UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the transition period from ____________ to _______________
Commission file number 0-12551
CREATIVE COMPUTER APPLICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
California 95-3353465
(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)
(818) 880-6700
Issuer's telephone number:
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 Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: 2,912,540 common shares as of April 6, 1998
Transitional Small Business Disclosure Format (check one):
Yes No X
CREATIVE COMPUTER APPLICATIONS, INC.
FORM 10-QSB
I N D E X
PART I - Financial Information: PAGE
Condensed Balance Sheets at February 28, 1998
and August 31, 1997 3
Condensed Statements of Operation for the three
months ended February 28, 1998 and February 28, 1997 4
Condensed Statements of Operation for the six months
ended February 28, 1998 and February 28, 1997 5
Condensed Statements of Cash Flows for the six months
ended February 28, 1998 and February 28, 1997 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis or Plan of Operation 7
PART II - Other Information:
Items 1 through 6 9
Signatures 10
PART 1 - FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
____________________________________
<TABLE>
<CAPTION>
<S> <C> <C>
February 28, August 31,
1998 1997 *
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 255,624 $ 534,430
Receivables 1,898,925 1,933,685
Inventories 771,902 675,795
Prepaid expenses and
other assets 116,613 78,951
Deferred tax asset 427,000 427,000
TOTAL CURRENT ASSETS 3,470,064 3,649,861
PROPERTY AND EQUIPMENT, net 649,321 551,413
INVENTORY OF COMPONENT PARTS 115,357 136,357
CAPITALIZED SOFTWARE COSTS,
net of accumulated
amortization of
$392,194 and $286,907 1,014,650 917,937
INTANGIBLES, net 238,796 264,381
OTHER ASSETS 7,058 21,965
DEFERRED TAX ASSET 551,200 551,200
TOTAL ASSETS $ 6,046,446 $ 6,093,114
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 620,000 $ 287,296
Accounts payable 575,183 522,808
Accrued liabilities:
Vacation Pay 186,184 187,367
Other 307,154 363,027
Deferred service contract
income 626,529 569,734
Capital lease obligations,
current portion 9,187 16,572
TOTAL CURRENT LIABILITIES 2,324,237 1,946,804
NOTES PAYABLE TO BANK,
NET OF CURRENT PORTION 51,609 0
CAPITAL LEASE OBLIGATIONS,
net of current portion 1,611 4,679
DEFERRED RENT 0 5,034
TOTAL LIABILITIES 2,377,457 1,956,517
SHAREHOLDERS' EQUITY:
Preferred shares, no par
value; 500,000 shares
authorized; no shares
outstanding - -
Common shares, no
par value; 20,000,000
shares authorized;
2,910,865 and
2,849,865 shares
outstanding 5,819,185 5,752,635
Accumulated deficit (2,150,196) (1,616,038)
TOTAL SHAREHOLDERS' EQUITY 3,668,989 4,136,597
$ 6,046,446 $6,093,114
</TABLE>
See Notes to Financial Statements.
* As presented in the audited financial statements
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended February 28
1998 1997
(unaudited)
NET SYSTEM SALES AND
SERVICE REVENUE
System sales $ 721,379 $1,337,303
Service revenue 565,679 502,262
1,287,058 1,839,565
COST OF PRODUCTS AND
SERVICES SOLD
System sales 681,689 630,674
Service revenue 333,451 335,036
1,015,140 965,710
Gross profit 271,918 873,855
OPERATING EXPENSES:
Selling, general
and administrative 652,009 600,117
Research and development 165,582 134,216
817,591 734,333
Operating income (Loss) (545,673) 139,522
INTEREST AND
OTHER INCOME 572 1,325
INTEREST EXPENSE (15,742) (10,690)
LOSS ON INVESTMENT (14,151) -
Income (Loss) before
taxes on income (574,994) 130,157
TAXES ON INCOME 0 (2,850)
NET INCOME (Loss) (574,994) $ 127,307
EARNINGS (LOSS) PER
COMMON SHARE (Note 2):
Basic ($ .20) $ .05
Diluted ($ .20) $ .04
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES AND COMMON STOCK
EQUIVALENTS OUTSTANDING
Basic 2,910,865 2,831,532
Diluted 2,910,865 2,995,355
</TABLE>
See Notes to Financial Statements.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended February 28
1998 1997
(unaudited)
NET SYSTEM SALES AND
SERVICE REVENUE
System sales $1,966,116 $2,503,456
Service revenue 1,128,383 1,070,680
3,094,499 3,574,136
COST OF PRODUCTS AND
SERVICES SOLD
System sales 1,306,550 1,230,305
Service revenue 726,857 650,693
2,033,407 1,880,998
Gross profit 1,061,092 1,693,138
OPERATING EXPENSES:
Selling, general and
administrative 1,241,380 1,174,300
Research and development 321,125 268,603
1,562,505 1,442,903
Operating income (Loss) (501,413) 250,235
INTEREST AND OTHER INCOME 1,146 2,544
INTEREST EXPENSE (19,740) (16,488)
LOSS ON INVESTMENT (14,151) -
Income (Loss) before
taxes on income (534,158) 236,291
