10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________ 

FORM 10-Q

__________________________ 

(MARK ONE)

T QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: March 31, 2013

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 No.)

900 East Hamilton Ave., Suite 400

Campbell, California 95008

(Address of principal executive offices) (Zip Code)

(408) 626-3800

(Registrant’s telephone number, including area code)

 __________________________ 

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

Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	£	Accelerated filer	£
Non-accelerated filer	£  (Do not check if a smaller reporting company)	Smaller reporting company	S

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  x

As of May 9, 2013, the registrant had 42,545,345 shares of Common Stock, $0.001 par value, outstanding.

RAINMAKER SYSTEMS, INC.

FORM 10-Q

AS OF MARCH 31, 2013

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at March 31, 2013 and December 31, 2012	3
	Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2013 and 2012	4
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2013 and 2012	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
	Signatures	27

2

PART I.—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RAINMAKER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

	March 31, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	5,076		$	4,494
Restricted cash	217			52
Accounts receivable, net	3,181			3,720
Prepaid expenses and other current assets	1,472			1,292
Total current assets	9,946			9,558
Property and equipment, net	2,396			2,455
Goodwill	5,244			5,337
Other non-current assets	416			416
Total assets	$	18,002		$	17,766
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	9,168		$	7,159
Accrued compensation and benefits	1,057			425
Other accrued liabilities	3,868			3,142
Deferred revenue	1,774			2,311
Current portion of notes payable	2,907			2,727
Total current liabilities	18,774			15,764
Deferred tax liability	578			567
Long-term deferred revenue	261			44
Common stock warrant liability	123			348
Notes payable, less current portion	1,500			1,800
Total liabilities	21,236			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, 31,084 shares issued and 28,949 shares outstanding at March 31, 2013 and 30,454 shares issued and 28,428 shares outstanding at December 31, 2012	27			27
Additional paid-in capital	131,384			130,402
Accumulated deficit	(131,492		)	(128,198		)
Accumulated other comprehensive loss	(347		)	(261		)
Treasury stock, at cost, 2,135 shares at March 31, 2013 and 2,026 shares at December 31, 2012	(2,806		)	(2,727		)
Total stockholders’ deficit	(3,234		)	(757		)
Total liabilities and stockholders’ deficit	$	18,002		$	17,766

See accompanying notes.

3

RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	March 31,
	2013			2012
Net revenue	$	4,656		$	6,401
Cost of services	3,035			3,625
Gross profit	1,621			2,776
Operating expenses:
Sales and marketing	665			540
Technology and development	1,122			1,589
General and administrative	2,980			1,368
Depreciation and amortization	406			404
Total operating expenses	5,173			3,901
Operating loss	(3,552		)	(1,125		)
Loss (gain) due to change in fair value of warrant liability	(225		)	(7		)
Interest and other expense, net	93			27
Loss before income tax expense	(3,420		)	(1,145		)
Income tax expense	30			53
Net loss from continuing operations	(3,450		)	(1,198		)
Net income (loss) from discontinued operations, net of tax	156			(276		)
Net loss	$	(3,294	)	$	(1,474	)
Foreign currency translation adjustments	(86		)	1
Comprehensive loss	$	(3,380	)	$	(1,473	)
Basic and diluted net income (loss) per share:
Net loss from continuing operations	$	(0.12	)	$	(0.04	)
Net income (loss) from discontinued operations	$	0.01		$	(0.01	)
Net Loss	$	(0.11	)	$	(0.05	)
Weighted average common shares - Basic and diluted	28,994			26,808

See accompanying notes.

4

RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2013			2012
Operating activities:
Net loss	$	(3,294	)	$	(1,474	)
Adjustment for income (loss) from discontinued operations, net of tax	(156		)	276
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment	406			376
Amortization of intangible assets	—			28
Loss (gain) due to change in fair value of warrant liability	(225		)	(7		)
Stock-based compensation expense	979			187
Credit for allowance for doubtful accounts	—			(31		)
Provision for allowances for other assets	280			—
Changes in operating assets and liabilities:
Accounts receivable	567			764
Prepaid expenses and other assets	(462		)	45
Accounts payable	2,046			1,082
Accrued compensation and benefits	623			133
Other accrued liabilities	721			(377		)
Income tax payable	15			40
Deferred tax liability	11			17
Deferred revenue	(320		)	(588		)
Net cash provided by continuing operations	1,191			471
Net cash provided by discontinued operations	121			112
Net cash provided by operating activities	1,312			583
Investing activities:
Purchases of property and equipment	(352		)	(257		)
Restricted cash, net	(165		)	(4		)
Net cash used in continuing operations	(517		)	(261		)
Net cash used in discontinued operations	—			(97		)
Net cash used in investing activities	(517		)	(358		)
Financing activities:
Proceeds from borrowings	200			—
Repayment of borrowings	(320		)	(593		)
Net proceeds on overdraft facility	—			2
Tax payments in connection with treasury stock surrendered	(79		)	(159		)
Net cash used in continuing operations	(199		)	(750		)
Net cash used in discontinued operations	—			(24		)
Net cash used in financing activities	(199		)	(774		)
Effect of exchange rate changes on cash	(14		)	(94		)
Net increase (decrease) in cash and cash equivalents	582			(643		)
Cash and cash equivalents at beginning of period	4,494			8,490
Cash and cash equivalents at end of period	$	5,076		$	7,847
Supplemental disclosures of cash flow information:
Cash paid for interest	$	57		$	58
Cash paid for income taxes	3			4

See accompanying notes.

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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

— UNAUDITED —

1.    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. On January 25, 2013, we announced that our operations in Austin, Texas will be 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 months ended March 31, 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.

Certain prior year amounts have been reclassified to conform to the current year presentation. 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 operations and comprehensive loss, and are classified solely under the caption income (loss) from discontinued operations, net of tax. As such, certain amounts reported in the accompanying financial statements as of and for the three month period ended March 31, 2012 have been retrospectively revised to conform to the 2013 presentation. There were no other reclassifications that had a material effect on previously reported results of operations, total assets or accumulated deficit.

Going Concern

As reflected in the accompanying consolidated financial statements, we had a net loss from continuing operations of $3.5 million for the three months ended March 31, 2013. During the three months ended March 31, 2013, we generated $1.2 million in cash from operating activities.

At March 31, 2013, the Company had a net working capital deficit of $8.8 million. Our principal source of liquidity as of March 31, 2013 consisted of $5.1 million of cash and cash equivalents and $3.2 million of net accounts receivable. Our debt balance as of March 31, 2013 was $4.4 million, of which $2.9 million is payable within the next twelve months. Our accounts payable balance as of March 31, 2013 was $9.2 million of which $7.1 million is related to a merchant account of a customer. See Note 5 for further discussion of our debt agreements.

As more fully described in Note 9, 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

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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 and/or is unable to raise additional capital, we will not have adequate cash or financial resources to operate for the next twelve months 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 March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013		December 31, 2012
Cash and cash equivalents:
Cash	$	3,436	$	2,854
Money market funds	1,640		1,640
Total cash and cash equivalents	$	5,076	$	4,494

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 March 31, 2013 and December 31, 2012, our allowance for potentially uncollectible accounts was $15,000 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

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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 $278,000 and $245,000 of such costs during the three months ended March 31, 2013 and 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 March 31, 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 March 31, 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.

8

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. In the few instances where our agreements have contained multiple deliverables, they do not have value to our customers on a standalone basis, and therefore the deliverables are considered together as one unit of accounting. However, we may enter into sales contracts with multiple deliverable element conditions with stand-alone value in the future, which 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 March 31, 2013 and December 31, 2012, we had gross deferred tax assets of $31.8 million and $31.8 million, respectively. At March 31, 2013 and December 31, 2012, the deferred tax assets were subject to a 100% valuation allowance and therefore are not recorded on our balance sheet 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 March 31, 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

9

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 operations. See Note 8 for further discussion of this standard and its effects on the 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 and trade accounts receivable.

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 March 31, 2013, two clients accounted for 10% or more of our net revenue, with Microsoft Corporation ("Microsoft") representing approximately 39% of our net revenue and Symantec Corporation ("Symantec") representing approximately 25% of our net revenue. In the three months ended March 31, 2012, three clients accounted for 10% or more of our net revenue, with Microsoft representing approximately 24% of our net revenue, Symantec representing approximately 17% 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 June 2015. 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 2013 through June 2015, and can be terminated with thirty days notice. Our agreements with Hewlett-Packard expire in October 2013 and can generally be terminated prior to expiration with ninety 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 Philipine 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 operations and 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 operations.

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Related Party Transactions

As more fully disclosed in Note 9, 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 March 2013, the FASB issued new accounting guidance, 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.

2.    NET LOSS PER SHARE

Basic net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the year. Diluted net income (loss) per share also gives effect, as applicable, to the potential dilutive effect of outstanding stock options and warrants, using the treasury stock method, unvested restricted share awards, and convertible securities, using the if converted method, as of the beginning of the period presented or the original issuance date, if later.

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):

	Three Months Ended
	March 31,
	2013			2012
Net loss from continuing operations	$	(3,450	)	$	(1,198	)
Net income (loss) from discontinued operations	156			(276		)
Net loss	$	(3,294	)	$	(1,474	)
Weighted-average shares of common stock outstanding – basic and diluted	28,994			26,808
Basic and diluted net income (loss) per share:
Continuing operations	$	(0.12	)	$	(0.04	)
Discontinued operations	$	0.01		$	(0.01	)
Net loss	$	(0.11	)	$	(0.05	)

For the three months ended March 31, 2013 and 2012, we excluded approximately 4.6 million and 3.8 million options, warrants and unvested restricted share awards, respectively, from the calculation of diluted net loss per share as these securities were anti-dilutive.

3.    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 months ended March 31, 2012 are reported as discontinued operations in the consolidated financial statements.

On December 17, 2012, the Company completed its 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 t o 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

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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 months ended March 31, 2013. RSL's operating results for the three months ended March 31, 2013 and 2012 are reported as discontinued operations in the consolidated financial statements.

The accompanying unaudited consolidated statements of operations and cash flows have been reclassified for three months ended March 31, 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 three months ended March 31, 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):

	Three Months Ended March 31,
	2013		2012
Revenue	$	158	$	2,559
Cost of services	2		2,334
Gross profit	156		225
Operating expenses	—		509
Non-operating (income) expenses	—		(8		)
Income (loss) from discontinued operations	$	156	$	(276	)

4.    PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

	Estimated Useful Life	March 31, 2013			December 31, 2012
Computer equipment	3 years	$	4,005		$	3,974
Capitalized software and development	2-5 years	13,996			13,686
Furniture and fixtures	5 years	437			437
Leasehold improvements	Lease term	264			232
		18,702			18,329
Accumulated depreciation and amortization		(16,417		)	(16,015		)
Construction in process (1)		111			141
Property and equipment, net		$	2,396		$	2,455

 _____________

(1) Construction in process at March 31, 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 $5,000 to $15,000, subject to future revisions.

