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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
 FORM 10-Q (X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2004 OR ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from  to Commission file number 0-16569 CAM COMMERCE SOLUTIONS, INC. (Exact name of registrant as specified in its Charter) Delaware
    
    95-3866450(State or other jurisdiction
of incorporation or organization)
    
    (IRS Employer
Identification No.)17075 Newhope Street
    
    92708Fountain Valley, California(Address of principal
    
    (Zip code)Executive offices)
 (714) 241-9241 (Registrants telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 (  ) Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes (  ) No (X) As of May 3, 2004 there were 3,657,800 shares of common stock outstanding.




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CAM COMMERCE SOLUTIONS, INC. INDEX  
 Page NumberPART I Financial InformationItem 1
    
    Financial Statements:a)
    
    Unaudited Condensed Balance Sheets at March 31, 2004 and September 30, 2003
    
    
    3b)
    
    Unaudited Condensed Statements of Operations for the three months ended March 31, 2004 and 2003
    
    
    4c)
    
    Unaudited Condensed Statements of Operations for the six months ended March 31, 2004 and 2003
    
    
    5d)
    
    Unaudited Condensed Statements of Cash Flows for the six months ended March 31, 2004 and 2003
    
    
    6e)
    
    Notes to Unaudited Condensed Financial Statements
    
    
    7-12Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13-20Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    21Item 4
    
    Controls and Procedures
    
    
    21PART II Other InformationItem 1
    
    Legal Proceedings
    
    
    22Item 2
    
    Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities
    
    
    22Item 3
    
    Defaults Upon Senior Securities
    
    
    22Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    22Item 5
    
    Other Information
    
    
    22Item 6
    
    Exhibits and Reports on Form 8-K
    
    
    22-23Signature Page
    
    
    
    
    24EXHIBIT 3.(b)EXHIBIT 31.(a)EXHIBIT 31.(b)EXHIBIT 32
 2




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements CAM COMMERCE SOLUTIONS, INC. 
 UNAUDITED CONDENSED BALANCE SHEETS (In thousands) MARCH 31, 2004
    
    SEPTEMBER 30, 2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,086
    
    
    $
    10,889Marketable available-for-sale securities
    
    
    1,269
    
    
    
    1,541Accounts receivable, net
    
    
    1,218
    
    
    
    1,214Inventories
    
    
    345
    
    
    
    272Other current assets
    
    
    145
    
    
    
    102Total current assets
    
    
    17,063
    
    
    
    14,018Property and equipment, net
    
    
    606
    
    
    
    710Intangible assets, net
    
    
    801
    
    
    
    908Other assets
    
    
    271
    
    
    
    305Total assets
    
    $
    18,741
    
    
    $
    15,941LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    479
    
    
    $
    518Accrued compensation and related expenses
    
    
    858
    
    
    
    687Deferred service revenue and customer deposits
    
    
    1,735
    
    
    
    1,455Other accrued liabilities
    
    
    264
    
    
    
    263Total current liabilities
    
    
    3,336
    
    
    
    2,923Stockholders equity:Common stock
    
    
    4
    
    
    
    3Paid-in capital in excess of par value
    
    
    15,826
    
    
    
    14,271Accumulated other comprehensive income
    
    
    4
    
    
    
    23Accumulated deficit
    
    
    (429
    )
    
    
    (1,279
    )Total stockholders equity
    
    
    15,405
    
    
    
    13,018Total liabilities and stockholders equity
    
    $
    18,741
    
    
    $
    15,941
 See accompanying notes. 3




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CAM COMMERCE SOLUTIONS, INC. 
 UNAUDITED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share data) THREE MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31, 2003REVENUESNet hardware, software and installation revenues
    
    $
    3,583
    
    
    $
    3,170Net service revenues
    
    
    2,217
    
    
    
    1,749Total net revenues
    
    
    5,800
    
    
    
    4,919COSTS AND EXPENSESCost of hardware, software and installation revenues
    
    
    1,700
    
    
    
    1,639Cost of service revenues
    
    
    543
    
    
    
    552Total cost of revenues
    
    
    2,243
    
    
    
    2,191Selling, general and administrative expenses
    
    
    2,747
    
    
    
    2,608Research and development expenses
    
    
    380
    
    
    
    495Interest income
    
    
    (82
    )
    
    
    (63
    )Total costs and expenses
    
    
    5,288
    
    
    
    5,231Income (loss) before provisions for income taxes
    
    
    512
    
    
    
    (312
    )Provisions for income taxes
    
    
    37
    
    
    
    Net income (loss)
    
    $
    475
    
    
    $
    (312
    )Basic net income (loss) per share
    
    $
    0.14
    
    
    $
    (0.10
    )Diluted net income (loss) per share
    
    $
    0.12
    
    
    $
    (0.10
    )Shares used in computing basic net income (loss) per share
    
    
    3,484
    
    
    
    3,109Shares used in computing diluted net income (loss) per share
    
    
    3,920
    
    
    
    3,109
 See accompanying notes. 4




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CAM COMMERCE SOLUTIONS, INC. 
 UNAUDITED CONDENSED STATEMENTS OF OPERATIONS (In thousands, except per share data) SIX MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31, 2003REVENUESNet hardware, software and installation revenues
    
    $
    6,820
    
    
    $
    6,390Net service revenues
    
    
    4,280
    
    
    
    3,409Total net revenues
    
    
    11,100
    
    
    
    9,799COSTS AND EXPENSESCost of hardware, software and installation revenues
    
    
    3,353
    
    
    
    3,228Cost of service revenues
    
    
    1,077
    
    
    
