UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [FEE REQUIRED] For
the fiscal year ended August 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO
FEE REQUIRED]
For the transition period from
____________ to _______________
Commission file number 0-12551
CREATIVE COMPUTER APPLICATIONS, INC.
(Name of Small Business Issuer in its
charter)
California95-3353465
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
26115-A Mureau Road
Calabasas, California 91302
(Address of principal executive offices)
(Zip Code)
Issuer's telephone number: (818) 880-
6700
Securities registered under Section
12(b) of the Exchange Act: None
Securities registered under Section
12(g) of the Exchange Act:
Common Stock, no par value
(Title of class)
Check whether the Issuer (1) filed all
reports required to be filed by Section
13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter
period that the Issuer was required to
file such reports), and (2) has been
subject to such filing requirements for
the past 90 days.
Yes X No __
Check if there is no disclosure of
delinquent filers in response to Item
405 of Regulation S-B is not contained
in this form, and no disclosure will be
contained, to the best of Issuer's
knowledge, in definitive proxy or
information statements incorporated by
reference in Part III of this Form 10-
KSB or any amendment to this Form 10-
KSB. [X]
Issuer's revenues for its most recent
fiscal year ended August 31, 1996 were
$6,236,962.
As of November 1, 1996, the aggregate
market value of the voting stock held by
non-non-affiliates of the Company was
approximately $4,200,000.
As of November 1, 1996, the Company had
2,820,915 shares of its common stock
outstanding.
Transitional Small Business Disclosure
(check one):
Yes __ No X
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business.
Business Description
Creative Computer Applications,
Inc. (CCA or the Company) develops,
assembles, markets, installs, and
services computer based Clinical
Information Systems for use in
hospitals, clinics, reference
laboratories, and other healthcare
institutions. Clinical information is
data that is gathered concerning each
individual patient's health condition,
diagnosis, and treatment that is used by
doctors, nurses and other healthcare
providers. CCA's products are used to
provide automation of information that
facilitates the operation of clinical
departments and allows the rapid
recording and processing of information
that can be communicated, documented,
and delivered to healthcare providers.
Currently, CCA markets a Laboratory
Information System under the name
CyberLAB II, a Pharmacy Information
System under the name of CyberMED, a
Radiology Information System under the
name CyberRAD and a Financial Management
System for outpatient billing and
accounts receivable. Additional
application software products are in
development or are planned to be
developed in the future. The Company
operates in a single industry segment.
The general offices and operational
headquarters are located at 26115-A
Mureau Road, Calabasas, CA 91302. The
telephone number is 818/880-6700.
The Company's business consists of
three operational areas: (1) Clinical
Information Systems products, (2)
service of its client's installations,
and (3) data acquisition products.
Product lines consist of Laboratory
Information Systems, Pharmacy Information
Systems, Radiology Information Systems,
Financial Management Systems, and Data
Acquisition products. The Company
sells its products and systems
directly through its own sales force
and through joint marketing relations
with other companies. In addition,
the Company sells its products to
original equipment manufacturers (OEM)
and provides out source services.
History and Business Development
Since its inception as a California
corporation in 1978, the Company has
been primarily engaged in the
development, manufacture, and service of
Laboratory Information Systems and data
acquisition products that automate the
collection and management of data for
the biomedical testing industry.
Upon its formation, the Company
initially designed and assembled custom
data interfaces for various customers to
use with specific automated and semi-
automated testing devices. By January
1982, the Company had expanded its
initial prototype data interface and
data entry console products into a line
of off-the-shelf interfaces for a wide
variety of instrumentation technology.
Subsequently, the Company transformed
this technology into turnkey information
processing and Laboratory Information
Systems (LIS) specifically for use in
biomedical laboratories in the spring of
1983. As of August 31, 1996, the
Company had sold over 500 Laboratory
Information Systems and currently
supports approximately 350 active
installations.
The percentage of the Company's net
sales attributable to its Clinical
Information Systems business, which
includes data acquisitions product
sales, accounted for approximately 67%
of the total revenues in fiscal year
1996, 67% in fiscal year 1995, and 64%
in fiscal year 1994. Management believes
that the percentage of the Company's net
sales attributable to its sales of
Clinical Information Systems activities
will continue at a similar rate in
fiscal 1997 as in the current fiscal
year.
By automating the collection and
organization of patient clinical test
data, which is alternatively performed
manually, the Company's systems and data
acquisition products reduce operating
costs and increase the efficiency of
healthcare providers. In recent years,
the medical industry has come under
increasing pressure to control costs
from government regulatory agencies and
third party payers of medical expenses,
as well as from increased competition in
the medical industry in general. This
need to contain healthcare costs has led
to pressure to decrease or control the
costs of the various components of
healthcare. Management believes the
pressure to contain healthcare costs can
be expected to increase in the
foreseeable future. The Company is
continuing its research and development
activities to develop products which
will reduce operating costs and improve
efficiency in the healthcare industry.
During fiscal 1992, the Company's
board of directors determined that the
Company should pursue a diversification
program through acquisition and new
product development to expand the
Company's business to encompass other
products that could service other
clinical departments and multi-specialty
clinics. The objective of the
diversification was to transform the
Company into a multi-product vendor of
Clinical Information Systems that would
eventually include laboratory,
radiology, pharmacy, and therapies. The
Company has successfully pursued this
program and by the end of its 1996
fiscal year had accomplished the
completion of its pharmacy and radiology
products and had begun to successfully
sell all its products as an integrated
package.
Management believes that there are
significant opportunities to market a
multiple range of clinical applications
to existing as well as new customers.
Furthermore, the Company's existing
software and hardware support
organization and its sales and marketing
personnel could be employed to service
and market additional products.
Management also believes there is
synergy between the various clinical
departments in hospitals and multi-
specialty clinics. It is therefore
intended to provide integration of the
various departmental clinical
applications to aid in patient treatment
and management.
In September 1992, the Company
commenced the development of a
computerized Radiology Information
System CyberRAD. CyberRAD is a UNIX
based product with open systems
architecture and has linkage to the
Company's existing financial management
product. The Company began marketing
CyberRAD in August 1995, although
additional software modules are still
under development.
In October 1992, the Company
consummated the acquisition of the
assets of PRX Pharmacy Systems (PRX)
from Western States Pharmacy
Consultants, Ltd., a privately owned
company, of Boulder, Colorado. PRX
developed computerized Pharmacy
Information Systems that are sold to
hospitals and outpatient facilities to
manage pharmacy departments. PRX also
supported a base of over 130
installations. Since the acquisition,
the Company has made significant
enhancements to the pharmacy products
while streamlining the service
operations. The PRX name was dropped
and the new products renamed CyberMED.
Clinical Information Systems
For laboratories, the Company has
integrated its software applications and
data acquisition technology into
Laboratory Information Systems which are
sold under its tradename "CyberLAB II ".
The Company's turnkey Laboratory
Information Systems consist of the
Company's application software and data
acquisition products which are used in
conjunction with various computers. The
Company offers systems on Compaq, Data
General, IBM and Hewlett Packard
computers. Extensive applications for a
wide variety of laboratory testing and
quality control procedures, including
hematology, immunology, chemistry,
microbiology, drug testing, toxicology,
urinalysis, blood inventory module, and
cytology testing, are available with the
Company's systems. File management,
data base management, bedside specimen
collections, remote communications, and
financial management, including billing
and accounts receivable options, are
also available.
The Company's systems are designed
so that additional components can be
"added on" to the initial system
enabling a single user system to be
transformed into a multi-user system by
adding data capacity and software. The
Company's systems use flexible
parameterized software which enables the
customer to tailor the software for its
individual needs. The Company's
Laboratory Information Systems are used
by biomedical laboratories testing up to
15,000 patient samples a day, which
includes approximately 95% of the
biomedical laboratory market.
CyberLAB II as well as CyberMED and
CyberRAD operate under UNIX and are sold
independently or as an integrated
turnkey system and may be networked
together or become part of an enterprise-
wide network. During the fiscal years
ended August 31, 1996, 1995, and 1994
the Company expended considerable effort
in developing enhancements to CyberLAB
II. In fiscal 1996, the Company
developed a number of new features, and
enhancements to CyberLAB II including a
blood transfusion and inventory module
and new expanded microbiology.
Additional enhancements and new modules
are currently under development.
The Company's Pharmacy Information
Systems, which are sold under the
trademark CyberMED, integrate inpatient,
outpatient and long term care
applications into a highly integrated
software product. CyberMED integrates
unit dose, IVPB/TPN, controlled
substances, floor stock, inventory
control, and kinetics functions. It
performs labor intensive operations such
as patient profiling, medication
administration reporting, drug inventory
control, drug interactions, and patient
billing. An optional purchasing module
can electronically place orders with
suppliers and determine the fastest
moving drugs, as well as track drug
usage and costs. CyberMED supports
several third party data base services
for integrated drug interactions,
pricing, and patient informational
disclosures that are required by
regulations.
CyberRAD, the Company's Radiology
Information System, is also hybrid in
its design that allows its employment in
inpatient and outpatient settings.
Applications include extensive
scheduling, reporting, film tracking,
transcription and clinical
functionality. A mammography module is
currently under development.
The Company's Clinical Information
Systems support extensive communication
capabilities to both Hospital
Information Systems and Clinic
Information Systems for which the
Company has developed system interfaces
for a variety of settings. In addition,
the Company's Clinical Information
Systems support networking capabilities
and are employed in certain facilities
that consist of multiple sites. These
communication interfaces often support
bi-directional data capabilities whereby
demographic and test order requests are
transmitted to the Clinical Information
Systems and, in turn, billing
information and test results are re-
transmitted to the host system. The
Clinical Information Systems support
their own order communications and test
results subsystems that have been
employed in other accounts that have
relied on the Clinical Information
System's communications capabilities.
Management believes that communications
to other systems allowing connectivity
between clinical systems such as
CyberLAB II, CyberMED, and CyberRAD, and
administrative information systems are
becoming increasingly important
functional requirements in the
marketability of products in general.
The Company has focused considerable
attention on the communication and
connectivity capabilities of its
products and plans to further develop
these capabilities as opportunities
present themselves.
The Company has developed standard
seamless integration and network
connectivity for all its products
through user selected network topologies
(to include Ethernet, Token Ring)
network protocols (TCP/IP, IPX/SPX), and
network operating systems (Novell, LAN
Manager, Microsoft.) Although each
application has been carefully
configured to operate as a stand alone
product, all can be operated as an
integrated package, residing on a shared
platform or network, thereby eliminating
the need for multiple interfaces,
duplicate information handling, and
their associated costs.
