##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2006
 OR
 o
    
    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
    
    (IRS Employerof incorporation or organization)
    
    Identification No.)17075 Newhope StreetFountain Valley, California
    
    92708(Address of principal
    
    (Zip code)Executive offices)
 (714) 241-9241
  þ o
  o o þ
  o þ




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##### Table of Contents



CAM COMMERCE SOLUTIONS, INC.
INDEX
 PART I  Financial InformationItem 1 Financial Statements:
    
    Page Numbera) Condensed Balance Sheets at March 31, 2006 (Unaudited) and
September 30, 2005
    
    
    3b) Unaudited Condensed Statements of Income for the three
months ended March 31, 2006 and 2005
    
    
    4c) Unaudited Condensed Statements of Income for the six
months ended March 31, 2006 and 2005
    
    
    5d) Unaudited Condensed Statements of Cash Flows for the
six months ended March 31, 2006 and 2005
    
    
    6e) Notes to Unaudited Condensed Financial Statements
    
    
    7-16Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    17-26Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4 Controls and Procedures
    
    
    27PART II  Other InformationItem 1 Legal Proceedings
    
    
    28Item 1A Risk Factors
    
    
    28Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3 Defaults Upon Senior Securities
    
    
    28Item 4 Submission of Matters to a Vote of Security Holders
    
    
    28Item 5 Other Information
    
    
    28Item 6 Exhibits
    
    
    28-29Signatures
    
    
    30EXHIBIT 31(A)EXHIBIT 31(B)EXHIBIT 32
 2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CAM COMMERCE SOLUTIONS, INC.
 
 CONDENSED BALANCE SHEETS
 (In thousands, except share and per share data)
 MARCH 31, 2006
    
    
    SEPTEMBER 30, 2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,438
    
    
    $
    15,763Marketable available-for-sale securities
    
    
    6,827
    
    
    
    5,300Accounts receivable, net
    
    
    2,047
    
    
    
    1,930Inventories
    
    
    293
    
    
    
    306Deferred income taxes
    
    
    1,185
    
    
    
    1,188Other current assets
    
    
    135
    
    
    
    132Total current assets
    
    
    25,925
    
    
    
    24,619Deferred income taxes
    
    
    579
    
    
    
    714Property and equipment, net
    
    
    549
    
    
    
    610Intangible assets, net
    
    
    446
    
    
    
    467Other assets
    
    
    51
    
    
    
    51Total assets
    
    $
    27,550
    
    
    $
    26,461LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    412
    
    
    $
    445Accrued compensation and related expenses
    
    
    1,111
    
    
    
    1,154Deferred service revenue and customer deposits
    
    
    1,831
    
    
    
    1,728Cash dividends payable
    
    
    549
    
    
    
    385Other accrued liabilities
    
    
    145
    
    
    
    260Total current liabilities
    
    
    4,048
    
    
    
    3,972CommitmentsStockholders equity:Common stock, $0.001 par value; 12,000,000
shares authorized, 3,921,000 shares issued
and outstanding at March 31, 2006 and
3,846,000 at September 30, 2005
    
    
    4
    
    
    
    4Capital in excess of par value
    
    
    21,091
    
    
    
    20,152Accumulated other comprehensive loss
    
    
    (13
    )
    
    
    (18
    )Retained earnings
    
    
    2,420
    
    
    
    2,351Total stockholders equity
    
    
    23,502
    
    
    
    22,489Total liabilities and stockholders equity
    
    $
    27,550
    
    
    $
    26,461
  3




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CAM COMMERCE SOLUTIONS, INC.
 
 UNAUDITED CONDENSED STATEMENTS OF INCOME
 (In thousands, except per share data)
 THREE MONTHS ENDEDMARCH 31, 2006
    
    
    MARCH 31, 2005REVENUESNet hardware, software and installation revenues
    
    $
    2,848
    
    
    $
    3,227Net service revenues
    
    
    1,311
    
    
    
    1,322Net payment processing revenues
    
    
    2,324
    
    
    
    1,353Total net revenues
    
    
    6,483
    
    
    
    5,902COSTS AND EXPENSESCost of hardware, software and installation
revenues (1)
    
    
    1,508
    
    
    
    1,730Cost of service revenues (1)
    
    
    607
    
    
    
    572Cost of payment processing revenues
    
    
    126
    
    
    
    107Total cost of revenues
    
    
    2,241
    
    
    
    2,409Selling, general and administrative expenses
(1) (2)
    
