CADA Cam Commerce Solutions (MM)

 

 

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, 2007

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

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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer  o           Accelerated Filer  o           Non-accelerated Filer  þ           Smaller reporting company  o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o           No  þ

As of January 23, 2008, there were 4,114,000 shares of common stock outstanding.

 

 

CAM COMMERCE SOLUTIONS, INC.

INDEX

				Page Number
PART I — Financial Information
Item 1		Financial Statements:
		a) Condensed Balance Sheets at December 31, 2007 (Unaudited) and September 30, 2007			3
		b) Unaudited Condensed Statements of Income for the three months ended December 31, 2007 and 2006			4
		c) Unaudited Condensed Statements of Cash Flows for the three months ended December 31, 2007 and 2006			5
		d) Notes to Unaudited Condensed Financial Statements			6-12
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			13-20
Item 3		Quantitative and Qualitative Disclosures About Market Risk			21
Item 4T		Controls and Procedures			21
PART II — Other Information
Item 1		Legal Proceedings			22
Item 1A		Risk Factors			22
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds			22
Item 3		Defaults Upon Senior Securities			22
Item 4		Submission of Matters to a Vote of Security Holders			22
Item 5		Other Information			22
Item 6		Exhibits			22-23
Signatures					24
EXHIBIT 31.(A)
EXHIBIT 31.(B)
EXHIBIT 32

PART I. FINANCIAL INFORMATION

⁽²⁾ Includes $78 and $42 for the three months ended December 31, 2007 and 2006, respectively, for building rent to a related party, Geoff Knapp, officer and director of CAM Commerce.

See accompanying notes.

See accompanying notes.

CAM COMMERCE SOLUTIONS, INC.

CAM COMMERCE SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

DECEMBER 31, 2007

(In thousands, except per share data)

Concentrations of Credit Risk

The Company sells its products primarily to small-to-medium size retailers. Credit is extended based on an evaluation of the customer’s financial condition, and collateral is generally not required. Credit losses have traditionally been minimal and such losses have been within management’s expectations.

Inventories

Inventories are stated at the lower of cost or market determined on a first-in, first-out basis, or net realizable value. Inventories are composed of finished goods, which include electronic point-of-sale hardware and computer equipment used in the sale and service of the Company’s products.

Comprehensive Income

The following tables present the calculations of comprehensive income:

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, “Revenue Recognition” (“SAB 104”). 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. 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.

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

CAM COMMERCE SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

DECEMBER 31, 2007

(In thousands, except per share data)

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 are 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 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.

Segments

The Company separately discloses its principal operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosure about Segments of an Enterprise and Related Information.” The Company classifies its business operations into three segments: 1) Payment processing; 2) Hardware, software and installation; and 3) Service. Net revenues and the related cost of revenues by segment are as disclosed on the accompanying Unaudited Condensed Statements of Income. The Company does not allocate selling, general and administrative or research and development expenses, including depreciation and amortization, to segments nor are there any segment reconciling items between the amounts reported on the Unaudited Condensed Statements of Income and income before taxes. In addition, the Company does not separately account for segment assets or liabilities.

Recently Issued Accounting Announcements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. The Company will be required to adopt SFAS 157 in the first quarter of fiscal 2009. Management is currently evaluating the requirements of SFAS 157 and has not yet determined the impact on the financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. Management is currently evaluating the requirements of SFAS 159 and has not yet determined the impact on the financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Intangible Assets

The Company capitalizes costs incurred to develop new marketable software and enhance its 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.

CAM COMMERCE SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

DECEMBER 31, 2007

(In thousands, except per share data)

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.

Unamortized capitalized software costs at December 31, 2007 and at September 30, 2007 were $517 and $544, respectively.

Amortization of capitalized software costs, charged to cost of hardware, software and installation, for the three months ended December 31, 2007 and 2006 were $78 and $68, respectively.

Use of Estimates

The preparation of financial statements in accordance with United States GAAP 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, accounting for share-based compensation, and other contingencies. The estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future results of operations will be affected.

