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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, 2000
[ ] 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.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-3353465
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
26115-A MUREAU ROAD, CALABASAS, CALIFORNIA 91302
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(818) 880-6700
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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
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State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,177,325 common shares as
of June 28, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
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CREATIVE COMPUTER APPLICATIONS, INC.
FORM 10-QSB
I N D E X
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PART I - FINANCIAL INFORMATION: PAGE
Condensed Balance Sheets at May 31, 2000 and August 31, 1999 3
Condensed Statements of Operations for the three months ended
May 31, 2000 and May 31, 1999 4
Condensed Statements of Operations for the nine months ended
May 31, 2000 and May 31, 1999 5
Condensed Statements of Cash Flows for the nine months ended
May 31, 2000 and May 31, 1999 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 10
Signatures 10
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CREATIVE COMPUTER APPLICATIONS, INC.
PART 1 - FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
2000 1999*
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 493,676 $ 650,271
Receivables 1,679,179 2,895,947
Inventories 357,622 419,557
Prepaid expenses and other assets 167,657 152,676
Deferred tax asset 639,500 639,500
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TOTAL CURRENT ASSETS 3,337,634 4,757,951
PROPERTY AND EQUIPMENT, net 552,910 579,949
INVENTORY OF COMPONENT PARTS 250,850 254,515
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $808,496 and $526,074 1,281,348 1,272,690
INTANGIBLES, net 186,984 236,328
OTHER ASSETS 15,626 22,236
DEFERRED TAX ASSET 591,000 591,000
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TOTAL ASSETS $ 6,216,352 $ 7,714,669
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 70,000 $ 187,488
Accounts payable 212,102 497,768
Accrued liabilities:
Vacation Pay 197,999 170,296
Other 131,479 435,803
Deferred service contract income 805,580 672,398
Deferred revenue 584,384 1,303,177
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TOTAL CURRENT LIABILITIES 2,001,544 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; 3,177,325 and 3,106,925 shares
outstanding 6,092,144 6,028,594
Accumulated deficit (1,877,336) (1,580,855)
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TOTAL SHAREHOLDERS' EQUITY 4,214,808 4,447,739
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TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 6,216,352 $ 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 OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31
2000 1999
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(UNAUDITED)
<S> <C> <C>
NET SYSTEM SALES AND SERVICE REVENUE (Note 3)
System sales $ 495,655 $ 1,641,849
Service revenues 813,713 710,774
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1,309,368 2,352,623
COST OF PRODUCTS AND SERVICES SOLD
System sales 526,074 757,257
Service revenue 418,886 392,736
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944,960 1,149,993
Gross profit 364,408 1,202,630
OPERATING EXPENSES:
Selling, general and administrative 760,138 729,070
Research and development 212,886 191,964
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973,024 921,034
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Operating income (Loss) (608,616) 281,596
INTEREST AND OTHER INCOME 5,390 4,694
INTEREST EXPENSE (2,365) (7,268)
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Income (Loss) before income tax benefit (expense) (605,591) 279,022
INCOME TAX BENEFIT (EXPENSE) 142,000 (1,200)
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NET INCOME (LOSS) ($ 463,591) $ 277,822
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EARNINGS (LOSS) PER COMMON SHARE (Note 2):
Basic ($ .15) $ .09
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Diluted ($ .15) $ .08
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON STOCK
EQUIVALENTS OUTSTANDING
Basic 3,166,425 2,978,448
Diluted 3,166,425 3,410,965
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
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CREATIVE COMPUTER APPLICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31
2000 1999
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(UNAUDITED)
NET SYSTEM SALES AND SERVICE REVENUE (Note 3)
<S> <C> <C>
System sales $ 3,610,247 $ 4,369,735
Service revenues 2,266,343 2,090,732
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5,876,590 6,460,467
COST OF PRODUCTS AND SERVICES SOLD
System sales 2,132,928 2,149,173
Service revenue 1,285,039 1,112,804
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3,417,967 3,261,977
Gross profit 2,458,623 3,198,490
OPERATING EXPENSES:
Selling, general and administrative 2,161,293 2,026,691
Research and development 599,035 530,912
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2,760,328 2,557,603
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Operating income (Loss) (301,705) 640,887
INTEREST AND OTHER INCOME 15,759 7,300
INTEREST EXPENSE (10,536) (34,435)
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Income (Loss) before income tax benefit (expense) (296,482) 613,752
INCOME TAX BENEFIT (EXPENSE) 0 (2,400)
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NET INCOME (LOSS) ($ 296,482) $ 611,352
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EARNINGS (LOSS) PER COMMON SHARE (Note 2):
Basic ($ .09) $ .21
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Diluted ($ .09) $ .19
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON STOCK
EQUIVALENTS OUTSTANDING
Basic 3,141,703 2,939,976
Diluted 3,141,703 3,152,824
=========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
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CREATIVE COMPUTER APPLICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31
2000 1999
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(UNAUDITED)
OPERATING ACTIVITIES:
<S> <C> <C>
Net income (Loss) ($296,482) $ 611,352
Adjustments to reconcile net income (Loss)
to net cash provided by operating activities:
Depreciation and amortization 480,693 445,543
