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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 NOVEMBER 30, 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 \ \
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON EQUITY, AS OF THE LATEST PRACTICABLE DATE: 3,173,575 COMMON SHARES AS OF
DECEMBER 31, 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
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Condensed Balance Sheets, as at November 30, 2000 and August 31, 2000 3
Condensed Statements of Operation for the three months ended November 30, 2000 and
November 30, 1999 4
Condensed Statements of Cash Flows for the three months ended November 30, 2000 and
November 30, 1999 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of Results of Operations and Financial Condition 6
PART II - OTHER INFORMATION:
Items 1 through 6 8
Signatures 9
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2
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CREATIVE COMPUTER APPLICATIONS, INC.
PART 1 - FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
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<CAPTION>
NOVEMBER 30, AUGUST 31,
2000 2000 *
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(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 407,545 $ 618,063
Receivables, net 1,424,677 1,230,184
Inventories 267,724 267,796
Prepaid expenses and other assets 124,053 126,633
Deferred tax asset 639,500 639,500
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TOTAL CURRENT ASSETS 2,863,499 2,882,176
PROPERTY AND EQUIPMENT, net 518,550 558,451
INVENTORY OF COMPONENT PARTS 380,631 395,631
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $842,411 and $744,351 1,308,408 1,310,468
INTANGIBLES, net 154,088 170,536
DEFERRED TAX ASSET 591,000 591,000
OTHER ASSETS 7,145 7,601
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TOTAL ASSETS $ 5,823,321 $ 5,915,863
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank $ 160,000 $ 140,000
Accounts payable 168,405 211,136
Accrued liabilities:
Vacation Pay 194,430 184,821
Other 159,966 251,697
Deferred service contract income 892,600 844,926
Deferred revenue 714,135 390,973
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TOTAL CURRENT LIABILITIES 2,289,536 2,023,553
CAPITAL LEASE 62,924 -
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TOTAL LIABILITIES 2,352,460 2,023,553
SHAREHOLDERS' EQUITY:
Common shares, no par value; 20,000,000 shares
authorized; 3,173,575 and 3,173,575 shares
outstanding 6,092,144 6,092,144
Accumulated deficit (2,621,283) (2,199,834)
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TOTAL SHAREHOLDERS' EQUITY 3,470,861 3,892,310
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$ 5,823,321 $ 5,915,863
================== ================
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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
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THREE MONTHS ENDED NOVEMBER 30,
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2000 1999
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(UNAUDITED)
<S> <C> <C>
NET SYSTEM SALES AND SERVICE REVENUE
System sales $ 315,363 $1,796,340
Service revenue 908,081 709,847
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1,223,444 2,506,187
COST OF PRODUCTS AND SERVICES SOLD
System sales 382,323 921,039
Service revenue 440,529 421,171
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822,852 1,342,210
Gross profit 400,592 1,163,977
OPERATING EXPENSES:
Selling, general and administrative 621,568 678,426
Research and development 204,140 191,997
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825,708 870,423
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Operating income (loss) (425,116) 293,554
INTEREST AND OTHER INCOME 8,393 2,898
INTEREST EXPENSE (4,726) (5,120)
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Income (loss) before taxes on income (421,449) 291,332
INCOME TAX PROVISION -- 134,000
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NET INCOME (LOSS) $ (421,449) $ 157,332
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EARNINGS (LOSS) PER SHARE (Note 2):
Basic $ (.13) $ .05
Diluted $ (.13) $ .04
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WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Basic 3,173,575 3,122,925
Diluted 3,173,575 3,559,224
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SEE NOTES TO FINANCIAL STATEMENTS.
