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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 December 31, 2004 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
of incorporation or organization)
    
    (IRS Employer
Identification No.)17075 Newhope Street
    
    92708Fountain Valley, California(Address of principal
Executive offices)
    
    (Zip code)
 (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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ As of January 24, 2005 there were 3,810,000 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 December 31, 2004 and September 30, 2004
    
    
    3b) Unaudited Condensed Statements of Income for the three months ended December 31, 2004 and 2003
    
    
    4c) Unaudited Condensed Statements of Cash Flows for the three months ended December 31, 2004 and 2003
    
    
    5e) Notes to Unaudited Condensed Financial Statements
    
    
    6-10Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11-18Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4 Controls and Procedures
    
    
    19PART II Other InformationItem 1 Legal Proceedings
    
    
    20Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3 Defaults Upon Senior Securities
    
    
    20Item 4 Submission of Matters to a Vote of Security Holders
    
    
    20Item 5 Other Information
    
    
    20Item 6 Exhibits
    
    
    20-21Signatures
    
    
    22EXHIBIT 31(A)EXHIBIT 31(B)EXHIBIT 32




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements CAM COMMERCE SOLUTIONS, INC. 
 UNAUDITED CONDENSED BALANCE SHEETS (In thousands, except per share data) DECEMBER 31, 2004
    
    SEPTEMBER 30, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    
    $
    16,245
    
    
    
    $
    16,591Marketable available-for-sale securities
    
    
    
    1,800
    
    
    
    
    1,109Accounts receivable, net
    
    
    
    2,247
    
    
    
    
    1,919Inventories
    
    
    
    257
    
    
    
    
    361Deferred income taxes
    
    
    
    1,629
    
    
    
    
    1,629Other current assets
    
    
    
    109
    
    
    
    
    137Total current assets
    
    
    
    22,287
    
    
    
    
    21,746Deferred income taxes
    
    
    
    780
    
    
    
    
    780Property and equipment, net
    
    
    
    621
    
    
    
    
    639Intangible assets, net
    
    
    
    625
    
    
    
    
    679Other assets
    
    
    
    66
    
    
    
    
    80Total assets
    
    
    $
    24,379
    
    
    
    $
    23,924LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    
    $
    481
    
    
    
    $
    550Accrued compensation and related expenses
    
    
    
    886
    
    
    
    
    1,093Deferred service revenue and customer deposits
    
    
    
    1,664
    
    
    
    
    1,628Other accrued liabilities
    
    
    
    239
    
    
    
    
    357Total current liabilities
    
    
    
    3,270
    
    
    
    
    3,628Stockholders equity:Common stock, $0.001 par value; 12,000 shares
authorized, 3,798 shares issued and
outstanding at December 31, 2004 and 3,754
at September 30, 2004
    
    
    
    4
    
    
    
    
    4Capital in excess of par value
    
    
    
    19,748
    
    
    
    
    19,328Accumulated other comprehensive income (loss)
    
    
    
    (7
    )
    
    
    
    2Retained earnings
    
    
    
    1,364
    
    
    
    
    962Total stockholders equity
    
    
    
    21,109
    
    
    
    
    20,296Total liabilities and stockholders equity
    
    
    $
    24,379
    
    
    
    $
    23,924
 See accompanying notes.




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CAM COMMERCE SOLUTIONS, INC. 
 UNAUDITED CONDENSED STATEMENTS OF INCOME (In thousands, except per share data) THREE MONTHS ENDEDDECEMBER 31, 2004

    
    DECEMBER 31, 2003REVENUESNet hardware, software and installation revenues
    
    
    $
    3,348
    
    
    
    $
    3,237Net service revenues
    
    
    
    1,405
    
    
    
    
    1,379Net payment processing revenues
    
    
    
    1,397
    
    
    
    
    684Total net revenues
    
    
    
    6,150
    
    
    
    
    5,300COSTS AND EXPENSESCost of hardware, software and installation revenues
    
    
    
    1,684
    
    
    
    
    1,641Cost of service revenues
    
    
    
    512
    
    
    
    
    508Cost of payment processing revenues
    
    
    
    142
    
    
    
    
    38Total cost of revenues
    
    
    
    2,338
    
    
    
    
    2,187Selling, general and administrative expenses
    
    
    
    2,881
    
    
    
    
    2,421Research and development expenses
    
    
    
    367
    
    
    