5.    LONG-TERM DEBT OBLIGATIONS

Long-term debt consists of the following (in thousands):

	March 31, 2013			December 31, 2012
Comerica term loan	$	2,700		$	3,000
Comerica revolving line	1,693			1,493
Notes payable – insurance	14			34
Total notes payable	4,407			4,527
Less: current portion	(2,907		)	(2,727		)
Total notes payable, less current portion	$	1,500		$	1,800

Comerica Bank Credit Facility

On June 14, 2012, the Company entered into a Loan and Security Agreement with Comerica Bank (the "Credit Facility"), replacing Bridge Bank, N.A. as the Company's primary lender. The maximum amount of credit available to the Company under

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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 March 31, 2013 there was $2.7 million outstanding under the Term Loan and $1.7 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. 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 rate on our Term Loan and Revolving Line were 5.50% and 4.75%, respectively, as of March 31, 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 March 31, 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 March 31, 2013, the remaining liability under this financing agreement was $14,000.

6.    COMMITMENTS AND CONTINGENCIES

Lease Commitments

As of March 31, 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 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 operating lease for our corporate headquarters, effective December 1, 2012, with a three-year term. On January 31, 2013, the Company executed a fourth amendment to the operating lease for our corporate headquarters, effective February 1, 2013, providing an additional 3,936 square feet of additional space. The fourth amendment did not modify the three-year term of the third amendment to the 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.

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,

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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. The Company is actively seeking to sub-lease the Austin facility.

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 March 31, 2013, annual rent is approximately $43,000 in U.S. dollars.

Rent expense under operating lease agreements for continuing operations during the three months ended March 31, 2013 and 2012 was $153,000 and $203,000, 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, and replaced the standby letter of credit issued by Bridge Bank in July 2005. The standby letter of credit was reduced to $40,000 in accordance with the fourth amendment to the operating lease for our corporate headquarters in Campbell, California.

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 March 31, 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. 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.

7.    FAIR VALUE MEASUREMENTS

Fair value is the exchange price that would be the amount received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, we use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following:

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 or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

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.

A summary of the activity of the fair value of the Level 3 liabilities for the three months ended March 31, 2013 and 2012 is as follows (in thousands):

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	Beginning Value of Level 3 Liabilities		Transfers In (Out)			Loss(Gain) on Fair Value Re- measurement			Foreign Currency Adjustment		Ending Fair Value of Level 3 Liabilities
2013
Common stock warrant liability	$	348	$	—		$	(225	)	$	—	$	123
2012
Contingent consideration — Optima (1)	225		(225		)	—			—		—
Common stock warrant liability	517		—			(7		)	—		510

____________

(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 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.

The following table represents the fair value hierarchy for our financial assets and liabilities held by us measured at fair value on a recurring basis (in thousands):

	Level 1		Level 2		Level 3
March 31, 2013
Assets:
Money market funds (1)	$	1,640	$	—	$	—
Liabilities:
Common stock warrant liability (2)	$	—	$	—	$	123
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.

The Company uses the Black-Scholes model to value our common stock warrant liability. The following are the assumptions used to measure the accrued warrant liability at March 31, 2013 and December 31, 2012, which were determined in a manner consistent with that described for stock option awards as set forth in Note 8:

	March 31,		December 31,
	2013		2012
Expected life in years	3.25		3.50
Volatility	65.99	%	65.99	%
Risk-free interest rate	0.36	%	0.34	%
Dividend rate	—	%	—	%

The amounts reported as cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short-term maturities.

The fair value of short-term and long-term capital lease and 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.

8.    STOCKHOLDERS' EQUITY

Equity Offering

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In June 2011, we issued and sold 3.7 million shares of our common stock, together with warrants to purchase up to an aggregate of 1.5 million additional shares, in a public offering. The offering was made pursuant to a prospectus filed with our shelf registration statement on Form S-3 (File No. 333-171946), which was filed with the SEC on January 28, 2011, amended on February 18, 2011 and declared effective by the SEC on March 7, 2011, the prospectus supplement dated June 22, 2011, and the free writing prospectus dated June 23, 2011. We received gross cash proceeds of approximately $3.9 million from the equity offering. The $3.3 million of net cash proceeds from the offering were used for general corporate purposes, including working capital and capital expenditures.

The 1.5 million warrants issued through the public offering have an initial 5-year term and an exercise price of $1.40 per share and became exercisable six months after their issuance date. If at any time the shares of common stock issuable thereunder are not registered for resale pursuant to an effective registration statement, the warrants may be exercised by way of a cashless exercise. The warrants also contain provisions that protect the holders thereof against dilution by adjustment of the exercise price and the number of shares issuable thereunder in certain events such as stock dividends, stock splits and other similar events. In addition, the placement agent received a warrant to purchase a number of shares of common stock equal to three percent (3.0%) of the number of shares purchased by investors in the offering, which approximates 110,000 shares. The placement agent warrant has an initial 5-year term and an exercise price of $1.05 per share and became exercisable six months after its issuance date. The placement agent warrant may also be exercised by way of a cashless exercise. The placement agent warrant also contains provisions that protect its holder against dilution by adjustment of the exercise price and the number of shares issuable thereunder in certain events such as stock dividends, stock splits and other similar events.

We have classified all of the above mentioned warrants as liabilities under the caption "Common stock warrant liability" and recorded the liability at its estimated fair value with the corresponding gains or losses as a separate line item after operating loss from operations, under the caption "Loss (gain) due to change in fair value of warrant liability." See Note 7 for disclosure regarding the fair value of financial instruments.

Stock Compensation

In 2003, the board of directors adopted and the stockholders approved the 2003 Stock Incentive Plan (“2003 Plan”). The 2003 Plan provides for the issuance of incentive stock options or nonqualified stock options to employees, consultants and non-employee members of the board of directors, and issuance of shares of common stock for purchase or as a bonus for services rendered (restricted stock awards).

On December 21, 2012, the board of directors approved and adopted the 2012 Inducement Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the issuance of nonqualified stock options and shares of common stock, either with or without a purchase price, to newly hired employees as a material inducement to such individuals entering into our employment. Stockholder approval of the 2012 Plan is not required under SEC or NASDAQ Capital Market rules.

During the three months ended March 31, 2013, we had restricted stock awards that vested. We are required to withhold income taxes at statutory rates based on the closing market value of the vested shares on the date of vesting. Accordingly, we offer employees the ability to have vested shares withheld by us in an amount equal to the amount of taxes to be withheld. Based on this, we purchased 111,963 shares during the three months ended March 31, 2013 with a cost of approximately $79,000 from employees to cover federal and state taxes due. During the three months ended March 31, 2013 we granted restricted stock awards for 500,000 shares to two members of our board of directors with immediate vesting.

We account for stock-based compensation awards issued to employees and directors using the guidance from FASB ASC 718, Compensation – Stock Compensation. ASC 718 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 operations and comprehensive loss.

The fair value of stock options is calculated using the Black-Scholes option pricing model. The Black-Scholes model requires subjective assumptions, including expected time to exercise, future stock price volatility, risk-free interest rates, and dividend rates which greatly affect the calculated values. Stock-based compensation expense is recorded net of an estimated forfeiture rate and trued-up upon vesting. These factors could change in the future, which would affect the stock-based compensation expense in future periods. The estimated fair value of stock-based compensation awards is amortized using the straight-line method over the vesting period of the awards.

We expense stock-based compensation to the same expense categories in which the respective award grantee’s salary expense is reported. The table below reflects stock-based compensation expense for the three months ended March 31, 2013 and 2012 (in thousands):

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	Three Months Ended
	March 31,
	2013		2012
Stock-based compensation expense included in:
Cost of services	$	17	$	33
Sales and marketing	118		11
Technology and development	43		11
General and administrative	801		132
	$	979	$	187

At March 31, 2013, approximately $1.6 million of stock-based compensation relating to unvested awards had not been amortized and will be expensed in future periods through 2016. Under current grants that are unvested and outstanding, approximately $404,000 will be expensed in the remainder of 2013 as stock-based compensation, subject to true-up adjustments for forfeitures and vestings during the year.

We calculate the value of our stock option awards when they are granted. Accordingly, we update our valuation assumptions for the risk-free interest rate on the date of grant. Annually, we prepare an analysis of the historical activity within our option plans as well as the demographic characteristics of the grantees of options within our stock option plan to determine the estimated life of the grants, stock volatility and an estimated forfeiture rate. During the three months ended March 31, 2013 and 2012, the weighted average valuation assumptions for stock option awards and forfeiture rates used for the expense calculations for stock option and restricted stock awards were as follows:

	Three Months Ended
	March 31,
	2013		2012
Expected life in years	3.76		3.76
Volatility	65.99	%	65.99	%
Risk-free interest rate	0.44	%	1.00	%
Dividend rate	—	%	—	%
Forfeiture Rates:
Options	27.61	%	27.61	%
Restricted stock	15.04	%	15.04	%

Expected life of our option grants is estimated based on our analysis of our actual historical option exercises and cancellations. Expected stock price volatility is based on the historical volatility from traded shares of our stock over the expected term. The risk-free interest rate is based on the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. We have not historically paid dividends and we do not expect to pay dividends in the near term and therefore we have set the dividend rate at zero.

A summary of activity under our 2003 Plan and 2012 Plan for the three months ended March 31, 2013 is as follows (in thousands):

			Options Outstanding
	Available for Grant		Number of Shares		Weighted Average Exercise Price
Balance at December 31, 2012	810		1,169		$	1.25
Authorized	1,375		—		—
Options granted	(212	)	212		0.64
Restricted stock awards granted	(1,268	)	—		—
Options exercised	—		(5	)	0.81
Options canceled	131		(131	)	2.00
Restricted stock awards forfeited	129		—		—
Balance at March 31, 2013	965		1,245		$	1.07

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In accordance with the 2003 Plan, the number of shares authorized for grant under the 2003 Plan automatically increases on the first trading date of January by an amount equal to the lesser of 4% of our outstanding common stock at the previous December 31 or 1,000,000 shares. Shares outstanding at December 31, 2012 were 28,428,000 and the additional shares authorized amounted to 1,000,000 under the 2003 Plan and 375,000 shares authorized under the 2012 Plan as shown in the table above.

The following table summarizes the activity with regard to restricted stock awards during the three months ended March 31, 2013. Restricted stock awards are issued from the 2003 Plan and 2012 Plan and any issuances reduce the shares available for grant as indicated in the previous table. Restricted stock awards are valued at the closing market price of our stock on the date of the grant.

	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	(1,267,718	)	0.69
Forfeited	(128,750	)	0.91
Balance of nonvested shares at March 31, 2013	2,126,077		$	0.66

The total fair value of the nonvested restricted stock awards at grant date was $1.2 million as of March 31, 2013.