Data Acquisition Products
The Company's data acquisition
products, which consist of data
interfaces, data entry consoles and
intelligent disk systems, are designed
to increase the efficiency and accuracy
of on-line data acquisition in
biomedical laboratories by automating
the collection and organization of test
data formerly done manually. Each of
the Company's data acquisition products
uses a microcomputer performing a
specific discrete task. All of the
Company's data acquisition products are
"plug-in" compatible with each other,
enabling an end user to easily expand
its system. The design of the Company's
data acquisition products conserves
central computer resources, lowers
hardware costs and significantly reduces
costs of installation and system
expansion, meeting the cost-containment
needs of healthcare organizations.
The Company's data acquisition
products are designed to be compatible
with virtually all currently available
computer systems and are designed for
installation by persons without
technical skills or training. Management
believes that the Company markets the
widest line of data acquisition products
designed for use by biomedical
laboratories currently available. As
of August 31, 1996, the Company had sold
more than 10,500 of its data acquisition
products in the United States and
abroad.
Many biomedical tests, such as
blood cell counts and blood serum
chemistry analyses, are performed by
free-standing automated testing
instruments. These instruments produce
hard data, such as computer printouts.
The Company has developed intelligent
links, or "data interfaces", which
enable these free-standing automated
testing devices to "talk to" and
automatically enter data into the
laboratory's central computer. By
eliminating the production of hard data
and the resulting need to transcribe the
data, interfaces save time and labor and
reduce human error. The Company also
markets bi-directional interfaces which
enable the control of a variety of
testing procedures from the central
computer allowing instruments to be
preprogrammed from the central computer
to run a series of tests. The Company
currently sells over 450 different
interface configurations for use with a
wide variety of automated biomedical
testing devices. The Company also
develops new data interfaces for
products introduced into the market upon
the request.
The Company also sells a product to
collect data at the patients bedside
known as CyberMate. CyberMate is a
hand-held computer which permits
phlebotomists to download specimen
collection orders from CyberLAB into a
battery operated hand-held computer,
make their rounds based upon information
displayed on CyberMate's screen, and
update collection status information as
they collect specimens. The updated
status information is uploaded into
CyberLAB via a system
communication/battery charging device.
During fiscal 1996 the Company
collaborated with Citizen Electronics, a
division of Citizen Watch Co., Ltd. of
Japan, on new technology that can be
employed as a hand held computer to
assist in the collection of data at the
point of care.
Service
The Company provides comprehensive
service to its installed base of system
clients through its own service
organization. The Company offers both
software support service through a
twenty-four (24) hour "hotline" and
field service for hardware repair. The
Company services its own data
acquisition products and related
software, including peripherals used as
part of its CIS products, under service
contracts offered to end users. The
Company's long term inventory
requirements for its service and repair
business are significant.
The Company's service revenues for
fiscal 1996 increased by approximately
5% from the previous fiscal year and
they are expected to grow as the
installed base of system clients grows.
The Company believes that the ability to
offer comprehensive service to its
clients is a competitive advantage and
solidifies a long term relationship with
its customer accounts. The recurring
revenue stream associated with this
activity is a significant part of the
Company's business. In addition, the
ability to offer long term service often
leads to add-on sales opportunities for
sales of peripheral components, data
acquisition products and upgrades to
newer computers and software
applications.
During fiscal 1996 the Company
began an extensive project to install a
new help desk/service support system to
automate the Company's service
activities in order to provide better
service to its customers. The system
will be integrated throughout the
Company on a wide area network that will
link its California and Colorado
facilities and its field personnel.
Approximately $400,000 was budgeted for
the project which will be partially paid
for with a bank term loan.
Significant Contracts and Programs
The Company entered into a contract
in November 1989 with Laboratory
Corporation of America (LCA) formerly,
Roche Biomedical Laboratories, Inc., a
subsidiary of Hoffman La Roche, Inc., to
provide LCA with custom software
applications and the Company's data
acquisition products for use in LCA's
laboratory facilities throughout the
United States. As of August 31, 1996
the Company had installed 136
departmental results processing systems
and approximately 500 of its data
acquisition products in twenty-three LCA
laboratories. Development of further
software applications continues and
management anticipates that LCA will
acquire several more data acquisition
products for fiscal 1997.
During the 1996 fiscal year, there
were no contracts or programs which
generated over 10% of the Company's net
sales.
Product Development
The market for the Company's
products is characterized by rapid and
significant technological change. The
Company's ability to compete in the
market and to operate successfully
depends in part on its ability to react
to such change. During the Company's
1996, 1995 and 1994 fiscal years,
amounts (inclusive of capitalized
software) equal to approximately 13%,
13% and 13%, respectively, of the
Company's net sales were expended for
research and development. The Company
continues to expend a significant amount
of resources for the development of new
products, and improvement and
development of additional applications
for existing products.
The Company has planned product
development projects over the next three
years that include new applications for
anatomical pathology, system-wide order
communications, inquiry and decision
support, and an internet access tool
that will allow orders and inquiry via
standard internet browsers into the
Company's clinical applications. In
addition, the Company is designing an
incremental client server architecture.
The Company has developed relationships
with several major vendors of analytical
testing instruments who provide the
Company with specifications of new
products when developed in order for the
Company to develop data acquisition
products for use with these products.
The Company also develops, in certain
instances at the customer's expense,
application software to meet the
customer's special needs.
Research and development
expenditures amounted to approximately
$461,000 in fiscal 1996, $465,000 in
fiscal 1995 and $517,000 in fiscal 1994.
Such expenditures were attributable to
systems development, including the
development of new Laboratory,
Radiology, and Pharmacy Information
Systems applications.
The Company's applications are
compiled under Microfocus COBOL which
provides a standard code structure for
the system applications while other
imbedded process code is written in C.
By employing Microfocus' run time
modules for UNIX, the Company is able to
port to a variety of hardware platforms
with ease. The Company has successfully
ported its software applications from
Compaq to IBM RISC 6000, Data General
Aviion systems, and more recently to
Hewlett Packard HP 9000 RISC Systems.
This portability capability has allowed
the Company to become "platform
independent" in vending its software
products where some customers may be
predisposed to certain hardware brands.
Distribution and Marketing
From its inception, the Company has
sold its products and systems directly
to the healthcare industry through its
own sales and marketing personnel, as
well as indirectly through original
equipment manufacturers ("OEM's") and
through joint marketing relations with
other companies. The Company is selling
all its products throughout the United
States, Canada and the Carribean. At
present, the Company's direct field
sales force consists of five
salespersons. In addition, the
Company's management and six technical
specialists assist in sales activities.
Management anticipates that at least one
marketing support person will be added
to the Company's sales and marketing
department in fiscal 1997.
During fiscal 1996, the Company
developed a direct telemarketing
activity and commenced new promotional
activities including presenting periodic
demonstration seminars for its Clinical
Information Systems. The Company also
promotes its products at industry trade
shows. The Company markets an upgrade
program in order to help customers
upgrade their existing systems. In
addition, the Company has formed
informal joint marketing arrangements
with other companies that have
compatible products and services which
have increased sales penetration in the
marketplace.
The Company has established user
groups in order to encourage users of
its Clinical Information Systems to
participate in helping the Company
continue to better serve its customers.
The focus of the user groups is to
encourage open group communications with
the Company about a range of subjects
including service and support and new
product enhancements. The user groups
have been organized into product
specific categories to encourage better
participation.
In addition, the Company also
publishes newsletters and articles which
are intended to expand communication
with existing and potential customers.
The Company has OEM contracts to
sell its products to a number of vendors
of hospital Laboratory Information
Systems and analytical instrumentation,
including HBOC and Columbia Health Care.
Prices for the Company's data
acquisition products range from $1,595
for a special data entry console to
$9,995 for a host query bi-directional
interface. During the fiscal year ended
August 31, 1996, prices received by the
Company for its Clinical Information
Systems with application and operating
system software ranged from
approximately $60,000 to over $350,000.
The sales price varies depending on the
type of system purchased and the
configuration of hardware and related
software ordered by the customer.
Competition
The Company markets its data
acquisition products to hospital,
clinic, reference, research, veterinary
and other healthcare providers directly
and through OEM customers. Management
believes that the Company has some
competition for its data interfaces,
consoles and intelligent disk systems.
However, the microprocessor industry in
general is extremely competitive with
several dominant concerns, in addition
to many smaller concerns. There can be
no assurance that additional companies
will not enter this field or that
significant competition for the
Company's data acquisition products will
not develop.
The Company has significant
competition in the Clinical Information
Systems business from several
competitors, many of whom are larger
concerns that may offer a wider array of
products in addition to clinical
applications. Management believes,
however, that few competing Clinical
Information Systems offer the Company's
variety of data interfaces, hardware and
add-on capability and flexibility that
allows the systems to be user definable
so that they can be employed in
different types of settings. Most of
the Company's competitors have designed
their products for the hospital
environment; therefore, they are not as
flexible and are less suitable for other
types of operations. With respect to
its Pharmacy Information Systems, the
Company believes it has a competitive
advantage because of CyberMED's robust
features, flexibility, and integrated
outpatient, inpatient, and long term
care capabilities.
The Company has made a concerted
effort to emphasize the sale of software
and de-emphasize the sale of hardware,
which is less profitable. Accordingly
the Company often times installs its
software applications in customers sites
on existing hardware or in conjunction
with other vendor's applications. This
has led to better margins and more
market opportunities.
The principal competitive factors
in the Company's business are
technological competence, diversity of
product line, price and performance
characteristics, product quality,
capability and reliability, marketing
and distribution networks, service and
support, ability to attract and retain
trained technical employees and business
reputation. The Company believes that
it is especially competitive in the
areas of price and performance.
Manufacturing and Suppliers
The Company has utilized computers
manufactured by several suppliers for
its Clinical Information Systems in the
past and currently uses computers
manufactured by Compaq, IBM, Data
General, and Hewlett Packard.
Management believes that other computers
which can be used in the Company's
systems, with appropriate software
modifications, are readily available
from several suppliers. The Company has
entered into an agreement with Compaq
as a sub-dealer and with Data General,
IBM and Hewlett Packard as industry re-
sellers (IR's). These arrangements
provide for volume purchase discounts,
cooperative marketing programs, and the
sublicensure of certain software and
technical assistance.
The Company's data acquisition
products are assembled by its employees
and subcontractors from prefabricated
subassemblies which are built by
independent electronics assembly
companies. Management believes there
are many competent subassembly companies
within the immediate vicinity of the
Company's business location. The
Company obtains the components of its
data acquisition products from a variety
of suppliers and is not dependent on any
one supplier for products which are not
otherwise available in the market.
Warranties and Product Liability
The Company warrants that its
products conform to their respective
functional specifications. The
Company's products and components are
warranted against faulty materials and
workmanship for 90 days, in the case of
its data acquisition products, and six
months, in the case of software and
hardware incorporated in its Laboratory,
Radiology, and Pharmacy Information
Systems. Direct costs associated with
the initial warranties have been
insignificant. The computers which the
Company currently sells as part of its
Clinical Information Systems are subject
to the warranties of their
manufacturers. The manufacturers
generally warrant their products against
faulty material and workmanship for one
year to three years.