TAXES ON INCOME 0 (9,200)
NET INCOME (LOSS) ($ 534,158) $ 227,091
EARNINGS (LOSS) PER
COMMON SHARE (Note 2):
Basic ($ .19) $ .08
Diluted ($ .19) $ .08
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND
COMMON STOCK EQUIVALENTS
OUTSTANDING
Basic 2,885,365 2,828,198
Diluted 2,885,365 3,008,355
</TABLE>
See Notes to Financial Statements.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended February 28
1998 1997
(unaudited)
OPERATING ACTIVITIES:
Net income (Loss) ($ 534,158) $ 227,091
Adjustments to reconcile
net income (Loss)
to net cash provided by
(used in) operating
activities:
Depreciation and amortization 230,919 222,189
Provision for possible losses 77,267 4,078
Changes in operating assets and
liabilities:
Receivables (42,507) (394,685)
Inventories (96,107) (31,258)
Prepaid expenses and
other assets (28,544) (33,058)
Accounts payable 52,375 165,729
Accrued liabilities (261) (10,428)
Net cash provided by (used in)
operating activities (341,016) 149,658
INVESTING ACTIVITIES
Additions to property
and equipment (176,200) (164,515)
Capitalized software costs (202,000) (192,000)
Net cash used in investing
activities (378,200) (356,515)
FINANCING ACTIVITIES:
Additions to notes
payable, net 384,313 155,421
Decrease in capital
lease obligations,
net of payments (10,453) (13,753)
Exercise of Stock Options 66,550 17,565
Net cash provided by
financing activities 440,410 159,233
NET DECREASE IN CASH (278,806) (47,624)
Cash, beginning of period 534,430 253,201
Cash, end of period $ 255,624 $ 205,577
</TABLE>
See notes to financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. In the opinion of management, the accompanying
unaudited condensed financial statements reflect
all adjustments (which include only normal
recurring accruals) necessary to present fairly the
Company's financial position as of February 28,
1998 and August 31, 1997, the results of its
operations for the three months and six months
ended February 28, 1998 & February 28, 1997, and
cash flows for the six months ended February 28,
1998 and February 28, 1997.
Note 2. The Company adopted SFAS No. 128, "Earnings Per
Share,". SFAS No. 128 requires presentation of
basic and diluted earnings per share. Basic
earnings per share is computed by dividing income
or loss available to common shareholders by the
weighted average number of common shares
outstanding for the reporting period. Diluted
earnings per share reflects the potential dilution
that could occur if securities or other contracts,
such as stock options, to issue common stock were
exercised or converted into common stock. All
prior period weighted average and per share
information has been restated in accordance with
SFAS No. 128.
Note 3. The Company elected early adoption of Statement of
Position 97-2, "Software Revenue Recognition",
("SOP 97-2"). SOP 97-2 supersedes SOP 91-1
regarding software revenue recognition. SOP 97-2
required the Company to change the method of
recognizing revenue on software sales and related
services, in accordance with SOP 97-2. The SOP
requires companies to recognize revenue when (i)
persuasive evidence of an arrangement exists, (ii)
delivery has occurred, (iii) the vendor's fee is
fixed and determinable, and (iv) collectability is
probable. The SOP also requires companies to
allocate the fee on a multiple element contract
between the various elements based on vendor-
specific objective evidence of fair value. The
impact of this adoption was recorded in the
Company's Statements of Operations for the three
months and six months ended February 28, 1998.
Item 2. 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
In October 1997 the American Institute of Certified
Public Accountants issued Statement of Position (SOP) 97-2, Software
Revenue Recognition, which became effective for fiscal years
beginning after December 15, 1997 although earlier adoption was
recommended. The new SOP affects all companies that sell software
and provide related services. Its provisions necessitate
significant modifications in the way the Company structures software
transactions and report revenues from those activities. Because SOP
97-2 significantly changes the way in which the Company accounts for
the sale of its Clinical Information Systems, management decided to
adopt the change in accounting method immediately on January 1,1998
instead of waiting until the beginning of its next fiscal year. The
Company expects that the change in accounting method will
significantly impact the recording of revenues and its results of
operations for the next one to two quarters beyond the second
quarter ended February 28, 1998.