    
    3,387
    
    
    
    2,991Research and development expenses (1)
    
    
    400
    
    
    
    377Interest income
    
    
    (223
    )
    
    
    (127
    )Total costs and expenses
    
    
    5,805
    
    
    
    5,650Income before provisions for income taxes
    
    
    678
    
    
    
    252Provisions for income taxes
    
    
    261
    
    
    
    102Net income
    
    $
    417
    
    
    $
    150Basic net income per share
    
    $
    0.11
    
    
    $
    0.04Diluted net income per share
    
    $
    0.10
    
    
    $
    0.04Shares used in computing basic net income per share
    
    
    3,890
    
    
    
    3,813Shares used in computing diluted net income per
share
    
    
    4,169
    
    
    
    4,073Cash dividends declared per common share
    
    $
    0.14
    
    
    
    (1) Includes stock-based compensation expense as follows:Cost of hardware, software and installation revenues
    
    $
    4
    
    
    $
    Cost of service revenues
    
    
    5
    
    
    
    Selling, general and administrative expenses
    
    
    21
    
    
    
    Research and development expenses
    
    
    8
    
    
    
    
 (2)
Includes $40 for building rent to a related party, Geoff Knapp, officer and director
of CAM Commerce.  4




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CAM COMMERCE SOLUTIONS, INC.
 
 UNAUDITED CONDENSED STATEMENTS OF INCOME
 (In thousands, except per share data)
 SIX MONTHS ENDEDMARCH 31, 2006
    
    
    MARCH 31, 2005REVENUESNet hardware, software and installation revenues
    
    $
    5,912
    
    
    $
    6,575Net service revenues
    
    
    2,655
    
    
    
    2,727Net payment processing revenues
    
    
    4,902
    
    
    
    2,750Total net revenues
    
    
    13,469
    
    
    
    12,052COSTS AND EXPENSESCost of hardware, software and installation
revenues (1)
    
    
    3,173
    
    
    
    3,414Cost of service revenues (1)
    
    
    1,201
    
    
    
    1,111Cost of payment processing revenues
    
    
    244
    
    
    
    249Total cost of revenues
    
    
    4,618
    
    
    
    4,774Selling, general and administrative expenses
(1) (2)
    
    
    6,659
    
    
    
    5,872Research and development expenses (1)
    
    
    763
    
    
    
    717Interest income
    
    
    (429
    )
    
    
    (236
    )Total costs and expenses
    
    
    11,611
    
    
    
    11,127Income before provisions for income taxes
    
    
    1,858
    
    
    
    925Provisions for income taxes
    
    
    699
    
    
    
    373Net income
    
    $
    1,159
    
    
    $
    552Basic net income per share
    
    $
    0.30
    
    
    $
    0.15Diluted net income per share
    
    $
    0.28
    
    
    $
    0.14Shares used in computing basic net income per share
    
    
    3,869
    
    
    
    3,800Shares used in computing diluted net income per
share
    
    
    4,133
    
    
    
    4,063Cash dividends declared per common share
    
    $
    0.28
    
    
    
    (1) Includes stock-based compensation expense as follows:Cost of hardware, software and installation revenues
    
    $
    8
    
    
    $
    Cost of service revenues
    
    
    10
    
    
    
    Selling, general and administrative expenses
    
    
    46
    
    
    
    Research and development expenses
    
    
    16
    
    
    
    
 (2)
    Includes $81 for building rent to a related party, Geoff Knapp, officer and director
of CAM Commerce.  5




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CAM COMMERCE SOLUTIONS, INC.
 
 UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
 (In thousands)
 SIX MONTHS ENDEDMARCH 31, 2006
    
    
    MARCH 31, 2005Operating activities:Net income
    
    $
    1,159
    
    
    $
    552Adjustments to reconcile net income to netcash provided by operating activities:Depreciation and amortization
    
    
    342
    
    
    
    438Provision for doubtful accounts
    
    
    (31
    )
    
    
    101Change in deferred income taxes
    
    
    135
    
    
    
    (54
    )Income tax deduction from exercise of stock options
    
    
    
    
    
    
    390Share-based compensation
    
    
    80
    
    
    
    Excess tax benefits from share-based payment
arrangements
    
    
    (457
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (86
    )
    
    
    (74
    )Inventories
    
    
    13
    
    
    
    (23
    )Other assets
    
    
    (3
    )
    
    
    47Accounts payable
    
    
    (33
    )
    
