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Securities and Exchange CommissionWashington, D.C. 20549

FORM 10-Q

(Mark One)

|ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------
|  |                                                                                        

For the quarterly period ended June 30, 2002

|o | 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 of
Incorporation or Organization)

(I.R.S. Employer 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

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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
ý        No o

As
of July 31, 2002, there were 26,660,633 outstanding shares of the issuer's Common Stock, no par value.

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SANCHEZ COMPUTER ASSSOCIATES, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002

|                              |  |                                                                                                     |  | Page
No.
|----------------------------- |  | --------------------------------------------------------------------------------------------------- |  | --------
|PART I: FINANCIAL INFORMATION
|ITEM 1:                       |  | FINANCIAL STATEMENTS                                                                                |  |         
|                              |  | CONSOLIDATED BALANCE SHEETS
June 30, 2002 (Unaudited) and December 31, 2001                         |  | 3       
|                              |  | CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three and six months ended June 30, 2002 and 2001 |  | 4       
|                              |  | CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended June 30, 2002 and 2001           |  | 5       
|                              |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                              |  | 6       
|ITEM 2:                       |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS               |  | 10      
|ITEM 3:                       |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                          |  | 17      
|PART II: OTHER INFORMATION   
|ITEM 4:                       |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                 |  | 17      
|ITEM 5:                       |  | OTHER INFORMATION                                                                                   |  | 18      
|ITEM 6:                       |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                    |  | 18      
|SIGNATURE                     |  | 18                                                                                                 

2

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Sanchez Computer Associates, Inc.  Consolidated Balance Sheets  (in thousands, except per share amounts)

|                                                                                                                                                                                                 |                                                | June 30,
2002                              |        | December 31,
2001
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | ------------------------------------------ | ------ | -----------------
|
|ASSETS                                                                                                                                                                                           |                                                |                                            |        |                  
|Current assets                                                                                                                                                                                   |                                                |                                            |        |                  
|                                                                                                                                                                                                 | Cash and cash equivalents                      |                                            | $      | 42,184           
|                                                                                                                                                                                                 | Receivables, less allowance of $662 and $1,219 |                                            |        | 22,250           
|                                                                                                                                                                                                 | Contracts in process                           |                                            |        | 1,977            
|                                                                                                                                                                                                 | Recoverable income taxes                       |                                            |        | 1,265            
|                                                                                                                                                                                                 | Deferred income taxes                          |                                            |        | 4,683            
|                                                                                                                                                                                                 | Prepaid expenses and other current assets      |                                            |        | 4,551            
|                                                                                                                                                                                                 | Deferred product and service expense           |                                            |        | 13,394           
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|                                                                                                                                                                                                 |                                                | Total current assets                       |        |                  
|Property and equipment                                                                                                                                                                           |                                                |                                            |        |                  
|                                                                                                                                                                                                 | Equipment                                      |                                            |        | 15,137           
|                                                                                                                                                                                                 | Furniture and fixtures                         |                                            |        | 2,471            
|                                                                                                                                                                                                 | Leasehold improvements                         |                                            |        | 3,125            
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|                                                                                                                                                                                                 |                                                |                                            | 20,733 |                  
|Accumulated depreciation and amortization                                                                                                                                                        |                                                |                                            | 14,579 |                  
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|                                                                                                                                                                                                 | Net property and equipment                     |                                            |        | 6,154            
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|Deferred product and service expense                                                                                                                                                             |                                                |                                            | 6,783  |                  
|Deferred income taxes                                                                                                                                                                            |                                                |                                            | 801    |                  
|Other non-current assets                                                                                                                                                                         |                                                |                                            | 4,263  |                  
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|                                                                                                                                                                                                 |                                                | Total assets                               |        | $                
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|LIABILITIES                                                                                                                                                                                      |                                                |                                            |        |                  
|Current liabilities                                                                                                                                                                              |                                                |                                            |        |                  
|                                                                                                                                                                                                 | Accounts payable, trade                        |                                            | $      | 4,358            
|                                                                                                                                                                                                 | Accrued expenses                               |                                            |        | 6,792            
|                                                                                                                                                                                                 | Deferred product and service revenue           |                                            |        | 18,084           
|                                                                                                                                                                                                 | Deferred revenue                               |                                            |        | 9,096            
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|                                                                                                                                                                                                 |                                                | Total current liabilities                  |        |                  
|Deferred product and service revenue                                                                                                                                                             |                                                |                                            | 9,065  |                  
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|                                                                                                                                                                                                 |                                                | Total liabilities                          |        |                  
|SHAREHOLDERS' EQUITY                                                                                                                                                                             |                                                |                                            |        |                  
|Common stock stated value of $.01 per share, 75,000 shares authorized, 26,010 shares issued and outstanding as of June 30, 2002 and 25,963 shares issued and outstanding as of December 31, 2001 |                                                |                                            | 260    |                  
|Additional paid-in capital                                                                                                                                                                       |                                                |                                            | 45,502 |                  
|Retained earnings                                                                                                                                                                                |                                                |                                            | 15,148 |                  
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|                                                                                                                                                                                                 |                                                | Total shareholders' equity                 |        |                  
|                                                                                                                                                                                                 |                                                |                                            |        |                  
|                                                                                                                                                                                                 |                                                | Total liabilities and shareholders' equity |        | $                
|                                                                                                                                                                                                 |                                                |                                            |        |                  