    
    369Interest income
    
    
    
    (109
    )
    
    
    
    (81
    )Total costs and expenses
    
    
    
    5,477
    
    
    
    
    4,896Income before provisions for income taxes
    
    
    
    673
    
    
    
    
    404Provisions for income taxes
    
    
    
    271
    
    
    
    
    29Net income
    
    
    $
    402
    
    
    
    $
    375Basic net income per share
    
    
    $
    0.11
    
    
    
    $
    0.11Diluted net income per share
    
    
    $
    0.10
    
    
    
    $
    0.10Shares used in computing basic net income per share
    
    
    
    3,787
    
    
    
    
    3,284Shares used in computing diluted net income per share
    
    
    
    4,065
    
    
    
    
    3,615
 See accompanying notes.




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CAM COMMERCE SOLUTIONS, INC. 
 UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS (In thousands) THREE MONTHS ENDEDDECEMBER 31, 2004
    
    DECEMBER 31, 2003Operating activities:Net income
    
    
    $
    402
    
    
    
    $
    375Adjustments
to reconcile net income to net cash provided by operations:Depreciation and amortization
    
    
    
    215
    
    
    
    
    221Provision for doubtful accounts
    
    
    
    9
    
    
    
    
    11Income tax deduction from exercise of stock options
    
    
    
    247
    
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    
    (337
    )
    
    
    
    (178
    )Inventories
    
    
    
    104
    
    
    
    
    65Other assets
    
    
    
    42
    
    
    
    
    (16
    )Accounts payable
    
    
    
    (69
    )
    
    
    
    33Accrued compensation and related expenses
    
    
    
    (207
    )
    
    
    
    96Deferred service revenue and customer deposits
    
    
    
    36
    
    
    
    
    181Other accrued liabilities
    
    
    
    (118
    )
    
    
    
    (39
    )Cash provided by operating activities
    
    
    
    324
    
    
    
    
    749Investing activities:Purchase of property and equipment
    
    
    
    (68
    )
    
    
    
    (37
    )Capitalized software development costs
    
    
    
    (75
    )
    
    
    
    (82
    )Purchase of marketable securities
    
    
    
    (694
    )
    
    
    
    Change in marketable securities
    
    
    
    (6
    )
    
    
    
    6Cash used in investing activities
    
    
    
    (843
    )
    
    
    
    (113
    )Financing activities:Proceeds from exercise of stock options
    
    
    
    173
    
    
    
    
    284Cash provided by financing activities
    
    
    
    173
    
    
    
    
    284Net increase (decrease) in cash and cash equivalents
    
    
    
    (346
    )
    
    
    
    920Cash and cash equivalents at beginning of period
    
    
    
    16,591
    
    
    
    
    10,889Cash and cash equivalents at end of period
    
    
    $
    16,245
    
    
    
    $
    11,809
 See accompanying notes.




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CAM COMMERCE SOLUTIONS, INC. 
 NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS DECEMBER 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 as of and for the three months ended December
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, 2004. 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 December 31,
2004 and September 30, 2004 consisted of debt instruments that bear interest at various rates and
mature in two years or less. The gross unrealized gains (losses) on securities available-for-sale
at December 31, 2004 and September 30, 2004 were $(7) and $2, respectively. There were no realized
gains (losses) for the three months ended December 31, 2004 and 2003. Accounts Receivable and Allowance For Doubtful Accounts The Company has accounts receivable from customers who were given extended payment terms for goods
and services rendered. Extended payment terms are generally provided only to established
relationship customers in good credit standing, and generally represent net 30 day terms. Payment
for goods and services are typically due with an initial deposit payment upon signing the purchase
agreement, with the balance due upon the delivery. Management evaluates accounts receivable on a regular basis to charge off any accounts deemed
uncollectible at the time. An allowance for doubtful accounts is maintained for estimated losses
resulting from the inability of customers to make required payments. 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.




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 2004 (In thousands, except per share data) 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. Comprehensive Income The following table presents the calculation of comprehensive income: THREE MONTHS ENDEDDECEMBER 31, 2004
    
    DECEMBER 31, 2003Net income
    
    
    $
    402
    
    
    
    $
    375Unrealized loss on marketable securities
available for sale, net of tax
    
    
    
    (9
    )
    
    
    
    (6
    )Comprehensive income
    
    
    $
    393
    
    
    
    $
    369
 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 as a separate option and priced independently.
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 the
Companys 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 as a separate option and priced
independently. 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. If
an arrangement includes multiple elements, the fees are allocated to the various elements based
upon VSOE of fair value, as described above.