    
    31Accrued compensation and related expenses
    
    
    (43
    )
    
    
    (258
    )Deferred service revenue and customer deposits
    
    
    103
    
    
    
    64Other accrued liabilities
    
    
    342
    
    
    
    (50
    )Cash provided by operating activities
    
    
    1,521
    
    
    
    1,164Cash flows from investing activities:Purchase of property and equipment
    
    
    (119
    )
    
    
    (172
    )Capitalized software development costs
    
    
    (141
    )
    
    
    (145
    )Purchase of marketable securities
    
    
    (2,269
    )
    
    
    (707
    )Proceeds from maturity of marketable securities
    
    
    750
    
    
    
    Cash used in investing activities
    
    
    (1,779
    )
    
    
    (1,024
    )Cash flows from financing activities:Proceeds from exercise of stock options and
warrants
    
    
    402
    
    
    
    263Excess tax benefits from share-based payment
arrangements
    
    
    457
    
    
    
    Dividends paid on common stock
    
    
    (926
    )
    
    
    Cash provided by (used in) financing activities
    
    
    (67
    )
    
    
    263Net increase (decrease) in cash and cash equivalents
    
    
    (325
    )
    
    
    403Cash and cash equivalents at beginning of period
    
    
    15,763
    
    
    
    16,591Cash and cash equivalents at end of period
    
    $
    15,438
    
    
    $
    16,994
  6




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CAM COMMERCE SOLUTIONS, INC.
 
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
 ORGANIZATION AND BUSINESS
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Presentation of Condensed Financial Statements
  Cash Equivalents
  Marketable Securities
  Accounts Receivable and Allowance For Doubtful Accounts
   Concentrations of Credit Risk
  7




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CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
 Inventories
  Comprehensive Income
  THREE MONTHS ENDEDMARCH 31, 2006
    
    
    MARCH 31, 2005Net income
    
    $
    417
    
    
    $
    150Unrealized gain (loss) on marketable
securities
available for sale, net of tax
    
    
    4
    
    
    
    (15
    )Comprehensive income
    
    $
    421
    
    
    $
    135
 SIX MONTHS ENDEDMARCH 31, 2006
    
    
    MARCH 31, 2005Net income
    
    $
    1,159
    
    
    $
    552Unrealized gain (loss) on marketable
securities
available for sale, net of tax
    
    
    5
    
    
    
    (24
    )Comprehensive income
    
    $
    1,164
    
    
    $
    528
 Revenue Recognition Policy
   8




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CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
   Segments
  Recently Issued Accounting Announcements
  Intangible Assets
   Reclassifications
  9




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CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
 Use of Estimates
  Shipping and Handling
  Net Income Per Share
  THREE MONTHS ENDED
    
    SIX MONTHS ENDEDMARCH 31,
    
    MARCH 31,
    
    MARCH 31,
    
    MARCH 31,2006
    
    2005
    
    2006
    
    2005Options
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    Warrants
    
    
    
    
    
    
    175
    
    
    
    
    
    
    
    175
  10




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CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
 THREE MONTHS ENDEDMARCH 31, 2006
    
    MARCH 31, 2005Numerator:Net income for basic and diluted net
income per share
    
    $
    417
    
    
    $
    150Denominator:Weighted-average shares outstanding
    
    
    3,890
    
    
    
    3,813Denominator for basic net income per
share:Weighted-average shares
    
    
    3,890
    
    
    
    3,813Effect of dilutive securities:Stock options & warrants
    
    
    279
    
    
    
    260Denominator for diluted net income per
share:Weighted average shares and assumed
conversions
    
    
    4,169
    
    
    
    4,073Basic net income per share
    
    $
    0.11
    
    
    $
    0.04Diluted net income per share
    
    $
    0.10
    
    
    $
    0.04
 SIX MONTHS ENDEDMARCH 31, 2006
    
    
    MARCH 31, 2005Numerator:Net income for basic and diluted net
income per share
    
    $
    1,159
    
    
    $
    552Denominator:Weighted-average shares outstanding
    
    
    3,869
    
    
    
    3,800Denominator for basic net income per
share:Weighted-average shares
    
    
    3,869
    
    
    
    3,800Effect of dilutive securities:Stock options & warrants
    
    
    264
    
    
    
    263Denominator for diluted net income per
share:Weighted average shares and assumed
conversions
    
    
    4,133
    
    
    
