UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended
June 30, 2008
OR
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
Commission file number 0-16569
CAM COMMERCE SOLUTIONS, INC.
(Exact name of registrant as specified in its Charter)
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Delaware
(State or other jurisdiction
of incorporation or organization)
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95-3866450
(IRS Employer
Identification No.)
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17075 Newhope Street
Fountain Valley, California
(Address of principal Executive offices)
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92708
(Zip code)
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(714) 241-9241
(Registrants 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 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
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Accelerated filer
o
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Non-accelerated filer
þ
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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 July 21, 2008, there were 4,149,000 shares of common stock outstanding.
CAM COMMERCE SOLUTIONS, INC.
INDEX
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CAM COMMERCE SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
(In thousands, except share and per share data)
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JUNE 30,
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SEPTEMBER 30,
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2008
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2007
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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22,742
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$
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22,047
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Marketable available-for-sale securities
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4,843
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6,388
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Accounts receivable, net
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3,266
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2,688
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Inventories
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272
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295
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Prepaid income taxes
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905
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Deferred income taxes
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607
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625
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Other current assets
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180
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182
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Total current assets
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32,815
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32,225
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Property and equipment, net
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724
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748
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Intangible assets, net
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1,375
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544
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Other assets
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40
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72
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Total assets
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$
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34,954
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$
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33,589
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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768
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$
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713
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Accrued compensation and related
expenses
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1,979
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1,877
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Deferred service revenue and customer
deposits
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1,569
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1,622
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Cash dividends payable
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1,287
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986
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Other accrued liabilities
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141
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372
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Total current liabilities
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5,744
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5,570
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Liability for uncertain tax positions
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110
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Total liabilities
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5,854
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5,570
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Commitments
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Stockholders equity:
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Common stock, $0.001 par value; 12,000,000
shares authorized, 4,148,000 shares
issued and outstanding at June 30, 2008
and 4,105,000 at September 30, 2007
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4
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4
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Capital in excess of par value
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24,654
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23,702
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Accumulated other comprehensive loss
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(2
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)
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(2
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Retained earnings
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4,444
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4,315
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Total stockholders equity
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29,100
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28,019
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Total liabilities and stockholders equity
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$
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34,954
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$
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33,589
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See accompanying notes.
3
CAM COMMERCE SOLUTIONS, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
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THREE MONTHS ENDED
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JUNE 30, 2008
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JUNE 30, 2007
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REVENUES
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Net payment processing revenues
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$
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6,530
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$
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4,322
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Net hardware, software and installation revenues
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2,504
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2,755
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Net service revenues
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1,455
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1,421
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Total net revenues
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10,489
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8,498
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COSTS AND EXPENSES
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Cost of payment processing revenues
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274
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191
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Cost of hardware, software and installation revenues
(1)
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1,305
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1,287
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Cost of service revenues
(1)
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620
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643
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Total cost of revenues
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2,199
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2,121
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Selling, general and administrative expenses
(1) (2)
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5,938
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4,288
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Research and development expenses
(1)
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510
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398
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Interest income
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(219
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(329
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Total costs and expenses
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8,428
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6,478
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Income before provision for income taxes
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2,061
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2,020
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Provision for income taxes
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774
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753
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Net income
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$
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1,287
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$
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1,267
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Basic net income per share
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$
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0.31
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$
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0.31
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Diluted net income per share
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$
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0.30
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$
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0.30
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Shares used in computing basic net income per share
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4,139
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4,050
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Shares used in computing diluted net income per share
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4,295
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4,241
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Cash dividends declared per common share
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$
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0.31
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$
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0.20
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(1)
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Includes share-based employee compensation expense as follows:
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Cost of hardware, software and installation revenues
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$
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1
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$
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3
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Cost of service revenues
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2
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5
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Selling, general and administrative expenses
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7
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21
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Research and development expenses
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4
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7
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(2)
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Includes $81 and $73 for the three months ended June 30, 2008 and 2007 respectively,
for building rent to a related party, Geoff Knapp, officer and director of CAM Commerce.
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See accompanying notes.
4
CAM COMMERCE SOLUTIONS, INC.
UNAUDITED CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
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NINE MONTHS ENDED
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JUNE 30, 2008
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JUNE 30, 2007
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REVENUES
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Net payment processing revenues
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$
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17,738
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$
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11,129
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Net hardware, software and installation revenues
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7,229
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7,616
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Net service revenues
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4,412
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4,272
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Total net revenues
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29,379
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23,017
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COSTS AND EXPENSES
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Cost of payment processing revenues
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745
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502
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Cost of hardware, software and installation revenues
(1)
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3,857
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3,705
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Cost of service revenues
(1)
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1,956
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1,919
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Total cost of revenues
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6,558
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6,126
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Selling, general and administrative expenses
(1) (2)
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15,633
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11,791
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Research and development expenses
(1)
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1,455
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1,178
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Interest income
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(874
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)
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(944
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)
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Total costs and expenses
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22,772
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18,151
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Income before provision for income taxes
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6,607
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4,866
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Provision for income taxes
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2,260
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1,777
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Net income
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$
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4,347
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$
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3,089
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Basic net income per share
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$
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1.05
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$
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0.77
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Diluted net income per share
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$
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1.01
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$
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0.73
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Shares used in computing basic net income per share
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4,124
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4,017
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Shares used in computing diluted net income per share
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4,294
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4,217
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Cash dividends declared per common share
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$
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0.92
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$
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0.54
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(1)
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Includes share-based employee compensation expense as follows:
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Cost of hardware, software and installation revenues
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$
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7
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$
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9
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Cost of service revenues
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11
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15
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Selling, general and administrative expenses
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39
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65
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Research and development expenses
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12
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21
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(2)
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Includes $237 and $157 for the nine months ended June 30, 2008 and 2007 respectively,
for building rent to a related party, Geoff Knapp, officer and director of CAM Commerce.