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 2004 (In thousands, except per share data) The Company recognizes payment processing revenues in the period the service is performed.
Revenues are estimated based on the accumulation of sufficient historical information required to
analyze trends and formulate a reasonable estimate. The significant historical information
required to formulate a reliable estimate are the total dollar volume of credit card transactions
processed and the related revenue for these credit card transactions. Segments Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131), established standards for the way that public
business enterprises report selected financial information about operating segments in annual and
interim financial statements and significant foreign operations. Because the Company operates in
one business segment and has no significant foreign operations, no additional reporting is required
under SFAS 131. Recently Issued Accounting Announcements On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS
123R) which replaces SFAS No. 123, Accounting for Stock-Based Compensation, supersedes Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees and amends SFAS
No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123R is similar to the approach
described in SFAS 123. However, SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial statements based on
their fair values (i.e., pro forma disclosure is no longer an alternative to financial statement
recognition). SFAS 123R is effective for the Company beginning on July 1, 2005. The Company is
currently assessing the impact of SFAS 123R. As of the date of this filing, no decisions have been
made as to whether the Company will apply the modified prospective or retrospective transition
method of application. 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 commences when the products are available for general release to customers. Reclassifications Certain reclassifications have been made to the fiscal 2004 financial statements to conform to the
fiscal 2005 presentation. Use of Estimates The preparation of financial statements in accordance with United States generally accepted
accounting principles 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 revenue recognition, receivables and inventory, capitalized
software, allowances for doubtful accounts, 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




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 2004 (In thousands, except per share data) there are material differences between the Companys estimates and the actual results, the
Companys 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. Net Income Per Share Basic net income per share is based upon the weighted average number of common shares outstanding
for each period presented. Diluted net income 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 net income per share if their effect is
anti-dilutive. Options and warrants outstanding for the three months ended December 31, 2004 and
2003, which were excluded from the diluted net income per share computation because their effect is
anti-dilutive, were as follows: THREE MONTHS ENDEDDECEMBER 31, 2004
    
    DECEMBER 31, 2003Options
    
    
    
    
    
    
    
    
    6Warrants
    
    
    
    175
    
    
    
    
    350
 The computations of basic and diluted net income per share for the quarter ended December 31, 2004
and 2003 are as follows: THREE MONTHS ENDEDDECEMBER 31, 2004
    
    
    DECEMBER 31, 2003Numerator:Net income for basic and diluted net income per
share
    
    
    $
    402
    
    
    
    
    $
    375Denominator:Weighted-average shares outstanding
    
    
    
    3,787
    
    
    
    
    
    3,284Denominator for basic net income per share:Weighted-average shares
    
    
    
    3,787
    
    
    
    
    
    3,284Effect of dilutive securities:Stock options & warrants
    
    
    
    278
    
    
    
    
    
    331Denominator for diluted net income per share:Weighted average shares and assumed conversions
    
    
    
    4,065
    
    
    
    
    
    3,615Basic net income per share
    
    
    $
    0.11
    
    
    
    
    $
    0.11Diluted net income per share
    
    
    $
    0.10
    
    
    
    
    $
    0.10
 Stock Option Plans The Company follows the disclosure-only provisions of SFAS No. 123, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, and, accordingly, accounts
for its employee 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




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CAM COMMERCE SOLUTIONS, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS DECEMBER 31, 2004 (In thousands, except per share data) following tables illustrate the effect on net income and income 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 ENDEDDECEMBER 31, 2004
    
    DECEMBER 31, 2003Net income, as reported
    
    
    $
    402
    
    
    
    $
    375Deduct: total stock-based
employee compensation
expense determined under fair
value based method, net of
related tax effects
    
    
    
    (48
    )
    
    
    
    (60
    )Net income, as adjusted
    
    
    $
    354
    
    
    
    $
    315Basic income per share:As reported
    
    
    $
    0.11
    
    
    
    $
    0.11Pro forma
    
    
    $
    0.09
    
    
    
    $
    0.10Diluted income per share:As reported
    
    
    $
    0.10
    
    
    
    $
    0.10Pro forma
    
    
    $
    0.09
    
    
    