4
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CREATIVE COMPUTER APPLICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
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THREE MONTHS ENDED NOVEMBER 30,
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2000 1999
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(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(421,449) $ 157,332
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 180,158 162,745
Provision for doubtful accounts 9,213 4,302
Deferred taxes - 134,000
Changes in operating assets and liabilities:
Receivables (203,706) (171,447)
Inventories 15,072 (19,356)
Prepaid expenses and other assets 3,036 (38,400)
Accounts payable (42,731) (24,668)
Accrued liabilities 288,714 (43,828)
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Net cash provided by (used in)
operating activities (171,693) 160,680
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INVESTING ACTIVITIES
Additions to property and equipment (25,749) (70,342)
Capitalized software costs (96,000) (98,820)
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Net cash used in investing
activities (121,749) (169,162)
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FINANCING ACTIVITIES:
Additions to (payments on) notes payable, net 20,000 (57,488)
Increase in capital lease obligations,
net of payments 62,924 --
Proceeds from exercise of Stock Option -- 22,500
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Net cash provided by (used in) financing
activities 82,924 (34,988)
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NET DECREASE IN CASH (210,518) (43,470)
Cash, beginning of period 618,063 650,271
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Cash, end of period $ 407,545 $ 606,801
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1
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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, 2000 and August 31, 2000, the
results of its operations for the three months ended November 30, 2000
and 1999, and cash flows for the three months ended November 30, 2000
and November 30, 1999. These results have been determined on the basis
of generally accepted accounting principles and practices applied
consistently with those used in preparation of the Company's Annual
Report on Form 10-KSB for the fiscal year ended August 31, 2000.
The results of operations for the three months ended November 30, 2000
are not necessarily indicative of the results 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 reflect 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. For the three
months ended November 30, 2000, the Company did not include any
potential diluted securities, as inclusion would be anti-dilutive.
NOTE 3. The Company adopted Staff Accounting Bulletin 101, "Revenue
Recognition", ("SAB 101"). SAB 101 provides interpretive guidance on
the recognition, presentation and disclosure of revenue in financial
statements. 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 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. SAB 101 expands on the issues not explicitly
covered in the SOP. The Company elected early adoption of SAB 101 for
the current fiscal quarter beginning September 1, 2000. Pursuant to
the adoption of SAB 101 the Company estimates that the recognition of
revenue from the sale of hardware and software associated with the
Company's Clinical Information Systems will be extended by
approximately sixty to ninety days.
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.
The Company has experienced a decrease in sales, which began in fiscal
2000. Management believes that this decrease was primarily attributable to an
industry wide slump related to post Y2K issues, the Balanced Budget Act,
concerns about the pending regulations associated with the Health Insurance
Portability and Accountability Act (HIPAA), and effects of SAB 101, discussed
below. The Company initiated staffing and other expense cuts in order to
mitigate its operating losses when it started to experience a downturn in sales
in fiscal 2000. The Company remains cautious and continues to keep a tight reign
on staffing and other expenses in response to the current industry conditions
and may make other expense reductions to further mitigate its operating losses.
The Company continues its product development programs in order to expand the
depth of functionality of its products, as well as to address pending HIPAA
compliance issues. The published provisions of HIPPA require patient
confidentiality for all health care related information, and apply to any entity
storing and/or transmitting patient identifiable information on electronic
media, as well as paper records. Such provisions may require additional audit
trails and tiered/structured password security when accessing patient data.
Certain safeguards will be required to accurately insure the security of patient
data that transcend the safeguards that may be provided by the application
software and equipment provided and serviced by the Company. The Company
warrants that it will provide the modifications to its application software that
will assist its clients in adhering to applicable HIPPA regulations.
6
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CREATIVE COMPUTER APPLICATIONS, INC.
Since its inception, the Company has provided enterprise systems consisting
of its application software, 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 monthly subscription
basis. Xymed.com, as well as data center services and application software
support, will also provide the servers that host the application software. The
Company has invested considerable resources in developing its ASP offering, and
intends to make further investment before it begins operations. Due to technical
and HIPAA related issues, the project has taken longer to complete than was
originally projected. Until Xymed.com begins basic operations, the Company
continues to incur additional startup expenses with no revenues to offset such
expenses. These costs will continue to have a negative impact on earnings until
revenues are generated.
As discussed in Note 3, in December 1999, the Securities and Exchange
Commission (SEC) released Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" (SAB 101) which has since been revised
twice and the implementation date of which has been extended twice. SAB 101
provides interpretive guidance on the recognition, presentation, and disclosure
of revenue in the financial statements. SAB 101 must be applied to financial
statements no later than the fourth quarter of fiscal years beginning after
December 15, 1999. The Company stated in its audited financial statements for
the fiscal year ending August 31, 2000, that it believed the effect of SAB 101
would not have a material effect in the Company's financial results. However,
since that time, more recently published documents from the SEC have provided
additional guidance that has lead management to determine that SAB 101 will have
a material effect on the financial statements for at least a couple of quarters.
