<PAGE>
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 NOVEMBER 30, 1999.
[ ] 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: 3,130,925 COMMON SHARES AS
OF DECEMBER 31, 1999.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
----- -----
<PAGE>
CREATIVE COMPUTER APPLICATIONS, INC.
FORM 10-QSB
I N D E X
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION: PAGE
----
<S> <C>
Condensed Balance Sheets, as at November 30, 1999 and August 31, 1999 3
Condensed Statements of Income for the three months ended November 30, 1999 and
November 30, 1998 4
Condensed Statements of Cash Flows for the three months ended November 30, 1999 and
November 30, 1998 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis or Plan of Operation 6
PART II - OTHER INFORMATION:
Items 1 through 6 9
Signatures 9
</TABLE>
2
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CREATIVE COMPUTER APPLICATIONS, INC.
PART 1 - FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1999 1999 *
------------------ -----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 606,801 $ 650,271
Receivables 3,063,091 2,895,947
Inventories 438,913 419,557
Prepaid expenses and other assets 169,200 152,676
Deferred tax asset 639,500 639,500
------------------ ----------------
TOTAL CURRENT ASSETS 4,917,505 4,757,951
PROPERTY AND EQUIPMENT, net 595,100 579,949
INVENTORY OF COMPONENT PARTS 239,515 254,515
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $601,724 and $526,074 1,328,361 1,272,690
INTANGIBLES, net 187,380 236,328
OTHER ASSETS 43,656 22,236
DEFERRED TAX ASSET 457,000 591,000
------------------ ----------------
TOTAL ASSETS $ 7,768,517 $ 7,714,669
------------------ ----------------
------------------ ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 120,000 $ 187,488
Accounts payable 473,100 497,768
Accrued liabilities:
Vacation Pay 196,005 170,296
Other 453,886 435,803
Deferred service contract income 695,739 672,398
Deferred revenue 1,192,216 1,303,177
------------------ ----------------
TOTAL CURRENT LIABILITIES 3,130,946 3,266,930
LONG TERM LIABILITIES:
Notes payable to bank 10,000 0
------------------ ----------------
TOTAL LONG TERM LIABILITIES 10,000 0
TOTAL LIABILITIES 3,140,946 3,266,930
------------------ ----------------
SHAREHOLDERS' EQUITY:
Preferred shares, no par value; 500,000 shares
authorized; no shares outstanding - -
Common shares, no par value; 20,000,000 shares
authorized; 3,130,925 and 3,106,925 shares
outstanding 6,051,094 6,028,594
Accumulated deficit (1,423,523) (1,580,855)
------------------ ----------------
TOTAL SHAREHOLDERS' EQUITY 4,627,571 4,447,739
------------------ ----------------
$ 7,768,517 $ 7,714,669
------------------ ----------------
------------------ ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
* AS PRESENTED IN THE AUDITED FINANCIAL STATEMENTS
3
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CREATIVE COMPUTER APPLICATIONS, INC.
CONDENSED STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
--------------------------------------------
1999 1998
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
NET SYSTEM SALES AND SERVICE REVENUE
System sales $ 1,796,340 $ 1,207,606
Service revenue 709,847 670,683
------------------ ----------------
2,506,187 1,878,289
COST OF PRODUCTS AND SERVICES SOLD
System sales 921,039 746,204
Service revenue 421,171 357,444
------------------ ----------------
1,342,210 1,103,648
Gross profit 1,163,977 774,641
OPERATING EXPENSES:
Selling, general and administrative 678,426 570,936
Research and development 191,997 145,753
------------------ ----------------
870,423 716,689
------------------ ----------------
Operating income 293,554 57,952
INTEREST AND OTHER INCOME 2,898 578
INTEREST EXPENSE (5,120) (15,188)
------------------ ----------------
Income before taxes on income 291,332 43,342
INCOME TAX PROVISION 134,000 (200)
------------------ ----------------
NET INCOME $ 157,332 $ 43,142
------------------ ----------------
------------------ ----------------
EARNINGS PER COMMON SHARE (Note 2):
Basic $ .05 $ .01
Diluted $ .04 $ .01
------------------ ----------------
------------------ ----------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON STOCK
EQUIVALENTS OUTSTANDING
Basic 3,122,925 2,920,740
Diluted 3,559,224 2,920,740
------------------ ----------------
------------------ ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
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CREATIVE COMPUTER APPLICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
THREE MONTHS ENDED NOVEMBER 30,
-------------------------------------------
1999 1998
------------------ ----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 157,332 $ 43,142
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 162,745 139,264
Provision for possible losses 4,302 (881)
Deferred taxes 134,000 -
Changes in operating assets and liabilities:
Receivables (171,447) (36,232)
Inventories (19,356) 62,318
Prepaid expenses and other assets (38,400) (48,755)
Accounts payable (24,668) (44,219)
Accrued liabilities (43,828) 84,847
------------------- ----------------
Net cash provided by
operating activities 160,680 199,484
------------------ -----------------
INVESTING ACTIVITIES
Additions to property and equipment (70,342) (13,885)
Capitalized software costs (98,820) (96,000)
------------------- -----------------
Net cash used in investing
activities (169,162) (109,885)
------------------ ----------------
FINANCING ACTIVITIES:
Additions to (payments on) notes payable, net (57,488) (30,000)
Decrease in capital lease obligations,
net of payments 0 (1,506)
Exercise of Stock Option 22,500 0
------------------ ----------------
Net cash used in financing activities (34,988) (31,506)
------------------- -----------------
NET INCREASE (DECREASE) IN CASH (43,470) 58,093
Cash, beginning of period 650,271 375,876
------------------ ----------------
Cash, end of period $ 606,801 $ 433,969
------------------- ----------------
------------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
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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 November 30,
1999 and August 31, 1999, the results of its operations for
the three months ended November 30, 1999 and 1998, and cash
flows for the three months ended November 30, 1999 and
November 30, 1998.