9.    SUBSEQUENT EVENTS

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, with net proceeds totaling approximately $5.5 million. We intend to use the net cash proceeds from the offering for general corporate purposes, including working capital and capital expenditures. The offering was made pursuant to an effective registration statement on Form S-3 and related prospectus (File No. 333-171946) declared effective by the SEC on March 7, 2011, a prospectus supplement dated March 28, 2013, and related other filings with the SEC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under Part I Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the SEC on April 1, 2013, that may cause our, or our industry’s, actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activities, performance or achievements expressed in or implied by such forward-looking statements.

Important factors which could cause actual results to differ materially from those in the forward-looking statements include:

• 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 high degree of uncertainty and our limited visibility due to economic conditions,

• our ability to execute our business strategy and manage growth,

• our ability to integrate domestic and/or foreign acquisitions without disruption to our business,

• 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,

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• our ability to control costs,

• the date during the course of a calendar year that a new client is acquired,

• the length of the integration cycle for new clients and the timing of revenues and costs associated therewith,

• our client concentration given that we are currently dependent on a few significant client relationships,

• potential competition in the marketplace,

• our ability to retain and attract employees and board members,

• market acceptance of our solutions and pricing options,

• our ability to maintain and develop our existing technology platform and to deploy new technology,

• our ability to acquire new clients and increase demand,

• the possibility of the discontinuation of some client relationships,

• the financial condition of our clients' businesses,

• the protection of our intellectual property,

• our ability to raise additional equity or debt financing,

• the potential delisting of our common stock from the NASDAQ Capital Market should we fail to maintain compliance with the criteria for continued listing,

• and other factors as detailed in in Part I Item 1A - “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the SEC on April 1, 2013.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We assume no obligation to update such forward-looking statements publicly for any reason even if new information becomes available in the future, except as may be required by law.

Overview

Rainmaker is a leading business selling partner providing global B2B e-Commerce solutions enhanced by Global Commerce Services. Our suite of cloud applications increase visibility and control of revenue streams and are utilized by customers, channel partners, end customers and our service sales teams. Our dedicated Global Commerce Services Agents have specific expertise in our customers' businesses, are deployed under our customers' brands and follow a sales process tailored specifically for the client. Our solutions address the critical elements of B2B online buying, the renewals process, including data management, quoting, selling and learning management services. We believe our solutions, which tightly integrate software, managed services and data, reflects the growing trend of delivering enterprise services via the cloud.

GrowCommerce B2B Storefront: Designed to allow our clients to sell more of their products and maintenance contracts directly to their customers or via their channel partners through the GrowCommerce platform. Benefits include:

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.

GrowCommerce for Renewals: Designed to maximize renewal rates, subscriptions and other contracts to allow our clients to significantly increase the lifetime value of their customers. Benefits of this solution include:

i. The ability to deliver time sensitive pre-expiration countdown emails and phone campaigns potentially resulting in higher renewal rates.

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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.

View Central Learning Management System: Our LMS solution is designed to provide our clients with the potential to generate more revenue selling training programs to their customers. Benefits include:

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

We offer high touch inbound and outbound Global Commerce Service Agents utilizing multiple communication methods including online chat, email, social media and phone support to assist potential buyers. Our Global Commerce Service Agents are trained to capitalize on opportunities to cross-sell and up-sell new products and services to potentially increase total revenue on existing sales.

Each product in the Rainmaker e-commerce solution suite can be purchased individually to meet specific client needs or as an integrated product suite designed to deliver maximum revenue during the B2B customer buying process.

Critical Accounting Policies/Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. Although actual results have historically been reasonably consistent with management’s expectations, future results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management has discussed the development of our critical accounting policies with the audit committee of the board of directors and they have reviewed the disclosures of such policies and management’s estimates in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

With the establishment of our Canadian foreign subsidiary and the subsequent purchase of Canadian based assets in 2007, we adopted a policy for recording foreign currency transactions and translation in accordance with FASB ASC 830, Foreign Currency Matters. For our Canadian subsidiary, the functional currency has been determined to be the local currency, and therefore, assets and liabilities are translated at period-end exchange rates, and statement of operations items are translated at an average exchange rate prevailing during the period. Such translation adjustments are recorded in accumulated comprehensive loss, a component of stockholders’ equity, and in the consolidated statements of operations and comprehensive loss. Also in 2007, we acquired Qinteraction Limited and its Philippine-based subsidiary. As a result of this acquisition, we also adopted the policy mentioned above for recording foreign currency transactions and translations for this subsidiary as the functional currency has been determined to be the local currency for the Philippine-based subsidiary. In December 2012, we sold our Manila-based operations to Shore Solutions, Inc. In January of 2009, we established our Rainmaker Europe subsidiary in the United Kingdom. We adopted the policy mentioned above for recording foreign currency transactions and translations for this subsidiary as the functional currency has been determined to be the local currency (Great Britain Pound) for the UK-based subsidiary. For continuing operations, gains and losses from foreign currency denominated transactions are included in interest and other expense, net, in the consolidated statements of operations.

Except for the presentation of our Manila-based operations as discontinued operations, as discussed in Note 3, management believes there have been no significant changes during the three months ended March 31, 2013 to the items that we disclosed as

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our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the SEC on April 1, 2013.

Results of Operations

The following table sets forth for the periods given selected financial data as a percentage of our net revenue. The table and discussion below should be read in connection with the financial statements and the notes thereto which appear elsewhere in this report as well as with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012.

	Three Months Ended March 31,
	2013		2012
Net revenue	100.0	%	100.0	%
Cost of services	65.2		56.6
Gross margin	34.8	%	43.4	%
Operating expenses:
Sales and marketing	14.3		8.4
Technology and development	24.1		24.8
General and administrative	64.0		21.4
Depreciation and amortization	8.7		6.3
Total operating expenses	111.1	%	60.9	%
Operating loss	(76.3	)	(17.5	)
Loss (gain) due to change in fair value of warrant liability	(4.8	)	(0.1	)
Interest and other expense, net	2.0		0.4
Loss before income tax expense	(73.5	)%	(17.8	)%
Income tax expense (benefit)	0.6		0.8
Net loss from continuing operations	(74.1	)%	(18.6	)%
Loss from discontinued operations, net of tax	3.4		(4.3	)
Net loss	(70.7	)	(22.9	)
Foreign currency translation adjustments	(1.8	)	—
Comprehensive loss	(72.5	)%	(22.9	)%

Comparison of Three Months Ended March 31, 2013 and 2012

Net Revenue. Net revenue decreased$1.7 million, or 27%, to $4.7 million in the three months ended March 31, 2013, as compared to the three months ended March 31, 2012 due to the elimination of non-strategic client programs and loss of clients through acquisition of $942,000, reduction of GrowCommerce platform volume of $234,000 and reduction of GrowCommerce channel and telesales volume of $460,000.

Cost of Services and Gross Margin. Cost of services decreased$590,000, or 16%, to $3.0 million in the three months ended March 31, 2013, as compared to the 2012 comparative period primarily due to lower revenue as described above. Our gross margin percentage was 35% and 43%, respectively, in the three months ended March 31, 2013 and 2012. The erosion in gross margin was due to costs associated with the transition of call center agents from our Austin, Texas facility to our UK facility, higher telecommunication costs and declines in our higher margin GrowCommerce business.

Sales and Marketing Expenses. Sales and marketing expenses increased$125,000, or 23%, to $665,000 in the three months ended March 31, 2013, as compared to the 2012 comparative period. The change was primarily attributable to an increase in stock compensation expense of $93,000, increases in recruiting fees of $72,000 for new sales personnel and a decrease in travel costs of $44,000.

Technology and Development Expenses. Technology and development expenses decreased$467,000, or 29%, to $1,122,000 during the three months ended March 31, 2013, as compared to the 2012 comparative period. The decrease was primarily attributable to decreases in equipment costs and outsourced services expense of $261,000, decreases in consulting and outside services of $123,000, and decreases in personnel costs of $63,000.

General and Administrative Expenses. General and administrative expenses increased$1.6 million, or 118%, to $3.0 million during the three months ended March 31, 2013, as compared to the 2012 comparative period. The increase was primarily due to increases in stock compensation expense of $587,000, the majority of which relates to restricted stock awards which were fully

21

vested upon grant and is expected to be non-recurring, increases in legal fees of $287,000, an increase of $78,000 in board of directors' compensation, increases in variable compensation expense of $144,000 and non-recurring expenses of $345,000 related to the relocation of the finance function from the Austin, Texas facility to our Campbell, California facility and a $280,000 impairment charge against vendor deposits.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased$2,000, or 0%, to $406,000 for the three months ended March 31, 2013, as compared to the 2012 comparative period. Depreciation and amortization expense decreased due to software and equipment assets becoming fully depreciated and acquisition related intangible assets becoming fully amortized.

Interest and Other Expense, Net. The components of interest and other expense, net are as follows (in thousands):

	Three Months Ended March 31,				Change
	2013		2012
Interest expense, net	$	61	$	44	$	(17	)
Currency translation loss	2		4		2
Other	$	30	$	5	$	25
Total	$	93	$	53	$	10

Income Tax Expense. Income tax expense decreased$23,000, or 43%, to $30,000 for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Our income tax expense for the three months ended March 31, 2013 was based on our estimate of taxable income for the full year ending December 31, 2013, and primarily consists of estimates of foreign taxes and domestic gross margin taxes for certain states.

Income (Loss) from Discontinued Operations, Net of Tax. Income from discontinued operations for the three months ended March 31, 2013 was $156,000 as compared to a loss from discontinued operations for the three months ended March 31, 2012 of $276,000. The Company sold its Manila operations in December 2012. The income from discontinued operation for the three months ended March 31, 2013 is a result of the winddown of a contract that was assigned to Shore as part of the sale of our Manila operations.

Liquidity and Sources of Capital

Cash provided by operating activities for the three months ended March 31, 2013 was $1.3 million, as compared to cash provided by operating activities of $583,000 in the three months ended March 31, 2012. Cash provided by operating activities in the three months ended March 31, 2013 was primarily the result of the net loss from continuing operations of $3.3 million, offset by non-cash expenses for depreciation and amortization of property and intangibles of $406,000, stock-based compensation expenses of $979,000, a provision for impairment related to vendor deposits of $280,000 and changes in operating assets and liabilities that provided cash of $3.2 million as a result of managing working capital.

Cash provided by operating activities for the three months ended March 31, 2012 was $583,000, primarily as a result of the net loss from continuing operations of $1.5 million, offset by non-cash expenses for depreciation and amortization of property and intangibles of $1,848,000 and stock-based compensation expenses of $187,000, changes in operating assets and liabilities that provided cash of $1.1 million by reducing accounts receivable and managing working capital and cash provided by discontinued operations of $112,000.

Cash used in investing activities was $517,000 in the three months ended March 31, 2013, as compared to cash used in investing activities of $358,000 in the three months ended March 31, 2012. The change was primarily the result of increases in restricted cash of $161,000 related to misdirected cash receipts to be refunded and increases in capital expenditures of $95,000 offset by a reduction in cash used in discontinued operations of $97,000.

