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, 2001 o      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. Employerincorporation or
  organization)
  Identification No.)26115-A Mureau
  Road, Calabasas, California 91302(Address of
  principal executive offices)(818) 880-6700Issuer'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. YesX   No______  State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: 
3,221,025 common shares as of July 11, 2001. Transitional
Small Business Disclosure Format (check one): Yes______  NoX__   CREATIVE
COMPUTER APPLICATIONS, INC.

FORM
10-QSB

I N D E
X

PART I-
Financial Information:

Condensed Consolidated
Balance Sheets at May 31, 2001 and August 31, 2000

Condensed
Consolidated Statements of Operations for the three months ended May 31, 2001
and May 31, 2000

Condensed
Consolidated Statements of Operations for the nine months ended May 31, 2001
and May 31, 2000

Condensed
Consolidated Statements of Cash Flows for the nine months ended May 31, 2001
and May 31, 2000

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

CREATIVE
COMPUTER APPLICATIONS, INC.

PART 1
- FINANCIAL INFORMATION

CONDENSED CONSOLIDATED BALANCE
SHEETS

May
  31,
  2001
  August
  31,
  2000*(Unaudited)ASSETSCURRENT ASSETS:Cash
  $562,741
  $618,063Receivables, net
  1,498,942
  1,230,184Inventories
  238,623
  267,796Prepaid expenses and other assets
  176,837
  126,633Deferred tax asset
  639,500
  639,500TOTAL CURRENT ASSETS
  3,116,643
  2,882,176PROPERTY AND
  EQUIPMENT, net
  391,032
  558,451INVENTORY OF COMPONENT
  PARTS
  350,631
  395,631CAPITALIZED SOFTWARE
  COSTS, net of accumulated amortization of $1,038,529 and $744,351
  1,319,290
  1,310,468INTANGIBLES, net
  121,192
  170,536DEFERRED TAX ASSET
  591,000
  591,000OTHER ASSETS
  4,253
  7,601TOTAL ASSETS
  $5,894,041
  $5,915,863LIABILITIES
  AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES:Notes payable to bank (Note 4)
  $200,000
  $140,000Accounts payable
  188,463
  211,136Accrued liabilities:Vacation Pay
  172,481
  184,821Other
  309,795
  251,697Deferred service contract income
  896,699
  844,926Deferred revenue
  885,451
  390,973TOTAL CURRENT LIABILITIES
  2,652,889
  2,023,553CAPITAL LEASE
  51,549
  -TOTAL LIABILITIES
  2,704,438
  2,023,553SHAREHOLDERS' EQUITY:Common shares, no par value; 20,000,000 shares
  authorized; 3,221,025 and 3,173,575 shares outstanding
  6,108,164
  6,092,144Accumulated deficit
  (2,918,561)
  (2,199,834)TOTAL SHAREHOLDERS' EQUITY
  3,189,603
  3,892,310TOTAL LIABILITIES &
  SHAREHOLDERS EQUITY
  $5,894,041
  $5,915,863See Notes to Condensed
ConsolidatedFinancial Statements.

* As presented in the audited consolidatedfinancial
statements

CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS

Three
  Months Ended May 312001
  2000(unaudited)NET SYSTEM SALES AND
  SERVICE REVENUE (Note 3)System sales
  $729,101
  $495,655Service revenues
  897,720
  813,7131,626,821
  1,309,368COST OF PRODUCTS AND
  SERVICES SOLDSystem sales
  446,938
  526,074Service revenue
  394,750
  418,886841,688
  944,960Gross profit
  785,133
  364,408OPERATING EXPENSES:Selling, general and administrative
  557,873
  760,138Research and development
  194,438
  212,886752,311
  973,024Operating income (loss)
  32,822
  (608,616)INTEREST AND OTHER
  INCOME
  7,838
  5,390INTEREST EXPENSE
  (7,435)
  (2,365)Income (loss) before taxes on
  income
  33,225
  (605,591)INCOME TAX BENEFIT
  -
  142,000NET INCOME (LOSS)
  $33,225
  ($463,591)EARNINGS (LOSS) PER
  COMMON SHARE (Note 2):Basic
  $.01
  ($.15)Diluted
  $.01
  ($.15)WEIGHTED AVERAGE
  NUMBER OF SHARES OUTSTANDINGBasic
  3,185,325
  3,166,425Diluted
  3,185,325
  3,166,425See
Notes to Condensed ConsolidatedFinancial
Statements.

CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

Nine Months Ended May 312001
  2000(unaudited)NET SYSTEM SALES AND
  SERVICE REVENUE (Note 3)System sales
  $1,408,643
  $3,610,247Service revenues
  2,726,512
  2,266,3434,135,155
  5,876,590COST OF PRODUCTS AND
  SERVICES SOLDSystem sales
  1,244,782
  2,132,928Service revenue
  1,226,765
  1,285,0392,471,547
  3,417,967Gross profit
  1,663,608
  2,458,623OPERATING EXPENSES:Selling, general and administrative
  1,771,119
  2,161,293Research and development
  616,252
  599,0352,387,371
  2,760,328Operating loss
  (723,763)
  (301,705)INTEREST AND OTHER
  INCOME
  24,799
  15,759INTEREST EXPENSE
  (19,763)
  (10,536)Loss before taxes on income
  (718,727)
  (296,482)INCOME TAX PROVISION
  -
  -NET LOSS
  ($718,727)
  ($296,482)LOSS PER COMMON SHARE
  (Note 2)Basic
  ($.23)
  ($.09)Diluted
  ($.23)
  ($.09)WEIGHTED AVERAGE
  NUMBER OF SHARES OUTSTANDINGBasic
  3,177,492
  3,141,703Diluted
  3,177,492
  3,141,703See
Notes to Condensed ConsolidatedFinancial
Statements.

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase
(Decrease) in Cash

Nine
  Months Ended May 312001
  2000(unaudited)OPERATING ACTIVITIES:Net loss
  ($718,727)
  ($296,482)Adjustments to reconcile net loss
  to net cash provided by operating activities:Depreciation and
  amortization
  546,601
  480,693Provision for doubtful
  accounts
  14,004
  39,583Changes in operating assets and
  liabilities:Receivables
  (282,762)
  1,177,185Inventories
  74,173
  65,600Prepaid expenses and other
  assets
  (46,856)
  (8,371)Accounts payable
  (22,673)
  (285,666)Accrued liabilities and
  deferred revenues
  592,009
  (862,232)Net cash provided by
  operating activities
  155,769
  310,310INVESTING ACTIVITIESAdditions to property and equipment
  (35,660)
  (121,887)Capitalized software costs
  (303,000)
  (291,080)Net cash used in investing
  activities
  (338,660)
  (412,967)FINANCING ACTIVITIES:Additions to notes payable
  150,000
  -Payments on notes payable
  (90,000)
  (117,488)Increase in capital lease
  obligations
  68,251
  -Payments on capital lease
  obligations
  (16,702)
  -Proceeds from exercise of stock
  options
  16,020
  63,550Net cash provided by (used in)
  financing activities
  127,569
  (53,938)NET DECREASE IN CASH
  (55,322)
  (156,595)Cash, beginning of
  period
  618,063
  650,271Cash, end of period
  $562,741
  $493,676See Notes to Condensed ConsolidatedFinancial
Statements.

NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

Note 1.In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments (which
include only normal recurring accruals) necessary to present fairly the
Companys financial position as of May 31, 2001, the results of its operations
for the three months and nine months ended May 31, 2001 and 2000, and cash
flows for the nine months ended May 31, 2001 and May 31, 2000.  These results have been determined on the
basis of generally accepted accounting principals and practices applied
consistently with those used in the preparation of the Companys Annual Report
on Form 10-KSB for the fiscal year end August 31, 2000.

The results of operations for the
three months and nine months ended May 31, 2001 are not necessarily indicative
of the results to be expected for any other period or for the entire year.

