10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________

FORM 10-K

(MARK ONE)

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE FISCAL YEAR ENDED: DECEMBER 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 CAMPBELL, CALIFORNIA	95008
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (408) 626-3800

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Names of Each Exchange on which Registered
Common Stock, $0.001 par value per share	None

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.    Yes  ¨    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No ý

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  ý    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  ý    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company  ý

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

The aggregate market value of common stock held by non-affiliates of the registrant was approximately $16 million as of June 28, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, based upon the closing sales price of the registrant’s common stock reported by the Nasdaq Capital Market on that date. For purposes of this disclosure, shares of common stock held by persons who hold more than 10% of the outstanding shares of common stock and shares held by officers and directors of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

At March 25, 2014, the registrant had 42,582,731 shares of common stock, $0.001 par value, outstanding.

Documents Incorporated by Reference: None

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 “Risk Factors,” that may cause our 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.

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

• our ability to raise additional equity or debt financing,

• our ability to restructure our debt,

• our ability to execute our business strategy,

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

• the possibility of the discontinuation of some client relationships,

• market acceptance of our solutions and pricing options,

• our ability to acquire new clients and increase demand,

• our ability to control costs,

• 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,

• 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,

• 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,

• potential competition in the marketplace,

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

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

• the financial condition of our clients’ businesses,

• the protection of our intellectual property,

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

• and other factors as detailed in Part I Item 1A—“Risk Factors” of this Annual Report on Form 10-K.

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.

RAINMAKER SYSTEMS, INC.

TABLE OF CONTENTS

		Page
PART I.
Item 1.	Business	4
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosures	19
PART II.
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	63
Item 9A.	Controls and Procedures	63
Item 9B.	Other Information	64
PART III.
Item 10.	Directors, Executive Officers and Corporate Governance	64
Item 11.	Executive Compensation	64
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	64
Item 13.	Certain Relationships and Related Transactions, and Director Independence	64
Item 14.	Principal Accounting Fees and Services	64
PART IV.
Item 15.	Exhibits, Financial Statement Schedules	72
	Signatures	76

PART I

ITEM 1. BUSINESS

Introduction

Rainmaker Systems, Inc. and its subsidiaries (“Rainmaker”, “we”, “our”, or the “Company”) is focused on serving large business enterprises to help them increase sales to small and medium sized businesses. The Company's services include lead generation services, SMB sales and contract renewals and the management of outside training for profit.

We have developed an integrated solution, the Rainmaker Revenue Delivery Platform^SM, that combines specialized sales and marketing services coupled with our proprietary, renewals software and business analytics. Our services include marketing strategy development, personalized renewals or subscription e-commerce and microsite creation and hosting, inbound and outbound e-mail, direct mail, chat, and high-end global call center services.

Our ViewCentral SaaS platform provides an end-to-end solution for the management and delivery of training and certification programs, or training-as-a-business, for corporations. The ViewCentral Learning Management System ("LMS") platform is a SaaS, cloud based, on-demand, training management system, available 24x7 with no software installation. This self-service platform is highly configurable, so our customers utilize only the modules they need, branded as they choose. Designed specifically to automate time-consuming manual administration and to maximize training participation, the ViewCentral suite contains tools for before, during and after course delivery.

Recent Events

In January 2010, we acquired Optima Consulting Partners Limited (“Optima”), a B2B lead development provider with offices then in the United Kingdom, France, and Germany. During 2010, we integrated our European operations into one primary office in the United Kingdom and closed our Canadian call center facility.

On December 17, 2012, we completed a stock purchase agreement with Shore Solutions Inc. (“Shore”) pursuant to which we agreed to sell our Manila-based operations of Rainmaker Systems, Ltd. and its wholly owned subsidiary, Rainmaker Asia, Inc. (together, "Manila" or "RSL"). Under the stock purchase agreement, we received an initial cash payment at closing of $845,000. In addition to the closing payment, we may receive additional contingent consideration based on multiple earn-out provisions included within the stock purchase agreement, which provide us 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 in the year ending December 31, 2013. The loss on disposal of discontinued operations for the sale of RSL recorded in the year ended December 31, 2012 is based on its net book value as of December 17, 2012.

On January 25, 2013, we announced the closure of our Austin, Texas facility as operations were to be consolidated in our headquarters in Campbell, California and our United Kingdom location as part of a strategic reallocation of resources designed to increase levels of service to customers and operating cost savings.

In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross cash proceeds of approximately $5.8 million. The $5.5 million of net cash proceeds from the offering were used for general corporate purposes, including working capital and capital expenditures.

Symantec Corporation has elected not to renew its customer contracts with the Company, which expire on March 31, 2014.

Overview

Global Client Services

The Company provides an integrated solution to the complex sales and marketing needs of our clients. We believe our solution helps our clients address the challenges created by changing industry conditions more efficiently and effectively than traditional approaches. Our Revenue Delivery Platform combines (1) our renewals technology options for end-to-end management of the customer lifecycle, (2) on-demand hosted marketing campaign delivery technologies (3) data development and analytics services and (4) our global client sales and delivery services.

We deliver a high value service to our clients' customers in a cost effective manner while delivering channel friendly ways designed to increase online sales. The scalability of our solution enables us to sell in over 34 languages from sales centers around the globe. Our solution is designed to help provide optimized service revenue performance across different revenue models, distribution models and segments within technology and technology-enabled industries, including hardware, software, software-as-a-service and telecommunications.

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The capabilities of our Revenue Delivery Platform fall into three broad areas: integration and enhancement of our clients’ customer or prospect data; marketing strategy development and execution; and result delivery to our clients or their partners, typically either a qualified lead or a closed sale. While these capabilities are individually useful to our clients, we believe that they are significantly more valuable and effective when provided as part of our integrated solution. Our Revenue Delivery Platform’s capabilities are described more fully below:

Data Integration and Enhancement.    At the launch of a client engagement, we are typically either provided with a customer list or are asked to source and identify qualified prospects from our client’s website or a website we develop using our client’s branding. We take these lists and profile, cleanse and supplement the data with information from third party databases. The data cleansing and integration process improves the financial, contact and other relevant information that is used in our marketing processes. This process can be applied equally to prospect information and to our client’s current customer information which is often not updated with regard to financial and key decision maker information.

Marketing Strategy Development and Execution.    We develop multi-channel sales and marketing strategies which integrates a combination of e-mail, direct mail, chat and telesales. Our clients trust us to use their brand on the microsites, landing pages or portals, and the multi-channel marketing materials that we develop in the execution of our services and in all interactions with their customers. Our technology enables us to create integrated marketing approaches to allow our clients’ customers to obtain key information and purchase our clients’ products and services online. We believe this integration differentiates our solution from the approaches many companies are taking to solve these complex sales and marketing challenges.

Customer Deliverables and Integration.    Our data integration and enhancement capabilities and our ability to contact customers and prospects using our marketing strategy execution services enable us to deliver to our clients or their partners closed sales of service contracts, software licenses and subscriptions, warranty renewals, or qualified leads. These transactions require tight integration with our clients’ systems to allow us to pass the leads to the appropriate sales force or enter the sale and contract information correctly. We have invested significantly in developing the technology to enable us to create these integrations when we sign new clients.

In support of our Revenue Delivery Platform we offer a suite of marketing automation and analytics software and services to enable us and our clients to measure the effectiveness of our data integration and enhancement technologies and our marketing strategy development and execution. Our analytic services allows us to quickly determine what is working and what may require optimization of a particular campaign, and make adjustments to improve efficiency even while a campaign is ongoing. In addition, we frequently review past activity to better understand buying patterns so that we can identify more valuable leads for our clients and design more effective sales processes, marketing campaigns and materials in the future.

We believe that we compete effectively by combining:

• our multi-channel direct marketing capability, which includes marketing campaigns through e-mail, chat, personalized microsites or customer portals, inbound and outbound calling, email, and direct mail;

• our data analytics expertise;

• the efficiency of our business processes and the expertise and knowledge of our staff; and

• our proficiency in integrating our renewals technology platform with our clients’ technology systems.

View Central Learning Management System

Our ViewCentral Learning Management System is a solution that enables organizations to monetize and facilitate the delivery of training and certification programs, powering them to capture both incremental and recurring revenue from subscriptions-based offerings. The ViewCentral solution a sophisticated and integrated set of tools that automates the management and business processes of training programs, and delivers them via a cloud-based service available on-demand. Time-consuming manual administration tasks are eliminated, allowing for training participation to be maximized, and greater revenue generated.

The ViewCentral software is an end-to-end solution for managing and delivering training by integrating with an enterprise’s business processes, including back-end financial systems, which allows for easier management of payments and revenue recognition. Full reporting features enable training statistics to be correlated to follow-on sales, improved partner and revenue center tracking, lower support costs and many other business metrics. Equally important are tracking and reporting features that help our customers manage their revenue and the related expenses such as vendor costs.

The ViewCentral software provides course delivery workflows, including:

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• Pre-Training: Scheduling and publishing course catalogs, course marketing, registration and payment, workflow and email reminders/confirmations;

• In-Training: Live in-classroom, live at third party site, live virtual classroom, webinars and podcasts, recorded and archived courses, self-paced e-learning; and

• Post-Training: Student surveys, certifications, revenue reporting and reconciliation, CRM/ERP integration and cross-sell and up-sell marketing.

Our customers who use the ViewCentral platform have achieved higher attendance and greater training revenues through targeted and timely communications, automated registration and confirmation and training management best practices. In addition, they are able to provide continuous improvement of their external training programs through pre- and post-training polling and surveys, sophisticated tracking and reporting and business analysis tools.

When utilizing the ViewCentral solution, our customers have been able to reduce costs through streamlined, automated handling of event administration and logistics including registration, virtual or in-person seat reservation, payment and reimbursement. The platform offers features that help our customers track and report on schedule-level expenses and vendor costs-including POs, invoices and related costs. The platform provides improved visibility of the training business impact plus compliance data to meet regulatory requirements through automated tracking and reporting.

Strategy

Our objective is to be the leading global provider of B2B sales and marketing solutions in selected markets. Key elements of our strategy include:

• More Revenue for Our Existing Clients.    We continually seek to identify areas where we can apply technology and our expertise to improve renewal rates and sell higher levels of service and online training on behalf of our clients.

• Cross-Sell Opportunities with Existing Clients.    We continually seek cross-selling opportunities to increase the range of services provided to our existing clients, most of which currently use our services to support only selected product or customer segments. Our growth strategy includes seeking opportunities to expand our services within our existing customer base. We believe our clients desire to reduce the number of vendors they utilize, therefore providing us significant cross-sales opportunities to expand our services to our existing clients.

• Sign New Clients.    Our focus on specific sectors enables us to employ industry experts, pursue targeted sales and marketing campaigns, develop effective marketing and customer retention programs, and capitalize on referrals from existing clients.

• Enhance Technology and Add New Products and Services.    We believeour integrated approach, which marries integrated marketing with online cloud-based selling with the human element of global sales agents to ensure our clients are positioned to “make the sale” regardless of the end user's preferred contact method, is a powerful competitive edge. Nevertheless, we plan to continue to enhance our technological capability with new products and services that deliver high value to our clients' customers in a cost effective manner.

In addition to strategically expanding our reach, we believe approaching the right target market segments is also a factor in our success. Our target markets include:

• Platform and management companies characterized as software and hardware systems and tools needed to run any major business;

• Operations and professional groups in software and services businesses;

• Product manufacturing and service delivery businesses; and

• Data management and information services companies.

Together these target markets represent a market size of more than 5,000 brands. The key elements these brands have in common include:

• They sell a product or a service with a recurring revenue stream;

• They sell B2B into a defined SMB segment;

• There is an intellectual property component to our clients' products as they are not individual purchase commodity items;

• They sell direct, through channel partners, or a combination of both; and

• They utilize trial programs.

Our Clients

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Our clients consist of large enterprises in a range of industries, including hardware, software, software as a service and telecommunications, selling into their SMB market. Our clients typically have large customer bases and products and services that require complex selling processes to generate sales, thereby enabling them to benefit from our focused sales and marketing programs to assist them to generate more revenue.

We have generated a significant portion of our revenue from sales to customers of a limited number of clients. In the year ended December 31, 2013, three clients each accounted for 10% or more of our net revenue, with Microsoft Corporation ("Microsoft") representing approximately 43% of our net revenue, Symantec Corporation ("Symantec") representing approximately 24% of our net revenue and Hewlett-Packard Company ("Hewlett-Packard") representing approximately 10% of our net revenue. In the year ended December 31, 2012, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 35% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 11% of our net revenue. In the year ended December 31, 2011, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 22% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 14% of our net revenue.

Sales and Marketing

We market our products and services through a direct sales force. We also have an opportunity to cross-sell our solutions to our existing clients. We use direct marketing, public relations and trade association programs to communicate our offerings to potential clients. Our sales professionals typically have significant enterprise-level sales experience. The sales team is responsible for developing new clients, as well as new opportunities with existing clients. We support the sales process with cross-functional representation from other departments, including operations, finance, client marketing, data services and technology. We also support this effort with product management professionals responsible for continued development and enhancement of our service offerings.