Cash used in financing activities was approximately $199,000 in the three months ended March 31, 2013, as compared to cash used in financing activities of $774,000 in the three months ended March 31, 2012. Cash used in financing activities in the three months ended March 31, 2013 was primarily a result of the repayment of borrowings of $300,000 under our Term Loan and purchases of $79,000 of treasury stock from employees for shares withheld for income taxes payable on restricted stock awards vested during the three months ended March 31, 2013 offset by proceeds from borrowings of $200,000 under our Revolving Line. Cash used in financing activities in the three months ended March 31, 2012 was primarily the result of the $593,000 in repayment of borrowings and purchases of $159,000 of treasury stock from employees for shares withheld for income tax payable on restricted stock awards vested during the three months ended March 31, 2012.

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At March 31, 2013, the Company had a net working capital deficit of $8.8 million. Our principal source of liquidity as of March 31, 2013 consisted of $5.1 million of cash and cash equivalents and $3.2 million of net accounts receivable. Our debt balance as of March 31, 2013 was $4 million, of which $2.9 million is payable within the next twelve months. Our accounts payable balance as of March 31, 2013 was $9.2 million of which $7.1 million is related to a merchant account of a customer. See below under "Credit Arrangements" for further discussion of our credit facility with Comerica Bank.

On April 5, 2013, the Company 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, with net proceeds totaling approximately $5.5 million. The Company intends to use the net cash proceeds from the offering for general corporate purposes, including working capital and capital expenditures. 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 and/or is unable to raise additional capital, we will not have adequate cash or financial resources to operate for the next twelve months as a going concern and pay our liabilities as they become due.

Credit Arrangements

On June 14, 2012, the Company entered into a Loan and Security Agreement with Comerica Bank (the "Credit Facility"), replacing Bridge Bank, N.A. as the Company's primary lender. 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 March 31, 2013, there was $2.7 million outstanding under the Term Loan and $1.7 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. 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 rate on our Term Loan and Revolving Line were 5.50% and 4.75%, respectively, as of March 31, 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 March 31, 2013, we were in compliance with all loan covenants.

Off-Balance Sheet Arrangements

As of March 31, 2013 and 2012, we had no off-balance sheet arrangements or obligations as defined under SEC rules and regulations.

Potential Impact of Inflation

To date, inflation has not had a material impact on our business.

Recent Accounting Standards

In March 2013, the FASB issued new accounting guidance, 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

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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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of March 31, 2013, our management, including our principal executive officer and principal financial officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act of 1934, as amended. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2013.

Change in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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. 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.

See Part I Item 1A— “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the SEC on April 1, 2013, for additional discussion of the litigation and regulatory risks facing our Company.

ITEM 1A. RISK FACTORS

Not applicable for smaller reporting companies.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The table below presents share repurchase activity for the three months ended March 31, 2013. The shares were repurchased by us in connection with satisfaction of tax withholding obligations on vested restricted stock.

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
January 2013	—	—	N/A	N/A
February 2013	93,998	$0.70	N/A	N/A
March 2013	17,965	$0.71	N/A	N/A
Total	111,963	$0.70	N/A	N/A

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6.    EXHIBITS

(a) Exhibits

The following exhibits are incorporated by reference or filed with this report as indicated below:

10.1	Executive Employment Agreement, dated January 17, 2013, between Rainmaker Systems, Inc. and Mallorie Burak (Incorporated by reference to Exhibit 10.71 to the Annual Report on Form 10-K for the year ended December 31, 2012, filed on April 1, 2013).
10.2	Transition Agreement and Amendment of Executive Employment Agreement, dated January 23, 2013, between Rainmaker Systems, Inc. and Timothy Burns (Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K, filed on January 25, 2013).
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.DEF*	XBRL Taxonomy Extension Presentation Linkbase Document

*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

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

		RAINMAKER SYSTEMS, INC.
Dated:	May 14, 2013	/s/ Mallorie Burak
		Mallorie Burak
		Chief Financial Officer

27

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Donald Massaro, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rainmaker Systems, Inc. (“Rainmaker”);

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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Rainmaker as of, and for, the periods presented in this report;

4. Rainmaker’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 Rainmaker and we 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 Rainmaker, 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 Rainmaker’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 Rainmaker’s internal control over financial reporting that occurred during Rainmaker’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Rainmaker’s internal control over financial reporting;

5. Rainmaker’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Rainmaker’s auditors and the audit committee of Rainmaker’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 Rainmaker’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 Rainmaker’s internal controls over financial reporting.

Date:	May 14, 2013	/s/ Donald J. Massaro
		Donald J. Massaro
		President and Chief Executive Officer
		(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Mallorie Burak, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Rainmaker Systems, Inc. (“Rainmaker”);

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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Rainmaker as of, and for, the periods presented in this report;

4. Rainmaker’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 Rainmaker and we 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 Rainmaker, 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 Rainmaker’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 Rainmaker’s internal control over financial reporting that occurred during Rainmaker’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Rainmaker’s internal control over financial reporting;

5. Rainmaker’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Rainmaker’s auditors and the audit committee of Rainmaker’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 Rainmaker’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 Rainmaker’s internal controls over financial reporting.

Date:	May 14, 2013	/s/ Mallorie Burak
		Mallorie Burak
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of The Sarbanes-Oxley Act of 2002

I, Donald Massaro, President and Chief Executive Officer of Rainmaker Systems, Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Quarterly Report of the Company on Form 10-Q for the quarterly period ended March 31, 2013, as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Donald J. Massaro

Donald J. Massaro

President and Chief Executive Officer

(Principal Executive Officer)

May 14, 2013

EX-32.2

Exhibit 32.2

Certification Pursuant to 18 U.S.C. Section 1350,

As Adopted Pursuant To

Section 906 of The Sarbanes-Oxley Act of 2002

I, Mallorie Burak, Chief Financial Officer of Rainmaker Systems, Inc. (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the Quarterly Report of the Company on Form 10-Q for the quarterly period ended March 31, 2013, as filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mallorie Burak

Mallorie Burak

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

May 14, 2013

XML

STOCKHOLDERS' EQUITY - Equity Offering (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended
	Jun. 30, 2011
Equity offering:
Proceeds from issuance of common stock, gross	$ 3.9
Proceeds from issuance of common stock	$ 3.3
Common stock warrant
Equity offering:
Stock warrants issued during period (in warrants)	1,500,000
Term until expiration	5 years
Exercise price of warrants (USD per warrant)	1.40
Period until warrants become exercisable from issuance	6 months
Common stock warrant, issued to placement agent
Equity offering:
Term until expiration	5 years
Exercise price of warrants (USD per warrant)	1.05
Period until warrants become exercisable from issuance	6 months
Class of Warrant or Right, Percentage of Number of Shares Purchased Used to Determine Warrant Value	3.00%
Common stock
Equity offering:
Stock issuable upon exercise of warrants (in shares)	1,500,000
Number of shares purchased by investors	110,000
2003 Plan | Common stock
Equity offering:
Stock issued during period (in shares)	3,700,000

XML

LONG-TERM DEBT OBLIGATIONS (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2011	Mar. 31, 2013 Secured debt Comerica Bank Credit Facility Comerica Bank	Jun. 14, 2012 Secured debt Comerica Bank Credit Facility Comerica Bank	Mar. 31, 2013 Secured debt Comerica Bank Credit Facility Comerica Bank Term loan	Jun. 14, 2012 Secured debt Comerica Bank Credit Facility Comerica Bank Term loan installments	Dec. 31, 2011 Secured debt Comerica Bank Credit Facility Comerica Bank Term loan	Mar. 31, 2013 Secured debt Comerica Bank Credit Facility Comerica Bank Revolving credit facility	Jun. 14, 2012 Secured debt Comerica Bank Credit Facility Comerica Bank Revolving credit facility	Dec. 31, 2011 Secured debt Comerica Bank Credit Facility Comerica Bank Revolving credit facility	Jun. 14, 2012 Secured debt Comerica Bank Credit Facility Comerica Bank Letter of credit	Mar. 31, 2013 Notes payable, other payables	Dec. 31, 2011 Notes payable, other payables	Mar. 31, 2013 Notes payable, other payables Notes payable - insurance AON Private Risk Management	Aug. 13, 2012 Notes payable, other payables Notes payable - insurance AON Private Risk Management installments
Long-term debt components:
Total notes payable	$ 4,407,000	$ 4,527,000			$ 2,700,000		$ 3,000,000	$ 1,693,000		$ 1,493,000		$ 14,000	$ 34,000
Less: current portion	(2,907,000)	(2,727,000)
Total notes payable, less current portion	1,500,000	1,800,000
Credit Facility:
Maximum borrowing capacity				5,000,000		3,000,000			2,000,000		500,000
Percent of accounts receivable less credit issued used to determine the borrowing base									80.00%
Stated interest rate					5.50%	2.25%		4.75%	1.50%						6.068%
Covenant terms, unrestricted cash balance requirement with lender				1,000,000
Minimum liquidity ratio			1.00	1.25
Notes Payable:
Notes payable														$ 14,000	$ 62,000
Number of monthly installments of principal						30									9

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property and Equipment (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Computer equipment
Property and equipment:
Useful life of property and equipment	3 years
Internal use software
Property and equipment:
Internal use software cost capitalization	$ 278,000	$ 245,000
Minimum | Computer equipment
Property and equipment:
Useful life of property and equipment	2 years
Minimum | Internal use software
Property and equipment:
Useful life of property and equipment	2 years
Maximum | Computer equipment
Property and equipment:
Useful life of property and equipment	5 years
Maximum | Internal use software
Property and equipment:
Useful life of property and equipment	5 years

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FAIR VALUE MEASUREMENTS - Unobservable Input Reconciliation (Details) (Level 3, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012		Jun. 30, 2012	Jun. 30, 2011
Contingent consideration - Optima
Summary of the activity of the fair value of the Level 3 liabilities:
Beginning value of Level 3 liabilities					$ 225	[1]
Transfers In (Out)		(225)	[1]
Gain on fair value remeasurement		0	[1]
Foreign currency adjustment		0	[1]
Ending fair value of Level 3 liabilities		0	[1]		225	[1]
Common stock warrant liability
Summary of the activity of the fair value of the Level 3 liabilities:
Beginning value of Level 3 liabilities				348	517
Transfers In (Out)	0	0
Gain on fair value remeasurement	(225)	(7)
Foreign currency adjustment	0	0
Ending fair value of Level 3 liabilities	$ 123	$ 510		$ 348	$ 517

[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 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.