Note 2.The Company accounts for its
Earnings Per Share in accordance with SFAS No. 128, which requires presentation
of basic and diluted earnings per share. 
Basic earnings per share is computed by dividing income or loss
available to common shareholders by the weighted average number of common
shares outstanding for the reporting period. 
Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts, such as stock options and warrants, to
issue common stock were exercised or converted into common stock.  For the three and nine months ended May 31,
2001, the Company did not include any potential diluted shares, 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 year 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 ninety to one hundred and eighty days.

Note 4.The Company renewed its line of
credit with its bank on April 10, 2001. 
The new line provides for $500,000 on a revolving basis through February
1, 2002, and contains certain loan covenants and financial ratio
requirements.  On May 31, 2001, the
total amount due to the bank was $200,000. 
The Company was not in compliance with some of the covenants and
financial ratios required by its bank as of May 31, 2001, but had obtained a
waiver.

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.

Beginning the second quarter of
fiscal 2000, and continuing into fiscal 2001,the
Company experienced decreased sales of its clinical information system
products.  Management believes that the
decrease was primarily attributable to an industry wide slump related to post
Y2K issues, the Balanced Budget Act, and concerns about the pending regulations
associated with the Health Insurance Portability and Accountability Act
(HIPAA). In addition, the Companys revenue recognition policies were changed
in accordance with SAB 101, discussed below. 
In the current third quarter, the Company began to experience a
turnaround in sales of its CIS products. 
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 and general economic conditions.  However, due to the improved sales and
revenues recognized in the current third quarter the Company earned net income
of $33,225.

The
Company has been able to continue 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 HIPAA 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 will 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 exceed the
safeguards that may be currently embedded in the application software and
equipment provided and serviced by the Company.  The Company warrants to its clients that it will provide the
modifications to its application software that will assist them in adhering to
applicable HIPAA regulations. The Company believes it will complete all the
HIPAA related modifications and make them available to its clients well before
the deadline for the imposition of the regulations.

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 Company intended to offer its
proprietary application software to clients on a monthly subscription
basis.  Xymed.com would also provide the
servers that host the application software, as well the Companys data center
services and application software support. To date, the Company has invested
considerable resources in developing its ASP offering, but due to current
conditions has delayed further investment. 
The Company is reevaluating the opportunities for ASP offerings in light
of HIPAA related issues, and the slow market acceptance for ASP services in the
healthcare industry.  The Company has
achieved technical feasibility and presently intends to use the ASP delivery
infrastructure to provide on-line demonstrations of its applications and for
enhanced training.

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 provided
additional guidance that lead management to determine that SAB 101 would have a
material effect on the financial statements for at least a couple of quarters.  The Company elected early adoption of SAB
101 for the first fiscal quarter beginning September 1, 2000.  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 ninety to one hundred and eighty days.

Results of Operations

Sales
for the third quarter of fiscal 2001 ended May 31, 2001 increased by $317,453
or 24% compared to the same quarter of fiscal 2000.  For the nine-month period ended May 31, 2001 sales decreased
$1,741,435 or 30% compared to the same period in fiscal 2000.  The Company has experienced a decrease in
sales of Clinical Information Systems (CIS) products, which began fiscal
2000.  Management believes that the
general decrease is attributable to post Y2K issues, the Balanced Budget Act,
and concerns about pending regulations associated with HIPAA discussed above.
As a result of the adoption of SAB 101, the recognition of revenue from the
sales of hardware and software associated with the Companys Clinical
Information Systems is estimated to be extended by approximately ninety to one
hundred and eight days.  In the third quarter
of fiscal 2001, the Company began to recognize revenues deferred in the first
and second fiscal quarters of 2001, resulting in higher revenues as compared to
the same quarter of fiscal 2000.