    $
    0.09




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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 December 31, 2004 as Compared to Three Months Ended December 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 (SEC). 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 our 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 offer several turn-key retailing systems that consist of software, hardware, installation,
training, technical support services and web hosting services. Our systems, known as CAM32,
Profit$, RetailSTAR, RetailICE and Microbiz offer the ability to obtain: (i) automated pricing of
each item; (ii) billing for charge account customers; (iii) printing of a customer invoice; (iv)
tracking of inventory count on an item by item basis; (v) computation of gross profit, dollars
and/or percentage of each item; and (vi) tracking of sales by clerk and department by day and/or
month. In addition, our systems provide full management reporting including zero sales reports,
inventory ranking, overstock and understock, sales analysis, inventory valuation (last cost,
average cost and retail) and other reports. The systems can also provide integrated or interfaced
accounting functions including accounts receivable, accounts payable, and general ledger. We also provide payment processing services through our X-Charge software and a third party credit
card payment processor. X-Charge is a payment processing software program that is integrated with
our point of sale software. X-Charge generates revenues for us based on sales transaction payment
processing services provided to our customers. Typically, the payments being processed are credit
card transactions. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in accordance with United States generally accepted
accounting principles 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 revenue recognition, receivables and inventory, capitalized software,
allowances for doubtful accounts, 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:




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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) 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 is 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 as a separate option and priced independently. 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 as a separate option and priced independently.
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. If
an arrangement includes multiple elements, the fees are allocated to the various elements based
upon VSOE of fair value, as described above. We recognize payment processing revenues in the period the service is performed. Revenues are
estimated based on the accumulation of sufficient historical information required to analyze trends
and formulate a reasonable estimate. The significant historical information required to formulate a
reliable estimate are the total dollar volume of credit card transactions processed and the related
revenue for these credit card transactions. Receivables and Inventory We have accounts receivable from customers who were given extended payment terms for goods and
services rendered. Extended payment terms are generally provided only to established relationship
customers in good credit standing, and generally represent net 30 day terms. Payment for goods and
services are typically due with an initial deposit payment upon signing the purchase agreement,
with the balance due upon delivery. 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 our expectations. 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 us, additional
inventory write-downs could be required. Historically inventory write-downs have been minimal and
within our expectations.




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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) Capitalized Software We capitalize costs incurred to develop new marketable software and enhance our existing systems
software. Costs incurred in creating the software are expensed when incurred as research and
development expense until technological feasibility has been established through the development of
a detailed program design. Once technological feasibility has been established, software
development 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, and (ii) any failure to meet our future performance
projections. An annual impairment review will be performed during the fourth quarter of each fiscal
year or more frequently if indicators of impairment exist. In the process of the annual impairment
review, we use the income approach methodology of valuation that includes the discounted cash flow
method 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 cost forecasts would not be achieved, and we could incur additional impairment charges. Deferred Taxes We utilize the liability method of accounting for income taxes as set forth in SFAS No. 109,
Accounting for Income Taxes. Prior to fiscal 2004, we recorded a valuation allowance to reduce
our deferred tax assets to the amount that we believed was more likely than not to be realized.
During fiscal 2004, the valuation allowance was reversed based on our belief that sufficient future
income from operations is expected to be able to recognize the net deferred tax assets. In
assessing the need for a valuation allowance, we consider all positive and negative evidence,
including projected future taxable income, and recent financial performance.




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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 December 31, 2004 Compared to Three Months Ended December 31, 2003 Three months ended December 31,
    
    
    Variance2004
    
    
    2003
    
    
    Amount
    
    
    %Net hardware, software and installation revenues
    
    $
    3,348
    
    
    $
    3,237
    
    
    $
    111
    
    
    
    3
    %Net service revenues
    
    
    1,405
    
    
    
    1,379
    
    
    
    26
    
    
    
    2
    %Net payment processing revenues
    
    
    1,397
    
    
    
    684
    
    
    
    713
    
    
    
    104
    %Total net revenues
    
    
    6,150
    
    
    
    5,300
    
    
    
    850
    
    
    
    16
    %Cost of hardware, software and installation revenues
    
    
    1,684
    
    
    
    1,641
    
    
    
    43
    
    
    
    3
    %Cost of service revenues
    
    
    512
    
    
    
    508
    
    
    
    4
    
    
    
    1
    %Cost of payment processing revenues
    
    
    142
    
    
    
    38
    
    
    