3

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Sanchez Computer Associates, Inc.  Consolidated Statements of Operations  (in thousands, except per share amounts)  (unaudited)

|                                                        |                                   | Three Months Ended
June 30, |        | Six Months Ended
June 30,
|------------------------------------------------------- | --------------------------------- | --------------------------- | ------ | -------------------------
|
|Revenues                                                |                                   |                             |        |                          
|                                                        | Products                          |                             | $      | 2,736                    
|                                                        | Services                          |                             |        | 9,179                    
|                                                        | Processing                        |                             |        | 4,713                    
|                                                        | Software maintenance and other    |                             |        | 5,704                    
|                                                        |                                   |                             |        |                          
|                                                        |                                   | Total revenues              |        |                          
|                                                        |                                   |                             |        |                          
|Operating expenses                                      |                                   |                             |        |                          
|                                                        | Product development               |                             |        | 3,886                    
|                                                        | Product support                   |                             |        | 1,195                    
|                                                        | Services                          |                             |        | 6,078                    
|                                                        | Processing                        |                             |        | 4,092                    
|                                                        | Sales and marketing               |                             |        | 2,630                    
|                                                        | General, administrative and other |                             |        | 4,660                    
|                                                        |                                   |                             |        |                          
|                                                        |                                   | Total operating expenses    |        |                          
|                                                        |                                   |                             |        |                          
|Earnings (loss) from operations                         |                                   |                             | (209   | )                        
|Interest income, net                                    |                                   |                             | 552    |                          
|                                                        |                                   |                             |        |                          
|Earnings before income taxes                            |                                   |                             | 343    |                          
|Income tax provision                                    |                                   |                             | 113    |                          
|                                                        |                                   |                             |        |                          
|Net earnings                                            |                                   | $                           | 230    |                          
|                                                        |                                   |                             |        |                          
|Basic earnings per average common share                 |                                   | $                           | 0.01   |                          
|Diluted earnings per average common share               |                                   | $                           | 0.01   |                          
|Weighted-average common shares outstanding              |                                   |                             | 26,010 |                          
|Weighted-average common and dilutive shares outstanding |                                   |                             | 26,144 |                          

4

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Sanchez Computer Associates, Inc.  Consolidated Statements of Cash Flows  (in thousands)  (unaudited)

|                                                 |                                                                                       | Six Months Ended
June 30,                  |       
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ------------------------------------------ | ------
|
|Cash flows from operating activities             |                                                                                       |                                            |       
|                                                 | Net earnings                                                                          |                                            | $     
|                                                 | Adjustments to reconcile net earnings to cash provided (used) by operating activities |                                            |       
|                                                 |                                                                                       | Depreciation and amortization              |       
|                                                 |                                                                                       | Deferred product and service revenue       |       
|                                                 |                                                                                       | Deferred product and service expense       |       
|                                                 |                                                                                       | Provision for doubtful accounts receivable |       
|                                                 |                                                                                       | Other                                      |       
|                                                 | Cash provided (used) by changes in operating assets and liabilities                   |                                            |       
|                                                 |                                                                                       | Accounts receivable                        |       
|                                                 |                                                                                       | Contracts in process                       |       
|                                                 |                                                                                       | Income tax refund receivable/payable       |       
|                                                 |                                                                                       | Prepaid and other current assets           |       
|                                                 |                                                                                       | Accounts payable and accrued expenses      |       
|                                                 |                                                                                       | Deferred revenue                           |       
|                                                 |                                                                                       |                                            |       
|Net cash provided by operating activities        |                                                                                       |                                            | 2,363 
|Cash flows from investing activities             |                                                                                       |                                            |       
|                                                 | Investments                                                                           |                                            |       
|                                                 | Capital expenditures                                                                  |                                            |       
|                                                 |                                                                                       |                                            |       
|Net cash used by investing activities            |                                                                                       |                                            | (1,467
|Cash flows from financing activities             |                                                                                       |                                            |       
|                                                 | Issuance of common stock for stock options                                            |                                            |       
|                                                 | Repurchase of stock in subsidiary                                                     |                                            |       
|                                                 | Proceeds from the issuance of shares under the employee stock purchase plan           |                                            |       
|                                                 |                                                                                       |                                            |       
|Net cash provided (used) by financing activities |                                                                                       |                                            | 333   
|                                                 |                                                                                       |                                            |       
|Net increase in cash and cash equivalents        |                                                                                       |                                            | 1,229 
|Cash and cash equivalents at beginning of period |                                                                                       |                                            | 40,955
|                                                 |                                                                                       |                                            |       
|Cash and cash equivalents at end of period       |                                                                                       | $                                          | 42,184
|                                                 |                                                                                       |                                            |       
|Supplemental cash flow information               |                                                                                       |                                            |       
|                                                 | Interest paid                                                                         |                                            | $     
|                                                 | Income taxes paid                                                                     |                                            | $     

5

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Sanchez Computer Associates, Inc.  Notes to Unaudited Consolidated Financial Statements

(A.) Basis of Presentation

The accompanying consolidated financial statements of Sanchez Computer Associates, Inc. ("Sanchez" or the "Company") include the accounts of all of the
Company's wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform with
current period presentation. In the opinion of management, the consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the
Company's financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information. Consequently, these statements do not include all the disclosures normally required by generally accepted accounting principles for
annual financial statements nor those normally made in the Company's Annual Report on Form 10-K. Accordingly, reference should be made to the Company's Annual Report on
Form 10-K for additional disclosures, including a summary of the Company's critical accounting policies, which have not changed materially since our latest filing of the
Form 10-K on March 28, 2002. The consolidated results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of results to be
expected for the full year.