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See accompanying notes.
5
CAM COMMERCE SOLUTIONS, INC.
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
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NINE MONTHS ENDED
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JUNE 30, 2008
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JUNE 30, 2007
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Operating activities:
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Net income
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$
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4,347
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$
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3,089
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Adjustments to reconcile net income to net
cash provided by operating activities:
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Depreciation and amortization
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500
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471
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Provision for doubtful accounts
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37
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(18
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)
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Change in deferred income taxes
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2,260
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1,778
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Share-based compensation
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69
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110
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Excess tax benefits from share-based payment
arrangements
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(528
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)
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(795
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)
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Changes in operating assets and liabilities:
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Accounts receivable
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(615
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)
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(650
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)
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Inventories
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23
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148
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Other assets
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12
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(73
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)
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Accounts payable
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55
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54
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Accrued compensation and related expenses
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|
102
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|
400
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Deferred service revenue and customer deposits
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(53
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)
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|
160
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|
Income taxes
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|
(3,076
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)
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|
|
(571
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)
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Other accrued liabilities
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|
30
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(9
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)
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Cash provided by operating activities
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|
3,163
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|
|
|
4,094
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|
|
|
|
|
|
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Cash flows from investing activities:
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|
|
|
|
|
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Purchase of property and equipment
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|
(220
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)
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|
(347
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)
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Capitalized software development costs
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|
|
(146
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)
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(300
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)
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Purchase of payment processing portfolio
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|
(941
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)
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|
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Purchase of marketable securities
|
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|
(3,868
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)
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|
|
(3,014
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)
|
Proceeds from maturity of marketable securities
|
|
|
5,413
|
|
|
|
3,320
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|
|
|
|
|
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Cash provided (used) by investing activities
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|
238
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|
|
|
(341
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)
|
|
|
|
|
|
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|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
269
|
|
|
|
533
|
|
Excess tax benefits from share-based payment
arrangements
|
|
|
528
|
|
|
|
795
|
|
Dividends paid on common stock
|
|
|
(3,503
|
)
|
|
|
(1,963
|
)
|
|
|
|
|
|
|
|
Cash used in financing activities
|
|
|
(2,706
|
)
|
|
|
(635
|
)
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
695
|
|
|
|
3,118
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|
Cash and cash equivalents at beginning of period
|
|
|
22,047
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|
|
|
15,196
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|
|
|
|
|
|
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Cash and cash equivalents at end of period
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|
$
|
22,742
|
|
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$
|
18,314
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
CAM COMMERCE SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2008
(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 designs, develops, markets, installs and services
highly integrated retailing and payment processing solutions for small-to-medium size traditional
and eCommerce businesses based on its 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presentation of Condensed Financial Statements
The accompanying financial statements of the Company as of and for the three and nine months ended
June 30, 2008 and 2007 are unaudited. They have been prepared pursuant to the rules and
regulations of the United States Securities and Exchange Commission (SEC). Accordingly, they do
not include all of the information and footnotes required by generally accepted accounting
principles (GAAP) for complete financial statements. 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 Companys Annual
Report on Form 10-K for the year ended September 30, 2007.
Cash Equivalents
Cash equivalents represent highly liquid investments with original maturities of three months or
less.
Marketable Securities
All marketable 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 Companys marketable available-for-sale securities
at June 30, 2008 and September 30, 2007 consisted of debt instruments and certificates of deposit
that bear interest at various rates and mature in two years or less. The gross unrealized losses
on marketable available-for-sale securities at June 30, 2008 and September 30, 2007 were $3 and $4
respectively. There were no realized gains (losses) for the three and nine months ended June 30,
2008 and 2007. Amortized cost of the Companys marketable available-for-sale securities at June
30, 2008 and September 30, 2007 were $4,773 and $6,313, respectively.
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
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 receivables that are 30 days past due the payment terms 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.
7
CAM COMMERCE SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2008
(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 customers financial condition, and collateral is generally not
required. Credit losses have traditionally been minimal and such losses have been within
managements 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 Companys
products.
Comprehensive Income
The following tables present the calculations of comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
|
JUNE 30, 2008
|
|
|
JUNE 30, 2007
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,287
|
|
|
$
|
1,267
|
|
Unrealized gain (losses) on marketable
available-for- sale securities, net of
tax
|
|
|
15
|
|
|
|
3
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
1,302
|
|
|
$
|
1,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED
|
|
|
|
JUNE 30, 2008
|
|
|
JUNE 30, 2007
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,347
|
|
|
$
|
3,089
|
|
Unrealized gain (losses) on marketable
available-for- sale securities, net of
tax
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
4,347
|
|
|
$
|
3,104
|
|
|
|
|
|
|
|
|
Revenue Recognition Policy
The Companys 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), web hosting service, installation and training services, and payment
processing services. The Company recognizes payment processing revenues in the period the service
is performed and reports revenue on a net basis. Revenues are primarily based on actual cash
received in the month following the period the service was performed.
