T | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Delaware | 33-0442860 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer | £ | Accelerated filer | £ |
Non-accelerated filer | £ (Do not check if a smaller reporting company) | Smaller reporting company | S |
Page | ||
PART I. | FINANCIAL INFORMATION | |
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
PART II. | OTHER INFORMATION | |
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 5. | ||
Item 6. | ||
ITEM 1. | FINANCIAL STATEMENTS |
June 30, 2013 | December 31, 2012 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 4,970 | $ | 4,494 | |||
Restricted cash | 38 | 52 | |||||
Accounts receivable, net | 3,548 | 3,720 | |||||
Prepaid expenses and other current assets | 949 | 1,292 | |||||
Total current assets | 9,505 | 9,558 | |||||
Property and equipment, net | 2,483 | 2,455 | |||||
Goodwill | 5,245 | 5,337 | |||||
Other non-current assets | 502 | 416 | |||||
Total assets | $ | 17,735 | $ | 17,766 | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 7,887 | $ | 7,159 | |||
Accrued compensation and benefits | 965 | 425 | |||||
Other accrued liabilities | 2,880 | 3,142 | |||||
Deferred revenue | 1,005 | 2,311 | |||||
Current portion of notes payable | 2,540 | 2,727 | |||||
Total current liabilities | 15,277 | 15,764 | |||||
Deferred tax liability | 595 | 567 | |||||
Long-term deferred revenue | 1,230 | 44 | |||||
Common stock warrant liability | 134 | 348 | |||||
Notes payable, less current portion | 1,200 | 1,800 | |||||
Total liabilities | 18,436 | 18,523 | |||||
Commitments and contingencies (Note 6) | |||||||
Stockholders’ deficit: | |||||||
Preferred stock, $0.001 par value; 5,000 shares authorized, none issued and outstanding | — | — | |||||
Common stock, $0.001 par value; 50,000 shares authorized, 44,472 shares issued and 42,139 shares outstanding at June 30, 2013 and 30,454 shares issued and 28,428 shares outstanding at December 31, 2012 | 41 | 27 | |||||
Additional paid-in capital | 137,053 | 130,402 | |||||
Accumulated deficit | (134,523 | ) | (128,198 | ) | |||
Accumulated other comprehensive loss | (434 | ) | (261 | ) | |||
Treasury stock, at cost, 2,204 shares at June 30, 2013 and 2,026 shares at December 31, 2012 | (2,838 | ) | (2,727 | ) | |||
Total stockholders’ deficit | (701 | ) | (757 | ) | |||
Total liabilities and stockholders’ deficit | $ | 17,735 | $ | 17,766 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net revenue | $ | 4,730 | $ | 6,895 | $ | 9,386 | $ | 13,296 | |||||||
Cost of services | 3,068 | 3,882 | 6,103 | 7,507 | |||||||||||
Gross profit | 1,662 | 3,013 | 3,283 | 5,789 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 852 | 505 | 1,517 | 1,045 | |||||||||||
Technology and development | 1,472 | 1,530 | 2,594 | 3,119 | |||||||||||
General and administrative | 1,771 | 1,384 | 4,751 | 2,752 | |||||||||||
Depreciation and amortization | 439 | 402 | 845 | 806 | |||||||||||
Total operating expenses | 4,534 | 3,821 | 9,707 | 7,722 | |||||||||||
Operating loss | (2,872 | ) | (808 | ) | (6,424 | ) | (1,933 | ) | |||||||
Loss (gain) due to change in fair value of warrant liability | 11 | (15 | ) | (214 | ) | (22 | ) | ||||||||
Interest and other expense, net | 53 | 43 | 146 | 71 | |||||||||||
Loss before income tax expense | (2,936 | ) | (836 | ) | (6,356 | ) | (1,982 | ) | |||||||
Income tax expense | 25 | 65 | 55 | 118 | |||||||||||
Net loss from continuing operations | (2,961 | ) | (901 | ) | (6,411 | ) | (2,100 | ) | |||||||
Net income (loss) from discontinued operations, net of tax | (69 | ) | (1,710 | ) | 87 | (1,986 | ) | ||||||||
Net loss | $ | (3,030 | ) | $ | (2,611 | ) | $ | (6,324 | ) | $ | (4,086 | ) | |||
Foreign currency translation adjustments | (86 | ) | (110 | ) | (172 | ) | (109 | ) | |||||||
Comprehensive loss | $ | (3,116 | ) | $ | (2,721 | ) | $ | (6,496 | ) | $ | (4,195 | ) | |||
Basic and diluted net income (loss) per share: | |||||||||||||||
Net loss from continuing operations | $ | (0.08 | ) | $ | (0.03 | ) | $ | (0.19 | ) | $ | (0.08 | ) | |||
Net income (loss) from discontinued operations | $ | — | $ | (0.07 | ) | $ | — | $ | (0.07 | ) | |||||
Net Loss | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.19 | ) | $ | (0.15 | ) | |||
Weighted average common shares - Basic and diluted | 39,124 | 27,049 | 32,964 | 26,929 |
Six Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Operating activities: | |||||||
Net loss | $ | (6,324 | ) | $ | (4,086 | ) | |
Adjustment for (income) loss from discontinued operations, net of tax | (87 | ) | 1,986 | ||||
Adjustment to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation and amortization of property and equipment | 845 | 749 | |||||
Amortization of intangible assets | — | 57 | |||||
Loss (gain) due to change in fair value of warrant liability | (214 | ) | (22 | ) | |||
Stock-based compensation expense | 1,128 | 390 | |||||
Provision (credit) for allowance for doubtful accounts | 13 | (30 | ) | ||||
Provision for allowances for other assets | 280 | — | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 151 | (647 | ) | ||||
Prepaid expenses and other assets | (27 | ) | (329 | ) | |||
Accounts payable | 785 | 2,461 | |||||
Accrued compensation and benefits | 512 | 164 | |||||
Other accrued liabilities | (284 | ) | (166 | ) | |||
Income tax payable | 23 | 40 | |||||
Deferred tax liability | 29 | 34 | |||||
Deferred revenue | (120 | ) | (646 | ) | |||
Net cash used in continuing operations | (3,290 | ) | (45 | ) | |||
Net cash provided by (used in) discontinued operations | 87 | (410 | ) | ||||
Net cash used in operating activities | (3,203 | ) | (455 | ) | |||
Investing activities: | |||||||
Purchases of property and equipment | (873 | ) | (553 | ) | |||
Restricted cash, net | 14 | 3 | |||||
Net cash used in continuing operations | (859 | ) | (550 | ) | |||
Net cash used in discontinued operations | — | (751 | ) | ||||
Net cash used in investing activities | (859 | ) | (1,301 | ) | |||
Financing activities: | |||||||
Proceeds from issuance of common stock | 5,534 | — | |||||
Proceeds from borrowings | 200 | 4,493 | |||||
Repayment of borrowings | (987 | ) | (3,926 | ) | |||
Repayment of acquisition earnout | — | (113 | ) | ||||
Net proceeds on overdraft facility | — | (381 | ) | ||||
Tax payments in connection with treasury stock surrendered | (111 | ) | (191 | ) | |||
Net cash provided by (used in) continuing operations | 4,636 | (118 | ) | ||||
Net cash used in discontinued operations | — | (680 | ) | ||||
Net cash provided by (used in) financing activities | 4,636 | (798 | ) | ||||
Effect of exchange rate changes on cash | (98 | ) | 96 | ||||
Net increase (decrease) in cash and cash equivalents | 476 | (2,458 | ) | ||||
Cash and cash equivalents at beginning of period | 4,494 | 8,490 | |||||
Cash and cash equivalents at end of period | $ | 4,970 | $ | 6,032 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid for interest | $ | 114 | $ | 58 | |||
Cash paid for income taxes | $ | 4 | 42 | ||||
Supplemental disclosures of non-cash investing and financing activities: | |||||||
Retirement of fully depreciated property and equipment | $ | 291 | $ | — | |||
Common stock issued in acquisitions | $ | — | $ | 112 |
June 30, 2013 | December 31, 2012 | ||||||
Cash and cash equivalents: | |||||||
Cash | $ | 3,329 | $ | 2,854 | |||
Money market funds | 1,641 | 1,640 | |||||
Total cash and cash equivalents | $ | 4,970 | $ | 4,494 |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net loss from continuing operations | $ | (2,961 | ) | $ | (901 | ) | $ | (6,411 | ) | $ | (2,100 | ) | |||
Net income (loss) from discontinued operations | (69 | ) | (1,710 | ) | 87 | (1,986 | ) | ||||||||
Net loss | $ | (3,030 | ) | $ | (2,611 | ) | (6,324 | ) | (4,086 | ) | |||||
Weighted-average shares of common stock outstanding – basic and diluted | 39,124 | 27,049 | 32,964 | 26,929 | |||||||||||
Basic and diluted net income (loss) per share: | |||||||||||||||
Continuing operations | $ | (0.08 | ) | $ | (0.03 | ) | $ | (0.19 | ) | $ | (0.08 | ) | |||
Discontinued operations | — | (0.07 | ) | — | (0.07 | ) | |||||||||
Net loss | $ | (0.08 | ) | $ | (0.10 | ) | $ | (0.19 | ) | $ | (0.15 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Revenue | $ | — | $ | 2,548 | $ | 158 | $ | 5,107 | |||||||
Cost of services | — | 3,377 | 2 | 5,711 | |||||||||||
Gross profit | — | (829 | ) | 156 | (604 | ) | |||||||||
Operating expenses | — | 851 | — | 1,360 | |||||||||||
Non-operating (income) expenses | — | 30 | — | 22 | |||||||||||
Income (loss) from discontinued operations | — | (1,710 | ) | 156 | (1,986 | ) | |||||||||
Loss on disposal of discontinued operations | (69 | ) | — | (69 | ) | — | |||||||||
Net Income (loss) from discontinued operations | $ | (69 | ) | $ | (1,710 | ) | $ | 87 | $ | (1,986 | ) |
Estimated Useful Life | June 30, 2013 | December 31, 2012 | |||||||
Computer equipment | 3 years | $ | 4,129 | $ | 3,974 | ||||
Capitalized software and development | 2-5 years | 14,359 | 13,686 | ||||||
Furniture and fixtures | 5 years | 429 | 437 | ||||||
Leasehold improvements | Lease term | 264 | 232 | ||||||
19,181 | 18,329 | ||||||||
Accumulated depreciation and amortization | (16,836 | ) | (16,015 | ) | |||||
Construction in process (1) | 138 | 141 | |||||||
Property and equipment, net | $ | 2,483 | $ | 2,455 |
(1) | Construction in process at June 30, 2013 consists primarily of costs incurred to further develop and enhance our e-Commerce platform. Estimated cost to complete these projects is in the range of $105,000 to $125,000, subject to future revisions. |