Provision for possible losses 39,583 63,408
Changes in operating assets and liabilities:
Receivables 177,185 (874,572)
Inventories 65,600 83,376
Prepaid expenses and other assets (8,371) (97,669)
Accounts payable (285,666) 12,521
Accrued liabilities (862,232) 743,962
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Net cash provided by
operating activities 310,310 987,921
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INVESTING ACTIVITIES
Additions to property and equipment (121,887) (179,689)
Capitalized software costs (291,080) (315,318)
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Net cash used in investing
activities (412,967) (495,007)
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FINANCING ACTIVITIES:
Additions to (payments on) notes payable, net (117,488) (252,511)
Exercise of Stock Options & Stock Issuances 63,550 150,040
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Net cash used in financing activities (53,938) (102,471)
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NET INCREASE (DECREASE) IN CASH (156,595) 390,443
Cash, beginning of period 650,271 375,876
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Cash, end of period $ 493,676 $ 766,319
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
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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 May 31, 2000, the results of its operations for the
three months and nine months ended May 31, 2000 and 1999, and cash
flows for the nine months ended May 31, 2000 and May 31, 1999. These
results have been determined on the basis of generally accepted
accounting principals and practices applied consistently with those
used in the preparation of the Company's Annual Report on Form 10-KSB
for the fiscal year end August 31, 1999.
The results of operations for the three months and nine months ended
May 31, 2000 are not necessarily indicative of the results to be
expected for any other period or for the entire year.
NOTE 2. The Company accounts for its Earnings Per Share in accordance with SFAS
No. 128 which 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 and warrants; to
issue common stock were exercised or converted into common stock. For
the nine months ended May 31, 2000, the Company did not include any
potential diluted shares as inclusion would be anti-dilutive.
NOTE 3. The Company accounts for its software revenue recognition in accordance
with Statement of Position 97-2, "Software Revenue Recognition", ("SOP
97-2"). 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.
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.
During fiscal 1999 and into it's first fiscal quarter of 2000 the
Company experienced a strong period of sales growth partially fueled by Y2K
compliance issues and several large CIS transactions. As a result a large
backlog of installations was built up that carried forward into the Company's
second fiscal quarter of 2000. However, the Company began to experience a
decrease in orders of CIS products in the fourth calendar quarter of 1999 (the
Company's second fiscal quarter). Management believes that the general decrease
is attributable to post Y2K capital spending suspensions whereby most healthcare
facilities focused on addressing critical Y2K compliance issues and suspended
the acquisition of new systems and technology. This has affected the healthcare
information systems industry in general and much has been published on point
regarding the slowdown. However management has noted that as of the end of March
2000 the Company had experienced a marked increase in new sales activities and
believes that the industry is starting to recover from its slowdown.
Additionally the Company's pipeline of new CIS transactions has begun to build
back to historical levels. Management believes the industry and the market for
CIS products will recover but is cautious about the near term. Accordingly
management has taken aggressive action to respond to the current market
conditions and is keeping a tight reign on staffing and other expenses.
Since its inception the Company has provided enterprise systems
consisting of its application software which it licenses, and servers and other
computer hardware components that it sells to end users. Beginning in the first
fiscal quarter ended November 30, 1999 the Company began to develop an
application service provider (ASP) activity in its wholly owned subsidiary
Xymed.com. The ASP will offer the Company's proprietary application software to
clients on a
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CREATIVE COMPUTER APPLICATIONS, INC.
monthly recurring charge basis. The servers that host the application software
will also be provided by Xymed.com as well as data center services and
application software support. The Company has invested considerable resources in
developing its ASP offering and intends to make further investment before it
begins operations. Due to technical issues encountered the project has taken
longer to complete than was originally projected. It is now intended that
Xymed.com will begin operations in the Company's first fiscal quarter of 2001,
until then the Company continues to incur additional startup expenses with no
revenues to offset such expenses. Such expenses are included in cost of sales
systems which has resulted in a decrease of the gross margin. These costs will
continue to have a negative impact on earnings until revenues are generated.
During the third fiscal quarter, the Company conducted a routine review
of its business and product offerings and made the decision to discontinue a
system for blood banking that it had previously developed. Such products are
subject to FDA regulations, which require on going compliance issues that carry
substantial expense. Although the Company believed its blood bank system would
meet FDA regulations, the potential return on its investment due to market
opportunity was negative. Accordingly management determined it was not
financially viable to continue to develop and maintain the blood bank product
and ceased offering the product for sale and providing support. Instead the
Company entered into a strategic marketing agreement with the leading blood bank
system vendor to provide its products when such are required. In view of this
decision the Company is taking a charge of approximately $150,000 in the current
quarter including the write-off of capitalized software relating to the blood
bank product to recognize its discontinuance.