The Company currently carries an
aggregate of $3,000,000 in product
liability insurance. Management
believes that this amount of insurance
is adequate to cover its risks.
Copyrights, Patents and Trade Secrets
The Company does not hold any
patents protecting its proprietary
technology. The Company has relied on
design copyrights for its hardware and
has copyrighted the designs of its
proprietary components and software.
Patent or copyright protection may not
be available for many of the Company's
products. A portion of the Company's
proprietary technology is in the form of
software. The Company has relied
primarily on copyright and trade secret
protection of its software. Management
believes that its business is more
dependent upon marketing and know-how
than patent or copyright protection.
The Company has trademarks for CyberLAB,
CyberMED, CyberRAD, and CyberMate, and
has applied for trademark's on several
of its other trade names.
Governmental Regulation
The Federal Food, Drug and Cosmetic
Act, more commonly known for its
regulation of interstate commerce in
drugs, was amended by the "Medical
Device Amendments of 1976" (the
"Amendments") to cover devices used in
medical practice. These include
instruments and reagents used in
biomedical laboratory testing. In 1987
the FDA first classified a number of
clinical software products as medical
devices, but exempted most of them from
routine regulations. Subsequently the
FDA amended the policy and made the
exemptions inapplicable to manufactures
of devices intended for use in blood
banks. As a result of more recent
pronouncements by the FDA and the
decision by the Company to develop a
blood bank module to its CyberLAB II
LIS, the Company undertook the filing of
a pre-market notification (510K) which
was submitted in March 1996. The
Company has received a review letter
from the FDA regarding its 510K
submission and is preparing a response.
The FDA is currently in the process
of reevaluating its rules relevant to
computer products used in connection
with medical devices and software used
in clinical applications and no
assurance can be given that the
Company's current or new products
developed by the Company will not be
subject to the provisions of the
Amendments and implementing rules. The
Company has retained special counsel to
advise it in such matters. The
likelihood of such changes and their
effect on the business of the Company
cannot be ascertained. If the FDA were
to determine that additional or all of
the Company's products constituted
"Medical Devices" within the meaning of
the Amendments and implementing rules,
it is uncertain whether compliance with
such interpretation would have a
material adverse effect on the Company.
In addition, the Company and its
products are subject to direct
governmental regulations applicable to
manufacturers in general, including
those regulations promulgated under the
Occupational Safety and Health Act and
by the Environmental Protection Agency.
The Company's customers, however, are
subject to significant regulation by the
Food and Drug Administration, the
Healthcare Financing Administration, the
Health and Human Services Administration
and by state and local governmental
authorities. Such regulations require
the Company to comply with certain
requirements in order to sell its
systems.
Backlog
The Companies order backlog at
August 31, 1996 was approximately
$200,000 for systems and interface
products and $464,000 for deferred
services.
Employees
At November 1, 1996, the Company
employed 60 full-time employees of whom
12 are involved in product development,
11 in sales and marketing, 5 in
production, 25 in technical support and
7 in administration. The Company is not
subject to any collective bargaining
agreements. The Company considers its
employee relations to be good.
Item 2. Properties.
The Company occupies a leased
facility in Calabasas, California. The
facility was constructed in 1991 and
comprises approximately 13,200 square
feet with an effective base rental of
approximately $13,400 per month subject
to cost of living adjustments, plus
common area maintenance costs and
property taxes. The initial term of the
lease expires in September 1997 and
there is a five year renewal option at
the end of the initial term.
The Company also leases a 2,100
square foot office in Boulder, Colorado
that costs approximately $1,895 per
month including common area maintenance
costs, property taxes and is subject to
cost of living increases annually.
The Calabasas, California facility
is used as general offices and
operations headquarters which covers
warehousing, support and assembly. The
Boulder, Colorado facility is a branch
sales and development office. The
Company considers the two facilities to
be adequate for their intended purpose;
however, the Calabasas facility may need
to be expanded as operations and
staffing expands. The Company carries
adequate general liability insurance as
required by the respective leases to
cover any risks concerning the two
facilities.
Item 3. Legal Proceedings.
There are no material pending or
threatened legal proceedings which the
Company is a party to at August 31,
1996.
Item 4. Submission of Matters to a Vote
of Security Holders.
The Company did not submit any
matter to a vote of its security holders
during the fourth quarter of its fiscal
year ended August 31, 1996.
PART II
Item 5. Market for Company's Common
Equity and Related Stockholder Matters.
The Company's common shares trade on the
American Stock Exchange under the symbol
CAP.
The following table sets forth the high
and low bid quotations for the Common
Shares for the periods indicated.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal Year Ended August 31, 1995
1st Quarter, Ended November 30, 1994 4 1 1/4
2nd Quarter, Ended February 28, 1995 3 7/16 2
3rd Quarter, Ended May 31, 1995 2 5/8 1 11/16
4th Quarter, Ended August 31, 1995 2 1 1/16
Fiscal Year Ended August 31, 1996
1st Quarter, Ended November 30, 1995 2 1 9/16
2nd Quarter, Ended February 29, 1996 2 3/8 1 5/8
3rd Quarter, Ended May 31, 1996 2 1/4 1 11/16
4th Quarter, Ended August 31, 1996 2 1/16 1 3/8
</TABLE>
The number of beneficial
shareholders of Common Shares of the
Company as of November 1, 1996 was
approximately 636.
Holders of Common Shares are
entitled to receive such dividends as
may be declared by the Company's Board
of Directors. The Company has never
paid a cash dividend on its Common
Shares and the Board of Directors
currently intends to retain any earnings
for use in the Company's business.
Item 6. Management's Discussion and
Analysis of Results of Operations and
Financial Condition.
This following section of the
report contains forward-looking
statements within the meaning of the
Private Securities Litigation Reform Act
of 1995. Such forward-looking
statements involve risks and
uncertainties so that the actual results
may vary materially.
Results of Operations
Sales for the year ended August 31,
1996 were $6,236,962 as compared to
$5,926,519 for the fiscal year ended
August 31, 1995, an overall increase of
approximately $310,000 or 5%. When
analyzed by product category, sales of
Clinical Information Systems (CIS)
increased by $356,894 or 12% and sales
of data acquisition products decreased
$140,407 or 14%. Service revenues
increased $93,956 or 5% over the
previous fiscal year. The overall
increase in sales and service revenues
is primarily attributable to the
introduction of new products such as
CyberMED and CyberRAD and the Company's
ability to sell multiple applications to
the same customer. The decrease in
sales of data acquisition products was
primarily attributable to a lesser
volume of units sold to OEM customers.
The increase in service revenues is
attributable to a greater number of
accounts under contract. Service
revenues are expected to increase as the
Company's installed base of CIS
installations increases.
In late fiscal 1995 management
restructured its sales and marketing
activities, including the recruitment of
a Vice President of Sales and Business
Development. The Company also began
strategic joint marketing partnerships
with other companies which improved the
Company's market penetration.
Management views the near term outlook
for the continued sale of CIS products
favorably during the first half of the
1997 fiscal year. However, the
Company's future operating results will
continue to be subject to quarterly
variations based upon a wide variety of
factors, including the volume mix and
timing of orders received during any
quarter or annual periods.
Cost of sales decreased by $318,330
or 9% for the 1996 fiscal year. There
was a decrease in materials of $265,114
or 25% and a decrease in other costs of
sales of $137,689 or 11%, these
decreases were partially offset by an
increase in labor of $84,473 or 7%. The
decrease in material costs was
attributable to the Company selling more
application software and the decision to
de-emphasize the sale of hardware due to
continuing industry wide pressure on
margins. Management expects the trend
of decreasing hardware sales to
continue. The increase in labor costs
was attributable to more personnel hired
to staff the Company's system support
departments. The decrease in other
costs of sales was the reclassification
of certain expenses to sales and
marketing. Cost of sales as a
percentage of sales decreased to 51% for
the 1996 fiscal year as compared to 59%
for the 1995 fiscal year. The overall
percentage decrease in cost of sales was
attributable to both an increase in
sales and a reduction in cost of sales
material consisting of a reduction in
costs as previously discussed.
Selling, general and administrative
expenses increased $318,814 or 18% for
the current 1996 fiscal year as compared
to the 1995 fiscal year. Of the
increase approximately $120,000 was the
reclassification of two product managers
who had previously been included in cost
of sales. The additional increases in S
G & A expenses were attributable to
increases in salaries, travel, trade
show expenses, consultant and personnel
recruitment expenses.
Research and development expenses
remained at comparable levels for fiscal
1995. However, a greater amount of
software production costs were
capitalized in fiscal 1996 as a result
of new CIS products being completed.
For its 1996 and 1995 fiscal years, the
Company capitalized software costs of
$365,420 and $299,534 respectively which
are generally amortized over a three to
five year period. Such costs were
attributable to enhancements and new
modules, for the Company's CIS products
and new applications under development.
Management anticipates its overall
research and development activities to
increase in fiscal 1997.
Interest and other income was
$3,243 for fiscal 1996 as compared to
$2,490 for fiscal 1995.
Interest expense decreased by
$6,152 or 15% for fiscal 1996 as
compared to fiscal 1995 due to reduced
borrowings on the Company's line of
credit with its bank.
Included in the statements of
operations in fiscal 1995 is a one time
charge of $132,475, which represents the
costs associated with the settlement of
litigation.
Income before Income Tax Expense
(Benefit) was $465,387 for fiscal 1996
as compared to $8,970 for fiscal 1995.
As a result of the application of the
Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting
for Income taxes (see notes to the
financial statements) the Company
recognized an income tax benefit net of
applicable income taxes of $502,410 in
its 1996 fiscal year. As a result of
these factors the Company's net income
was $967,797 or $.32 per share in fiscal
1996 as compared to net income of $6,970
or $.00 per share in fiscal 1995.
The Company is currently in a loss
carryforward position primarily due to
the operating losses incurred prior to
August 31, 1993. The net operating loss
carryforwards balance as of the August
31, 1996 was approximately $2,465,000
compared to $2,701,000 in the prior
year. The net operating loss
carryforward is available to offset
future taxable income until August 31,
2001. The Company also has investment
and research and experimentation tax
credit carryforwards to offset future
income tax payable of approximately
$130,000 that begin to expire in fiscal
1997.
The major temporary tax differences
that are expected to reverse next year
are deferred revenue, allowance for
doubtful accounts, accrued vacation,
Section 263 A Unicap inventory, and
component inventory reserve. However,
the Company expects new temporary
differences to be established in these
years which will either reduce or exceed
the reversing temporary differences.
At August 31, 1995, the Company
established a 100% valuation allowance
on the deferred tax asset because it
could not conclude that it was more
likely than not that any part of the
deferred tax asset would be realized.