    1,073Total cost of revenues
    
    
    4,430
    
    
    
    4,301Selling, general and administrative expenses
    
    
    5,168
    
    
    
    5,166Research and development expenses
    
    
    749
    
    
    
    965Interest income
    
    
    (163
    )
    
    
    (137
    )Total costs and expenses
    
    
    10,184
    
    
    
    10,295Income (loss) before provisions for income taxes
    
    
    916
    
    
    
    (496
    )Provisions for income taxes
    
    
    66
    
    
    
    Net income (loss)
    
    $
    850
    
    
    $
    (496
    )Basic net income (loss) per share
    
    $
    0.25
    
    
    $
    (0.16
    )Diluted net income (loss) per share
    
    $
    0.23
    
    
    $
    (0.16
    )Shares used in computing basic net income (loss) per share
    
    
    3,384
    
    
    
    3,109Shares used in computing diluted net income (loss) per share
    
    
    3,744
    
    
    
    3,109
 See accompanying notes. 5




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CAM COMMERCE SOLUTIONS, INC. 
 UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) SIX MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31, 2003Operating activities:Net income (loss)
    
    $
    850
    
    
    $
    (496
    )Adjustments to reconcile net income (loss) to net
cash provided by operations:Depreciation and amortization
    
    
    442
    
    
    
    544Provision for doubtful accounts
    
    
    
    
    
    
    25Changes in operating assets and liabilities:Accounts receivable
    
    
    (4
    )
    
    
    382Inventories
    
    
    (73
    )
    
    
    (43
    )Other assets
    
    
    (9
    )
    
    
    15Accounts payable
    
    
    (39
    )
    
    
    (42
    )Accrued compensation and related expenses
    
    
    171
    
    
    
    52Deferred service revenue and customer deposits
    
    
    280
    
    
    
    94Other accrued liabilities
    
    
    1
    
    
    
    (24
    )Cash provided by operating activities
    
    
    1,619
    
    
    
    507Investing activities:Purchase of property and equipment
    
    
    (81
    )
    
    
    (128
    )Capitalized software development costs
    
    
    (150
    )
    
    
    (146
    )Change in marketable securities
    
    
    253
    
    
    
    Cash provided by (used in) investing activities
    
    
    22
    
    
    
    (274
    )Financing activities:Proceeds from exercise of stock options and
warrants
    
    
    1,556
    
    
    
    Cash provided by financing activities
    
    
    1,556
    
    
    
    Net increase in cash and cash equivalents
    
    
    3,197
    
    
    
    233Cash and cash equivalents at beginning of period
    
    
    10,889
    
    
    
    9,093Cash and cash equivalents at end of period
    
    $
    14,086
    
    
    $
    9,326
 See accompanying notes. 6




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CAM COMMERCE SOLUTIONS, INC. 
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (In thousands, except per share data) ORGANIZATION AND BUSINESS CAM Commerce Solutions, Inc. (the Company) was incorporated in California in
1983, and reincorporated in Delaware in 1987. The Companys principal business
is to provide total commerce solutions for small-to-medium size, traditional
and Web retailers. These solutions are based on the Companys open
architecture software products for managing inventory, point of sale, sales
transaction processing, accounting, and payment processing. In addition to
software, these solutions often include hardware, installation, training,
service and credit card processing services provided by the Company. Sales,
service, research, and development are located in California and Nevada, while
the Companys customers are located throughout the United States. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Presentation of Condensed Financial Statements The accompanying financial statements of the Company for the three and six
months ended March 31, 2004 and 2003 are unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
statements have been included. Such adjustments consisted only of normal
recurring items. Interim results are not necessarily indicative of results for
a full year. The condensed financial statements and notes are presented as
permitted by Form 10-Q and, therefore, should be read in conjunction with the
Companys Annual Report on Form 10-K for the year ended September 30, 2003. Cash Equivalents Cash equivalents represent highly liquid investments with original maturities
of three months or less. Marketable Securities All investment securities are considered to be available-for-sale and are
carried at fair value. Management determines the classification at the time of
purchase and re-evaluates its appropriateness at each balance sheet date. The
Companys marketable securities at March 31, 2004 and September 30, 2003
consist of debt instruments that bear interest at various rates and mature in
fiscal year 2004. The gross unrealized gains on securities available-for-sale
at March 31, 2004 and September 30, 2003 were $4 and $23, respectively. There
were no realized gains (losses) for the three and six months ended March 31,
2004 and 2003. Concentrations of Credit Risk The Company sells its products primarily to small-to-medium size retailers.
Credit is extended based on an evaluation of the customers financial
condition, and collateral is generally not required. Credit losses have
traditionally been minimal and such losses have been within managements
expectations. Inventories Inventories are stated at the lower of cost or market determined on a first-in,
first-out basis, or net realizable value. Inventories are composed of finished
goods, which include electronic point of sale hardware and computer equipment
used in the sale and service of the Companys products. 7




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (In thousands, except per share data) Comprehensive Income (Loss) The following table presents the calculation of comprehensive income (loss): THREE MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31, 2003Net income (loss)
    
    $
    475
    
    
    $
    (312
    )Unrealized gain (loss) on marketable
securities
available for sale, net of tax
    
    
    (13
    )
    
    
    4Comprehensive income (loss)
    
    $
    462
    
    
    $
    (308
    )
 SIX MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31, 2003Net income (loss)
    
    $
    850
    
    
    $
    (496
    )Unrealized gain (loss) on marketable
securities
available for sale, net of tax
    
    
    (19
    )
    
    
    11Comprehensive income (loss)
    