(B.) Client Revenue Data

Revenue derived from customers in various geographic regions is as follows (in thousands):

|                   |  | Three months ended
June 30, |        | Six months ended
June 30,
|------------------ |  | --------------------------- | ------ | -------------------------
|
|U.S. and Caribbean |  | $                           | 15,830 |                          
|Europe             |  |                             | 5,373  |                          
|Other              |  |                             | 1,129  |                          
|                   |  |                             |        |                          
|Total              |  | $                           | 22,332 |                          
|                   |  |                             |        |                          

(C.) Segments

The Company classifies its operations in two segments: Sanchez's software licensing business, and the Sanchez Data Systems Inc. ("SDSI") outsourcing
business. The Company evaluates the performance of its segments and allocates resources to them accordingly.

6

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The
table below summarizes the business segments (in thousands):

|                                |              | Six months ended
June 30, |  
|------------------------------- | ------------ | ------------------------- | -
|
|Revenues                        |              |                           |  
|                                | Sanchez      |                           | $
|                                | SDSI         |                           |  
|                                | Eliminations |                           |  
|                                |              |                           |  
|                                |              | Total                     |  
|                                |              |                           |  
|Earnings (loss) from operations |              |                           |  
|                                | Sanchez      |                           |  
|                                | SDSI         |                           |  
|                                |              |                           |  
|                                |              | Total                     |  
|                                |              |                           |  
|                                |              |                           |  

|             |              | June 30,
2002 |   | December 31,
2002 |        
|------------ | ------------ | ------------- | - | ----------------- | -------
|Total Assets |              |               |   |                   |        
|             | Sanchez      |               | $ | 89,022            |        
|             | SDSI         |               |   | 45,391            |        
|             | Eliminations |               |   | (26,108           | )      
|             |              |               |   |                   |        
|             |              | Total         |   | $                 | 108,305
|             |              |               |   |                   |        

(D.) Earnings Per Share

Basic earnings per share has been calculated as net earnings divided by weighted-average common shares outstanding, while diluted earnings per share has been
computed as net earnings divided by weighted-average common and diluted shares outstanding which includes the dilutive effect of stock options and warrants. The following table provides a
reconciliation of weighted-average common shares outstanding to weighted-average common and diluted shares outstanding (in thousands):

|                                                             |  | Three months ended
June 30, |  | Six months ended
June 30,
|------------------------------------------------------------ |  | --------------------------- |  | -------------------------
|
|Weighted-average common shares outstanding                   |  | 26,010                      |  | 25,661                   
|Dilutive effect of options                                   |  | 134                         |  | 884                      
|                                                             |  |                             |  |                          
|Total weighted-average common and diluted shares outstanding |  | 26,144                      |  | 26,545                   
|                                                             |  |                             |  |                          

For
the three and six months ended June 30, 2002, potentially dilutive common stock equivalents include options to purchase 4,930,853 and 4,802,503 shares of common stock,
respectively, which were excluded from the calculation as their effect is anti-dilutive as a result of their exercise price. For the
three and six months ended June 30, 2001, potentially dilutive common stock equivalents include options to purchase 974,826 and 974,826 shares of common stock, respectively, which were excluded
from the calculation as their effect is anti-dilutive as a result of their exercise price.

7

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(E.) Contingencies

During the quarter the Company prevailed in its arbitration claim with 1stWebbankdirect and was awarded $1.7 million. In
February 2001, SDSI filed for arbitration in response to 1stWebbankdirect's October 2000, termination of its processing agreement in connection with the consolidation of
its e-banking platforms. SDSI was seeking payment of all outstanding receivables from this customer. 1stWebbankdirect counterclaimed and was seeking a refund of the
implementation fees they paid for the project.

During
the fourth quarter of 2001, an unannounced client that was in the final stages of implementing an outsourced solution notified the Company of their intent to discontinue their
plans of launching a direct bank. As of June 30, 2002, SDSI had a $2.9 million receivable balance from this customer. SDSI is seeking payment of all outstanding receivables from this
customer. In accordance with Staff Accounting Bulletin No. 101 ("SAB 101"), the Company has recognized a portion of the associated deferred revenue and costs during the period this client was
live in a "friends and family" environment and prior to the client notifying the Company of their intent to discontinue their plans. At this date, the Company is unable to estimate the amount of any
potential gains or loss related to this contingency.

(F.) Recent Accounting Pronouncements

Effective January 1, 2002, the Company adopted Emerging Issues Task Force Number 01-14, "Income Statement Characterization of Reimbursement
Received for "Out-of-Pocket' Expenses Incurred" (EITF 01-14), which requires that the reimbursement received for out-of-pocket expenses be
classified as revenues and not as cost reductions. Prior to the effective date of EITF 01-14, the Company netted out-of-pocket reimbursements from customers with
the applicable costs. These items include certain travel, meals, postage, hardware and telecommunication costs. While the adoption of EITF 01-14 will not have any impact on earnings from
operations or net earnings, it will reduce operating margins since both revenues and costs will increase by the same amount. Prior period amounts were reclassified to conform to EITF
01-14.