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PROPERTY AND EQUIPMENT (Notes)

3 Months Ended

Mar. 31, 2013

Property, Plant and Equipment [Abstract]

Property and Equipment

PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

	Estimated Useful Life	March 31, 2013			December 31, 2012
Computer equipment	3 years	$	4,005		$	3,974
Capitalized software and development	2-5 years	13,996			13,686
Furniture and fixtures	5 years	437			437
Leasehold improvements	Lease term	264			232
		18,702			18,329
Accumulated depreciation and amortization		(16,417		)	(16,015		)
Construction in process (1)		111			141
Property and equipment, net		$	2,396		$	2,455

 _____________

(1) Construction in process at March 31, 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 $5,000 to $15,000, subject to future revisions.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Related Party Transactions (Details) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended	0 Months Ended
	Jun. 30, 2011	Apr. 05, 2013 Subsequent event	Apr. 05, 2013 Board of directors members and CEO Subsequent event
Related party transactions:
Stock issued during period (in shares)		13,000,000
Proceeds from issuance of common stock	$ 3.3	$ 5.8
Share purchases from related party (in shares)			500,025
Purchase price (USD per share)			$ 0.45

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk and Credit Evaluations (Details) (Customer concentration risk)	3 Months Ended
	Mar. 31, 2013 clients	Mar. 31, 2012 clients
Sales revenue, services, net
Concentrations of credit risk and credit evaluations:
Number of significant clients	2	3
Microsoft
Concentrations of credit risk and credit evaluations:
Duration of notice needed to terminate agreement	30 days
Microsoft | Sales revenue, services, net
Concentrations of credit risk and credit evaluations:
Concentration risk percentage	39.00%	24.00%
Symantec
Concentrations of credit risk and credit evaluations:
Duration of notice needed to terminate agreement	90 days
Symantec | Sales revenue, services, net
Concentrations of credit risk and credit evaluations:
Concentration risk percentage	25.00%	17.00%
Hewlett-Packard
Concentrations of credit risk and credit evaluations:
Duration of notice needed to terminate agreement	90 days
Hewlett-Packard | Sales revenue, services, net
Concentrations of credit risk and credit evaluations:
Concentration risk percentage		11.00%

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NET LOSS PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Calculation of basic and diluted net loss per common share:
Net loss from continuing operations	$ (3,450)	$ (1,198)
Loss from discontinued operations	156	(276)
Net loss	$ (3,294)	$ (1,474)
Weighted-average shares of common stock outstanding - basic and diluted (in shares)	28,994,000	26,808,000
Basic and diluted net loss per share - continuing operations (USD per share)	$ (0.12)	$ (0.04)
Basic and diluted net loss per share - discontinued operations (USD per share)	$ 0.01	$ (0.01)
Basic and diluted net loss per share (USD per share)	$ (0.11)	$ (0.05)
Antidilutive securities excluded from earnings per share (in shares)	4,600,000	3,800,000

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DISCONTINUED OPERATIONS (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended	3 Months Ended
	Dec. 17, 2012	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Discontinued operations:
Stock acquired by purchaser, percent	100.00%
Losses from discontinued operations:
Net loss from discontinued operations		$ 156	$ (276)
RSL
Discontinued operations:
Proceeds from divestiture	845
Additional consideration				300
True up adjustment on cost of services		78
Losses from discontinued operations:
Revenue		158	2,559
Cost of services		2	2,334
Gross margin		156	225
Operating expenses		0	509
Non-operating expenses		0	(8)
Net loss from discontinued operations		$ 156	$ (276)

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DISCONTINUED OPERATIONS (Notes)

3 Months Ended

Mar. 31, 2013

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 months ended March 31, 2012 are reported as discontinued operations in the consolidated financial statements.

On December 17, 2012, the Company completed its 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 t o 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 months ended March 31, 2013. RSL's operating results for the three months ended March 31, 2013 and 2012 are reported as discontinued operations in the consolidated financial statements.

The accompanying unaudited consolidated statements of operations and cash flows have been reclassified for three months ended March 31, 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 three months ended March 31, 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):

	Three Months Ended March 31,
	2013		2012
Revenue	$	158	$	2,559
Cost of services	2		2,334
Gross profit	156		225
Operating expenses	—		509
Non-operating (income) expenses	—		(8		)
Income (loss) from discontinued operations	$	156	$	(276	)

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PROPERTY AND EQUIPMENT (Details) (USD $) In Thousands, unless otherwise specified								3 Months Ended		3 Months Ended				3 Months Ended
	Mar. 31, 2013		Dec. 31, 2012		Dec. 31, 2011	Mar. 31, 2013 Minimum	Mar. 31, 2013 Maximum	Mar. 31, 2013 Computer equipment	Dec. 31, 2012 Computer equipment	Mar. 31, 2013 Computer equipment Minimum	Mar. 31, 2013 Computer equipment Maximum	Mar. 31, 2013 Capitalized software and development	Dec. 31, 2012 Capitalized software and development	Mar. 31, 2013 Capitalized software and development Minimum	Mar. 31, 2013 Capitalized software and development Maximum	Mar. 31, 2013 Furniture and fixtures	Dec. 31, 2012 Furniture and fixtures	Mar. 31, 2013 Leasehold improvements	Dec. 31, 2012 Leasehold improvements
Property and equipment:
Useful life of property and equipment								3 years		2 years	5 years			2 years	5 years	5 years
Components of property and equipment:
Property and equipment, gross	$ 18,702		$ 18,329					$ 4,005	$ 3,974			$ 13,996	$ 13,686			$ 437	$ 437	$ 264	$ 232
Accumulated depreciation and amortization	(16,417)		(16,015)
Construction in process	111	[1]	141	[1]
Property and equipment, net	2,396		2,455		2,455
Construction in process, estimated cost to complete projects						$ 5	$ 15

[1] Construction in process at March 31, 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 $5,000 to $15,000, subject to future revisions.

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STOCKHOLDERS' EQUITY - Stock Compensation (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012	Dec. 31, 2011
Stock compensation:
Payments related to tax witholding	$ 79,000	$ 159,000
Restricted stock awards granted in period (in shares)	500,000
Stock-based compensation	979,000	187,000
Stock-based compensation relating to unvested awards	1,600,000
Current unvested and outstanding grants expected to be expensed in current year	404,000
Available for grant:
Balance at beginning of period (in shares)	965,000		810,000
Authorized	1,375,000
Balance at end of period (in shares)	965,000		810,000
Options outstanding, weighted average exercise price:
Shares outstanding				28,428,000
Stock option
Weighted average valuation assumptions:
Expected life in years	3 years 9 months 4 days	3 years 9 months 4 days
Volatility	65.99%	65.99%
Risk-free interest rate	0.44%	1.00%
Dividend rate	0.00%	0.00%
Forfeiture rate	27.61%	27.61%
Available for grant:
Options Granted	(212,000)
Options canceled	130,676
Options oustanding, number of shares:
Balance at beginning of period (in shares)	1,168,803
Options granted (in shares)	212,000
Options exercised (in shares)	(4,895)
Options canceled (in shares)	(130,676)
Balance at end of period (in shares)	1,245,000
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)	$ 0.64
Weighted average exercise price, options exercised (USD per share)	$ 0.81
Weighted average exercise price, options granted (USD per share)	$ 2.00
Weighted average exercise price, end of perido (USD per share)	$ 1.07
Restricted stock
Stock compensation:
Number of board of director members	2
Weighted average valuation assumptions:
Forfeiture rate	15.04%	15.04%
Available for grant:
Restricted stock awards granted	1,267,857
Restricted stock awards forfeited	128,750
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)	(1,267,718)
Forfeited (in shares)	(128,750)
Balance at end of period (in shares)	2,126,077
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)	$ 0.66
Fair value of nonvested awards	1,200,000
2003 Plan
Available for grant:
Authorized	1,000,000
2012 Plan [Member]
Available for grant:
Authorized	375,000
Cost of services
Stock compensation:
Stock-based compensation	17,000	33,000
Sales and marketing
Stock compensation:
Stock-based compensation	118,000	11,000
Technology and development
Stock compensation:
Stock-based compensation	43,000	11,000
General and administrative
Stock compensation:
Stock-based compensation	801,000	132,000
Common stock
Stock compensation:
Shares paid for tax witholding	111,963
Payments related to tax witholding	$ 79,000
Common stock | 2003 Plan | Maximum
Options outstanding, weighted average exercise price:
Percentage limit to annual increase in total shares authorized	4.00%
Limit to annual increase in total shares authroized (in shares)	1,000,000

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 5,076	$ 4,494
Restricted cash	217	52
Accounts receivable, net	3,181	3,720
Prepaid expenses and other current assets	1,472	1,292
Total current assets	9,946	9,558
Property and equipment, net	2,396	2,455
Goodwill	5,244	5,337
Other non-current assets	416	416
Total assets	18,002	17,766
Current liabilities:
Accounts payable	9,168	7,159
Accrued compensation and benefits	1,057	425
Other accrued liabilities	3,868	3,142
Deferred revenue	1,774	2,311
Current portion of notes payable	2,907	2,727
Total current liabilities	18,774	15,764
Deferred tax liability	578	567
Long-term deferred revenue	261	44
Common stock warrant liability	123	348
Notes payable, less current portion	1,500	1,800
Total liabilities	21,236	18,523
Commitments and contingencies (Note 6)
Stockholders’ deficit:
Preferred stock, $0.001 par value; 5,000 shares authorized, none issued and outstanding	0	0
Common stock, $0.001 par value; 50,000 shares authorized, 31,084 shares issued and 28,949 shares outstanding at March 31, 2013 and 30,454 shares issued and 28,428 shares outstanding at December 31, 2012	27	27
Additional paid-in capital	131,384	130,402
Accumulated deficit	(131,492)	(128,198)
Accumulated other comprehensive loss	(347)	(261)
Treasury stock, at cost, 2,135 shares at March 31, 2013 and 2,026 shares at December 31, 2012	(2,806)	(2,727)
Total stockholders’ deficit	(3,234)	(757)
Total liabilities and stockholders’ deficit	$ 18,002	$ 17,766

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Notes)

3 Months Ended

Mar. 31, 2013

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. On January 25, 2013, we announced that our operations in Austin, Texas will be 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 months ended March 31, 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.

Certain prior year amounts have been reclassified to conform to the current year presentation. 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 operations and comprehensive loss, and are classified solely under the caption income (loss) from discontinued operations, net of tax. As such, certain amounts reported in the accompanying financial statements as of and for the three month period ended March 31, 2012 have been retrospectively revised to conform to the 2013 presentation. There were no other reclassifications that had a material effect on previously reported results of operations, total assets or accumulated deficit.

Going Concern

As reflected in the accompanying consolidated financial statements, we had a net loss from continuing operations of $3.5 million for the three months ended March 31, 2013. During the three months ended March 31, 2013, we generated $1.2 million in cash from operating activities.

At March 31, 2013, the Company had a net working capital deficit of $8.8 million. Our principal source of liquidity as of March 31, 2013 consisted of $5.1 million of cash and cash equivalents and $3.2 million of net accounts receivable. Our debt balance as of March 31, 2013 was $4.4 million, of which $2.9 million is payable within the next twelve months. Our accounts payable balance as of March 31, 2013 was $9.2 million of which $7.1 million is related to a merchant account of a customer. See Note 5 for further discussion of our debt agreements.

