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 May 31, 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 July 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 May 31, 1998
and August 31, 1997 3
Condensed Statements of Operation for the
three months ended May 31, 1998 and May 31, 1997 4
Condensed Statements of Operation for the
nine months ended May 31, 1998 and May 31, 1997 5
Condensed Statements of Cash Flows for the
nine months ended May 31, 1998 and May 31, 1997 6
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis 7
PART II - Other Information:
Items 1 through 6 9
Signatures 10
CREATIVE COMPUTER APPLICATIONS, INC.
PART 1 - FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
____________________________________
<TABLE>
<CAPTION>
<S> <C> <C>
May 31, August 31,
1998 1997 *
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 368,149 $ 534,430
Receivables 1,777,761 1,933,685
Inventories 731,272 675,795
Prepaid expenses and other assets 102,927 78,951
Deferred tax asset 427,000 427,000
TOTAL CURRENT ASSETS 3,407,109 3,649,861
PROPERTY AND EQUIPMENT, net 662,648 551,413
INVENTORY OF COMPONENT PARTS 104,857 136,357
CAPITALIZED SOFTWARE COSTS, net of
accumulated
amortization of $450,902
and $286,907 1,051,941 917,937
INTANGIBLES, net 271,068 264,381
OTHER ASSETS 9,727 21,965
DEFERRED TAX ASSET 551,200 551,200
TOTAL ASSETS $ 6,058,550 $ 6,093,114
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank (Note 4) $ 620,000 $ 287,296
Accounts payable 451,011 522,808
Royalty obligation 66,220 -
Accrued liabilities:
Vacation Pay 196,677 187,367
Other 320,007 363,027
Deferred service contract income 709,667 569,734
Deferred revenue 470,681 -
Capital lease obligations,
current portion 6,129 16,572
TOTAL CURRENT LIABILITIES 2,840,392 1,946,804
NOTES PAYABLE TO BANK, NET
OF CURRENT PORTION 21,609 0
CAPITAL LEASE OBLIGATIONS,
net of current portion 0 4,679
DEFERRED RENT 0 5,034
TOTAL LIABILITIES 2,862,001 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;
2,912,540 and 2,849,865 shares
outstanding 5,821,802 5,752,635
Accumulated deficit (2,625,253) (1,616,038)
TOTAL SHAREHOLDERS' EQUITY 3,196,549 4,136,597
$ 6,058,550 $ 6,093,114
</TABLE>
See Notes to Financial Statements.
* As presented in the audited financial statements
CREATIVE COMPUTER APPLICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended May 31,
1998 1997
(unaudited)
NET SYSTEM SALES AND SERVICE REVENUE
System sales $ 827,561 $ 1,223,380
Service revenue 591,175 512,291
1,418,736 1,735,671
COST OF SALES AND SERVICES
Systems 700,662 556,206
Services 399,242 362,154
1,099,904 918,360
Gross profit 318,832 817,311
OPERATING EXPENSES:
Selling, general and administrative 612,504 572,291
Research and development 165,666 146,115
778,170 718,406
Operating income (Loss) (459,338) 98,905
INTEREST AND OTHER INCOME 1,858 39,956
INTEREST EXPENSE (17,577) (9,341)
Income (Loss) before taxes on income (475,057) 129,520
TAXES ON INCOME 0 (2,000)
NET INCOME (LOSS) $ (475,057) $ 127,520
EARNINGS (LOSS) PER COMMON SHARE (Note 2):
Basic ($ .16) $ .04
Diluted ($ .16) $ .04
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON STOCK
EQUIVALENTS OUTSTANDING
Basic 2,912,540 2,835,698
Diluted 2,912,540 3,038,984
</TABLE>
See Notes to Financial Statements.
CREATIVE COMPUTER APPLICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended May 31,
1998 1997
(unaudited)
NET SYSTEM SALES AND SERVICE REVENUE
System sales $ 2,793,677 $ 3,726,836
Service revenue 1,719,558 1,582,971
4,513,235 5,309,807
COST OF SALES AND SERVICES
Systems 2,007,212 1,786,511
Services 1,126,099 1,012,847
3,133,311 2,799,358
Gross profit 1,379,924 2,510,449
OPERATING EXPENSES:
Selling, general and administrative 1,853,884 1,746,591
Research and development 486,791 414,718
2,340,675 2,161,309
Operating income (Loss) (960,751) 349,140
INTEREST AND OTHER INCOME 3,004 42,500
INTEREST EXPENSE (37,317) (25,829)
LOSS ON INVESTMENT (14,151) -
Income (Loss) before taxes on income (1,009,215) 365,811
TAXES ON INCOME 0 (11,200)
NET INCOME (LOSS) $(1,009,215) $ 354,611
EARNINGS (LOSS) PER COMMON SHARE (Note 2):
Basic ($ .35) $ .13
Diluted ($ .35) $ .12
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON STOCK
EQUIVALENTS OUTSTANDING
Basic 2,894,423 2,830,698
Diluted 2,894,423 3,012,782
</TABLE>
See Notes to Financial Statements.