On
June 29, 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and other Intangible
Assets." SFAS No. 141 requires that all business combinations consummated after June 30, 2001 be accounted for under the purchase method of accounting. SFAS No. 142 provides for
the discontinuance of amortization of goodwill
effective January 1, 2002 and establishes methodologies for determining the impairment of the carrying value of goodwill. The following table illustrates adjusted net earnings and basic and
diluted earnings per share as if these pronouncements were adopted as of January 1, 2001 (in thousands):

|                                      |                                               | Three months ended June 30, |   | Six months ended June 30,
|------------------------------------- | --------------------------------------------- | --------------------------- | - | -------------------------
|
|Net earnings:                         |                                               |                             |   |                          
|                                      | Net earnings                                  |                             | $ | 230                      
|                                      | Add: goodwill amortization, net of tax        |                             |   |                         
|                                      |                                               |                             |   |                          
|                                      | Adjusted net earnings                         |                             | $ | 230                      
|                                      |                                               |                             |   |                          
|Basic and diluted earnings per share: |                                               |                             |   |                          
|                                      | Reported                                      |                             | $ | 0.01                     
|                                      | Goodwill amortization, net of tax             |                             |   |                         
|                                      |                                               |                             |   |                          
|                                      | Adjusted basic and diluted earnings per share |                             | $ | 0.01                     
|                                      |                                               |                             |   |                          

8

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Management
determined that goodwill is not impaired at January 1, 2002 and June 30, 2002 under SFAS No. 142.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which establishes a single accounting model,
based on the framework established in SFAS No. 121, for long-lived assets to be disposed of and resolves significant implementation issues related to SFAS No. 121. SFAS
No. 144 supercedes SFAS No. 121 and APB No. 30, "Reporting the Results of OperationsReporting the Effects of a Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and transactions." The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 did not have a material
impact on the Company's financial condition or results of operations.

In
June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146, "Accounting for Exit or Disposal Activities" ("SFAS 146"). SFAS 146
addresses the recognition, measurement and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS 146 also addresses recognition of certain
costs related to terminating a contract that is not a capital lease, costs to consolidate facilities or relocate employees and termination of benefits provided to employees that are involuntarily
terminated under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. SFAS 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. Adoption of SFAS 146 is not expected to have an impact on the financial position or results of operations of the
Company.

(G.) Related Party Transactions

On August 13, 2002, Mr. Michael Sanchez repaid the two loans and interest in full that were previously outstanding with the Company during the
quarter ended June 30, 2002. Mr. Sanchez, the Company's Chairman of the Board, had received two loans from the Company totaling $1,050,000. These two loans were interest bearing at a
rate equal to the applicable federal funds interest rate at the time the loans were made. The loans were secured by collateral and were full recourse.

(H.) Acquisitions

On July 3, 2002, Sanchez Computer Associates, Inc. ("Sanchez") announced that it had completed its acquisition, by way of a plan of arrangement (the
"Arrangement"), of all of the outstanding common shares of Spectra Securities Software Inc., a Canadian corporation existing under the Business Corporations Act (Ontario) and it's subsidiaries
("Spectra"). Under the terms of the Arrangement, Sanchez acquired all of the common shares of Spectra and Eclipse VII Holdings Inc., an entity whose only asset of which was Spectra common
shares ("Eclipse"), for approximately $24.2 million in cash, approximately $2.9 million in common stock and assumed approximately $1.6 million in net debt.

9

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



Sanchez Computer Associates, Inc. ("Sanchez" or the "Company") is a global leader in developing and marketing scalable and integrated software and services
solutions that provide banking, brokerage, customer integration and wealth management solutions for approximately 360 financial institutions in 21 countries. Sanchez solutions are designed to empower
financial institutions to accelerate business transformation and achieve a competitive advantage by lowering operating costs, reducing technology risks and improving customer management. The Company
sells application software licenses to financial institutions and operates a data processing center and bank operations outsourcing business. Sanchez corporate headquarters is located in Malvern, Pa.
Sanchez Data Systems Inc., the company's outsourcing unit, has a management office in Malvern, and maintains an outsourcing data and operations service center in Seven Fields, Pa. The company's
wealth management unit is based in Toronto, Canada.

Sanchez
licenses application software products that provide banking, customer integration, brokerage and wealth management solutions to financial institutions. Institutions can license
Sanchez applications for in-house deployment, or they can license applications for use in an outsourced environment provided by Sanchez Data Systems Inc. ("SDSI").

Sanchez's
application software products include: Sanchez Profile®a real-time, multi-currency, multi-lingual, core banking and transaction processing
application; Profile for Windows®the 32-bit, Windows-based, graphical user interface designed as the front-end to the Sanchez Profile core banking
application used by tellers, branch and call center personnel; Sanchez Xpressan enterprise customer and transaction management system, which provides CRM and delivers
business integration; Sanchez Webclienta Web-based, customer front-end processor; Sanchez WebCSRa browser-based, customer
servicing application; Sanchez FMS, the Financial Management Systeman online, real-time cost center-based accounting system with complete multi-company and
multi-currency support; and Sanchez CRMa Web-based customer relationship management system, which is available as a stand-alone application. Software applications
under development include Sanchez Webtellera browser-based teller application.

Sanchez's
wealth management unit also develops and markets full-functioned, multi-channel, wealth management applications under the Sanchez Wealthware
branda solution set that satisfies the real-time, straight-through processing requirements of brokers, bankers and insurance agents and includes equities, options,
fixed-income securities, mutual fund securities and wrap account processing.

Sanchez
products may be licensed to a customer to run on an in-house basis or alternatively one or more Sanchez products may be used to provide an integrated banking and
technology platform that supports a complete, outsourced direct banking solution. This outsourced solution is marketed under the Sanchez e-PROFILE® brand and is operated by
SDSI. The solution provides an integrated, end-to-end bank operations and technology platform that enables financial services companies to offer comprehensive,
on-line financial services to their customers.

The
Company derives its revenues from fees assessed on products, services, processing, and software maintenance as well as from other miscellaneous fees. Product fees include software
license and product enhancement fees. Service fees include client implementation-related services and consulting fees. Processing fees consist primarily of monthly, account-based fees for account
maintenance, monthly servicing and transaction fees associated with transaction volumes for a specified period, and origination fees in conjunction with opening new customer accounts.