Competition

The market for sales and marketing solutions is intensely competitive, evolving rapidly and highly fragmented. We believe the following factors are the principal methods of competition in our market:

• Ability to offer integrated sales and marketing solutions, including Internet telesales and other media;

• Sales and marketing focus and domain expertise;

• Product performance, scalability and reliability;

• Breadth and depth of solutions;

• Strong reference customers;

• Return on investment; and

• Total cost of ownership.

In addition to the competitors listed below, we face competition from internal departments of current and potential clients. The competition we encounter includes:

• Solutions designed to sell service and renewal contracts and provide lead generation services from companies such as ServiceSource and Maintenance.net;

• Providers of business databases, data processing and database marketing services such as Harte-Hanks and infoUSA;

• Subscriptions and e-commerce capabilities from companies such as Digital River, Elastic Path, and Hybris; and

• Companies that offer training management systems, such as Cornerstone and Saba.

Many of our current and potential competitors have significantly greater financial, technical, marketing, service and other resources than we have. In addition, many of these companies also have a larger installed base of users, longer operating histories and greater name recognition than we have. Competitors with greater financial resources may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond quickly to new technologies and may be able to undertake more extensive marketing campaigns.

Given our products, along with our sales and marketing solutions that address a company's needs at each customer contact point, we believe we have a competitive advantage in our space. While these solutions are available on an individual basis through other vendors, we are not aware at this time of other vendors that provide a comparable end-to-end solution such as ours. Purchasing individual solutions from multiple vendors would require investment, technical integration, and expert personnel. Thus, we believe we deliver a strong end-to-end solution among a sea of individually competitive products.

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Technology and Development

We employ technology and development personnel who maintain and develop the software and hardware platforms that support our marketing and sales operations. We collect customer input and conduct regular internal reviews to identify areas for improvement of our existing processes and systems as well as opportunities for development of new service offerings. Our technology platforms are based on a combination of internally developed proprietary software and commercially available hardware and software.

Employees

As of December 31, 2013, we employed approximately 150 employees. This compares to approximately 130 employees as of December 31, 2012. None of our employees are represented by labor unions or are subject to collective bargaining agreements, nor have we experienced any work stoppage. We consider our relationships with our employees to be good.

Intellectual Property

We protect our intellectual property through a combination of service mark, trade name and copyright protection, trade secret protection and confidentiality agreements with our employees and independent contractors, and have procedures to control access to and distribution of our technology, documentation and other proprietary information and the proprietary information of our clients. We do not own or have rights with respect to any patents or patent applications. Effective trade name, trademark, service mark, copyright and trade secret protection may not be available in every country in which our services and products are made available on the Internet. The steps we take to protect our proprietary rights may not be adequate and third parties may infringe or misappropriate our copyrights, trade names, trademarks, service marks and similar proprietary rights. In addition, other parties may assert claims of infringement of intellectual property or other proprietary rights against us. The legal status of many aspects of intellectual property on the Internet is currently uncertain. We have applied to register the “Rainmaker Systems,” “Rainmaker” and design marks in the U.S. and certain foreign countries, and have received registrations for the “Rainmaker Systems” mark in the U.S., Canada, Australia, the European Community, Switzerland and Norway, and the “Rainmaker” mark and design in the U.S., Canada, Mexico and the European Community.

Government Regulation

We are subject, both directly and indirectly, to various laws and governmental regulations relating to our business. In addition, laws with respect to online commerce may cover issues such as pricing, distribution, characteristics and quality of products and services. Laws affecting the Internet may also cover content, copyrights, libel and personal privacy. Any new legislation or regulation or the application of existing laws and regulations to the Internet could have a material adverse effect on our business. Our costs of compliance with environmental laws are not material.

Governments of various states and certain foreign countries may attempt to regulate our transmissions or levy sales or other taxes relating to our activities. As our services are available over the Internet virtually anywhere in the world, multiple jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each of those jurisdictions. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties for the failure to qualify. It is possible that state and foreign governments might also attempt to regulate our transmissions of content on our website or prosecute us for violations of their laws. We cannot assure you that state or foreign governments will not charge us with violations of local laws or that we might not unintentionally violate these laws in the future.

A number of government authorities are increasingly focusing on online personal data privacy and security issues and the use of personal information. Our business could be adversely affected if new regulations regarding the use of personal information are introduced or if government authorities choose to investigate our privacy practices. In addition, the European Union has adopted directives addressing data privacy that may limit the collection and use of some information regarding Internet users. Such directives may limit our ability to target our clients' customers or to collect and use such information.

Our business is also subject to regulation in connection with our direct marketing activities. The Federal Trade Commission's(“FTC”) telesales rules prohibit misrepresentations of the cost, terms, restrictions, performance or duration of products or services offered by telephone solicitation and specifically addresses other perceived telesales abuses in the offering of prizes. Additionally, the FTC's rules and various state laws limit the hours during which telemarketers may call consumers and which consumers may be called. The Federal Telephone Consumer Protection Act of 1991 contains other restrictions on facsimile transmissions and on telemarketers, including a prohibition on the use of automated telephone dialing equipment to call certain telephone numbers. The Federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 contains restrictions on the content and distribution of commercial e-mail. A number of states also regulate telesales and some states have enacted restrictions similar to these federal laws. In addition, a number of states regulate e-mail and facsimile transmissions. State regulations of telesales, e-mail and facsimile transmissions may be more restrictive than federal laws. The failure to comply with applicable statutes and

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regulations could have a material adverse effect on our business. There can be no assurance that additional federal or state legislation, or changes in regulatory implementation or judicial interpretation of existing or future laws, would not limit our activities in the future or significantly increase the cost of regulatory compliance.

Corporate Information

We were founded in 1991 and are headquartered in the Silicon Valley in Campbell, California. As of December 31, 2013, we have an operation center outside of London, England. On January 25, 2013, we announced that our operations in Austin, Texas would be consolidated into our operations at our headquarters in the Silicon Valley and in our operations center outside of London, England. We are incorporated in Delaware. Our principal office is located at 900 East Hamilton Ave., Suite 400, Campbell, CA 95008 and our phone number is (408) 626-3800. Our website is www.rainmakersystems.com. We make available, free of charge, on or through our website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission, or SEC. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.

ITEM 1A. RISK FACTORS

Risks Related to Our Business

We will need to raise additional capital to meet our operating requirements, which might not be available to us on acceptable terms, if at all.

We will need to secure additional capital to fund our operating requirements. To date, we have raised capital through both equity and debt financings. On April 25, 2007, we completed a follow-on public offering of our common stock in which we issued an additional 3.5 million shares and raised approximately $27 million in net proceeds. In June 2011, we issued and sold 3.7 million shares of our common stock, together with warrants to purchase up to an aggregate 1.6 million additional shares, in a public offering and raised gross cash proceeds of approximately $3.9 million. In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross proceeds of approximately $5.8 million.

At December 31, 2013, the Company had a net working capital deficit of $14.5 million. Our principal source of liquidity as of December 31, 2013 consisted of $3.6 million of cash and cash equivalents and $3.6 million of net accounts receivable. Our debt balance as of December 31, 2013 was $3.6 million, consisting of $3.0 million owing to Comerica Bank and $500,000 owing to Agility Capital II, LLC. Our loans owing to Comerica Bank are due on May 1, 2014. Our loans owing to Agility Capital II, LLC are due on May 1, 2014, commensurate with the Comerica Bank loans. Our accounts payable balance increased from $7.2 million as of December 31, 2012 to $13.0 million as of December 31, 2013. $11.1 million of the December 31, 2013 accounts payable balance is related to a merchant account of a customer that has elected not to renew its contract.

Any additional equity financing will be dilutive to stockholders, and additional debt financing, if available, may involve restrictive covenants and interest expense that will affect our financial results. We need to raise substantial additional capital through the issuance of equity securities, debt financing and /or the sale of assets to have sufficient liquidity to meet our planned operating requirements, which raises substantial doubt about our ability to continue as a going concern and pay our liabilities as they become due. If we are unable to raise sufficient additional capital, it would jeopardize our current operations and future business plans, and will require us to curtail our operations. External financing sources may not be available, may be inadequate to fund our operations, or may be on terms unfavorable to the Company. See further discussion of our ability to continue as a going concern in Note 1 to our consolidated financial statements and under "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Sources of Capital".

We have incurred recent losses and may incur losses in the future.

We have incurred recent losses and have an accumulated deficit through December 31, 2013. We cannot guarantee that our future operations will result in net income. A failure to increase future revenues will harm our business. If our revenues grow more slowly than we anticipate or our operating expenses exceed our expectations, our operating results will suffer.

A further discussion of our plans to achieve profitable operations and continue as a going concern appears in Note 1 to our consolidated financial statements and under "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Sources of Capital". Our future viability is dependent on our ability to execute these plans successfully. If we fail to do so, we would not have adequate liquidity to fund our operations and continue as a going concern.

Our loan agreements with Comerica Bank and Agility Capital mature on May 1, 2014. If we are unable to refinance or restructure our existing indebtedness with Comerica Bank and Agility Capital, we might not have or be able to obtain

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sufficient cash to repay such indebtedness when due. In addition, we are subject to certain financial covenants under our loan agreements with Comerica Bank and Agility Capital. If we are unable to satisfy these covenants or obtain a waiver, the lenders could demand immediate repayment of their loans made to us.

On June 14, 2012, we entered into a Loan and Security Agreement with Comerica Bank (the “Comerica Credit Facility”), which replaced Bridge Bank, N.A. as our primary lender. The maximum amount of credit available to us under the Comerica Credit Facility at inception was $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. The Comerica Credit Facility is secured by substantially all of our consolidated assets. As of December 31, 2013, $3.0 million was outstanding under the Comerica Credit Facility, consisting of the $1.8 million outstanding under the Term Loan and $1.2 million outstanding under the Revolving Line. On October 30, 2013, we entered into a Loan Agreement with Agility Capital II, LLC (“Agility Capital”), providing for a revolving line of credit of up to $500,000, which amount may be increased to $650,000 under certain conditions (the “Agility Credit Facility”). The Agility Credit Facility is secured by substantially all of our consolidated assets and is subordinated to the Comerica Credit Facility. As of December 31, 2013, $500,000 was outstanding under the Agility Credit Facility. The Comerica Credit Facility and the Agility Credit Facility matured by their terms on December 14, 2013.

On February 27, 2014, Comerica Bank issued a notice of default as the Revolving Line was still outstanding. The notice of default also stated that Comerica Bank would not take any action to enforce its rights and remedies under the Comerica Credit Facility but reserved the right to do so in the future. On February 28, 2014, Agility Capital issued a notice of default due to the notice of default received from Comerica Bank. As a result of the notice of default, the interest rate on advances under the Agility Credit Facility increased to 18% and the Company paid a default fee of $10,000. On March 19, 2014, the Company and Comerica Bank entered into a forbearance agreement pursuant to which Comerica Bank agreed to extend the scheduled maturity date of the Revolving Line until May 1, 2014. In addition, under the terms of the forbearance agreement, (i) the amounts outstanding under the Term Loan are due on May 1, 2014, coterminous with the Revolving Line, (ii) advances under the Revolving Line are limited to $1,000,000 at any time outstanding, (iii) restricted cash in the amount of $1,562,000 will be held in a segregated deposit account at Comerica Bank as additional collateral for the Term Loan, (iv) effective March 1, 2014, the applicable margin for the Revolving Line was increased to two and one quarter percent (2.25%), and for the Term Loan was decreased to one and one half percent (1.50%), and (v) the Company must satisfactorily address a material accounts payable owed to a customer by April 1, 2014. It is uncertain that we will be able to meet the commitment to address the material accounts payable owed to a customer. Commensurate with the Comerica Credit Facility, the scheduled maturity date of the Agility Credit Facility was extended to May 1, 2014. If we are unable to refinance or restructure our indebtedness owed to Comerica Bank and Agility Capital prior to their maturity, we may not have or be able to obtain sufficient cash to repay such indebtedness when due and we would be in default of the loan agreements governing such indebtedness. If Comerica Bank or Agility Capital were to demand repayment, our business, financial condition and results of operations would be significantly harmed and we may be unable to continue as a going concern.

In addition, we must comply with certain financial covenants under the Comerica Credit Facility and the Agility Credit Facility, including maintaining a minimum liquidity ratio with respect to all indebtedness owing to Comerica Bank of at least 1.25 to 1.00. The Comerica Credit Facility and the Agility Credit Facility also contain customary covenants that will, subject to limited exceptions, require Comerica Bank' s and Agility Capital’ 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 Comerica Credit Facility and the Agility Credit Facility also provide 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 Comerica Credit Facility and the Agility Credit Facility. If we are not able to comply with such covenants or if any event of default otherwise occurs, our outstanding loan balances could become due and payable immediately and our existing credit facilities with Comerica Bank and Agility Capital could be canceled. Unless we are able to obtain a waiver from Comerica Bank and Agility Capital for any covenant violations, our business, financial condition and results of operations would be significantly harmed and we may be unable to continue as a going concern. As of December 31, 2013, we were not in compliance with all loan covenants as we were past due on the repayment of the amounts outstanding under the Revolving Line. The maturity date of the Revolving Line was extended to May 1, 2014 as discussed above.

Because we depend on a small number of clients for a significant portion of our revenue, the loss of a single client or any significant reduction in the volume of services we provide to any of our significant clients would result in a substantial decrease in our revenue and have a material adverse impact on our financial position.

