-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sajjvx/DF+6A6ZWFvhaWNJEgLNcK4ylSoc5vU54BNDp1UYnOYSnvdgaTgQqrwS1+ 6dbFnWI3Y3O3oy+dLi51Dg== 0000712815-98-000011.txt : 19980714 0000712815-98-000011.hdr.sgml : 19980714 ACCESSION NUMBER: 0000712815-98-000011 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980713 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CREATIVE COMPUTER APPLICATIONS INC CENTRAL INDEX KEY: 0000712815 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 953353465 STATE OF INCORPORATION: CA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13268 FILM NUMBER: 98665251 BUSINESS ADDRESS: STREET 1: 26115 A MUREAU RD CITY: CALABASAS STATE: CA ZIP: 91302 BUSINESS PHONE: 8188806700 MAIL ADDRESS: STREET 1: 26115 A MUREAU ROAD CITY: CALABASAS STATE: CA ZIP: 91302 10QSB 1 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 ____________________________________
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
See Notes to Financial Statements. * As presented in the audited financial statements CREATIVE COMPUTER APPLICATIONS, INC. CONDENSED STATEMENTS OF OPERATIONS
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
See Notes to Financial Statements. CREATIVE COMPUTER APPLICATIONS, INC. CONDENSED STATEMENTS OF OPERATIONS
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
See Notes to Financial Statements. CREATIVE COMPUTER APPLICATIONS, INC. CONDENSED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash
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
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
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
(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.
[ARTICLE] 5 [RESTATED]
[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 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
CREATIVE COMPUTER APPLICATIONS, INC. EX-27 2
5 9-MOS AUG-31-1998 MAY-31-1998 368149 0 1777761 0 731272 3407109 1903483 1240835 6058550 2840392 0 0 0 5821802 (2625253) 6058550 4513235 4516239 3133311 5473986 14151 0 37317 (1009215) 0 (1009215) 0 0 0 (1009215) (.35) (.35)
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