SOP 97-2 requires that the Company modify its
revenue recognition policies on a going forward basis and no
restatement of prior periods is required. Accordingly the following
discussion takes into consideration the effect of SOP 97-2 for the
current periods only and therefore the comparisons are not fully
representative The change in accounting method brought about by SOP
97-2 primarily affects reporting of revenues from the sale of the
Company's CIS products and related data acquisition products bundled
into CIS transactions. All other components of the Company's
business from which it derives revenues were already compliant with
the provisions of SOP 97-2. Under the SOP 97-2 guidelines revenues
from the sale of the Company's CIS products will be recognized as
hardware and standard software is delivered to a customer, custom
software such as interfaces to other vendors systems will be
recognized when delivered and operational, and revenues associated
with the installation and implementation of systems will be
recognized as the services are performed. Other provisions of the
SOP that require, among other things, a defined contract and
definitive sales price have been met by the Company's internal
sales policies that were already in place for many years.
Sales for the second quarter of fiscal 1998 ended
February 28, 1998 decreased by $552,507 or 30% compared to the same
quarter of fiscal 1997. For the six-month period ended February 28,
1998 sales decreased $479,637 or 13% compared to the same period in
fiscal 1997. When analyzed by product category for the quarter and
six month periods, sales of Clinical Information Systems decreased
$431,731 or 42% and $325,125 or 17% respectively, sales of data
acquisition products decreased $178,563 or 64% and $207,726 or 39%
respectively, and service revenues increased by $63,417 or 13% and
$57,703 or 5% respectively. The decrease in revenues associated
with the Companies CIS products was primarily attributable to the
deferral of a portion of its revenues of approximately $500,000 to
subsequent periods in accordance with SOP 97-2. This will be
recognized as products are delivered and implementation services are
performed. The decrease in the sale of data acquisition products is
primarily attributable to a lower number of units shipped to OEM
customers, and the deferral of some shipments to subsequent periods
under the SOP guidelines. The increase in service revenues was
attributable to a greater number of customer sites on contract.
Cost of sales for the second quarter and six month
period ended February 28, 1998 increased by $49,430 or 5% and
$152,409 or 8% respectively as compared to the same quarter and six
month period of 1997. For the quarter and six month period the
increase in costs of sales was primarily attributable to an increase
in labor costs of $110,557 or 32% and $231,639 or 36% respectively,
and increases in other costs of $41,775 or 13% and $82,947 or 13%
respectively. The increases were partially offset by decreases in
material costs of $102,902 or 34% and $162,177 or 28% respectively.
The overall increases in labor costs were attributable to a
conversion of temporary personnel to full-time status and the hiring
of additional trainers and managers to handle an anticipated
increase in sales of Clinical Information Systems.
Selling and administration expenses increased
$51,892 or 9% and $67,080 or 6% in comparing the current quarter and
six months ending February 28, 1998 with the same periods of fiscal
1997. The increase was primarily attributable to planned
expenditures in sales and marketing associated with the Company's
CIS products. Management anticipates the increased level of sales
and marketing expenditures to continue in the second half of fiscal
1998 as the Company expands its sales and marketing activities
related to the sale of its CIS products across a broader market
spectrum.
Research and Development expense increased $31,366
or 23% and $52,522 or 20% for the current quarter and six months
ending February 28, 1998 compared to the same periods of fiscal
1997. The increases were primarily attributable to a greater amount
of labor costs incurred in the current periods due to a number of
new software products in development.
As a result of the aggregate factors discussed
above the Company incurred net losses of $574,994 or basic and
diluted loss per share of $.20 and $534,158 or basic and diluted
loss of $.19 per share for the current quarter and six month period
ending February 28, 1998 compared to net income of $127,307 or basic
and diluted earnings per share of $.05 and $.04 respectively, and a
net income of $227,091 or basic and diluted earnings per share of
$.08 in the comparable quarter and six month period one year ago.
Capital Resources and Liquidity
As of February 28, 1998, the Company's working
capital amounted to $1,145,827 compared to $1,703,057 at August 31,
1997. The ratio of the Company's current assets to current
liabilities was approximately 1.5 to 1 at February 28, 1998 compared
to 1.9 to 1 at August 31, 1997.
The Company's bank line of credit as of February
28, 1998 amounted to approximately $740,000, of that amount $672,000
was outstanding as of that date. The Company believes it was in
compliance with all covenants and financial ratios required by its
bank as of February 28, 1998.
The Company believes that its cash flows from
operations together with its bank credit facilities should be
sufficient to fund its working capital requirements for its 1998
fiscal year.
Seasonality, Inflation and Industry Trends
The Company sales are generally lower in the summer
and higher in the fall and winter. Inflation has had no material
effect on the Company business since the Company has been able to
adjust the prices of its products and services. Management
believes that most phases of the healthcare segment of the computer
systems industry will continue to be competitive and that the
changes making place in healthcare will have a long term positive
impact on its business. In addition, management believes that the
industry will experience 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.
PART II - OTHER INFORMATION
Items 1 through 3. NOT APPLICABLE.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held an Annual Meeting of Shareholders on
February 20, 1998.