    $
    831
    
    
    $
    (485
    )
 Revenue Recognition Policy The Companys revenue recognition policy is significant because revenue is a
key component of results of operations. In addition, revenue recognition
determines the timing of certain expenses such as commissions. Specific
guidelines are followed to measure revenue, although certain judgments affect
the application of our revenue policy. The Company recognizes revenue in
accordance with Statement of Position 97-2 (SOP 97-2), Software Revenue
Recognition, as amended and interpreted by Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions, and Staff Accounting Bulletin No. 104 (SAB 104) Revenue
Recognition. SAB 104 provides further interpretive guidance for public
companies on the recognition, presentation, and disclosure of revenue in
financial statements. The Company derives revenue from the sale of computer hardware, licensing of
computer software, post contract support (PCS), installation and training
services, and payment processing services. System revenue from hardware sales
and software licensing is recognized when a system purchase agreement has been
signed, the hardware and software has been shipped, there are no uncertainties
surrounding product acceptance, the pricing is fixed and determinable, and
collection is considered probable. If a sales transaction contains an
undelivered element, the vendor-specific objective evidence (VSOE) of fair
value of the undelivered element is deferred and the revenue recognized once
the element is delivered. The undelivered elements are primarily installation
and training services. Revenue related to these services are deferred and
recognized when the services have been provided. VSOE of fair value for
installation and training services are based upon standard rates charged since
those services are always sold separately. Installation and training services
are separately priced, are generally available from other suppliers and not
essential to the functionality of the software products. Payments for our
hardware and software are typically due with an initial deposit payment upon
signing the system purchase agreement, with the balance due upon delivery,
although established relationship customers in good credit standing receive
thirty day payment terms. VSOE of fair value for PCS is the price the customer
is required to pay since it is sold separately. 8




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (In thousands, except per share data) PCS services are billed on a monthly basis and recorded as revenue in the
applicable month, or on an annual basis with the revenue being deferred and
recognized ratably over the support period. Payment processing revenue is
recognized in the period the service is performed, and is paid to the Company
on a monthly basis. If an arrangement includes multiple elements, the fees are
allocated to the various elements based upon VSOE of fair value, as described
above. Recently Issued Accounting Announcements In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities.
FIN 46 requires that if an entity has a controlling financial interest in a
variable interest entity, the assets, liabilities and results of activities of
the variable interest entity should be included in the consolidated financial
statements of the entity. FIN 46 is effective immediately for all new variable
interest entities created or acquired after January 31, 2003. For variable
interest entities created or acquired prior to February 1, 2003, the provisions
of FIN 46 must be applied for the first interim or annual period beginning
after December 15, 2003. The adoption of FIN 46 did not a material impact on
the Companys results of operations, financial position or cash flows. Intangible Assets The Company capitalizes costs incurred to develop new marketable software and
enhance the Companys existing systems software. Costs incurred in creating
the software are charged to expense when incurred as research and development
until technological feasibility has been established through the development of
a detailed program design. Once technological feasibility has been
established, software production costs are capitalized and reported at the
lower of amortized cost or net realizable value. License agreements and capitalized software costs are amortized on the
straight-line method over estimated useful lives ranging from three to five
years. Amortization of capitalized software costs commence when the products
are available for general release to customers. Reclassifications Certain reclassifications have been made to the fiscal 2003 financial
statements to conform to the fiscal 2004 presentation. Use of Estimates The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and reported amounts of net
revenue and expenses during the reporting period. The Company regularly
evaluates estimates and assumptions related to allowances for doubtful
accounts, goodwill and intangible asset valuations, deferred income tax asset
valuation allowances, and other contingencies. The estimates and assumptions
are based on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. To the extent
there are material differences between our estimates and the actual results,
our future results of operations will be affected. Shipping and Handling Shipping and handling fees and costs are included in the statement of
operations under the line items titled Net hardware, software and installation
revenues and Cost of hardware, software and installation revenues. 9




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (In thousands, except per share data) Net Income (Loss) Per Share Basic net income (loss) per share is based upon the weighted average number of
common shares outstanding for each period presented. Diluted net income (loss)
per share is based upon the weighted average number of common shares and common
equivalent shares outstanding for each period presented. Common equivalent
shares include stock options and warrants assuming conversion under the
treasury stock method. Common equivalent shares are excluded from diluted
income (loss) per share if their effect is anti-dilutive. Options and warrants
outstanding for the three and six months ended March 31, 2004 and 2003, which
were excluded from the diluted income (loss) per share computation because
their effect is anti-dilutive, were as follows: THREE MONTHS ENDED
    
    SIX MONTHS ENDEDMARCH 31,
    
    MARCH 31,
    
    MARCH 31,
    
    MARCH 31,2004
    
    2003
    
    2004
    
    2003Options
    
    
    5
    
    
    
    1,067
    
    
    
    6
    
    
    
    1,067Warrants
    
    
    175
    
    
    
    350
    
    
    
    263
    
    
    
    350
 The computations of basic and diluted net income (loss) per share for the three
and six month periods ended March 31, 2004 and 2003 is as follows: THREE MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31,2003Numerator:Net income (loss) for basic and diluted net
income (loss) per share
    
    $
    475
    
    
    $
    (312
    )Denominator:Weighted-average shares outstanding
    
    
    3,484
    
    
    
    3,109Denominator for basic net income (loss) per share:Weighted-average shares
    
    
    3,484
    
    
    
    3,109Effect of dilutive securities:Stock options
    
    
    436
    
    
    
    Denominator for diluted net income (loss) per
share:Weighted average shares and assumed conversions
    
    
    3,920
    
    
    