CREATIVE COMPUTER APPLICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months Ended May 31,
1998 1997
(unaudited)
OPERATING ACTIVITIES:
Net income (loss) $ (1,009,215) $ 354,611
Adjustments to reconcile
net income (loss)
to net cash provided by
(used in) operating activities:
Depreciation and amortization 369,070 340,133
Provision for possible losses 22,809 2,777
Changes in operating assets and
liabilities:
Receivables 133,115 (484,713)
Inventories (55,477) 14,861
Prepaid expenses and other assets (14,858) (59,682)
Accounts payable (71,797) 96,525
Other liabilities 576,904 177,342
Net cash provided by (used in)
operating activities (49,449) 441,854
INVESTING ACTIVITIES
Additions to property and equipment (244,064) (190,193)
Additions to intangibles (49,346) -
Capitalized software costs (298,000) (288,000)
Net cash used in investing
activities (591,410) (478,193)
FINANCING ACTIVITIES:
Additions to notes payable, net 420,533 125,421
Decrease in capital lease obligations,
net of payments (15,122) (22,161)
Proceeds from exercise of stock options 69,167 38,065
Net cash provided by financing
activities 474,578 141,325
NET INCREASE (DECREASE) IN CASH (166,281) 104,986
Cash, beginning of period 534,430 253,201
Cash, end of period $ 368,149 $ 358,187
</TABLE>
See notes to financial statements.
CREATIVE COMPUTER APPLICATIONS, INC.
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 May 31, 1998 and
August 31, 1997, the results of its operations for
the three months and nine months ended May 31, 1998
and May 31, 1997, and cash flows for the nine months
ended May 31, 1998 and May 31, 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 revenues 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 during the three
months ended February 28, 1998 and the nine months ended
May 31, 1998.
Note 4. Subsequent to August 31, 1997, the Company borrowed
on its line of credit with its bank. The funds
were used for working capital and capital
expenditures. The outstanding balance is
approximately $640,000. The Company was not in
compliance with all covenants and financial ratios
required by its bank as of May 31, 1998, but it
believes it can cure such deficiencies or obtain a
waiver from its bank.
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 reports 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
CREATIVE COMPUTER APPLICATIONS, INC.
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 third quarter of fiscal 1998 ended
May 31, 1998 decreased by $316,935 or 18% compared to the same
quarter of fiscal 1997. For the nine-month period ended May 31,
1998 sales decreased $796,572 or 15% compared to the same period in
fiscal 1997. When analyzed by product category for the quarter and
nine month periods, sales of Clinical Information Systems (CIS)decreased
$261,310 or 27% and $586,435 or 20% respectively, sales of data
acquisition products decreased $127,081 or 57% and $334,807 or 44%
respectively, and service revenues increased by $78,884 or 15% and
$136,587 or 9% 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 $470,000 to subsequent
periods in accordance with SOP 97-2. These revenues 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 third quarter and nine month
period ended May 31, 1998 increased by $181,544 or 20% and $333,953
or 12% respectively as compared to the same quarter and nine month
period of 1997. For the quarter and nine month period the increase
in costs of sales was primarily attributable to an increase in labor
costs of $108,928 or 31% and $340,567 or 34% respectively, and
increases in other costs of $37,380 or 11% and $120,327 or 12%
respectively. Material costs increased $35,236 or 15% for the
quarter compared to the same quarter of 1997, and material costs
decreased $126,941 or 16% compared to the same nine month period in
1997. The increase in material costs in the three months ending May
31, 1998, is attributable to a lesser volume of software revenues in
the quarter, in part due to the deferral of a portion of such
revenues to subsequent periods. The decrease in material costs for
the nine months ending May 31, 1998, compared to the same period of
fiscal 1997, is attributable to a greater volume of software only
revenues that improve gross margins and a lower volume of sales of
Clinical Information Systems.
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
$40,213 or 7% and $107,293 or 6% in comparing the current quarter
and nine months ending May 31, 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 through the remaining of the
fiscal year 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 $19,551
or 13% and $72,073 or 17% for the current quarter and nine months
ending May 31, 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 $475,057 or basic and
diluted loss per share of $.16 and $1,009,215 or basic and diluted
loss of $.35 per share for the current quarter and nine month period
ending May 31, 1998 compared to net income of $127,520 or basic and
diluted earnings per share of $.04, and a net income of $354,611 or
basic and diluted earnings per share of $.13 and $.12 respectively
in the comparable quarter and nine month period one year ago.