With the improving operating results for
the year ended August 31, 1996, a re-
evaluation of the valuation allowance
was made. The Company made an
assessment that operations will continue
to generate taxable income based on
current projections of future operating
results. In addition, the evaluation
considered projections of both the
establishment and reversal of permanent
and temporary differences. Tax planning
strategies were not a factor in the
evaluation although they are available
if necessary. As a result of the re-
evaluation, a partial reduction of the
deferred tax valuation allowance was
recognized in 1996.
Capital Resources and Liquidity
The Company's primary need for
capital has been to invest in software
development. The Company invested
$365,420 and $299,534 during fiscal 1996
and 1995 in software development. These
expenditures related to the new version
of the Company's LIS product (CyberLAB
II), and the release of its revised PIS
product (CyberMED), and its new RIS
product (CyberRAD). The Company
anticipates expending additional sums
during fiscal 1997 on the further
development of the Company's Radiology
Information System. During fiscal 1996,
the Company expended $357,000 to acquire
equipment relating to the Company's
service and support activities.
As of August 31, 1996, the
Company's working capital amounted to
$1,525,225 compared to $1,063,787 as of
August 31, 1995. The Company's bank
line as of August 31, 1996 amounted to
$700,000 of which $191,875 was being
utilized. The bank credit agreement
contains certain financial ratio
requirements. The Company was in
compliance with all covenants, including
financial ratios, as of August 31, 1996.
On February 8, 1995 the Company
notified the holders of warrants to
purchase 391,581 shares which were
issued in connection with the
acquisition of certain assets of PRX
Pharmacy Systems in October 1992, that
it was redeeming the warrants on April
10, 1995. The Company also filed a
registration statement under Form S-3
with the Securities and Exchange
Commission to register the common shares
underlying the warrants; the
registration was declared effective on
February 22, 1995. The warrants were
exercisable at $1.03 per share. As of
April 10, 1995, all the warrants had
been exercised and the proceeds of
approximately $394,000 were used by the
Company for general working capital
purposes.
Cash flows from operating
activities increased to $519,187 for the
1996 fiscal year compared to $183,519
for the 1995 fiscal year. The increase
resulted primarily from higher earnings
during the 1996 fiscal year as compared
to the 1995 fiscal year.
Cash used in investing activities
changed during the 1996 fiscal year to
$722,930 used in investing activities as
compared to $405,289 used in investing
activities during the 1995 fiscal year.
The change resulted from increased
expenditures for equipment and
additional funds expended for
capitalized software costs during the
1996 fiscal year.
Cash flows from financing
activities changed from $168,051
provided by financing activities during
the 1995 fiscal year to $79,131 provided
by financing activities in fiscal 1996.
The change resulted from proceeds from
the exercise of stock options and
warrants and was partially offset by
increased repayments of notes payable
and capital lease obligations as
compared to the prior year.
The Company believes that its cash
flow from operations together with its
bank credit facilities should be
sufficient to fund its working capital
requirements for its 1997 fiscal year.
Seasonality, Inflation and Industry
Trends
The Company's sales are generally
lower in the summer and higher in the
fall and winter. Inflation has had no
material effect on the Company's
business since the Company has been able
to adjust the prices of its products.
Management believes that most phases of
the healthcare segment of the computer
industry will continue to be competitive
and that potential healthcare reforms
may have a long term positive impact on
its business. In addition, management
believes that the industry will be
marked with more significant
technological advances which will
improve the quality of service and
reduce costs. The Company is poised to
meet these challenges by continuing to
employ new technologies when they become
available, diversifying its product
offerings, and by constantly enhancing
its software applications.
Item 7. Financial Statements
For a list of financial statements
filed as part of this report, see index
to Financial Statements and Financial
Statement Schedules on page F-1.
Item 8. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosures.
Not applicable.
PART III
Item 9. Directors, Executive Officers,
Promoters and Control Persons;
Compliance with Section 16(a) of the
Exchange Act.
Background information concerning
each present Director, executive officer
and each nominee for the office of
Director of Company is as follows:
<TABLE>
<CAPTION>
Office with Company; Year
First
Name, Age Background Information Elected
Director
<S> <S> <C>
Bruce M. Miller, 50 Chairman of the Board of the 1978
Company since its inception
in 1978.
Steven M. Besbeck, 48 President, Chief Executive 1980
Officer of the Company since
August 1983 and a Director of
the Company since November 1980
and Chief Financial Officer.
Director of International
Remote Imaging Systems.
James R. Helms, 52 Vice President/Operations 1987
since 1982.
Lawrence S. Schmid, 55 President and Chief Executive 1991
Officer, Strategic Directions
International, Inc., a management
consulting firm specializing
in technology companies.
Director of the Company since
November 1991.
Robert S. Fogerson, Jr., 43 Vice President, Technical 1992
Director,of PharmChem
Laboratories, Inc., a leading
independent laboratory
providing integrated drug
testing services. Mr. Fogerson
has served in various
capacities at PharmChem
Laboratories since 1975.
John R. Murray, 54 Vice President, Sales and
Business Development since
February 1996. Mr. Murray
served as an Independent
Marketing Consultant since
1993 and a Manager of
International Business
Development, Healthvision
Corporation since 1991.
</TABLE>
Item 10. Executive Compensation.
Management Remuneration
The following table shows all cash
compensation for services rendered
during the last three fiscal years ended
August 31, 1996 paid by the Company to
each of the Company's executive officers
whose cash compensation exceeded
$100,000.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Restr- Secur.
Name Other icted Under- LTIP All
and Ann Stock lying Pay- Other
Principal Year Salary Bonus Comp. Awrd(s) Options/ outs Comp.
Position ($) ($) ($) ($) SAR's(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven M. Besbeck 1996 148,498 10,000 0 0 10,000 0 1,530
President, CEO, 1995 132,432 0 0 0 10,000 0 1,314
CFO 1994 120,576 0 0 0 10,000 0 1,201
Bruce M. Miller 1996 130,181 5,000 0 0 10,000 0 5,551
Chairman 1995 128,090 0 0 0 10,000 0 5,620
1994 116,446 0 0 0 10,000 0 5,252
James R. Helms 1996 103,501 7,000 0 0 10,000 0 2,693
Vice President 1995 94,963 0 0 0 10,000 0 1,777
Operations 1994 86,332 0 0 0 10,000 0 2,818
</TABLE>
Employment Agreements
Messrs. Bruce Miller and Steven
Besbeck are employed by the Company on a
month to month basis pursuant to the
terms of their employment agreements.
Each agreement provides for a base
salary at an annual rate of $136,310 for
Mr. Miller and $141,244 for Mr. Besbeck
and authorizes the payment of other
fringe benefits and bonuses made
available by the Company to its senior
executives. The persons referred to
above also received insurance benefits
which were paid for by the Company and
employer contributions to their 401(k)
plan accounts as provided for in the
Company's 401(k) profit sharing plan.
These amounts, including amounts accrued
and unconditionally vested under the
401(k) plan, are reflected in the table
above.
The Company has adopted a profit
sharing plan pursuant to which income
tax is deferred on amounts contributed
by employees under Section 401(k) of the
Internal Revenue Code. All employees
are eligible to participate in the plan
after the completion of one year of
service. The Company contributes, on a
matching basis, 25% of the employee's
contribution up to 4%. The Company's
contribution becomes vested at the rate
of 20% for each full year of employment.
Both the employee and Company
contributions are subject to aggregate
annual limits under the Internal Revenue
Code.
Compensation of Directors
Directors who are not officers or
employees of the Company are paid
Directors' fees of $1,500 per meeting
and are reimbursed for their reasonable
expenses for attending meetings. At
present, there are two directors,
Lawrence S. Schmid and Robert S.
Fogerson, Jr., who are not officers
and/or employees of the Company.
Stock Option Plans
The Company currently has two stock
option plans, the 1992 Non-Qualified
Stock Option Plan ("1992 Non-Qualified
Plan") and the 1992 Incentive Stock
Option Plan ("1992 Incentive Plan") for
valued employees, which were approved by
the Company's shareholders at the May
15, 1992 Annual Shareholders Meeting.
The 1992 Incentive Plan currently
reserves 400,000 Common Shares for
issuance pursuant to granted options,
and the 1992 Non-Qualified Plan
currently reserves 200,000 Common Shares
for issuance pursuant to granted
options.
Each plan is administered by the
Board of Directors of the Company,
which, except with respect to the
directors themselves, has the authority
to determine the persons to whom the
options may be granted, the number of
shares to be covered by each option, the
time or times at which the options may
be granted or exercised and, for the
most part, the terms and provisions of
the options. Under the 1992 Non-
Qualified Plan, the exercise price may
not be less than 85% (100% for officers
and directors or 110% if the optionee
owns 10% or more of the outstanding
voting securities of the Company) of the
fair market value of the Common Shares
as determined by the Board on the date
of grant. Under the 1992 Incentive
Plan, the option exercise price may not
be less than 100% (or 110% if the
optionee owns 10% or more of the
outstanding voting securities of the
Company) of the fair market value of the
Common Shares, as determined by the
Board on the date of grant.
No option under either plan may be
exercised within twelve months of the
date of grant or more than five years
from the date of grant and must be
exercisable at the rate of at least 20%
per year; options granted to Directors
are exercisable at the rate of 25% in
each of the second, third, fourth and
fifth years, on a cumulative basis.
Each plan limits the percentage of the
total number of Common Shares subject to
the plan which may be granted to
officers and Directors to 50%.
Under the 1992 Non-Qualified Plan,
all eligible directors, upon their
election and on September 30 of each
subsequent year, automatically receive
options to purchase 5,000 shares (or a
prorated amount if they have served less
than a full year). Under the 1992
Incentive Plan, each officer/director
automatically receives options to
purchase 5,000 shares on September 30 of
each year (or a prorated amount if they
have served less than a full year).
These automatic grants are the only
options directors are entitled to
receive under the plans.
As of November 1, 1996 there were
outstanding options to purchase 125,000
Common Shares under the 1992 Non-
Qualified Plan at an average per share
exercise price of $1.49 and options to
purchase 243,000 Common Shares under the
Incentive Plan at an average per share
exercise price of $1.50.
The following table sets forth
information as to stock options granted
under both the 1992 Incentive Plan and
the 1992 Non-Qualified Plan for the
fiscal year ended August 31, 1996 to
each executive officer whose aggregate
remuneration is set forth above.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
(a) (b) (c) (d) (e)
Number of % of Total
Securities Options/SARs
Underlying Granted to Excercise
Options/SARs Employees in or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
<S> <C> <C> <C> <C>
Bruce M. Miller 10,000 6 % $1.93 Sept. 30, 2000
Steven M. Besbeck 10,000 6 % $1.75 Sept. 30, 2000
James R. Helms 10,000 6 % $1.75 Sept. 30, 2000
</TABLE>
The Company had two other stock
option plans, the 1982 Non-Qualified
Stock Option Plan ("1982 Non-Qualified
Plan") and the 1982 Incentive Stock
Option Plan ("1982 Incentive Plan"). No
options could be granted under the 1982
Non-Qualified Plan after May 1, 1991 or
under the 1982 Incentive Plan after
April 28, 1992. The 1982 Incentive Plan
reserved 120,000 Common Shares for
issuance pursuant to granted options,
and the 1982 Non-Qualified Plan reserved
80,000 Common Shares for issuance
pursuant to granted options.