Typically,
for Sanchez's software license contracts, fees are paid in stages upon the completion of defined deliverables or certain dates. The Company recognizes revenue from these fees
using the percentage-of-completion contract accounting method, the Securities and Exchange Commission ("SEC") accounting rules outlined in Staff Accounting Bulletin
No. 101 ("SAB 101"), or where

10

---

applicable, on a cash basis. Service fees are generally recognized and billed monthly on a time and material basis. Maintenance fees are normally billed annually in advance and recognized into
revenue ratably during the specified maintenance period.

The
Company's outsourced contracts can generate product license revenues, product enhancement revenues and implementation-related service revenues. These revenues, along with their
associated costs, are largely deferred during the implementation phase of an outsourced contract in accordance with SAB 101. Once an outsourced client begins processing its customer's accounts on
SDSI's outsourced platform, i.e., "goes live," the deferred revenue and costs are amortized over the expected life of the processing arrangement. Financial institutions selecting a Sanchez
e-PROFILE outsourced solution either can purchase licenses for Sanchez products up-front, or in lieu of up-front license fees, institutions can opt to spread the
license and accompanying maintenance fees on a per account/per month basis over the life of the processing contract. Assessment of these fees begins after the client "goes live" with the solution. In
addition, outsourced contracts generate on-going, processing revenues. Under this model, as a client institution's customer account base grows, Sanchez increases its revenue stream.

The
Company's success is heavily dependent upon the proprietary architecture and design of its Sanchez products, which are protected by a combination of copyright and trademark laws, as
well as various contractual provisions. Despite these efforts to protect its proprietary rights, there can be no assurances that the Company's means of protecting its proprietary rights will be
adequate or that the Company's competition will not develop similar technology independently. Similarly, while the Company is not aware that any of its products infringe upon the proprietary rights of
third parties, there can be no assurances that third parties do not claim such infringement.



Revenues for the quarter ended June 30, 2002, were $22.3 million, compared to $24.5 million for the same period in 2001. Net earnings for the
quarter totaled $230,000 or $0.01 per share, compared to net earnings of $984,000 or $0.04 per share for the same period last year. The Company's balance for deferred revenues under SAB 101 was
$27.1 million with a deferred pre-tax earnings balance of $7.0 million at June 30, 2002. Deferred product and service revenue is part of the Company's recurring
revenue stream along with software maintenance contracts and processing revenues generated by the Company's outsourcing unit.

Processing
revenues increased to $4.7 million in the second quarter, up 17.8% from $4.0 million in the second quarter of 2001. Also in the second quarter, the outsourcing
unit's open account base grew 24.9% to 738,000 accounts, up from 591,000 open accounts at quarter-end March 31, 2002. The account base grew year over year by 394,000 accounts, or
115%, up from 344,000 accounts as of June 30, 2001. The second quarter of 2002 marked the eighth consecutive quarter of improved operating earnings for the outsourcing unit and was the second
consecutive quarter in which the unit posted an operating profit.

During
the quarter, Paymap, Inc. and another client went live with their applications. The Paymap application is outside of the Company's traditional role of providing outsourcing
services for direct banks. Paymap uses Sanchez software on an outsourced basis to support a high-volume, consumer electronic mortgage payment system on behalf of approximately 40 banks. In
addition, during the quarter, the Company signed a master license agreement with Datawest Solutions Inc. to provide licenses and customizations at Scotiabank. Scotiabank is one of North
America's premier financial institutions and will utilize the Sanchez integrated banking platform to process its mortgage loan portfolio. The Company also prevailed in its arbitration claim against
1stWebbankdirect, a division of Sovereign Bank, during the quarter and was awarded approximately $1.7 million. The amount included payment in full for the outstanding receivable in addition to
approximately $370,000 of interest on that receivable. Also during the quarter, the company was informed of Santander Central Hispano's decision to terminate its Latin American direct bank initiative
through its Patagon.com, Inc. subsidiary. Based

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upon a termination agreement reached with Patagon.com, Inc., the company agreed to write-off approximately $1.7 million in receivables during the quarter. The outstanding
receivable was related to licenses and services Sanchez provided to Patagon.com, Inc. during the implementation of the bank's
Latin American operations. As a result of this event and an assessment of the company's overall allowance for doubtful accounts reserve, the company recorded an additional $1.1 million in bad
debt expense in the second quarter.

Also
during the quarter, the Company signed a definitive agreement to acquire Spectra Securities Software Inc., of Toronto, Canada, a leading provider of comprehensive wealth
management solutions. The Company completed the acquisition on July 3, 2002. Under terms of the agreement, the Company acquired all shares of Spectra for approximately $27.1 million in
cash and common stock and assumed approximately $1.6 million in net debt. With the acquisition complete, the Company has initiated a program to re-brand Spectra's Wealthware
products under the Sanchez brand. The Wealthware product suite includes equities, options, fixed-income securities, mutual fund securities and wrap account processing, and complements the Company's
integrated and real-time core technology platform for banking. Together, the two companies' application products and technologies provide a complete banking and brokerage platform which is
expected to satisfy the industry's growing global requirements for an integrated banking and wealth management solution.