Accordingly, the Company elected early adoption of SAB 101 for the current
fiscal quarter beginning September 1, 2000. At this time management believes the
impact of SAB 101 will be timing issues related to the recognition of revenue
from the sale of hardware and license of application software that will move the
time of revenue recognition out approximately sixty to ninety days.
RESULTS OF OPERATIONS
Sales for the first quarter of fiscal 2001 ended November 30, 2000
decreased by $1,282,743 or 51% compared to the same quarter of fiscal 2000. The
Company has experienced a decrease in sales of Clinical Information Systems
(CIS) products, which began in fiscal 2000. Management believes that the general
decrease is attributable to post Y2K issues, the Balanced Budget Act, concerns
about pending regulations associated with HIPAA discussed above and the adoption
of SAB 101. As a result of the adoption of SAB 101 approximately $500,000 of
revenues from first quarter sales of CIS products will be deferred to subsequent
periods.
When analyzed by product category, sales of CIS decreased $1,473,285 or 90%
and sales of data acquisition products decreased $7,693 or 5%. These decreases
were partially offset by an increase in service revenues of $198,235 or 28%. The
decrease in revenues associated with the Company's CIS products was primarily
attributable to the general market conditions discussed above and the effect the
adoption of SAB 101. 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 and higher average revenues per
account.
Cost of sales for the first quarter of fiscal 2001 decreased by $519,358 or
39% as compared to the same quarter of fiscal 2000. The decrease in cost of
sales was attributable to a decrease in material costs of $344,061 or 93%, a
decrease in labor costs of $64,229 or 12% and a decrease in other costs of
$111,068 or 25%. The decrease in material costs was primarily attributable to a
decrease in CIS sales during the period. Cost of sales as a percentage of sales
was 67% for the current quarter as compared to 54% for the comparable fiscal
2000 quarter. This increase was primarily attributable to decreased revenues
recognized, fixed labor costs and the inclusion of startup expenses for the
Company's ASP activities. Due to this increase in cost of sales, the Company
experienced a decrease in gross margin.
Selling and administration expenses decreased by $56,858 or 8% for the
current quarter compared to the same quarter of fiscal 2000. The decrease was
primarily attributable to the Company's efforts to reduce costs in response to
market conditions.
Research and Development expense increased $12,143 or 6% for the current
quarter as compared to the same quarter of fiscal 2000. The increase is
attributable to the Company's product development activities. The Company
7
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CREATIVE COMPUTER APPLICATIONS, INC.
continues to expend considerable resources on new product development and
product enhancements, much of which is associated with HIPAA compliance issues.
As a result of the aggregate factors discussed above, the Company has
incurred a net loss of $421,449 or basic and diluted loss per share of $0.13 for
the first fiscal quarter ended November 30, 2000 compared to net income of
$157,332 or basic and diluted net income per share of $0.05 and $0.04 in the
comparable quarter one year ago.
CAPITAL RESOURCES AND LIQUIDITY
As of November 30, 2000, the Company's working capital amounted to $573,963
compared to $858,623 at August 31, 2000. The ratio of the Company's current
assets to current liabilities was approximately 1.3 to 1 at November 30, 2000
compared to 1.4 to 1 at August 31, 2000.
The Company's bank line of credit as of November 30, 2000 amounted to
approximately $1,000,000; of that amount $150,000 was outstanding as of that
date. The Company was not in compliance with some of the covenants and financial
ratios required by its bank as of November 30, 2000, but had obtained a waiver.
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 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
industry will continue to be highly competitive and that potential healthcare
reforms including those promulgated by HIPAA 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, improving and expanding its services, 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.
(b) There were no reports filed on Form 8-K during the quarter ended
November 30, 2000.
8
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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.
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(Company)
Date January 12, 2001 /s/ Steven M. Besbeck
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Steven. M. Besbeck, President
Chief Executive Officer, Chief
Financial Officer
Date January 12, 2001 /s/ Ana Villafane
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Ana Villafane,
Controller and Chief Accounting
Officer
9
