<PAGE>
                      Securities and Exchange Commission 
                            Washington, D.C. 20549
 
                                   FORM 10-Q
 
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) 
                    OF THE SECURITIES EXCHANGE ACT OF 1934 

(Mark One)
 
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934.
 
    For the quarterly period ended September 30, 1997
 
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934.
 
    For the transition period from ________ to ________
 
                          Commission file number 0-21705 

                        SANCHEZ COMPUTER ASSOCIATES, INC. 
            (Exact Name of Registrant as Specified in Its Charter)
 

            Pennsylvania                         23-2161560
   (State or Other Jurisdiction              (I.R.S. Employer
 of Incorporation or Organization)          Identification No.)
  
40 Valley Stream Parkway, Malvern, PA              19355
(Address of Principal Executive Offices)        (Zip Code)

    Registrant's Telephone Number, Including Area Code: (610) 296-8877
 
                                     N/A 
     Former Name, Former Address and Former Fiscal Year, if Changed Since
                                Last Report
 
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
 
                                 YES  X  NO
                                     ---    ---
 
    As of October 31, 1997, there were outstanding 11,053,591 shares of the
issuer's Common Stock, no par value.

<PAGE>
 
                       SANCHEZ COMPUTER ASSSOCIATES, INC.
                               INDEX TO FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1997



                         PART I: FINANCIAL INFORMATION
 
<TABLE>
ITEM 1: FINANCIAL STATEMENTS                                                          PAGE NO.
<S>                                                                                   <C>
                                                                                      ---------
CONSOLIDATED BALANCE SHEETS
  September 30, 1997 (Unaudited) and December 31, 1996...........................         3
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
  Three and Nine Months Ended September 30, 1997 and 1996........................         4
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
  Nine Months Ended September 30, 1997 and 1996..................................         5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)...........................         6

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS............................................................         8


                                   PART II: OTHER INFORMATION

ITEM 2: USE OF PROCEEDS FROM REGISTERED SECURITITES..............................        13

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.........................................        14

SIGNATURES.......................................................................        15
</TABLE>

                                       2
<PAGE>

                        Sanchez Computer Associates, Inc.
                          Consolidated Balance Sheets
                      (In thousands, except share amounts)
 
<TABLE>
<CAPTION>
                                                                                      September 30,  December 31,
                                       ASSETS                                             1997           1996
                                                                                      -------------  ------------
<S>                                                                                   <C>            <C>
                                                                                       (UNAUDITED)
Current assets
  Cash and cash equivalents.........................................................    $  14,026     $   15,446
  Accounts receivable, net..........................................................       14,624          8,920
  Prepaid and other current assets..................................................        1,131          2,203
                                                                                      -------------  ------------
    Total current assets............................................................       29,781         26,569
Property and equipment
  Equipment.........................................................................        2,613          2,084
  Furniture and fixtures............................................................          249            238
  Leasehold improvements............................................................           66             64
                                                                                      -------------  ------------
                                                                                            2,928          2,386
Accumulated depreciation and amortization...........................................       (1,804)        (1,462)
                                                                                      -------------  ------------
  Net property and equipment........................................................        1,124            924
Capitalized software costs, net of amortization of $1,509 at September 30, 1997 and
  $1,289 at December 31, 1996.......................................................          891            675
                                                                                      -------------  ------------
    Total assets....................................................................    $  31,796     $   28,168
                                                                                      -------------  ------------
                                                                                      -------------  ------------
                                    LIABILITIES
Current liabilities
  Current portion of long-term debt.................................................    $     201     $      224
  Accounts payable, trade...........................................................          939            637
  Accrued expenses..................................................................        3,966          2,474
  Deferred revenue..................................................................        3,763          3,913
                                                                                      -------------  ------------
    Total current liabilities.......................................................        8,869          7,248
Deferred revenue....................................................................          954          1,508
Long-term debt-net of current portion...............................................          146            218
Other long-term liabilities.........................................................          232            284
                                                                                      -------------  ------------
    Total liabilities...............................................................       10,201          9,258
Commitments (Note E)

                                SHAREHOLDERS' EQUITY

Common stock, no par value
  Authorized--50,000,000 shares
  Issued and outstanding -11,041,122 and 10,865,255 shares at September 30, 1997 and
    December 31, 1996, respectively.................................................          110            109
Additional paid-in capital..........................................................       18,492         18,103
Retained earnings...................................................................        3,356          1,236
Notes due on common stock purchases.................................................         (363)          (538)
                                                                                      -------------  ------------
    Total shareholders' equity......................................................       21,595         18,910
                                                                                      -------------  ------------
    Total liabilities and shareholders' equity......................................    $  31,796     $   28,168
                                                                                      -------------  ------------
                                                                                      -------------  ------------
</TABLE>
 
