTE 19. SEGMENT REPORTING

         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 is summarized as follows (in
thousands of dollars):

<TABLE>
<CAPTION>

                                                                                     Years Ended December 31,
                                                                           --------------------------------------------
                                                                                1997             1996              1995
                                                                                ----             ----              ----
<S>                                                                         <C>              <C>               <C>
         Sales:
           Domestic                                                          $31,291          $32,328           $30,000
           Canada                                                              5,777            5,232             3,626
           Pacific Region                                                     11,689            8,032             5,702
           Europe                                                              5,065            5,213             5,365
                                                                             -------          -------           -------
         Consolidated net revenues                                           $53,822          $50,805           $44,693
                                                                             =======          =======           =======

                                                                                     Years Ended December 31,
                                                                           --------------------------------------------
                                                                                1997             1996              1995
                                                                                ----             ----              ----
         Net income (loss):
           Domestic                                                          ($1,622)          $2,190             ($148)
           Canada                                                                181              234               274
           Pacific Region                                                        (44)            (508)           (1,291)
           Europe                                                               (525)            (521)             (204)
                                                                             -------          -------           -------
         Consolidated net income (loss)                                      ($2,010)          $1,395           ($1,369)
                                                                             =======          =======           =======

                                                                                          As of December 31,
                                                                           --------------------------------------------
                                                                                1997             1996              1995
                                                                                ----             ----              ----
         Identifiable assets:
            Domestic                                                         $31,831          $38,179           $37,646
            Canada                                                             2,570            1,738             1,562
            Pacific Region                                                     4,492            3,967             3,438
            Europe                                                             3,313            4,066             4,681
                                                                             -------          -------           -------
         Consolidated identifiable assets                                    $42,206          $47,950           $47,327
                                                                             =======          =======           =======

</TABLE>

         The 1997 Domestic segmental net income (loss) includes the costs of the
severance obligations to the Company's former chairman and the Company's former
president of $1,538 thousand and $250 thousand for settlement of certain
litigation. The 1995 Domestic segmental net income (loss) includes the $2,919
thousand litigation settlement provision and the $515 thousand write-off of
software costs developed and capitalized for the U.S. markets.

         Other than short-term investments in marketable securities, which are
generally available for working capital, there are no significant non-operating
corporate assets.

         Sales between geographic areas and export sales are not material.

         Identifiable assets by geographic area exclude intercompany loans,
advances and investments in affiliates. Intercompany trade receivables have been
eliminated.



                                      F-17
<PAGE>   37



NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED)

         The following table sets forth certain unaudited quarterly financial
data for the years ended December 31, 1997 and 1996. This information has been
prepared on the same basis as the Consolidated Financial Statements and that all
necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts as stated below to present fairly the selected
quarterly information when read in conjunction with its Consolidated Financial
Statements and Notes thereto.

<TABLE>
<CAPTION>
                                                                  Fiscal Quarter Ended
                                                    (Thousands of Dollars, except per share amounts)
                         --------------------------------------------------------------------------------------------------------
                          March 31,    June 30,     September     December     March 31,    June 30,     September    December
                            1997         1997       30, 1997      31, 1997       1996         1996       30, 1996     31, 1996
                            ----         ----       --------      --------       ----         ----       --------     --------
<S>                       <C>          <C>          <C>          <C>           <C>          <C>          <C>          <C>
Sales                      $12,623      $13,665      $14,040      $13,494       $10,942      $12,726      $13,316      $13,821
Gross Profit                 6,757        7,183        7,354        7,688         6,474        7,138        6,794        7,045
Operating
Income (Loss)               (1,965)        (303)          34         (488)          317          737          133         (570)
Net Income
   (Loss)                  ($1,755)       ($115)        $225        ($365)         $522         $902         $317        ($346)
                           =======      =======      =======      =======       =======      =======      =======      =======
Basic Earnings (Loss)
   Per share                 ($.10)       ($.01)        $.01        ($.02)         $.03         $.05         $.02        ($.02)
                           =======      =======      =======      =======       =======      =======      =======      =======

</TABLE>


         Certain amounts in the annual consolidated financial statements have
been reclassified to conform with current year reporting practices. As a
consequence, the quarterly amounts above may differ than those previously
reported.

