** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

#### **FORM 10-QSB**

 

 

 

**(Mark One)**

 

**ý****                                ****QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

**For the quarterly period endedFebruary 28, 2002**

 

**o****                                ****TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGEACT**

**For the transition periodfrom                               to**

 

 

Commission file number **0-12551**

 

**CREATIVE COMPUTER APPLICATIONS, INC.**

(Exact name of small business issuer asspecified in its charter)

 

| **California**                  |   | **95-3353465**      |
|---------------------------------|--------|---------------------|
| (State or other jurisdiction of |   | (I.R.S. Employer    |
| incorporation or organization)  |   | Identification No.) |

 

 

**26115-AMureau 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 theExchange Act during the past 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes         ý                            No           o

 

State the number of sharesoutstanding of each of the issuer’s classes of common equity, as of the latestpracticable date:  3,185,325 commonshares as of March 15, 2001.

 

Transitional Small BusinessDisclosure Format (check one):

Yes         o                            No           ý

 

 

 

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**CREATIVECOMPUTER APPLICATIONS, INC.**

 

**FORM10-QSB**

 

 

**I N D E X**

 

 

 
| **PART I - Financial  Information:**                                                                                 |
|----------------------------------------------------------------------------------------------------------------------|
|                                                                                                                 |
| Condensed  Consolidated Balance Sheets at February 28, 2002 and August 31, 2001                                      |
|                                                                                                                 |
| Condensed  Consolidated Statements of Operations for the three months ended February 28,  2002 and February 28, 2001 |
|                                                                                                                 |
| Condensed Consolidated  Statements of Operations for the six months ended February 28, 2002 and  February 28, 2001   |
|                                                                                                                 |
| Condensed  Consolidated Statements of Cash Flows for the six months ended February 28,  2002 and February 28, 2001   |
|                                                                                                                 |
| Notes to  Condensed Consolidated Financial Statements                                                                |
|                                                                                                                 |
| Management’s  Discussion and Analysis of Results of Operations and Financial Condition                          |
|                                                                                                                 |
| **PART II - Other  Information:**                                                                                    |
|                                                                                                                 |
| Items  1 through 6                                                                                                   |
|                                                                                                                 |
| Signatures                                                                                                           |

 

2

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**CREATIVECOMPUTER APPLICATIONS, INC.**

 

**PART 1 - FINANCIAL INFORMATION**

 