    4,063Basic net income per share
    
    $
    0.30
    
    
    $
    0.15Diluted net income per share
    
    $
    0.28
    
    
    $
    0.14
 Dividends Declared
  11




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CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
 Share-Based Compensation
        12




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CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
   THREE MONTHS ENDEDMARCH 31, 2006SFAS
    
    APB123R
    
    25Income before income taxes
    
    $
    678
    
    
    $
    716Net income
    
    $
    417
    
    
    $
    440Basic net income per share
    
    $
    0.11
    
    
    $
    0.11Diluted net income per share
    
    $
    0.10
    
    
    $
    0.11
 SIX MONTHS ENDEDMARCH 31, 2006SFAS
    
    APB123R
    
    25Income before income taxes
    
    $
    1,858
    
    
    $
    1,938Net income
    
    $
    1,159
    
    
    $
    1,208Basic net income per share
    
    $
    0.30
    
    
    $
    0.31Diluted net income per share
    
    $
    0.28
    
    
    $
    0.29Cash flow from operations
    
    $
    1,521
    
    
    $
    1,978Cash flow from financing activities
    
    ($
    67
    )
    
    ($
    524
    )
   13




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CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
 THREE MONTHS ENDEDMARCH 31, 2005Reported net income
    
    $
    150Add: Share-based compensation expense included in
reported net income, net of related tax effects
    
    
    Deduct: Share-based compensation expense determined
under fair-value method for all awards, net of related
tax effects
    
    
    (41
    )Pro forma net income
    
    $
    109Earnings per share:Basic  as reported
    
    $
    0.04Basic  pro forma
    
    $
    0.03Diluted  as reported
    
    $
    0.04Diluted  pro forma
    
    $
    0.03
 SIX MONTHS ENDEDMARCH 31, 2005Reported net income
    
    $
    552Add: Share-based compensation expense included in
reported net income, net of related tax effects
    
    
    Deduct: Share-based compensation expense determined
under fair-value method for all awards, net of related
tax effects
    
    
    (83
    )Pro forma net income
    
    $
    469Earnings per share:Basic  as reported
    
    $
    0.15Basic  pro forma
    
    $
    0.12Diluted  as reported
    
    $
    0.14Diluted  pro forma
    
    $
    0.12
   14




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##### Table of Contents



CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
    WEIGHTEDWEIGHTED
    
    
    AVERAGENUMBER
    
    
    AVERAGE
    
    
    REMAINING
    
    
    AGGREGATEOF
    
    
    EXERCISE
    
    
    LIFE
    
    
    INTRINSICOPTIONS
    
    
    PRICE
    
    
    (IN YEARS)
    
    
    VALUEOptions outstanding
at December 31, 2005
    
    
    611
    
    
    $
    6.27
    
    
    
    5.2
    
    
    $
    8,884Granted
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AExercised
    
    
    60
    
    
    $
    4.71
    
    
    
    N/A
    
    
    $
    1,033Forfeited
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AExpired
    
    
    
    
    
    
    N/A
    
    
    
    N/A
    
    
    
    N/AOptions outstanding
at March 31, 2006
    
    
    551
    
    
    $
    6.44
    
    
    
    5.2
    
    
    $
    9,353Vested and expected
to vest at March 31,
2006
    
    
    540
    
    
    $
    6.34
    
    
    
    5.1
    
    
    $
    9,217Options exercisable
at March 31, 2006
    
    
    483
    
    
    $
    5.83
    
    
    
    4.7
    
    
    $
    8,494Options that would
become exercisable at
March 31, 2006
pursuant to the
Companys option
plans in the event of
a change in control
    
    
    551
    
    
    $
    6.44
    
    
    
    5.2
    
    
    $
    9,353
    15




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CAM COMMERCE SOLUTIONS, INC.
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
 MARCH 31, 2006
 (In thousands, except per share data)
  THREE MONTHS ENDEDMARCH 31,
    
    
    MARCH 31,2006
    
    
    2005Weighted-average grant-date fair value
per share
    
    
    
    
    
    
    Intrinsic value of options exercised
    
    $
    1,032
    
    
    $
    357Total fair value of shares vested during
the period
    
    
    38
    
    
    
    65
 SIX MONTHS ENDEDMARCH 31,
    
    
    MARCH 31,2006
    
    
    2005Weighted-average grant-date fair value
per share
    
    
    
    
    
    
    Intrinsic value of options exercised
    
    $
    1,187
    
    
    $
    972Total fair value of shares vested during
the year
    
    
    80
    
    
    
