-----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, PTgkppd8AEDUyjzBQ/7F7xXDhcSy5O05pnjPO77BHnDA02gDzr8KJEmJ0IBC6UB0 XG5Q80f8gdrhF0ZIMgeFSg== 0000712815-99-000002.txt : 19990114 0000712815-99-000002.hdr.sgml : 19990114 ACCESSION NUMBER: 0000712815-99-000002 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990113 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: 99505594 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 November 30, 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: 2,920,740 common shares as of December 31, 1998. Transitional Small Business Disclosure Format (check one): Yes No X FORM 10-QSB I N D E X PART I - Financial Information: PAGE Condensed Balance Sheets, as at November 30, 1998 and August 31, 1998 3 Condensed Statements of Income for the three months ended November 30, 1998 and November 30, 1997 4 Condensed Statements of Cash Flows for the three months ended November 30, 1998 and November 30, 1997 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 PART 1 - FINANCIAL INFORMATION CONDENSED BALANCE SHEETS
November 30, August 31, 1998 1998 * (Unaudited) ASSETS CURRENT ASSETS: Cash $ 433,969 $ 375,876 Receivables 2,010,714 1,973,601 Inventories 607,925 670,243 Prepaid expenses and other assets 128,662 79,907 Deferred tax asset 466,300 466,300 TOTAL CURRENT ASSETS 3,647,570 3,565,927 PROPERTY AND EQUIPMENT, net 544,234 575,804 INVENTORY OF COMPONENT PARTS 146,027 156,527 CAPITALIZED SOFTWARE COSTS, net of accumulated amortization of $450,912 and $384,509 1,200,595 1,128,498 INTANGIBLES, net 251,986 302,120 OTHER ASSETS 23,100 32,371 DEFERRED TAX ASSET 844,200 844,200 TOTAL ASSETS $ 6,657,712 $ 6,605,447 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable to bank $ 581,609 $ 611,609 Accounts payable 462,786 507,005 Accrued liabilities: Vacation Pay 203,889 184,305 Other 372,035 339,402 Deferred service contract income 718,677 754,343 Deferred revenue 706,314 638,018 Capital lease obligations, current portion 3,173 4,679 TOTAL CURRENT LIABILITIES 3,048,483 3,039,361 TOTAL LIABILITIES 3,048,483 3,039,361 SHAREHOLDERS' EQUITY: Preferred shares, no par value; 500,000 shares authorized; no shares outstanding - - Common shares, no par value; 20,000,000 shares authorized; 2,920,740 and 2,920,740 shares outstanding 5,831,027 5,831,027 Accumulated deficit (2,221,798) (2,264,941) TOTAL SHAREHOLDERS' EQUITY 3,609,229 3,566,086 $ 6,657,712 $ 6,605,447
See Notes to Financial Statements. * As presented in the audited financial statements CONDENSED STATEMENTS OF OPERATION
Three Months Ended November 30, 1998 1997 (unaudited) NET SYSTEM SALES AND SERVICE REVENUE System sales $ 1,207,606 $ 1,244,737 Service revenue 670,683 562,704 1,878,289 1,807,441 COST OF PRODUCTS AND SERVICES SOLD System sales 746,204 624,861 Service revenue 357,444 393,406 1,103,648 1,018,267 Gross profit 774,641 789,174 OPERATING EXPENSES: Selling, general and administrative 570,936 589,371 Research and development 145,753 155,543 716,689 744,914 Operating income 57,952 44,260 INTEREST AND OTHER INCOME 578 574 INTEREST EXPENSE (15,188) (3,998) Income before taxes on income 43,342 40,836 TAXES ON INCOME (200) (350) NET INCOME $ 43,142 $ 40,486 EARNINGS PER COMMON SHARE (Note 2): Basic $ .01 $ .01 Diluted $ .01 $ .01 WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON STOCK EQUIVALENTS OUTSTANDING Basic 2,920,740 2,859,865 Diluted 2,920,740 3,010,231
See Notes to Financial Statements. CONDENSED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash
Three Months Ended November 30, 1998 1997 (unaudited) OPERATING ACTIVITIES: Net income $ 43,142 $ 40,486 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 139,264 111,176 Provision for possible losses (881) 1,650 Changes in operating assets and liabilities: Receivables (36,232) (191,761) Inventories 62,318 (48,502) Prepaid expenses and other assets (48,755) (43,388) Accounts payable (44,219) 52,488 Accrued liabilities 84,847 100,975 Net cash provided by operating activities 199,484 23,124 INVESTING ACTIVITIES Additions to property and equipment (13,885) (38,788) Capitalized software costs (96,000) (106,000) Net cash used in investing activities (109,885) (144,788) FINANCING ACTIVITIES: Additions to (payments on) notes payable, net (30,000) (130,000) Decrease in capital lease obligations, net of payments (1,506) (5,948) Exercise of Stock Option 0 15,950 Net cash used in financing activities (31,506) (119,998) NET INCREASE (DECREASE) IN CASH 58,093 (241,662) Cash, beginning of period 375,876 534,430 Cash, end of period $ 433,969 $ 292,768