                  See notes to consolidated financial statements
                                       3

<PAGE>
                        Sanchez Computer Associates, Inc.
                     Consolidated Statements of Operations
                    (In thousands, except per share amounts)
                                  (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                              Three Months Ended    Nine Months Ended
                                                                                September 30,         September 30,
                                                                             --------------------  --------------------
                                                                               1997       1996       1997       1996
                                                                             ---------  ---------  ---------  ---------
<S>                                                                          <C>        <C>        <C>        <C>
Revenues
  Software license fees....................................................  $   4,186  $   1,929  $   9,314  $   5,623
  Product enhancement fees.................................................        166        282        659        709
  Implementation and consulting services...................................      2,628      1,249      5,821      3,294
  Software maintenance fees................................................      1,248      1,086      3,792      3,170
                                                                             ---------  ---------  ---------  ---------
    Total revenues.........................................................      8,228      4,546     19,586     12,796

Operating expenses
  Product development......................................................      1,818      1,043      4,898      3,242
  Product support..........................................................        777        555      2,284      1,650
  Implementation and consulting............................................      1,835        756      4,006      2,097
  Sales and marketing......................................................      1,100        787      2,923      2,191
  Royalties and sublicense fees............................................        220        708        938      1,721
  General and administrative...............................................        913        336      2,058      1,041
                                                                             ---------  ---------  ---------  ---------
    Total operating expenses...............................................      6,663      4,185     17,107     11,942
                                                                             ---------  ---------  ---------  ---------
Income from operations.....................................................      1,565        361      2,479        854
Interest income, net.......................................................        232         67        684        213
                                                                             ---------  ---------  ---------  ---------
Income before income taxes.................................................      1,797        428      3,163      1,067
Income tax provision.......................................................        592        121      1,043        383
                                                                             ---------  ---------  ---------  ---------
Net income.................................................................  $   1,205  $     307  $   2,120  $     684
                                                                             ---------  ---------  ---------  ---------
                                                                             ---------  ---------  ---------  ---------

  Net income per average common share......................................  $    0.10  $    0.03  $    0.18  $    0.07
  Weighted average common shares outstanding...............................     12,029      9,198     11,821      9,224
</TABLE>
 

                 See notes to consolidated financial statements

                                       4
<PAGE>

                       Sanchez Computer Associates, Inc. 
                     Consolidated Satements of Cash Flows 
                                (in thousands)
                                 (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                                                                Nine Months Ended
                                                                                                  September 30,
                                                                                               --------------------
<S>                                                                                            <C>        <C>
                                                                                                 1997       1996
                                                                                               ---------  ---------
Cash flows from operating activities
  Net income.................................................................................  $   2,120  $     684
  Adjustments to reconcile net income to cash provided by (used in) operating activities
  Depreciation and amortization..............................................................        660        513
  Other......................................................................................        (40)       100
Cash provided (used) by changes in operating assets and liabilities
  Accounts receivable........................................................................     (5,704)      (531)
  Prepaid and other current assets...........................................................      1,072         57
  Accounts payable and accrued expenses......................................................      1,794        564
  Deferred revenues..........................................................................       (704)      (215)
                                                                                               ---------  ---------
Net cash provided by (used in) operating activities..........................................       (802)     1,172

Cash flows from investing activities
  Capitalized computer software costs........................................................       (436)      (440)
  Capital expenditures.......................................................................       (652)      (437)
                                                                                               ---------  ---------
Net cash used in investing activities........................................................     (1,088)      (877)

Cash flows from financing activities 
  Borrowings under line of credit agreement..................................................         70
  Proceeds from insurance of long-term debt..................................................                   261
  Repayment of notes due on common stock purchases...........................................        286          7
  Principal payments under capital lease obligations.........................................        (23)       (68)
  Principal payments under long-term notes...................................................       (142)      (127)
  Proceeds from exercise of stock options....................................................        279        336
                                                                                               ---------  ---------
Net cash provided by financing activities....................................................        470        409
                                                                                               ---------  ---------