As more fully described in Note 9, 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 and/or is unable to raise additional capital, we will not have adequate cash or financial resources to operate for the next twelve months 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 March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013		December 31, 2012
Cash and cash equivalents:
Cash	$	3,436	$	2,854
Money market funds	1,640		1,640
Total cash and cash equivalents	$	5,076	$	4,494

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 March 31, 2013 and December 31, 2012, our allowance for potentially uncollectible accounts was $15,000 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 $278,000 and $245,000 of such costs during the three months ended March 31, 2013 and 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 March 31, 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 March 31, 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. In the few instances where our agreements have contained multiple deliverables, they do not have value to our customers on a standalone basis, and therefore the deliverables are considered together as one unit of accounting. However, we may enter into sales contracts with multiple deliverable element conditions with stand-alone value in the future, which 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 March 31, 2013 and December 31, 2012, we had gross deferred tax assets of $31.8 million and $31.8 million, respectively. At March 31, 2013 and December 31, 2012, the deferred tax assets were subject to a 100% valuation allowance and therefore are not recorded on our balance sheet 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 March 31, 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 operations. See Note 8 for further discussion of this standard and its effects on the 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 and trade accounts receivable.

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 March 31, 2013, two clients accounted for 10% or more of our net revenue, with Microsoft Corporation ("Microsoft") representing approximately 39% of our net revenue and Symantec Corporation ("Symantec") representing approximately 25% of our net revenue. In the three months ended March 31, 2012, three clients accounted for 10% or more of our net revenue, with Microsoft representing approximately 24% of our net revenue, Symantec representing approximately 17% 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 June 2015. 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 2013 through June 2015, and can be terminated with thirty days notice. Our agreements with Hewlett-Packard expire in October 2013 and can generally be terminated prior to expiration with ninety 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 Philipine 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 operations and 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 operations.

Related Party Transactions

As more fully disclosed in Note 9, 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 March 2013, the FASB issued new accounting guidance, 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.

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COMMITMENTS AND CONTINGENCIES - Guarantees (Details) (Standby letter of credit, Notes payable to banks, USD $) In Thousands, unless otherwise specified	Feb. 01, 2013	Jul. 18, 2012
Standby letter of credit | Notes payable to banks
Guarantees:
Guarantor obligation, maximum exposure	$ 40	$ 100

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STOCKHOLDERS' EQUITY (Tables)

3 Months Ended

Mar. 31, 2013

Equity [Abstract]

Stock-based compensation expense

The table below reflects stock-based compensation expense for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended
	March 31,
	2013		2012
Stock-based compensation expense included in:
Cost of services	$	17	$	33
Sales and marketing	118		11
Technology and development	43		11
General and administrative	801		132
	$	979	$	187

Weighted average valuation assumptions for stock option awards and forfeiture rates used for the expense calculations for stock option and restricted stock awards

During the three months ended March 31, 2013 and 2012, the weighted average valuation assumptions for stock option awards and forfeiture rates used for the expense calculations for stock option and restricted stock awards were as follows:

	Three Months Ended
	March 31,
	2013		2012
Expected life in years	3.76		3.76
Volatility	65.99	%	65.99	%
Risk-free interest rate	0.44	%	1.00	%
Dividend rate	—	%	—	%
Forfeiture Rates:
Options	27.61	%	27.61	%
Restricted stock	15.04	%	15.04	%

Summary of activity under equity incentive plan

A summary of activity under our 2003 Plan and 2012 Plan for the three months ended March 31, 2013 is as follows (in thousands):

			Options Outstanding
	Available for Grant		Number of Shares		Weighted Average Exercise Price
Balance at December 31, 2012	810		1,169		$	1.25
Authorized	1,375		—		—
Options granted	(212	)	212		0.64
Restricted stock awards granted	(1,268	)	—		—
Options exercised	—		(5	)	0.81
Options canceled	131		(131	)	2.00
Restricted stock awards forfeited	129		—		—
Balance at March 31, 2013	965		1,245		$	1.07

Summary of restricted stock award activity

The following table summarizes the activity with regard to restricted stock awards during the three months ended March 31, 2013. Restricted stock awards are issued from the 2003 Plan and 2012 Plan and any issuances reduce the shares available for grant as indicated in the previous table. Restricted stock awards are valued at the closing market price of our stock on the date of the grant.

	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	(1,267,718	)	0.69
Forfeited	(128,750	)	0.91
Balance of nonvested shares at March 31, 2013	2,126,077		$	0.66

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COMMITMENTS AND CONTINGENCIES - Litigation (Details) (Breach of employement contract, Threatened litigation, USD $) In Millions, unless otherwise specified	Feb. 08, 2013
Breach of employement contract | Threatened litigation
Litigation:
Estimate of possible loss	$ 1.0

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cash and Cash Equivalents (Details) (USD $) In Thousands, unless otherwise specified					3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Mar. 31, 2013 Maximum	Mar. 31, 2013 Cash	Dec. 31, 2011 Cash	Mar. 31, 2013 Money market funds	Dec. 31, 2011 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	$ 5,076	$ 7,847	$ 4,494	$ 8,490		$ 3,436	$ 2,854	$ 1,640	$ 1,640

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NET LOSS PER SHARE (Notes)

3 Months Ended

Mar. 31, 2013

Earnings Per Share [Abstract]

Net Loss Per Share

NET LOSS PER SHARE

Basic net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the year. Diluted net income (loss) per share also gives effect, as applicable, to the potential dilutive effect of outstanding stock options and warrants, using the treasury stock method, unvested restricted share awards, and convertible securities, using the if converted method, as of the beginning of the period presented or the original issuance date, if later.

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share data):

	Three Months Ended
	March 31,
	2013			2012
Net loss from continuing operations	$	(3,450	)	$	(1,198	)
Net income (loss) from discontinued operations	156			(276		)
Net loss	$	(3,294	)	$	(1,474	)
Weighted-average shares of common stock outstanding – basic and diluted	28,994			26,808
Basic and diluted net income (loss) per share:
Continuing operations	$	(0.12	)	$	(0.04	)
Discontinued operations	$	0.01		$	(0.01	)
Net loss	$	(0.11	)	$	(0.05	)

For the three months ended March 31, 2013 and 2012, we excluded approximately 4.6 million and 3.8 million options, warrants and unvested restricted share awards, respectively, from the calculation of diluted net loss per share as these securities were anti-dilutive.

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CONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEET (PARENTHETICALS) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2011
Stockholders' Equity
Preferred stock, par value (USD per share)	$ 0.001	$ 0.001
Preferred stock, authorized (in shares)	5,000	5,000
Preferred stock, issued (in shares)	0	0
Preferred stock, outstanding (in shares)	0	0
Common stock, par value (USD per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	50,000	50,000
Common stock, issued (in shares)	31,084	30,454
Common stock, oustanding (in shares)	28,949	28,428
Treasury stock (in shares)	2,135	2,026

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NET LOSS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2013

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):

	Three Months Ended
	March 31,
	2013			2012
Net loss from continuing operations	$	(3,450	)	$	(1,198	)
Net income (loss) from discontinued operations	156			(276		)
Net loss	$	(3,294	)	$	(1,474	)
Weighted-average shares of common stock outstanding – basic and diluted	28,994			26,808
Basic and diluted net income (loss) per share:
Continuing operations	$	(0.12	)	$	(0.04	)
Discontinued operations	$	0.01		$	(0.01	)
Net loss	$	(0.11	)	$	(0.05	)

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DOCUMENT AND ENTITY INFORMATION Document	3 Months Ended
	Mar. 31, 2013	May 09, 2013
Entity Information [Line Items]
Entity Registrant Name	RAINMAKER SYSTEMS INC
Entity Central Index Key	0001094007
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		42,545,345

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DISCONTINUED OPERATIONS (Tables)

3 Months Ended

Mar. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

Income statement and balance sheet disclosures for discontinued operations

The accompanying unaudited consolidated statements of operations and cash flows have been reclassified for three months ended March 31, 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 three months ended March 31, 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):

	Three Months Ended March 31,
	2013		2012
Revenue	$	158	$	2,559
Cost of services	2		2,334
Gross profit	156		225
Operating expenses	—		509
Non-operating (income) expenses	—		(8		)
Income (loss) from discontinued operations	$	156	$	(276	)

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPRESENSIVE LOSS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net revenue	$ 4,656	$ 6,401
Cost of services	3,035	3,625
Gross profit	1,621	2,776
Operating expenses:
Sales and marketing	665	540
Technology and development	1,122	1,589
General and administrative	2,980	1,368
Depreciation and amortization	406	404
Total operating expenses	5,173	3,901
Operating loss	(3,552)	(1,125)
Loss (gain) due to change in fair value of warrant liability	(225)	(7)
Interest and other expense, net	93	27
Loss before income tax expense	(3,420)	(1,145)
Income tax expense	30	53
Net loss from continuing operations	(3,450)	(1,198)
Net income (loss) from discontinued operations, net of tax	156	(276)
Net loss	(3,294)	(1,474)
Foreign currency translation adjustments	(86)	1
Comprehensive loss	$ (3,380)	$ (1,473)
Basic and diluted net loss per share - continuing operations (USD per share)	$ (0.12)	$ (0.04)
Basic and diluted net loss per share - discontinued operations (USD per share)	$ 0.01	$ (0.01)
Basic and diluted net loss per share (USD per share)	$ (0.11)	$ (0.05)
Weighted average common shares - Basic and diluted (in shares)	28,994	26,808

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FAIR VALUE MEASUREMENTS (Notes)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Fair value is the exchange price that would be the amount received for an asset or paid to transfer a liability in an orderly transaction between market participants. In arriving at a fair value measurement, we use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to establish fair value are the following:

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 or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

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.

A summary of the activity of the fair value of the Level 3 liabilities for the three months ended March 31, 2013 and 2012 is as follows (in thousands):

	Beginning Value of Level 3 Liabilities		Transfers In (Out)			Loss(Gain) on Fair Value Re- measurement			Foreign Currency Adjustment		Ending Fair Value of Level 3 Liabilities
2013
Common stock warrant liability	$	348	$	—		$	(225	)	$	—	$	123
2012
Contingent consideration — Optima (1)	225		(225		)	—			—		—
Common stock warrant liability	517		—			(7		)	—		510

____________

(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 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.

The following table represents the fair value hierarchy for our financial assets and liabilities held by us measured at fair value on a recurring basis (in thousands):

	Level 1		Level 2		Level 3
March 31, 2013
Assets:
Money market funds (1)	$	1,640	$	—	$	—
Liabilities:
Common stock warrant liability (2)	$	—	$	—	$	123
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.