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 2000 ended May 31, 2000 decreased
by $1,043,255 or 44% compared to the same quarter of fiscal 1999. For the
nine-month period ended May 31, 2000 sales decreased $583,877 or 9% compared to
the same period in fiscal 1999 (the Company's second fiscal quarter). The
Company has experienced a decrease in sales of CIS products which began in the
fourth calendar quarter of 1999. Management believes that the general decrease
is attributable to pre and post Y2K capital spending suspensions discussed
above.
When analyzed by product category for the quarter and nine month
periods, sales of Clinical Information Systems (CIS) decreased $1,065,004 or 75%
and $412,020 or 12% respectively, sales of data acquisition products decreased
$81,190 or 35% and $347,468 or 44% respectively, and service revenues increased
by $102,939 or 14% and $175,611 or 8% respectively. The decrease in revenues
associated with the Company's CIS products was primarily attributable to the
general market conditions discussed above. The decrease in the sale of data
acquisition products is primarily attributable to a lesser number of units
shipped to OEM customers, and the decrease in CIS sales. The increase in service
revenues was attributable to a greater number of customer sites on contract. As
discussed above, the Company and most of its industry group have experienced a
decrease in sales of CIS products attributable to Y2K issues. Management
believes this trend will continue until the second half of the current calendar
year.
Cost of sales for the third quarter and nine month period ended May 31,
2000 decreased by $205,033 or 18% and increased by $155,990 or 5% respectively
as compared to the same quarter and nine month period of 1999. For the quarter
and nine month period the increase in costs of sales was primarily attributable
to the increase in labor costs of $69,786 or 16% and $283,801 or 23%,
respectively, which was offset by a decrease in material costs of $256,178 or
83% and $279,936 or 31% respectively, and decreases in other costs of $18,641 or
5% and increase of $152,125 or 14% respectively. The overall decreases in
material costs were attributable to a decrease in CIS sales during the periods.
For the current quarter and nine month period ended May 31, 2000, cost of sales
as a percentage of sales increased to 72% from 49% and increased to 58% from 50%
respectively. These increases were primarily attributable to fixed labor costs,
inclusion of startup expenses for the Company's ASP activities and the one time
charge of approximately $150,000 write-off of capitalized software and other
expenses relating to the discontinued internal blood bank product as discussed
above. Due to these increases in cost of sales, the Company suffered a decrease
in gross margin.
Selling and administration expenses increased $31,068 or about 4% and
$134,602 or 7% in comparing the current quarter and nine months ended May 31,
2000 with the same periods of fiscal 1999. 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 last quarter of fiscal 2000 as the
Company expands its sales and marketing activities related to the sale of its
CIS products for its enterprise systems and for the launch of its ASP
activities.
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CREATIVE COMPUTER APPLICATIONS, INC.
Research and Development expense increased $20,922 or 11% and $68,123
or 13% for the current quarter and nine months ending May 31, 2000 compared to
the same periods of fiscal 1999. The increases are attributable to additional
personnel hired for the Company's product development activities 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 had a
net loss of $463,591 or basic and diluted loss per share of $.15 and $296,482 or
basic and diluted loss per share of $.09 for the current quarter and nine month
period ending May 31, 2000 compared to net income of $277,822 or basic and
diluted net income per share of $.09 and $.08 respectively, and a net income of
$611,352 or basic and diluted net income per share of $.21 and $.19
respectively, in the comparable quarter and nine month period one year ago.
CAPITAL RESOURCES AND LIQUIDITY
As of May 31, 2000, the Company's working capital amounted to
$1,336,090 compared to $1,491,021 at August 31, 1999. The ratio of the Company's
current assets to current liabilities was approximately 1.7 to 1 at May 31, 2000
compared to 1.5 to 1 at August 31, 1999.
The Company's bank line of credit as of May 31, 2000 amounted to
approximately $1,100,000, of which $70,000 was outstanding as of that date. The
Company was in compliance with all covenants and financial ratios required by
its bank as of May 31, 2000. The Company extended its line of credit with the
bank, which is now due on February 1, 2001.
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 the next 12 months.
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. As
discussed above, the healthcare information systems industry has experienced a
slow down as a result of Y2K and is expected to rebound in the second half of
the 2000 calendar year.
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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 May
31, 2000.
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 19, 2000 /s/ Steven M. Besbeck
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Steven. M. Besbeck, President
Chief Executive Officer, Chief
Financial Officer
DATE: July 19, 2000 /s/ Ana Villafane
------------------ -----------------------------------
Ana Villafane
Controller and Chief Accounting
Officer
10