Net increase (decrease) in cash and cash equivalents.........................................     (1,420)       704
Cash and cash equivalents at beginning of period.............................................     15,446      5,546
                                                                                               ---------  ---------
Cash and cash equivalents at end of period...................................................  $  14,026  $   6,250
                                                                                               ---------  ---------
                                                                                               ---------  ---------
Supplemental cash flow information
Interest paid................................................................................  $      27  $      25
Income taxes paid............................................................................  $     224  $     468
</TABLE>

                  See notes to consolidated financial statements

                                       5
<PAGE>
 
                        Sanchez Computer Associates, Inc.
             Notes to Unaudited Consolidated Financial Statements
                    (in thousands, except per share amounts)
 
(A.) Basis of Presentation
 
    The accompanying consolidated financial statements of Sanchez Computer 
Associates, Inc. (the "Company") include the accounts of all of the Company's 
wholly owned subsidiaries. All significant intercompany transactions and 
balances have been eliminated. Certain prior period amounts have been 
reclassified to conform with current period presentation. In the opinion of 
management, the consolidated financial statements reflect all normal and 
recurring adjustments which are necessary for a fair presentation of the 
Company's financial position, results of operations, and cash flows as of the 
dates and for the periods presented. The consolidated financial statements 
have been prepared in accordance with generally accepted accounting 
principles for interim financial information. Consequently, these statements 
do not include all the disclosures normally required by generally accepted 
accounting principles for annual financial statements nor those normally made 
in the Company's Annual Report on Form 10-K. Accordingly, reference should be 
made to the Company's Annual Report on Form 10-K for additional disclosures, 
including a summary of the Company's accounting policies, which have not 
changed. The consolidated results of operations for the three and nine months 
ended September 30, 1997 are not necessarily indicative of results for the 
full year.
 
(B.) Cash and Cash Equivalents
 
    Cash and cash equivalents at September 30, 1997 included amounts on deposit
with Safeguard Scientifics, Inc. ("Safeguard"), a shareholder of the Company, in
conjunction with a note agreement dated June 12, 1997. The demand note provides
for borrowings by Safeguard from the Company of up to a maximum of $12 million
on a revolving basis at Safeguard's effective borrowing rate minus .75%. This
rate is higher than the Company is currently earning on its money market
investments. At September 30, 1997 advances to Safeguard amounted to $9.6
million. Interest income from these advances amounted to $205 for the period
from June 12, 1997 through September 30, 1997. 

(C.) Accrued Expenses
 
Accrued expenses consist of the following:
 
<TABLE>
<CAPTION>
                                                                                  September 30,   December 31,
                                                                                      1997            1996
                                                                                  ------------    -------------
<S>                                                                               <C>             <C>
Accrued compensation and related items.......................................       $   1,138       $     715
Accrued royalties............................................................             257             728
Accrued income taxes.........................................................           1,086             210
Other........................................................................           1,485             821
                                                                                       ------          ------
                                                                                    $   3,966       $   2,474
</TABLE>
 
(D.) Net Income Per Share
 
    Net income per common share was computed by dividing income by the weighted
average number of shares outstanding during each period, including common stock
equivalents which would arise from the exercise of stock options and warrants,
using the treasury stock method.
 
    Stock options and warrants granted with exercise prices below the initial
public offering price during the twelve-month period preceding the initial
filing date of the offering (September 27, 1996) have been included in the
calculation of common stock equivalents using the treasury stock method,
assuming an offering price of $5.50 per share, as if they were outstanding for
all periods presented prior to the offering.

                                       6

<PAGE>
 
                        Sanchez Computer Associates, Inc.
             Notes to Unaudited Consolidated Financial Statements
                    (in thousands, except per share amounts)
 
(E.) Commitments
 
    Effective August, 1997 the Company entered into a six year lease agreement
for a second office facility adjoining its Malvern, Pennsylvania headquarters.
Concurrently with this, the lease for the existing headquarters facility was
extended for five additional years, so that both Malvern leases will be in force
through July 31, 2003. Accordingly, future minimum lease payments under
noncancelable operating leases with remaining terms of one year or more will
average approximately $663 per year during the period October 1, 1997 through
July 31, 2003.
 
    Commitments related to royalty obligations at September 30, 1997 were
substantially the same as those disclosed in Note 9 of the Notes to Consolidated
Financial Statements as of December 31, 1996.
 