    3,109Basic net income (loss) per share
    
    $
    0.14
    
    
    $
    (0.10
    )Diluted net income (loss) per share
    
    $
    0.12
    
    
    $
    (0.10
    )
 10




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (In thousands, except per share data) SIX MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31,2003Numerator:Net income (loss) for basic and diluted net
income (loss) per share
    
    $
    850
    
    
    $
    (496
    )Denominator:Weighted-average shares outstanding
    
    
    3,384
    
    
    
    3,109Denominator for basic net income (loss) per share:Weighted-average shares
    
    
    3,384
    
    
    
    3,109Effect of dilutive securities:Stock options
    
    
    360
    
    
    
    Denominator for diluted net income (loss) per
share:Weighted average shares and assumed conversions
    
    
    3,744
    
    
    
    3,109Basic net income (loss) per share
    
    $
    0.25
    
    
    $
    (0.16
    )Diluted net income (loss) per share
    
    $
    0.23
    
    
    $
    (0.16
    )
 Stock Option Plans The Company follows the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123), as amended by SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, and, accordingly, accounts for its
stock-based compensation plans using the intrinsic value method under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations. The following tables illustrate the
effect on net income (loss) and income (loss) per share had compensation
expense for the employee stock-based plans been recorded based on the fair
value method under SFAS No. 123: THREE MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31, 2003Net income (loss), as reported
    
    $
    475
    
    
    $
    (312
    )Deduct: total stock-based employee
compensation expense
determined under fair value based
method, net of related tax effects
    
    
    (47
    )
    
    
    (57
    )Net income (loss), as adjusted
    
    $
    428
    
    
    $
    (369
    )Basic income (loss) per share:As reported
    
    $
    0.14
    
    
    $
    (0.10
    )As adjusted
    
    $
    0.12
    
    
    $
    (0.12
    )Diluted income (loss) per share:As reported
    
    $
    0.12
    
    
    $
    (0.10
    )As adjusted
    
    $
    0.11
    
    
    $
    (0.12
    )
 11




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2004 (In thousands, except per share data) SIX MONTHS ENDEDMARCH 31, 2004
    
    MARCH 31, 2003Net income (loss), as reported
    
    $
    850
    
    
    $
    (496
    )Deduct: total stock-based employee
compensation expense
determined under fair value based
method, net of related tax effects
    
    
    (107
    )
    
    
    (120
    )Net income (loss), as adjusted
    
    $
    743
    
    
    $
    (616
    )Basic income (loss) per share:As reported
    
    $
    0.25
    
    
    $
    (0.16
    )As adjusted
    
    $
    0.22
    
    
    $
    (0.20
    )Diluted income (loss) per share:As reported
    
    $
    0.23
    
    
    $
    (0.16
    )As adjusted
    
    $
    0.20
    
    
    $
    (0.20
    )
 12




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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations CAM COMMERCE SOLUTIONS, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 2004 as Compared to Three Months Ended March 31, 2003 Six Months Ended March 31, 2004 as Compared to Six Months Ended March 31, 2003 (All dollar amounts in thousands) CAUTIONARY STATEMENT You should read the following discussion and analysis with our Unaudited
Condensed Financial Statements and related Notes thereto contained elsewhere in
this Report. We urge you to carefully review and consider the various
disclosures made in this report and in our other reports filed with the
Securities and Exchange Commission. The section entitled Risk Factors set forth below, and similar discussions in
our other SEC filings, discuss some of the important risk factors that may
affect the business, results of operations and financial condition. You should
carefully consider those risks, in addition to the other information in this
Report and in our other filings with the SEC, before deciding to purchase, hold
or sell our common stock. OVERVIEW We provide total commerce solutions for traditional and web retailers that are
based on our open architecture software products for inventory management,
point of sale, sales transaction processing, accounting, and payment
processing. These solutions often include hardware, installation, training,
service, and payment processing services provided by us. FORWARD LOOKING STATEMENTS All statements included or incorporated by reference in this Report, other than
statements of historical fact or explanatory statements are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Examples of forward-looking statements include, but are not limited
to, statements concerning projected revenue, expenses, gross profit, gross
margin and income, our accounting estimates, assumptions and judgments, the
impact of our adoption of new rules on accounting for goodwill and other
intangible assets, the effectiveness of our expense and cost control and
reduction efforts, the market acceptance and performance of our products,
implications of our lengthy sales cycle, the competitive nature in our markets,
and our future capital requirements. These forward-looking statements are based
on our current expectation, estimates and projections about our industry,
managements beliefs, and certain assumptions made by us. Forwardlooking
statements can often be identified by words such as anticipates, expects,
intends, plans, predicts, believes, seeks, estimates, may,
will, should, would, potential, continue, feels, outlook,
forecast, optimistic, similar expressions, and variations or negatives of these words. In addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. These statements speak only as of
the date of this report and are based upon the information available to us at
this time. Such information is subject to change. These statements are not
guarantees of future performance and are subject to risks, uncertainties and
assumptions that are difficult to predict. Actual results could differ
materially and adversely from those expressed in any forwardlooking statements
as a result of various factors, some of which are set forth in Risk Factors,
below. We undertake no obligation to revise or update publicly any
forward-looking statement for any reason. 13