#### **CONDENSED CONSOLIDATED BALANCE SHEETS**

 
|                                                                                                 |   | **February 28,  2002** |      | **August 31,********2001*** |   |
|------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|-----------------------------|--------|
|                                                                                                 |   | **(Unaudited)**        |      |                        |   |
| **ASSETS**                                                                                           |   |                   |      |                        |   |
|                                                                                                 |   |                   |      |                        |   |
| CURRENT ASSETS:                                                                                      |   |                   |      |                        |   |
| Cash                                                                                                 |   | $                      | 457,834   |                        | $      | 661,008 |   |
| Receivables, net                                                                                     |   | 1,960,578              |      | 1,209,872                   |   |
| Inventories                                                                                          |   | 291,842                |      | 233,737                     |   |
| Prepaid expenses and other assets                                                                    |   | 114,074                |      | 142,219                     |   |
| Deferred tax asset                                                                                   |   | 639,500                |      | 639,500                     |   |
|                                                                                                 |   |                   |      |                        |   |
| TOTAL CURRENT ASSETS                                                                                 |   | 3,463,828              |      | 2,886,336                   |   |
|                                                                                                 |   |                   |      |                        |   |
| PROPERTY AND EQUIPMENT, net                                                                          |   | 314,953                |      | 398,179                     |   |
| INVENTORY OF COMPONENT PARTS                                                                         |   | 276,496                |      | 306,496                     |   |
| CAPITALIZED SOFTWARE COSTS, net of accumulatedamortization of  $1,206,299 and $999,331               |   | 1,354,784              |      | 1,337,472                   |   |
| INTANGIBLES, net                                                                                     |   | 71,848                 |      | 104,744                     |   |
| DEFERRED TAX ASSET                                                                                   |   | 526,495                |      | 591,000                     |   |
| OTHER ASSETS                                                                                         |   | 2,884                  |      | 13,796                      |   |
|                                                                                                 |   |                   |      |                        |   |
|                                                                                                 |   | $                      | 6,011,288 |                        | $      | 5,638,023 |   |
|                                                                                                 |   |                   |      |                        |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                        |   |                   |      |                        |   |
|                                                                                                 |   |                   |      |                        |   |
| CURRENT LIABILITIES:                                                                                 |   |                   |      |                        |   |
| Notes payable to bank                                                                                |   | $                      | 179,351   |                        | $      | 239,351 |   |
| Accounts payable                                                                                     |   | 325,455                |      | 216,087                     |   |
| Accrued liabilities:                                                                                 |   |                   |      |                        |   |
| Vacation pay                                                                                         |   | 179,150                |      | 159,290                     |   |
| Other                                                                                                |   | 302,990                |      | 275,790                     |   |
| Deferred service contract income                                                                     |   | 942,833                |      | 831,873                     |   |
| Deferred revenue                                                                                     |   | 559,192                |      | 474,091                     |   |
| Capital lease obligation, current portion                                                            |   | 22,750                 |      | 22,750                      |   |
|                                                                                                 |   |                   |      |                        |   |
| TOTAL CURRENT LIABILITIES                                                                            |   | 2,511,721              |      | 2,219,232                   |   |
|                                                                                                 |   |                   |      |                        |   |
| CAPITAL LEASE                                                                                        |   | 11,736                 |      | 23,111                      |   |
|                                                                                                 |   |                   |      |                        |   |
| TOTAL LIABILITIES                                                                                    |   | 2,523,457              |      | 2,242,343                   |   |
|                                                                                                 |   |                   |      |                        |   |
| SHAREHOLDERS’ EQUITY:                                                                           |   |                   |      |                        |   |
| Common shares, no par value; 20,000,000 sharesauthorized; 3,231,025 and  3,221,025 sharesoutstanding |   | 6,111,664              |      | 6,108,164                   |   |
| Accumulated deficit                                                                                  |   | (2,623,833             | )         | (2,712,484                  | )      |
|                                                                                                 |   |                   |      |                        |   |
| TOTAL SHAREHOLDERS’ EQUITY                                                                      |   | 3,487,831              |      | 3,395,680                   |   |
|                                                                                                 |   |                   |      |                        |   |
|                                                                                                 |   | $                      | 6,011,288 |                        | $      | 5,638,023 |   |

 

**See Notes to CondensedConsolidated Financial Statements.**

 

----

*** As presented in the audited consolidated financialstatements**

 

3

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**CREATIVECOMPUTER APPLICATIONS, INC.**

 

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

 

 
|                                          |   | **Three Months Ended February 28** |    |
|-----------------------------------------------|--------|------------------------------------|---------|
|                                          |   | **2002**                           |    | **2001** |   |
|                                          |   | **(unaudited)**                    |    |
| NET SYSTEM SALES AND SERVICE REVENUE (Note 3) |   |                               |    |   |   |
| System sales                                  |   | $                                  | 824,072 |   | $ | 364,179 |   |
| Service revenue                               |   | 990,351                            |    | 920,711 |   |
|                                          |   | 1,814,423                          |    | 1,284,890 |   |
|                                          |   |                               |    |   |   |
| COST OF PRODUCTS AND SERVICES SOLD            |   |                               |    |   |   |
| System sales                                  |   | 528,161                            |    | 415,521 |   |
| Service revenue                               |   | 357,053                            |    | 391,486 |   |
|                                          |   | 885,214                            |    | 807,007 |   |
|                                          |   |                               |    |   |   |
| Gross profit                                  |   | 929,209                            |    | 477,883 |   |
|                                          |   |                               |    |   |   |
| OPERATING EXPENSES:                           |   |                               |    |   |   |
| Selling, general and administrative           |   | 615,178                            |    | 591,678 |   |
|                                          |   |                               |    |   |   |
| Research and development                      |   | 211,514                            |    | 217,674 |   |
|                                          |   |                               |    |   |   |
|                                          |   | 826,692                            |    | 809,352 |   |
|                                          |   |                               |    |   |   |
| Operating income (loss)                       |   | 102,517                            |    | (331,469 | ) |
|                                          |   |                               |    |   |   |
| INTEREST AND OTHER INCOME                     |   | 4,388                              |    | 8,568 |   |
|                                          |   |                               |    |   |   |
| INTEREST EXPENSE                              |   | (5,433                             | )       | (7,602 | ) |
|                                          |   |                               |    |   |   |
| Income (loss) before taxes on income          |   | 101,472                            |    | (330,503 | ) |
|                                          |   |                               |    |   |   |
| INCOME TAX PROVISION                          |   | 42,798                             |    | — |   |
|                                          |   |                               |    |   |   |
| NET INCOME (LOSS)                             |   | $                                  | 58,674  |   | $ | (330,503 | ) |
|                                          |   |                               |    |   |   |
| EARNINGS (LOSS) PER COMMON SHARE (Note 2):    |   |                               |    |   |   |
|                                          |   |                               |    |   |   |
| Basic                                         |   | $                                  | .02     |   | $ | (.10 | ) |
| Diluted                                       |   | .02                                |    | (.10 | ) |
|                                          |   |                               |    |   |   |
| WEIGHTED AVERAGE NUMBER OF SHARESOUTSTANDING  |   |                               |    |   |   |
|                                          |   |                               |    |   |   |
| Basic                                         |   | 3,231,025                          |    | 3,173,575 |   |
| Diluted                                       |   | 3,231,025                          |    | 3,173,575 |   |