June 30, 2013 | December 31, 2012 | ||||||
Comerica term loan | $ | 2,400 | $ | 3,000 | |||
Comerica revolving line | 1,340 | 1,493 | |||||
Notes payable – insurance | — | 34 | |||||
Total notes payable | 3,740 | 4,527 | |||||
Less: current portion | (2,540 | ) | (2,727 | ) | |||
Total notes payable, less current portion | $ | 1,200 | $ | 1,800 |
Level 1 | — Quoted prices in active markets for identical assets or liabilities; |
Level 2 | — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable |
Level 3 | — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Beginning Fair Value of Level 3 Liabilities | Transfers In (Out) | Loss(Gain) on Fair Value Re- measurement | Ending Fair Value of Level 3 Liabilities | ||||||||||||
2013 | |||||||||||||||
Common stock warrant liability | $ | 123 | $ | — | $ | 11 | $ | 134 | |||||||
2012 | |||||||||||||||
Common stock warrant liability | 510 | — | (15 | ) | 495 |
Beginning Fair Value of Level 3 Liabilities | Transfers In (Out) | Loss(Gain) on Fair Value Re- measurement | Ending Fair Value of Level 3 Liabilities | ||||||||||||
2013 | |||||||||||||||
Common stock warrant liability | $ | 348 | $ | — | $ | (214 | ) | $ | 134 | ||||||
2012 | |||||||||||||||
Contingent consideration — Optima (1) | $ | 225 | $ | (225 | ) | $ | — | $ | — | ||||||
Common stock warrant liability | $ | 517 | $ | — | $ | (22 | ) | $ | 495 |
(1) | The contingent consideration paid under the Optima stock purchase agreement was $225,000 based on the achievement of certain performance metrics for the calendar year ended December 31, 2011. The contingent consideration payment was transferred from our Level 3 fair value measurements once the final calculation was determinable. The liability was settled in April 2012 in accordance with the guidelines of the Optima stock purchase agreement. |
Level 1 | Level 2 | Level 3 | |||||||||
June 30, 2013 | |||||||||||
Assets: | |||||||||||
Money market funds (1) | $ | 1,639 | $ | — | $ | — | |||||
Liabilities: | |||||||||||
Common stock warrant liability (2) | $ | — | $ | — | $ | 134 | |||||
December 31, 2012 | |||||||||||
Assets: | |||||||||||
Money market funds (1) | $ | 1,640 | $ | — | $ | — | |||||
Liabilities: | |||||||||||
Common stock warrant liability (2) | $ | — | $ | — | $ | 348 |
(1) | Money market funds are valued using active quoted market rates. |
(2) | The fair value of our common stock warrant liability (see Note 8 - Stockholders' Equity) is determined using the Black–Scholes valuation method utilizing the quoted price of our common stock in an active market. Volatility is estimated based on the historical market activity of our stock. The expected life is based on the remaining contractual term of the warrants and the risk free interest rate is based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the warrants' remaining contractual term. See detailed inputs below. |
June 30, | December 31, | ||||
2013 | 2012 | ||||
Expected life in years | 3.0 | 3.50 | |||
Volatility | 78.80 | % | 65.99 | % | |
Risk-free interest rate | 0.66 | % | 0.34 | % | |
Dividend rate | — | % | — | % |
Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Stock-based compensation expense included in: | |||||||||||||||
Cost of services | $ | 16 | $ | 28 | $ | 33 | $ | 53 | |||||||
Sales and marketing | 3 | 12 | 121 | 22 | |||||||||||
Technology and development | 55 | 32 | 98 | 43 | |||||||||||
General and administrative | 75 | 143 | 876 | 272 | |||||||||||
$ | 149 | $ | 215 | $ | 1,128 | $ | 390 |
Six Months Ended | |||||
June 30, | |||||
2013 | 2012 | ||||
Expected life in years | 3.93 | 3.76 | |||
Volatility | 74.03 | % | 65.99 | % | |
Risk-free interest rate | 0.45 | % | 1.20 | % | |
Dividend rate | — | % | — | % | |
Forfeiture Rates: | |||||
Options | 22.70 | % | 27.61 | % | |
Restricted stock | 15.04 | % | 15.04 | % |
Options Outstanding | |||||||||
Available for Grant | Number of Options | Weighted Average Exercise Price | |||||||
Balance at December 31, 2012 | 810 | 1,169 | $ | 1.25 | |||||
Authorized | 2,575 | — | — | ||||||
Options granted | (1,792 | ) | 1,792 | 0.47 | |||||
Restricted stock awards granted | (1,268 | ) | — | — | |||||
Options exercised | — | (5 | ) | 0.81 | |||||
Options canceled | 192 | (192 | ) | 1.99 | |||||
Restricted stock awards forfeited | 365 | — | — | ||||||
Balance at June 30, 2013 | 882 | 2,764 | $ | 1.26 |
Number of Shares | Weighted Average Grant Price | |||||
Balance of nonvested shares at December 31, 2012 | 2,254,688 | $ | 0.80 | |||
Granted | 1,267,857 | 0.77 | ||||
Vested | (1,504,107 | ) | 0.69 | |||
Forfeited | (365,000 | ) | 0.91 | |||
Balance of nonvested shares at June 30, 2013 | 1,653,438 | $ | 0.76 |
ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
• | our client concentration given that we are currently dependent on a few significant client relationships, |
• | our ability to acquire new clients and increase demand, |
• | our ability to raise additional equity or debt financing, |
• | the possibility of the discontinuation of some client relationships, |
• | general market conditions, |
• | the macro-economic environment and its impact on our business as our clients are reducing their overall marketing spending and our clients' customers are reducing their purchase of services contracts, |
• | the effectiveness of our sales team and approach, our ability to target, analyze and forecast the revenue to be derived from a client and the costs associated with providing services to that client, |
i. | Direct and channel friendly sales through clearly defined rules designed to ensure that client business rules drive the outcome of each client contact point in order to overcome confusion and deliver an integrated communication of the status of each customer to both the client and its channel partners; |
ii. | State of the art cloud platform that includes an open API architecture for seamless integrations, the ability to handle complex B2B rules, a quoting system, purchase order and wire transfer support, and the capacity to handle discounting and multi-tier pricing; |
iii. | Touch inbound and outbound global telesales utilizing multiple communication methods including online chat, email, social media and phone support to assist potential buyers; |
iv. | Management and optimization of trial periods to transition missed opportunities into potential sales; |
v. | Opportunities to cross-sell and up-sell new products and services to increase total revenue on existing sales. |
i. | The ability to deliver time sensitive pre-expiration countdown emails and phone campaigns potentially resulting in higher renewal rates. |
ii. | Gaining market intelligence, such as why a customer was initially lost, which enables our clients to address the customer's objections within client business rules to potentially increase revenue through reactivations and win-backs. |
iii. | The ability to manage, enable and credit the channel in the post sales process through clearly defined rules designed to ensure that client business rules drive the outcome of each client contact point. |
iv. | Maximizing each customer contact by providing opportunities for cross-selling and up-selling new products and services. |
v. | Delivering lost revenue recognition through the same transaction platform used for other Rainmaker products, creating one integrated tool for customer status and other much needed reporting for both the client and its channel partners. |
i. | The ability to educate without our client losing sight of its core competency: |
1. | Targeted delivery methods to each specific market segment |
2. | The potential to increase training revenues with visibility into business impact |
3. | Tools and reporting for on-going process improvements |
ii. | Product modules include: |
1. | Instructor led training |
2. | Vclassroom |
3. | Elearning |
4. | Replay |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||
Net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of services | 64.9 | 56.3 | 65.0 | 56.5 | |||||||
Gross margin | 35.1 | % | 43.7 | % | 35.0 | % | 43.5 | % | |||
Operating expenses: | |||||||||||
Sales and marketing | 18.0 | 7.3 | 16.2 | 7.9 | |||||||
Technology and development | 31.1 | 22.2 | 27.6 | 23.5 | |||||||
General and administrative | 37.4 | 20.1 | 50.6 | 20.7 | |||||||
Depreciation and amortization | 9.3 | 5.8 | 9.0 | 6.1 | |||||||
Total operating expenses | 95.8 | % | 55.4 | % | 103.4 | % | 58.2 | % | |||
Operating loss | (60.7 | ) | (11.7 | ) | (68.4 | ) | (14.7 | ) | |||
Loss (gain) due to change in fair value of warrant liability | 0.2 | (0.2 | ) | (2.3 | ) | (0.2 | ) | ||||
Interest and other expense, net | 1.1 | 0.6 | 1.6 | 0.5 | |||||||
Loss before income tax expense | (62.0 | )% | (12.1 | )% | (67.7 | )% | (15.0 | )% | |||
Income tax expense (benefit) | 0.5 | 0.9 | 0.6 | 0.9 | |||||||
Net loss from continuing operations | (62.5 | )% | (13.0 | )% | (68.3 | )% | (15.9 | )% | |||
Loss from discontinued operations, net of tax | (1.5 | ) | (24.8 | ) | 0.9 | (14.9 | ) | ||||
Net loss | (64.0 | )% | (37.8 | )% | (67.4 | )% | (30.8 | )% | |||
Foreign currency translation adjustments | (1.8 | ) | (1.6 | ) | (1.8 | ) | (0.8 | ) | |||
Comprehensive loss | (65.8 | )% | (39.4 | )% | (69.2 | )% | (31.6 | )% |
Three Months Ended June 30, | Change | ||||||||||
2013 | 2012 | ||||||||||
Interest expense, net | $ | 54 | $ | 30 | $ | 24 | |||||
Currency translation loss | (1 | ) | 13 | (14 | ) | ||||||