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CAM COMMERCE SOLUTIONS, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar amounts in thousands) CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of our financial statements and reported amounts of net
revenue and expenses during the reporting period. We regularly evaluate
estimates and assumptions related to allowances for doubtful accounts, goodwill
and intangible asset valuations, deferred income tax asset valuation
allowances, and other contingencies. The estimates and assumptions are based
on historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. To the extent there are material
differences between our estimates and the actual results, our future results of
operations will be affected. We believe the following critical accounting policies require us to make
significant judgments and estimates in the preparation of our financial
statements: Revenue Recognition We derive revenue from the sale of computer hardware, licensing of computer
software, post contract customer support, installation and training services,
and payment processing services. System revenue from hardware sales and
software licensing is recognized when a system purchase agreement has been
signed, the hardware and software has been shipped, there are no uncertainties
surrounding product acceptance, the pricing is fixed and determinable, and
collection is considered probable. If a sales transaction contains an
undelivered element, the vendor-specific objective evidence (VSOE) of fair
value of the undelivered element is deferred and the revenue recognized once
the element is delivered. The undelivered elements are primarily installation
and training services. Revenue related to these services are deferred and
recognized when the services have been provided. VSOE of fair value for
installation and training services are based upon standard rates charged since
those services are always sold separately. Installation and training services
are separately priced, are generally available from other suppliers and not
essential to the functionality of the software products. Payments for our
hardware and software are typically due with an initial deposit payment upon
signing the system purchase agreement, with the balance due upon delivery,
although established relationship customers in good credit standing receive
thirty day payment terms. VSOE of fair value for post-contract support (PCS)
is the price the customer is required to pay since it is sold separately. PCS
services are billed on a monthly basis and recorded as revenue in the
applicable month, or on an annual basis with the revenue being deferred and
recognized ratably over the support period. Payment processing revenue is
recognized in the period the service is performed, and is paid to us on a
monthly basis. If an arrangement includes multiple elements, the fees are
allocated to the various elements based upon VSOE of fair value, as described
above. Receivables and Inventory An allowance for doubtful accounts is maintained for estimated losses resulting
from the inability of customers to make required payments. If the financial
condition of our customers was to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances could be required. Actual
losses have traditionally been minimal and within managements expectations. 14




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CAM COMMERCE SOLUTIONS, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar amounts in thousands) We write down inventory for estimated obsolescence equal to the difference
between the cost of inventory and the estimated realizable value based upon
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs could be required. Historically inventory write-downs
have been minimal and within managements expectations. Capitalized Software We capitalize costs incurred to develop new marketable software and enhance our
existing systems software. Costs incurred in creating the software are charged
to expense when incurred as research and development until technological
feasibility has been established through the development of a detailed program
design. Once technological feasibility has been established, software
production costs are capitalized and reported at the lower of amortized cost or
net realizable value. Impairment of Intangible Assets The value of our intangible assets could be impacted by future adverse changes
such as (i) any future declines in our operating results, (ii) any failure to
meet our future performance projections, and (iii) an increase in severity of
the recent economic slowdown. We evaluate these assets used in
operations on an annual basis or more frequently if indicators of impairment
exist. An annual impairment review will be performed during the fourth quarter
of each year or more frequently if indicators of impairment exist. In the
process of the annual impairment review, we will use the income approach
methodology of valuation that includes the discounted cash flow method as well
as other generally accepted valuation methodologies to determine the fair value
of our assets. Significant management judgment is required in the forecast of
future operating results that are used in the discounted cash flow method of
valuation. The estimates used are consistent with the plans and estimates that
we use to manage our business. It is reasonably possible, however, that certain
of our products will not gain or maintain market acceptance, which could result
in estimates of anticipated future net revenue differing materially from those
used to assess the recoverability of these assets. In that event, revenue and
costs forecasts would not be achieved, and we could incur additional impairment
charges. 15




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CAM COMMERCE SOLUTIONS, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar amounts in thousands) RESULTS OF OPERATIONS The following tables summarize the fluctuation analysis of results of our
operations for the three and six months ended March 31, 2004 versus the three
and six months ended March 31, 2003. Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003 Three months ended March 31,
    
    Variance2004
    
    2003
    
    Amount
    
    %Net hardware, software and installation revenues
    
    $
    3,583
    
    
    $
    3,170
    
    
    $
    413
    
    
    
    13
    %Net service revenues
    
    
    2,217
    
    
    
    1,749
    
    
    
    468
    
    
    
    27
    %Total net revenues
    
    
    5,800
    
    
    
    4,919
    
    
    
    881
    
    
    
    18
    %Cost of hardware, software and installation revenues
    
    
    1,700
    
    
    
    1,639
    
    
    
    61
    
    
    
    4
    %Cost of service revenues
    
    
    543
    
    
    
    552
    
    
    
    (9
    )
    
    
    (2
    %)Total cost of revenues
    
    
    2,243
    
    
    
    2,191
    
    
    
    52
    
    
    
    2
    %Selling, general and administrative expenses
    
    
    2,747
    
    
    
    2,608
    
    
    
    139
    
    
    
    5
    %Research and development expenses
    
    
    380
    
    
    
    495
    
    
    
    (115
    )
    
    
    (23
    %)Interest income
    
    
    (82
    )
    
    
    (63
    )
    
    
    19
    
    
    
    30
    %Total costs and expenses
    
    
    5,288
    
    
    
    5,231
    
    
    
    57
    
    
    
    1
    %Income (loss) before provision for income taxes
    
    
    512
    
    
    
    (312
    )
    
    
    824
    
    
    
    264
    %Provision for income taxes
    
    
    37
    
    
    
    
    
    
    
    37Net income (loss)
    
    $
    475
    
    
    $
    (312
    )
    
    
    787
    
    
    
    252
    %Gross profit on hardware, software and installation
revenues
    
    $
    1,883
    
    
    $
    1,531
    
    
    
    352
    
    
    
    23
    %Gross profit on service revenues
    
    
    1,674
    
    
    
    1,197
    
    
    
    477
    
    
    