8
CAM COMMERCE SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2008
(In thousands, except per share data)
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 are not essential to the functionality of the software products. Payments for the
Companys 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 and web hosting service is the price the customer is required to pay
since they are sold as separate options and priced independently. PCS and web hosting 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 service 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 Companys present or future financial
statements.
9
CAM COMMERCE SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2008
(In thousands, except per share data)
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.
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 June 30, 2008 and at September 30, 2007 were $460 and
$544, respectively.
Amortization of capitalized software costs, charged to cost of hardware, software and installation,
for the three months ended June 30, 2008 and 2007 were $76 and $68, respectively, and for the nine
months ended June 30, 2008 and 2007 were $230 and $210, respectively.
In May 2008, the Company purchased a payment processing portfolio for a total price of $941. The
portfolio consisted of payment processing accounts. The cost of the purchase was capitalized as an
intangible asset and is being amortized on the straight-line method over an estimated 6-year useful
live based on projected range of lives of the merchant accounts.
Amortization of payment processing portfolio cost, charged to cost of payment processing, for the
three months ended June 30, 2008 were $26.
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 payment processing portfolio, capitalized
software, allowances for doubtful accounts, intangible asset valuations, liability for uncertain
tax positions, 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 Companys estimates and the actual results,
the Companys future results of operations will be affected.
Advertising
The Company expenses the costs of advertising as incurred. Advertising expenses for the three
months ended June 30, 2008 and 2007 were $68 and $157, respectively, and for the nine months ended
June 30, 2008 and 2007 were $284 and $455, 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.
10
CAM COMMERCE SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2008
(In thousands, except per share data)
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 and nine months ended June 30, 2008 and 2007.
The computations of basic and diluted net income per share for the three and nine months ended June
30, 2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
|
JUNE 30, 2008
|
|
|
JUNE 30, 2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income for basic and diluted net income per share
|
|
$
|
1,287
|
|
|
$
|
1,267
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
4,139
|
|
|
|
4,050
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share:
|
|
|
|
|
|
|
|
|
Weighted-average shares
|
|
|
4,139
|
|
|
|
4,050
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
156
|
|
|
|
191
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share:
|
|
|
|
|
|
|
|
|
Weighted average shares and assumed conversions
|
|
|
4,295
|
|
|
|
4,241
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
0.31
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
0.30
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NINE MONTHS ENDED
|
|
|
|
JUNE 30, 2008
|
|
|
JUNE 30, 2007
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income for basic and diluted net income per share
|
|
$
|
4,347
|
|
|
$
|
3,089
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
4,124
|
|
|
|
4,017
|
|
|
|
|
|
|
|
|
Denominator for basic net income per share:
|
|
|
|
|
|
|
|
|
Weighted-average shares
|
|
|
4,124
|
|
|
|
4,017
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
170
|
|
|
|
200
|
|
|
|
|
|
|
|
|
Denominator for diluted net income per share:
|
|
|
|
|
|
|
|
|
Weighted average shares and assumed conversions
|
|
|
4,294
|
|
|
|
4,217
|
|
|
|
|
|
|
|
|
Basic net income per share
|
|
$
|
1.05
|
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
Diluted net income per share
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
11
CAM COMMERCE SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2008
(In thousands, except per share data)
Dividends Declared
The Company has a cash dividend policy, which pays stockholders a variable dividend quarterly based
on the prior quarters results. During the nine months ended June 30, 2008, the Board of Directors
declared the following dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend
|
|
Record Date
|
|
Total Amount
|
|
Payment Date
|
November 19, 2007
|
|
$
|
0.30
|
|
|
January 7, 2008
|
|
$
|
1,235
|
|
|
January 17, 2008
|
February 13, 2008
|
|
$
|
0.31
|
|
|
April 4, 2008
|
|
$
|
1,283
|
|
|
April 14, 2008
|
April 30, 2008
|
|
$
|
0.31
|
|
|
July 3, 2008
|
|
$
|
1,287
|
|
|
July 14, 2008
|
Share-Based Compensation
In 1993, the stockholders of the Company approved the Companys 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 Companys common stock. The 1993 Plan had a term of ten
years. There have been 1,200 options granted under the 1993 Plan as of June 30, 2008. As of June
30, 2008, the Company had 100 shares reserved for issuance related to the options that remain
outstanding under the 1993 Plan.
In April 2000, the Companys Board of Directors approved the Companys 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 Companys common stock. The term of the plan is
unlimited in duration. There have been 538 options granted under the plan as of June 30, 2008. As
of June 30, 2008, the Company had 429 shares reserved for issuance related to the options that
remain outstanding under the 2000 Plan.
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 June 30, 2008, there were $9 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 and nine months ended June 30, 2008, newly issued shares
were issued.