Each plan was administered by the
Board of Directors of the Company, which
had the authority to determine the
persons to whom the options were
granted, the number of shares covered by
each option, the time or times at which
the options could have been granted or
exercised and, for the most part, the
terms and provisions of the options.
Under the 1982 Non-Qualified Plan, the
exercise price could not have been less
than 80% of the fair market value of the
Common Shares as determined by the Board
on the date of grant, and no option
could be exercised during the first
twelve months of the option term. Under
the 1982 Incentive Plan, the option
exercise price could not have been less
than 100% (or 110% if the optionee owns
10% or more of the outstanding voting
securities of the Company) of the fair
market value of the Common Shares, as
determined by the Board on the date of
grant. No option under the 1982
Incentive Plan were exercisable within
twelve months of the date of grant or if
the optionee "held" a previously granted
incentive option which had not been
exercised or had not expired by its
terms. Options under both the 1982 Non-
Qualified Plan and 1982 Incentive Plan
could not have been exercised more than
five years from the date of grant. Both
plans limited the percentage of the
total number of Common Shares subject to
the plan which could have been granted
to officers and Directors to 60%, in the
case of the 1982 Non-Qualified Plan, and
50%, in the case of the 1982 Incentive
Plan.
As of November 1, 1996 there were no
outstanding options under either 1982
plan, as all options were either
exercised or expired during the 1996
fiscal year.
The following table sets forth
information as to stock options granted
under the 1982 and 1992 Incentive Plans
and the 1982 and 1992 Non-Qualified
Plans and the net value received from
the exercise of options (market value of
stock on the date of exercise, less the
exercise price) by each executive
officer whose aggregate remuneration is
set forth above.
<TABLE>
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)
Shares Value
Acquired on Real- Exercisable/ Excercisable/
Name Exercise(#) ized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Bruce M. Miller 0 0 126,600 / 49,400 $31,650 / $12,350
Steven M. Besbeck 36,000 $48,960 105,000 / 35,000 $26,250 / $ 8,750
James R. Helms 17,000 $23,120 105,000 / 35,000 $26,250 / $ 8,750
</TABLE>
On March 5, 1992, the Board of
Directors of the Company granted special
one-time grants of stock options to the
Chairman and senior officers of the
Company, all of whom are also Directors
of the Company, to purchase up to
300,000 shares of the Company's Common
Shares, for a period of five years from
the date of grant, at an exercise price
of $1.375 per share, the market price of
the Common Shares on March 5, 1992.
These special options can only be
exercised at the rate of 20% per year,
on a cumulative basis, except that in
the event the Company is merged or
consolidated with another corporation,
in case of the sale of all or
substantially all of the assets of the
Company or in case of the
reorganization, dissolution or
liquidation of the Company, the options
will vest immediately. Special stock
options were granted to Mr. Miller to
purchase up to 100,000 Common Shares, to
Mr. Besbeck to purchase up to 100,000
Common Shares, and to Mr. Helms to
purchase up to 100,000 Common Shares.
On December 12, 1992, the Board of
Directors of the Company granted a
special one-time grant of a stock option
to the Chairman of the Company to
purchase up to 36,000 shares of the
Company's Common Shares, for a period of
five years from the date of grant, at an
exercise price of $1.10 per share, the
market price of the Common Shares on
December 12, 1992. This special option
can only be exercised at the rate of 20%
per year, on a cumulative basis, except
that in the event the Company is merged
or consolidated with another
corporation, in case of the sale of all
or substantially all of the assets of
the Company or in case of the
reorganization, dissolution or
liquidation of the Company, the options
will vest immediately.
Item 11. Security Ownership of Certain
Beneficial Owners and Management.
The following table sets forth
certain information known to the Company
regarding beneficial ownership of the
Company's Common Shares at November 1,
1996 of (i) each present Director, (ii)
all officers and Directors as a group,
and (iii) each beneficial owner of more
than five percent of the Company's
Common Shares.
<TABLE>
<CAPTION>
Common Shares
Beneficially Owned
at November 1, 1996
Number of Percent of
Shares(1) Class(2)
<S> <C> <C>
Steven M. Besbeck(3)(8) 273,500 9.3%
James R. Helms(4)(8) 163,800 5.6%
Bruce M. Miller(5)(8) 351,600 11.9%
Lawrence S. Schmid(6)(9) 19,583 *
Robert S. Fogerson, Jr.(7)(10) 17,855 *
John R. Murray(8) 7,000 *
All officers and Directors as a
group(3)(4)(5)(6)(7)(8)(9)(10) 833,338 26.1%
The Wall Street Group, Inc.(11) 160,000 5.5%
* Less than 1%
</TABLE>
Footnotes:
(1) Sole voting and investment control
unless otherwise noted.
(2) Unless otherwise indicated, does
not include Common Shares issuable
under: (a) employee stock option
plans (1,000,000 reserved).
(3) Includes 105,000 Common Shares
issuable under currently
exercisable stock options held by
Mr. Besbeck but excludes 45,000
Common Shares issuable under
currently non-exercisable stock
options held by Mr. Besbeck.
(4) Includes 105,000 Common Shares
issuable under currently
exercisable stock options held by
Mr. Helms but excludes 45,000
Common Shares issuable under
currently non-exercisable stock
options held by Mr. Helms.
(5) Includes 126,600 Common Shares
issuable under currently
exercisable stock options held by
Mr. Miller but excludes 59,400
Common Shares issuable under
currently non-exercisable stock
options held by Mr. Miller.
(6) Includes 19,583 Common Shares
issuable under currently
exercisable stock options held by
Mr. Schmid, but excludes 33,751
Common Shares issuable under
currently non-exercisable stock
options held by Mr. Schmid.
(7) Includes 17,855 Common Shares
issuable under currently
exercisable stock options held by
Mr. Fogerson but excludes 28,566
Common Shares issuable under
currently non-exercisable stock
options held by Mr. Fogerson.
(8) Mr. Bruce Miller's, Mr. Steven
Besbeck's, Mr. James Helms' and Mr.
John Murray's address is 26115-A
Mureau Road, Calabasas, CA 91302.
(9) Mr. Lawrence Schmid's address is
c/o Strategic Directions
International, Inc., 6242
Westchester Parkway, Suite 100, Los
Angeles, CA 90045.
(10) Mr. Robert Fogerson's address is
c/o PharmChem Laboratories, Inc.,
1505 O'Brien, Menlo Park, CA 94025.
(11) The Wall Street Group, Inc.'s
address is 32 E. 57th Street, New
York, NY 10022.
Item 12. Certain Relationships and Related Transactions.
Not Applicable.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1(6)Asset Purchase Agreement.
3.1(1)Restated Articles of Incorporation, as Amended.
3.2(1)By-Laws, as amended.
4.1(1)Specimen Share Certificate.
4.2(2)Specimen Warrant Certificate.
4.3(2)Form of Underwriter's Warrant.
4.8(6)
Warrant
Agreement and
Warrant
Certificate
between CCA and
Western States
Pharmacy
Consultants,
Ltd.
4.9(6)
Warrant
Agreement and
Warrant
Certificate
between CCA and
James L.D.
Roser.
4.10(6)
Warrant
Agreement and
Warrant
Certificate
between CCA and
The Roser
Partnership.
4.11(6)
Warrant
Agreement and
Warrant
Certificate
between CCA and
Epigen, Inc.
4.12(8)
Registration
Rights
Agreement.
10.1(2)
Warrant
Agreement.
10.2(2) The
Company's
product
warranties.
10.5(1) 14%
Subordinated
Convertible
Debenture due
December 21,
1987.
10.6(1) Form
of 1983
Warrants.
10.7(1) Form
of 1982
Warrant.
10.8(2)
Original
Equipment
Manufacturer
Contracts.
10.9(2)
Michael Miller
Consulting
Agreement.
10.10(2)
Boehringer
Mannheim
(Canada) Joint
Marketing
Agreement.
10.12(3) Lease
for Premises at
26664 Agoura
Road,
Calabasas,
California.
10.13(3) SAC
Shareholders'
Agreement.
10.14(8) Lease
for Premises at
26115-A Mureau
Road,
Calabasas,
California
10.15(8)
Mission Park
Agreement
11. Statement
re:
computation of
per share
earnings
16.(4)
Letter re:
change in
certifying
accountants
16.1(5)
Letter re:
change in
certifying
accountants
Executive compensation plans and arrangements.
4.4(1)1982 Non-Qualified Stock Option Plan.
4.5(2)1982 Incentive Stock Option Plan, as amended.
4.6(6)1992 Incentive Stock Option Plan.
4.7(7)1992 Non-Qualified Stock Option Plan.
10.3(2) Bruce
Miller
Employment
Agreement.
10.4(2)
Steven Besbeck
Employment
Agreement.
(1) Previously filed as an exhibit to
the Company's Registration
Statement on Form S-18 dated
September 22, 1983, SEC File No. 2-
85265.
(2) Previously filed as an exhibit to
the Company's Registration State
ment on Form S-1 dated October 1,
1985 SEC File No. 2-99878.
(3) Previously filed as an exhibit to
the Company's Form 10-K for the
year ended August 31, 1986.
(4) Previously filed as an exhibit to
the Company's Form 8-K dated
August 18, 1989.
(5) Previously filed as an exhibit to
the Company's Form 8 Amendment No.
1 to Form 8-K, dated July 20, 1990,
incorporated by reference herein.
(6) Previously filed as an exhibit to
the Company's Form 8-K dated
October 21, 1992.
(7) Previously filed as an addendum to
the Company's Proxy Statement and
Notice of Annual Meeting of
Shareholders dated April 10, 1992.
(8) Previously filed as an exhibit to
the Company's Form 10-K for the
year ended August 31, 1992.
(b) Reports on Form 8-K
The Company did not file any
reports on Form 8-K during its
last fiscal quarter ended
August 31, 1996.
SIGNATURES
In accordance with Section 13 or
15(d) of the Exchange Act, the Company
has duly caused this report to be signed
on its behalf by the undersigned,
thereunto duly authorized.
CREATIVE COMPUTER APPLICATIONS, INC.
Dated: November 11, 1996 By: /S/ Steven M. Besbeck_
Steven M. Besbeck, President, Chief
Executive Officer, and Chief
Financial Officer.