    40
    %Total gross profit
    
    $
    3,557
    
    
    $
    2,728
    
    
    
    829
    
    
    
    30
    %Gross margin on hardware, software and
installation revenues
    
    
    53
    %
    
    
    48
    %Gross margin on service revenues
    
    
    76
    %
    
    
    68
    %Gross margin on total net revenues
    
    
    61
    %
    
    
    55
    %
 16




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CAM COMMERCE SOLUTIONS, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar amounts in thousands) Six Months Ended March 31, 2004 Compared to Six Months Ended March 31, 2003 Six months ended March 31,
    
    Variance2004
    
    2003
    
    Amount
    
    %Net hardware, software and installation revenues
    
    $
    6,820
    
    
    $
    6,390
    
    
    $
    430
    
    
    
    7
    %Net service revenues
    
    
    4,280
    
    
    
    3,409
    
    
    
    871
    
    
    
    26
    %Total net revenues
    
    
    11,100
    
    
    
    9,799
    
    
    
    1,301
    
    
    
    13
    %Cost of hardware, software and installation revenues
    
    
    3,353
    
    
    
    3,228
    
    
    
    125
    
    
    
    4
    %Cost of service revenues
    
    
    1,077
    
    
    
    1,073
    
    
    
    4
    
    
    
    0
    %Total cost of revenues
    
    
    4,430
    
    
    
    4,301
    
    
    
    129
    
    
    
    3
    %Selling, general and administrative expenses
    
    
    5,168
    
    
    
    5,166
    
    
    
    2
    
    
    
    0
    %Research and development expenses
    
    
    749
    
    
    
    965
    
    
    
    (216
    )
    
    
    (22
    %)Interest income
    
    
    (163
    )
    
    
    (137
    )
    
    
    26
    
    
    
    19
    %Total costs and expenses
    
    
    10,184
    
    
    
    10,295
    
    
    
    (111
    )
    
    
    (1
    %)Income (loss) before provision for income taxes
    
    
    916
    
    
    
    (496
    )
    
    
    1,412
    
    
    
    285
    %Provision for income taxes
    
    
    66
    
    
    
    
    
    
    
    66Net income (loss)
    
    $
    850
    
    
    $
    (496
    )
    
    
    1,346
    
    
    
    271
    %Gross profit on hardware, software and installation
revenues
    
    $
    3,467
    
    
    $
    3,162
    
    
    
    305
    
    
    
    10
    %Gross profit on service revenues
    
    
    3,203
    
    
    
    2,336
    
    
    
    867
    
    
    
    37
    %Total gross profit
    
    $
    6,670
    
    
    $
    5,498
    
    
    
    1,172
    
    
    
    21
    %Gross margin on hardware, software and
installation revenues
    
    
    51
    %
    
    
    49
    %Gross margin on service revenues
    
    
    75
    %
    
    
    69
    %Gross margin on total net revenues
    
    
    60
    %
    
    
    56
    %
 Significant Trends Our revenues and profits have been on an upward trend primarily due to improved
business model, which emphasizes high margin, recurring revenues. X-Charge
payment processing business, providing integrated credit card processing
software and services, has been the driving force of the increase in revenues
and profits. Also, this business is currently the most profitable part of our
business and growth is strong. Revenues for X-Charge payment processing
services repeatedly doubled over the prior year. We are optimistic that the
growth in X-Charge payment processing business will continue. Revenues We derives revenues from system sales, consisting of computer hardware,
licensing of computer software, installation and training, and services, which
include post contract customer support and credit card payment processing. Net
revenues for the three months ended March 31, 2004 increased 18% to $5,800,
consisting of a 13% increase in system revenues and a 27% increase in service
revenues, compared to the three months ended March 31, 2003. Net revenues for
the six months ended March 31, 2004 increased 13% to $11,100, consisting of a
7% increase in system revenues and a 26% increase in service revenues, 17




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CAM COMMERCE SOLUTIONS, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar amounts in thousands) compared to the same period of 2003. The increase in system revenues in the
three and six months ended March 31, 2004 was due to an increase in hardware
and software sales and delivery of installation and training services. The
increase in service revenues in the three and six months ended March 31, 2004
resulted primarily from the increase in X-Charge credit card processing
revenue, which more than doubled over the prior year. Gross Margin Gross margin for the three months ended March 31, 2004 was 61%, compared to 55%
for the three months ended March 31, 2003. Gross margin on system revenues
increased to 53% for the three months ended March 31, 2004 compared to 48% for
the same quarter of 2003. The increase in margin on system revenues for the
three months ended March 31, 2004 was a result of higher margins on hardware
and software sales and installation services, compared to the three months
ended March 31, 2003. Gross margin for service revenue was 76% for the quarter
ended March 31, 2004, compared to 68% for the same period in 2003. Gross
margin on system revenues and service revenue for the six months ended March
31, 2004 was 51% and 75%, respectively, compared to 49% and 69% for the six
months ended March 31, 2003. Gross margin on system revenues for the six month
period of fiscal 2004 increased due to higher margins on hardware and software
sales and installation services, resulted from the revenue mix. The increase
in gross margin for service revenue in the three and six months ended March 31,
2004 was related to the increase in X-Charge recurring credit card processing
revenue, which yields higher margins than other service revenue due to a lower
cost structure. Selling, General and Administrative Expenses Salaries, marketing expense and sales commissions represent the largest
expenses of selling, general and administrative expenses. Selling, general and
administrative expenses expressed as a percentage of net revenues was 47% for
the three and six months ended March 31, 2004, compared to 53% for the three
and six months ended March 31, 2003. Selling, general and administrative
expenses increased 5% for the three months ended March 31, 2004, and remained
constant for the six months ended March 31, 2004, compared to the same periods
ended March 31, 2003. The increase in selling, general and administrative
expenses for the three months ended March 31, 2004 was due to the increase in
sales commissions expense related to higher sales volume. Sales commissions
expense for the six months ended March 31, 2004 also increased but was offset
by a decrease in salaries and legal expense, which netted to a constant change
in selling, general and administrative expenses compared to the same period in
2003. Research and Development Expenses Research and development expenses expressed as a percentage of revenues was 7%
for the three and six months ended March 31, 2004, compared to 10% for the same
periods in 2003. Research and development expenses decreased by 23% for the
three months and 22% for the six months ended March 31, 2004, as compared to
the three and six months ended March 31, 2003. The decrease for the three and
six months ended March 31, 2004 was due to lower payroll expense, which was a
result of a reduction in personnel due to cost restructuring in fiscal 2003.
We continue to invest in the enhancements of new features for the existing
software products of Retail Star and CAM32. Income Taxes Provision for income taxes for the three and six months ended March 31, 2004
was $37 and $66, respectively, related to estimated tax expense for various
states. There was no provision made for federal income taxes due to the
utilization of net operating loss carryforwards. There was no provision for
income taxes recorded in the three and six months ended March 31, 2003 due to
the losses. 18