Results of Operations

The following table sets forth, for the periods indicated, selected statement of operations data:

|                                          |                                   | Three Months Ended
June 30, |      | Six Months Ended
June 30, |       
|----------------------------------------- | --------------------------------- | --------------------------- | ---- | ------------------------- | ------
|
|
|Revenues                                  |                                   |                             |      |                           |       
|                                          | Products                          |                             | $    | 2,736                     |       
|                                          | Services                          |                             |      | 9,179                     |       
|                                          | Processing                        |                             |      | 4,713                     |       
|                                          | Software maintenance and other    |                             |      | 5,704                     |       
|                                          |                                   |                             |      |                           |       
|                                          |                                   | Total revenues              |      | $                         | 22,332
|                                          |                                   |                             |      |                           |       
|Percentage relationship to total revenues |                                   |                             |      |                           |       
|Revenues                                  |                                   |                             |      |                           |       
|                                          | Products                          |                             |      | 12.3                      | %     
|                                          | Services                          |                             |      | 41.1                      |       
|                                          | Processing                        |                             |      | 21.1                      |       
|                                          | Software maintenance and other    |                             |      | 25.5                      |       
|                                          |                                   |                             |      |                           |       
|                                          |                                   | Total revenues              |      |                           | 100.0 
|                                          |                                   |                             |      |                           |       
|Operating expenses                        |                                   |                             |      |                           |       
|                                          | Product development               |                             |      | 17.4                      |       
|                                          | Product support                   |                             |      | 5.4                       |       
|                                          | Services                          |                             |      | 27.2                      |       
|                                          | Processing                        |                             |      | 18.3                      |       
|                                          | Sales and marketing               |                             |      | 11.8                      |       
|                                          | General, administrative and other |                             |      | 20.9                      |       
|                                          |                                   |                             |      |                           |       
|                                          |                                   | Total operating expenses    |      |                           | 101.0 
|                                          |                                   |                             |      |                           |       
|Earnings (loss) from operations           |                                   |                             | (1.0 | )                         |       
|Interest income, net                      |                                   |                             | 2.5  |                           |       
|                                          |                                   |                             |      |                           |       
|Earnings before income taxes              |                                   |                             | 1.5  |                           |       
|Income tax provision                      |                                   |                             | 0.5  |                           |       
|                                          |                                   |                             |      |                           |       
|Net earnings                              |                                   |                             | 1.0  | %                         |       
|                                          |                                   |                             |      |                           |       

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Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

REVENUES

Revenues
decreased $2.2 million, or 8.9%, in the second quarter of 2002 as compared to the second quarter of 2001. Product revenue decreased by $4.4 million or 61.4% from
the second quarter of 2001 to the second quarter of 2002. This decrease is reflective of a temporary slow down in signing new license contracts, expansions and product enhancements as a result of
difficult market conditions. Service revenue increased $261,000 or 2.9% in the second quarter of 2002 compared to the second quarter of 2001. This increase included the Company's recognition of
approximately $3.2 million in revenues that had been deferred in accordance with SAB 101. The Company was able to recognize this revenue based upon the favorable arbitration ruling in respect
to the previously announced dispute with 1stWebbankdirect. Processing revenues increased by $711,000 or 17.8% in the quarter ended June 30, 2002, as compared to the same period in 2001. The
increase is primarily attributable to the increase in the number of clients and an increase in the number of accounts being processed on our outsourcing platform. As of June 30, 2002, the
Company was processing approximately 738,000 accounts, as compared to 344,000 accounts as of June 30, 2001. Software maintenance and other revenue increased by $1.2 million or 26.8%, in
the second quarter of 2002, due primarily to an increase in the Company's supported client base and rebilled expenses.

EXPENSES:

PRODUCT
DEVELOPMENT. Product development expenses decreased $1.0 million, or 20.4%, in the second quarter of 2002 compared to the second quarter of 2001, primarily due to the reduction
in outside subcontractors and the net deferral of costs associated with certain clients who are in the process of implementing our outsourcing solution. Also contributing to this decrease was the
allocation of costs from product development to other cost centers to reflect the product development contributions to various revenue cost centers.

PRODUCT
SUPPORT. Product support expenses decreased $165,000, or 12.1%, in the second quarter of 2002 compared to the second quarter of 2001. A reduction in third party maintenance costs
in the 2002 quarter compared to the 2001 quarter is the primary reason for the cost reduction.

SERVICES.
Service expenses decreased by $691,000, or 10.2%, during the second quarter of 2002. The decrease was primarily due to a significant reduction in the use of third party service
providers. Service expenses in the quarter ended June 30, 2002 included the recognition of $2.9 million in expenses related to 1stWebbankdirect that had been previously deferred in
accordance with SAB 101. The gross margin relative to associated revenues was 33.8% for the second quarter of 2002, compared to 24.1% in the same period last year. The improved margins realized
are primarily a result of a significant reduction in the use of third party service providers resulting in higher utilization rates of our internal resources.

PROCESSING.
Processing expenses increased $307,000, or 8.1%, in the second quarter of 2002. This increase is primarily attributable to the increased volume in account processing. The
gross margin relative to processing was 13.2% in the second quarter of 2002 compared to 5.4% in the same quarter last year. The increased margin reflects the Company's ability to leverage its existing
resources to process a larger account base.

SALES
AND MARKETING. Sales and marketing expenses decreased by $762,000, or 22.5%, in the 2002 period primarily due to a reduction in marketing expenses along with lower commissions and
reduced overhead costs

GENERAL,
ADMINISTRATIVE AND OTHER. These expenses increased by $1.4 million, or 41.5%, in 2002 primarily due to an increase in the bad debt reserve as well as an increase in

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reimbursable expenses in the second quarter of 2002 compared to the second quarter of 2001. This was offset by a decrease in overhead expenses such as recruiting and training.

INCOME
TAX PROVISION.Taxes in the second quarter of 2002 were 33.0% of income before income taxes, which is comparable to the same
quarter last year.