    104
    
    
    
    274
    %Total cost of revenues
    
    
    2,338
    
    
    
    2,187
    
    
    
    151
    
    
    
    7
    %Selling, general and administrative expenses
    
    
    2,881
    
    
    
    2,421
    
    
    
    460
    
    
    
    19
    %Research and development expenses
    
    
    367
    
    
    
    369
    
    
    
    (2
    )
    
    
    (1
    %)Interest income
    
    
    (109
    )
    
    
    (81
    )
    
    
    28
    
    
    
    35
    %Total costs and expenses
    
    
    5,477
    
    
    
    4,896
    
    
    
    581
    
    
    
    12
    %Income before provision for income taxes
    
    
    673
    
    
    
    404
    
    
    
    269
    
    
    
    67
    %Provision for income taxes
    
    
    271
    
    
    
    29
    
    
    
    242
    
    
    
    834
    %Net income
    
    $
    402
    
    
    $
    375
    
    
    
    27
    
    
    
    7
    %Gross profit on hardware, software and installation
revenues
    
    $
    1,664
    
    
    $
    1,596
    
    
    
    68
    
    
    
    4
    %Gross profit on service revenues
    
    
    893
    
    
    
    871
    
    
    
    22
    
    
    
    3
    %Gross profit on payment processing revenues
    
    
    1,255
    
    
    
    646
    
    
    
    609
    
    
    
    94
    %Total gross profit
    
    $
    3,812
    
    
    $
    3,113
    
    
    
    699
    
    
    
    22
    %Gross margin on hardware, software and
installation revenues
    
    
    50
    %
    
    
    49
    %Gross margin on service revenues
    
    
    64
    %
    
    
    63
    %Gross margin on payment processing revenues
    
    
    90
    %
    
    
    94
    %Gross margin on total net revenues
    
    
    62
    %
    
    
    59
    %
 Significant Trends System sales for the quarter ended December 31, 2004 increased slightly, while our payment
processing revenues from our X-Charge business increased 104%, in comparison to the same quarter of
prior year. We continued to have an increase in our X-Charge revenues as a result of continued
addition of new processing accounts. Because of the higher margins on our X-Charge revenues, our
pre-tax income for the three months ended December 31, 2004 increased 67% on a 16% overall revenue
increase. Gross profit margin for the quarter ended December 31, 2004 increased over the same
quarter of last year as a result of recurring revenues from X-Charge business.




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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) Revenues We derive revenues from system sales, consisting of computer hardware, licensing of computer
software, installation and training, post contract customer support service, and payment processing
service (X-Charge). Net revenues for the three months ended December 31, 2004 increased 16% to
$6,150, consisting of a 3% increase in system revenues, a 2% increase in service revenues, and a
104% increase in payment processing revenues, compared to the three months ended December 31, 2003.
System revenues for the quarter ended December 31, 2004 increased slightly over the same quarter
of last year due to higher hardware sales to existing customers. Service revenues for the three
months ended December 31, 2004 was relatively flat, as compared to the three months ended December
31, 2003, as a result of no significant changes in the number of new contracts sold and contract
cancellations. Payment processing revenues for the three months ended December 31, 2004 increased
significantly due to a higher number of X-Charge processing accounts added over the prior year,
which generate recurring revenues. Gross Margin Gross margin for the three months ended December 31, 2004 was 62%, compared to 59% for the three
months ended December 31, 2003. Gross margin on system revenues and service revenues was
relatively flat at 50% and 64%, respectively, for the three months ended December 31, 2004,
compared to 49% and 63% for the same quarter of last year. Gross margin for payment processing
revenues was 90% for the quarter ended December 31, 2004, compared to 94% for the same quarter of
prior year. Gross margin for payment processing revenues decreased as a result of higher payroll
costs, related to the increase in personnel needed to support the growth in customer base
processing with X-Charge. Selling, General and Administrative Expenses Salaries, sales commissions, marketing expenses, and rent expenses 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 months ended December 31, 2004,
compared to 46% for the same period of fiscal 2004. Selling, general and administrative expenses
increased 19% for the three months ended December 31, 2004, compared to the same period ended
December 31, 2003. This increase was primarily due to the increase in sales commissions expense
related to higher payment processing revenues, higher payroll costs related to an increase in
administrative and sales personnel needed for X-Charge business growth, and higher
expenses related to Sarbanes Oxley compliance work. Research and Development Expenses Research and development expenses expressed as a percentage of revenues was 6% for the three months
ended December 31, 2004, compared to 7% for the three months ended December 31, 2003. Research and
development expenses for the three months ended December 31, 2004 was flat, as compared to the
three months ended December 31, 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 months ended December 31, 2004 was $271, compared to $29
for the three months ended December 31, 2003. Provision for income taxes for the quarter ended
December 31, 2003 was related to estimated tax expense for various states. There was no provision
made for federal income taxes for the three months ended December 31, 2003 due to the utilization
of net operating loss