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 have 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.
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
Sales for the first quarter of fiscal 2000 ended November 30, 1999
increased by $627,898 or 33% compared to the same quarter of fiscal 1999. When
analyzed by product category, sales of Clinical Information Systems (CIS)
increased $708,568 or 76%, and service revenues increased $39,164 or 6%. These
increases were partially offset by a decrease in sales of data acquisition
products of $119,834 or 43%. The overall increase in sales is primarily
attributable to an increase in sales of Clinical Information Systems and sales
of upgrades to clients to insure compliance with Y2K. The increase in service
revenues was due to a greater number of client sites on contract. The decrease
in sales of data acquisition products was primarily attributable to a decrease
in the sale of such products to OEM customers.
Cost of sales for the first quarter of 2000 increased by $238,562 or
22% as compared to the same quarter of 1999. The increase in cost of sales was
primarily attributable to an increase in material costs of $50,660 or 16% which
was attributable to a greater volume of hardware components sold during the
quarter and to a lesser amount of software revenues that were recognized in the
quarter. There was an increase in other costs of $72,883 or 19%. There also was
an increase in labor costs of $115,019 or 29%. Cost of sales as a percentage of
sales was 54% for the current quarter as compared to 59% for the comparable
fiscal 1999 quarter. During the later part of fiscal 1999 and in the first
quarter of fiscal 2000 the Company undertook many upgrades and other remediation
activities to insure its clients would be Y2K compliant. Such activities were
lower margin sales and impacted the overall margins during the current quarter.
Selling and administration expenses increased $107,490 or about 19% for
the current quarter compared to the same quarter of 1999. The increase was
primarily attributable to additional sales and marketing expenses including
recruitment of new sales people and attendance at tradeshows. Management
anticipates increasing the level of sales and marketing expenditures in future
quarters as the Company expands its sales and marketing activities related to
the
6
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CREATIVE COMPUTER APPLICATIONS, INC.
sale of its CIS products across a broader market. The Company has been
engaged in strategic joint marketing alliances with other companies which has
improved the Company's market penetration. Management views the near term
outlook for the continued sale of CIS products cautiously during the first half
of the 2000 fiscal year due to a general slowdown in the healthcare information
systems industry associated with Y2K. The Company's future operating results
could 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.
Research and Development expense increased $46,244 or about 32% for the
current quarter as compared to the same quarter of 1999. The increase is
attributable to additional personnel hired for the Company's product development
activities. The Company continues to expend considerable resources on new
product development and product enhancements which should continue for the
foreseeable future. In addition, the Company has also initiated the design phase
of new CIS products that will require increased development expenditures in
future periods.
As a result of the aggregate factors discussed above the Company earned
net income of $157,332 or basic and diluted net income per share of $.05 and
$.04 for the first fiscal quarter ended November 30, 1999 compared to $43,142 or
basic and diluted net income per share of $.01 per share for the same quarter a
year ago.
CAPITAL RESOURCES AND LIQUIDITY
As of November 30, 1999, the Company's working capital amounted to
$1,786,559 compared to $1,491,021 at August 31, 1999. The ratio of the Company's
current assets to current liabilities was approximately 1.6 to 1 at November 30,
1999 compared to 1.5 to 1 at August 31, 1999.
The Company's Balance Sheet has been affected by the inclusion of
deferred revenues as a current liability which affects working capital ratios.
The Company's bank line of credit as of November 30, 1999 amounted to
approximately $800,000, of that amount $130,000 was outstanding as of that date.
The Company's bank line contains certain financial ratio requirements. The
Company was in compliance with the covenants and financial ratios required by
its bank as of November 30, 1999.
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 2000 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
taking 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.