Total | $ | 53 | $ | 43 | $ | 10 |
Six Months Ended June 30, | Change | ||||||||||
2013 | 2012 | ||||||||||
Interest expense, net | $ | 109 | $ | 61 | $ | 48 | |||||
Currency translation loss | 1 | 10 | (9 | ) | |||||||
Other | 36 | — | 36 | ||||||||
Total | $ | 146 | $ | 71 | $ | 75 |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1. | LEGAL PROCEEDINGS |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) that May Yet Be Purchased Under the Plans or Programs | |||||
April 2013 | 27,052 | $0.41 | N/A | N/A | |||||
May 2013 | 38,470 | $0.52 | N/A | N/A | |||||
June 2013 | 1,284 | $0.38 | N/A | N/A | |||||
Total | 66,806 | $0.47 | N/A | N/A |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
(a) | Exhibits |
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
RAINMAKER SYSTEMS, INC. | |||
Dated: | August 16, 2013 | /s/ Mallorie Burak | |
Mallorie Burak | |||
Chief Financial Officer |
1. | I have reviewed this quarterly report on Form 10-Q/A (Amendment No. 1) of Rainmaker Systems, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have; |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's Fourth Fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
Date: | August 16, 2013 | /s/ Donald J. Massaro | |
Donald J. Massaro | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) |
1. | I have reviewed this quarterly report on Form 10-Q/A (Amendment No. 1) of Rainmaker Systems, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have; |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's Fourth Fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. |
Date: | August 16, 2013 | /s/ Mallorie Burak | |
Mallorie Burak | |||
Chief Financial Officer | |||
(Principal Financial Officer and Principal Accounting Officer) |
/s/ Donald J. Massaro |
Donald J. Massaro |
President and Chief Executive Officer (Principal Executive Officer) |
August 16, 2013 |
/s/ Mallorie Burak |
Mallorie Burak |
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
August 16, 2013 |
NET LOSS PER SHARE (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Calculation of basic and diluted net loss per common share | The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Net revenue | $ 4,730 | $ 6,895 | $ 9,386 | $ 13,296 |
Cost of services | 3,068 | 3,882 | 6,103 | 7,507 |
Gross profit | 1,662 | 3,013 | 3,283 | 5,789 |
Operating expenses: | ||||
Sales and marketing | 852 | 505 | 1,517 | 1,045 |
Technology and development | 1,472 | 1,530 | 2,594 | 3,119 |
General and administrative | 1,771 | 1,384 | 4,751 | 2,752 |
Depreciation and amortization | 439 | 402 | 845 | 806 |
Total operating expenses | 4,534 | 3,821 | 9,707 | 7,722 |
Operating loss | (2,872) | (808) | (6,424) | (1,933) |
Loss (gain) due to change in fair value of warrant liability | 11 | (15) | (214) | (22) |
Interest and other expense, net | 53 | 43 | 146 | 71 |
Loss before income tax expense | (2,936) | (836) | (6,356) | (1,982) |
Income tax expense | 25 | 65 | 55 | 118 |
Net loss from continuing operations | (2,961) | (901) | (6,411) | (2,100) |
Net income (loss) from discontinued operations, net of tax | (69) | (1,710) | 87 | (1,986) |
Net loss | (3,030) | (2,611) | (6,324) | (4,086) |
Foreign currency translation adjustments | (86) | (110) | (172) | (109) |
Comprehensive loss | $ (3,116) | $ (2,721) | $ (6,496) | $ (4,195) |
Basic and diluted net income (loss) per share: | ||||
Net loss from continuing operations (USD per share) | $ (0.08) | $ (0.03) | $ (0.19) | $ (0.08) |
Net income (loss) from discontinued operations (USD per share) | $ 0.00 | $ (0.07) | $ 0.00 | $ (0.07) |
Net loss (USD per share) | $ (0.08) | $ (0.10) | $ (0.19) | $ (0.15) |
Weighted average common shares - Basic and diluted (in shares) | 39,124 | 27,049 | 32,964 | 26,929 |
LONG-TERM DEBT OBLIGATIONS
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBT OBLIGATIONS | LONG-TERM DEBT OBLIGATIONS Long-term debt consists of the following (in thousands):
Comerica Bank Credit Facility On June 14, 2012, the Company entered into a Loan and Security Agreement with Comerica Bank (the "Credit Facility"). The maximum amount of credit available to the Company under the Credit Facility is $5 million, comprised of a $3 million term loan facility ("Term Loan") and a $2 million revolving line of credit ("Revolving Line"), which includes a $500,000 sub-facility for letters of credit and certain credit card services. Term Loan advances outstanding on December 31, 2012 are payable in thirty equal monthly installments of principal, plus accrued interest, beginning on January 1, 2013 and ending on June 14, 2015. As of June 30, 2013, there was $2.4 million outstanding under the Term Loan and $1.3 million outstanding under the Revolving Line. Rainmaker also may request additional advances under the Revolving Line in an aggregate outstanding amount not to exceed the lesser of (i) the Revolving Line or (ii) the borrowing base, which is 80% of the Company's eligible accounts receivable balances, less the aggregate face amount of letters of credit issued and the aggregate limits of any credit cards issued and any merchant credit card processing reserves. The borrowing availability under the Revolving Line at June 30, 2013 was $1.5 million. Amounts borrowed under the Revolving Line are due on December 14, 2013. The interest rate per annum for advances under the Credit Facility is the Prime Referenced Rate, as defined in the Credit Facility, plus the applicable margin. The applicable margin is one and one half percent (1.50%) per annum for the Revolving Line and two and one quarter percent (2.25%) per annum for the Term Loan. The interest rates on our Term Loan and Revolving Line were 5.50% and 4.75%, respectively, as of June 30, 2013. The Credit Facility is secured by substantially all of Rainmaker’s consolidated assets. Rainmaker must comply with certain financial covenants, including maintaining unrestricted cash with Comerica Bank equal to the greater of $1 million or the aggregate outstanding amount of Term Loan advances, and not less than $1 million upon achieving positive cash flow, and maintaining a minimum liquidity ratio with respect to all indebtedness owing to Comerica Bank of at least 1.25 to 1.00, which Comerica Bank agreed to reduce to 1.00 to 1.00 until April 15, 2013. The Credit Facility contains customary covenants that will, subject to limited exceptions, require Comerica's approval to, among other things, (i) create liens; (ii) make capital expenditures; (iii) pay cash dividends; and (iv) merge or consolidate with another company. The Credit Facility also provides for customary events of default, including nonpayment, breach of covenants, material adverse events, payment defaults of other indebtedness, failure to deliver audited financial statements with an unqualified opinion, and certain events of bankruptcy, insolvency and reorganization that may result in acceleration of outstanding amounts under the Credit Facility. As of June 30, 2013, we were in compliance with all loan covenants. Notes Payable – Insurance On August 13, 2012, we entered into an agreement with AON Private Risk Management to finance our 2012 to 2013 insurance premiums with AFCO Acceptance Corporation in the amount of $62,000. The interest rate on the note payable is 6.068% and the note is payable in nine equal monthly installment payments beginning in September 2012. As of June 30, 2013, the remaining liability under this financing agreement was $0. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cash and Cash Equivalents (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Dec. 31, 2012
|
Jun. 30, 2012
|
Dec. 31, 2011
|
Jun. 30, 2013
Maximum
|
Jun. 30, 2013
Cash
|
Dec. 31, 2012
Cash
|
Jun. 30, 2013
Money market funds
|
Dec. 31, 2012
Money market funds
|
|
Cash and cash equivalents: | |||||||||
Original maturity term of investments considered to be cash and cash equivalents | 3 months | ||||||||
Cash and cash equivalents | $ 4,970 | $ 4,494 | $ 6,032 | $ 8,490 | $ 3,329 | $ 2,854 | $ 1,641 | $ 1,640 |
DISCONTINUED OPERATIONS (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
|
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income statement and balance sheet disclosures for discontinued operations | ncome (loss) from discontinued operations, net of income taxes, for all periods presented reflect the operating results of our Manila-based operations and are as follows, (in thousands):
|
FAIR VALUE MEASUREMENTS (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | 12 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Dec. 31, 2012
|
|||||||
Common stock warrant
|
||||||||
Assumptions used to measure the accrued warrant liability: | ||||||||
Expected life in years | 3 years | 3 years 6 months | ||||||
Volatility | 78.80% | 65.99% | ||||||
Risk-free interest rate | 0.66% | 0.34% | ||||||
Dividend rate | 0.00% | 0.00% | ||||||
Measured at fair value on a recurring basis | Level 1
|
||||||||
Liabilities: | ||||||||
Common stock warrant liability | $ 0 | [1] | $ 0 | [1] | ||||
Measured at fair value on a recurring basis | Level 1 | Money market funds
|
||||||||
Assets: | ||||||||
Money market funds | 1,639 | [2] | 1,640 | [2] | ||||
Measured at fair value on a recurring basis | Level 2
|
||||||||
Liabilities: | ||||||||
Common stock warrant liability | 0 | [1] | 0 | [1] | ||||
Measured at fair value on a recurring basis | Level 2 | Money market funds
|
||||||||
Assets: | ||||||||
Money market funds | 0 | [2] | 0 | [2] | ||||