12
CAM COMMERCE SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2008
(In thousands, except per share data)
A summary of the stock option plans at June 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
REMAINING
|
|
AGGREGATE
|
|
|
NUMBER OF
|
|
WEIGHTED AVERAGE
|
|
CONTRACTUAL TERM
|
|
INTRINSIC
|
|
|
OPTIONS
|
|
EXERCISE PRICE
|
|
(IN YEARS)
|
|
VALUE
|
Options outstanding
at June 30, 2008
|
|
|
317
|
|
|
$
|
7.24
|
|
|
|
3.8
|
|
|
$
|
10,287
|
|
Options expected to
vest at June 30,
2008
|
|
|
316
|
|
|
$
|
7.23
|
|
|
|
3.8
|
|
|
$
|
10,271
|
|
Options exercisable
at June 30, 2008
|
|
|
315
|
|
|
$
|
7.21
|
|
|
|
3.8
|
|
|
$
|
10,237
|
|
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
enterprises 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 Companys
effective income tax rate if the asset is recognized in future reporting periods.
During the year, the Internal Revenue Service (IRS) settled its audit of the Companys federal
income tax returns for the years ended September 30, 2004 and 2005. On March 14, 2008, the Company
reached an audit settlement agreement with the IRS. This settlement resulted in the reversal of
$244 of unrecognized tax benefits associated with research and development tax credits claimed by
the Company, which reduced the Companys effective tax rate for the three and nine months ended
June 30, 2008. Additionally, the Company reclassified approximately $112 of the FIN 48 liability to
current income taxes payable related to the amount of research and development credits disallowed
by the IRS. The Companys remaining FIN 48 tax liability as of June 30, 2008, related to the years
ended September 30, 2006 and 2007, is $110. The Company has not identified any new unrecognized
tax benefits.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in
income tax expense. As of June 30, 2008, the Company had approximately $4 in accrued interest and
penalties which is included as a component of the $110 unrecognized tax benefit noted above.
The Company is subject to U.S. federal income tax and its federal income tax returns are open to
audit under the statute of limitations for the years ended September 30, 2006 and September 30,
2007. The fiscal years ended September 30, 2004 and 2005 were settled by the IRS audit settlement
noted above.
13
CAM COMMERCE SOLUTIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2008
(In thousands, except per share data)
The Company is subject to income tax in California and various other state taxing jurisdictions.
The Companys 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.
DEFINITIVE MERGER AGREEMENT
In June 2008, the Company entered into a definitive merger agreement under which an affiliate of
Great Hill Partners (GHP), a leading private equity investment firm, will acquire all of the
issued and outstanding shares of the Companys Common Stock for $40.50 per share. The transaction
will result in an equity value for the Company of approximately $180 million.
The Companys Board of Directors and GHP have approved the transaction, which is subject to
approval by the stockholders of the Company, the expiration of the waiting period under the Hart
Scott Rodino Antitrust Improvements Act of 1976 and satisfaction of other customary closing
conditions. The transaction is not subject to any financing contingency. A special meeting of the
Companys stockholders to consider and vote on the proposed merger will be held on August 14, 2008,
consistent with the requirements of the Securities and Exchange Commission, The Nasdaq Stock Market
and Delaware law. A definitive proxy statement for this special meeting was filed on Form DEFM14A
on July 14, 2008. The transaction is expected to close in the fourth quarter of the Companys
fiscal year ending September 30, 2008.
14
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
Item 2. Managements 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 June 30, 2008 and we do not currently have any
such arrangements.
15
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
DEFINITIVE MERGER AGREEMENT
In June 2008, we entered into a definitive merger agreement under which an affiliate of Great Hill
Partners (GHP), a leading private equity investment firm, will acquire all of the issued and
outstanding shares of our Common Stock for $40.50 per share. The transaction will result in an
equity value for us of approximately $180 million.
Our Board of Directors and GHP have approved the transaction, which is subject to approval by our
stockholders, the expiration of the waiting period under the Hart Scott Rodino Antitrust
Improvements Act of 1976 and satisfaction of other customary closing conditions. The transaction
is not subject to any financing contingency. A special meeting of our stockholders to consider and
vote on the proposed merger will be held on August 14, 2008, consistent with the requirements of
the Securities and Exchange Commission (SEC), The Nasdaq Stock Market and Delaware law. A
definitive proxy statement for this special meeting was filed on Form DEFM14A on July 14, 2008.
The transaction is expected to close in the fourth quarter of our fiscal year ending September 30,
2008.
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 payment
processing portfolio, capitalized software, allowances for doubtful accounts, intangible asset
valuations, 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, web hosting service, installation and training services, and payment processing
services. We recognize payment processing revenues in the period the service is performed and
report revenue on a net basis. Revenues are primarily based on actual cash received in the month
following the period the service was performed.
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
16
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
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) and web hosting service is the price the
customer is required to pay since they are sold as separate options and priced independently. PCS
and web hosting 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
service 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.
Capitalized Software and Payment Processing Portfolio Costs
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.
We capitalized the cost of payment processing portfolio purchase and will amortize the cost on a
straight-line method over an estimated 6-year useful life based on projected range of lives of the
merchant accounts. The portfolio consisted of payment processing accounts.