YEAR 2000 COMPLIANCE
Many computer systems and software products were coded to accept only
two digit entries in the date code field. These code fields needed to accept
four digit entries to distinguish years beginning with "19" from those beginning
with "20". As a result some computer systems and software used by the Company
and its clients needed to be upgraded to comply with such Year 2000
requirements. The Company expended considerable resources to review its
products, systems and services and the computer systems and software products it
sells in order to identify and modify those products, systems and services. The
modifications associated with this effort did not have a material adverse effect
on the Company's operating results.
7
<PAGE>
CREATIVE COMPUTER APPLICATIONS, INC.
CLINICAL INFORMATION SYSTEMS
The Company has been engaged in evaluating and modifying its CIS
products for sometime and completed core modifications and testing for Year
2000 changes to CyberLAB II-Registered Trademark- and all software
modifications were distributed to its clients beginning November 1998.
CyberRAD-Registered Trademark- and MQA were designed to be Year 2000
compliant. CyberMED-TM- modifications and testing were completed in October
1999 and the modified Y2K compliant software was distributed to clients.
Modifications were also made to the financial management system that were
completed in March 1999 and released thereafter. The Company also evaluated
communication interfaces it installed in order to determine in each
individual case, whether the software was Year 2000 compliant, and undertook
such modifications that were deemed to be necessary to be compliant. The
Company was timely and on schedule in its efforts to effectuate the remaining
modifications, testing and upgrade of its developed software applications to
its clients.
Some of the Company's clients required upgrades to their computers
and/or operating systems, in order to operate the upgraded application software
and otherwise be Year 2000 compliant. The Company had conducted a review of its
client installations in order to determine their status and to advise clients as
to what modifications should be undertaken. The Company's extended service
agreements require that the client be responsible for the cost of any upgrades
to their computers that may be required to operate upgraded or modified
application software. Therefore, the Company was not required to bear the costs
associated with this effort and instead derived revenues from the upgrades. The
Company had identified the modifications and/or upgrades required by the vendors
and assisted its clients in securing the necessary modifications and/or
upgrades. The Company completed all necessary modifications in time for Y2K. As
of this date no significant Y2K problems have been encountered.
IN HOUSE SYSTEMS AND COMPUTERS
The Company conducted a review of the computers, systems and software
that it utilizes internally to operate its business. It determined that some
systems such as its accounting and voice mail systems required replacement since
they are not modifiable. However, such systems were already due to be replaced
because they were no longer adequate and were not being supported by their
manufacturers. Prior to the end of the Company's 1999 fiscal year end the new
accounting and voice mail systems were fully implemented and online. Other
systems supported by their manufacturers were upgraded with Year 2000
modifications on a timely basis. Although the Company had to bear the cost of
replacing non-compliant systems as anticipated, the aggregate expenditures were
not material. The total cost of such replacements was approximately $70,000.
8
<PAGE>
CREATIVE COMPUTER APPLICATIONS, INC.
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
November 30, 1999.
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 January 07, 2000 /s/ Steven M. Besbeck
---------------- -----------------------------------
Steven. M. Besbeck, President
Chief Executive Officer, Chief
Financial Officer
Date January 07, 2000 /s/ Carol Bessel
---------------- -----------------------------------
Carol Bessel,
Controller and Chief Accounting
Officer
9
<PAGE>
EXHIBIT 11
CREATIVE COMPUTER APPLICATIONS, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended November 30,
1999 1998
------------------ ----------------
<S> <C> <C>
AVERAGE MARKET PRICE PER SHARE $ 2.34 $ .82
------------------ ----------------
------------------ ----------------
NET INCOME $ 157,332 $ 43,142
------------------ ----------------
------------------ ----------------
Basic weighted average number of common
shares outstanding 3,122,925 2,920,740
Diluted effect of stock options 436,299 -
------------------ ----------------
Diluted weighted average number of common
shares outstanding 3,559,224 2,920,740
------------------ ----------------
------------------ ----------------
Basic earnings per share $ .05 $ .01
------------------ ----------------
------------------ ----------------
Diluted earnings per share $ .04 $ .01
------------------ ----------------
------------------ ----------------
</TABLE>
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-END> NOV-30-1999
<CASH> 606,801
<SECURITIES> 0
<RECEIVABLES> 3,063,091
<ALLOWANCES> 0
<INVENTORY> 438,913
<CURRENT-ASSETS> 4,917,505
<PP&E> 1,930,675
<DEPRECIATION> 1,335,575
<TOTAL-ASSETS> 7,768,517
<CURRENT-LIABILITIES> 3,130,946
<BONDS> 0
0
0
<COMMON> 6,051,094
<OTHER-SE> (1,423,523)
<TOTAL-LIABILITY-AND-EQUITY> 7,768,517
<SALES> 2,506,187
<TOTAL-REVENUES> 2,509,085
<CGS> 1,342,210
<TOTAL-COSTS> 2,212,633
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,120
<INCOME-PRETAX> 291,332
<INCOME-TAX> 134,000
<INCOME-CONTINUING> 157,332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,332
<EPS-BASIC> .05
<EPS-DILUTED> .04
</TABLE>