INTEREST INCOME

Interest
income for the quarter ended June 30, 2002 increased $114,000 or 26% compared to the quarter ended June 30, 2001. The increase is primarily related to interest received on the
outstanding receivable balance for 1stWebbandirect that was settled in the second quarter of 2002. This increase was offset by lower interest rates being earned on the Company's cash reserves.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

REVENUES:

Revenues
decreased $5.3 million, or 11.4%, in the first six months of 2002 over the same period in 2001. Product revenue decreased by $8.0 million or 55.2% from the first
six months of 2001 to the first six months of 2002. The decrease in product revenue is primarily attributable to fewer client product initiatives and less license expansions. Service revenues
decreased $1.2 million or 7.3%. Service revenues in the first six months of 2002 included $3.2 million in revenue related to 1stWebbankdirect that had been previously deferred in
accordance with SAB 101. The Company was able to recognize this revenue based upon the favorable arbitration ruling in respect to the previously announced dispute with 1stWebbankdirect. The
decrease in service revenue is primarily the result of less new client implementations in 2002. Processing revenues increased by $3.1 million, or 49.7% in the six months ended June 30,
2002, as compared to the same period in 2001. The increase is primarily attributable to the increase in the number of clients and an increase in the number of accounts being processed on our
outsourcing platform. Software maintenance and other revenue increased by $708,000, or 7.0%, in the first six months of 2002, due to an increase in the Company's supported client base.

EXPENSES:

PRODUCT
DEVELOPMENT. Product development expenses decreased $2.1 million, or 23.3%, in the first six months of 2002, primarily due to the reduction in the use of third party
subcontractors related to development. Also contributing to this decrease was the net deferral, under SAB No. 101, of product development costs associated with certain outsourcing clients who
are in the process of implementing our outsourcing solution.

PRODUCT
SUPPORT. Product support expenses decreased by $143,000, or 5.4%, for the six months ended June 30, 2002, primarily due to lower third party support fees, as the Company
was able to provide more of the support with internal resources.

SERVICES.
Service expenses decreased by $2.8 million, or 22.7%, during the six months ended June 30, 2002, as compared to the same period in 2001. The decrease was
primarily due to a significant reduction in the use of third party service providers. Service expenses in the first six months of 2002 included the recognition of $2.9 million in expenses
related to 1stWebbankdirect that had been previously deferred in accordance with SAB 101. The gross margin relative to associated revenues was 36.8% for the first six months of 2002, compared
to 24.1% in the same period last year. The improved
margins realized are primarily a result of a significant reduction in the use of third party service providers and higher utilization rates of our internal resources.

PROCESSING.
Processing expenses increased $2.2 million, or 37.9%, in the first six months of 2002, as compared to the same period in 2001. This increase is attributable to third
party processing

14

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fees and increased staffing needed to support the larger account base. The gross margin relative to processing was 13.6% during the six months ended June 30, 2002, as compared to 6.2% during
the same period in 2001. The 13.6% margin reflects the continued improvement in the processing operation along with continued growth in the number of accounts.

SALES
AND MARKETING. Sales and marketing expenses decreased by $810,000, or 11.3%, in the 2002 period due to lower commissions. Also contributing to the decrease were reduced overhead
costs such as recruiting and outside consulting along with lower incentive compensation expenses.

GENERAL,
ADMINISTRATIVE AND OTHER. These expenses increased by $73,000, or .9%, in 2002 primarily due to an increase in the bad debt reserve of $1.1 million offset by lower
incentive compensation expense.

INCOME
TAX PROVISION.Taxes in the first six months of 2002 were 33.0% of income before income taxes, the same as the first six months of
2001.

INTEREST INCOME

Interest
income for the six months ended June 30, 2002 decreased $225,000 or 23.3% compared to the first six months of 2002. The decrease in interest income is primarily a result of
lower interest rates being earned on the Company's cash reserves which was offset by interest earned on the settlement of the outstanding receivable with 1stWebbankdirect.

Liquidity and Capital Resources

Cash and cash equivalents were $42.2 million at June 30, 2002. Cash provided by operating activities for the six months ended June 30, 2002
was $2.4 million as compared to $3.6 million provided by operating activities during the same period in 2001. This decrease in cash provided was primarily the result of a decrease in
accounts payable and net earnings. Also contributing to this decrease was an increase in prepaid expenses. This decrease was partially offset by an increase in deferred revenue, primarily
associated with annual maintenance billings. Accounts receivable increased by $2.0 million in the first six months of 2002 compared to an increase in the first six months of 2001 of
$4.4 million. The Company continues to expect a certain amount of variability in the payment timing for major contract milestones, which will impact cash flow from operations during any given
period. On July 3, 2002, the Company completed its acquisition of Spectra Securities, using $24.2 million of its own cash reserves in addition to common stock.

In
April of 2001, the Company agreed to commit up to $10 million of capital contributions to Profile Venture Partners Capital Fund I L.P. ("PVP"), a venture fund that invests in
early stage technology infrastructure companies whose products and services can be utilized by financial services institutions. As of June 30, 2002, the Company has invested $2.0 million
in the fund. During the first six months of 2002, the Company used $1.5 million for investing activities related to the purchase of fixed assets and additional investments in PVP.

Financing
activities provided $333,000 of cash during the six months ended June 30, 2002 from the exercise of stock options and proceeds from the employee stock purchase plan.

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 year. On July 3, 2002 the Company secured a $20 million committed revolving line of credit. Should the Company's business expand more rapidly
than expected, the Company believes that additional capital, if necessary, would be available to fund such operating and capital requirements.