                                       7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
Overview
 
    The Company designs, develops, markets, implements and supports
comprehensive banking software, called PROFILE, for financial services
organizations worldwide. Sanchez's integrated and highly flexible PROFILE family
of products operate on open, client-server platforms. The primary module, called
PROFILE/Anyware, is a multi-currency bank production system which supports
deposit, loan, customer, transaction processing and bank management requirements
through multiple distribution channels, including the Internet. PROFILE/FMS is a
multi-company, multi-currency, financial management and accounting system. The
PROFILE system is currently licensed to 28 clients in 11 countries serving
approximately 375 financial institutions.
 
    The Company's operating results for the third quarter ended September 30,
1997 reflected significant increases in both revenues and net income compared to
the same period in 1996. Revenues increased by 81.0% to $8.2 million while net
income increased by $898,000 to $1,205,000 as compared to the quarter
ended September 30, 1996. Further, the Company's operating margin increased to
19.0% for the September 1997 quarter as compared to 7.9% for the September 1996
quarter, primarily due to the fact that software license fee revenues increased
by $2.3 million to $4.2 in the 1997 period. Revenue growth for the 1997 third
quarter was the result of contributions from all four of the Company's major
geographic target markets; Canada, Europe, the United States, and Asia. In
Canada, Credit Union Central of Saskatchewan ("CUCS") successfully converted the
first of their 61 member credit unions to PROFILE in September. Once the CUCS
project is complete, the Sanchez PROFILE product will service more than one
million credit union members in the various Canadian provinces. In Europe,
Sanchez signed an agreement with ING Hungary during the quarter, under the
umbrella of a recently executed global software licensing agreement with ING
Group N.V. In the US, license and service fee revenues were up significantly due
to revenues derived from two new customer projects. Finally, in Asia, the
Company continued work efforts on its two in-process implementation projects in
Malaysia and Indonesia, with initial conversions being achieved for the first
two branches of BBMB Kewangan Berhad, Malaysia's fourth-largest financial
institution.
 
    The Company made a strategic decision in early 1996 to increase its
investment in technology and product development, in particular as it relates to
PROFILE/Anyware, as well as certain other projects such as the development of
its graphical user interface ("GUI") client and the completion of the
adaptation, or "porting," of the Company's software to operate on different
computer systems. As a direct result of these investments, the Company currently
has two clients in "live" operation on UNIX platforms (one IBM based, the other
Digital Equipment Corp. based), and is actively working toward an initial
conversion for its first GUI client in early 1998. The Company has continued
increasing its investment in these areas, and, as indicated below, product
development expenditures increased significantly on a dollar basis in the third
quarter of 1997 when compared to the same period in 1996.
 
    Further, the Company continues to increase its investment in sales and
marketing activities. In addition to its continuing efforts in the Emerging Bank
Market, Direct Bank Market, and Canadian Credit Union and Banking Market, the
Company has recently initiated certain sales and marketing efforts geared toward
the Global Banking Market. The Company has concluded that the flexible and
integrated architecture of its PROFILE/Anyware product makes it an excellent fit
for international financial institutions seeking a single core processing system
which can be utilized worldwide vs. supporting different systems in each
marketplace.

    The Company's backlog at September 30, 1997 amounted to $18.9 million. The
components of the backlog were $5.9 million for software license, product
enhancement and implementation and consulting revenues and $13.0 million for
maintenance and support. At December 31, 1996, the Company's backlog amounted to
$19.8 million, consisting of $8.1 million for software license, product
enhancement and implementation and consulting revenues and $11.7 million for
maintenance and support. 

                                       8
<PAGE>

Results of Operations
 
    The following table sets forth for the periods indicated selected statement
of operations data:
<TABLE>
<CAPTION>
                                                                             Quarter Ended       Nine Months Ended
Dollars in Thousands                                                          September 30,         September 30,
                                                                          --------------------  --------------------
                                                                            1997       1996       1997       1996
                                                                          ---------  ---------  ---------  ---------
<S>                                                                       <C>        <C>        <C>        <C>
Revenues
Software license fees...................................................  $   4,186  $   1,929  $   9,314  $   5,623
Product enhancement fees................................................        166        282        659        709
Implementation and consulting services..................................      2,628      1,249      5,821      3,294
Software maintenance fees...............................................      1,248      1,086      3,792      3,170
                                                                          ---------  ---------  ---------  ---------
Total revenues..........................................................  $   8,228  $   4,546  $  19,586  $  12,796
                                                                          ---------  ---------  ---------  ---------
                                                                          ---------  ---------  ---------  ---------
Percentage Relationship to Total Revenue
Revenues
Software license fees...................................................       50.9%      42.4%      47.5%      43.9%
Product enhancement fees................................................        2.0        6.2        3.4        5.6
Implementation and consulting services..................................       31.9       27.5       29.7       25.7
Software maintenance fees...............................................       15.2       23.9       19.4       24.8
                                                                          ---------  ---------  ---------  ---------
Total revenues..........................................................      100.0      100.0      100.0      100.0