The value of our capitalized software and payment processing portfolio 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 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 costs. In that event, revenue and cost forecasts would not be achieved,
and we could incur additional impairment charges.
17
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
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 research and development 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.
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
enterprises 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 earnings 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.
During the year, the Internal Revenue Service (IRS) settled its audit of our federal income tax
returns for the fiscal years ended September 30, 2004 and 2005. On March 14, 2008, we reached an
audit settlement agreement with the IRS. This settlement resulted in the reversal of $244 of
unrecognized tax benefits associated with research and development tax credits, which reduced our
effective tax rate for the three and nine months ended June 30, 2008. Additionally, we
reclassified approximately $112 of the FIN 48 liability to current income taxes payable related to
the amount of research and development credits disallowed by the IRS. Our remaining FIN 48 tax
liability as of June 30, 2008, related to the fiscal years ended September 30, 2006 and 2007, is
$110. We have not identified any new unrecognized tax benefits, and do not anticipate a
significant change to the total amount of unrecognized tax benefits within the next 12 months.
RESULTS OF OPERATIONS
The following tables summarize the results of our operations for the three and nine months ended
June 30, 2008 compared to the three and nine months ended June 30, 2007.
18
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
Variance
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
%
|
|
|
|
|
Net payment processing revenues
|
|
$
|
6,530
|
|
|
$
|
4,322
|
|
|
$
|
2,208
|
|
|
|
51
|
%
|
Net hardware, software and installation revenues
|
|
|
2,504
|
|
|
|
2,755
|
|
|
|
(251
|
)
|
|
|
(9
|
%)
|
Net service revenues
|
|
|
1,455
|
|
|
|
1,421
|
|
|
|
34
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
10,489
|
|
|
|
8,498
|
|
|
|
1,991
|
|
|
|
23
|
%
|
Cost of payment processing revenues
|
|
|
274
|
|
|
|
191
|
|
|
|
83
|
|
|
|
43
|
%
|
Cost of hardware, software and installation revenues
|
|
|
1,305
|
|
|
|
1,287
|
|
|
|
18
|
|
|
|
1
|
%
|
Cost of service revenues
|
|
|
620
|
|
|
|
643
|
|
|
|
(23
|
)
|
|
|
(4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
2,199
|
|
|
|
2,121
|
|
|
|
78
|
|
|
|
4
|
%
|
Selling, general and administrative expenses
|
|
|
5,938
|
|
|
|
4,288
|
|
|
|
1,650
|
|
|
|
38
|
%
|
Research and development expenses
|
|
|
510
|
|
|
|
398
|
|
|
|
112
|
|
|
|
28
|
%
|
Interest income
|
|
|
(219
|
)
|
|
|
(329
|
)
|
|
|
(110
|
)
|
|
|
(33
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
8,428
|
|
|
|
6,478
|
|
|
|
1,950
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
2,061
|
|
|
|
2,020
|
|
|
|
41
|
|
|
|
2
|
%
|
Provision for income taxes
|
|
|
774
|
|
|
|
753
|
|
|
|
21
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,287
|
|
|
$
|
1,267
|
|
|
$
|
20
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit on net payment processing revenues
|
|
$
|
6,256
|
|
|
$
|
4,131
|
|
|
$
|
2,125
|
|
|
|
51
|
%
|
Gross profit on net hardware, software and
installation revenues
|
|
|
1,199
|
|
|
|
1,468
|
|
|
|
(269
|
)
|
|
|
(18
|
%)
|
Gross profit on net service revenues
|
|
|
835
|
|
|
|
778
|
|
|
|
57
|
|
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
8,290
|
|
|
$
|
6,377
|
|
|
$
|
1,913
|
|
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin on net payment processing revenues
|
|
|
96
|
%
|
|
|
96
|
%
|
|
|
|
|
|
|
|
|
Gross margin on net hardware, software and
installation revenues
|
|
|
48
|
%
|
|
|
53
|
%
|
|
|
|
|
|
|
|
|
Gross margin on net service revenues
|
|
|
57
|
%
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
Gross margin on total net revenues
|
|
|
79
|
%
|
|
|
75
|
%
|
|
|
|
|
|
|
|
|
19
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended June 30,
|
|
|
Variance
|
|
|
|
2008
|
|
|
2007
|
|
|
Amount
|
|
|
%
|
|
|
|
|
Net payment processing revenues
|
|
$
|
17,738
|
|
|
$
|
11,129
|
|
|
$
|
6,609
|
|
|
|
59
|
%
|
Net hardware, software and installation revenues
|
|
|
7,229
|
|
|
|
7,616
|
|
|
|
(387
|
)
|
|
|
(5
|
%)
|
Net service revenues
|
|
|
4,412
|
|
|
|
4,272
|
|
|
|
140
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
29,379
|
|
|
|
23,017
|
|
|
|
6,362
|
|
|
|
28
|
%
|
Cost of payment processing revenues
|
|
|
745
|
|
|
|
502
|
|
|
|
243
|
|
|
|
48
|
%
|
Cost of hardware, software and installation
revenues
|
|
|
3,857
|
|
|
|
3,705
|
|
|
|
152
|
|
|
|
4
|
%
|
Cost of service revenues
|
|
|
1,956
|
|
|
|
1,919
|
|
|
|
37
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
6,558
|
|
|
|
6,126
|
|
|
|
432
|
|
|
|
7
|
%
|
Selling, general and administrative expenses
|
|
|
15,633
|
|
|
|
11,791
|
|
|
|
3,842
|
|
|
|
33
|
%
|
Research and development expenses
|
|
|
1,455
|
|
|
|
1,178
|
|
|
|
277
|
|
|
|
24
|
%
|