Measured at fair value on a recurring basis | Level 3
|
||||||||
Liabilities: | ||||||||
Common stock warrant liability | 134 | 348 | [1] | |||||
Measured at fair value on a recurring basis | Level 3 | Money market funds
|
||||||||
Assets: | ||||||||
Money market funds | $ 0 | [2] | $ 0 | [2] | ||||
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition (Details) (Subscription arrangement)
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Minimum
|
|
Deferred revenue arrangement: | |
Term in which deferred revenue will be recognized | 1 year |
Maximum
|
|
Deferred revenue arrangement: | |
Term in which deferred revenue will be recognized | 5 years |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Goodwill and Other Intangible Assets (Details) (USD $)
|
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2013
segment
|
Dec. 31, 2012
reporting_unit
segment
|
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Goodwill, accumulated impairment loss | $ 11,500,000 | $ 11,500,000 |
Number of operating segments | 1 | 1 |
Number of reportable segments | 1 | 1 |
Goodwill | $ 5,245,000 | $ 5,337,000 |
COMMITMENTS AND CONTINGENCIES - Lease Commitments (Details)
|
6 Months Ended | 0 Months Ended | 0 Months Ended | 1 Months Ended | 3 Months Ended | 1 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
USD ($)
|
Jun. 30, 2012
USD ($)
|
Jul. 18, 2012
Building
Campbell, California, corporate headquarters
Notes payable to banks
Standby letter of credit
USD ($)
|
Oct. 02, 2009
Building
Campbell, California, corporate headquarters
Second amendment
sqft
|
Oct. 31, 2012
Building
Campbell, California, corporate headquarters
Third amendment
|
Feb. 01, 2013
Building
Campbell, California, corporate headquarters
Fourth amendment
USD ($)
sqft
|
Feb. 01, 2013
Building
Campbell, California, corporate headquarters
Fourth amendment
Notes payable to banks
Standby letter of credit
USD ($)
|
Jul. 02, 2013
Building
Campbell, California, corporate headquarters
Fifth amendment
Subsequent event
USD ($)
sqft
|
Jul. 02, 2013
Building
Campbell, California, corporate headquarters
Fifth amendment
Subsequent event
Notes payable to banks
Standby letter of credit
USD ($)
|
Sep. 30, 2011
Building
Austin, Texas
USD ($)
sqft
|
Jun. 30, 2013
Building
Austin, Texas
Lease contract termination
USD ($)
|
Jun. 30, 2013
Building
Austin, Texas
Lease contract termination
Other accrued liabilities
USD ($)
|
Oct. 31, 2012
Building
Godalming, United Kingdom
GBP (£)
sqft
|
Jun. 30, 2013
Building
Godalming, United Kingdom
USD ($)
|
|
Lease commitments: | ||||||||||||||
Area of leased space (in sqft) | 16,430 | 6,771 | 21,388 | 5,000 | ||||||||||
Square footage adjustment to leased asset (in sqft) | 3,936 | |||||||||||||
Duration of lease | 3 years | 24 months | 30 months | |||||||||||
Gross rent in first year of lease | $ 365,000 | $ 536,000 | ||||||||||||
Operating Leases, Base Rent in Current Lease Year, Net of Discount | 321,000 | |||||||||||||
Annual percentage of gross rent increase | 3.00% | 3.00% | ||||||||||||
Guarantor obligation, maximum exposure | 100,000 | 40,000 | 61,000 | |||||||||||
Security deposit liability | 40,000 | |||||||||||||
Annual rent expense due | 212,000 | |||||||||||||
Monthly rent expense due | 18,000 | |||||||||||||
Charges | 150,000 | |||||||||||||
Reserves | 87,000 | |||||||||||||
Base rent in current lease year | 28,000 | 43,000 | ||||||||||||
Rent expense under operating leases | $ 603,000 | $ 418,000 |
STOCKHOLDERS' EQUITY - Stock Compensation (Details) (USD $)
|
3 Months Ended | 6 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 0 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | 3 Months Ended | 6 Months Ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Dec. 31, 2012
|
Jun. 30, 2013
Stock option
|
Jun. 30, 2012
Stock option
|
Jun. 30, 2013
Restricted stock
board_director_members
|
Jun. 30, 2013
Restricted stock
|
Jun. 30, 2012
Restricted stock
|
Jun. 05, 2013
2003 Plan
|
Jun. 30, 2013
2003 Plan
|
Jun. 30, 2012
2003 Plan
|
Dec. 31, 2012
2003 Plan
|
Dec. 31, 2012
2012 Plan
|
Jun. 30, 2013
Cost of services
|
Jun. 30, 2012
Cost of services
|
Jun. 30, 2013
Cost of services
2003 Plan
|
Jun. 30, 2012
Cost of services
2003 Plan
|
Jun. 30, 2013
Sales and marketing
|
Jun. 30, 2012
Sales and marketing
|
Jun. 30, 2013
Sales and marketing
2003 Plan
|
Jun. 30, 2012
Sales and marketing
2003 Plan
|
Jun. 30, 2013
Technology and development
|
Jun. 30, 2012
Technology and development
|
Jun. 30, 2013
Technology and development
2003 Plan
|
Jun. 30, 2012
Technology and development
2003 Plan
|
Jun. 30, 2013
General and administrative
|
Jun. 30, 2012
General and administrative
|
Jun. 30, 2013
General and administrative
2003 Plan
|
Jun. 30, 2012
General and administrative
2003 Plan
|
Jun. 30, 2013
Common stock
|
Jun. 30, 2013
Common stock
|
Jun. 30, 2013
Common stock
2003 Plan
Maximum
|
|
Stock compensation: | ||||||||||||||||||||||||||||||||||
Shares paid for tax witholding | 66,806 | 178,769 | ||||||||||||||||||||||||||||||||
Payments related to tax witholding | $ 111,000 | $ 191,000 | $ 32,000 | $ 110,000 | ||||||||||||||||||||||||||||||
Restricted stock awards granted in period (in shares) | 500,000 | |||||||||||||||||||||||||||||||||
Number of board of director members | 2 | |||||||||||||||||||||||||||||||||
Stock-based compensation | 149,000 | 215,000 | 1,128,000 | 390,000 | 16,000 | 28,000 | 33,000 | 53,000 | 3,000 | 12,000 | 121,000 | 22,000 | 55,000 | 32,000 | 98,000 | 43,000 | 75,000 | 143,000 | 876,000 | 272,000 | ||||||||||||||
Stock-based compensation relating to unvested awards | 2,100,000 | 2,100,000 | ||||||||||||||||||||||||||||||||
Current unvested and outstanding grants expected to be expensed in current year | 316,000 | 316,000 | ||||||||||||||||||||||||||||||||
Weighted average valuation assumptions: | ||||||||||||||||||||||||||||||||||
Expected life in years | 3 years 11 months 4 days | 3 years 9 months 3 days | ||||||||||||||||||||||||||||||||
Volatility | 74.03% | 65.99% | ||||||||||||||||||||||||||||||||
Risk-free interest rate | 0.45% | 1.20% | ||||||||||||||||||||||||||||||||
Dividend rate | 0.00% | 0.00% | ||||||||||||||||||||||||||||||||
Forfeiture rate | 22.70% | 27.61% | 15.04% | 15.04% | ||||||||||||||||||||||||||||||
Available for grant: | ||||||||||||||||||||||||||||||||||
Balance at beginning of period (in shares) | 882,000 | 882,000 | 810,000 | |||||||||||||||||||||||||||||||
Authorized | 2,575,000 | 1,200,000 | 1,000,000 | 375,000 | ||||||||||||||||||||||||||||||
Options granted | (1,792,430) | |||||||||||||||||||||||||||||||||
Restricted stock awards granted | (1,267,857) | |||||||||||||||||||||||||||||||||
Options canceled | 191,818 | |||||||||||||||||||||||||||||||||
Restricted stock awards forfeited | 365,000 | |||||||||||||||||||||||||||||||||
Balance at end of period (in shares) | 882,000 | 882,000 | 810,000 | |||||||||||||||||||||||||||||||
Options oustanding, number of shares: | ||||||||||||||||||||||||||||||||||
Balance at beginning of period (in shares) | 1,168,803 | |||||||||||||||||||||||||||||||||
Options granted (in shares) | 1,792,430 | |||||||||||||||||||||||||||||||||
Options exercised (in shares) | (4,895) | |||||||||||||||||||||||||||||||||
Options canceled (in shares) | (191,818) | |||||||||||||||||||||||||||||||||
Balance at end of period (in shares) | 2,764,000 | |||||||||||||||||||||||||||||||||
Options outstanding, weighted average exercise price: | ||||||||||||||||||||||||||||||||||
Weighted average exercise price, beginning of period (USD per share) | $ 1.25 | |||||||||||||||||||||||||||||||||
Weighted average exercise price, options granted (USD per share) | $ 0.47 | |||||||||||||||||||||||||||||||||
Weighted average exercise price, options exercised (USD per share) | $ 0.81 | |||||||||||||||||||||||||||||||||
Weighted average exercise price, options granted (USD per share) | $ 1.99 | |||||||||||||||||||||||||||||||||
Weighted average exercise price, end of perido (USD per share) | $ 1.26 | |||||||||||||||||||||||||||||||||
Percentage limit to annual increase in total shares authorized | 4.00% | |||||||||||||||||||||||||||||||||
Limit to annual increase in total shares authroized (in shares) | 1,000,000 | |||||||||||||||||||||||||||||||||
Shares outstanding | 28,428,000 | |||||||||||||||||||||||||||||||||
Restricted stock award activity, number of shares: | ||||||||||||||||||||||||||||||||||
Balance at beginning of period (in shares) | 2,254,688 | |||||||||||||||||||||||||||||||||
Granted (in shares) | 1,267,857 | |||||||||||||||||||||||||||||||||
Vested (in shares) | (1,504,107) | |||||||||||||||||||||||||||||||||
Forfeited (in shares) | (365,000) | |||||||||||||||||||||||||||||||||
Balance at end of period (in shares) | 1,653,438 | 1,653,438 | ||||||||||||||||||||||||||||||||
Restricted stock award activity, weighted average grant price: | ||||||||||||||||||||||||||||||||||
Weighted average grant price, beginning of period (USD per share) | $ 0.80 | |||||||||||||||||||||||||||||||||
Weighted average grant price, granted (USD per share) | $ 0.77 | |||||||||||||||||||||||||||||||||
Weighted average grant price, vested (USD per share) | $ 0.69 | |||||||||||||||||||||||||||||||||
Weighted average grant price, forfeited (USD per share) | $ 0.91 | |||||||||||||||||||||||||||||||||
Weighted average grant price, end of period (USD per share) | $ 0.76 | $ 0.76 | ||||||||||||||||||||||||||||||||
Fair value of nonvested awards | $ 1,200,000 | $ 1,200,000 |
DISCONTINUED OPERATIONS (Details) (USD $)
