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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(X) Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2002

OR

(   ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 0-16569

CAM COMMERCE SOLUTIONS, INC.

(Exact name of registrant as specified in its Charter)

(714) 241-9241

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [   ]

As of June 30, 2002 there were 3,068,990 shares of common stock outstanding.

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CAM COMMERCE SOLUTIONS, INC.

INDEX

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PART I. FINANCIAL INFORMATION

CAM COMMERCE SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)

See accompanying notes.

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CAM COMMERCE SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

See accompanying notes.

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CAM COMMERCE SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

See accompanying notes.

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CAM COMMERCE SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

See accompanying notes.

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CAM COMMERCE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(In thousands, except per share data)
(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and business

CAM Commerce Solutions Inc., (the Company), provides total commerce solutions for small to medium size, traditional and web retailers that are based on the Company’s open architecture software products for managing inventory, point of sale, sales transaction processing and accounting. In addition to software, these solutions often include hardware, installation, training and service provided by the Company.

Presentation of condensed consolidated financial statements

The accompanying financial statements of the Company for the three and nine months ended June 30, 2002 and 2001 are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and, therefore, should be read in conjunction with the Company’s annual report on Form 10-K for the year ended September 30, 2001. Effective April 1, 2001 CAM Commerce Solutions, Inc. dissolved its wholly-owned subsidiary MicroBiz Corporation (“MicroBiz”) and have incorporated the product and operations into CAM.

Inventories

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

Marketable securities

All investment securities are considered to be available-for-sale and are carried at fair value. Management determines classification at the time of purchase and re-evaluates its appropriateness at each balance sheet date. The Company’s marketable securities consist of debt instruments that bear interest at various rates. As of June 30, 2002, gross unrealized losses on securities available-for-sale were $11. There were no realized gains (losses) for the nine month period ended June 30, 2002.

Comprehensive income (loss)

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CAM COMMERCE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(In thousands, except per share data)
(Unaudited)

Statements of cash flows

Net changes in operating assets and liabilities as shown in the condensed consolidated statements of cash flows are as follows:

Income taxes paid during the nine months ended June 30, 2002 and 2001 were $10 and $0, respectively. There was no interest expense paid in the first nine months of fiscal 2002 or 2001.

Net income (loss) per share

Basic net income (loss) per share is based upon the weighted average number of common shares outstanding for each period presented. Diluted net income (loss) per share is based upon the weighted average number of common shares and common equivalent shares outstanding for each period presented. Common equivalent shares include stock options and warrants assuming conversion under the treasury stock method. Common equivalent shares are excluded from diluted income (loss) per share if their effect is anti-dilutive. There are 455 options and 350 warrants outstanding at June 30, 2002 that were excluded from the computation because their effect is anti-dilutive. The computation of basic and diluted net income (loss) per share for the three and nine month periods ended June 30, 2002 and 2001 is as follows:

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CAM COMMERCE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(In thousands, except per share data)
(Unaudited)

Net income (loss) per share (continued)

Revenue Recognition Policy

The Company derives revenue from the sale of computer hardware, computer software, post contract customer support (PCS), installation and consulting services. System revenue from hardware and software sales is recognized at the time of shipment. Service revenue allocable to PCS is recognized ratably on a monthly basis over the period of the service contract. Consulting revenue is recognized in the period the service is performed. The Company defers and recognizes installation revenue upon completion of the installation process.

Acquisitions

In December 2001, the Company acquired certain assets of Addcash Systems to expand sales in the San Franciso Bay Area. Addcash Systems sells and services point of sale systems for small to medium size retailers. The acquisition was accounted for using the purchase method of accounting. The Company paid $156 in cash for the acquisition and assumed liabilities of $47 from Addcash, of which $135 has been capitalized as goodwill. Addcash Systems’ office location is in Burlingame, California.

Disposal of Assets-Access Retail Management Division

In May 2002, the Company completed the sale of assets of Access Retail Management for $800 in cash to Private Business Inc. Access Retail Management provides merchandise planning services to retailers. The net gain from the sale of assets totaled $715. Revenue from Access consulting services represented 3% of the Company’s revenues for fiscal year ended September 30, 2001. As part of the purchase agreement, Private Business Inc. shall discontinue selling its retail management point of sale system, and become a reseller of CAM’s Retail STAR point of sale system and X-Charge credit card processing services.

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CAM COMMERCE SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(In thousands, except per share data)
(Unaudited)

Long-Lived Assets

The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets.

Effective fiscal year 2002, the Company adopted Statement of Financial Accounting Standard No. 141, Business Combinations (“Statement 141”), No. 142, Goodwill and Other Intangible Assets (“Statement 142”), and No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“Statement 144”). Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but, instead, will be subject to annual impairment tests in accordance with Statement 142. Other intangible assets will continue to be amortized over their useful lives. In accordance with Statement 144, assets held for sale will be included in discontinued operations if the operations and cash flows will be or have been eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the components. The Company believes the adoption of Statement 144 will not have a material impact on the Company’s results of operations or financial position.

During the quarter ended June 30, 2001, the Company performed a review for impairment of all long-lived assets. Based on its evaluation, the Company determined that all long-lived assets related to MicroBiz were fully impaired and other long-lived assets related to ICS and capitalized software were partially impaired. As a result, the Company recorded an impairment charge of $1,899. The Company believes no additional impairment exists related to the long-lived assets at June 30, 2002.

Intangible Assets

The Company capitalizes costs incurred to develop new marketable software and enhance the Company’s existing systems software. Costs incurred in creating the software are charged to expense when incurred as research and development until technological feasibility has been established through the development of a detailed program design. Once technological feasibility has been established, software production costs are capitalized and reported at the lower of amortized cost or net realizable value.