Advertising

The Company expenses the costs of advertising as incurred. Advertising expenses for the three months ended December 31, 2007 and 2006 were $99 and $150, respectively.

Shipping and Handling

Shipping and handling fees and costs are included in the Unaudited Condensed Statements of Income 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 assuming conversion under the treasury stock method. Common equivalent shares are excluded from diluted net income per share if their effect is anti-dilutive. There were no anti-dilutive options excluded from the diluted net income per share computation for the three months ended December 31, 2007 and 2006.

Dividends Declared

The Company has a cash dividend policy, which pays stockholders a variable dividend quarterly based on the prior quarter’s results. During the three months ended December 31, 2007, the Board of Directors declared a cash dividend of $0.30 per outstanding share based on the results of the fourth quarter ended September 30, 2007. The dividend was paid on January 17, 2008 to shareholders of record on January 7, 2008.

Share-Based Compensation

In 1993, the stockholders of the Company approved the Company’s 1993 Stock Option Plan (the “1993 Plan”) under which nonstatutory options may be granted to key employees and individuals who provide services to the Company, at an exercise price not less than the fair market value of the stock at the date of grant, and expire ten years from the date of grant. The options are exercisable based on vesting periods as determined by the Board of Directors. The 1993 Plan allowed for the issuance of an aggregate of 1,200 shares of the Company’s common stock. The 1993 Plan had a term of ten years. There have been 1,200 options granted under the 1993 Plan as of December 31, 2007. As of December 31, 2007, the Company had 118 shares reserved for issuance related to the options that remain outstanding under the 1993 Plan.

In April 2000, the Company’s Board of Directors approved the Company’s 2000 Stock Option Plan (the “2000 Plan”) under which nonstatutory options may be granted to key employees and individuals who provide services to the Company, at an exercise price not less than the fair market value of the stock at the date of grant, and expire ten years from the date of grant. The options are exercisable based on vesting periods as determined by the Board of Directors. The plan allows for the issuance of an aggregate of 750 shares of the Company’s common stock. The term of the plan is unlimited in duration. There have been 538 options granted under the plan as of December 31, 2007. As of December 31, 2007, the Company had 445 shares reserved for issuance related to the options that remain outstanding under the 2000 Plan.

CAM COMMERCE SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

DECEMBER 31, 2007

(In thousands, except per share data)

Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment” ( “SFAS 123R”) requires share-based payments, including grants of employee stock options, to be recognized in the Statement of Income as an expense, based on their grant date fair values with such fair values amortized over the estimated service period. The Company elected to utilize the modified prospective method for the transition to SFAS 123R upon adoption in fiscal 2006. Under the modified prospective method, compensation expense will be recognized for all share-based compensation awards granted prior to, but not yet vested as of the adoption of SFAS 123R, based on grant-date fair values estimated in accordance with the original provision of SFAS 123. The Company uses a 0% forfeiture rate for calculating its compensation expense.

At December 31, 2007, there were $48 of total unrecognized compensation cost related to unvested stock options. This cost is expected to be fully recognized in fiscal 2009.

For options exercised during the three months ended December 31, 2007, newly issued shares were issued.

A summary of the stock option plans at December 31, 2007 is as follows:

Income Taxes

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” (“FASB 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB 109. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect, if any, of applying FIN 48 is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption.

As of October 1, 2007, the Company has provided $414 of unrecognized tax benefits related to Research and Development tax credit carryforwards. The cumulative effect of applying this interpretation has been recorded as a decrease of $414 to opening retained earnings with an offsetting increase to accrued FIN 48 liability. This entire amount would reduce the Company’s effective income tax rate if the asset is recognized in future reporting periods.

As of December 31, 2007, the Company has not identified any new unrecognized tax benefits.

The Company will recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense. There are no interest and penalties associated with the $414 of unrecognized tax benefits because the Research and Development credit carryforwards were not previously utilized on the Company’s filed tax returns.