Interest income
|
|
|
(874
|
)
|
|
|
(944
|
)
|
|
|
(70
|
)
|
|
|
(7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
22,772
|
|
|
|
18,151
|
|
|
|
4,621
|
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
6,607
|
|
|
|
4,866
|
|
|
|
1,741
|
|
|
|
36
|
%
|
Provision for income taxes
|
|
|
2,260
|
|
|
|
1,777
|
|
|
|
483
|
|
|
|
27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,347
|
|
|
$
|
3,089
|
|
|
$
|
1,258
|
|
|
|
41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit on net payment processing revenues
|
|
$
|
16,993
|
|
|
$
|
10,627
|
|
|
$
|
6,366
|
|
|
|
60
|
%
|
Gross profit on net hardware, software and
installation revenues
|
|
|
3,372
|
|
|
|
3,911
|
|
|
|
(539
|
)
|
|
|
(14
|
%)
|
Gross profit on net service revenues
|
|
|
2,456
|
|
|
|
2,353
|
|
|
|
103
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
22,821
|
|
|
$
|
16,891
|
|
|
$
|
5,930
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin on net payment processing revenues
|
|
|
96
|
%
|
|
|
95
|
%
|
|
|
|
|
|
|
|
|
Gross margin on net hardware, software and
installation revenues
|
|
|
47
|
%
|
|
|
51
|
%
|
|
|
|
|
|
|
|
|
Gross margin on net service revenues
|
|
|
56
|
%
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
Gross margin on total net revenues
|
|
|
78
|
%
|
|
|
73
|
%
|
|
|
|
|
|
|
|
|
Significant Trends
We continued our trend of improving earning results, primarily as a result of our high margin,
recurring X-Charge payment processing revenues. X-Charge payment processing revenues for the three
and nine months ended June 30, 2008 increased 51% and 59%, respectively, from the corresponding
periods of the preceding fiscal year.
System revenues for the three and nine months ended June 30, 2008 decreased 9% and 5%,
respectively, compared to the three and nine months ended June 30, 2007. This was primarily due to
a decrease in software sales.
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
20
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
support service revenues. Total revenues for the three and nine months
ended June 30, 2008 increased $1,991, or 23%, and $6,362, or 28%, respectively, compared to the
three and nine months ended June 30, 2007.
Payment processing revenues for the three months ended June 30, 2008 increased 51% to $6,530, from
$4,322 for the corresponding period of the preceding fiscal year. Payment processing revenues for
the nine months ended June 30, 2008 increased 59% to $17,738, from $11,129 for the nine months
ended June 30, 2007. The increase in payment processing revenues was primarily due to an increase
in the number of new payment processing accounts.
System revenues for the three months ended June 30, 2008 decreased 9% to $2,504, from $2,755 for
the corresponding period of last fiscal year. System revenues for the nine months ended June 30,
2008 decreased 5% to $7,229, from $7,616 for the same period of last fiscal year. This was
primarily due to a decrease in software sales.
Service revenues for the three months ended June 30, 2008 increased 2% to $1,455, from $1,421 for
the three months ended June 30, 2007. Service revenues for the nine months ended June 30, 2008
increased 3% to $4,412, from $4,272 for the corresponding period of last fiscal year. 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 and nine months ended June 30, 2008 were 79% and
78%, respectively, compared to 75% and 73% for the three and nine months ended June 30, 2007,
respectively. 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 both the three and nine months ended June 30, 2008
were 96%, compared to 96% and 95% for the three and nine months ended June 30, 2007, respectively.
Gross margin on system revenues for the three months ended June 30, 2008 decreased to 48%, from 53%
for the corresponding quarter ended June 30, 2007. Gross margin on system revenues for the nine
months ended June 30, 2008 decreased to 47%, from 51% for the corresponding period of last fiscal
year. The decrease in gross margin on system revenues was a result of a decrease in software
sales, which generate higher gross profit margins than hardware sales. Gross margin on service
revenues for the three and nine months ended June 30, 2008 increased to 57% and 56%, respectively, from 55% for both the three and
nine months ended June 30, 2007.
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 June 30, 2008 increased $1,650 to $5,938, or 57% of net revenues, from
$4,288, or 50% of net revenues, for the three months ended June 30, 2007. Selling, general and
administrative expenses for the nine months ended June 30, 2008 increased $3,842 to $15,633, or 53%
of net revenues, from $11,791, or 51% of net revenues, for the same period of last fiscal year. The
increase in selling, general and administrative expenses for the three and nine months ended June
30, 2008 was primarily due to the increase in commissions expense related to higher payment
processing revenues and higher payroll costs related to an increase in administrative and sales
personnel required for X-Charge revenue growth. In the quarter ended June 30, 2008, we incurred
$583 in fees related to a definitive merger agreement that was entered into during the quarter.