The Company uses the Black-Scholes model to value our common stock warrant liability. The following are the assumptions used to measure the accrued warrant liability at March 31, 2013 and December 31, 2012, which were determined in a manner consistent with that described for stock option awards as set forth in Note 8:

	March 31,		December 31,
	2013		2012
Expected life in years	3.25		3.50
Volatility	65.99	%	65.99	%
Risk-free interest rate	0.36	%	0.34	%
Dividend rate	—	%	—	%

The amounts reported as cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short-term maturities.

The fair value of short-term and long-term capital lease and 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.

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COMMITMENTS AND CONTINGENCIES (Notes)

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments Contingencies

COMMITMENTS AND CONTINGENCIES

Lease Commitments

As of March 31, 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 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 operating lease for our corporate headquarters, effective December 1, 2012, with a three-year term. On January 31, 2013, the Company executed a fourth amendment to the operating lease for our corporate headquarters, effective February 1, 2013, providing an additional 3,936 square feet of additional space. The fourth amendment did not modify the three-year term of the third amendment to the 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.

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. The Company is actively seeking to sub-lease the Austin facility.

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 March 31, 2013, annual rent is approximately $43,000 in U.S. dollars.

Rent expense under operating lease agreements for continuing operations during the three months ended March 31, 2013 and 2012 was $153,000 and $203,000, 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, and replaced the standby letter of credit issued by Bridge Bank in July 2005. The standby letter of credit was reduced to $40,000 in accordance with the fourth amendment to the operating lease for our corporate headquarters in Campbell, California.

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 March 31, 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. 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.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	0 Months Ended		3 Months Ended		12 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Mar. 31, 2013 segment	Mar. 31, 2012	Dec. 31, 2012 segment reporting_unit	Dec. 31, 2010
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Net loss from continuing operations			$ 3,450,000	$ 1,198,000
Net cash used in operating activities from continuing operations			(1,191,000)	(471,000)
Net cash used in operating activities from discontinued operations			121,000	112,000
Working capital deficit			8,800,000
Cash and cash equivalents		4,494,000	5,076,000	7,847,000		8,490,000
Accounts receivable, net		3,720,000	3,181,000
Long-term debt:
Long-term Debt			4,400,000
Long-term Debt, Current Maturities		2,727,000	2,907,000
Accounts payable		7,159,000	9,168,000
Accounts payable related to merchant account of customer			7,100,000
Allowance for doubtful accounts			15,000		15,000
Number of operating segments					1
Number of reportable segments			1		1
Deferred tax assets, gross		$ 31,800,000	$ 31,800,000
Valuation allowance percentage	100.00%	100.00%

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2013

Property, Plant and Equipment [Abstract]

Components of property and equipment

Property and equipment consists of the following (in thousands):

	Estimated Useful Life	March 31, 2013			December 31, 2012
Computer equipment	3 years	$	4,005		$	3,974
Capitalized software and development	2-5 years	13,996			13,686
Furniture and fixtures	5 years	437			437
Leasehold improvements	Lease term	264			232
		18,702			18,329
Accumulated depreciation and amortization		(16,417		)	(16,015		)
Construction in process (1)		111			141
Property and equipment, net		$	2,396		$	2,455

 _____________

(1) Construction in process at March 31, 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 $5,000 to $15,000, subject to future revisions.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Principles of Consolidation

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

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 months ended March 31, 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.

Use of Estimates

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

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.

Allowance for Doubtful Accounts

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 March 31, 2013 and December 31, 2012, our allowance for potentially uncollectible accounts was $15,000 and $15,000, respectively.

Property and Equipment

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 $278,000 and $245,000 of such costs during the three months ended March 31, 2013 and 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

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 March 31, 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 March 31, 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

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

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. In the few instances where our agreements have contained multiple deliverables, they do not have value to our customers on a standalone basis, and therefore the deliverables are considered together as one unit of accounting. However, we may enter into sales contracts with multiple deliverable element conditions with stand-alone value in the future, which 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

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

Advertising

We expense advertising costs as incurred. These costs were not material and are included in sales and marketing expense.

Income Taxes

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 March 31, 2013 and December 31, 2012, we had gross deferred tax assets of $31.8 million and $31.8 million, respectively. At March 31, 2013 and December 31, 2012, the deferred tax assets were subject to a 100% valuation allowance and therefore are not recorded on our balance sheet 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 March 31, 2013.

Stock-Based Compensation

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 operations. See Note 8 for further discussion of this standard and its effects on the financial statements presented herein.

Concentrations of Credit Risk

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 and trade accounts receivable.

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 March 31, 2013, two clients accounted for 10% or more of our net revenue, with Microsoft Corporation ("Microsoft") representing approximately 39% of our net revenue and Symantec Corporation ("Symantec") representing approximately 25% of our net revenue. In the three months ended March 31, 2012, three clients accounted for 10% or more of our net revenue, with Microsoft representing approximately 24% of our net revenue, Symantec representing approximately 17% 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 June 2015. 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 2013 through June 2015, and can be terminated with thirty days notice. Our agreements with Hewlett-Packard expire in October 2013 and can generally be terminated prior to expiration with ninety days notice.

Fair Value of Financial Instruments

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

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 Translations

Foreign Currency Translation

The functional currency of our foreign subsidiaries was determined to be their respective local currencies (Canadian Dollar, Great Britain Pound and Philipine 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 operations and 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 operations.

Recent Accounting Standards

Recent Accounting Standards

In March 2013, the FASB issued new accounting guidance, 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.

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STOCKHOLDERS' EQUITY (Notes)

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Attributable to Parent [Abstract]

Stockholder's Equity

STOCKHOLDERS' EQUITY

Equity Offering

In June 2011, we issued and sold 3.7 million shares of our common stock, together with warrants to purchase up to an aggregate of 1.5 million additional shares, in a public offering. The offering was made pursuant to a prospectus filed with our shelf registration statement on Form S-3 (File No. 333-171946), which was filed with the SEC on January 28, 2011, amended on February 18, 2011 and declared effective by the SEC on March 7, 2011, the prospectus supplement dated June 22, 2011, and the free writing prospectus dated June 23, 2011. We received gross cash proceeds of approximately $3.9 million from the equity offering. The $3.3 million of net cash proceeds from the offering were used for general corporate purposes, including working capital and capital expenditures.

The 1.5 million warrants issued through the public offering have an initial 5-year term and an exercise price of $1.40 per share and became exercisable six months after their issuance date. If at any time the shares of common stock issuable thereunder are not registered for resale pursuant to an effective registration statement, the warrants may be exercised by way of a cashless exercise. The warrants also contain provisions that protect the holders thereof against dilution by adjustment of the exercise price and the number of shares issuable thereunder in certain events such as stock dividends, stock splits and other similar events. In addition, the placement agent received a warrant to purchase a number of shares of common stock equal to three percent (3.0%) of the number of shares purchased by investors in the offering, which approximates 110,000 shares. The placement agent warrant has an initial 5-year term and an exercise price of $1.05 per share and became exercisable six months after its issuance date. The placement agent warrant may also be exercised by way of a cashless exercise. The placement agent warrant also contains provisions that protect its holder against dilution by adjustment of the exercise price and the number of shares issuable thereunder in certain events such as stock dividends, stock splits and other similar events.

We have classified all of the above mentioned warrants as liabilities under the caption "Common stock warrant liability" and recorded the liability at its estimated fair value with the corresponding gains or losses as a separate line item after operating loss from operations, under the caption "Loss (gain) due to change in fair value of warrant liability." See Note 7 for disclosure regarding the fair value of financial instruments.

Stock Compensation

In 2003, the board of directors adopted and the stockholders approved the 2003 Stock Incentive Plan (“2003 Plan”). The 2003 Plan provides for the issuance of incentive stock options or nonqualified stock options to employees, consultants and non-employee members of the board of directors, and issuance of shares of common stock for purchase or as a bonus for services rendered (restricted stock awards).

On December 21, 2012, the board of directors approved and adopted the 2012 Inducement Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides for the issuance of nonqualified stock options and shares of common stock, either with or without a purchase price, to newly hired employees as a material inducement to such individuals entering into our employment. Stockholder approval of the 2012 Plan is not required under SEC or NASDAQ Capital Market rules.

During the three months ended March 31, 2013, we had restricted stock awards that vested. We are required to withhold income taxes at statutory rates based on the closing market value of the vested shares on the date of vesting. Accordingly, we offer employees the ability to have vested shares withheld by us in an amount equal to the amount of taxes to be withheld. Based on this, we purchased 111,963 shares during the three months ended March 31, 2013 with a cost of approximately $79,000 from employees to cover federal and state taxes due. During the three months ended March 31, 2013 we granted restricted stock awards for 500,000 shares to two members of our board of directors with immediate vesting.

We account for stock-based compensation awards issued to employees and directors using the guidance from FASB ASC 718, Compensation – Stock Compensation. ASC 718 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 operations and comprehensive loss.

The fair value of stock options is calculated using the Black-Scholes option pricing model. The Black-Scholes model requires subjective assumptions, including expected time to exercise, future stock price volatility, risk-free interest rates, and dividend rates which greatly affect the calculated values. Stock-based compensation expense is recorded net of an estimated forfeiture rate and trued-up upon vesting. These factors could change in the future, which would affect the stock-based compensation expense in future periods. The estimated fair value of stock-based compensation awards is amortized using the straight-line method over the vesting period of the awards.

We expense stock-based compensation to the same expense categories in which the respective award grantee’s salary expense is reported. The table below reflects stock-based compensation expense for the three months ended March 31, 2013 and 2012 (in thousands):

	Three Months Ended
	March 31,
	2013		2012
Stock-based compensation expense included in:
Cost of services	$	17	$	33
Sales and marketing	118		11
Technology and development	43		11
General and administrative	801		132
	$	979	$	187

At March 31, 2013, approximately $1.6 million of stock-based compensation relating to unvested awards had not been amortized and will be expensed in future periods through 2016. Under current grants that are unvested and outstanding, approximately $404,000 will be expensed in the remainder of 2013 as stock-based compensation, subject to true-up adjustments for forfeitures and vestings during the year.

We calculate the value of our stock option awards when they are granted. Accordingly, we update our valuation assumptions for the risk-free interest rate on the date of grant. Annually, we prepare an analysis of the historical activity within our option plans as well as the demographic characteristics of the grantees of options within our stock option plan to determine the estimated life of the grants, stock volatility and an estimated forfeiture rate. During the three months ended March 31, 2013 and 2012, the weighted average valuation assumptions for stock option awards and forfeiture rates used for the expense calculations for stock option and restricted stock awards were as follows:

	Three Months Ended
	March 31,
	2013		2012
Expected life in years	3.76		3.76
Volatility	65.99	%	65.99	%
Risk-free interest rate	0.44	%	1.00	%
Dividend rate	—	%	—	%
Forfeiture Rates:
Options	27.61	%	27.61	%
Restricted stock	15.04	%	15.04	%

Expected life of our option grants is estimated based on our analysis of our actual historical option exercises and cancellations. Expected stock price volatility is based on the historical volatility from traded shares of our stock over the expected term. The risk-free interest rate is based on the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. We have not historically paid dividends and we do not expect to pay dividends in the near term and therefore we have set the dividend rate at zero.