CAM COMMERCE SOLUTIONS, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

DECEMBER 31, 2007

(In thousands, except per share data)

The Company is subject to U.S. federal income tax, and is currently under audit by the Internal Revenue Service for the years ended September 30, 2004 through September 30, 2005. The Company’s federal income tax returns are open to audit under the statute of limitations for the years ended September 30, 2004 through September 30, 2006. The Company’s statute of limitations for its September 30, 2004 has been extended to September 30, 2008. The Company believes the appropriate provisions for all outstanding issues have been made for all years under audit.

The Company is subject to income tax in California and various other state taxing jurisdictions. The Company’s state income tax returns are open to audit under the statute of limitations for the years ended September 30, 2003 through September 30, 2006.

The Company does not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

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

(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 “Forward Looking Statements” set forth below, the section entitled “Risk Factors” in our report on Form 10-K for the fiscal year ended September 30, 2007, 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, our 10-K report, and in our other filings with the SEC, before deciding to purchase, hold or sell our common stock.

OVERVIEW

We design, develop, market, install and service highly integrated retailing and payment processing solutions for small-to-medium size traditional and eCommerce businesses based on our open architecture software. These integrated solutions include credit and debit card processing, inventory management, point of sale, accounting, Internet sales, gift card and customer loyalty programs, and extensive management reporting. Payment processing services are provided on a transaction based business model.

We provide integrated retailing and payment processing solutions to small-to-medium retailers both on direct basis and through a growing network of resellers. We offer a payment processing software program, called X-Charge, which can be integrated with our point-of-sale systems and our resellers’ systems. This allows our customers to process a sale and credit card payment in one transaction using just the point-of-sale system, eliminating the need to separately process the credit card on a stand-alone credit card terminal. X-Charge is integrated with our five turn-key retailing systems, consisting of: (i) CAM32, which is designed for hard goods retailers whose inventory is re-orderable in nature; (ii) Profit$, which is designed for apparel and shoe retailers whose inventory is seasonal in nature, and color and size oriented; (iii) Retail STAR, which is designed to incorporate multiple functions of both the CAM32 and Profit$ systems; (iv) Retail ICE, which is a single-user derivative of Retail STAR; and (v) Microbiz, which is designed for single-store, hard goods retailers that are generally smaller in size than customers that utilize the CAM32 system. Our systems 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.

OFF BALANCE SHEET ARRANGEMENTS

There were no off balance sheet arrangements as of December 31, 2007 and we do no currently have any such arrangements.

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

CAM COMMERCE SOLUTIONS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(All dollar amounts in thousands)

valuations, deferred income tax asset valuation allowances, accounting for share-based compensation related to SFAS 123R, liability for uncertain tax positions, and other contingencies. The estimates and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our financial statements:

Revenue Recognition

We derive revenue from the sale of computer hardware, licensing of computer software, post-contract customer support, installation and training services, and payment processing services. We recognize payment processing revenues in the period the service is performed. Payment processing 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.

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 are 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.

Receivables

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 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.

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.

The value of our capitalized software costs 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 if indicators of impairment exist. In the process of an annual impairment review, we use the income approach methodology of valuation that includes both the undiscounted and discounted cash flow methods as well as other generally accepted valuation methodologies to determine the fair value of our capitalized software costs. 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 the capitalized software costs. 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. ” We do not carry a valuation allowance for our deferred tax assets. Our deferred tax assets included R&D credits. In assessing the need for a valuation allowance, we consider all positive and negative evidence, including projected future taxable income, and recent financial performance. We currently have an Internal Revenue Service audit in process for the years ended September 30, 2004 and 2005.

Liability for Uncertain Tax Positions — FIN 48

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”), an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” (“FASB 109”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB 109. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect of applying FIN 48 is to be reported as an adjustment to the opening balance of retained earning in the year of adoption. As a result of the implementation of FIN 48, we recorded a decrease of $414 to opening retained earnings with an offsetting increase to accrued FIN 48 liability. This entire amount would reduce our effective income tax rate if the asset is recognized in future reporting periods. We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.