See notes to financial statements. 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, 1998 and August 31, 1998, the results of its operations for the three months ended November 30, 1998 and 1997, and cash flows for the three months ended November 30, 1998 and November 30, 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 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 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 during the second quarter of 1998 instead of waiting until the beginning of its next fiscal year. 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 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 first quarter of fiscal 1999 ended November 30, 1998 increased by $70,848 or 4% compared to the same quarter of fiscal 1998. When analyzed by product category, sales of Clinical Information Systems (CIS) decreased $92,322 or 9%, sales of data acquisition products increased $52,021 or 23% and service and other revenues increased $111,149 or 19%. The overall increase in sales is primarily attributable to an increase in sales of data acquisition products and an increase in service revenues due to a greater number of customer sites on contract. The increases were offset by a decrease in sales of Clinical Information Systems. This decrease was attributable to the change in accounting for revenue recognition in accordance with SOP 97-2. Cost of sales for the first quarter of 1999 increased by $85,381 or 8% as compared to the same quarter of 1998. The increase in cost of sales was primarily attributable to an increase in material costs of $104,463 or 48% 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 $4,176 or 1%. These increases were partially offset by a decrease in labor costs of $23,258 or 5%. Cost of sales as a percentage of sales was 59% for the current quarter as compared to 56% to the comparable fiscal 1998 quarter. This was due in part to the recognition of hardware revenue and the deferral of software revenue in accordance with the adoption of SOP-97-2. Selling and administration expenses decreased $18,435 or about 3% for the current quarter compared to the same quarter of 1998. The decrease was primarily attributable to a reduction in sales taxes and other expenses during the quarter. 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 sale of its CIS products across a broader market spectrum. The Company has been engaged in strategic joint marketing partnerships with other companies which has improved the Company's market penetration. Management views the near term outlook for the continued sale of CIS products favorably during the first half of the 1999 fiscal year. However, the Company's future operating results will continue to 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 decreased $9,790 or about 6% for the current quarter as compared to the same quarter of 1998. The decrease is attributable to a change in personnel. 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 $43,142 or basic and diluted net income per share of $.01 for the first fiscal quarter ended November 30, 1998 compared to $40,486 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, 1998, the Company's working capital amounted to $599,087 compared to $526,566 at August 31, 1998. The ratio of the Company's current assets to current liabilities was approximately 1.2 to 1 at November 30, 1998 compared to 1.2 to 1 at August 31, 1998. 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, 1998 amounted to approximately $800,000, of that amount $581,600 was outstanding as of that date. The Company's bank line contains certain financial ratio requirements. The Company was not in compliance with some of the covenants and financial ratios required by its bank as of November 30, 1998, but had obtained a waiver from its bank. 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 1999 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. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept only two digit entries in the date code field. As the year 2000 approaches, these code fields will need 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 may have to be upgraded to comply with such Year 2000 requirements. The Company is currently expending 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 Company believes that the cost of the modifications associated with this effort will not have a material adverse effect on the Company's operating results. However, achieving Year 2000 compliance is dependent on many factors, some of which are not completely within the Company's control, including without limitation, the availability and cost of trained personnel and effectiveness of software upgrades used by the Company and its vendors and suppliers. Should either the Company's internal systems or the internal systems of one or more significant vendors or suppliers fail to achieve Year 2000 compliance, the Company's business and its results of operations could be adversely affected. Clinical Information Systems The Company has been engaged in evaluating and modifying its CIS products for sometime and has completed core modifications and testing for Year 2000 changes to CyberLAB II(Registered Trademark). The Company is currently distributing the Year 2000 compliant software upgrades to its clients. CyberRAD(Registered Trademark) and MQA were designed to be Year 2000 compliant. CyberMED(Trademark) is currently being modified and it is expected that the modifications and testing will be completed by mid 1999. Subsequently the modified CyberMED(Trademark) upgrade will be distributed to clients. Modifications are also currently being made to the financial management system that will be completed by March 1999 and released thereafter. The Company is also evaluating communication interfaces it has installed in order to determine in each individual case, whether the software is Year 2000 compliant, and will undertake such modifications as are deemed to be necessary to be compliant. The Company believes it is timely and on schedule in its efforts to effectuate the modifications, testing and upgrade of its developed software applications to its clients. Management is cognizant of the fact that the timeliness of the completion and distribution of Year 2000 modifications are critical to the success of the Company. Some of the Company's clients may require upgrades to their computers and/or operating systems, in order to operate the upgraded application software and otherwise be Year 2000 compliant. The Company has been conducting 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 does not expect to bear the costs associated with this effort and instead will derive revenues from the upgrades. The Company had identified the modifications and/or upgrades required by the vendors and is assisting its clients in securing the necessary modifications and/or upgrades. The Company has sent a Year 2000 technical document to all it's clients, and posted the information on its web site to assist its clients in their evaluations. In House Systems and Computers The Company continues to conduct a review of the computers, systems and software that it utilizes internally to operate its business. It has determined that some systems such as its accounting and voice mail systems will have to be replaced since they are not modifiable. However, such systems were already due to be replaced because they are no longer adequate and are not being supported by their manufacturers. Other systems supported by their manufacturers will be upgraded in the normal course with Year 2000 modifications on a timely basis. Although the Company will have to bear the cost of replacing non-compliant systems, it is not anticipated that the aggregate expenditures will be of a material nature. At present, the cost of such replacements has not been fully determined. 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, 1998. 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 11, 1999 /S/ Steven M. Besbeck Steven. M. Besbeck, President Chief Executive Officer, Chief Financial Officer Date January 11, 1999 /S/ Carol Bessel Carol Bessel, Controller and Chief Accounting Officer Exhibit 11 CREATIVE COMPUTER APPLICATIONS, INC. COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended November 30, 1998 1997 AVERAGE MARKET PRICE PER SHARE $ .82 $ 1.74 NET INCOME $ 43,142 $ 40,486 Basic weighted average number of common shares outstanding 2,920,740 2,859,865 Diluted effect of stock options - 150,366 Diluted weighted average number of common shares outstanding 2,920,740 3,010,231 Basic earnings per share $ .01 $ .01 Diluted earnings per share $ .01 $ .01
EX-27 2
5 3-MOS AUG-31-1998 NOV-30-1997 292768 0 2123796 0 724297 3685167 1698207 1148148 6162033 1965827 0 0 0 5768585 (1575552) 6162033 1807441 1808015 1018267 1763181 0 0 3998 40836 350 40486 0 0 0 40486 .01 .01
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