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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) carryforwards and the reversal of our valuation allowance on deferred taxes. In fiscal 2005,
provision was made for both state and federal income taxes for the three months ended December 31,
2004. We expect to continue to incur provision for federal and state income taxes for the
foreseeable future. LIQUIDITY AND CAPITAL RESOURCES Our cash and cash equivalents plus marketable securities totaled $16,245 on December 31, 2004
compared to $16,591 on September 30, 2004. The decrease resulted from cash used for investing
activities. We generated $324 from operations, expended $143 for fixed assets and capitalized
software development, used $694 for marketable securities investment, and received $173 from the
proceeds of stock options exercised during the three months ended December 31, 2004, compared to
$749 generated from operations, $119 used for fixed assets and capitalized software development,
and $284 received from the exercise of stock options for the three months ended December 31, 2003.
Cash flow generated from operations decreased for the three months ended December 31, 2004,
compared to the same period of last year, primarily due to slower turnover of accounts receivable
and a higher pay out of accrued compensation and related expense. This trend of declining cash
flows from operations is not expected to continue for the remainder of fiscal 2005. At December 31, 2004 cash and cash equivalents plus marketable securities made up 81% of our total
current assets. Our current ratio at December 31, 2004 was 6.8. 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 During the three month period ended December 31, 2004, there were no material changes outside of
our ordinary business in our long term debt, capital leases, operating leases, purchase
obligations, or other long term obligations reflected on our balance sheet at December 31, 2004. The following table summarizes payment obligations for long-term debt, capital leases, operating
leases and purchase obligations at December 31, 2004. PAYMENTS DUE BY PERIODLESS THAN 1
    
    
    
    
    
    
    MORE THAN 4TOTAL
    
    
    YEAR
    
    
    1-3 YEARS
    
    
    YEARSLong-term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    1,409
    
    
    
    481
    
    
    
    928
    
    
    
    Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    




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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) 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 trends, 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, 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, and other similar
expressions, including 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 below. We undertake no obligation to revise or update publicly any forward-looking statement
for any reason. RISK FACTORS 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 occurs, 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. The population of our target customers is declining. 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




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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 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 and our other
filings with the Securities and Exchange Commission, including our reports on Forms 10-K and 8-K,
you should not rely on quarter to quarter comparisons of our operating results as an indication of
future performance.




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CAM COMMERCE SOLUTIONS, INC. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCOLSURES 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 of
two years or less. 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. There were no
changes in our internal control over financial reporting that occurred during our most recently
completed fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




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CAM COMMERCE SOLUTIONS, INC. 
 PART II . OTHER INFORMATION 
 Item 1      Legal Proceedings None 
 Item 2      Unregistered Sales of Equity Securities and Use of Proceeds 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 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.
000-16569). 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  SEC File No. 000-16569). 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  SEC File No. 000-16569). 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  SEC File No. 000-16569). 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  SEC File No. 000-16569).




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CAM COMMERCE SOLUTIONS, INC. PART II  OTHER INFORMATION 10(g) Indemnity Agreements (incorporated by reference to Form 8-K, filed on November 18, 2004 
SEC File No. 000-16569) 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  SEC File No. 000-16569) 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




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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: February 11, 2005
    
    By /s/ Geoffrey D. KnappGeoffrey D. KnappChief Executive OfficerDate: February 11, 2005
    
    By /s/ Paul Caceres Jr.Paul Caceres Jr.Chief Financial andAccounting Officer




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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  SEC File No.000-16569).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  SEC File No. 000-16569).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  SEC File No. 000-16569).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  SEC File No. 000-16569).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  SEC File No. 000-16569).10(g)
    
    Indemnity Agreements (incorporated by reference to Form 8-K, filed on November 18, 2004  SEC File No. 000-16569)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  SEC File No. 000-16569)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