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0 Months Ended | 3 Months Ended | 6 Months Ended | ||
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Dec. 17, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Losses from discontinued operations: | |||||
Net Income (loss) from discontinued operations | $ (69,000) | $ (1,710,000) | $ 87,000 | $ (1,986,000) | |
RSL
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Discontinued operations: | |||||
Stock acquired by purchaser, percent | 100.00% | ||||
Proceeds from divestiture | 845,000 | ||||
Additional consideration | 300,000 | 300,000 | |||
True up adjustment on cost of services | 78,000 | ||||
Losses from discontinued operations: | |||||
Revenue | 0 | 2,548,000 | 158,000 | 5,107,000 | |
Cost of services | 0 | 3,377,000 | 2,000 | 5,711,000 | |
Gross profit | 0 | (829,000) | 156,000 | (604,000) | |
Operating expenses | 0 | 851,000 | 0 | 1,360,000 | |
Non-operating (income) expenses | 0 | 30,000 | 0 | 22,000 | |
Income (loss) from discontinued operations | 0 | (1,710,000) | 156,000 | (1,986,000) | |
Loss on disposal of discontinued operations | (69,000) | 0 | (69,000) | 0 | |
Net Income (loss) from discontinued operations | $ (69,000) | $ (1,710,000) | $ 87,000 | $ (1,986,000) |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property and Equipment (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Computer equipment
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Property and equipment: | ||||
Useful life of property and equipment | 3 years | |||
Internal use software
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Property and equipment: | ||||
Internal use software cost capitalization | $ 393 | $ 281 | $ 671 | $ 526 |
Minimum | Computer equipment
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Property and equipment: | ||||
Useful life of property and equipment | 2 years | |||
Minimum | Internal use software
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Property and equipment: | ||||
Useful life of property and equipment | 2 years | |||
Maximum | Computer equipment
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Property and equipment: | ||||
Useful life of property and equipment | 5 years | |||
Maximum | Internal use software
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Property and equipment: | ||||
Useful life of property and equipment | 5 years |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business The accompanying consolidated financial statements include the accounts of Rainmaker Systems, Inc. and its wholly-owned subsidiaries (“Rainmaker,” “we,” “our” or “the Company”). Rainmaker is an e-Commerce software company that helps multi-national companies address the B2B market by maximizing sales revenue for their products and services. Rainmaker provides these solutions on a global basis supporting multiple payment methods, currencies and language capabilities. The Rainmaker e-Commerce platform can be enhanced with Rainmaker global telesales agents to maximize revenue and customer satisfaction through the entire customer life cycle. We are headquartered in the Silicon Valley in Campbell, California, and have additional operations near London, England. During 2013, we closed our operations in Austin, Texas which were consolidated into our operations at our headquarters in Silicon Valley and into our operations center near London, England. Our global clients consist primarily of large enterprises operating in the computer hardware, software and information services industries. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Rainmaker Systems, Inc. and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation. Basis of Presentation The consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. The interim financial statements are unaudited but reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the results of these periods. The results of our operations for the three and six months ended June 30, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013, or any other period. These consolidated financial statements should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on April 1, 2013. Balance sheet information as of December 31, 2012 has been derived from the audited financial statements for the year then ended. In the year ended December 31, 2012, the Company completed the sale of Rainmaker Systems, Ltd. and its wholly-owned subsidiary, Rainmaker Asia, Inc. (together “Manila” or “RSL”). RSL met the requirements for presentation as discontinued operations. Manila's operating activities are segregated from the Company's continuing operations within the consolidated statement of comprehensive loss, and are classified solely under the caption income (loss) from discontinued operations, net of tax. Going Concern As reflected in the accompanying consolidated financial statements, we had a net loss from continuing operations of $3.0 million and $6.4 million for the three and six months ended June 30, 2013, respectively. During the six months ended June 30, 2013, we used $3.3 million in cash from operating activities. At June 30, 2013, the Company had a net working capital deficit of $5.8 million. Our principal source of liquidity as of June 30, 2013 consisted of $5.0 million of cash and cash equivalents and $3.5 million of net accounts receivable. Our debt balance as of June 30, 2013 was $3.7 million, of which $2.5 million is payable within the next twelve months. Our accounts payable balance as of June 30, 2013 was $7.9 million of which $6.3 million is related to a merchant account of a customer. See Note 5 for further discussion of our debt agreements. On April 5, 2013, we completed the sale of approximately 13 million shares of our common stock in a registered direct offering. The gross cash proceeds from the sale of common stock was approximately $5.8 million. The Company is now executing a plan that it believes will establish profitable operations through increased sales and decreased expenses. There can be no assurance that we will be successful in increasing sales, reducing expenses or achieving profitable operations. We are evaluating our options to sell other non-strategic assets as we focus on the Company's core business. In the event that the Company fails to achieve profitable operations, fails to reduce expenses, restructure its debt and/or is unable to raise additional capital, we will not have adequate cash or financial resources to operate for the next twelve months, which would raise substantial doubt about our ability to continue as a going concern and pay our liabilities as they become due. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The ability of the Company to continue as a going concern is dependent on our ability to develop profitable operations through implementation of our current business initiatives. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Our estimates are based on historical experience, input from sources outside of the Company, and other relevant facts and circumstances. Actual results could differ materially from those estimates. Accounting policies that include particularly significant estimates are revenue recognition and presentation policies, valuation of accounts receivable, measurement of our deferred tax asset and the corresponding valuation allowance, allocation of purchase price in business combinations, commitments and contingencies, fair value estimates for the expense of employee stock options and warrants and the assessment of recoverability and impairment of goodwill and long-lived assets. Cash and Cash Equivalents We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents generally consist of money market funds. The fair market value of cash equivalents represents the quoted market prices at the balance sheet dates and approximates their carrying value. The following is a summary of our cash and cash equivalents at June 30, 2013 and December 31, 2012 (in thousands):
Allowance for Doubtful Accounts We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers or clients’ customers to make required payments of amounts due to us. The allowance is comprised of specifically identified account balances for which collection is currently deemed doubtful. In addition to specifically identified accounts, estimates of amounts that may not be collectible from those accounts whose collection is not yet deemed doubtful but which may become doubtful in the future are made based on historical bad debt write-off experience. If the financial condition of our clients or our clients' customers was to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. At June 30, 2013 and December 31, 2012, our allowance for potentially uncollectible accounts was $28,000 and $15,000, respectively. Property and Equipment Property and equipment are stated at cost. Depreciation of property and equipment is recorded using the straight-line method over the assets’ estimated useful lives. Computer equipment and capitalized software are depreciated over two to five years and furniture and fixtures are depreciated over five years. Amortization of leasehold improvements is recorded using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Amortization of fixed assets under capital leases is included in depreciation expense. Costs of internal-use software are accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350-40, Internal Use Software, and FASB ASC 350-50, Website Development Costs. The guidance requires that we