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

X-Charge payment processing business continued to be the primary source of our profit and revenue. X-Charge payment processing revenues for the three months ended December 31, 2007 increased 67% from the corresponding period of the preceding fiscal year. X-Charge payment processing revenues represent our largest revenue source.

Net income for the three months ended December 31, 2007 increased 75%, compared to the corresponding quarter of the preceding fiscal year, primarily due to the high margin, recurring X-Charge payment processing revenues.

System revenues for the three months ended December 31, 2007 increased 13%, from the three months ended December 31, 2006, resulting from an increase in hardware and software sales.

Service revenues for the three months ended December 31, 2007 increased 4%, from the corresponding period of the prior fiscal year, primarily due to an increase in i.STAR web hosting service revenue.

Revenues

Our revenues consist of X-Charge payment processing revenues, system revenues (consisting of computer hardware, licensing of computer software, and installation and training), and post contract customer support service revenues. Total revenues for the three months ended December 31, 2007 increased 37% to $9,845 from $7,172 for the three months ended December 31, 2006.

Payment processing revenues for the three months ended December 31, 2007 increased 67% to $5,785 from $3,465 for the corresponding period of the preceding fiscal year. The increase in payment processing revenues was due to an increase in the number of new payment processing accounts.

System revenues for the three months ended December 31, 2007 increased 13% to $2,581 from $2,285 for the corresponding period of last fiscal year, as a result of an increase in hardware and software sales.

Service revenues for the three months ended December 31, 2007 increased 4% to $1,479 from $1,422 for the three months ended December 31, 2006. The increase in service revenues was primarily due to an increase in i.STAR web hosting service revenue.

Gross Margin

Gross margin on total net revenues for the three months ended December 31, 2007 increased to 77%, compared to 73% for the three months ended December 31, 2006. The increase in gross margin was primarily due to an increase in high margin, recurring X-Charge payment processing revenues.

Gross margin on payment processing revenues for the three months ended December 31, 2007 was flat at 96%, compared to the three months ended December 31, 2006. Gross margin on system revenues and service revenues for the three months ended December 31, 2007 both remained consistent at 48% and 55%, respectively, compared to the three months ended December 31, 2006.

CAM COMMERCE SOLUTIONS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(All dollar amounts in thousands)

Selling, General and Administrative Expenses

Salaries, sales commissions, marketing expenses, and rent expenses represent the largest components of selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended December 31, 2007 increased $1,104 to $4,767, or 48% of net revenues, from $3,663, or 51% of net revenues, for the three months ended December 31, 2006. The increase in selling, general and administrative expenses for the three months ended December 31, 2007 was primarily due to the increase in commissions expense related to higher payment processing revenues, higher payroll costs related to an increase in administrative and sales personnel required for X-Charge revenue growth, and higher employee benefit costs.

Research and Development Expenses

Research and development expenses expressed as a percentage of net revenues was flat at 5% for the three months ended December 31, 2007, compared the corresponding period ended December 31, 2006. Research and development expenses were $464 for the three months ended December 31, 2007, compared to $383 for the three months ended December 31, 2006. The increase was primarily due to an increase in salaries expense as a result of a decrease in capitalized software costs and hiring of Vice President of Software Development. 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, 2007 was $1,040, compared to $512 for the three months ended December 31, 2006. The effective tax rate for the three months ended December 31, 2007 was 38%, compared to 35% for the three months ended December 31, 2006. The increase in effective tax rate was due to a change in the application of R&D credit.

Net Income

Net income for the three months ended December 31, 2007 increased 75% to $1,694 from $968 for the three months ended December 31, 2006. The increase in net income was primarily due to the increase in high margin, recurring X-Charge payment processing revenues.