A summary of activity under our 2003 Plan and 2012 Plan for the three months ended March 31, 2013 is as follows (in thousands):

			Options Outstanding
	Available for Grant		Number of Shares		Weighted Average Exercise Price
Balance at December 31, 2012	810		1,169		$	1.25
Authorized	1,375		—		—
Options granted	(212	)	212		0.64
Restricted stock awards granted	(1,268	)	—		—
Options exercised	—		(5	)	0.81
Options canceled	131		(131	)	2.00
Restricted stock awards forfeited	129		—		—
Balance at March 31, 2013	965		1,245		$	1.07

In accordance with the 2003 Plan, the number of shares authorized for grant under the 2003 Plan automatically increases on the first trading date of January by an amount equal to the lesser of 4% of our outstanding common stock at the previous December 31 or 1,000,000 shares. Shares outstanding at December 31, 2012 were 28,428,000 and the additional shares authorized amounted to 1,000,000 under the 2003 Plan and 375,000 shares authorized under the 2012 Plan as shown in the table above.

The following table summarizes the activity with regard to restricted stock awards during the three months ended March 31, 2013. Restricted stock awards are issued from the 2003 Plan and 2012 Plan and any issuances reduce the shares available for grant as indicated in the previous table. Restricted stock awards are valued at the closing market price of our stock on the date of the grant.

	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	(1,267,718	)	0.69
Forfeited	(128,750	)	0.91
Balance of nonvested shares at March 31, 2013	2,126,077		$	0.66

The total fair value of the nonvested restricted stock awards at grant date was $1.2 million as of March 31, 2013.

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2013

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

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, with net proceeds totaling approximately $5.5 million. We intend to use the net cash proceeds from the offering for general corporate purposes, including working capital and capital expenditures. The offering was made pursuant to an effective registration statement on Form S-3 and related prospectus (File No. 333-171946) declared effective by the SEC on March 7, 2011, a prospectus supplement dated March 28, 2013, and related other filings with the SEC.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of cash and cash equivalents

The following is a summary of our cash and cash equivalents at March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013		December 31, 2012
Cash and cash equivalents:
Cash	$	3,436	$	2,854
Money market funds	1,640		1,640
Total cash and cash equivalents	$	5,076	$	4,494

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COMMITMENTS AND CONTINGENCIES - Lease Commitments (Details) In Thousands, unless otherwise specified	3 Months Ended		0 Months Ended		1 Months Ended		1 Months Ended
	Mar. 31, 2013 USD ($)	Mar. 31, 2012 USD ($)	Feb. 01, 2013 Building Campbell, California, corporate headquarters USD ($) sqft	Oct. 02, 2009 Building Campbell, California, corporate headquarters sqft	Sep. 30, 2011 Building Austin, Texas	Mar. 31, 2012 Building Austin, Texas USD ($) sqft	Nov. 30, 2009 Building Godalming, United Kingdom	Mar. 31, 2013 Building Godalming, United Kingdom USD ($)	Dec. 31, 2012 Building Godalming, United Kingdom sqft	Mar. 31, 2012 Building Godalming, United Kingdom GBP (£)
Lease commitments:
Area of leased space (in sqft)				16,430		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
Operating Leases, Base Rent in Current Lease Year, Net of Discount			321
Annual percentage of gross rent increase			3.00%
Security deposit liability			40
Annual rent expense due						212
Monthly rent expense due						18
Base rent in current lease year								43		28
Rent expense under operating leases	$ 153	$ 203

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Summary of the activity of the fair value of the Level 3 liabilities

A summary of the activity of the fair value of the Level 3 liabilities for the three months ended March 31, 2013 and 2012 is as follows (in thousands):

	Beginning Value of Level 3 Liabilities		Transfers In (Out)			Loss(Gain) on Fair Value Re- measurement			Foreign Currency Adjustment		Ending Fair Value of Level 3 Liabilities
2013
Common stock warrant liability	$	348	$	—		$	(225	)	$	—	$	123
2012
Contingent consideration — Optima (1)	225		(225		)	—			—		—
Common stock warrant liability	517		—			(7		)	—		510

____________

(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 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.

Fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis

The following table represents the fair value hierarchy for our financial assets and liabilities held by us measured at fair value on a recurring basis (in thousands):

	Level 1		Level 2		Level 3
March 31, 2013
Assets:
Money market funds (1)	$	1,640	$	—	$	—
Liabilities:
Common stock warrant liability (2)	$	—	$	—	$	123
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.

Assumptions used to measure the accrued warrant liability

The following are the assumptions used to measure the accrued warrant liability at March 31, 2013 and December 31, 2012, which were determined in a manner consistent with that described for stock option awards as set forth in Note 8:

	March 31,		December 31,
	2013		2012
Expected life in years	3.25		3.50
Volatility	65.99	%	65.99	%
Risk-free interest rate	0.36	%	0.34	%
Dividend rate	—	%	—	%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Goodwill (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Goodwill, accumulated impairment loss	$ 11,500,000	$ 11,500,000
Goodwill	$ 5,244,000	$ 5,300,000	$ 5,337,000

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SUBSEQUENT EVENTS (Details) (USD $) In Millions, unless otherwise specified	1 Months Ended	0 Months Ended
	Jun. 30, 2011	Apr. 05, 2013 Subsequent event
Subsequent events:
Stock issued during period (in shares)		13.0
Proceeds from issuance of common stock	$ 3.3	$ 5.8
Proceeds from issuance of common stock, net		$ 5.5

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Operating activities:
Net loss	$ (3,294)	$ (1,474)
Adjustment for income (loss) from discontinued operations, net of tax	(156)	276
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of property and equipment	406	376
Amortization of intangible assets	0	28
Loss (gain) due to change in fair value of warrant liability	(225)	(7)
Stock-based compensation expense	979	187
Credit for allowance for doubtful accounts	0	(31)
Provision for allowances for other assets	280	0
Changes in operating assets and liabilities:
Accounts receivable	567	764
Prepaid expenses and other assets	(462)	45
Accounts payable	2,046	1,082
Accrued compensation and benefits	623	133
Other accrued liabilities	721	(377)
Income tax payable	15	40
Deferred tax liability	11	17
Deferred revenue	(320)	(588)
Net cash provided by continuing operations	1,191	471
Net cash provided by discontinued operations	121	112
Net cash provided by operating activities	1,312	583
Investing activities:
Purchases of property and equipment	(352)	(257)
Restricted cash, net	(165)	(4)
Net cash used in continuing operations	(517)	(261)
Net cash used in discontinued operations	0	(97)
Net cash used in investing activities	(517)	(358)
Financing activities:
Proceeds from borrowings	200	0
Repayment of borrowings	(320)	(593)
Net proceeds on overdraft facility	0	2
Tax payments in connection with treasury stock surrendered	(79)	(159)
Net cash used in continuing operations	(199)	(750)
Net cash used in discontinued operations	0	(24)
Net cash used in financing activities	(199)	(774)
Effect of exchange rate changes on cash	(14)	(94)
Net increase (decrease) in cash and cash equivalents	582	(643)
Cash and cash equivalents at beginning of period		4,494
Cash and cash equivalents at end of period	5,076	7,847
Supplemental disclosures of cash flow information:
Cash paid for interest	57	58
Cash paid for income taxes	$ 3	$ 4

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LONG-TERM DEBT OBLIGATIONS (Notes)

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Long-term Debt Obligations

LONG-TERM DEBT OBLIGATIONS

Long-term debt consists of the following (in thousands):

	March 31, 2013			December 31, 2012
Comerica term loan	$	2,700		$	3,000
Comerica revolving line	1,693			1,493
Notes payable – insurance	14			34
Total notes payable	4,407			4,527
Less: current portion	(2,907		)	(2,727		)
Total notes payable, less current portion	$	1,500		$	1,800

Comerica Bank Credit Facility

On June 14, 2012, the Company entered into a Loan and Security Agreement with Comerica Bank (the "Credit Facility"), replacing Bridge Bank, N.A. as the Company's primary lender. 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 March 31, 2013 there was $2.7 million outstanding under the Term Loan and $1.7 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. 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 rate on our Term Loan and Revolving Line were 5.50% and 4.75%, respectively, as of March 31, 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 March 31, 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 March 31, 2013, the remaining liability under this financing agreement was $14,000.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition (Details) (Subscription arrangement)	3 Months Ended
	Mar. 31, 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

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FAIR VALUE MEASUREMENTS (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013 Common stock warrant	Dec. 31, 2012 Common stock warrant	Mar. 31, 2013 Measured at fair value on a recurring basis Level 1		Dec. 31, 2012 Measured at fair value on a recurring basis Level 1		Mar. 31, 2013 Measured at fair value on a recurring basis Level 1 Money market funds		Dec. 31, 2012 Measured at fair value on a recurring basis Level 1 Money market funds	Mar. 31, 2013 Measured at fair value on a recurring basis Level 2		Dec. 31, 2012 Measured at fair value on a recurring basis Level 2		Mar. 31, 2013 Measured at fair value on a recurring basis Level 2 Money market funds		Dec. 31, 2012 Measured at fair value on a recurring basis Level 2 Money market funds		Mar. 31, 2013 Measured at fair value on a recurring basis Level 3	Dec. 31, 2012 Measured at fair value on a recurring basis Level 3	Dec. 31, 2011 Measured at fair value on a recurring basis Level 3 Optima	Mar. 31, 2013 Measured at fair value on a recurring basis Level 3 Money market funds		Dec. 31, 2012 Measured at fair value on a recurring basis Level 3 Money market funds
Assets:
Cash and cash equivalents, fair value							$ 1,640	[1]	$ 1,640					$ 0	[1]	$ 0	[1]				$ 0	[1]	$ 0	[1]
Liabilities:
Common stock warrant liability, fair value			0	[2]	0	[2]				0	[2]	0	[2]					123	348
Contingent consideration, fair value																				$ 225
Assumptions used to measure the accrued warrant liability:
Expected life in years	3 years 3 months	3 years 6 months
Volatility	65.99%	65.99%
Risk-free interest rate	0.36%	0.34%
Dividend rate	0.00%	0.00%

[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.

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LONG-TERM DEBT OBLIGATIONS (Tables)

3 Months Ended

Mar. 31, 2013

Debt Disclosure [Abstract]

Components of long-term debt

Long-term debt consists of the following (in thousands):

	March 31, 2013			December 31, 2012
Comerica term loan	$	2,700		$	3,000
Comerica revolving line	1,693			1,493
Notes payable – insurance	14			34
Total notes payable	4,407			4,527
Less: current portion	(2,907		)	(2,727		)
Total notes payable, less current portion	$	1,500		$	1,800