Operating Expenses
Product Development.....................................................       22.1       22.9       25.0       25.3
Product Support.........................................................        9.4       12.2       11.7       12.9
Implementation and consulting...........................................       22.3       16.7       20.4       16.4
Sales and Marketing.....................................................       13.4       17.3       14.9       17.1
Royalties and sublicense fees...........................................        2.7       15.6        4.8       13.5
General and administrative..............................................       11.1        7.4       10.5        8.1
                                                                          ---------  ---------  ---------  ---------
Total operating expenses................................................       81.0       92.1       87.3       93.3

Income from operations..................................................       19.0        7.9       12.7        6.7
Interest income, net....................................................        2.8        1.5        3.4        1.6
                                                                          ---------  ---------  ---------  ---------
Income before income taxes..............................................       21.8        9.4       16.1        8.3
Income tax provision....................................................        7.2        2.6        5.3        3.0
                                                                          ---------  ---------  ---------  ---------
Net income..............................................................       14.6        6.8       10.8        5.3
                                                                          ---------  ---------  ---------  ---------
                                                                          ---------  ---------  ---------  ---------
</TABLE>
 
    Three Months Ended September 30, 1997, Compared to Three Months Ended
September 30, 1996
 
    Revenues.  Revenues increased $3.7 million, or 81.0%, in 1997, as license 
fees, implementation and consulting and maintenance fees each improved over 
the same period in the prior year. In terms of PROFILE implementation 
projects, there were seven active projects in the 1997 third quarter as 
compared to three during the same period in 1996. License fee revenue showed 
the largest growth, increasing by over $2.3 million, or 117.0%, relative to 
1996, due primarily to Canadian and US license fee revenues associated with 
contracts signed in the second and third quarter of the year. Implementation 
and consulting service revenues increased by $1.4 million or 110.4% in 1997 
as compared to 1996. Again, most of this growth is attributable to the 
increased levels of PROFILE implementation activity in the US, Canada and 
Asia. Central European service revenues were relatively consistent during the 
1997and 1996 periods. Software maintenance fees increased by 14.9% or 
$162,000, with most of the growth attributable to European based clients.
 
    Product development. Product development expenses increased $775,000 or
74.3%, in 1997, due to the ongoing impact of the Company's strategic decision to
increase investment in development for various technology projects. The most
significant of these investments during the third quarter of 1997 continued to
be the ongoing development of the Company's GUI client.


                                       9
<PAGE>
 
    Product support.  Product support expenses increased by $222,000 or 40.0%,
in the quarter ended September 30, 1997, primarily due to an increase in the
average number of employees required to support the larger converted client base
in 1997 relative to 1996.
 
    Implementation and consulting. Implementation and consulting expenses
increased by $1.1 million or 142.7% during the third quarter of 1997, in
conjunction with a corresponding increase in implementation and consulting
revenues of $1.4 million (a 110.4% increase relative to the same period in
1996). The primary reasons for this increase were the increased utilization of
third party consultants and subcontractors required to support the increased
revenue levels, increased internal staffing and related overhead, and certain
non-reimbursable project travel costs. The gross margin relative to associated
revenues decreased in the 1997 quarter to 30.2% from 39.5% in the 1996 third
quarter, due primarily to more extensive utilization of more costly third party
resources.
 
    Sales and marketing. Sales and marketing expenses increased by $313,000, or
39.8% in the 1997 period, as the Company continued to increase its direct
coverage in this area, primarily via staffing increases in selected foreign
market locations. Further marketing expenses related to the promotional and
advertising campaign for PROFILE/Anyware which commenced in early 1996 increased
by $91,000 in the third quarter of 1997 as compared to the same period in 1996.
 
    Royalties and sublicense fees. The Company is obligated to pay royalties
based on the collection of certain license fees. These obligations have varying
expiration terms. The Company also is obligated to pay sublicense and
maintenance fees to certain third party licensors, primarily related to Treasury
and Trade Finance product offerings and also for the M programming language and
data base. These amounts will vary depending on the applicable revenue
components subject to such fees. The $488,000 decrease in this expense caption
for the 1997 period is primarily attributable to a lower level of license fees
subject to royalty payment.
 
