Rainmaker Systems Inc. Reports Operating Results (10-Q)

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Aug 12, 2009
Rainmaker Systems Inc. (RMKR, Financial) filed Quarterly Report for the period ended 2009-06-30.

Rainmaker Systems is a leading outsource provider of sales and marketing programs. Rainmaker\'s cost-effective programs generate service revenue and promote customer retention for its clients. Core services include professional telesales direct marketing and hosted ecommerce. Additional services include customer database enhancement CRM technology integration and order management. These services are available individually or as an integrated solution. Rainmaker Systems Inc. has a market cap of $34.7 million; its shares were traded at around $1.61 with and P/S ratio of 0.5.

Highlight of Business Operations:

Net Revenue. Net revenue decreased $6.3 million, or 35%, to $11.5 million in the three months ended June 30, 2009, as compared to the three months ended June 30, 2008. Our contract sales product line revenue was $5.7 million and decreased $450,000 from the prior year primarily resulting from a $527,000 reduction in revenue from Dell which was partially offset by increased revenue from new and existing clients. Revenue from our lead development product line was $4.7 million and decreased approximately $5.8 million as compared to the prior year due to decreases in revenues from existing clients as they reduced their marketing budgets. Revenue from our training sales product line was $1.1 million and was flat compared to the prior year.

General and Administrative Expenses. General and administrative expenses decreased $1.3 million, or 37%, to $2.3 million during the three months ended June 30, 2009, as compared to the three months ended June 30, 2008. The decrease was primarily due to approximately $678,000 in decreased personnel costs related to the reduction in our workforce during 2008 and the first two quarters of 2009. We also reduced temporary employee expense by $116,000 during 2009 and decreased travel & entertainment expenses approximately $77,000. Rent decreased approximately $309,000 during the quarter ended June 30, 2009, due primarily to our reduction in office space in the Philippines. In 2009, we will be required to comply with the Sarbanes-Oxley Act section 404(b) and have an audit of the Companys internal controls for the 2009 fiscal year. We were not required to do this in 2008. Because of this, we expect audit related fees to increase going forward for the 2009 fiscal year to maintain compliance with the Sarbanes-Oxley Act.

Technology and Development Expenses. Technology and development expenses decreased $1.4 million, or 21%, to $5.5 million during the six months ended June 30, 2009, as compared to the 2008 comparative period. The decrease is primarily attributable to an approximately $838,000 reduction in fees paid to outside consultants and service providers as a result of reduced usage of these services, decreases in personnel costs of approximately $571,000, decreases in temporary employee costs of approximately $347,000, and decreased travel & entertainment costs of approximately $169,000 due to the reduction in our workforce. These decreases were partially offset by increased equipment and maintenance expenses of approximately $426,000 during the 2009 period. We expect technology and development expenses to decrease for the remainder of the year as compared to 2008 as we reduce spending due to the challenging macroeconomic environment.

Cash used in operating activities for the six months ended June 30, 2009 was $1.6 million as compared to $7.5 million in the six months ended June 30, 2008. Cash provided by operating activities in 2009 was primarily the result of a net loss totaling $5.8 million, non-cash expenditures of depreciation and amortization of property and intangibles of $3.1 million, stock-based compensation charges of $1.3 million, the credit for the recovery of allowance for doubtful accounts of $332,000, and loss on disposal of fixed assets of $193,000.

Cash used in operating activities for the six months ended June 30, 2008 was primarily the result of a net loss totaling $4.2 million, non-cash expenditures of depreciation and amortization of property and intangibles of $3.7 million, stock-based compensation charges of $1.0 million, the provision for allowance for doubtful accounts of $291,000, amortization of discount on notes receivable of $124,000, loss on disposal of fixed assets of $76,000, and changes in operating assets and liabilities that accounted for $8.5 million of the decrease in cash for the year.

Cash used in investing activities was $89,000 in the six months ended June 30, 2009, as compared to cash used in investing activities of $4.0 million in the six months ended June 30, 2008. The change is primarily the result of decreases in capital expenditures of $1.8 million in the six months ended June 30, 2009, as compared to the six months ended June 30, 2008. Additionally, we paid $1.0 million in 2008 as additional purchase price for the CAS Systems acquisition that occurred in 2007 as the result of the achievement of certain performance metrics subsequent to the acquisition. The last component of the change was due to a decrease in the restricted cash balance of approximately $877,000 in the six months ended June 30, 2009, as compared to an increase of $209,000 in the restricted cash balance for the six months ended June 30, 2008. Restricted cash represents the reserve for the refund due for non-service payments inadvertently paid to the Company by our clients customers instead of paid directly to the Companys clients. At the time of cash receipt, the Company records a current liability for the amount of non-service payments received. The decrease in restricted cash represents the reduction of our balance of refunds due to customers.

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