 

**See Notesto Condensed Consolidated Financial Statements.**

 

4

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**CREATIVECOMPUTER APPLICATIONS, INC.**

 

**CONDENSED CONSOLIDATED STATEMENTSOF OPERATIONS**

 
|                                          |   | **Six Months Ended February 28** |      |
|-----------------------------------------------|--------|----------------------------------|-----------|
|                                          |   | **2002**                         |      | **2001** |   |
|                                          |   | **(unaudited)**                  |      |
| NET SYSTEM SALES AND SERVICE REVENUE (Note 3) |   |                             |      |   |   |
| System sales                                  |   | $                                | 1,596,618 |   | $ | 679,542 |   |
| Service revenue                               |   | 1,945,120                        |      | 1,828,792 |   |
|                                          |   | 3,541,738                        |      | 2,508,334 |   |
|                                          |   |                             |      |   |   |
| COST OF PRODUCTS AND SERVICES SOLD            |   |                             |      |   |   |
| System sales                                  |   | 998,166                          |      | 797,844 |   |
| Service revenue                               |   | 723,610                          |      | 832,015 |   |
|                                          |   | 1,721,776                        |      | 1,629,859 |   |
|                                          |   |                             |      |   |   |
| Gross profit                                  |   | 1,819,962                        |      | 878,475 |   |
|                                          |   |                             |      |   |   |
| OPERATING EXPENSES:                           |   |                             |      |   |   |
| Selling, general and administrative           |   | 1,269,030                        |      | 1,213,246 |   |
|                                          |   |                             |      |   |   |
| Research and development                      |   | 396,361                          |      | 421,814 |   |
|                                          |   |                             |      |   |   |
|                                          |   | 1,665,391                        |      | 1,635,060 |   |
|                                          |   |                             |      |   |   |
| Operating income (loss)                       |   | 154,571                          |      | (756,585 | ) |
|                                          |   |                             |      |   |   |
| INTEREST AND OTHER INCOME                     |   | 8,528                            |      | 16,961 |   |
|                                          |   |                             |      |   |   |
| INTEREST EXPENSE                              |   | (9,943                           | )         | (12,328 | ) |
|                                          |   |                             |      |   |   |
| Income (loss) before taxes on income          |   | 153,156                          |      | (751,952 | ) |
|                                          |   |                             |      |   |   |
| INCOME TAX PROVISION                          |   | 64,505                           |      | — |   |
|                                          |   |                             |      |   |   |
| NET INCOME (LOSS)                             |   | $                                | 88,651    |   | $ | (751,952 | ) |
|                                          |   |                             |      |   |   |
| EARNINGS (LOSS) PER COMMON SHARE (Note 2):    |   |                             |      |   |   |
| Basic                                         |   | $                                | .03       |   | $ | (.24 | ) |
| Diluted                                       |   | .03                              |      | (.24 | ) |
|                                          |   |                             |      |   |   |
| WEIGHTED AVERAGE NUMBER OF SHARESOUTSTANDING  |   |                             |      |   |   |
|                                          |   |                             |      |   |   |
| Basic                                         |   | 3,227,692                        |      | 3,173,575 |   |
| Diluted                                       |   | 3,227,692                        |      | 3,173,575 |   |