    General and administrative. These expenses increased by $577,000, or 171.7%,
due to a number of factors which include additional expenses related to being a
public company, as well as increased costs related to the growth of the business
including increased staffing, increased costs related to employee recruitment,
and training costs for certain third party partners.
 
    Interest income, net. Interest income, net, increased $165,000 in 1997 due
to income earned on higher invested cash balances.
 
    Income tax provision. Taxes in the 1997 third quarter were 32.9% of income
before income taxes, as compared to 28.2% in the 1996 quarter. The 28.2%
effective rate in 1996 was the result of tax benefits recorded in that period
related to certain state net operating loss carryforwards.
 
    Nine Months Ended September 30, 1997, Compared to Nine Months Ended
September 30, 1996

    Revenues.  Revenues increased $6.8 million, or 53.1%, in 1997, as license
fees, implementation and consulting and maintenance fees each improved over the
same period in the prior year. License fee revenue increased by $3.7 million or
65.6%, relative to 1996 due to substantially increased activity in the Canadian
and U.S. marketplaces as well as increased activity in the Asian markets
relative to the same period in 1996. Implementation and consulting service
revenues increased by $2.5 million, or 76.7% in 1997 as compared to 1996. Most
of this growth is attributable to the increased levels of PROFILE implementation
activity in the Canadian marketplace, as well as in the U.S., Central Europe and
Asia. Software maintenance fees increased by 19.6% or $622,000, attributable
primarily to an ongoing growth in the European customer maintenance base
 
    Product development. Product development expenses increased $1.65 million or
51.1%, in 1997, due to the ongoing impact of the Company's strategic decision to
increase investment in development for various technology projects. In
particular, the Company continued to invest heavily in the development of its
GUI client, which resulted in sharply increased expenditures for technical
resources.
 
    Product Support.  Product support expenses increased by $634,000 or 38.4% in
the nine months ended September 30, 1997, primarily due to an increase in
staffing in 1997 versus 1996, required to support the larger converted client
base. Also, the 1997 period included a higher level of overhead costs related to
the Prague support office, which was opened in April of 1996.

                                       10
<PAGE>
 
    Implementation and consulting. Implementation and consulting expenses
increased by $1.9 million or 91.0% during 1997, in conjunction with a
corresponding increase in implementation and consulting revenues of $2.5 million
(a 76.7% increase relative to the same period in 1996). Of the $1.9 million
increase in expenses, $932,000 was related to increased utilization of third
party consultants and subcontractors required to support the increased revenue
levels. The remaining increase in expenses resulted from increased internal
staffing and related overhead costs and certain non-reimbursable project travel
costs. The heavier 1997 utilization of third party consultants and
subcontractors was a significant factor in the decrease in gross margin relative
to associated revenues, which declined from 36.3% in 1996 to 31.2% in 1997.
 
    Sales and marketing. Sales and marketing expenses increased by $732,000, or
33.4% in the 1997 period, as the Company continued to increase its direct
coverage in this area, primarily via increased staffing, particularly in
selected foreign market locations. Further, the increased staffing in these
areas coupled with the increased corporate revenue levels for the 1997 period 
resulted in increases in both travel related expenses and sales commission
expense in the 1997 period as compared to 1996.
 
    Royalties and sublicense fees. For the nine months ended September 30, 1997,
these fees decreased by $783,000 or 45.5%, mainly as a result of a $667,000
reduction in royalty expense in 1997 as compared to the same period in 1996. The
1997 period decrease in royalty expense is due to a lower level of license fees
subject to royalty payment.
 
    General and administrative. These expenses increased by $1.0 million or
97.7%, due to a number of factors which include additional expenses related to
being a public company, as well as increased costs related to the growth of the
business including increased staffing, increased costs related to employee
recruitment, and increased facility costs in the 1997 period as compared to
1996.
 
    Interest income, net. Interest income, net, increased $471,000 in 1997 due
to income earned on higher invested cash balances, which averaged approximately
$14.5 million for the nine months ended September 1997, as compared to
approximately $5.8 million in 1996.

    Income tax provision (benefit). Taxes in 1997 were 33.0% of income before
income taxes, as compared to 35.9% in the 1996 nine month period. This reduced
effective rate is primarily the result of the Company's establishment of a
Foreign Sales Corporation (FSC) in late 1996, as well as certain state net
operating loss carryforwards.
 