LIQUIDITY AND CAPITAL RESOURCES

In the last several years, we have financed our operations almost entirely from the cash flow generated from operations. Net income was the primary source of our increase in cash provided from operations. Our cash and cash equivalents plus marketable securities totaled $28,625 on December 31, 2007, compared to $28,435 on September 30, 2007. The increase resulted primarily from cash provided from operating activities. During the three months ended December 31, 2007, we generated $1,176 from operations, expended $178 for fixed assets and capitalized software development, used $1,656 for marketable securities investments and $986 for dividend payments, and received $2,528 from maturity of investments and $68 from stock options exercised. During the three months ended December 31, 2006, $897 was generated from operations, $110 was used for fixed assets and capitalized software development, $1,008 was used for marketable securities investments, $594 was used for dividend payments, $1,370 was received from maturity of investments, and $244 was received from stock options exercised.

The company has a cash dividend policy, which pays stockholders a variable dividend quarterly based on the prior quarter’s results. During the three months ended December 31, 2007, the Board of Directors declared a cash dividend of $0.30 per outstanding share based on the results of the fourth quarter ended September 30, 2007. The dividend was paid on January 17, 2008 to shareholders of record on January 7, 2008.

CAM COMMERCE SOLUTIONS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(All dollar amounts in thousands)

The decision to pay a dividend is re-evaluated quarterly based on our earnings performance, regulatory limitations and other conditions which may affect our desire to pay dividends in the future and is subject to approval by the Board of Directors. Other than performance, there are no restrictions that currently materially limit, or that we reasonably believe are likely to limit materially the future payment of dividends.

At December 31, 2007 cash and cash equivalents plus marketable securities made up 88% of our total current assets. Our current ratio at December 31, 2007 was 6.2. 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

Inflation has not had a material impact on our operations in the past, but this could change in the future.

Contracts and Commitments

On December 19, 2006, we signed a lease agreement with our Chief Executive Officer, Geoffrey D. Knapp, for approximately 20,500 square feet of office space in Henderson, Nevada. The building houses our research and development, marketing, inside sales and support employees. The lease is for a ten-year term that commences upon the completion of the building expansion space, which occurred on April 13, 2007. The initial rent of $25,949 per month is subject to annual percentage increases equal to the increases, if any, in the Consumer Price Index. No rent adjustment, however, shall be less than two percent (2%) nor greater than four percent (4%). Our audit committee has reviewed and approved this related party finding that the lease is on terms no less favorable than those generally available.

The following table summarizes payment obligations for long-term debt, capital leases, operating leases, purchase obligations, and other long-term obligations for the remaining periods of the current fiscal year and future fiscal years.

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, including, but not limited to the following: (i) our recent growth has been due primarily to the addition of new customers for our X-Charge payment processing services and not increases in revenues from existing customers of those services; (ii) our original core business of computer system sales is in decline; (iii) the population of our target customers is declining; (iv) our stock is thinly traded; (v) we face intense competition in the retail point of sale industry; (vi) the availability and pricing of competing products; (vii) the effectiveness of our expense and cost control efforts; (viii) our ability to develop and deliver software products in a timely manner; (ix) the rate at which customers adopt our new products and services; (x) the effect of new and emerging technologies; (xi) the ability to retain and hire key personnel needed to implement business and product plans; (xii) the level or orders received that can be shipped in any quarter; and (xiii) other risks and factors detailed in our Report on Form 10-K for the fiscal year ended September 30, 2007 filed with the SEC. Undue reliance should not be placed on these forward-looking statements, which are current only as of the date of this report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason.

CAM COMMERCE SOLUTIONS, INC.

PART II . OTHER INFORMATION

10(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) Indemnification 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 the Form 10-Q filed on August 12, 2005)

10(j) Henderson, Nevada Office Lease Agreement (incorporated by reference to the Form 8-K filed on December 20, 2006)

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

The Company’s SEC File No. for all SEC filings referenced, other than the S-8 filings, is 000-16569.

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)

EXHIBIT INDEX

The Company’s SEC File No. for all SEC filings referenced, other than the S-8 filings, is 000-16569.

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