 

**See Notesto Condensed Consolidated Financial Statements.**

 

5

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**CREATIVECOMPUTER APPLICATIONS, INC.**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**Increase(Decrease) in Cash**

 
|                                                                                               |   | **Six Months Ended February 28** |    |
|----------------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                               |   | **2002**                         |    | **2001** |   |
|                                                                                               |   | **(unaudited)**                  |    |
| OPERATING ACTIVITIES:                                                                              |   |                             |    |   |   |
| Net income (loss)                                                                                  |   | $                                | 88,651  |   | $ | (751,952 | ) |
| Adjustments to reconcile net income (loss)to net cash provided by (used in)  operating activities: |   |                             |    |   |   |
| Depreciation and amortization                                                                      |   | 358,154                          |    | 360,739 |   |
| Provision for doubtful accounts                                                                    |   | —                           |    | 14,004 |   |
| Deferred taxes                                                                                     |   | 64,505                           |    | — |   |
| Changes in operating assets andliabilities:                                                        |   |                             |    |   |   |
| Receivables                                                                                        |   | (750,706                         | )       | (184,603 | ) |
| Inventories                                                                                        |   | (28,105                          | )       | 17,912 |   |
| Prepaid expenses and other assets                                                                  |   | 39,057                           |    | (38 | ) |
| Accounts payable                                                                                   |   | 109,368                          |    | 62,504 |   |
| Accrued liabilities and deferred revenues                                                          |   | 243,121                          |    | 458,707 |   |
|                                                                                               |   |                             |    |   |   |
| Net cash provided by (used in)operating activities                                                 |   | 124,045                          |    | (22,727 | ) |
|                                                                                               |   |                             |    |   |   |
| INVESTING ACTIVITIES                                                                               |   |                             |    |   |   |
| Purchases of property and equipment                                                                |   | (35,064                          | )       | (34,127 | ) |
| Capitalized software costs                                                                         |   | (224,280                         | )       | (192,000 | ) |
|                                                                                               |   |                             |    |   |   |
| Net cash used in investingactivities                                                               |   | (259,344                         | )       | (226,127 | ) |
|                                                                                               |   |                             |    |   |   |
| FINANCING ACTIVITIES:                                                                              |   |                             |    |   |   |
| Borrowings on notes payable                                                                        |   | 200,000                          |    | 150,000 |   |
| Payments on notes payable                                                                          |   | (260,000                         | )       | (40,000 | ) |
| Increase in capital lease obligations                                                              |   | —                           |    | 68,251 |   |
| Payments on capital lease obligations                                                              |   | (11,375                          | )       | (11,015 | ) |
| Proceeds from issuance of stock                                                                    |   | 3,500                            |    | 0 |   |
|                                                                                               |   |                             |    |   |   |
| Net cash provided by (used in) financing activities                                                |   | (67,875                          | )       | 167,236 |   |
|                                                                                               |   |                             |    |   |   |
| NET DECREASE IN CASH                                                                               |   | (203,174                         | )       | (81,618 | ) |
|                                                                                               |   |                             |    |   |   |
| Cash, beginning of period                                                                          |   | 661,008                          |    | 618,063 |   |
|                                                                                               |   |                             |    |   |   |
| Cash, end of period                                                                                |   | $                                | 457,834 |   | $ | 536,445 |   |

 

**See Notes to Condensed Consolidated Financial Statements.**

 

6

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**NOTES TO CONDENSED FINANCIAL STATEMENTS**

 

**Note 1.**                                                          Inthe opinion of management, the accompanying unaudited condensed consolidatedfinancial statements reflect all adjustments (which include only normalrecurring accruals) necessary to present fairly the Company’s financialposition as of February 28, 2002, the results of its operations for the threemonths and six months ended February 28, 2002 and 2001, and cash flows for thesix months ended February 28, 2002 and 2001. These results have been determined on the basis of accounting principlesgenerally accepted in the United States of America and practices appliedconsistently with those used in preparation of the Company’s Annual Report onForm 10-KSB for the fiscal year ended August 31, 2001.