In the year ended December 31, 2013, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 43% of our net revenue, Symantec representing approximately 24% of our net revenue and Hewlett-Packard representing approximately 10% of our net revenue. In the year ended December 31, 2012, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 35% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 11% of our net revenue. In the year ended

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December 31, 2011, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 22% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 14% of our net revenue.

Symantec has elected not to renew its customer contracts with the Company, which expire on March 31, 2014.

We expect that a small number of clients will continue to account for a significant portion of our net revenue for the foreseeable future. The loss of any of our significant clients or client initiated changes to our client programs may cause a significant decrease in our revenue. In addition, our software and technology clients operate in industries that experience consolidation from time to time, which could reduce the number of our existing and potential clients. Any loss of a single significant client or changes to client programs may have a material adverse effect on our financial position, cash flows and results of operations.

Our clients may, from time to time, restructure their businesses or get acquired by another company, which may adversely impact the revenues we generate from those clients. Any restructuring, termination or non-renewal of our services by any of our significant clients could reduce the volume of services we provide and further reduce our expected future revenues, which would likely have a material adverse effect on our financial position, cash flows and results of operations.

Our business plan requires us to effectively manage our costs. If we do not achieve our cost management objectives, our financial results could be adversely affected.

Our business plan and expectations for the future require that we effectively manage our cost structure, including our operating expenses and capital expenditures. To the extent that we do not effectively manage our costs, our financial results may be adversely affected.

Macro-economic conditions could negatively impact our results of operations.

Unfavorable macro-economic conditions have contributed in the past to our clients reducing their overall marketing spending and our clients’ customers reducing their purchases of our clients’ products and services. If the economic climate in the U.S. or abroad does not continue to improve from its current condition or deteriorates, our clients or prospective clients could reduce or delay their purchases of our services, and our clients’ customers could reduce or delay their purchases of our clients’ products and services, which would adversely impact our revenues and our profitability.

We have strong competitors and may not be able to compete effectively against them.

Competition in our industry is intense, and such competition may increase in the future. Our competitors include e-commerce service providers of service contract sales and lead generation services, enterprise application software providers, providers of database marketing services, online marketing services and companies that offer training management systems. We also face competition from internal marketing and technology departments of current and potential clients. Additionally, for portions of our service offering, we may face competition from outsource providers with substantial offshore facilities which may enable them to compete aggressively with similar service offerings at a substantially lower price. Many of our existing or potential competitors have greater brand recognition, longer operating histories, and significantly greater financial, technical and marketing resources, which could further impact our ability to address competitive pressures. Should competitive factors require us to increase spending for, and investment in, client acquisition and retention or for the development of new services, our expenses could increase disproportionately to our revenues. Competitive pressures may also necessitate price reductions and other actions that would likely affect our business adversely. Additionally, there can be no assurances that we will have the resources to maintain a sufficient level of spending to address changes in the competitive landscape. Failure to maintain or to produce revenue proportionate to any increase in expenses would have a negative impact on our financial position, cash flows and operating results.

Our agreements with our clients allow for termination with short notice periods.

Our agreements generally allow our clients to terminate such agreements without cause with 30 to 90 day's notice. Our clients are under no obligation to renew their engagements with us when their contracts come up for renewal. In addition, our agreements with our clients are generally not exclusive. Our agreements with Microsoft expire at various dates from June 2014 through June 2015, and generally can be terminated with thirty day's notice. Our agreements with Hewlett-Packard expire in October 2014 to March 2018 and can be terminated prior to expiration with sixty day's notice. Symantec has elected not to renew its customer contracts with the Company, which expire on March 31, 2014.

Our revenue will decline if demand for our clients’ products and services decreases.

A significant portion of our business consists of marketing and selling our clients’ products and services to their customers. In addition, a significant percentage of our revenue is based on a “revenue share” and “pay for performance” model in which our

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revenue is based on the revenue we generate for our clients or the amount of our clients’ products and services that we sell. Accordingly, if a particular client’s products and services fail to appeal to its customers for reasons beyond our control, such as preference for a competing product or service, our revenue may decline. In addition, revenue from our service offerings could decline if our clients reduce their marketing efforts.

Any efforts we may make in the future to expand our service offerings may not succeed.

To date, we have focused our business on providing our service offerings to enterprises in selected markets that retain our services in an effort to market and sell their offerings to their business customers. We may seek to expand our service offerings in the future to other markets, including other geographical areas and industry verticals or seek to provide other related services to our clients. Any such effort to expand could cause us to incur significant investment costs and expenses which may not generate significant revenue growth. In addition, any efforts to expand could divert management resources from existing operations and require us to commit significant financial and other resources to unproven businesses.

We have signed clients to our channel contract sales solution to increase revenue from our clients’ resellers. While this solution has been adopted by a number of resellers of our clients, there is no assurance that all major resellers will use this solution, which may limit us from achieving the full revenue potential of this solution.

We have made significant investments in technology systems used in our business operations. Such assets are subject to reviews for impairment in the event they are not fully utilized.

We have made significant investments in technology and system improvements related to servicing clients and capitalized those costs while the technology was being developed. We have invested $11 million in e-commerce technology and system improvements, which are generally amortized over two to five years. If events or circumstances prohibit us from using these systems, we may be forced to impair one or more of these systems, which could result in a non-cash impairment charge to our financial results. For the year ended December 31, 2013, we recorded an impairment charge of $2.3 million related to such assets supporting our e-commerce platform. We expect to invest additional amounts into technology and system improvements in the future which would bear similar risks.

Any acquisitions or strategic transactions in which we participate could result in dilution, unfavorable accounting charges and difficulties in successfully managing our business.

As part of our business strategy, we review from time to time acquisitions or other strategic transactions that would complement our existing business or enhance our technology capabilities. Future acquisitions or strategic transactions could result in potentially dilutive issuances of equity securities, the use of cash, large and immediate write-offs, the incurrence of debt and contingent liabilities, amortization of intangible assets or impairment of goodwill, any of which could cause our financial performance to suffer. Furthermore, acquisitions or other strategic transactions entail numerous risks and uncertainties, including:

• difficulties assimilating the operations, personnel, technologies, products and information systems of the combined companies;

• diversion of management’s attention;

• risks of entering geographic and business markets in which we have no or limited prior experience; and

• potential loss of key employees of acquired organizations.

We perform a valuation analysis on all of our acquisitions as a basis for initially recognizing and measuring intangible assets including goodwill in our financial statements. We are required to test for impairment the carrying value of our goodwill at the reporting unit level at least annually, and we are required to test for impairment the carrying value of goodwill as well as our other intangible assets that are subject to amortization and our tangible long-lived assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Such events or changes in circumstances may include a persistent decline in stock price and market capitalization, reduced future cash flow estimates, loss of key customers and slower growth rates in our industry.

We performed our annual goodwill impairment evaluation for 2013 as of December 31, 2013, and concluded that goodwill was impaired as the carrying value exceeded the estimated implied fair value and an impairment charge of $5.4 million was recorded in the year ended December 31, 2013. At December 31, 2013, we had $0 in goodwill recorded on our consolidated balance sheet. In the future, our test of impairment could result in further adjustments, or in write-downs or write-offs of assets, which would negatively affect our financial position and operating results.

We cannot be certain that we would be able to successfully integrate any operations, personnel, technologies, products and information systems that might be acquired in the future, and our failure to do so could have a material adverse effect on our financial position, cash flows and operating results.

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Our business strategy may include further expansion into foreign markets, which would require increased expenditures, and if our international operations are not successfully implemented, they may not result in increased revenue or growth of our business.

On January 25, 2007, we acquired the business of CAS Systems, which had operations near Montreal, Canada. In the first quarter of 2009, we established our Rainmaker Europe subsidiary in the United Kingdom. On January 29, 2010, we acquired Optima, headquartered near London, England. Our growth strategy may include further expansion into international markets. Our international expansion may require significant additional financial resources and management attention, and could have a negative effect on our financial position, cash flows and operating results. In addition, we may be exposed to associated risks and challenges, including:

• regional and economic political conditions;

• foreign currency fluctuations;

• different or lesser protection of intellectual property rights;

• longer accounts receivable collection cycles;

• different pricing environments;

• difficulty in staffing and managing foreign operations;

• laws and business practices favoring local competitors; and

• foreign government regulations.

We cannot guarantee that we will be successful in creating international demand for our services or that we will be able to effectively sell our clients’ products and services in international markets.

Our growth and success depend, in part, on our ability to add new clients.

Key elements of our growth strategy include adding new clients, extending the term of existing client agreements and growing the business of our existing clients. Competition for clients is intense, and we may not be able to add new clients or keep existing clients on favorable terms, or at all. If we are unable to add and launch new clients within the time frames projected by us, we may not be able to achieve our targeted results in the expected periods.

Our success depends on our ability to successfully restructure our business and manage growth.

We have recently undergone changes in our executive management team. Our Chief Executive Officer, Donald Massaro, joined the Company in December 2012, and the Chief Financial Officer, Bradford Peppard, joined the Company in that position in October 2013. Our new executive management team has undertaken a restructuring of the Company's operations aimed at repositioning the Company for future growth. Execution of the plan by the new management team to restructure and reposition the business is essential to future growth. In addition, any future growth will place additional demands on our managerial, administrative, operational and financial resources. We will need to improve our operational, financial and managerial controls and information systems and procedures and will need to train and manage our overall work force. If we are unable to successfully implement our restructuring plan or manage additional growth effectively, our business, financial condition and results of operations will be significantly harmed.

The length and unpredictability of the sales and integration cycles could cause delays in our revenue growth.

Selection of our services and software can entail an extended decision making process on the part of prospective clients. We often must educate our potential clients regarding the use and benefit of our services and software, which may delay the evaluation and acceptance process. For our SaaS solutions, the selling cycle can extend to approximately 9 to 12 months or longer between initial client contact and signing of an agreement. Once our services and software are selected, integration with our clients’ systems can be a lengthy process, which further impacts the timing of revenue. Because we are unable to control many of the factors that influence our clients’ buying decisions or the integration process of our services and software, it is difficult to forecast the growth and timing of our revenue recognition.

Our quarterly operating results may fluctuate, and if we do not meet market expectations, our stock price could decline.

Our future operating results may not follow past trends in every quarter. In any future quarter, our operating results may fall below the expectations of public market analysts and investors.

Factors which may cause our future operating results to be below expectations include:

• the growth of the market for our sales and marketing solutions;

• the demand for and acceptance of our services;

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• the demand for our clients’ products and services;

• the length of the sales and integration cycle for our new clients;

• our ability to expand relationships with existing clients;

• our ability to develop and implement additional services, products and technologies;

• the success of our direct sales force;

• our ability to retain existing clients;

• the granting of additional stock options and/or restricted stock awards resulting in additional stock-based compensation expense;

• new product and service offerings from our competitors;

• general economic conditions;

• regulatory compliance costs;

• seasonality in our sales;

• dependence on key personnel and employee turnover; and

• the loss of a significant client.

We may experience seasonality in our sales, which could cause our quarterly operating results to fluctuate from quarter to quarter.

As we continue to grow our service offerings, we will experience seasonal fluctuations in our revenue as our customers' spending on marketing can be stronger in some quarters than others partially due to our customers' budget and fiscal schedules. In addition, since certain of our service offerings have lower gross margins than our other service offerings, we may experience quarterly fluctuations in our financial performance as a result of a seasonal shift in the mix of our service offerings.

If we are unable to attract and retain highly qualified board members, management, sales and technical personnel, the quality of our services may decline, and our ability to execute our growth strategies may be harmed.

Our success depends, to a significant extent, upon the contributions of our board members, executive officers and key sales and technical personnel and our ability to attract and retain highly qualified sales, technical and managerial personnel. Competition for personnel is intense as these personnel are limited in supply. We have at times experienced difficulty in recruiting qualified personnel, and there can be no assurance that we will not experience difficulties in the future, which could limit our future growth. The loss of members of our board of directors or certain key personnel could seriously harm our business.

We rely heavily on our communications infrastructure, and the failure to invest in or the loss of these systems could disrupt the operation and growth of our business and result in the loss of clients or our clients’ customers.

Our success is dependent in large part on our continued investment in sophisticated computer, internet and telecommunications systems. We have invested significantly in technology and anticipate that it will be necessary to continue to do so in the future to remain competitive. These technologies are evolving rapidly and are characterized by short product life cycles, which require us to anticipate technology developments. We may be unsuccessful in anticipating, managing, adopting and integrating technology changes on a timely basis, or we may not have the capital resources available to invest in new technologies.

Our operations could suffer from telecommunications or technology downtime, disruptions or increased costs.

In the event that one of our operations facilities has a lapse of service or damage to such facility, our clients could experience interruptions in our service as well as delays, and we might incur additional expense in arranging new facilities and services. Our disaster recovery computer hardware and systems located at our facilities in California and the United Kingdom have not been tested under actual disaster conditions and may not have sufficient capacity to recover all data and services in the event of an outage occurring at one of our operations facilities. In the event of a disaster in which one of our operations facilities is irreparably damaged or destroyed, we could experience lengthy interruptions in our service. While we have not experienced extended system failures in the past, any interruptions or delays in our service, whether as a result of third party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with clients and our reputation. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could damage our brand and reputation, divert our employees’ attention, reduce our revenue, subject us to liability, cause us to issue credits or cause clients to fail to renew their contracts, any of which could adversely affect our business, financial condition and results of operations. Temporary or permanent loss of these systems could limit our ability to conduct our business and result in lost revenue.