    137
 16




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 (All dollar amounts in thousands)
 CAUTIONARY STATEMENT
   OVERVIEW
    CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Revenue Recognition
  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)
   Receivables
   Inventory
  Capitalized Software
  18




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##### Table of Contents



CAM COMMERCE SOLUTIONS, INC.
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 (All dollar amounts in thousands)
 Impairment of Intangible Assets
  Deferred Taxes
  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)
 RESULTS OF OPERATIONS
  Three months ended March 31,
    
    
    Variance2006
    
    
    2005
    
    
    Amount
    
    
    %Net hardware, software and installation
revenues
    
    $
    2,848
    
    
    $
    3,227
    
    
    
    ($379
    )
    
    
    (12
    %)Net service revenues
    
    
    1,311
    
    
    
    1,322
    
    
    
    (11
    )
    
    
    (1
    %)Net payment processing revenues
    
    
    2,324
    
    
    
    1,353
    
    
    
    971
    
    
    
    72
    %Total net revenues
    
    
    6,483
    
    
    
    5,902
    
    
    
    581
    
    
    
    10
    %Cost of hardware, software and
installation revenues
    
    
    1,508
    
    
    
    1,730
    
    
    
    (222
    )
    
    
    (13
    %)Cost of service revenues
    
    
    607
    
    
    
    572
    
    
    
    35
    
    
    
    6
    %Cost of payment processing revenues
    
    
    126
    
    
    
    107
    
    
    
    19
    
    
    
    18
    %Total cost of revenues
    
    
    2,241
    
    
    
    2,409
    
    
    
    (168
    )
    
    
    (7
    %)Selling, general and administrative
expenses
    
    
    3,387
    
    
    
    2,991
    
    
    
    396
    
    
    
    13
    %Research and development expenses
    
    
    400
    
    
    
    377
    
    
    
    23
    
    
    
    6
    %Interest income
    
    
    (223
    )
    
    
    (127
    )
    
    
    96
    
    
    
    76
    %Total costs and expenses
    
    
    5,805
    
    
    
    5,650
    
    
    
    155
    
    
    
    3
    %Income before provision for income taxes
    
    
    678
    
    
    
    252
    
    
    
    426
    
    
    
    169
    %Provision for income taxes
    
    
    261
    
    
    
    102
    
    
    
    159
    
    
    
    156
    %Net income
    
    $
    417
    
    
    $
    150
    
    
    
    267
    
    
    
    178
    %Gross profit on hardware, software and
installationRevenues
    
    $
    1,340
    
    
    $
    1,497
    
    
    
    (157
    )
    
    
    (10
    %)Gross profit on service revenues
    
    
    704
    
    
    
    750
    
    
    
    (46
    )
    
    
    (6
    %)Gross profit on payment processing
revenues
    
    
    2,198
    
    
    
    1,246
    
    
    
    952
    
    
    
    76
    %Total gross profit
    
    $
    4,242
    
    
    $
    3,493
    
    
    
    749
    
    
    
    21
    %Gross margin on hardware, software and
installation revenues
    
    
    47
    %
    
    
    46
    %Gross margin on service revenues
    
    
    54
    %
    
    
    57
    %Gross margin on payment processing
revenues
    
    
    95
    %
    
    
    92
    %Gross margin on total net revenues
    
    
    65
    %
    
    
    59
    %
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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,
    
    
    Variance2006
    
    
    2005
    
    
    Amount
    
    
    %Net hardware, software and installation
revenues
    
    $
    5,912
    
    
    $
    6,575
    
    
    
    ($663
    )
    
    
    (10
    %)Net service revenues
    
    
    2,655
    
    
    
    2,727
    
    
    
    (72
    )
    
    
    (3
    %)Net payment processing revenues
    
    
    4,902
    
    
    
    2,750
    
    
    
    2,152
    
    
    
    78
    %Total net revenues
    
    
    13,469
    
    
    
    12,052
    
    
    
    1,417
    
    
    
    12
    %Cost of hardware, software and
installation revenues
    
    
    3,173
    
    
    
    3,414
    
    
    
    (241
    )
    
    
    (7
    %)Cost of service revenues
    
    
    1,201
    
    
    
    1,111
    
    
    
    90
    
    
    
    8
    %Cost of payment processing revenues
    
    
    244
    
    
    
    249
    
    
    
    (5
    )
    
    
    (2
    %)Total cost of revenues
    
    
    4,618
    
    
    