        The Company's results for the first quarter 1997 include a charge of
$1,538 thousand, which relates to severance costs for the Company's former
chairman and the Company's former president and $250 thousand litigation
settlement. In the third quarter 1997, results included a gain on disposal of a
subsidiary of $188 thousand and gains from the sales of marketable securities of
$44 thousand.

NOTE 21. FAIR VALUE OF FINANCIAL INSTRUMENTS

        Estimates of fair value are made at a specific point in time, based on
relevant market prices and information about the financial instrument. The
estimated fair values of financial instruments presented below are not
necessarily indicative of the amounts the Company might realize in actual market
transactions.

        The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

        Cash  and cash equivalents:  The carrying amounts reported in the
balance sheet for cash approximates their fair value. Cash equivalents such as
commercial paper are valued at quoted market value.

        Short-term investments: Short-term investments consists of stocks,
mutual funds and debt securities. Fair values are based on quoted market prices.

        Short- and long-term debt:  The carrying amount of the Company's
borrowings under margin accounts and floating rate debt approximates its fair
value.  Long-term fixed rate debt is not material.

        The carrying amounts of trade payables and receivables approximate their
fair value and have been excluded from the accompanying table.

        The carrying amounts and fair value of the Company's financial
instruments are as follows (in thousands of dollars):

<TABLE>
<CAPTION>

                                           1997                             1996
                                 ---------------------            --------------------
                                 Carrying        Fair             Carrying        Fair
                                  Amount        Value              Amount        Value
                                  ------        -----              ------        -----
<S>                              <C>           <C>                <C>           <C>
        Cash                      $8,894        $8,894             $2,503        $2,503
        Short-term investments       259           259             12,393        12,393
        Short-term borrowings      1,300         1,300              5,827         5,827
        Long-term borrowings       2,313         2,313                367           367

</TABLE>


                                      F-18
<PAGE>   38


NOTE 22. LEGAL PROCEEDINGS AND LITIGATION SETTLEMENTS

         In December 1997, the Company entered into a settlement agreement with
the former vice-president of the Company's NRG Management Systems, Inc.
subsidiary, whereby the Company agreed to pay $250 thousand in cash to settle
various issues which arose in 1995 surrounding his employment contract and
earnout provisions of his stock purchase agreement. This payment was made in
January 1998.

         In April 1994, various individual Sulcus shareholders filed 12 lawsuits
in the U.S. District Court for the Western District of Pennsylvania asserting
federal securities fraud claims against Sulcus and certain officers, directors
and others. These lawsuits were consolidated under the caption IN RE: Sulcus
Computer Corporation Securities Litigation II. These matters were settled in
1995 through the payment of cash and the issuance on December 31, 1996 of 1.4
million Sulcus Common Shares valued at $2,800 thousand. At December 31, 1995,
the Company recorded a provision of $2,861 thousand, which together with amounts
previously accrued represented the costs incurred in connection with this
agreement.

         On March 20, 1996, the Company and others resolved a dispute
surrounding the 1992 purchase of Squirrel Companies, Inc. Under the terms of the
agreement, the Company agreed to deliver 498 thousand shares of Sulcus Common
Shares and to cancel 120 thousand shares previously issued. At December 31,
1995, the Company recorded an increase in goodwill and capital stock in the
amount of $391 thousand to reflect this settlement.

         Other suits 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 and those described above will not result in a material
adverse effect on the Company's consolidated financial position, results of
operations or cash flows.




                                      F-19
<PAGE>   39



                      SULCUS HOSPITALITY TECHNOLOGIES CORP.
                                  SCHEDULE VIII
                        VALUATION AND QUALIFYING ACCOUNTS
           FOR THE THREE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

                                             Balance                            Charged to       Amount            Balance
                                            beginning          Acquired          cost and       charged            at end
                                             of year          valuations         expenses         off              of year
                                             -------          ----------         --------         ---              -------
1997
<S>                                         <C>                    <C>            <C>              <C>            <C>
Allowance for doubtful accounts               $1,913                 $0             $545             $673           $1,785


1996
Allowance for doubtful accounts                2,581                  0              859            1,527            1,913


1995
Allowance for doubtful accounts                2,597                  0              573              589            2,581


</TABLE>

                                      F-20