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Defects or errors in our software could harm our reputation, impair our ability to sell our services and result in significant costs to us.

Our software is complex and may contain undetected defects or errors. We have not suffered significant harm from any defects or errors to date, but we have from time to time found defects in our software and we may discover additional defects in the future. We may not be able to detect and correct defects or errors before releasing software. Consequently, we or our clients may discover defects or errors after our software has been implemented. We have in the past implemented, and may in the future need to implement, corrections to our software to correct defects or errors. The occurrence of any defects or errors could result in:

• our inability to execute our services on behalf of our clients;

• delays in payment to us by customers;

• damage to our reputation;

• diversion of our resources;

• legal claims, including product liability claims, against us;

• increased service and warranty expenses or financial concessions; and

• increased insurance costs.

Our liability insurance may not be adequate to cover all of the costs resulting from any legal claims. Moreover, we cannot assure you that our current liability insurance coverage will continue to be available on acceptable terms or that the insurer will not deny coverage as to any future claim. The successful assertion against us of one or more large claims that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business and operating results. Furthermore, even if we succeed in any litigation, we are likely to incur substantial costs and our management’s attention will be diverted from our operations.

If we are unable to safeguard our networks and clients’ data, our clients may not use our services and our business may be harmed.

Our networks may be vulnerable to unauthorized access, computer hacking, computer viruses and other security problems. An individual who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in our operations. We may be required to expend significant resources to protect against the threat of security breaches or to alleviate problems caused by any breaches. Security measures that we adopt from time to time may be inadequate.

If we fail to adequately protect our intellectual property or face a claim of intellectual property infringement by a third party, we may lose our intellectual property rights and be liable for significant damages.

We cannot guarantee that the steps we have taken to protect our proprietary rights and information will be adequate to deter misappropriation of our intellectual property. In addition, we may not be able to detect unauthorized use of our intellectual property and take appropriate steps to enforce our rights. If third parties infringe or misappropriate our trade secrets, copyrights, trademarks, service marks, trade names or other proprietary information, our business could be seriously harmed. In addition, third parties may assert infringement claims against us that we violated their intellectual property rights. These claims, even if not true, could result in significant legal and other costs and may be a distraction to management. In addition, protection of intellectual property in many foreign countries is weaker and less reliable than in the U.S., so if our business further expands into foreign countries, risks associated with protecting our intellectual property will increase.

Taxing authorities could challenge our historical and future tax positions as well as our allocation of taxable income among our subsidiaries.

The amount of income taxes we pay is subject to our interpretation of applicable tax laws in the jurisdictions in which we file. We have taken and will continue to take tax positions based on our interpretation of such tax laws. While we believe that we have complied with all applicable income tax laws, there can be no assurance that a taxing authority will not have a different interpretation of the law and assess us with additional taxes. We have been audited from time to time and should additional taxes be assessed, this may result in a material adverse effect on our results of operations or financial condition.

We conduct sales, marketing, and other services through our subsidiaries located in various tax jurisdictions around the world. While our transfer pricing methodology is based on economic studies which we believe are reasonable, the price charged for these services could be challenged by the various tax authorities resulting in additional tax liability, interest and/or penalties.

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Our business may be subject to additional obligations to collect and remit sales tax and any successful action by state, foreign or other authorities to collect additional sales tax could adversely harm our business.

We file sales tax returns in certain states and municipalities within the U.S. as required by law and collect and remit sales tax on certain client contracts for a portion of the sales and marketing services that we provide. We do not collect sales or other similar taxes in other states and many of the states do not apply sales or similar taxes to the vast majority of the services that we provide. However, one or more states could seek to impose additional sales or use tax collection and record-keeping obligations on us. Any successful action by state, foreign or other authorities to compel us to collect and remit sales, use or similar taxes, either retroactively, prospectively or both, could adversely affect our results of operations and business.

We are from time to time involved in litigation incidental to our business, which in the event of an adverse determination could have a material adverse effect on our business, financial condition or results of operations.

From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty and in the case of more complex legal proceedings, such as intellectual property and securities litigation, the results are difficult to predict at all. We may incur substantial expenses and devote substantial time to defend these claims as they arise, whether or not such claims are meritorious. In addition, in the event of a determination adverse to us, we may incur substantial monetary liability and may be required to implement changes in our business practices, which could have a material adverse effect on our business, financial condition or results of operations. See Item 3 — “Legal Proceedings” for a description of any pending legal proceedings against us.

Risks Related to Our Industry and Other Risks

We operate in a rapidly changing industry and have recently entered new lines of business, all of which make our operating results difficult to predict.

The industry in which we operate is rapidly changing and evolving. The evolution of this industry makes our risks, capital needs and operating results difficult to predict. Any failure to adapt our services in response to changing market and technological requirements could adversely affect our operating results. In 2009, we acquired the e-commerce technology of Grow Commerce. We had entered into new lines of business to integrate the Grow Commerce assets to advance our SaaS strategies. We will be required to devote substantial financial, technical, managerial and other resources to such new lines of business and cannot ensure that they will be successful.

We are subject to government regulation of distribution and direct marketing, which could restrict the operation and growth of our business.

The FTC’s telesales rules prohibit misrepresentations of the cost, terms, restrictions, performance or duration of products or services offered by telephone solicitation and specifically address other perceived telemarketing abuses in the offering of prizes. Additionally, the FTC’s rules limit the hours during which telemarketers may call consumers. The Federal Telephone Consumer Protection Act of 1991 contains other restrictions on facsimile transmissions and on telemarketers, including a prohibition on the use of automated telephone dialing equipment to call certain telephone numbers. The Federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 contains restrictions on the content and distribution of commercial e-mail. A number of states also regulate telemarketing and some states have enacted restrictions similar to these federal laws. In addition, a number of states regulate e-mail and facsimile transmissions. State regulations of telesales, e-mail and facsimile transmissions may be more restrictive than federal laws. Additionally, our renewals and e-commerce services are subject to U.S. and foreign export laws and regulations. Any failure by us to comply with applicable statutes and regulations could result in penalties and/or restrictions on our ability to provide services. There can be no assurance that additional federal or state legislation, or changes in regulatory implementation or judicial interpretation of existing or future laws, would not limit our activities in the future or significantly increase the cost of regulatory compliance.

The demand for sales and marketing services is highly uncertain.

Demand and acceptance of our sales and marketing services is dependent upon companies’ willingness to allow third parties to provide these services. It is possible that these solutions may never achieve broad market acceptance. If the market for our services does not grow or grows more slowly than we anticipate at any time, our business, financial condition and operating results may be materially adversely affected.

Increased government regulation of the Internet could decrease the demand for our services and increase our cost of doing business.

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The increasing popularity and use of the internet and online services may lead to the adoption of new laws and regulations in the U.S. or elsewhere covering issues such as online privacy, copyrights and trademarks, sales taxes and fair business practices, or which require qualification to do business as a foreign corporation in certain jurisdictions. Increased government regulation, or the application of existing laws to online activities, could inhibit Internet growth. A number of government authorities are increasingly focusing on online personal data privacy and security issues and the use of personal information. Our business could be adversely affected if new regulations regarding the use of personal information are introduced or if government authorities choose to investigate our privacy practices. In addition, the European Union has adopted directives addressing data privacy that may limit the collection and use of some information regarding Internet users. Such directives may limit our ability to target our clients’ customers or collect and use information. A decline in the growth of the Internet could decrease demand for our services and increase our cost of doing business and otherwise harm our business.

Failure by us to achieve and maintain effective internal control over financial reporting in accordance with the rules of the SEC could harm our business and operating results and/or result in a loss of investor confidence in our financial reports, which could in turn have a material adverse effect on our business and stock price.

We are required to comply with the management certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We are required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency or combination of deficiencies that results in a reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. If we fail to continue to comply with the requirements of Section 404, we might be subject to sanctions or investigation by regulatory authorities such as the SEC. In addition, failure to comply with Section 404 or the report by us of a material weakness may cause investors to lose confidence in our consolidated financial statements, and our stock price may be adversely affected as a result. If we fail to remedy any material weakness, our consolidated financial statements may be inaccurate, we may face restricted access to the capital markets and our stock price may be adversely affected.

Terrorist acts and acts of war may harm our business and revenue, costs and expenses, and financial position.

Terrorist acts or acts of war may cause damage to our employees, facilities, clients, our clients’ customers and vendors which could significantly impact our revenues, costs and expenses, financial position and results of operations. The potential for future terrorist attacks, the national and international responses to terrorist attacks or perceived threats to national security, and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations in ways that cannot be presently predicted. We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war.

Risks Associated with Our Stock

Our charter documents and Delaware law contain anti-takeover provisions that could deter takeover attempts, even if a transaction would be beneficial to our stockholders.

Our certificate of incorporation and bylaws and certain provisions of Delaware law may make it more difficult for a third party to acquire us, even though an acquisition might be beneficial to our stockholders. For example, our certificate of incorporation provides our board of directors the authority, without stockholder action, to issue up to 5,000,000 shares of preferred stock in one or more series. Our board determines when we will issue preferred stock and the rights, preferences and privileges of any preferred stock. Our certificate of incorporation also provides for a classified board, with each board member serving a staggered three-year term. In addition, our bylaws establish an advance notice procedure for stockholder proposals and for nominating candidates for election as directors. Delaware law also contains provisions that can affect the ability of a third party to take over a company. For example, we are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, unless certain conditions are met. Section 203 may discourage, delay or prevent an acquisition of our company even at a price our stockholders may find attractive.

Our common stock price is volatile.

During the year ended December 31, 2013, the price for our common stock fluctuated between $0.23 per share and $0.95 per share. During the year ended December 31, 2012, the price for our common stock fluctuated between $0.55 per share and $1.37 per share. The trading price of our common stock may continue to fluctuate widely for reasons including:

• quarter to quarter variations in results of operations;

• loss of a major client;

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• changes in the economic environment which could reduce our potential;

• announcements of technological innovations by us or our competitors;

• changes in, or our failure to meet, the expectations of securities analysts;

• new products or services offered by us or our competitors;

• changes in market valuations of similar companies;

• announcements of strategic relationships or acquisitions by us or our competitors;

• other events or factors that may be beyond our control;

• dilution resulting from the raising of additional capital; or

• other factors discussed elsewhere in this Item 1A—“Risk Factors”.

In addition, the securities markets in general have experienced extreme price and trading volume volatility in the past. The trading prices of securities of companies in our industry have fluctuated broadly, often for reasons unrelated to the operating performance of the specific companies. These general market and industry factors may adversely affect the trading price of our common stock, regardless of our actual operating performance.

Our stock price is volatile, and we could face securities class action litigation. In the past, following periods of volatility in the market price of their stock, many companies have been the subjects of securities class action litigation. If we were sued in a securities class action, it could result in substantial costs and a diversion of management’s attention and resources and could cause our stock price to fall.

We may have difficulty obtaining director and officer liability insurance in acceptable amounts for acceptable rates.

We cannot assure that we will be able to obtain in the future sufficient director and officer liability insurance coverage at acceptable rates and with acceptable deductibles and other limitations. Failure to obtain such insurance could materially harm our financial condition in the event that we are required to defend against and resolve any future securities class actions or other claims made against us or our management. Further, the inability to obtain such insurance in adequate amounts may impair our future ability to retain and recruit qualified officers and directors.

Shares eligible for sale in the future could negatively affect our stock price.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock or the perception that these sales could occur. This might also make it more difficult for us to raise funds through the issuance of securities. As of December 31, 2013, we had 41.5 million outstanding shares of common stock which included 582,000 unvested shares issued pursuant to restricted stock awards granted to certain employees and directors. These restricted shares will become available for public sales subject to the respective employees’ and directors’ continued employment or service with the Company over vesting periods of not more than four years. In addition, there were an aggregate of 4.5 million shares of common stock issuable upon exercise of outstanding stock options and warrants, including 2.7 million shares of common stock issuable upon exercise of options outstanding under our option plan and 1.8 million shares of common stock issuable upon exercise of the outstanding warrants issued to the investors in our June 2011 equity offering and issued to Agility Capital II, LLC in October 2013. The 2011 warrants have a five-year term from issuance and the Agility warrants have a seven-year term. We may issue and/or register additional shares, options, or warrants in the future in connection with acquisitions, employee compensation or otherwise.

If securities or industry analysts do not publish research or reports about our business, or if they issue an adverse or misleading opinion regarding our stock, our stock price and trading volume could decline.

The trading market for our common stock is influenced by the research and reports that industry or securities analysts may publish about us or our business. Presently, analysts do not publish reports on us on a regular basis, which in turn may have an adverse effect on our stock price or trading volume. If any of the analysts who cover us now or in the future issue an adverse opinion regarding our stock, our stock price would likely decline. If one or more of these analysts ceases coverage of the Company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our administrative, sales, marketing and domestic call center operations are located in one location totaling 27,131 square feet in Campbell, California. This location is covered by a lease, which expires in 2016.

Our European call center operations are located in one location totaling 5,000 square feet in Godalming, England. This location is covered by a lease, which expires in 2015.