    4,774
    
    
    
    (156
    )
    
    
    (3
    %)Selling, general and administrative
expenses
    
    
    6,659
    
    
    
    5,872
    
    
    
    787
    
    
    
    13
    %Research and development expenses
    
    
    763
    
    
    
    717
    
    
    
    46
    
    
    
    6
    %Interest income
    
    
    (429
    )
    
    
    (236
    )
    
    
    193
    
    
    
    82
    %Total costs and expenses
    
    
    11,611
    
    
    
    11,127
    
    
    
    484
    
    
    
    4
    %Income before provision for income taxes
    
    
    1,858
    
    
    
    925
    
    
    
    933
    
    
    
    101
    %Provision for income taxes
    
    
    699
    
    
    
    373
    
    
    
    326
    
    
    
    87
    %Net income
    
    $
    1,159
    
    
    $
    552
    
    
    
    607
    
    
    
    110
    %Gross profit on hardware, software and
installationRevenues
    
    $
    2,739
    
    
    $
    3,161
    
    
    
    (422
    )
    
    
    (13
    %)Gross profit on service revenues
    
    
    1,454
    
    
    
    1,616
    
    
    
    (162
    )
    
    
    (10
    %)Gross profit on payment processing
revenues
    
    
    4,658
    
    
    
    2,501
    
    
    
    2,157
    
    
    
    86
    %Total gross profit
    
    $
    8,851
    
    
    $
    7,278
    
    
    
    1,573
    
    
    
    22
    %Gross margin on hardware, software and
installation revenues
    
    
    46
    %
    
    
    48
    %Gross margin on service revenues
    
    
    55
    %
    
    
    59
    %Gross margin on payment processing
revenues
    
    
    95
    %
    
    
    91
    %Gross margin on total net revenues
    
    
    66
    %
    
    
    60
    %
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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, except in reference to the number of X-Charge accounts)
 Significant Trends
      Revenues
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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)
 Gross Margin
   Selling, General and Administrative Expenses
  Research and Development Expenses
  Income Taxes
  Net Income
  23




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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
      Contracts and Commitments
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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)
 PAYMENTS DUE BY PERIODLESS THAN
    
    1-3
    
    3-5
    
    MORE THAN 5TOTAL
    
    1 YEAR
    
    YEARS
    
    YEARS
    
    YEARSLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease
obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    $
    1,881
    
    
    $
    298
    
    
    $
    1,369
    
    
    $
    214
    
    
    $
    Purchase obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Other long-term
liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 FORWARD LOOKING STATEMENTS
   RISK FACTORS
  The growth in our X-Charge payment processing business is primarily the result of adding new
customers.
  25




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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)
 Our original core business of computer system sales is in decline.
  The population of our target customers is declining.
  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.
  We face intense competition in the retail point of sale industry, which could reduce our market
share.
  We may face patent or proprietary rights litigation in the future.
  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.
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CAM COMMERCE SOLUTIONS, INC.
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  Credit Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
  27




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PART II . OTHER INFORMATION
 
   
   
   
   
   
   
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SIGNATURES
  CAM COMMERCE SOLUTIONS, INC.
 Date: May 12, 2006
    
    By
    
    /s/ Geoffrey D. KnappGeoffrey D. KnappChief Executive OfficerDate: May 12, 2006
    
    By
    
    /s/ Paul Caceres Jr.Paul Caceres Jr.Chief Financial andAccounting Officer
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3(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).3(b)
    
    Bylaws of the Company, as amended (incorporated by reference to Exhibit 3(b) to Form 10-Q for
the period ended March 31, 2004, filed on May 13, 2004).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).
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Exhibit No.
    
    Description10(f)
    
    Fountain Valley Office Lease Agreement (incorporated by reference to Exhibit 10(j) to the
2001 Annual Report on Form 10-K filed on December 20, 2001).10(g)
    
    Indemnity Agreements (incorporated by reference to Form 8-K, filed on November 18, 2004)10(h)
    
    Form of the Stock Option Agreement for the 2000 Plan (incorporated by reference to Exhibit
10(h) to the 2004 Annual Report on Form 10-K filed on December 21, 2004)10(i)
    
    Fountain Valley Office Lease Extension Agreement Letter, dated May 26, 2005 (incorporated by
reference to Exhibit 10(i) to Form 10-Q filed on August 12, 2005)31(a)
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act31(b)
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act32
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
  32