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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(MARK ONE)
 
x
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM                    TO                    
 
COMMISSION FILE NUMBER 000-28009
 
RAINMAKER SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
  
33-0442860
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification Number)
 
1800 Green Hills Road
Scotts Valley, California 95066
(address of principal executive offices) (zip code)
 
Registrant’s telephone number, including area code: (831) 430-3800
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
(1) Yes  x  No  ¨
 
(2) Yes  x  No  ¨
 
As of October 31, 2002, there were 38,764,783 shares of the registrant’s Common Stock outstanding.

Table of Contents
 
RAINMAKER SYSTEMS, INC.
 
FORM 10-Q
AS OF AND FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002
 
TABLE OF CONTENTS
 
         
Page
PART I.
   
FINANCIAL INFORMATION
     
Item 1.
   
Interim Financial Statements:
     
       
3
       
4
       
5
       
6
Item 2.
      
11
Item 3.
      
25
Item 4.
      
25
PART II.
   
OTHER INFORMATION
     
Item 1.
      
26
Item 2.
      
26
Item 6.
      
26
       
27
       
28

2

Table of Contents
 
PART I.—FINANCIAL INFORMATION
 
ITEM 1.    INTERIM FINANCIAL STATEMENTS
 
RAINMAKER SYSTEMS, INC.
BALANCE SHEETS
(In thousands, except share data)
 
    
September 30,
2002
     
December 31,
2001 *
  
    
(Unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
8,167
 
   
$
8,606
 
Accounts receivable, less allowance for doubtful
                  
accounts of $342 in 2002 and $410 in 2001
   
 
5,508
 
   
 
4,778
 
Prepaid expenses and other current assets
   
 
818
 
   
 
1,167
 
    
  
Total current assets
   
 
14,493
 
   
 
14,551
 
Property and equipment, net
   
 
3,774
 
   
 
5,075
 
Other noncurrent assets
   
 
72
 
   
 
284
 
    
  
Total assets
   
$
18,339
 
   
$
19,910
 
    
  
LIABILITIES AND EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
8,304
 
   
$
4,855
 
Payable to related parties
   
 
—  
 
   
 
861
 
Accrued compensation and benefits
   
 
585
 
   
 
758
 
Accrued restructuring and related charges
   
 
332
 
   
 
552
 
Other accrued liabilities
   
 
1,174
 
   
 
1,213
 
Current portion of capital lease obligations
   
 
641
 
   
 
713
 
    
  
Total current liabilities
   
 
11,036
 
   
 
8,952
 
Capital lease obligations, less current portion
   
 
100
 
   
 
305
 
Accrued restructuring and other related charges, less current portion
   
 
152
 
   
 
369
 
    
  
Stockholders’ equity:
                  
Preferred stock, $0.001 par value; 20,000,000 shares authorized, none issued and outstanding
   
 
—  
 
   
 
—  
 
Common stock, $0.001 par value; 80,000,000 shares authorized, 38,678,169 and 38,417,625 outstanding at Sept. 30, 2002 and Dec. 31, 2001, respectively
   
 
38
 
   
 
38
 
Additional paid-in capital
   
 
56,705
 
   
 
56,676
 
Accumulated other comprehensive income/(loss)
   
 
(3
)
   
 
45
 
Accumulated deficit
   
 
(49,689
)
   
 
(46,475
)
    
  
Total stockholders’ equity
   
 
7,051
 
   
 
10,284
 
    
  
Total liabilities and stockholders’ equity
   
$
18,339
 
   
$
19,910
 
    
  
 
*
 
Derived from the Company’s audited financial statements for the year ended December 31, 2001.
 
 
The accompanying notes are an integral part of these financial statements.