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CAM COMMERCE SOLUTIONS, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar amounts in thousands) LIQUIDITY AND CAPITAL RESOURCES Our cash and cash equivalents plus marketable securities totaled $15,355 on
March 31, 2004 compared to $12,430 on September 30, 2003. The increase
resulted from cash provided from operating activities and proceeds received
from the exercise of stock options and warrants. We generated $1,619 from
operations, expended $231 for fixed assets and capitalized software
development, and received $253 from maturity of bond investment and $1,556 from
the proceeds of stock options and warrants exercised during the six months
ended March 31, 2004, compared to $507 generated from operations, $274 used for
fixed assets and capitalized software development for the six months ended
March 31, 2003. There were no proceeds received from the exercise of stock
options and warrants for the six months ended March 31, 2003. At March 31, 2004 cash and cash equivalents plus marketable securities made up
90% of our total current assets. Our current ratio at March 31, 2004 was 5.1.
Management believes our existing working capital, coupled with funds generated
from our operations will be sufficient to fund our presently anticipated
working capital requirements for the foreseeable future. Inflation has had no significant impact on our operations. Contracts and Commitments The following table shows payment obligations for long-term debt, capital
leases, operating leases and purchase obligations for the next five years and
beyond. PAYMENTS DUE BY PERIODMORE THAN 5TOTAL
    
    1-3 YEARS*
    
    4-5 YEARS**
    
    YEARSLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    1,766
    
    
    
    1,459
    
    
    
    307
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  *
    
    Includes payments due from April 1, 2004 to fiscal year ending September
30, 2006.**
    
    Includes payments due from October 1, 2006 to September 30, 2007. 19




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CAM COMMERCE SOLUTIONS, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (All dollar amounts in thousands) RISK FACTORS Before deciding to buy, hold or sell our common stock, you should carefully
consider the risks described below, in addition to the other information
contained in this report and in our other filings with the Securities and
Exchange Commission, including our reports on Forms 10-K and 8-K. The risks and
uncertainties described below are not the only ones we face. Additional risks
and uncertainties not presently known or that are currently deemed immaterial
may also affect our business. If any of these known or unknown risks or
uncertainties actually occur, they could have a material adverse effect on our
business, financial condition and results of operations. In that event, the
market price for our common stock could decline and you may lose all or part of
your investment.  
    
    We face intense competition in the retail point of sale industry,
which could reduce our market share Intuit and Microsoft both offer competing point of sale software products.
These products were either acquired or licensed from our competitors. Although
we have successfully competed against these products in the past, both Intuit
and Microsoft have significant financial resources to market and modify their
products, and, therefore, we may not be able to continue to successfully
compete against them in the future.  
    
    Our stock is thinly traded. Accordingly, you may not be able to
resell your shares of common stock at or above the price you paid for
them. Our common stock has historically maintained a low trading volume of shares per
day. This trend is likely to continue.  
    
    Our operating results have fluctuated significantly from quarter to
quarter in the past and are likely to continue to do so due to a number
of factors which are not within our control, including the intense
competitive pressure on our target customers. Our target customers are small-to-medium size retailers. These target customers
are under intense competitive pressure from large retail chains such as
Wal-Mart and others. These large retailers are gaining market share at the
expense of our target customers and each other. This intense competition
causes some small retailers to go out of business, and others to consolidate
with other small regional retail chains. This results in a shrinking population
of our target customers. This also causes our target customers to be more
cautious about capital spending for their retail business. These factors can
cause substantial fluctuations in our revenues and in our results of
operations. This current trend in the retail industry may exist indefinitely
and could seriously impact our revenue and harm our business, financial
condition and results of operations. Other factors which may affect quarterly results include:  -
    
    the availability and pricing of competing products and the resulting effects on sales;-
    
    the effectiveness of expense and cost control efforts;-
    
    the ability to develop and deliver software products to market in a timely manner;-
    
    the rate at which present and future customers adopt our new
products and services in our target markets;-
    
    the effects of new and emerging technologies;-
    
    the ability to retain and hire key executives, management,
technical personnel and other employees that are needed to implement
business and product plans;-
    
    the level of orders received that can be shipped in a fiscal quarter. Due to all of the foregoing factors, and the other risks discussed in this
report, you should not rely on quarter to quarter comparisons of our operating
results as an indication of future performance. 20