ITEM 3. 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 sought full payment of severance benefits in the amount of approximately $1.0 millon, plus compensation for unused vacation, related penalties and punitive damages. On March 21, 2013, the Company filed a responsive pleading in the arbitration proceedings. On May 15, 2013, the American Arbitration Association appointed an arbitrator. Thereafter, Mr. Silton withdrew his arbitration claim and on May 22, 2013, filed a complaint against the Company in the Santa Clara Superior Court. The allegations and causes of action were the same as the complaint filed with the American Arbitration Association. On July 5, 2013, the Company filed an answer to Mr. Silton's complaint and a cross-complaint against Mr. Silton. On or about August 1, 2013, Mr. Silton filed an answer to the cross-complaint. Between July and December 2013, the parties served and responded to written discovery requests and produced documents. In January 2014, the parties agreed to proceed to mediation. On January 28, 2014, the parties reached a settlement at mediation and executed a confidential settlement agreement. Pursuant to the settlement agreement, and in exchange for a release of claims, Mr. Silton received a payment from the Company's insurer and 1,000,000 shares of the Company's common stock. A portion of the payment and the shares of common stock was paid to Mr. Silton's legal counsel. After effectuating the terms of the settlement, the case was formally dismissed on March 17, 2014. In connection with the settlement agreement, the Company recorded a charge of $200,000 in the year ended December 31, 2013.

On July 9, 2013, YKnot Holdings LLC (“YKnot”) filed a complaint seeking damages against the Company in the Santa Clara Superior Court alleging breach of contract and related causes of action arising from the eCommerce Processor Agreement (the “Agreement”) entered into by YKnot and the Company in January 2012.  The central allegation in the complaint alleged that the Company failed to timely pay over certain reserves held by the Company against chargebacks and returns relating to YKnot's products in accordance with the Agreement.  On August 12, 2013, the Company filed an answer to the complaint and filed a cross-complaint against YKnot.  In January 2014, the parties agreed to proceed to mediation. On January 28, 2014, the parties reached a settlement at mediation and executed a settlement agreement pursuant to which the Company and YKnot agreed to a mutual "walk away" settlement and release with no money or other consideration paid to either party.

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, results of operations or cash flows. See Item 1A— “Risk Factors” for additional discussion of the litigation and regulatory risks facing our Company.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the OTCQX marketplace under the symbol “RMKR”. The following table lists the high and low sale prices for our common stock for each full quarterly period within the two most recent fiscal years as reported on the OTCQX marketplace beginning on August 7, 2013 and on the Nasdaq Stock Market prior to August 7, 2013.

	Q1	Q2	Q3	Q4
2013
High	$0.95	$0.58	$0.60	$0.60
Low	$0.43	$0.33	$0.33	$0.23
2012
High	$0.89	$0.86	$1.24	$1.37
Low	$0.60	$0.55	$0.75	$0.60

As of March 25, 2014, we had approximately 99 common stockholders of record. On March 25, 2014, the last reported sale price of our common stock on the OTCQX marketplace was $0.20 per share.

Dividend Policy

We have never declared or paid any cash dividends on our common stock. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. In addition, covenants in our Credit Facilities described below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” limit our ability to pay cash dividends.

Issuer Purchases of Equity Securities

During the twelve months ended December 31, 2013, the Company had restricted stock awards that vested. The Company is required to withhold income taxes at statutory rates based on the closing market value of the vested shares on the date of vesting. The Company offers employees the ability to sell their vested shares to the Company in an amount equal to the amount of the income taxes to be withheld. Based on this, the Company purchased 273,724 shares during the twelve months ended December 31, 2013, with a cost of approximately $149,000 from employees to cover federal and state taxes due.

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

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
October 1, 2013 - October 31, 2013	1,660	$0.45	N/A	N/A
November 1, 2013 - November 30, 2013	40,243	$0.40	N/A	N/A
December 1, 2013 - December 31, 2013	695	$0.25	N/A	N/A
Total	42,598	$0.40	N/A	N/A

Sales of Unregistered Securities

On October 30, 2013, the Company issued a warrant to Agility Capital II, LLC to purchase 216,667 shares of the Company's common stock. The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. See Note 6 to our consolidated financial statements for further discussion of the warrant issued to Agility Capital II, LLC. On December 30, 2013, the Company issued 40,000 shares of the Company's common stock to a consultant.  The issuance was exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. 

ITEM 6. SELECTED FINANCIAL DATA

Not applicable for smaller reporting companies.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains forward-looking statements within the meaning of Section 72A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual events and/or future results of operations may differ materially from those contemplated by such forward-looking statements, as a result of the factors described herein, and in the documents incorporated herein by reference, including those factors described under Item 1A—“Risk Factors.”

Overview

The accompanying consolidated financial statements include the accounts of Rainmaker Systems, Inc. and its wholly-owned subsidiaries.

The Company is focused on serving large business enterprises to help them increase sales to small and medium sized businesses. The Company's services include lead generation services, SMB sales and contract renewals and the management of outside training for profit.

We have developed an integrated solution, the Rainmaker Revenue Delivery Platform^SM, that combines specialized sales and marketing services with our proprietary, renewals software and business analytics. Our services include marketing strategy development, personalized renewals or subscription e-commerce and microsite creation and hosting, inbound and outbound e-mail, direct mail, chat, and high-end global call center services.

Our ViewCentral SaaS platform provides an end-to-end solution for the management and delivery of training and certification programs, or training-as-a-business, for corporations. The ViewCentral Learning Management System platform is a SaaS, cloud based, on-demand, training management system, available 24x7 with no software installation. This self-service platform is highly configurable, so our customers utilize only the modules they need, branded as they choose. Designed specifically to automate time-consuming manual administration and to maximize training participation, the ViewCentral suite contains tools for before, during and after course delivery.

We are headquartered in the Silicon Valley in Campbell, California, and have additional operations outside of London, England. We also utilize outsourced service providers located in the Dominican Republic and the Philippines. Our global clients consist primarily of large enterprises operating in a range of industries, including hardware, software, software-as- a-service and telecommunications, selling into their SMB market.

Our strategy for long-term, sustained growth is to maintain and improve our position as a leading global provider of B2B sales and marketing solutions in selected markets. A key aspect of this enhanced solution is to provide our clients a way to partner with Rainmaker on a scalable, repeatable and reliable sales model. This enables our clients to turn customer contacts into revenue generating opportunities while simplifying otherwise complex sales and marketing needs. We operate as a seamless extension of our clients' sales and marketing teams incorporating their brands and trademarks and leveraging business practices to amplify existing efforts.

Background

We completed our initial public offering in November 1999, raising net proceeds of approximately $37 million. During the period from the initial public offering through 2004, we focused on expanding our market share of the sale of service contracts for our clients.

In February 2005, we completed our first acquisition, Sunset Direct, which added a new service offering—the generation of sales leads, or lead generation, for clients. Sunset Direct provided us with new clients for our service contract sales solution. We relocated most of our operations from California to Sunset Direct’s lower cost location in Texas.

Our acquisition of ViewCentral, our Learning Management System solution, in September 2006 added hosted application software for training sales to our service offerings and a significant new customer base.

In January 2007, we acquired CAS Systems to provide additional complementary lead development functionality, customers, execution expertise and an international presence with its location near Montreal, Canada. In July 2007, we purchased all of the outstanding stock of Qinteraction Limited, which operated an offshore call center located in the Philippines. Qinteraction provided a variety of business solutions including inbound sales and order taking, inbound customer care, outbound telemarketing and lead generation, logistics support and back-office processing. The nature of these services was highly complementary to our other product offerings.

In October 2009, we acquired the e-commerce technology of Grow Commerce. Grow Commerce provided hosting of fan club and membership websites that offered monthly subscriptions and the ability for fee-based downloading of music, videos and

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other items. Additionally, the technology offered the ability to route orders of merchandise for fulfillment. Since this acquisition, we have invested in this technology to add significant B2B e-commerce functionality.

In January 2010, we acquired Optima Consulting Partners Limited (“Optima”), a B2B lead development provider with offices then in the United Kingdom, France, and Germany. During 2010, we integrated our European operations into one primary office in the United Kingdom and closed our Canadian call center facility.

On December 17, 2012, we completed a stock purchase agreement with Shore Solutions Inc. (“Shore”) pursuant to which we agreed to sell our Manila-based operations of Rainmaker Systems, Ltd. and its wholly owned subsidiary, Rainmaker Asia, Inc. (together, "Manila" or "RSL") Under the stock purchase agreement, we received an initial cash payment at closing of $845,000. In addition to the closing payment, we may receive additional contingent consideration based on multiple earn-out provisions included within the stock purchase agreement, which provide us 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 in the year ending December 31, 2013. The loss on disposal of discontinued operations for the sale of RSL recorded in the year ended December 31, 2012 is based on its net book value as of December 17, 2012.

On January 25, 2013, we announced the closure of our Austin, Texas facility as operations were to be consolidated in our headquarters in Campbell, California and our United Kingdom location as part of a strategic reallocation of resources designed to increased levels of service to customers and operating cost savings. On May 10, 2013, the Company agreed to terminate the Austin facility lease effective September 15, 2013. During the year ended December 31, 2013, the Company recorded a charge of $179,000 related to the Austin facility closure.

On January 31, 2013, we executed a fourth amendment to the operating lease for our corporate headquarters in Campbell, California, effective February 1, 2013, providing an additional 3,936 square feet of additional space. The amendment did not modify the 3-year term, effective December 1, 2012. 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 in 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 irrevocable standby letter of credit issued to the landlord was reduced to $40,000 for a security deposit. On July 2, 2013, we executed the fifth amendment to the Campbell operating lease effective July 1, 2013, providing an additional 6,771 square feet of space. The fifth amendment to the Campbell operating lease did not change the terms of the leas as previously amended. Annual base rent under the amended lease is approximately $536,000 in the first year of the lease and increased by 3% each year thereafter for the remaining term. The fifth amendment to the Campbell operating lease increased the irrevocable standby letter of credit issued to the landlord to $61,000.

On April 1, 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and received gross proceeds of approximately $5.8 million. The $5.5 million of net cash proceeds from the offering were used for general corporate purposes, including working capital and capital expenditures.

We reported net revenue of $26.4 million in 2011, representing a decline over the prior year due primarily to customer losses including the loss of Sun Microsystems, a significant client in 2010. We reported a net loss of $11.0 million for 2011.

We reported net revenue of $25.4 million in 2012, representing a 4% decline over the prior year due primarily the loss of Sun Microsystems during 2010. We reported a net loss of $10.3 million for 2012.

We reported net revenue of $17.7 million in 2013, representing a 30% decline over the prior year due primarily to elimination of non-strategic client programs and contract terminations. We reported a net loss of $21.0 million for 2013.

See discussion of our ability to continue as a going concern in Note 1 to our consolidated financial statements and under "Liquidity and Sources of Capital" below.

Net Revenue

We derive substantially all of our revenue from (i) the online sale of our clients' products to their SMB customers, (ii) the sale of our clients' service contracts and maintenance renewals, (iii) lead development and other telesales services, and (iv) software subscriptions for hosted Internet sales of web-based training.

Product and Service Contract Renewals (Contract Sales).    We sell, on behalf of our clients, (i) our clients' products through online sales and (ii) our clients’ service contracts and maintenance renewals. We earn commissions on the sale of these services to our clients’ customers, which we report as our net revenue. We are typically responsible for the complete sales process, including marketing and customer identification and order processing. We also take responsibility for collecting the amount paid by our clients' customers. As a result, when we complete a sale, we record the full amount of the sale on our balance sheet as accounts

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receivable. We record revenue for the commissions we earn on the transaction, which is based on a fixed percentage of the amount payable by our clients’ customer based on the agreement with our client. We record the difference between the sale amount and our commission as an account payable, representing the amount we will remit to our client according to our payment terms. Our clients’ customers pay us by credit card, check or on payment terms which are generally 30 days from sale. None of our clients’ customers represented more than 10% of our net revenue in 2013. Because our revenue is commission-based, it can vary significantly. Our agreements with our clients for these services typically have one- to three-year terms, with automatic renewal provisions. These agreements are generally terminable on 90 days' notice by either party.

We also provide hosted application software which enables our clients’ resellers to renew service contracts with end-users directly. In these situations we earn commissions on sales by our clients or their resellers but take no responsibility or credit risk for collection from the end user of the services.

Lead Development and Other Telesales Services.    We provide lead development and other telesales services to generate, qualify and develop corporate leads, turning these prospects into sales opportunities and qualified appointments for our clients’ field sales forces and for their channel partners. Our agreements with our clients are generally for fixed fees, have terms ranging from three months to one year and require us to provide fixed resources for the term of the contract. Some of our contracts contain performance requirements. For the significant majority of our lead generation and other telesales service agreements, we recognize revenue as our services are provided; for our performance based contracts, we recognize revenue as we meet the performance objectives. To the extent that our clients pay us in advance of the provision of services, we record deferred revenue and recognize the revenue ratably over the contract period. These agreements are generally terminable on 30 days notice by either party.

Application Software (Training Sales).    We license our hosted application software that our clients use to manage their online and in-person training programs. The licenses are usually for one to three year terms, and are often fully or annually paid in advance. These advance payments are recorded as deferred revenue, and recognized ratably over the contract period.