Liquidity and Capital Resources
 
    Cash and cash equivalents were $14.0 million at September 30, 1997. During
December of 1996, the Company raised $11.8 million (net of direct expenses) from
its initial public offering. Cash flow from operations for the nine months ended
September 30, 1997 was ($802,000) as compared to $1.17 million in 1996. The
decreased rate of cash flow in the 1997 period was primarily attributable to the
timing of significant contract milestone billings and subsequent payments,
coupled with a significantly increased investment in both staffing and use of
third party contractors during the 1997 nine month period. The Company continues
to expect a certain amount of variability in the timing of major contract
milestone payments which will impact cash flow from operations during any given
quarter.
 
    The Company's business is not capital intensive and capital asset
expenditures for the 1997 nine month period amounted to $652,000 as compared to
$437,000 during the same period in 1996. These expenditures consisted primarily
of personal computers and upgrades to the Company's network systems. As
mentioned previously, the Company is currently in the process of outfitting and
occupying a second office facility (15,000 square feet) adjacent to its Malvern,
Pennsylvania headquarters. This will result in a short-term increase in the
Company's capital asset expenditures during the fourth quarter of the year. The
Company expects to finance these expenditures via a combination of existing cash
balances, cash generated from operations, and its current revolving line of
credit.
 
    Effective June 12, 1997, the Company entered into a demand note agreement
with Safeguard Scientifics, Inc. ("Safeguard"), a major shareholder of the
Company. The note provides for borrowings by Safeguard from the Company of up to
a maximum of $12 million on a revolving basis at Safeguard's effective borrowing
rate less .75%. At September 30, 1997, advances to Safeguard under this note
amounted to $9.6 million, which is included in "Cash and Cash Equivalents" on
the accompanying balance sheet.
 
    Additionally, in July 1997, the Company both renewed and restructured its
bank borrowing agreements. Under the revised agreement, the Company converted
approximately $300,000 outstanding under its revolving credit facility for
capital equipment purchases to a 24 month term loan. In conjunction with this, a
new $500,000 revolving credit facility for capital purchases was established
($430,000 available at September 30, 1997).

                                       11
<PAGE>
 
    The Company currently anticipates that cash generated from operations and
existing cash balances will be sufficient to satisfy its operating and capital
cash needs for the foreseeable future and at a minimum through the next twelve
months. Should the Company's business expand more rapidly than expected, the
Company believes that additional bank credit would be available to fund such
operating and capital requirements. In addition, the Company could consider
seeking additional public or private debt or equity financing to fund future
growth opportunities.
 
    The Company believes that its business is generally not seasonal; 
however, the Company has historically experienced, and can be expected to 
continue to experience, a certain degree of variability in its quarterly 
revenue and earnings patterns. This variability is typically driven by 
significant events which directly impact the recognition of project related 
revenues. Examples of such events include the timing of new business contract 
closings and the initiation of license and service fee revenue recognition, 
"one-time" payments from existing clients relative to license expansion 
rights (required to process a greater number of customer accounts or expand 
the number of permitted users), and completion of a significant 
implementation project roll out and the related revenue recognition. The 
timing of revenues is difficult to forecast because the Company's sales cycle 
is relatively long in the case of new clients and may depend on factors such 
as the size and scope of the project, length of contract negotiations, and 
general economic conditions in a particular sales prospect's country of 
origin. Because a high percentage of the Company's expenses are relatively 
fixed, a variation in the timing of the initiation or the completion of 
client projects, particularly at or near the end of any quarter, can cause 
significant variations in operating results from quarter to quarter.
 
    The Company's forward-looking statements about its revenues, earnings, and
business development have been derived from its operating budgets and forecasts,
which are based upon detailed assumptions about many important factors. Several
important factors may cause the Company's actual results to differ materially
from those contemplated by any forward-looking statements made by the Company.
These factors include the course of business in the financial services industry,
competition among software companies serving that industry, the Company's
management of the long sales cycle for its products, the timing of new contract
closings and other significant events of revenue recognition affecting the
Company's quarterly results, the development of the Direct, Emerging and Global
Banking Markets and market acceptance of the Company's products within these
markets, the Company's ability to continue to improve its product, and the
Company's ability to manage the concentration of sales to financial service
companies in foreign markets (particularly Central Europe and Asia).
 