In accordance with Section 13 or
15(d) of the Exchange Act, this report
has been signed below by the following
persons on behalf of the Company and in
the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <S> <C>
/S/ Bruce M. Miller Chairman of the Board and November 11,1996 November 11, 1996
Bruce M. Miller Director of Product
Development
/S/ Steven M. Besbeck President, Chief Executive November 11, 1996
Steven M. Besbeck Officer, Chief Financial
Officer and Director
/S/ James R. Helms Vice President, Operations, November 11, 1996
James R. Helms Secretary and Director
/S/ Lawrence S. Schmid Director November 11, 1996
Lawrence S. Schmid
/S/ Robert S. Fogerson, Jr. Director November 11, 1996
Robert S. Fogerson, Jr.
/S/ Carol Bessel Controller November 11, 1996
Carol Bessel Chief Accounting Officer
/S/ John R. Murray Vice President, Sales November 11, 1996
John R. Murray and Business Development
</TABLE>
INDEX
Page
FINANCIAL STATEMENTS:
Report of Independent Certified
Public Accountants F-2
Balance Sheets
August 31, 1996 and 1995 F-3
Statements of Income
Years ended August 31, 1996,
1995 and 1994 F-4
Statements of Shareholders' Equity
Years ended August 31, 1996,
1995 and 1994 F-5
Statements of Cash Flows
Years ended August 31, 1996,
1995 and 1994 F-6
Notes to Financial Statements F-7
F-1
Report of Independent Certified Public
Accountants
Board of Directors and Shareholders
Creative Computer Applications, Inc.
We have audited the accompanying
balance sheets of Creative Computer
Applications, Inc. as of August 31, 1996
and 1995 and the related statements of
income, shareholders' equity and cash
flows for each of the three years in the
period ended August 31, 1996. These
financial statements are the
responsibility of the Company's manage
ment. Our responsibility is to express
an opinion on these financial statements
based on our audits.
We conducted our audits in
accordance with generally accepted
auditing standards. Those standards
require that we plan and perform the
audit to obtain reasonable assurance
about whether the financial statements
are free of material misstatement. An
audit includes examining, on a test
basis, evidence supporting the amounts
and disclosures in the financial
statements. An audit also includes
assessing the accounting principles used
and significant estimates made by manage
ment, as well as evaluating the overall
financial statement presentation. We
believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial
statements referred to above present
fairly, in all material respects, the
financial position of Creative Computer
Applications, Inc. at August 31, 1996
and 1995 and the results of its
operations and its cash flows for each
of the three years in the period ended
August 31, 1996 in conformity with
generally accepted accounting
principles.
BDO SEIDMAN, LLP
Los Angeles, California
October 18, 1996
F-2
CREATIVE COMPUTER APPLICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
August 31,
ASSETS (Note 4) 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash $ 253,201 $ 377,813
Receivables, net (Note 2) 1,678,564 1,560,087
Inventory 642,787 646,456
Prepaid expenses 86,881 81,132
Deferred tax asset (Note 9) 437,000 -
TOTAL CURRENT ASSETS 3,098,433 2,665,488
PROPERTY AND EQUIPMENT, net (Note 3) 480,108 250,005
INVENTORY OF COMPONENT PARTS 148,357 87,655
CAPITALIZED SOFTWARE COSTS, net of
accumulated amortization of $446,632
and $271,142 (Note 1) 693,696 503,768
INTANGIBLES, net (Note 1) 315,551 366,721
DEFERRED TAX ASSET (Note 9) 77,600 -
OTHER ASSETS 23,480 24,990
$4,837,225 $3,898,627
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank (Note 4) $ 191,875 $ 146,084
Accounts payable 306,321 493,273
Accrued liabilities:
Vacation pay 157,106 150,652
Other 426,341 294,790
Deferred service contract income 464,076 493,259
Capital lease obligations - current
portion (Note 5) 27,489
23,643
TOTAL CURRENT LIABILITIES 1,573,208 1,601,701
DEFERRED RENT (Note 5) 35,235 65,435
CAPITAL LEASE OBLIGATIONS, net of
current portion
(Note 5) 21,250 30,096
TOTAL LIABILITIES 1,629,693 1,697,232
COMMITMENTS (Note 5)
SHAREHOLDERS' EQUITY (Notes 6 and 10):
Preferred shares, no par value;
500,000 shares authorized; no
shares outstanding - -
Common shares, no par value;
20,000,000 shares authorized;
2,820,915 and 2,735,715 shares
outstanding 5,714,570 5,676,230
Accumulated deficit (2,507,038) (3,474,835)
TOTAL SHAREHOLDERS' EQUITY 3,207,532 2,201,395
$4,837,225 $3,898,627
</TABLE>
See notes to financial statements.
F-3
CREATIVE COMPUTER APPLICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended August 31,
1996 1995 1994
<S> <C> <C> <C>
NET SYSTEM SALES AND SERVICE
REVENUE (Note 7):
System sales $4,190,825 $3,974,338 $3,624,033
Service revenue 2,046,137 1,952,181 2,007,741
6,236,962 5,926,519 5,631,774
COST OF PRODUCTS AND
SERVICES SOLD:
System sales 1,922,100 2,262,756 2,149,423
Service revenue 1,259,486 1,237,161 1,080,015
3,181,586 3,499,917 3,229,438
Gross profit 3,055,376 2,426,602 2,402,336
RESEARCH AND DEVELOPMENT
EXPENSE 461,330 465,407 517,497
SELLING AND ADMINISTRATIVE
EXPENSES 2,095,493 1,779,679 1,713,049
OPERATING INCOME 498,553 181,516 171,790
OTHER INCOME (EXPENSE):
Interest and other income 3,243 2,490 29,593
Interest expense (36,409) (42,561) (51,339)
Settlement of litigation
(Note 8) - (132,475) -
(33,166) (172,546) (21,746)
INCOME BEFORE INCOME TAX EXPENSE
(BENEFIT) 465,387 8,970 150,044
INCOME TAX EXPENSE (BENEFIT)
(Note 9) (502,410) 2,000 5,000
NET INCOME $ 967,797 $ 6,970 $ 145,044
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE (Note 1):
Primary and fully diluted:
Net income per share $ .32 $ .00 $ .06
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
STOCK EQUIVALENTS OUTSTANDING 3,006,926 2,863,346 2,368,241
</TABLE>
See notes to financial statements.
F-4
CREATIVE COMPUTER APPLICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common
Shares Accumulated
Shares Amount Deficit Totals
<S> <C> <C> <C> <C>
BALANCE, September 1, 1993 2,274,704 $5,227,087 $(3,626,849) $1,600,238
Issuance of common
shares (Note 10) 60,000 45,000 - 45,000
Net income - - 145,044 145,044
BALANCE, August 31, 1994 2,334,704 5,272,087 (3,481,805) 1,790,282
Exercise of warrants
and stock options 394,911 393,851 - 393,851
(Note 6)
Issuance of common
shares (Note 10) 6,100 10,292 - 10,292
Net income - - 6,970 6,970
BALANCE, August 31, 1995 2,735,715 5,676,230 (3,474,835) 2,201,395
Exercise of warrants
and stock options 85,200 38,340 - 38,340
(Note 6)
Net income - - 967,797 967,797
BALANCE, August 31, 1996 2,820,915 $5,714,570 $(2,507,038) $3,207,532
</TABLE>
See notes to financial statements.
F-5
CREATIVE COMPUTER APPLICATIONS,
INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Increase (Decrease) in Cash
Year ended August 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $967,797 $ 6,970 $145,044
Adjustments to reconcile
net income to net cash
provided by operating activities:
Depreciation and amortization 180,093 161,223 171,326
Amortization of capitalized
software costs 175,491 159,694 134,893
Provision for possible losses 55,422 78,218 15,464
Net change in inventory reserves 42,000 (5,269) 84,795
Issuance of common shares for
services - 10,292 45,000
Deferred rent expense (30,200) (30,203) (14,283)
Increase (decrease) from
changes in:
Receivables (173,900) (218,888) 157,032
Inventories (99,032) 7,910 (74,410)
Prepaid expenses (5,749) (20,336) (18,279)
Deferred tax asset (514,602) - -
Accounts payable (186,952) (39,879) (90,248)
Accrued liabilities 108,819 73,787 41,921
Net cash provided by
operating activities 519,187 183,519 598,255
INVESTING ACTIVITIES:
Additions to property and equipment (357,510) (105,755) (20,578)
Capitalized software costs (365,420) (299,534) (216,617)
Net cash used in investing
activities (722,930) (405,289) (237,195)
FINANCING ACTIVITIES:
Borrowings on notes payable 351,875 100,000 -
Payments on notes payable (306,084) (301,999) (132,000)
Payments on capital lease
obligations (5,000) (23,801) (20,629)
Exercise of stock options
and warrants 38,340 393,851 -
Net cash provided by (used in)
financing activities 79,131 168,051 (152,629)
NET INCREASE (DECREASE) IN CASH (124,612) (53,719) 208,431
CASH, beginning of year 377,813 431,532 223,101
CASH, end of year $253,201 $377,813 $431,532
</TABLE>
See notes to financial statements.
F-6
CREATIVE COMPUTER APPLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Business Activities
Creative Computer Applications,
Inc. (the "Company") designs and
manufactures computer based Clinical
Information Systems and products which
automate the acquisition and management
of clinical data for the healthcare
industry. The Company sells its
products and systems primarily to
hospitals, clinics, reference
laboratories, veterinary and other
healthcare institutions, as well as
original equipment manufacturers. The
Company also generates revenue through
service contracts with customers to
provide technical support and repair
services for specified periods of time.
Accounts Receivable and
Concentration of Credit Risk
Accounts receivable potentially
exposes the Company to concentrations of
credit risk, as defined by Statement of
Financial Accounting Standards No. 105
"Disclosure of Information about
Financial Instruments with Off-Balance-
Sheet Risk and Financial Instruments
with Concentrations of Credit Risk."
The Company provides credit to a large
number of hospitals, clinics, reference
laboratories and other healthcare
institutions in various geographical
areas. The Company performs ongoing
credit evaluations and maintains a
general security interest in the item
sold until full payment is received.
Inventories
Inventories consist primarily
of computer hardware held for resale and
are stated at the lower of cost or
market (net realizable value). Cost is
determined using the first-in, first-out
method. Supplies are charged to expense
as incurred.
The Company also maintains an
inventory pool of component parts to
service systems previously sold, which
is classified as non-current in the
accompanying balance sheets. Such
inventory is carried at the lower of
cost or market and will be charged to
cost of sales based on usage.
Allowances are made for quantities on
hand in excess of estimated future
usage.
Property and Equipment
Property, equipment, and
leasehold improvements are stated at
cost less accumulated depreciation.
Depreciation of machinery and equipment,
furniture and fixtures, and data
processing equipment is computed for
financial reporting purposes using the
straight-line method over the estimated
useful life of the related asset
(generally five years). Amortization of
leasehold improvements is computed using
the straight-line method over the lease
term. Accelerated depreciation methods
are used for income tax reporting
purposes.