21
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
Research and Development Expenses
Research and development expenses expressed as a percentage of net revenues were flat at 5% for
both the three and nine months ended June 30, 2008, compared to the corresponding periods ended
June 30, 2007. Research and development expenses for the three and nine months ended June 30, 2008
were $510 and $1,455, respectively, compared to $398 and $1,178 for the three and nine months ended
June 30, 2007, respectively. 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 and nine months ended June 30, 2008 were $774 and $2,260,
respectively, compared to $753 and $1,777 for the three and nine months ended June 30, 2007,
respectively. The provision for income tax taxes for the nine months ended June 30, 2008 included
a $244 tax benefit due to the reversal of an uncertain tax position liability. The reversal was
the result of a favorable audit settlement with the Internal Revenue Service concerning research
and development credits. The effective tax rate for the three and nine months ended June 30, 2008
were 38% and 34%, respectively, compared to 37% for both the three and nine months ended June 30,
2007, respectively. The decrease in effective tax rate for the nine months ended June 30, 2008 was
a result of the $244 tax benefit due to the reversal of an uncertain tax position liability.
Net Income
Net income for the three months ended June 30, 2008 increased 2% to $1,287, from $1,267 for the
three months ended June 30, 2007. Net income for the three months ended June 30, 2008 included
$583 expenses related to a definitive merger agreement. Net income for the nine months ended June
30, 2008 increased 41% to $4,347, from $3,089 for the same period of last fiscal year. 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 $27,585 on June 30,
2008, compared to $28,435 on September 30, 2007. The decrease resulted primarily from cash used
for purchase of payment processing portfolio and estimated income tax payments. During the nine
months ended June 30, 2008, we generated $3,163 from operations, expended $366 for fixed assets and
capitalized software development, used $3,868 for marketable securities investments, $941 for
payment processing portfolio purchase, and $3,503 for dividend payments, and received $5,413 from
maturity of investments and $269 from stock options exercised. During the nine months ended June
30, 2007, $4,094 were generated from operations, $647 were used for fixed assets and capitalized
software development, $3,014 were used for marketable securities investments, $1,963 were used for
dividend payments, $3,320 were received from maturity of investments, and $533 were received from
stock options exercised.
22
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
The company has a cash dividend policy, which pays stockholders a variable dividend quarterly based
on the prior quarters results. During the nine months ended June 30, 2008, the Board of Directors
declared the following dividends:
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Declaration Date
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Per Share Dividend
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Record Date
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Total Amount
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Payment Date
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November 19, 2007
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$
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0.30
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January 7, 2008
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$
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1,235
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January 17, 2008
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February 13, 2008
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$
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0.31
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April 4, 2008
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$
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1,283
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April 14, 2008
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April 30, 2008
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$
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0.31
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July 3, 2008
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$
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1,287
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July 14, 2008
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At June 30, 2008 cash and cash equivalents plus marketable securities made up 84% of our total
current assets. Our current ratio at June 30, 2008 was 5.7. 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 $25,949 per month is subject to annual percentage
increases equal to the increases, if any, in the Consumer Price Index. No rent adjustment,
however, shall be less than two percent (2%) nor greater than four percent (4%). Our audit
committee reviewed and approved this related party lease, finding that the lease is on terms no
less favorable than those generally available.
The following table summarizes payment obligations for long-term debt, capital leases, operating
leases, purchase obligations, and other long-term obligations for the remaining periods of the
current fiscal year and future fiscal years.
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PAYMENTS DUE BY PERIOD
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LESS THAN
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1-3
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3-5
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MORE THAN
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TOTAL
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1 YEAR
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YEARS
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YEARS
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5 YEARS
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Long-term debt
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$
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$
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$
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$
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$
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Capital lease obligations
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$
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$
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$
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$
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$
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Operating leases
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$
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3,906
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$
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196
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$
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1,713
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$
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1,063
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$
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934
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Purchase obligations
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$
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$
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$
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$
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$
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Other long-term
obligations
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$
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$
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$
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$
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|
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$
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FORWARD LOOKING STATEMENTS
All statements included or incorporated by reference in this Report, other than statements of
historical fact, descriptions, 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
23
CAM COMMERCE SOLUTIONS, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(All dollar amounts in thousands)
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, managements 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.
24
CAM COMMERCE SOLUTIONS, INC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(All dollar amounts in thousands)
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 of debt instruments and certificates of deposits 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. If
interest rates were to decrease by 10%, interest income would have decreased by $87 for the nine
months ended June 30, 2008. This risk is managed by investing in short term instruments of
investment grade 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.
Foreign Exchange Rate Risk
We do no operate internationally and, therefore, are not subject to market risk from changes in
foreign exchange rates.
ITEM 4T. 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 our disclosure controls and procedures (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of such period, our disclosure controls and
procedures were effective to ensure that information required to be disclosed by us in the reports
that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and (ii) is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow for timely decisions regarding required disclosure. 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.