 

                                                                                                Theresults of operations for the three months and six months ended February 28,2002 are not necessarily indicative of the results expected for any otherperiod or for the entire year.

 

**Note 2.**                                                          The Companyaccounts for its earnings per share in accordance with SFAS No.128, which requirespresentation of basic and diluted earnings per share.  Basic earnings per share is computed by dividing income or lossavailable to common shareholders by the weighted average number of commonshares outstanding for the reporting period. Diluted earnings per share reflect the potential dilution that couldoccur if securities or other contracts, such as stock options, to issue commonstock were exercised or converted into common stock.  For the three months and six months ended February 28, 2002 and2001, the Company did not include any potential diluted securities, asinclusion would be anti-dilutive.

 

**Note 3.**                                                          The Companyadopted Staff Accounting Bulletin 101, “Revenue Recognition”, (“SAB 101”) atthe beginning of the 2001 fiscal year. SAB 101 provides interpretive guidance on the recognition, presentationand disclosure of revenue in financial statements.  The Company accounts for its software revenue recognition inaccordance with Statement of Position 97-2, “Software Revenue Recognition”,(“SOP 97-2”).   SOP 97-2 requirescompanies to recognize revenue when (i) persuasive evidence of an arrangementexists, (ii) delivery has occurred, (iii) the vendor’s fee is fixed anddeterminable, and (iv) collectability is probable.  The SOP also requires companies to allocate the fee on a multipleelement contract between the various elements based on vendor-specificobjective evidence of fair value.  SAB101 expands on the issues not explicitly covered in the SOP. The Companyelected early adoption of SAB 101 for the first fiscal quarter beginningSeptember 1, 2000.  The impact of SAB101 were timing issues related to the recognition of revenue from the sale ofhardware and software associated with the Company’s Clinical InformationSystems that moved the time of revenue recognition out approximately ninety toone hundred and eighty days.

 

**Note 4.**                                                          The Companyrenewed its line of credit with its bank on January 30, 2002.  The new line provides for $500,000 on arevolving basis through February 1, 2003, and contains certain loan covenantsand financial ratio requirements.  OnFebruary 28, 2002, the total amount due to the bank was $179,351.  The Company was in compliance with all of thecovenants and financial ratios required by its bank as of February 28, 2002.

 

**Note 5.**                          The Company entered into anamendment to its facility-operating lease on January 11, 2002.  The amendment extended the lease term, whichwas to expire on October 31, 2002, to October 31, 2007.  Future minimum lease payments under thefacility lease are $218,131 for fiscal 2002, $253,771 for fiscal 2003, $268,896for fiscal 2004, $276,963 for fiscal 2005, and $285,030 for fiscal 2006.

 

 

**Item 2.****                                                          ****Management’s Discussion andAnalysis of Results of Operations and Financial Condition**

 

                Thisfollowing section of the report contains forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involverisks and uncertainties so that the actual results may vary materially.

 

                CCAgenerates revenues primarily from the sale of its Clinical Information Systems(CIS), which includes the licensure of proprietary application software, andthe sale of servers upon which the application software operates.  In connection with its sales of CIS products,the Company provides implementation services for the installation, integration,and training of end user’s personnel. The Company generates sales of ancillary software and hardware,including its data 

 

7

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acquisition products, to its CIS clients and tothird parties.  The Company alsogenerates recurring revenues from the provision of comprehensive postimplementation services to its CIS clients, pursuant to extended serviceagreements.

 

Beginning the secondquarter of fiscal 2000, and continuing into fiscal 2001, the Companyexperienced decreased sales of its clinical information system products.  Management believes that the decrease wasprimarily attributable to an industry wide slump related to post Y2K issues,the Balanced Budget Act, and concerns about the pending regulations associatedwith the Health Insurance Portability and Accountability Act (HIPAA). Inaddition, the Company’s revenue recognition policies were changed in accordancewith SAB 101 in September 2000. Beginning the third quarter of fiscal 2001, and continuing into fiscal2002, the Company began to experience a turnaround in sales of its CISproducts.  Management believes theindustry and the market for CIS products is recovering, but remains cautiousabout its core business activities until it has a clearer vision ahead.  Accordingly, management has continued torespond to the uncertain market conditions by keeping a tight reign on staffingand other expenses.  In addition to the postY2K slowdown, the entire industry has been concerned with the potential effectsof HIPAA on all healthcare systems.