Capitalized Software Costs
Software costs incurred
internally in creating computer software
products are expensed until
technological feasibility has been
established upon completion of a
detailed program design. Thereafter,
all software development costs are
capitalized until the point that the
product is ready for sale and
subsequently reported at the lower of
amortized cost or net realizable value.
During the years
F-7
CREATIVE COMPUTER APPLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Capitalized Software Costs
(Continued)
ended August 31, 1996, 1995 and 1994,
the Company capitalized $365,420,
$299,533 and $216,616 of software
development costs. Amortization expense
of capitalized software development
costs, included in cost of sales, for
the years ended August 31, 1996, 1995
and 1994 amounted to $175,491, $159,694
and $134,893.
In accordance with Statement of
Financial Accounting Standard No. 86 the
Company considers annual amortization of
capitalized software costs under 1) the
ratio of current year revenues by
product to the product's total estimated
revenues method and 2) over the
product's estimated economic useful life
by the straight line method and
recognizes the greater amount.
Intangible Assets
Intangible assets amounting to
$511,704 consist of proprietary rights
to application software, trademarks,
customer lists and copyrights and are
being amortized using the straight-line
method over a ten year period.
Accumulated amortization was $196,153
and $144,983 at August 31, 1996 and
1995.
Revenue Recognition
Sales of Clinical Information
Systems and data acquisition products
are recognized when shipped, provided
that no significant obligations remain
and collection is probable. Revenues
related to installation of systems
requiring substantial future performance
by the Company are recognized using the
percentage-of-completion method based on
meeting key milestone events over the
terms of the contract. Costs and
earnings recognized in excess of
billings are shown as an asset on the
balance sheet. Service contract
revenues (which are included in net
sales) are recognized ratably over the
contractual period or as the services
are provided.
Stock Options
The difference between the fair
market value and the exercise price, if
below fair market value, of a stock
option granted under the Company's non-
qualified stock option plan is charged
to expense in the period in which the
option is granted.
Earnings Per Share
Earnings per common share are
computed by dividing the net income for
each period by the weighted average
number of common shares plus the
weighted average of dilutive common
share equivalents outstanding during the
period using the treasury stock method.
Common share equivalents consist of
stock options and warrants. Common
stock equivalents are considered
dilutive for earnings per share if the
average stock price exceeds the exercise
price during the period. The common
stock equivalents are weighted from the
beginning of the earliest quarter in
which they become dilutive.
F-8
NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for income
taxes in accordance with the Statement
of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes.
SFAS No. 109 requires a Company to use
the asset and liability method of
accounting for income taxes. Under the
asset and liability method, deferred
income taxes are recognized for the tax
consequences of "temporary differences"
by applying enacted statutory tax rates
applicable to future years to
differences between the financial
statement carrying amounts and the tax
bases of existing assets and
liabilities. Under SFAS No. 109, the
effect on deferred income taxes of a
change in tax rates is recognized in
income in the period that includes the
enactment date.
Accounting Estimates
The preparation of financial
statements in conformity with generally
accepted accounting principles requires
management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
Quoted market prices generally
are not available for all of the
Company's financial instruments.
Accordingly, fair values are based on
judgments regarding current economic
conditions, risk characteristics of
various financial instruments and other
factors. These estimates involve
uncertainties and matters of judgment,
and therefore, cannot be determined with
precision. Changes in assumptions could
significantly affect the estimates.
A description of the methods
and assumptions used to estimate the
fair value of each class of the
Company's financial instruments is as
follows:
Cash, receivables, inventory,
prepaid expenses, accounts payable,
accrued expenses, and deferred service
contract income are recorded at carrying
amounts which approximate fair value due
to the short maturity of these
instruments.
The fair value of the Company's
notes payable and capital lease
obligations are based on quoted market
prices for similar issues of debt and
capital leases with similar remaining
maturities and terms, the carrying
amounts approximate fair value.
New Accounting Pronouncements
Statement of Financial Accounting
Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of"
(SFAS No. 121) issued by the Financial
Accounting Standards Board (FASB) is
effective for financial statements for
fiscal years beginning after
F-9
New Accounting Pronouncements
(Continued)
December 15, 1995. The new standard
establishes new guidelines regarding
when impairment losses on long-lived
assets, which include plant and
equipment, certain identifiable
intangible assets and goodwill, should
be recognized and how impairment losses
should be measured. The Company does
not expect adoption to have a material
effect on its financial position or
results of operations.
Statements of Financial Accounting
Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 123)
issued by the Financial Accounting
Standards Board is effective for
specific transactions entered into after
December 15, 1995, while the disclosure
requirements of SFAS No. 123 are
effective for financial statements for
fiscal years beginning no later than
December 15, 1995. The new standard
establishes a fair value method of
accounting for stock-based compensation
plans and for transactions in which an
entity acquires goods or services from
non-employees in exchange for equity
instruments. At the present time, the
Company has not determined if it will
change its accounting policy for stock
based compensation or only provide the
required financial statement
disclosures. As such, the impact on the
Company's financial position and results
of operations is currently unknown.
Statement of Financial Standards No.
125, "Accounting for Transfers and
Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS
No. 125) issued by the Financial
Accounting Standards Board is effective
for transfers and servicing of financial
assets and extinguishments of
liabilities occurring after December 31,
1996. SFAS No. 125 requires that
liabilities and derivatives incurred or
obtained by transferors as part of a
transfer or financial assets be
initially measured at fair value and
that servicing assets and other retained
interests in the transferred assets be
measured by allocating the previous
carrying amount between the assets sold,
if any, and retained interests, if any,
based on their relative fair values at
the date of transfer. SFAS No. 125 also
requires that servicing assets and
liabilities be subsequently measured by
amortization in proportion to and over
the period of estimated net servicing
income or loss and assessment for asset
impairment or increased obligation based
on their fair values. Under SFAS No.
125, debtors are required to reclassify
financial assets pledged as collateral
and that secured parties recognize those
assets and their obligation to return
them in certain circumstances in which
the secured party has taken control of
those assets. Finally, SFAS No. 125
requires that a liability be
derecognized if and only if either the
debtor pays the creditor and is relieved
of its obligation for the liability or
the debtor is legally released from
being the primary obligor under the
liability either judicially or by the
creditor. Therefore, the liability is
not considered extinguished by an in-
substance defeasance. The Company does
not expect adoption of SFAS No. 125 to
have a material effect on its financial
position or results of operations.
NOTE 2 - RECEIVABLES
<TABLE>
<CAPTION>
Receivables are summarized as follows:
August 31,
1996 1995
<S> <C> <C>
Trade accounts $1,716,784 $1,584,185
Allowance for uncollectible accounts (38,220) (24,098)
$1,678,564 $1,560,087
</TABLE>
F-10
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
August 31,
1996 1995
<S> <C> <C>
Machinery and equipment $217,926 $207,591
Furniture and fixtures 214,203 170,370
Leasehold improvements 63,201 61,474
Data processing equipment 950,860 649,244
1,446,190 1,088,679
Accumulated depreciation (966,082) (838,674)
Totals $480,108 $250,005
</TABLE>
Included in property and equipment at
August 31, 1996 and 1995 are machinery
and equipment and furniture and fixtures
under capital lease agreements in the
amount of $149,212 and $124,005 with
related accumulated amortization thereon
of $100,238 and $74,178.
NOTE 4 - NOTES PAYABLE TO BANK
<TABLE>
<CAPTION>
August 31,
1996 1995
<S> <C> <C>
A line of credit of $400,000 with a bank with
interest at the bank's prime rate plus 1.75%
(10% at August 31, 1996) and maturing
February 1, 1997. $100,000 $100,000
Note payable to a bank with interest at the
bank's prime rate plus 2.5% (10.75% at
August 31, 1996) maturing on June 30, 1998,
and collateralized by substantially all of
the Company's assets. The note is subject
to minimum principal repayment terms of
$10,000 a month. As such, the balance
at year end represents a current liability. 91,875 46,084
Total notes payable $191,875 $146,084
</TABLE>
The notes payable to bank are
covered by two note agreements that
require the Company to meet certain
covenants, including various financial
ratios. At August 31, 1996, the Company
was in compliance with all financial and
non-financial covenants.
F-11
NOTE 5 - COMMITMENTS
Operating Leases
The Company leases office and
warehouse space in Calabasas, California
under a non-cancelable operating lease
expiring in fiscal 1998. There is an
option to renew the lease for an
additional five year term. Under the
terms of the lease, the Company received
nine months of free rent. In accordance
with Statement of Financial Accounting
Standards No. 13 the Company is
recognizing rental expense with respect
to the facility lease on a straight line
basis which has resulted in the
recognition of a liability for deferred
rent as of August 31, 1996 and 1995.
The Company also leases office space in
Boulder, Colorado.
Future minimum lease payments
under the facility leases are as
follows:
<TABLE>
<CAPTION>
Fiscal year ending Facilities
<S> <C>
1997 $198,248
1998 31,838
Total minimum lease payments $230,086
</TABLE>
Rent expense for the year ended
August 31, 1996, 1995, and 1994 was
approximately $205,000, $219,000 and
$229,000.
Capital Leases
The Company leases certain
machinery and equipment and furniture
and fixtures under leases classified as
capital leases due to the existence of
bargain purchase options. The following
is a schedule by years of future minimum
lease payments under capital leases
together with the present value of the
net minimum lease payments as of August
31, 1996:
<TABLE>
<CAPTION>
Capital
Fiscal year ending Leases
<S> <C>
1997 $33,035
1998 18,319
1999 4,987
Total minimum lease payments 56,341
Amount representing interest (7,602)
Present value of minimum lease payments 48,739
Current portion (27,489)
Capital lease obligations, net of
current portion $21,250
</TABLE>
F-12
NOTE 6 - STOCK OPTION PLANS AND WARRANTS
In 1982, the Company adopted
the 1982 Non-Qualified Stock Option Plan
(the "Non-Qualified Plan") and the 1982
Incentive Stock Option Plan ("Incentive
Plan").
Under the Non-Qualified Plan,
as amended, options may be granted by
the Company to purchase up to 80,000
common shares (officers and directors
could acquire no more than 48,000 common
shares). Options could not be granted
at a price less than 80 percent of the
fair market value of the common shares
on the date of grant. No option can be
exercised during the first year of the
option term and each option granted
terminated no later than five years from
the date of grant.
Under the Incentive Plan, as
amended, options may be granted by the
Company to purchase up to 120,000 common
shares (officers and directors could
acquire no more than 60,000 common
shares). Options could not be granted
at a price less than 100 percent of the
fair market value of the common shares
on the date of grant for officers,
directors and employees who owned less
than 10 percent of the Company's common
shares and not less than 110 percent of
fair market value for those officers,
directors and employees who owned 10
percent or more of the Company's common
shares. No option can be exercised if
the optionee had been previously granted
an option that had not been exercised or
had not expired. No option can be
exercised during the first year of the
option term and each option granted
terminated no later than five years from
the date of grant.