expense computer software and website development costs as they are incurred during the preliminary project stage. Once the capitalization criteria of ASC 350-40 and ASC 350-50 have been met, external direct costs of materials and services consumed in developing or obtaining internal-use software, including website development costs, payroll and payroll-related costs for employees who are directly associated with and who devote time to the development of internal-use computer software and associated interest costs are capitalized. We capitalized approximately $393,000 and $671,000 of such costs during the three and six months ended June 30, 2013, respectively. We capitalized approximately $281,000 and $526,000 for the three and six months ended June 30, 2012, respectively. Capitalized costs are amortized using the straight-line method over the shorter of the term of the related client agreement, if such development relates to a specific outsource client, or the software’s estimated useful life, ranging from two to five years. Capitalized internal-use software and website development costs are included in property and equipment on the accompanying balance sheets. Goodwill and Other Intangible Assets We completed several acquisitions during the period of February 2005 through January 2010. Goodwill represents the excess of the acquisition purchase price over the estimated fair value of net tangible and intangible assets acquired. Goodwill is not amortized, but instead is tested for impairment at least annually or more frequently if events and circumstances indicate that the asset might be impaired. In our analysis of goodwill and other intangible assets, we apply the guidance of FASB ASC 350-20-35, Goodwill - Subsequent Measurement, in determining whether any impairment conditions exist. In our analysis of other finite lived amortizable intangible assets, we apply the guidance of FASB ASC 360-10-35, Property, Plant and Equipment – Subsequent Measurement, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Intangible assets are attributable to the various technologies and customer relationships of the businesses we have acquired. At June 30, 2013 and December 31, 2012, we had accumulated impairment losses of $11.5 million. We report segment results in accordance with FASB ASC 280, Segment Reporting. The method for determining what information is reported is based on the way that management organizes the operating segments for making operational decisions and assessments of financial performance. Our chief operating decision maker reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The chief operating decision maker does not use product line financial performance as a basis for business operating decisions. In accordance with FASB ASC 350-20-35, we are required to test goodwill for impairment at the reporting unit level, which is an operating segment or one level below an operating segment. For 2012, after the sale of Rainmaker Asia and the consolidation of operations, we concluded that we have one operating and reportable segment and one reporting unit. As of December 31, 2012, we performed our annual goodwill impairment evaluation required under FASB ASC 350-20-35, and concluded that goodwill was not impaired as the estimated fair value exceeded the carrying value. At June 30, 2013 and December 31, 2012, we had approximately $5.2 million and $5.3 million, respectively, in goodwill recorded on our consolidated balance sheets. Long-Lived Assets Long-lived assets including our purchased intangible assets are amortized over their previously defined estimated useful lives. In accordance with FASB ASC 360-10-35, long-lived assets, such as property, equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented on the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a business unit intended to be sold that meets certain criteria for being held for sale are presented separately in the appropriate asset and liability sections of the balance sheet. We have evaluated our long-lived assets and noted no indications of impairment. Revenue Recognition and Presentation Substantially all of our revenue is generated from (i) the online sale of our clients' products to their small and medium-sized business ("SMB") customers, (ii) the sale of service contracts and maintenance renewals, (iii) lead development and other telesales services, and (iv) software subscriptions for hosted internet sales of web-based training. Revenue is recorded using the proportional performance model, where revenue is recognized as performance occurs over the term of the contract and any initial set up fees that lack stand-alone value are recognized over the estimated customer life. We recognize revenue from the online sale of our clients' products and the sale of our clients’ service contracts and maintenance renewals on the “net basis”, which represents the amount billed to the end customer less the amount paid to our client. Revenue from the sale is recognized when a purchase order from a client’s customer is received, the service or service contract or maintenance agreement is delivered, the fee is fixed or determinable, the collection of the receivable is reasonably assured, and no significant post-delivery obligations remain unfulfilled. Revenue from lead development and other telesales services we perform is recognized as the services are accepted and is generally earned ratably over the service contract period. We earn revenue from our software application subscriptions of hosted online sales of web-based training ratably over each contract period. Since these software subscriptions are usually paid in advance, we have recorded a deferred revenue liability on our balance sheet that represents the prepaid portions of subscriptions that will be earned over the next one to five years. Our agreements typically do not contain multiple deliverables, however, if an agreement contains multiple elements, we allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE"), if available, third-party evidence ("TPE"), if VSOE is not available, or estimated selling price ("ESP"), if neither VSOE nor TPE is available. As we are unable to establish VSOE or TPE for the elements of our arrangements, we establish ESP for each element. If an agreement contains multiple deliverables that do not qualify for separate accounting for the product and service transactions, then the revenue and the cost of related professional services on the entire arrangement is recognized ratably over the contract term beginning on the date of delivery of product or service with customer-specific customization, if any. Entering into agreements with multiple deliverable element conditions with stand-alone value in the future may affect the timing of our revenue recognition and may have an impact on our future financial statements. Our revenue recognition policy involves significant judgments and estimates about collectability. We assess the probability of collection based on a number of factors, including past transaction history and/or the creditworthiness of our clients’ customers, which is based on current published credit ratings, current events and circumstances regarding the business of our clients’ customers and other factors that we believe are relevant. If we determine that collection is not reasonably assured, we defer revenue recognition until such time as collection becomes reasonably assured, which is generally upon receipt of cash payment. Cost of Services Cost of services consists of costs associated with promoting and selling our clients’ products and services including compensation costs of telesales personnel, telesales commissions and bonuses, costs of designing, producing and delivering marketing services, and salaries and other personnel expenses related to fee-based activities. Cost of services also includes the costs of allocated facility and telephone usage for our telesales representatives as well as other direct costs associated with the delivery of our services, including credit card fees related to the online sale of our clients' products. Most of the costs are personnel related and fluctuate in relation to our net revenue. Bonuses and sales commissions will typically change in proportion to revenue or profitability. Advertising We expense advertising costs as incurred. These costs were not material and are included in sales and marketing expense. Income Taxes We account for income taxes using the liability method. The liability method requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements, but have not been reflected in our taxable income. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value. Therefore, we provide a valuation allowance to the extent that we do not believe it is more likely than not that we will generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets. At June 30, 2013 and December 31, 2012, we had gross deferred tax assets of $31.6 million and $31.8 million, respectively. At June 30, 2013 and December 31, 2012, the deferred tax assets were subject to a 100% valuation allowance and therefore are not recorded on our balance sheets as assets. Realization of our deferred tax assets is limited and we may not be able to fully utilize these deferred tax assets to reduce our tax rates. FASB ASC 740, Income Taxes, prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under this guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FASB ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. Our policy for recording interest and penalties related to uncertain tax positions is to record such items as a component of income before taxes. Penalties, interest paid and interest received are recorded in interest and other expense, net, in the statement of operations. There were immaterial amounts accrued for interest and penalties related to uncertain tax positions as of June 30, 2013. Stock-Based Compensation FASB ASC 718, Compensation – Stock Compensation, establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains employee services in share-based payment transactions. This guidance requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of comprehensive loss. See Note 8 for further discussion of this standard and its effects on the consolidated financial statements presented herein. Concentrations of Credit Risk and Credit Evaluations Our financial instruments that expose us to concentrations of credit risk consist primarily of cash and cash equivalents, trade accounts receivable and credit card deposits. We place our cash and cash equivalents in a variety of financial institutions and limit the amount of credit exposure through diversification and by investing the funds in money market accounts which are insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, the balance of cash deposits is in excess of the FDIC insurance limits. We sell our clients’ products and services primarily to business end users and, in most transactions, assume full credit risk on the sale. Credit is extended based on an evaluation of the financial condition of our client’s customer, and collateral is generally not required. Credit losses have traditionally been immaterial, and such losses have been within management’s expectations. We have generated a significant portion of our revenue from sales to customers of a limited number of clients. In the three months ended June 30, 2013, three clients accounted for 10% or more of our net revenue, with Microsoft Corporation ("Microsoft") representing approximately 42% of our net revenue, Symantec Corporation ("Symantec") representing approximately 22% of our net revenue and Hewlett-Packard representing approximately 10% of our net revenue. In the three months ended June 30, 2012, three clients accounted for 10% or more of our net revenue, with Microsoft representing approximately 34% of our net revenue, Symantec representing approximately 19% of our net revenue and Hewlett-Packard representing approximately 10% of our net revenue. In the six months ended June 30, 2013, three clients accounted for 10% or more of our net revenue, with Microsoft representing approximately 41% of our net revenue, Symantec representing approximately 24% of our net revenue and Hewlett-Packard representing approximately 10% of our net revenue. In the six months ended June 30, 2012, three clients accounted for 10% or more of our net revenue, with Microsoft representing approximately 33% of our net revenue, Symantec representing approximately 20% of our net revenue and Hewlett-Packard representing approximately 11% of our net revenue. No individual client’s customer accounted for 10% or more of our revenues in any period presented. We have outsourced services agreements with our significant clients that expire at various dates ranging through March 2018. Our agreements with Symantec expire in March 2014 and can generally be terminated prior to expiration with ninety days notice. Our agreements with Microsoft expire at various dates from June 2014 through June 2015, and can be terminated with thirty days notice. Our agreements with Hewlett-Packard expire in October 2013 and March 2018 and can generally be terminated prior to expiration with sixty days notice. Fair Value of Financial Instruments The amounts reported as cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short-term maturities. The fair value of short-term and long-term debt obligations is estimated based on current interest rates available to us for debt instruments with similar terms, degrees of risk and remaining maturities. The carrying values of these obligations, as of each period presented, approximate their respective fair values. Segment Reporting In accordance with FASB ASC 280, Segment Reporting, we concluded that we have one operating and reportable segment. We have call center operations within the United States and the United Kingdom where we perform services on behalf of our clients. While we exited our Canadian call center facility in September 2010, we continue to maintain a network of managed telesales representatives in the region. We utilize our call centers in the United States and United Kingdom and a network of managed telesales representatives in Canada to fulfill certain contracts. We also utilized our former operations based in Manila prior to their sale in December 2012. See Note 3 for more details regarding our former Manila operations. In June 2012, we began providing telesales services throughout Latin America utilizing a strategic partner located in the Dominican Republic. Foreign Currency Translation The functional currency of our foreign subsidiaries was determined to be their respective local currencies (Canadian Dollar, Great Britain Pound and Philippine Peso). Foreign currency assets and liabilities are translated at the current exchange rates at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates in effect during the period. The related unrealized gains and losses from foreign currency translation are recorded in accumulated other comprehensive loss as a separate component of stockholders’ equity in the consolidated balance sheet and the consolidated statement of comprehensive loss. For continuing operations, net gains and losses resulting from foreign exchange transactions are included in interest and other expense, net, in the consolidated statements of comprehensive loss. Related Party Transactions As more fully disclosed in Note 8, on April 5, 2013, we completed the sale of approximately 13 million shares of our common stock in a registered direct offering. The gross cash proceeds from the sale of common stock was approximately $5.8 million. Members of our board of directors and our Chief Executive Officer purchased an aggregate of 500,025 shares at a price of $0.45 per share in the offering. Recent Accounting Standards In February 2013, the FASB issued ASU No. 2013-02 - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update improves the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted this standard in the first quarter of 2013. Adoption of this standard did not have any material impact on our financial position, results of operations or cash flows. In March 2013, the FASB issued ASU No. 2013-05 – Foreign Currency Matters. This update requires that an entity should release cumulative currency translation adjustments to net income when the entity ceases to have controlling financial interest in a foreign entity or a group of financial assets in a foreign entity. This new guidance is effective for the first reporting period beginning after December 15, 2013. We adopted this standard in the fourth quarter of 2012 in accounting for the sale of Rainmaker Asia Ltd. |
DISCONTINUED OPERATIONS
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Jun. 30, 2013
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DISCONTINUED OPERATIONS | DISCONTINUED OPERATIONS In the quarter ended June 30, 2012, the Company concluded that RSL, our Manila-based operations, no longer fit with the long term strategic plans of the Company. The Company committed to a plan to sell our Manila-based operations, which were sold to Shore Solutions, Inc. ("Shore") in December 2012. RSL's operating results for the three and six months ended June 30, 2012 are reported as discontinued operations in the consolidated financial statements. On December 17, 2012, the Company closed a stock purchase agreement (the "SPA") with Shore, pursuant to which the Company sold its Manila-based operations of Rainmaker Systems Ltd., and its wholly-owned subsidiary, Rainmaker Asia, Inc., to Shore. Pursuant to the SPA, Shore acquired 100% of the issued and outstanding stock of RSL. Under the SPA, the Company received an initial cash payment at closing of $845,000. In addition to the closing payment, the Company may receive additional contingent consideration based on multiple earn-out provisions included within the SPA, which provides the Company the ability to receive additional consideration of $300,000 at target plus a nominal percentage of certain revenues of RSL during the period from January 1, 2013 through December 31, 2015. The Company did not record any additional consideration for the three and six months ended June 30, 2013. RSL's operating results for the three and six months ended June 30, 2013 and 2012 are reported as discontinued operations in the consolidated financial statements. Loss on disposal of discontinued operations of $69,000 for the three and six months ended June 30, 2013 is an adjustment in the working capital at the closing pursuant to the SPA. The accompanying unaudited consolidated statements of comprehensive loss and statements of cash flows have been adjusted for the three and six months ended June 30, 2013 and 2012 to remove the operating results of RSL from continuing operations and presenting the results of RSL as income (loss) from discontinued operations, net of tax. Cost of services for the six months ended June 30, 2013 is net of a true up adjustment of $78,000. Income (loss) from discontinued operations, net of income taxes, for all periods presented reflect the operating results of our Manila-based operations and are as follows, (in thousands):