Gross Margin

Gross margin is calculated as net revenue less the costs associated with selling our clients’ products and services or delivering our services to our clients. Cost of services include compensation costs of telesales personnel, telesales commissions and bonuses, outsourced call center services, costs of designing, producing and delivering marketing services, credit card fees, bad debts, and salaries and other personnel expenses related to fee-based activities. Costs of services also include the cost of allocated facility and telephone usage for our telesales representatives as well as other direct costs associated with the delivery of our services. Cost of services related to training sales relates primarily to the cost of personnel to support our hosted application. Most of the costs of services are personnel related and are mostly variable in relation to our net revenue. Bonuses and sales commissions will typically change in proportion to net revenue or profitability. Commission and bonus expense included in gross margin are typically related to incentives paid to our telesales representatives for incremental sales of our clients’ contracts and leads generated. Our gross margin will fluctuate in the future with changes in our product mix.

Sales and Marketing Expenses

Sales and marketing expenses are primarily costs associated with client acquisition, including compensation costs of marketing and sales personnel, sales commissions, marketing and promotional expenses, and participation in trade shows and conferences. Commission expense included in sales and marketing expenses relates to the variable compensation paid to our sales people who generate sales growth from new and existing clients. The sales cycle required to generate new clients varies within our product mix. In some cases, the lead time to create a new client can be substantial and we will incur sales and marketing costs for efforts that may not be successful.

Technology and Development Expenses

Technology and development expenses include costs associated with the technology infrastructure that support our solutions. These costs include compensation and related costs for technology personnel, consultants, purchases of non-capitalizable software and hardware, and support and maintenance costs related to our systems. We also invest in the continued development of our solutions. Costs related to development of internal use software are capitalized and depreciated over its useful life of two to five years. Technology and development expenses do not include depreciation of hardware and software systems.

General and Administrative Expenses

General and administrative expenses include costs associated with the administration of our business and consist primarily of compensation and related costs for administrative personnel, insurance, and legal, audit and other professional fees.

Depreciation and Amortization Expenses

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Depreciation and amortization expenses consist of depreciation and amortization of property, equipment, software licenses and intangible assets. We have completed the acquisition of several businesses in the past five years, and accordingly have been amortizing the intangible assets, other than goodwill, acquired in these transactions.

Interest and Other Expense, Net

Interest and other expense, net, reflects income received on cash and cash equivalents, interest expense on debt and capital lease agreements, foreign currency gains/losses and other income and expense.

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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.

	Year Ended December 31,
	2013		2012		2011
Net revenue	100.0	%	100.0	%	100.0	%
Cost of services	69.5		56.8		58.2
Gross margin	30.5	%	43.2	%	41.8	%
Operating expenses:
Sales and marketing	19.3		7.8		14.7
Technology and development	31.3		21.9		28.3
General and administrative	49.7		21.5		29.6
Depreciation and amortization	9.6		6.5		9.0
Impairment of long-lived assets	13.2		—		—
Impairment of goodwill	30.4		—		—
Loss (gain) on fair value re-measurement	—		—		0.2
Total operating expenses	153.5	%	57.7	%	81.8	%
Operating loss	(123.0	)	(14.5	)	(40.0	)
Gain due to change in fair value of warrant liability	(1.9	)	(0.7	)	(1.1	)
Interest and other expense, net	1.7		0.9		0.7
Loss before income tax (benefit) expense	(122.8	)%	(14.7	)%	(39.6	)%
Income tax (benefit) expense	(3.7	)	1.0		0.1
Net loss from continuing operations	(119.1	)%	(15.7	)%	(39.7	)%
Net income (loss) from discontinued operations (including loss on disposal in 2012)	0.3		(24.9	)	(2.0	)
Net loss	(118.8	)%	(40.6	)%	(41.7	)%
Foreign currency translation adjustments	(0.4	)	1.3		(1.7	)
Comprehensive loss	(119.2	)%	(39.3	)%	(43.4	)%

Comparison of the Years Ended December 31, 2013 and 2012

Net Revenue. Net revenue decreased$7.7 million, or 30%, to $17.7 million in the year ended December 31, 2013, as compared to the year ended December 31, 2012. The decrease in net revenue is attributable to the elimination of non-strategic client programs and contract terminations of $8.2 million, a reduction in our e-commerce platform volume of $757,000, and lower ViewCentral Learning Management System revenue of $503,000 due to client attrition offset by growth in telesales volume of $1.9 million.

Cost of Services and Gross Margin. Cost of services decreased$2.1 million or 15%, to $12.3 million in the year ended December 31, 2013, as compared to the 2012 comparative period primarily due to lower revenue as described above. Our gross margin percentage was 30% and 43%, respectively, in the years ended December 31, 2013 and 2012. The decline in gross margin was primarily due to costs associated with the one time charge of transitioning call center agents from our Austin, Texas facility to our UK facility and declines in our higher margin contract renewals and ViewCentral Learning Management System businesses.

Sales and Marketing Expenses. Sales and marketing expenses increased$1.4 million, or 72%, to $3.4 million in the year ended December 31, 2013, as compared to the 2012 comparative period. The increase was primarily attributable to an increase in personnel costs of $1.0 million and increases in marketing and public relations costs of $261,000.

Technology and Development Expenses. Technology and development expenses were flat with a slight decrease of $31,000, or 1%, to $5.5 million during the year ended December 31, 2013, as compared to the 2012 comparative period as the activity undertaken to maintain our technology platforms was consistent with the prior year.

General and Administrative Expenses. General and administrative expenses increased$3.3 million, or 61%, to $8.8 million during the year ended December 31, 2013, as compared to the 2012 comparative period. The increase was primarily due to non-

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recurring expenses of $345,000 related to the relocation of the finance function from the Austin, Texas facility to our Campbell, California facility, an out-of-period charge of $420,000 for overstatement of credit card receivables, a charge of $179,000 related to the closure of the Austin facility, a $280,000 impairment charge against vendor deposits, increases in stock compensation expense of $511,000, the majority of which relates to non-recurring restricted stock awards granted to board members which were fully vested upon grant, increases in legal fees of $613,000 due to litigation, a $200,000 charge in connection with the settlement of the claim by our former CEO, an increase of $296,000 in board of directors' compensation, an increase in variable compensation of $433,000 and an increase in investor relations cost of $120,000 offset by decreased temporary service cost of $172,000.

Depreciation and Amortization Expenses. Depreciation and amortization expenses increased$55,000, or 3%, to $1.7 million for the year ended December 31, 2013, as compared to the 2012 comparative period.

Impairment of Long-Lived Assets. For the year ended December 31, 2013, we recorded an impairment charge for property and equipment, primarily capitalized software development costs, of $2.3 million related to our e-commerce platform business.

Impairment of Goodwill. For the year ended December 31, 2013, we recorded an impairment charge related to goodwill of $5.4 million.

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

	Year Ended December 31,					Change
	2013		2012
Interest and other expense, net	$	228	$	237		$	9
Currency translation (gain) loss	35		(21		)	(56		)
Other	31		$	—		(31		)
Total	$	294	$	216		$	(78	)

Currency transaction loss (gain) is primarily due to the fluctuation of currency exchange rates among the U.S. Dollar and the British Pound. Fluctuations of currency exchange rates may have a negative effect in future periods on our financial results.

Gain Due to Change in Fair Value of Warrant Liability. Gain due to change in fair value of warrant liabilityincreased$175,000, or 104%, to $344,000 for year ended December 31, 2013, as compared to the 2012 comparative period. The increase in the gain is attributable to a decline in the value of the common stock warrants driven primarily by the decrease in the Company's stock price at December 31, 2013. In June 2011, we issued 1.6 million warrants as part of our equity offering. In October 2013, we issued 217,000 warrants as part of our borrowings from Agility Capital LLC II. We classified the warrants as liabilities under the balance sheet caption “Common stock warrant liability” and estimated their fair value, as of the issuance and balance sheet dates, utilizing the Black-Scholes valuation method.

Income Tax Expense. Income tax benefit was $657,000 for the year ended December 31, 2013 as compared to income tax expense of $241,000 for the year ended December 31, 2012. Our income tax benefit for year ended December 31, 2013 reflects the release of deferred tax liabilities related to the impairment of goodwill, a true-up of 2012 state and foreign taxes and a reversal of a foreign tax payable. This benefit was offset by our income tax for the full year ending December 31, 2013, which primarily consists of estimates of foreign taxes and domestic gross margin taxes for certain states.

Net Loss from Discontinued Operations. Net income from discontinued operations was $50,000 for the year ended December 31, 2013, as compared to a net loss from discontinued operations of $6.3 million in the 2012 comparative period. The net income from discontinued operations for 2013 is attributable to payments and true-up adjustments. The loss for 2012 includes a loss from the disposal of discontinued operations of $3.3 million for the sale of the Manila operations. The loss from the disposal of discontinued operations represents the difference between the gross sale proceeds of $845,000, net of associated legal fees and closing costs, and the net book value of Rainmaker Systems, Ltd. For further discussion of our discontinued operations, refer to Note 3 to our consolidated financial statements.

Comparison of Years Ended December 31, 2012 and 2011

Net Revenue. Net revenue decreased$1.0 million, or 4%, to $25.4 million in the year ended December 31, 2012, as compared to the year ended December 31, 2011. Net revenue decreased in the year ended December 31, 2012 compared to the 2011 comparative period due to the elimination of non-strategic client programs, offset by multiple new programs with Microsoft, a significant client in both 2011 and 2012. Training sales net revenue also decreased in the year ended December 31, 2012, as compared to the 2011 comparative period due to net client attrition.

Cost of Services and Gross Margin. Cost of services decreased$947,000 to $14.4 million in the year ended December 31, 2012, as compared to the 2011 comparative period. Our gross margin percentage was 43% and 42%, respectively, in the years

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ended December 31, 2012 and 2011. The improvement in gross margin was due to cost savings initiatives and growth in our higher margin e-commerce business.

Sales and Marketing Expenses. Sales and marketing expenses decreased$1.9 million, or 49%, to $2.0 million in the year ended December 31, 2012, as compared to the 2011 comparative period. The increase was attributable to a decrease in personnel related expense of $1.2 million and decreases in marketing costs of $466,000.

Technology and Development Expenses. Technology and development expenses decreased$1.9 million, or 25%, to $5.6 million during the year ended December 31, 2012, as compared to the 2011 comparative period. The decrease was primarily attributable to decreases in outsourced services and maintenance contracts expense of $826,000, decreases in personnel costs. of approximately $825,000 and reduced telecommunications costs of $289,000.

General and Administrative Expenses. General and administrative expenses decreased$2.4 million, or 30%, to $5.5 million during the year ended December 31, 2012, as compared to the 2011 comparative period. The decrease was primarily attributable to a decrease in personnel costs of $1.8 million, reduced board fees of $280,000 and reduced legal and outsourced services costs of $58,000.

Depreciation and Amortization Expenses. Depreciation and amortization expenses decreased$738,000, or 31%, to $1.6 million for the year ended December 31, 2012, as compared to the 2011 comparative period. The decrease is due to assets becoming fully depreciated or amortized.

Loss(Gain) on Fair Value Re-measurement. In the year ended December 2011, the Company recorded a loss on fair value re-measurement of $44,000 related to the change in the accrued estimated liability for the potential earnout payment in connection with our acquisition of Optima. In April 2012, we made a payment of $225,000 based on the achievement of certain performance metrics for the year ended December 31, 2011 per the purchase agreement.

Gain Due to Change in Fair Value of Warrant Liability.    During the year ended December 31, 2011, the Company recorded a gain on the change in fair value of our warrant liability of $169,000. In June 2011, we issued 1.6 million warrants as part of our equity offering. We classified the warrants as liabilities under the balance sheet caption “Common stock warrant liability” and estimated their fair value, as of the balance sheet date, utilizing the Black-Scholes valuation method.

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

	Year Ended December 31,						Change
	2012			2011
Interest and other expense, net	$	237		$	193		$	44
Currency translation loss (gain)	(21		)	(15		)	(6		)
Total	$	216		$	178		$	38

Net interest expense increased for the year ended December 31, 2013, as compared to the 2012 comparative period, due to increases from incremental and new borrowings from our Comerica Bank Credit Facility.

Currency transaction loss (gain) is primarily due to the fluctuation of currency exchange rates among the U.S. Dollar and the British Pound. Fluctuations of currency exchange rates may have a negative effect in future periods on our financial results.

Income Tax Expense. Income tax expense increased$222,000, or 1,168%, to $241,000 for the year ended December 31, 2012, as compared to $19,000 for the year ended December 31, 2011. Our income tax expense for the year ended December 31, 2012 was based on our estimate of taxable income for the full year ending December 31, 2012, and primarily consists of estimates of foreign taxes and domestic gross margin taxes for certain states.

Net loss from Discontinued Operations. Net loss from discontinued operations was $6.3 million for the year ended December 31, 2012, as compared to $531,000 in the year ended December 31, 2011. The loss for 2012 includes a loss from the disposal of discontinued operations of $3.3 million for the sale of the Manila operations. The loss from the disposal of discontinued operations represents the difference between the gross sale proceeds of $845,000, net of associated legal fees and closing costs, and the net book value of Rainmaker Systems, Ltd. The remaining change was primarily due to the write-off of a receivable for the bankruptcy of a client in the amount of $499,000, costs related to exit of a lease and move into a larger facility of $445,000, the initial costs incurred to launch a significant new program and over-capacity, due to net customer attrition. For further discussion of our discontinued operations, refer to Note 3 to our consolidated financial statements.