When
analyzed by product category for the quarter, sales of CIS products increased
by $153,093 or 44%, sales of data acquisition products increased by $80,353 or
54%, and service revenues increased by $84,007 or 10%. For the nine -month
period ended May 31, 2001, sales of CIS products decreased $2,312,960 or 73%,
sales of data acquisition products increased $111,356 or 25%, and service
revenues increased $460,169 or 20%.  The
decrease in revenues for the nine months associated with the Companys CIS
products was primarily attributable to the general market conditions discussed
above and the effect of adoption of SAB 101. 
As a result of improved sales of CIS products, the Company began to
experience a turnaround in systems revenues recognized in the third quarter of
fiscal 2001.  The increase in the sale
of data acquisition products is primarily attributable to a greater number of
units shipped to existing customers, and new placements associated with the
increase in CIS sales for the quarter. 
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 third quarter and nine month period ended May 31, 2001
decreased by $103,272 or 11% and $946,420 or 28% respectively as compared to
the same quarter and nine month period of 2000.  For the quarter and nine month period the decrease in costs of
sales was primarily attributable to the decrease in labor costs of $103,526 or
20% and $290,167 or 19%, respectively, which was offset by an increase in
material costs for the quarter of $42,218 or 80% and a decrease of $440,363 or
71% for the nine months, and decreases in other costs of $41,964 or 11%
and  $215,890 or 17% respectively.  The overall fluctuations in material, labor,
and other costs were attributable to the decrease in CIS sales during the
nine-month period and the concurrent deferral of some costs associated with SAB
101.  For the current quarter and nine
month period ended May 31, 2001, cost of sales as a percentage of sales
decreased to 52% from 72% and increased to 60% from 58% respectively.    Since a substantial portion of the
Companys cost of sales are fixed, fluctuations in revenues recognized in any
period may affect the gross margins.

Selling and
administration expenses decreased $202,265 or 27% and $390,174 or 18% in
comparing thecurrent quarter and nine
months ended May 31, 2001 with the same periods 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
decreased $18,448 or 9% for the current quarter and increased $17,217 or 3% for
the nine months ended May 31, 2001, compared to the same periods of fiscal
2000.  The decrease in product
development expense for the current quarter is attributable to reduced staffing
and a slight increase in capitalized software. The increase for the nine months
ended May 31, 2001 is attributable to the additional personnel resources
employed previously in new product development activities. The Company
continues to expend considerable resources on new product development and
product enhancements, much of which is associated with HIPAA compliance.

As a result of the aggregate
factors discussed above the Company earned net income of $33,225 or basic and
diluted earnings per share of $.01 for the current fiscal quarter compared to
net loss of $463,591 or basic and diluted net loss per share of $.15 for the
comparable third quarter of fiscal 2000. 
For the nine month period ending May 31, 2001, the Company incurred a
net loss of $718,727 or basic and diluted loss per share of $.23 compared to
net loss of $296,482 or basic and diluted net loss per share of $.09 for the
comparable nine month period one year ago.

Capital Resources and Liquidity

As of May 31, 2001, the Companys
working capital amounted to $463,754 compared to $858,623 at August 31,
2000.  The ratio of the Companys
current assets to current liabilities was approximately 1.2 to 1 at May 31,
2001 compared to 1.4 to 1 at August 31, 2000.

The
Company renewed its line of credit with its bank on April 10, 2001.  The new credit facility provides for
$500,000 on a revolving basis through February 1, 2002, and contains certain
loan covenants and financial ratio requirements.  On May 31, 2001, the total amount due the bank was $200,000.  The Company was not in compliance with some
of the covenants and financial ratios required by its bank as May 31, 2001, but
had obtained a waiver.

The Company believes that its cash
flows from operations together with its bank credit facilities should be
sufficient to fund its working capital requirements for the next 12 months.

Seasonality, Inflation and
Industry Trends

The
Company sales are generally lower in the summer and higher in the fall and
winter.  Inflation has had no material
effect on the Company business since the Company has been able to adjust the
prices of its products and services. 
Management believes that most phases of the healthcare segment of the
computer 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 May 31, 2001.

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 11, 2001
  /s/  Steven M. BesbeckSteven. M. Besbeck,
  President Chief Executive Officer, Chief Financial OfficerDate:
  July 11, 2001
  /s/  Ana VillafaneAna Villafane
  Controller and Chief Accounting Officer