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COMMITMENTS AND CONTINGENCIES
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6 Months Ended |
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Jun. 30, 2013
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Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Lease Commitments As of June 30, 2013, our operating commitments include operating leases for our facilities and certain property and equipment that expire at various dates through 2015. All of these leases are described in more detail below. These arrangements allow us to obtain the use of the equipment and facilities without purchasing them. If we were to acquire these assets, we would be required to obtain financing and record a liability related to the financing of these assets. Leasing these assets under operating leases allows us to use these assets for our business while minimizing the obligations and upfront cash flow related to purchasing the assets. In October 2009, we executed a second amendment to the operating lease (the "Campbell operating lease") for our corporate headquarters in Campbell, California to reduce our lease cost. Under this amendment, we reduced the amount of space that we lease to 16,430 square feet. On October 31, 2012, the Company executed a third amendment to the Campbell operating lease, effective December 1, 2012, with a three-year term. On January 31, 2013, the Company executed a fourth amendment to the Campbell operating lease, effective February 1, 2013, providing an additional 3,936 square feet of space. The fourth amendment did not modify the three-year term of the third amendment to the Campbell operating lease. Annual base rent under the amended lease is approximately $365,000 in the first year of the lease, or $321,000 after deducting free base rent the first three months of the amended lease, and increases by 3% each year thereafter for the remaining term. In addition, we will continue to pay our proportionate share of operating costs and taxes based on our occupancy, and a letter of credit issued to the landlord was reduced to $40,000 for a security deposit. On July 2, 2013, we executed the fifth amendment to the Campbell operating lease effective July 1, 2013, providing an additional 6,771 square feet of space. The fifth amendment to the Campbell operating lease did not change the terms of the lease as previously amended. Annual base rent under the amended lease is approximately $536,000 in the first year of the lease and increases by 3% each year thereafter for the remaining term. The fifth amendment to the Campbell operating lease increased the irrevocable standby letter of credit to $61,000. In September 2011, we extended an existing lease in Austin, Texas on approximately 21,388 square feet of space for a term of 24 months through December 31, 2013. Annual rent under the lease approximates $212,000, or $18,000 monthly. Additionally, we pay our proportionate share of maintenance on the common areas in the business park. On January 25, 2013, the Company announced the closure of the Company's Austin facility as operations are to be consolidated in our headquarters in Campbell, California and our United Kingdom location as part of a strategic reallocation of resources designed to increased levels of service to customers and operating cost savings. On May 10, 2013, the Company agreed to terminate the Austin facility lease effective September 15, 2013. During the three months ended June 30, 2013, the Company recorded a charge of $150,000 related to the Austin facility closure. As of June 30, 2013, included in other accrued liabilities is a reserve of $87,000 related to the Austin facility closure. In October 2012, we executed an office lease agreement for office space in Godalming outside of London, where we have call center operations. The facility's 5,000 square feet of call center space will be utilized to better accommodate our current operations in Europe and provide additional space for expansion. The lease has a thirty-month term and terminates in March 2015. Annual base rent for this facility is 28,000 Great Britain Pounds. Based on the exchange rate at June 30, 2013, annual rent is approximately $43,000. Rent expense under operating lease agreements for continuing operations during the six months ended June 30, 2013 and 2012 was $603,000 and $418,000, respectively. Guarantees On July 18, 2012, we issued an irrevocable standby letter of credit in the amount of $100,000 to our landlord for a security deposit for our corporate headquarters located in Campbell, California. The letter of credit was issued by Comerica Bank under the Credit Facility described above. The standby letter of credit was reduced to $40,000 in accordance with the fourth amendment to the Campbell operating lease and thereafter increased to $61,000 in accordance with the fifth amendment to the Campbell operating lease. Our customer contracts typically require us to contingently indemnify against certain qualified third party claims. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, we have not had to make any payments for these obligations, and no liabilities have been recorded for these obligations on our balance sheets as of June 30, 2013 and December 31, 2012. Litigation On February 8, 2013, the Company's former Chief Executive Officer, Michael Silton, filed a demand for arbitration and complaint with the American Arbitration Association, alleging breach of contract and other causes of action relating to the termination of Mr. Silton's employment with the Company in October 2012. Mr. Silton is seeking full payment of severance benefits in the amount of approximately $1.0 million, plus compensation for unused vacation, related penalties and punitive damages. On March 21, 2013, the Company filed a responsive pleading in the arbitration proceedings. On May 15, 2013, the American Arbitration Association appointed an arbitrator. Thereafter, Mr. Silton withdrew his arbitration claim and on May 22, 2013, filed a complaint against the Company in the Santa Clara Superior Court. The allegations and causes of action are the same as the complaint filed with the American Arbitration Association. On July 5, 2013, the Company filed an answer to Silton's complaint and a cross-complaint against Silton. On or about August 1, 2013, Silton filed an answer to the cross-complaint. The Company disputes and denies the allegations and intends to defend the claim. The Company is not in a position to assess the probability of any loss or the estimated range of potential loss, if any. On July 9, 2013, YKnot Holdings LLC (“YKnot”) filed a complaint against the Company in the Santa Clara Superior Court alleging breach of contract and related causes of action arising from an eCommerce Processor Agreement (the “Agreement”) entered into by YKnot and the Company in January 2012 and seeking damages. The central allegation in the complaint alleges that the Company has failed to timely pay over certain reserves held by the Company against chargebacks and returns relating to YKnot's products in accordance with the Agreement. On August 12, 2013, the Company filed an answer to the complaint and filed a cross-complaint against YKnot. The Company disputes and denies the allegations and intends to defend the claim. Accordingly, the Company is not in a position to assess the probability of any loss or the estimated range of potential loss, if any. From time to time in the ordinary course of business, we are subject to other claims, asserted or unasserted, or named as a party to other lawsuits or investigations. We are not aware of any such asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of operations. |
PROPERTY AND EQUIPMENT
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT | PROPERTY AND EQUIPMENT Property and equipment consists of the following (in thousands):
_____________
|
SUBSEQUENT EVENTS (Details) (Fifth amendment, Building, Campbell, California, corporate headquarters, Subsequent event)
|
Jul. 02, 2013
sqft
|
---|---|
Fifth amendment | Building | Campbell, California, corporate headquarters | Subsequent event
|
|
Subsequent events: | |
Area of leased space (in sqft) | 6,771 |
FAIR VALUE MEASUREMENTS - Unobservable Input Reconciliation (Details) (Level 3, USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Dec. 31, 2011
Measured at fair value on a recurring basis
Optima
|
Jun. 30, 2013
Common stock warrant liability
|
Jun. 30, 2012
Common stock warrant liability
|
Jun. 30, 2013
Common stock warrant liability
|
Jun. 30, 2012
Common stock warrant liability
|
Jun. 30, 2012
Contingent consideration - Optima
|
||||
Unobservable input reconciliation: | |||||||||
Contingent consideration, fair value | $ 225 | ||||||||
Summary of the activity of the fair value of the Level 3 liabilities: | |||||||||
Beginning Fair Value of Level 3 Liabilities | 123 | 510 | 348 | 517 | 225 | [1] | |||
Transfers In (Out) | 0 | 0 | 0 | 0 | (225) | [1] | |||
Loss(Gain) on Fair Value Re- measurement | 11 | (15) | (214) | (22) | 0 | [1] | |||
Ending Fair Value of Level 3 Liabilities | $ 134 | $ 495 | $ 134 | $ 495 | $ 0 | [1] | |||
|
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