The 1982 Non-Qualified and
Incentive Plans expired in 1992.
Subsequently, the Company adopted the
1992 Non-Qualified Stock Option Plan and
the 1992 Incentive Stock Option Plan.
The 1992 plans are essentially the same
as the 1982 plans with certain
exceptions. Under the 1992 Non-
Qualified Plan, as amended, options may
be granted by the Company to purchase up
to 200,000 common shares (officers and
directors may acquire no more than
100,000 common shares) and no options
may be granted at a price less than 85%
of the fair market value of the common
shares on the date of grant. Under the
1992 Incentive Plan, options may be
granted by the Company to purchase up to
400,000 common shares (officers and
directors may acquire no more than
200,000 common shares). The 1992 plans
expire in 2002.
F-13
NOTE 6 - STOCK OPTION PLANS AND WARRANTS
(Continued)
Activity under the 1982 and
1992 plans through August 31, 1996 is
summarized below:
<TABLE>
<CAPTION>
Non-Qualified Plans Incentive Plans
Number Per Share Number Per Share
of Exercise of Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
September 1, 1993 100,000 $0.45-$1.38 159,209 $0.45-$1.13
Granted 25,000 $1.44-$1.58 25,000 $1.25-$1.38
Expired (41,000) $0.45-$0.61 (53,800) $0.45-$1.10
August 31, 1994 84,000 $0.45-$1.58 130,409 $ 1.38
Granted 25,000 $1.25-$1.38 102,000 $1.25-$2.25
Expired - (16,670) $1.10-$2.25
Exercised - (3,330) $ 1.10
August 31, 1995 109,000 $0.45-$1.58 212,409 $ 2.25
Granted 25,000 $1.75-$1.93 115,000 $1.75-$2.25
Expired - - (48,209) $ .45-$2.25
Exercised (34,000) $ 0.45 (51,200) $ .45
August 31, 1996 100,000 $1.25-$1.93 228,000 $1.03-$2.25
Exercisable at
August 31, 1996 37,500 $1.25-$1.93 55,165 $1.03-$2.25
Available for grant
at August 31, 1996 100,000 127,791
</TABLE>
F-14
NOTE 6 - STOCK OPTION PLANS AND WARRANTS
(Continued)
During fiscal 1996, 1995 and 1994,
the Company also granted special options
approved by the Board of Directors to
officers and directors and financial
consultants. The options have been
granted at the fair market value at the
date of grant and are exercisable over
periods ranging two to five years after
which they expire. The special options
are summarized as follows:
<TABLE>
<CAPTION>
Number Per Share
of Exercise
Issued to Shares Price Expires
<S> <S> <C> <C> <C>
September 1, 1993 451,000 $1.00-$1.38
Granted Consultants 100,000 $1.00 1999
August 31, 1994 551,000 $1.00-$1.38
Granted Consultants 15,000 $1.50 1996
August 31, 1995 566,000 $1.00-$1.38
Granted Directors 49,755 $2.25 2000
August 31, 1996 615,755 $1.00-$2.25
</TABLE>
As part of a public offering in
October 1985, the Company sold 1,530,000
warrants that were initially exercisable
at $2.00 per share through September 30,
1990. As a result of a reverse stock
split, five warrants were required to
purchase one common share. The warrants
expired on September 30, 1994.
In connection with the
acquisition of PRX Pharmacy Systems on
October 21, 1992, the Company issued
warrants to purchase 391,581 common
shares. The warrants were exercisable
at $1.03 per share and were all
exercised during fiscal year ended
August 31, 1995 and the Company received
net proceeds of $390,188.
NOTE 7 - RELATED PARTIES
Net sales for the year ended
August 31, 1996 and 1995, includes sales
of $159,101 and $382,157 to an entity of
which a director of the Company is an
officer. There were no related party
transactions during the fiscal year
ended August 31, 1994.
F-15
NOTE 8 - SETTLEMENT OF LITIGATION
The Company was a defendant in
a lawsuit brought by a customer alleging
breach of warranties and fraudulent
misrepresentation with respect to a
computer system sold to the customer.
During the third fiscal quarter ended
May 31, 1995, the Company reached an
agreement to settle the litigation.
Although the Company did not believe
there was merit in the plaintiff's
claims or that the plaintiff would
eventually prevail in the litigation,
the Company agreed to the settlement
because it did not believe that any
eventual recovery it might receive would
justify the legal expenses it was
incurring to continue the litigation.
The settlement includes a cash payment
of $25,000. All payments under the
settlement were made during fiscal year
ended August 31, 1995.
NOTE 9 - INCOME TAXES
The provision for income taxes
consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current taxes:
Federal $ - $ - $ -
State 12,190 2,000 5,000
12,190 2,000 5,000
Change in valuation allowance (514,600) - -
Provision for income taxes $(502,410) $ 2,000 $ 5,000
</TABLE>
The provision for income taxes
differs from the amount obtained by
applying the statutory federal income
tax rate to income before income taxes
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed provision for taxes
based on income at statutory rate 34.0% 34.0% 34.0%
State taxes, net of benefit of state
net operating loss carryforward 6.0 22.3 3.3
Tax benefit of federal net
operating loss carryforward (34.0) (34.0) (34.0)
Reduction in valuation allowance (114.0) - -
(108.0)% 22.3% 3.3%
</TABLE>
F-16
NOTE 9 - INCOME TAXES
(Continued)
Deferred income taxes reflect
the net tax effects of temporary
differences between the carrying amounts
of assets and liabilities for financial
reporting purposes and the amounts used
for income tax purposes. Significant
components of the Company's deferred tax
assets and liabilities as of August 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
August 31,
1996 1995 <C> <C>
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 15,700 $ 10,000
Inventory reserves and uniform
capitalization 110,400 77,000
Accrued vacation 58,100 60,000
Deferred revenue 147,000 157,000
Depreciation and amortization 15,800 280,000
Net operating loss carryforwards 837,300 935,000
Tax credits 129,300 130,000
Total deferred tax assets 1,313,600 1,649,000
Deferred tax liability:
Capitalized software costs (284,400) (459,000)
Net deferred tax assets 1,029,200 1,190,000
Valuation allowance (514,600) (1,190,000)
$ 514,600 $ -
</TABLE>
At August 31, 1996, the Company
had federal net operating loss
carryforwards available to offset future
taxable income of approximately
$2,465,000 that begin to expire in
fiscal 2001 and investment and research
and experimentation tax credit
carryforwards available to offset future
income tax payable of approximately
$130,000 that begin to expire in fiscal
1997. The Tax Reform Act of 1986
contains provisions which limit the
amount of tax credits that can be
utilized in subsequent years.
F-17
CREATIVE COMPUTER APPLICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(Concluded)
For the year ended August 31, 1995,
the Company established a valuation
allowance equal to the net deferred tax
asset as the Company could not conclude
that it was more likely than not that
the deferred tax asset could be
realized. For the year ended August 31,
1996, the Company re-evaluated the
valuation allowance taking into
consideration prior earnings history,
projected operating results and the
reversal of temporary tax differences.
As a result, the Company reduced the
valuation allowance to $514,600 or 50%
of the net deferred tax asset.
NOTE 10 - SUPPLEMENTAL CASH FLOW
INFORMATION
<TABLE>
<CAPTION>
Supplemental cash flow
information is as follows:
<S> <C> <C> <C>
1996 1995 1994
Interest paid $35,800 $44,126 $51,171
</TABLE>
Supplemental non-cash investing
and financing activity included:
During fiscal 1996,
the Company acquired a computer with a cost of
$23,286 under a capital lease agreement.
During fiscal 1995,
the Company issued 6,100 common shares with a
market value of $10,292 in payment of accrued
vacation obligations.
During fiscal 1994,
the Company issued 60,000 common shares with a
market value of $45,000 in payment of public
relations services.
During fiscal 1994,
the Company acquired a copy machine with a cost of
$23,275 under a capital lease agreement.
F-18
Exhibit 11
CREATIVE COMPUTER APPLICATIONS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year ended August 31,
1996 1995 1994
<S> <C> <C> <C>
ENDING MARKET PRICE PER SHARE $ 1.75 $ 1.69 $ 1.43
AVERAGE MARKET PRICE PER SHARE $ 1.85 $ 2.10 $ 1.02
NET INCOME $ 967,797 $ 6,970 $ 145,044
PRIMARY EARNINGS PER SHARE:
Shares:
Weighted average number of
common shares outstanding 2,772,615 2,500,772 2,314,704
Shares issuable upon exercise
of options and warrants 731,000 800,200 289,200
Shares assumed to be repurchased
under the treasury stock
method (1)(2) (496,689) (437,626) (235,663)
Adjusted weighted average number
of common shares outstanding 3,006,926 2,863,346 2,368,241
Primary earnings per share $ .32 $ .00 $ .06
FULLY DILUTED EARNINGS PER SHARE:
Shares:
Weighted average number of common
shares outstanding 2,772,615 2,500,772 2,314,704
Shares issuable upon exercise of
options and warrants 731,000 800,200 1,106,886
Shares assumed to be repurchased
under the treasury stock
method (1)(2) (496,689) (437,626) (841,772)
Adjusted weighted average number
of common shares outstanding 3,006,926 2,863,346 2,579,818
Fully diluted earnings
per share $ .32 $ .00 $ .06
</TABLE>
(1) Shares assumed to be repurchased
under the treasury stock method:
Primary common stock equivalents
are assumed to be repurchased at
average market price.
Fully diluted common stock
equivalents are assumed to be
repurchased at the greater of average or
ending market price.
Shares assumed to be repurchased
under the treasury stock method are
limited to 20% of the number of shares
outstanding at the end of the
period in accordance with Accounting
Principals Board Statement No. 15.
(2) Shares assumed to be repurchased
under the treasury stock method were
based on proceeds of assumed options and
warrants of $918,875, $919,015 and
$ 240,140 for the years ended August 31,
1996, 1995 and 1994. For the
year ended August 31, 1994, the
shares assumed to be repurchased under
the treasury stock method for fully
diluted earnings per share was
based on proceeds of $1,203,776.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 253201
<SECURITIES> 0
<RECEIVABLES> 1678564
<ALLOWANCES> 0
<INVENTORY> 642787
<CURRENT-ASSETS> 3098433
<PP&E> 1446190
<DEPRECIATION> 966082
<TOTAL-ASSETS> 4837225
<CURRENT-LIABILITIES> 1573208
<BONDS> 0
<COMMON> 5714570
0
0
<OTHER-SE> (2507038)
<TOTAL-LIABILITY-AND-EQUITY> 4837225
<SALES> 6236962
<TOTAL-REVENUES> 6240205
<CGS> 3181586
<TOTAL-COSTS> 5738409
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36409
<INCOME-PRETAX> 465387
<INCOME-TAX> (502410)
<INCOME-CONTINUING> 967797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 967797
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