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The
Company believes that its business is generally not seasonal; however, the Company has historically experienced, and can be expected to continue to experience, a certain degree of
variability in its quarterly revenue, earnings and cash flow patterns. This variability is typically driven by significant events, which directly impact the recognition and billing of project-related
revenues. Examples of such events include the timing of new business contract closings and the initiation of product and service fee revenue recognition, one-time payments from existing
clients relative to license expansion rights (required to process a greater number of customer accounts or expand the number of permitted users) and completion of implementation project
roll-outs and the related revenue recognition. 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 believes that over the course of time the
ongoing monthly revenue stream associated with the SDSI outsourcing alternative will contribute toward more predictable quarter-to-quarter revenues.

Forward-looking Statements

This Management's Discussion and Analysis contains forward-looking statements about Sanchez, its wealth management division (formerly Spectra Securities
Software), and Sanchez Data Systems Inc. (SDSI), which are operating units of Sanchez, within the meaning of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, and includes, without limitation, statements concerning Sanchez's expectations as to the company's revenues, expenses, EBITDA and earnings for 2002 and for future periods, the expected
contribution thereto by the new wealth management division, the company's future profitability and operations, and the company's business development efforts. When used in this news release, the words
"anticipate," "estimate," "expect," "intend," "plan," "project" and variations of these words and similar expressions are intended to identify forward-looking statements. Such statements are subject
to risks and uncertainties. Actual outcomes could differ materially from those expressed in any such forward-looking statement due to a variety of factors in addition to those specifically identified
above. These factors include, without limitation, Sanchez's ability to integrate the Spectra business and products in a timely and successful manner, changes in tax laws, tax treaties or tax
regulations and the interpretation of enforcement thereof or differing interpretation or enforcement of applicable law by the Canada Customs and Revenue Agency, U.S. Internal Revenue Service or other
taxing authority, currency fluctuations, changes in capital requirements, demand for products and services in the financial services industry, business and economic conditions, competition among
software and technology companies serving that industry, the timing of new contract closings, potential delays in the implementation of products and services, the success of the company's
e-PROFILE outsourcing model, the extent to which the Internet will be used for financial services and products, the development of the top-tier, mid-tier, direct
banking and brokerage markets, market acceptance of the company's products and services within these markets, the company's ability to protect its intellectual property rights, the potential adverse
impact of security breaches, outcomes of pending and future litigation, the company's ability to continue to improve its products and services, and those additional risks identified in the company's
Form 10-K for 2001, which was filed with the SEC on March 28, 2002. The company undertakes no duty to publicly update any forward-looking statements, whether as a result of
new information, future events or otherwise. Profile is a registered trademark and Sanchez Xpress, Sanchez Webclient and Sanchez WebCSR are trademarks of Sanchez Computer Associates Inc.
e-PROFILE is a registered trademark of Sanchez Data Systems Inc. Wealthware is a trademark of Spectra Securities Software. All other company and product names may be trademarks of
the respective companies with which they are associated.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company's exposure to market risk for changes in interest rates relate primarily to the Company's cash equivalents. The Company does not have any derivative
financial instruments in its portfolio. The Company is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment
risk. The Company does not expect any material loss with respect to its cash equivalents.

Foreign Currency Risk

The Company does not use foreign exchange forward contracts. Substantially all contractual arrangements with international customers have been denominated in U.S.
dollars. With the acquisition of Spectra, the Company will have contracts denominated in foreign currencies.

PART IIOTHER INFORMATION

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

On May 23, 2002, the Annual Meeting of Shareholders of the Company was held at which the following matters were submitted to and the requisite number of
shares of Common Stock of the Company were voted on by the stockholders, with the results set forth below:



PROPOSAL IELECTION OF DIRECTORS

|                         |  | For        |  | Withheld 
|------------------------ |  | ---------- |  | ---------
|Michael A. Sanchez       |  | 21,944,879 |  | 1,429,281
|Frank R. Sanchez         |  | 22,261,370 |  | 1,112,790
|Joseph F. Waterman       |  | 22,761,530 |  | 612,630  
|Lawrence Chimerine       |  | 22,691,156 |  | 683,004  
|William M. Fenimore, Jr. |  | 22,689,536 |  | 684,624  
|Frederick J. Gronbacher  |  | 23,060,867 |  | 313,293  
|Alex W. Hart             |  | 23,104,456 |  | 269,704  
|John D. Loewenberg       |  | 22,688,361 |  | 685,799  
|Thomas C. Lynch          |  | 23,062,141 |  | 312,019  
|James R. Stojak          |  | 23,685,296 |  | 688,864  
|Gary C. Wendt            |  | 23,101,216 |  | 272,944  



PROPOSAL IIAMEND THE 1995 EQUITY COMPENSATION PLAN

|                          |  | For        |  | Against   |  | Abstain
|------------------------- |  | ---------- |  | --------- |  | -------
|Votes to approve the Plan |  | 16,644,801 |  | 2,464,853 |  | 63,833 

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ITEM 5: OTHER INFORMATION

The Audit Committee of the Board of Directors of the Company has approved the engagement of the accounting firm of KPMG to perform non-attest services
for the benefit of the Company in the following capacity:



The
Audit Committee and the Company believe that there are significant operational benefits and efficiencies to retaining KPMG to perform the services listed above. Further, the Audit
Committee and the Company do not believe the engagement of KPMG to perform the services listed above will impair the independence of KPMG or their ability to perform the annual audit and quarterly
reviews of the Company.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K



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/TODD A. PITTMANTODD A. PITTMAN
Senior Vice President and Chief Financial Officer
| |  |                                                                                    

Date:
August 14, 2002

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