3

Table of Contents
 
RAINMAKER SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
    
Three Months Ended September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
CRM services revenue
   
$
10,626
 
   
$
9,836
 
   
$
28,835
 
   
$
32,814
 
Cost of CRM services revenue
   
 
7,606
 
   
 
6,615
 
   
 
20,777
 
   
 
22,586
 
    
  
  
  
CRM services gross profit
   
 
3,020
 
   
 
3,221
 
   
 
8,058
 
   
 
10,228
 
Selling, general and administrative expenses
   
 
3,676
 
   
 
5,702
 
   
 
11,487
 
   
 
20,972
 
Recoveries of restructuring and other related charges
   
 
(35
)
   
 
—  
 
   
 
(35
)
   
 
—  
 
    
  
  
  
Operating loss
   
 
(621
)
   
 
(2,481
)
   
 
(3,394
)
   
 
(10,744
)
Interest income, net
   
 
11
 
   
 
58
 
   
 
34
 
   
 
363
 
    
  
  
  
Loss before income taxes
   
 
(610
)
   
 
(2,423
)
   
 
(3,360
)
   
 
(10,381
)
Income Tax benefit
   
 
—  
 
   
 
—  
 
   
 
(146
)
   
 
—  
 
    
  
  
  
Net loss
   
$
(610
)
   
$
(2,423
)
   
$
(3,214
)
   
$
(10,381
)
    
  
  
  
Basic and diluted net loss per share
   
$
(0.02
)
   
$
(0.06
)
   
$
(0.08
)
   
$
(0.27
)
    
  
  
  
Weighted average common shares
                                    
outstanding—basic and diluted
   
 
38,678
 
   
 
37,956
 
   
 
38,647
 
   
 
37,958
 
    
  
  
  
 
 
 
The accompanying notes are an integral part of these financial statements.

4

Table of Contents
 
RAINMAKER SYSTEMS, INC.
STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
 
    
Nine Months Ended September 30,
  
    
2002
     
2001
  
Operating activities:
                  
Net loss
   
$
(3,214
)
   
$
(10,381
)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:
                  
Depreciation and amortization of property and equipment
   
 
1,509
 
   
 
2,237
 
Amortization of deferred stock compensation
   
 
—  
 
   
 
231
 
Provision (credit) for sales returns and allowances
   
 
(68
)
   
 
(15
)
Recoveries of restructuring and other related charges
   
 
(35
)
   
 
—  
 
Changes in operating assets and liabilities:
                  
Accounts receivable
   
 
(662
)
   
 
3,377
 
Inventories
   
 
(19
)
   
 
372
 
Income taxes receivable
   
 
(146
)
   
 
2
 
Prepaid expenses and other assets
   
 
670
 
   
 
523
 
Other receivables
   
 
(4
)
   
 
507
 
Accounts payable
   
 
3,449
 
   
 
(4,007
)
Accounts payable to related party
   
 
(861
)
   
 
(373
)
Accrued compensation and benefits
   
 
(173
)
   
 
(1,585
)
Accrued restructuring and related charges
   
 
(402
)
   
 
—  
 
Other accrued liabilities
   
 
(39
)
   
 
(1,291
)
    
  
Net cash provided by (used in) operating activities
   
 
5
 
   
 
(10,403
)
    
  
Investing activities:
                  
Purchases of property and equipment
   
 
(33
)
   
 
(754
)
Sale of long-term investments
   
 
130
 
   
 
—  
 
    
  
Net cash provided by (used in) investing activities
   
 
97
 
   
 
(754
)
    
  
Financing activities:
                  
Proceeds from issuance of common stock from option exercises
   
 
26
 
   
 
84
 
Proceeds from issuance of common stock from ESPP
   
 
6
 
   
 
50
 
Repurchase of common stock
   
 
(3
)
   
 
(1,194
)
Repayment of capital lease obligations
   
 
(570
)
   
 
(989
)
    
  
Net cash used in financing activities
   
 
(541
)
   
 
(2,049
)
    
  
Net decrease in cash and cash equivalents
   
 
(439
)
   
 
(13,206
)
Cash and cash equivalents at beginning of period
   
 
8,606
 
   
 
22,879
 
    
  
Cash and cash equivalents at end of period
   
$
8,167
 
   
$
9,673