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CAM COMMERCE SOLUTIONS, INC. 
 ITEM 3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk refers to the risk that a change in the level of one or more market
factors such as interest rates, foreign currency exchange rates, or equity
prices will result in losses for a certain financial instrument or group of
instruments. We are principally exposed to interest rate and credit risks. We
are not exposed to foreign currency exchange rate risk. We do not use
derivative instruments. Interest Rate Risk We maintain a portfolio of cash equivalents with original maturities of three
months or less. Our investment securities portfolio consists solely of debt
instruments all with current maturities in fiscal year 2004. Both portfolios
are for investment, not trading purposes. Fluctuations in interest rates will
have an impact on the market value of these investments. This risk is managed
by investing in short term instruments of high quality credit issuers and
limiting the amount of investment in any one issuer. We have no current or
long term debt or outstanding lines of credit. Credit Risk We are currently exposed to credit risk on credit extended to customers which
are mostly small-to-medium-size retailers. We actively monitor this risk
through a variety of control procedures involving senior management.
Historically, credit losses have been small and within our expectations. 
 ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms. 21




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CAM COMMERCE SOLUTIONS, INC. 
 PART II - OTHER INFORMATION 
 Item 1 Legal Proceedings None 
 Item 2 Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities None 
 Item 3 Defaults upon Senior Securities None 
 Item 4 Submission of Matters to a Vote of Security Holders None 
 Item 5 Other Information None 
 Item 6 Exhibits and Reports on Form 8-K (A) Exhibits: 3(a) Certification of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3(a) to the 1988 Annual Report on Form 10-K filed on
January 12, 1989  SEC File No. 0-16569). 3(b) Bylaws of the Company, as amended. 10(a) 1993 Stock Option Plan (incorporated by reference to the exhibits on
Form S-8 Registration Statement filed on June 21, 1993). 10(b) Employment Agreement, and Change in Control Agreements for Geoffrey D.
Knapp, dated January 1, 1996, (incorporated by reference to Exhibits 10 (h) and
(i) to the Form 10-Q for the period ended March 31, 1996, filed on May 7,
1996). 10(c) Employment Agreement, and Change in Control Agreements for Paul Caceres,
dated January 1, 1996, (incorporated by reference to Exhibits 10 (j) and (k) to
the Form 10-Q for the period ended March 31, 1996, filed on May 7, 1996). 10(d) Amendment to 1993 Stock Option Plan (incorporated by reference to the
exhibits on Form S-8 Registration Statement filed on June 26, 1998). 10(e) 2000 Stock Option Plan (incorporated by reference to Exhibit 10(i) to
the 2000 Annual Report on Form 10-K filed on December 21, 2000). 10(f) Fountain Valley New Office Lease Agreement (incorporated by reference to
Exhibit 10(j) to the 2001 Annual Report on Form 10-K filed on December 20,
2001). 22




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CAM COMMERCE SOLUTIONS, INC. PART II - OTHER INFORMATION (Continued) 31(a) Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act 31(b)
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act (B) Reports on Form 8-K: Press Release filed on January 26, 2004 (furnished pursuant to Item 9 of Form
8-K) Share issuance for warrants exercised, filed on January 30, 2004 (furnished
pursuant to Item 5 of Form 8-K) Press Release filed on March 18, 2004 (furnished pursuant to Item 9 of Form
8-K) 23




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. CAM COMMERCE SOLUTIONS, INC.(Registrant) Date: May 13, 2004
    
    By
    
    /s/ Geoffrey D. KnappGeoffrey D. KnappChief Executive OfficerDate: May 13, 2004
    
    By
    
    /s/ Paul Caceres Jr.Paul Caceres Jr.Chief Financial andAccounting Officer
 24




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INDEX TO EXHIBITS (A) Exhibits: 3(a) Certification of Incorporation of the Company, as amended (incorporated
by reference to Exhibit 3(a) to the 1988 Annual Report on Form 10-K filed on
January 12, 1989  SEC File No. 0-16569). 3(b) Bylaws of the Company, as amended. 10(a) 1993 Stock Option Plan (incorporated by reference to the exhibits on
Form S-8 Registration Statement filed on June 21, 1993). 10(b) Employment Agreement, and Change in Control Agreements for Geoffrey D.
Knapp, dated January 1, 1996, (incorporated by reference to Exhibits 10 (h) and
(i) to the Form 10-Q for the period ended March 31, 1996, filed on May 7,
1996). 10(c) Employment Agreement, and Change in Control Agreements for Paul Caceres,
dated January 1, 1996, (incorporated by reference to Exhibits 10 (j) and (k) to
the Form 10-Q for the period ended March 31, 1996, filed on May 7, 1996). 10(d) Amendment to 1993 Stock Option Plan (incorporated by reference to the
exhibits on Form S-8 Registration Statement filed on June 26, 1998). 10(e) 2000 Stock Option Plan (incorporated by reference to Exhibit 10(i) to
the 2000 Annual Report on Form 10-K filed on December 21, 2000). 10(f) Fountain Valley New Office Lease Agreement (incorporated by reference to
Exhibit 10(j) to the 2001 Annual Report on Form 10-K filed on December 20,
2001). 31(a) Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act 31(b)
Certification of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act (B) Reports on Form 8-K: Press Release filed on January 26, 2004 (furnished pursuant to Item 9 of Form
8-K) Share issuance for warrants exercised, filed on January 30, 2004 (furnished
pursuant to Item 5 of Form 8-K) Press Release filed on March 18, 2004 (furnished pursuant to Item 9 of Form
8-K)