25
PART II . OTHER INFORMATION
Item 1 Legal Proceedings
On June 16, 2008, the Company was named a defendant in an action against the Company and the
individual members of its board of directors in the Delaware Court of Chancery. On July 21, 2008,
the plaintiff, John Levin, amended his complaint to include new claims based on the Companys definitive proxy and
added Great Hill Partners, LLC (GHP) as a defendant. The amended complaint alleges, among other
things, that the proposed merger was the result of an unfair process by which the Company and the
members of its board of directors breached the fiduciary duties of care, loyalty, good faith,
candor, and independence and that the Companys definitive proxy statement did not contain adequate
disclosures regarding the proposed transaction. The plaintiff seeks certification of the matter as a
class action and an injunction prohibiting the consummation of the merger. No discovery has been
produced yet in this action. On July 21, 2008, the plaintiff filed a motion for expedited discovery
seeking depositions of the directors, GHP, and the Companys financial advisor, RBC Capital Markets
Corp., and document production from the defendants, GHP, and RBC on shortened time. On July
24,2008, a hearing was held on plaintiffs motion for expedited discovery, and the Court denied the
motion. The Company believes the claims asserted in the complaint are without merit and intends to
vigorously defend against this action.
On July 18, 2008, the Company was named as a defendant in an action against the Company, individual
members of its board of directors, and subsidiaries of GHP in Orange County Superior Court for the
State of California. The complaint alleges, among other things, that the proposed merger was the
result of an unfair process by which the board of directors breached their fiduciary duties of
care, loyalty, good faith, candor, and independence and that the Companys definitive proxy
statement did not contain adequate disclosures regarding the proposed
transaction. The plaintiffs, Leon and Rhona Schechter Trust, seek certification of the matter as a class action. On July 23, 2008, the plaintiffs presented an
ex parte application for expedited discovery seeking depositions of certain directors and RBC and
document production from the defendants, GHP, and RBC on shortened time. The Court denied the
application at a hearing the same day. Discovery has not yet commenced. The Company believes the
claims asserted in the complaint are without merit and intends to vigorously defend against this
action.
Item 1A Risk Factors
In addition to the other information set forth in this report, you should carefully consider the
risk factors discussed in our Annual Report on Form 10-K for the year ended September 30, 2007,
which could materially affect our business, financial condition or future results. In June 2008,
the Company entered into a definitive merger agreement under which an affiliate of Great Hill
Partners, a leading private equity investment firm, will acquire all of the issued and outstanding
shares of our Common Stock. This transaction is subject to the approval by the Companys
stockholders, the expiration of the waiting period under the Hart Scott Rodino Antitrust
Improvements Act of 1976 and satisfaction of other customary closing conditions. If the transaction
does not close, it could materially impact the Companys stock
price. While the transaction is pending, the trading volume and price
volatility of the Companys Common Stock could increase
substantially.
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
26
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).
3(b) Bylaws of the Company, as amended (incorporated by reference to Exhibit 3(b) to the 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 Agreement for Geoffrey D. Knapp, amended on
December 20, 2006, (incorporated by reference to the Form 8-K, filed on December 20, 2006).
10(c) Employment Agreement and Change in Control Agreement for Paul Caceres, amended on December
20, 2006, (incorporated by reference to the Form 8-K, filed on December 20, 2006).
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, File No. 333-57907).
10(e) 2000 Stock Option Plan (incorporated by reference to Exhibit 10(i) to the 2000 Annual Report
on Form 10-K filed on December 21, 2000).
10(f) Fountain Valley 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)
10(k) Definitive Merger Agreement (incorporated by reference to Form 8-K, filed on June 9, 2008)
10(l) Definitive Special Notice and Proxy Statement (incorporated by reference to Form DEFM14A,
filed on July 14, 2008)
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 Companys SEC File No. for all SEC filings referenced, other than the S-8 filings, is
000-16569.
27
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.
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|
|
CAM COMMERCE SOLUTIONS, INC.
(Registrant)
|
|
Date: August 14, 2008
|
By
|
/s/ Geoffrey D. Knapp
|
|
|
|
Geoffrey D. Knapp
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
Date: August 14, 2008
|
By
|
/s/ Paul Caceres Jr.
|
|
|
|
Paul Caceres Jr.
|
|
|
|
Chief Financial and Accounting Officer
|
|
28
Exhibit Index
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).
3(b) Bylaws of the Company, as amended (incorporated by reference to Exhibit 3(b) to the 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 Agreement for Geoffrey D. Knapp, amended on
December 20, 2006, (incorporated by reference to the Form 8-K, filed on December 20, 2006).
10(c) Employment Agreement and Change in Control Agreement for Paul Caceres, amended on December
20, 2006, (incorporated by reference to the Form 8-K, filed on December 20, 2006).
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, File No. 333-57907).
10(e) 2000 Stock Option Plan (incorporated by reference to Exhibit 10(i) to the 2000 Annual Report
on Form 10-K filed on December 21, 2000).
10(f) Fountain Valley 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)
10(k) Definitive Merger Agreement (incorporated by reference to Form 8-K, filed on June 9, 2008)
10(l) Definitive Special Notice and Proxy Statement (incorporated by reference to Form DEFM14A,
filed on July 14, 2008)
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 Companys SEC File No. for all SEC filings referenced, other than the S-8 filings, is
000-16569.