(b) The following Directors, all of whom were incumbents, were
reelected to the five member Board at the February 20, 1998
meeting:
<TABLE>
<CAPTION>
<S> <C> <C>
FOR WITHHELD
Bruce M. Miller 2,436,988 25,410
Steven M. Besbeck 2,434,588 27,810
James R. Helms 2,436,788 25,610
Lawrence S. Schmid 2,436,988 25,410
Robert S. Fogerson, Jr. 2,436,988 25,410
</TABLE>
(c) 1. The only matter voted upon at the February 20, 1998
Annual Meeting was the ratification of BDO Seidman as
the Company's auditors by a vote of 2,439,498 for, 16,390
against, 6,510 abstaining, and 0 non-votes.
(d) Not applicable.
Item 5. NOT APPLICABLE.
Item 6. Exhibits and Reports on Forms 8-K
(a) Exhibit 11 - Statement re: computation of per share
earnings.
Exhibit 27 - Financial Data Schedule.
(b) There were no reports filed on Form 8-K during
the quarter ended February 28, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CREATIVE COMPUTER APPLICATIONS, INC.
(Company)
Date: April 16, 1998 /S/ STEVEN M. BESBECK
Steven. M. Besbeck, President
Chief Executive Officer, Chief
Financial Officer
Date: April 16, 1998 /S/ CAROL BESSEL
Carol Bessel
Controller and Chief Accounting
Officer
COMPUTATION OF EARNINGS PER COMMON SHARE
Exhibit 11
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Six Months Ended Three Months Ended
February 28, February 28,
1998 1997 1998 1997
AVERAGE MARKET PRICE
PER SHARE $ 1.66 $ 1.81 $ 1.58 $ 1.75
NET INCOME (LOSS) ($ 534,158) $ 227,091 ($ 574,994) $ 127,307
BASIC EARNINGS
PER SHARE:
Weighted average
number of common
shares outstanding 2,885,365 2,828,198 2,910,865 2,831,532
Basic earnings
per share: ($ .19) $ .08 ($ .20) $ .05
DILUTED EARNINGS
PER SHARE:
Shares:
Weighted average
number of common
shares outstanding 2,885,365 2,828,198 2,910,865 2,831,532
Shares issuable upon
exercise of options
and warrants 0 663,000 0 623,000
Shares assumed to be
repurchased under
the treasury stock
method (1) (2) 0 ( 482,843) 0 ( 459,177)
Adjusted weighted
average number of
common shares
outstanding 2,885,365 3,008,355 2,910,865 2,995,355
Diluted earnings
per share: ($ .19) $ .08 ($ .20) $ .04
</TABLE>
(1) Shares assumed to be repurchased under the treasury stock
method:
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) Options to purchase 851,755 shares were outstanding at
February 28, 1998, but were not included in the computation
Of diluted loss per common share because the effect
would be anti-dilutive.
CREATIVE COMPUTER APPLICATIONS, INC.
<TABLE>
<CAPTION>
<S> <C>
[ARTICLE] 5
[RESTATED]
</TABLE>
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] AUG-31-1997
[PERIOD-END] FEB-28-1997
[CASH] 205577
[SECURITIES] 0
[RECEIVABLES] 2069171
[ALLOWANCES] 0
[INVENTORY] 674045
[CURRENT-ASSETS] 3490631
[PP&E] 1610706
[DEPRECIATION] 1051432
[TOTAL-ASSETS] 5363748
[CURRENT-LIABILITIES] 1853334
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 5732135
[OTHER-SE] (2279948)
[TOTAL-LIABILITY-AND-EQUITY] 5363748
[SALES] 3574136
<TOTAL REVENUES> 3576680
[CGS] 1880998
[TOTAL-COSTS] 3323901
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 16488
[INCOME-PRETAX] 236291
[INCOME-TAX] 9200
[INCOME-CONTINUING] 227091
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 227091
[EPS-PRIMARY] .08
[EPS-DILUTED] .08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<CASH> 255624
<SECURITIES> 0
<RECEIVABLES> 1898925
<ALLOWANCES> 0
<INVENTORY> 771902
<CURRENT-ASSETS> 3470064
<PP&E> 1835608
<DEPRECIATION> 1186287
<TOTAL-ASSETS> 6046446
<CURRENT-LIABILITIES> 2324237
<BONDS> 0
0
0
<COMMON> 5819185
<OTHER-SE> (2150196)
<TOTAL-LIABILITY-AND-EQUITY> 6046446
<SALES> 3094499
<TOTAL-REVENUES> 3095645
<CGS> 2033407
<TOTAL-COSTS> 3595912
<OTHER-EXPENSES> 14151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19740
<INCOME-PRETAX> (534158)
<INCOME-TAX> 0
<INCOME-CONTINUING> (534158)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (534158)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