Capital Resources and Liquidity
As of May 31, 1998, the Company's working capital
amounted to $556,717 compared to $1,703,057 at August 31, 1997. The
ratio of the Company's current assets to current liabilities was
approximately 1.2 to 1 at May 31, 1998 compared to 1.9 to 1 at
August 31, 1997.
The Company's bank line of credit as of May 31,
1998 amounted to approximately $740,000, of that amount $642,000 was
outstanding as of that date. The Company was not in compliance with
all covenants and financial ratios required by its bank as of May 31,
1998 but it believes it can cure such deficiencies or obtain a waiver
from its bank.
CREATIVE COMPUTER APPLICATIONS, INC.
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 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 May 31, 1998.
CREATIVE COMPUTER APPLICATIONS, INC.
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: July 10, 1998 /S/ Steven M. Besbeck
Steven. M. Besbeck, President
Chief Executive Officer, Chief
Financial Officer
Date: July 10, 1998 /S/ Carol Bessel
Carol Bessel
Controller and Chief
Accounting Officer
CREATIVE COMPUTER APPLICATIONS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
Exhibit 11
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nine Months Ended Three Months Ended
May 31, May 31,
1998 1997 1998 1997
AVERAGE MARKET PRICE
PER SHARE $ 1.57 $ 1.85 $ 1.39 $ 1.94
NET INCOME (LOSS) ($1,009,215) $ 354,611 ($ 475,057) $ 127,520
BASIC EARNINGS
PER SHARE:
Weighted average
number of common
shares outstanding 2,894,423 2,830,698 2,912,540 2,835,698
Basic earnings
per share: ($ .35) $ .13 ($ .16) $ .04
DILUTED EARNINGS
PER SHARE:
Shares:
Weighted average
number of common
shares outstanding 2,894,423 2,830,698 2,912,540 2,835,698
Shares issuable upon
exercise of options
and warrants 0 638,000 0 648,000
Shares assumed to be
repurchased under the
treasury stock
method (1) (2) 0 ( 455,916) 0 ( 444,714)
Adjusted weighted
average number of
common shares
outstanding 2,894,423 3,012,782 2,912,540 3,038,984
Diluted earnings
per share: ($ .35) $ .12 ($ .16) $ .04
</TABLE>
(1) Shares assumed to be repurchased under the treasury stock
method using the average market price.
(2) Options to purchase 851,755 shares were outstanding at May
31, 1998, but were not included in the computation
Of diluted loss per common share because the effect
would be anti-dilutive.
<TABLE>
<CAPTION>
<S> <C>
[ARTICLE] 5
[RESTATED]
</TABLE>
<TABLE>
<S> <C>
[PERIOD-TYPE] 9-MOS
[FISCAL-YEAR-END] AUG-31-1997
[PERIOD-END] MAY-31-1997
[CASH] 358187
[SECURITIES] 0
[RECEIVABLES] 2160500
[ALLOWANCES] 0
[INVENTORY] 627926
[CURRENT-ASSETS] 3707525
[PP&E] 1636385
[DEPRECIATION] 1098019
[TOTAL-ASSETS] 5584377
[CURRENT-LIABILITIES] 1965456
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 5752635
[OTHER-SE] (2152427)
[TOTAL-LIABILITY-AND-EQUITY] 5584377
[SALES] 5309807
<TOTAL REVENUES> 5352307
[CGS] 2799358
[TOTAL-COSTS] 4960667
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 25829
[INCOME-PRETAX] 365811
[INCOME-TAX] 11200
[INCOME-CONTINUING] 354611
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 354611
[EPS-PRIMARY] .13
[EPS-DILUTED] .12
</TABLE>
CREATIVE COMPUTER APPLICATIONS, INC.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> MAY-31-1998
<CASH> 368149
<SECURITIES> 0
<RECEIVABLES> 1777761
<ALLOWANCES> 0
<INVENTORY> 731272
<CURRENT-ASSETS> 3407109
<PP&E> 1903483
<DEPRECIATION> 1240835
<TOTAL-ASSETS> 6058550
<CURRENT-LIABILITIES> 2840392
<BONDS> 0
0
0
<COMMON> 5821802
<OTHER-SE> (2625253)
<TOTAL-LIABILITY-AND-EQUITY> 6058550
<SALES> 4513235
<TOTAL-REVENUES> 4516239
<CGS> 3133311
<TOTAL-COSTS> 5473986
<OTHER-EXPENSES> 14151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37317
<INCOME-PRETAX> (1009215)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1009215)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1009215)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