Liquidity and Sources of Capital

Cash used in operating activities for the year ended December 31, 2013 was $3.1 million, as compared to cash used in operating activities of $2.1 million in the year ended December 31, 2012. Cash used in operating activities in the year ended December 31, 2013 was primarily the result of net loss from continuing operations of $21.0 million, offset by non-cash expenses for depreciation and amortization of property of $1.7 million, stock-based compensation expenses of $1.5 million, impairment of credit card receivable of $420,000 and other assets of $280,000, provision for impairment of long-lived assets of $2.3 million, provision for impairment of goodwill of $5.4 million and changes in operating assets and liabilities that provided cash of $6.6 million, which includes a $5.9 million increase in accounts payable.

Cash used in operating activities for the year ended December 31, 2012 was $2.1 million, primarily the result of net loss from continuing operations of $4.0 million, offset by non-cash expenses for depreciation and amortization of property and intangibles of $1.6 million and stock-based compensation expenses of $810,000, cash used by discontinued operations of $2.1 million and changes in operating assets and liabilities that provided cash of $1.7 million.

Cash used in investing activities was $2.2 million in the year ended December 31, 2013, as compared to cash used in investing activities of $1.2 million in the year ended December 31, 2012. The change was primarily the result of increases in capital expenditures of approximately $1.1 million during the year ended December 31, 2013, as compared to the year ended December 31, 2012. Cash used in investing activities for the year ended December 31, 2012 included capital expenditures by discontinued operations of $842,000 offset by the consideration received in disposal of the Company's Manila operations of $845,000.

Cash provided by financing activities was approximately $4.6 million in the year ended December 31, 2013, as compared to cash used in financing activities of $846,000 in the year ended December 31, 2012. Cash provided by financing activities was primarily a result of net cash proceeds from the sale of common stock in a registered direct offering of $5.5 million, net proceeds from borrowings under notes payable of $911,000 offset by repayments of notes payable of $1.7 million and purchases of $149,000 of treasury stock from employees for shares withheld for income taxes payable on restricted stock awards vested during the year ended December 31, 2013. Cash used in financing activities in the year ended December 31, 2012 was primarily a result of cash used by discontinued operations of $738,000 and purchases of $237,000 of treasury stock from employees for shares withheld for income taxes payable on restricted stock awards vested during the year ended December 31, 2012.

As reflected in the accompanying consolidated financial statements, we had a net loss from continuing operations of $21.0 million for the year ended December 31, 2013. During the year, we used cash of $3.2 million in operating activities from continuing operations.

At December 31, 2013, the Company had a net working capital deficit of $14.5 million. Our principal source of liquidity as of December 31, 2013 consisted of $3.6 million of cash and cash equivalents and $3.6 million of net accounts receivable. Our debt balance as of December 31, 2013 was $3.6 million, consisting of $3.0 million owing to Comerica Bank and $500,000 owing to Agility Capital II, LLC. Our loans owing to Comerica Bank are due on May 1, 2014. Our loans owing to Agility Capital II, LLC are due on May 1, 2014, commensurate with the Comerica Bank loans. See below under “Credit Arrangements” for further discussion of our credit facilities with Comerica Bank and Agility Capital II, LLC. Our accounts payable balance increased from $7.2 million as of December 31, 2012 to $13.0 million as of December 31, 2013. $11.1 million of the December 31, 2013 accounts payable balance is related to a merchant account of a customer that has elected not to renew its contract.

In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross cash proceeds of approximately $5.8 million. In order to meet our operating requirements, we will need to raise additional capital from outside third parties or from the sale of non-strategic assets and restructure our debt. Additionally, we are pursuing a plan to achieve profitable operations through a combination of increased sales and decreased expenses. There can be no assurance that we will be successful in obtaining third party capital, selling non-strategic assets or restructuring our debt. We do not have adequate cash or financial resources to operate for the next twelve months without raising significant additional capital, which raises substantial doubt about our ability to continue as a going concern.

Credit Arrangements

On June 14, 2012, the Company entered into a Loan and Security Agreement with Comerica Bank (the “Comerica Credit Facility”), replacing Bridge Bank, N.A. as the Company's primary lender. The maximum amount of credit available to us under the Credit Facility at inception was $5 million, comprised of a $3 million term loan facility (“Term Loan”) and a $2 million revolving line of credit (“Revolving Line”), which included a $500,000 sub-facility for letters of credit and certain credit card services. Under the terms of the Comerica Credit Facility, we could request advances under (i) the Term Loan until December 14, 2012, and (ii) the Revolving Line in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the borrowing base, which is 80% of our eligible accounts receivable balances, less the aggregate face amount of letters of credit

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issued and the aggregate limits of any credit cards issued and any merchant credit card processing reserves. Term Loan advances outstanding on December 14, 2012 became payable in thirty equal monthly installments of principal, plus accrued interest, beginning on January 1, 2013. Amounts borrowed under the Revolving Line became due on December 14, 2013, which was subsequently extended to May 1, 2014, as described below. As of December 31, 2013, there was $1.8 million outstanding under the Term Loan and $1.2 million outstanding under the Revolving Line.

The interest rate per annum for advances under the Comerica Credit Facility is the Prime Referenced Rate, as defined in the Comercia Credit Facility, plus the applicable margin. Prior to March 1, 2014, the applicable margin was 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. Beginning March 1, 2014, the applicable margin is two and one quarter percent (2.25%) per annum for the Revolving Line and one and one half percent (1.50%) 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 December 31, 2013.

The Comerica Credit Facility is secured by substantially all of Rainmaker’s consolidated assets. Rainmaker must comply with certain financial covenants, including 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 Comerica Credit Facility contains customary covenants that will, subject to limited exceptions, require Comerica Bank'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 Comerica 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 Comerica Credit Facility. If we are not able to comply with such covenants or if any event of default otherwise occurs, our outstanding loan balance could become due and payable immediately and our existing credit facilities with Comerica Bank could be canceled. As of December 31, 2013, we were not in compliance with all loan covenants as we were past due on the repayment of the amounts outstanding under the Revolving Line.

On February 27, 2014, Comerica Bank issued a notice of default as the amounts outstanding under the Revolving Line were past due. The notice of default also stated that Comerica Bank would not take any action to enforce its rights and remedies under the Comerica Credit Facility but reserved the right to do so in the future. On March 19, 2014, the Company and Comerica Bank entered into a forbearance agreement pursuant to which Comerica Bank agreed to extend the scheduled maturity date of the Revolving Line until May 1, 2014. In addition, under the terms of the forbearance agreement, (i) the amounts outstanding under the Term Loan are due on May 1, 2014, coterminous with the Revolving Line, (ii) advances under the Revolving Line are limited to $1,000,000 at any time outstanding, (iii) restricted cash in the amount of $1,562,000 will be held in a segregated deposit account at Comerica Bank as additional collateral for the Term Loan, (iv) effective March 1, 2014, the applicable margin for the Revolving Line was increased to two and one quarter percent (2.25%), and for the Term Loan was decreased to one and one half percent (1.50%), and (v) the Company must satisfactorily address a material accounts payable owed to a customer by April 1, 2014. It is uncertain that we will be able to meet the commitment to address the material accounts payable owed to a customer.

On October 30, 2013, the Company closed a Loan Agreement (the "Agility Loan Agreement") with Agility Capital II, LLC (“Agility”), providing for a revolving line of credit of up to $500,000, which amount may be increased to $650,000 under certain conditions (the “Maximum Revolving Line”). The Company may request advances under the Agility Loan Agreement in an aggregate outstanding amount not to exceed the lesser of (i) the applicable Maximum Revolving Line or (ii) a borrowing base equal to 30% of the Company's eligible accounts receivable balances. Amounts borrowed under the Agility Loan Agreement are due on the earlier of (i) the date on which the Company’s borrowings under its loan agreement with Comerica Bank become due and payable, and (ii) October 25, 2014. The interest rate per annum for advances under the Loan Agreement is 12.00%. If a default occurs under the Loan Agreement, the interest rate per annum for advances under the Loan Agreement would increase to 18.00%. In addition, if a default in the payment of principal occurs under the Loan Agreement, the Company would be required to pay a default fee equal to $10,000 plus an additional $15,000 for each subsequent 30-day period during which such payment default remains uncured. The Agility Loan Agreement became due on December 14, 2013, commensurate with the Revolving Line. On February 28, 2014, Agility issued a notice of default due to the notice of default issued by Comerica Bank, as discussed above. The Company paid a default fee of $10,000 to Agility on February 28, 2014 for failure to pay principal when due. Such default was subsequently cured as a result of the extension of the maturity date to May 1, 2014 commensurate with the extension of the scheduled maturity date of the Revolving Line.

The Agility Loan Agreement is secured by substantially all of Rainmaker’s consolidated assets. The Agility Loan Agreement contains customary covenants that will, subject to limited exceptions, require Agility’s approval to, among other things, (i) create liens; (ii) acquire or transfer assets outside of the ordinary course of business; (iii) pay cash dividends; and (iv) merge or consolidate with another company. The Agility Loan Agreement also requires that the Company comply with the financial covenants contained in its loan agreement with Comerica Bank. The Agility Loan Agreement also provides for customary events of default, including nonpayment, breach of covenants, payment defaults of other indebtedness, and certain events of bankruptcy, insolvency and reorganization that may result in acceleration of outstanding amounts under the Agility Loan Agreement. The Company’s

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obligations under the Agility Loan Agreement are subordinated to the Company’s obligations under its loan agreement with Comerica Bank, pursuant to a subordination agreement between Agility and Comerica Bank. As of December 31, 2013, there was $500,000 outstanding under the Agility Loan Agreement.

In addition, Agility received a warrant to purchase 216,667 shares of the Company's common stock. The warrant has a 7-year term and an exercise price of $0.45 per share. The warrant may also be exercised by way of a cashless exercise. The 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 future issuances of common stock at a price below the warrant's exercise price, stock dividends, stock splits and other similar events.

Off-Balance Sheet Arrangements

As of December 31, 2013 and 2012, we had no off-balance sheet arrangements or obligations.

Potential Impact of Inflation

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

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 accounting principles generally accepted in the United States of America (“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.

Use of Estimates

The preparation of the financial statements and related disclosures, in conformity with GAAP, requires us to establish accounting policies that contain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We evaluate our estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The policies that contain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes include:

• revenue recognition and financial statement presentation;

• the allowance for doubtful accounts;

• impairment of long-lived assets, including goodwill, intangible assets and property and equipment;

• measurement of our deferred tax assets and corresponding valuation allowance;

• allocation of purchase price in business combinations;

• fair value estimates for the expense of employee stock options; and

• our common stock warrant liability.

We have other equally important accounting policies and practices. However, once adopted, these policies either generally do not require us to make significant estimates or assumptions or otherwise only require implementation of the adopted policy, not a judgment as to the application of policy itself. Despite our intention to establish accurate estimates and assumptions, actual results could differ materially from those estimates under different assumptions or conditions.

Revenue Recognition and Financial Statement Presentation

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Substantially all of our revenue is generated from (i) the online sale of our clients products to their SMB customers, (ii) the sale of our clients' service contracts and maintenance renewals, (iii) lead development and other telesales services, and (iv) software subscriptions for hosted Internet sales of web-based training. 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 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. Some of our lead development service revenue is earned when we achieve certain attainment levels and is recognized upon customer acceptance of the service. 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 three 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.

In addition, we provide an allowance in accrued liabilities for the cancellation of service contracts that occurs within a specified time after the sale, which is typically less than 30 days. This amount is calculated based on historical results and constitutes a reduction of the net revenue we record for the commission we earn on the sale.

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 December 31, 2013 and 2012, our allowance for potentially uncollectible accounts was $11,000 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. The depreciation 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. Depreciation 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. This 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 FASB 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, the payroll and payroll-related costs for employees who are directly associated with and who devote time to develop the internal use computer software and associated interest costs are capitalized. 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 in the accompanying balance sheets. For the year ended December 31, 2013, we recorded a charge of $2.3 million to impair long-lived assets. See Note 4 to the consolidated financial statements for further discussion of the impairment of long-lived assets.

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Goodwill

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 the 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. Most recently, in January 2010, we acquired Optima Consulting Partners, assigning $1.5 million to goodwill.

In our analysis of goodwill and other intangible assets, we apply the guidance of FASB ASC 350-20-35 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, customer relationships and trade names of the businesses we have acquired.

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. As of December 31, 2013 and 2012, we concluded that we have one operating and reportable segment and one reporting unit.

As of December 31, 2013, we performed our annual goodwill impairment evaluation, as required under FASB ASC 350-20-35, and concluded that goodwill was impaired as the carrying value exceeded the estimated implied fair value and an impairment charge of $5.4 million was recorded in the year ended December 31, 2013. At December 31, 2013 and 2012, we had approximately $0 and $5.3 million, respectively, in goodwill recorded on our consolidated balance sheets. At December 31, 2013 and 2012, we had accumulated impairment losses of $16.9 million and $11.5 million, respectively.

Long-Lived Assets

Long-lived assets, including our purchased intangible assets, are amortized over their estimated useful lives. In accordance with FASB ASC 360-10-35 long-lived assets, such as property, equipment, and purchased intangibles subject to amortization, 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 would be 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 disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. For the year ended December 31, 2013, we recorded a charge of $2.3 million to impair long-lived assets. See Note 4 to our consolidated financial statements for further discussion of the impairment of long-lived assets.