 

                In order to address issues broughtabout by the HIPAA regulations, the Company is currently developingenhancements to its application products so that they will meet therequirements for the compliance issues. Provisions of HIPAA are intended to ensure patient confidentiality forall health care related information. The requirements of HIPAA apply to any entity storing and/or transmittingpatient identifiable information on electronic media.  This affects virtually all health care organizations, fromphysicians and insurance companies to health care support organizations.  Certain safeguards will be required toaccurately insure the security of patient data.  This will include more robust audit trails and tiered/structuredpassword security when accessing patient data. The increase in patient centered data that must be retained under theHIPAA guidelines will require that systems electronically store much largeramounts of data.  CCA plans on providingits client base with application enhancements that will assist its clients inadhering to HIPAA regulations well before the final date that the newregulations go into effect.  Managementalso believes that the application enhancements will require that many of itsclients will need to upgrade their systems in order to effectively managegreater amounts of data, which will afford the Company opportunities to sellupgrades and provide professional services.

 

 

##### **Results of Operations**

 

Sales for the second quarter of fiscal 2002 endedFebruary 28, 2002 increased by $529,533 or 41% compared to the same quarter offiscal 2001.  For the six-month periodended February 28, 2002, sales increased $1,033,404 or 41% compared to the sameperiod in fiscal 2001.  The Company hasexperienced an increase in sales of Clinical Information Systems (CIS)products, which began in fiscal 2001. Additionally, the Company’s pipeline of new CIS transactions has begunto build back to historical levels.

 

                Whenanalyzed by product category, for the quarter and six-month periods, sales ofCIS products increased $523,449 or 284% and $1,016,370 or 290% respectively,and service revenues increased $69,640 or 8% and $116,328 or 6%respectively.  These increases werepartially offset by a decrease in sales of data acquisition products for thequarter and six-month periods of $63,556 or 35% and $99,294 or 30%respectively.  The increase in revenuesassociated with the Company’s CIS products was primarily attributable to theimproved market conditions discussed above. The decrease in the sale of data acquisition products is primarilyattributable to a lesser number of units shipped to OEM customers.  The increase in service revenues wasattributable to a greater number of customer sites on contract and higheraverage revenues per account.  As aresult of the Company closing larger CIS transactions, the annual service costsassociated with such transactions are proportionally greater.  Service revenues are expected to continue toincrease as the Company’s installed base of CIS installations increases.

 

The Company continues to expand its sales andmarketing activities, directing its focus towards larger clients andmulti-product sales.  The Company hasalso initiated strategic joint marketing partnerships with other companies,which has improved the Company’s market penetration.  As a result of these efforts, its “pipeline” of working CIStransactions has improved.  The Company’sfuture operating results could continue to be subject to quarterly variationsbased upon a wide variety of factors, including the volume mix and timing oforders received during any quarter or annual periods, and the temporary delaysin the closing of new CIS sales.  Inaddition, revenues associated with its CIS transactions may be delayed due tocustomer related issues such as staff availability and the performance of thirdparty contractors.

 

Cost of sales for thesecond quarter and six-month period ended February 28, 2002 increased by$78,207 or 10% and $91,917 or 6% respectively as compared to the same quarterof fiscal 2001.  For the quarter andsix-month period the increase in cost of sales was attributable to an increasein material costs of $103,930 or 181% and $181,713 or 214% 

 

8

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respectively, partially offset by a decreasein labor costs of $5,098 or 1% and $81,669 or 10% respectively, and a decreasein other costs of $20,625 or 6% and $8,127 or 1%.  The increase in material costs was primarily attributable to anincrease in CIS sales during the period. For the current quarter and the six-month period ended February 28,2002, cost of sales as a percentage of sales decreased to 49% from 63% and decreasedto 49% from 65%, respectively.   Thisdecrease was primarily attributable to increased revenues recognized and theCompany maintaining a tight reign on expenses.

 

Selling and administrationexpenses increased by $23,500 or 4% and $55,784 or 5% in comparing the currentquarter and six months ended February 28, 2002 with the same periods of fiscal2001.  The increase was primarilyattributable to an increase in marketing expenses aimed at increasing CCA’smarket penetration.