Recently Issued Accounting Standards
 
    In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per
Share." This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock or potential common stock (as defined). This Statement is effective for
financial statements issued for periods ending after December 15, 1997. Earlier
application is not permitted. This Statement requires restatement of all
prior-period EPS data presented. The Company has calculated both basic and
diluted earnings per share, as such terms are defined in SFAS No. 128, for the
periods presented herein, and has determined that diluted earnings per share
amounts are identical to the earnings per common share amounts as currently
reported on Exhibit 11. Basic earnings per share calculations under SFAS No. 128
result in amounts which are .01 per share higher than the amounts reported in
Exhibit 11 for all periods presented.
 
    Also during 1997, the FASB issued pronouncements relating to the
presentation and disclosure of information related to the Company's capital
structure, comprehensive income and segment data. The Company is required to
adopt the provisions relating to capital structure for the year ending December
31, 1997, if applicable, and the provisions of the other pronouncements, if
applicable, for the year ending December 31, 1998. The adoption of these
pronouncements will not have an impact on the Company's financial position and
results of operations, but may change the presentation of certain of the
Company's financial statements and related notes and data thereto.

                                       12
<PAGE>
 
                       SANCHEZ COMPUTER ASSOCIATES, INC.
 
PART II--OTHER INFORMATION
 
ITEM 2: USE OF PROCEEDS FROM REGISTERED SECURITIES
 
    (a). The Company made its initial public offering through a registration
         statement on Form S-1 (File # 333-12863) which was declared effective 
         November 13, 1996.

    (b). The offering commencement date was November 14, 1996.
 
    (c). The offering was successfully completed, resulting in the sale of all
         securities registered. The managing underwriters were J.P. Morgan & 
         Co. and Wheat First Butcher Singer.
 
    (d). Title of security sold: Sanchez Computer Associates, Inc. Common Stock
 
<TABLE>
<S>                                                                                     <C>
         Shares Registered by Issuer....................................................    2,309,500
         Aggregate Price of Amount Registered...........................................  $12,702,250
         Shares Sold....................................................................    2,309,500
         Aggregate Price of Shares Sold.................................................  $12,702,250

         Shares Registered by Selling Security Holders..................................    1,224,500
         Aggregate Price of Amount Registered...........................................  $ 6,734,750
         Shares Sold....................................................................    1,224,500
         Aggregate Price of Shares Sold.................................................  $ 6,734,750
</TABLE>
 
    (e). Expenses incurred in connection with issuance and distribution of
         securities:
 
<TABLE>
<S>                                                                                          <C>
         Underwriters Discounts and Commissions............................................  $ 414,398
         Expenses paid to Underwriters.....................................................    125,000
         Other Expenses....................................................................    410,587
                                                                                             ---------
         Total Direct and Indirect Payments................................................  $ 949,985
</TABLE>
 
         None of the above listed payments were made to directors, officers or
         persons owning ten (10%) percent or more of any class of equity 
         securities of the Company, or to any affiliates of the Company.
 
         The net offering proceeds to the Company after deducting expenses 
         amounted to $11,752,265.
 
    (f). From the effective date of the registration through September 30, 1997,
         the Company has utilized the net offering proceeds from the offering 
         for the following purposes:
 
<TABLE>
<S>                                                                              <C>
         Purchases of Equipment......................................................... $   581,670
         Product Development............................................................   5,235,800
         Sales and Marketing............................................................   2,923,135
                                                                                           ---------
             Subtotal Expenditures......................................................   8,740,605

         Temporary Investments - Provident
         Institutional Temporary Investment Fund, Inc...................................   3,011,660
                                                                                           ---------

             Total Expenditures and Investments......................................... $11,752,265
</TABLE>
 
         None of the above listed expenditures were made to directors, 
         officers, or persons owning ten (10%) percent or more of any class 
         of equity securities of the Company, or to any affiliates of the 
         Company.

                                       13
<PAGE>
 
                       SANCHEZ COMPUTER ASSOCIATES, INC.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8--K
 
       (a) Exhibits
 
           Exhibit 10--Demand Note and Pledge Agreement dated September 19, 1997
                       made by Ronald J. Zlatoper in favor of the Company.
 
           Exhibit 11--Computation of net income per share

           Exhibit 27--Financial Data Schedule
 
       (b) Reports on Form 8-K
 
           NONE
 
No other applicable items.

                                       14
<PAGE>
 
                                   SIGNATURES
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
                                       SANCHEZ COMPUTER ASSOCIATES, INC. 



                                       /S/ Joseph F. Waterman
                                       ---------------------------------------
                                       Joseph F. Waterman 
                                       Senior Vice-President & Chief 
                                         Financial Officer 

Date:  November 12, 1997
 





                                        15