Reclassifications

Certain reclassifications have been made to the 2001 financial statements to conform with the fiscal 2002 presentation.

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

CAM COMMERCE SOLUTIONS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 2002, as Compared to Three Months Ended June 30, 2001
Nine Months Ended June 30, 2002 as Compared to Nine Months Ended June 30, 2001

RESULTS OF OPERATIONS

NET REVENUES for the three months ended June 30, 2002 increased 8% to $5.4 million, consisting of a 3% increase in system revenues and a 22% increase in service revenues, compared to June 30, 2001. Net revenue for the nine months ended June 30, 2002 decreased 2% to $15.0 million, consisting of a 7% decrease in system revenues and a 14% increase in service revenues, compared to the same period in 2001. The increase in system revenues compared to the three month ended June 30, 2001 was related to more favorable pricing on system sales. There were less new system sales in the nine months ended June 30, 2002 compared to the same period of 2001 due to more cautious attitude by retailers to purchase capital equipment following the September 11 events. The increase in service revenues in the three and nine months ended June 30, 2002 compared to the same periods in 2001 was related to X-Charge credit card processing revenue and the additional service revenues from the acquisition of Addcash customer base.

GROSS MARGIN for the three and nine months ended June 30, 2002 was 54% and 51%, respectively, compared to 49% for the three months and 48% for the nine months ended June 30, 2001. Gross margin on system revenues for the three and nine months ended June 30, 2002 increased to 52% and 49%, respectively, compared to 50% for the three months and 48% for the nine months ended June 30, 2001. The increase in margin on system sales for the three and nine months ended June 30, 2002 was a result of lower discounts given on sales and personnel decreases in installation, warehouse, and production departments. Gross margin for service revenue was 60% and 56% for the three and nine months ended June 30, 2002, respectively, compared to 47% and 48% for the same periods in 2001. The increase in gross margin for service revenue was related to the X-Charge recurring credit card processing revenue. This revenue has a lower cost structure than the technical support service revenue, which yielded higher margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES expressed as a percentage of net revenues decreased for the three month period ended June 30, 2002 to 47%, compared to 51% for the three month period ended June 30, 2001. Selling, general and administrative expenses for the three months ended June 30, 2002 remained flat at $2.5 million, compared to the same period in 2001. Selling, general and administrative expenses expressed as a percentage of net revenues decreased for the nine month period ended June 30, 2002 to 49%, compared to 55% for the same period in 2001. Selling, general and administrative expenses for the nine months ended June 30, 2002 decreased 11% to $7.4 million, compared to $8.3 million for the same period in 2001. The decrease in selling, general and administrative expenses resulted from a decrease in personnel; a decrease in sales and marketing expenses related to the elimination of separate marketing and advertising for MicroBiz product and incorporating it with CAM marketing channels; and a decrease in depreciation and amortization costs related to an asset impairment write off recognized in the third quarter of 2001.

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CAM COMMERCE SOLUTIONS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

RESEARCH AND DEVELOPMENT EXPENSES for the three months ended June 30, 2002 decreased 10% to $409,000, compared to $456,000 for the three months ended June 30, 2001. The decrease was attributed to a decrease in research and development expense related to the MicroBiz product and the increased capitalization in software costs related to the development of new software products and enhancement of existing software products. Research and development expenses for the nine month period ended June 30, 2002 remained flat at $1.4 million compared to the same period in 2001.

INCOME TAX BENEFIT of $375,000 was recorded as of June 30, 2002 as a result of a recent tax law revision related to net loss carrybacks. There was no provision for income taxes based on the pre-tax loss for the nine months ended June 30, 2002.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s cash and cash equivalents totaled $8.7 million on June 30, 2002, compared to $9.5 million on September 30, 2001. The Company generated $933,000 from operations, expended $902,000 for fixed assets and capitalized software development, used $156,000 for a business acquisition and $1.5 million for purchase of marketable securities, and received $156,000 from the exercise of stock options and $720,000 from the sale of Access division during the nine months ended June 30, 2002, compared to the use of $487,000 for operations, $543,000 for fixed assets and capitalized software development, and $600,000 for business acquisition and received $29,000 from the exercise of stock options during the nine months ended June 30, 2001. The 2002 expenditure for fixed assets was related to furnishings and leasehold improvements for the new Corporate Headquarter office building.

Management believes the Company’s existing working capital, coupled with funds generated from the Company’s operations, and funds raised from an equity private placement in fiscal 2000, will be sufficient to fund its presently anticipated working capital requirements for the foreseeable future.

Inflation has had no significant impact on the Company’s operations.

This Item II section contains certain forward looking statements regarding the Company, its business, liquidity, prospects and results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause the Company’s actual business, liquidity, prospects and results of operations to differ materially from those that may be anticipated by such forward looking statements. All statements contained herein that are not historical facts, including but not limited to, statements regarding anticipated future revenue and expense levels, capital requirements, and the Company’s ability to generate cash from operations, are forward looking statements based on current expectations. No assurances can be given that events or results mentioned in any such forward looking statements will in fact occur. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by the Company in this report and in the Company’s other reports filed with the Securities and Exchange Commission.

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CAM COMMERCE SOLUTIONS, INC.
PART II — OTHER INFORMATION

On April 11, 2002, the Company held its annual meeting of shareholders. The percentage of shares voted totaled 86% of the total outstanding shares. The following items were voted upon at the annual meeting with the results of the voting:

1. The election of five persons to serve on the Company’s Board of Directors. The term shall be until the next meeting of shareholders in 2003.

2. The ratification of the appointment of Ernst & Young LLP as the independent auditors of the Company.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CAM COMMERCE SOLUTIONS, INC. (Registrant)

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EXHIBIT INDEX