 

Research and Development expensedecreased $6,160 or 3% and $25,453 or 6% for the current quarter and six monthsended February 28, 2002 compared to the same periods of fiscal 2001.  The decrease is attributable to a greateramount of expenses capitalized in the current periods related to the Company’songoing investment in new products and product enhancements.  The Company continues to expend considerableresources on new product development and product enhancements to currentproducts, including new modules associated with HIPAA compliance functionality.

 

As a result of theaggregate factors discussed above, the Company earned net income of $58,674 orbasic and diluted earnings per share of $0.02 and $88,651 or basic and dilutedearnings per share of $0.03 for the current quarter and six-month period endingFebruary 28, 2002 compared to a net loss of $330,503 or basic and diluted lossper share of $0.10 and $751,952 or basic and diluted loss per share of $0.24 inthe comparable quarter and six-month period one year ago.

 

 

### **Capital Resources and Liquidity**

 

As of February 28, 2002,the Company’s working capital amounted to $952,107 compared to $667,104 atAugust 31, 2001.  The ratio of theCompany’s current assets to current liabilities was approximately 1.4 to 1 atFebruary 28, 2002 compared to 1.3 to 1 at August 31, 2001.

 

The Company’s renewed itsline of credit with its bank on January 30, 2002.  The new line provides for $500,000 on a revolving basis throughFebruary 1, 2003, and contains certain loan covenants and financial ratio requirements.  On February 28, 2002, the total amount duethe bank was $179,351.  The Company wasin compliance with all of the covenants and financial ratios required by its bankas of February 28, 2002.

 

The Company’s primarysource of working capital has been generated from earnings and borrowings onits line of credit.  The Company’sprimary need for capital has been for its continued investment in softwaredevelopment.  The Company’s results ofoperations for the six months ended February 28, 2002 produced EBITDA ofapproximately $512,000.  Managementbelieves that its backlog and sales pipeline is sufficient to produce a similaramount of EBITDA in the second half of the current fiscal year, and accordinglybelieves that its projected cash flow from operations, together with its bankcredit facilities, should be sufficient to fund its working capitalrequirements through the end of its fiscal year.  However, an unanticipated decline in sales or cancellations of contractscould have a negative effect on cash flow from operations and could in turncreate short-term liquidity problems.

 

 

**Seasonality, Inflation and Industry Trends**

 

The Company sales aregenerally lower in the summer and higher in the fall and winter.  Inflation has had no material effect on theCompany business since the Company has been able to adjust the prices of itsproducts and services.  Managementbelieves that most phases of the healthcare segment of the computer industrywill continue to be highly competitive and that potential healthcare reformsincluding those promulgated by HIPAA may have a long-term positive impact onits business.  In addition, managementbelieves that the industry will be marked with more significant technologicaladvances, which will improve the quality of service and reduce costs.  The Company is poised to meet thesechallenges by continuing to employ new technologies when they become available,diversifying its product offerings, improving and expanding its services, andby continuing to enhance its software applications.

 

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**PART II -OTHER INFORMATION**

 

 

Items 1 through 5. NOT APPLICABLE

 

Item 6.    Exhibitsand Reports on Forms 8-K

 

(a)           Exhibit 11 - Statement re: computation of per shareearnings.

 

(b)           There were no reports filed on Form 8-K during the quarterended February 28, 2001.

 

 

 

 

**SIGNATURES**

 

 

Inaccordance with the requirements of the Exchange Act, the Company caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 

**CREATIVECOMPUTER APPLICATIONS, INC.**

(Company)

 

 

 
| **Date:** | April 11, 2002 |   |      /S/  Steven M. Besbeck |
|-----------|----------------|--------|------------------------------------------------------|
|      |           |   | Steven. M. Besbeck, President                        |
|      |           |   | Chief Executive Officer, Chief                       |
|      |           |   | Financial Officer                                    |

 

 

 
| **Date:** | April 11, 2002 |   |     /S/  Anahita Villafane |
|-----------|----------------|--------|------------------------------------------------|
|      |           |   | Anahita Villafane                              |
|      |           |   | Controller and Chief Accounting Officer        |

 

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