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 December 31, 2013 and 2012, we had gross deferred tax assets of $46.0 million and $31.8 million, respectively. In 2013 and 2012, the deferred tax asset was subject to a 100% valuation allowance and therefore is not recorded on our balance sheet as an asset. 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, disclosure and transition.

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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. Interest and penalties recorded as of December 31, 2013 and 2012 were immaterial.

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 10 to the consolidated financial statements for further discussion of this statement.

Foreign Currency Translation

The functional currency of our foreign subsidiaries was determined to be their respective local currencies (Philippine Peso, Canadian Dollar and Great Britain Pound). 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, consolidated statement of comprehensive loss. Net gains and losses resulting from foreign exchange transactions are included in interest and other expense, net, in the consolidated statements of comprehensive loss.

Significant Client Concentrations

We have generated a significant portion of our revenue from sales to customers of a limited number of clients. In the year ended December 31, 2013, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 43% of our net revenue, Symantec representing approximately 24% of our net revenue and Hewlett-Packard representing approximately 10% of our net revenue. In the year ended December 31, 2012, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 35% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 11% of our net revenue. In the year ended December 31, 2011, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 22% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 14% of our net revenue.

No individual client’s customer accounted for 10% or more of our net revenue 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 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 sixty days notice. Symantec has elected not to renew its customer contracts with the Company, which expire on March 31, 2014.

We expect that a substantial portion of our net revenue will continue to be concentrated among a few significant clients. In addition, our technology clients operate in industries that are experiencing consolidation, which may reduce the number of our existing and potential clients.

Recent Accounting Standards

In February 2013, the FASB issued ASU No. 2013-02 - Reporting of Amounts Reclassified Out of Accumulated OtherComprehensive Income. This update improves the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted this standard in the first quarter of 2013. Adoption of this standard did not have any material impact on our financial position, results of operations or cash flows.

In March 2013, the FASB issued ASU No. 2013-05 – Foreign Currency Matters. This update requires that an entity should release cumulative currency translation adjustments to net income when the entity ceases to have controlling financial interest in a foreign entity or a group of financial assets in a foreign entity. This new guidance is effective for the first reporting period beginning after December 15, 2013. We adopted this standard in the fourth quarter of 2012 in accounting for the sale of RSL.

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ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Index to Financial Statements and Schedule

	Page
Financial Statements:
Report of Independent Registered Public Accounting Firm	36
Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012	37
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2013, 2012, and 2011	38
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2013, 2012, and 2011	39
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012, and 2011	40
Notes to Consolidated Financial Statements	41
Consolidated Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts	75

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Rainmaker Systems, Inc.

Campbell, California

We have audited the accompanying consolidated balance sheets of Rainmaker Systems, Inc. as of December 31, 2013 and 2012 and the related consolidated statements of comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2013. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rainmaker Systems, Inc. at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s recurring losses from operations, negative working capital and negative cash flows from operating activities, among other factors, raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1. The consolidated financial statements for the year ended December 31, 2013, do not include any adjustments that might result from the outcomes of this uncertainty.

/s/    BDO USA, LLP

San Jose, California

April 1, 2014

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RAINMAKER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

	December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	3,633		$	4,494
Restricted cash	3			52
Accounts receivable, net	3,554			3,720
Prepaid expenses and other current assets	1,618			1,292
Total current assets	8,808			9,558
Property and equipment, net	691			2,455
Goodwill	—			5,337
Other non-current assets	840			416
Total assets	$	10,339		$	17,766
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	13,042		$	7,159
Accrued compensation and benefits	1,001			425
Other accrued liabilities	3,665			3,142
Deferred revenue	1,965			2,311
Current portion of notes payable	3,641			2,727
Total current liabilities	23,314			15,764
Deferred tax liability	26			567
Long-term deferred revenue	1,629			44
Common stock warrant liability	93			348
Other non-current liabilities	172			—
Notes payable, less current portion	—			1,800
Total liabilities	25,234			18,523
Commitments and contingencies (Note 7)
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, 43,795 shares issued and 41,495 shares outstanding at December 31, 2013 and 30,454 shares issued and 28,428 shares outstanding at December 31, 2012	41			27
Additional paid-in capital	137,445			130,402
Accumulated deficit	(149,169		)	(128,198		)
Accumulated other comprehensive loss	(336		)	(261		)
Treasury stock, at cost; 2,300 shares at December 31, 2013 and 2,026 shares at December 31, 2012	(2,876		)	(2,727		)
Total stockholders’ deficit	(14,895		)	(757		)
Total liabilities and stockholders’ deficit	$	10,339		$	17,766

See accompanying notes.

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RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share amounts)

	Year Ended December 31,
	2013			2012			2011
Net revenue	$	17,681		$	25,360		$	26,377
Cost of services	12,290			14,397			15,344
Gross margin	5,391			10,963			11,033
Operating expenses:
Sales and marketing	3,409			1,978			3,883
Technology and development	5,526			5,557			7,457
General and administrative	8,789			5,463			7,818
Depreciation and amortization	1,697			1,642			2,380
Impairment of long-lived assets	2,330			—			—
Impairment of goodwill	5,368			—			—
Loss on fair value re-measurement	—			—			44
Total operating expenses	27,119			14,640			21,582
Operating loss	(21,728		)	(3,677		)	(10,549		)
Gain due to change in fair value of warrant liability	(344		)	(169		)	(298		)
Interest and other expense, net	294			216			178
Loss before income tax (benefit) expense	(21,678		)	(3,724		)	(10,429		)
Income tax (benefit) expense	(657		)	241			19
Net loss from continuing operations	(21,021		)	(3,965		)	(10,448		)
Net income (loss) from discontinued operations (including loss on disposal of $3,341 in 2012)	50			(6,307		)	(531		)
Net loss	$	(20,971	)	$	(10,272	)	$	(10,979	)
Foreign currency translation adjustments	(75		)	329			(452		)
Comprehensive loss	$	(21,046	)	$	(9,943	)	$	(11,431	)
Basic and diluted net loss per share:
Net loss from continuing operations	$	(0.54	)	$	(0.15	)	$	(0.42	)
Net loss from discontinued operations	—			(0.23		)	(0.02		)
Net loss	$	(0.54	)	$	(0.38	)	$	(0.44	)
Weighted average common shares - basic and diluted	38,639			27,123			25,050

See accompanying notes.

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RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

	Common Stock					Treasury Stock				Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Total
	Shares		Amount			Shares	Amount
Balance at December 31, 2010	23,275		$	22		1,475	$	(2,267	)	$	124,826		$	(106,947	)	$	(1,375	)	$	14,259
Net loss	—		—			—	—			—			(10,979		)	—			(10,979		)
Foreign currency translation loss	—		—			—	—			—			—			(452		)	(452		)
Exercise of employee stock options	15		—			—	—			15			—			—			15
Issuance of common stock in public offering, net of expenses	3,670		4			—	—			3,281			—			—			3,285
Proceeds from public offering allocated to warrant liability	—		—			—	—			(815		)	—			—			(815		)
Issuance of restricted stock awards	995		1			—	—			—			—			—			1
Cancellation of restricted stock awards	(743	)	(1		)	—	—			—			—			—			(1		)
Stock based compensation	—		—			—	—			2,066			—			—			2,066
Surrender of shares for tax withholding	(399	)	—			399	(338		)	—			—			—			(338		)
Purchases of treasury stock	—		—			—	—			—			—			—			—
Balance at December 31, 2011	26,813		26			1,874	(2,605		)	129,373			(117,926		)	(1,827		)	7,041
Net loss	—		—			—	—			—			(10,272		)	—			(10,272		)
Foreign currency translation gain	—		—			—	—			—			—			329			329
Release of foreign currency translation loss related to disposal of discontinued operations	—		—			—	—			—			—			1,237			1,237
Issuance of common stock	138		—			—	—			135			—			—			135
Issuance of restricted stock awards	2,145		2			—	—			—			—			—			2
Cancellation of restricted stock awards	(516	)	(1		)	—	—			—			—			—			(1		)
Stock based compensation	—		—			—	—			894			—			—			894
Surrender of shares for tax withholding	(152	)	—			152	(122		)	—			—			—			(122		)
Balance at December 31, 2012	28,428		27			2,026	(2,727		)	130,402			(128,198		)	(261		)	(757		)
Net loss	—		—			—	—			—			(20,971		)	—			(20,971		)
Foreign currency translation loss	—		—			—	—			—			—			(75		)	(75		)
Exercise of employee stock options	5		—			—	—			4			—						4
Issuance of common stock in a registered direct offering	12,982		13			—	—			5,521			—			—			5,534
Issuance of common stock	40		—			—	—			8			—			—			8
Issuance of restricted stock awards	1,518		2			—	—			—			—			—			2
Rescission of restricted stock award	(250	)	—			—	—			—			—			—			—
Cancellation of restricted stock awards	(955	)	(1		)	—	—			—			—			—			(1		)
Stock based compensation	—		—			—	—			1,510			—			—			1,510
Surrender of shares for tax withholding	(274	)	—			274	(149		)	—			—			—			(149		)
Balance at December 31, 2013	41,495		$	41		2,300	$	(2,876	)	$	137,445		$	(149,169	)	$	(336	)	$	(14,895	)

See accompanying notes.

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RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended December 31,
	2013			2012			2011
Operating activities:
Net loss	$	(20,971	)	$	(10,272	)	$	(10,979	)
Adjustment for net (income) loss from discontinued operations	(50		)	6,307			531
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment	1,697			1,555			2,151
Amortization of intangible assets	—			87			229
Amortization of debt discount	20			—			—
Loss (gain) on fair value re-measurement	—			—			44
Gain due to change in fair value of warrant liability	(344		)	(169		)	(298		)
Stock-based compensation expense	1,510			810			2,022
Provision (credit) for allowance for doubtful accounts	(4		)	(38		)	5
Provision for impairment of credit card receivable	420			—			—
Impairment of other assets	280			—			—
Impairment of long-lived assets	2,330			—			—
Provision for impairment of goodwill	5,368			—			—
Changes in operating assets and liabilities:
Accounts receivable	(365		)	908			(255		)
Prepaid expenses and other assets	(902		)	(397		)	29
Accounts payable	5,947			1,900			1,017
Accrued compensation and benefits	508			(202		)	(81		)
Other accrued liabilities	807			(324		)	247
Income tax payable	(130		)	110			(89		)
Deferred tax liability	(541		)	93			91
Deferred revenue	1,239			(378		)	(256		)
Net cash used in continuing operations	(3,181		)	(10		)	(5,592		)
Net cash provided by (used in) discontinued operations	50			(2,050		)	265
Net cash used in operating activities	(3,131		)	(2,060		)	(5,327		)
Investing activities:
Purchases of property and equipment	(2,250		)	(1,146		)	(1,568		)
Restricted cash, net	49			(34		)	70
Consideration received in disposal of discontinued operations	—			845			—
Net cash used in continuing operations	(2,201		)	(335		)	(1,498		)
Net cash used in discontinued operations	—			(842		)	(98		)
Net cash used in investing activities	(2,201		)	(1,177		)	(1,596		)
Financing activities:
Proceeds from issuance of common stock	5,534			22			3,285
Proceeds from issuance of common stock from option exercises	4			—			15
Proceeds from borrowings	911			4,555			1,224
Repayment of borrowings	(1,727		)	(3,954		)	(680		)
Repayment of acquisition earnout	—			(113		)	—
Net proceeds (repayment) on overdraft facility	—			(381		)	46
Tax payments in connection with treasury stock surrendered	(149		)	(237		)	(223		)
Net cash provided by (used in) continued operations	4,573			(108		)	3,667
Net cash provided by (used in) discontinued operations	—			(738		)	115
Net cash provided by (used in) financing activities	4,573			(846		)	3,782
Effect of exchange rate changes on cash	(102		)	87			(126		)
Net decrease in cash and cash equivalents	(861		)	(3,996		)	(3,267		)
Cash and cash equivalents at beginning of period	4,494			8,490			11,757
Cash and cash equivalents at end of period	$	3,633		$	4,494		$	8,490
Supplemental disclosures of cash flow information:
Cash paid for interest	$	215		$	187		$	189
Cash paid for income taxes	$	49		$	36		$	36
Supplemental disclosures of non-cash investing and financing activities:
Warrants issued in borrowings of notes payable	$	89		$	—		$	—
Common stock issued in acquisitions	$	—		$	112		$	—

See accompanying notes.

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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

The accompanying consolidated financial statements include the accounts of Rainmaker Systems, Inc. and its wholly-owned subsidiaries. The Company has two business groups. Our Global Client Services division combines sales and marketing services designed to increase revenue on behalf of our clients. We have solution offerings consisting of service sales and renewals, “Click-to-Cash” or lead development, and sophisticated, high end global call center services. We have developed an integrated solution, the Rainmaker Revenue Delivery Platform^SM, that combines specialized sales and marketing services coupled with our proprietary, renewals software and business analytics.

Our ViewCentral business provides an end-to-end solution for managing and delivery of training and certification programs, or training-as-a-business, for corporations. The ViewCentral Learning Management System platform is a SaaS, cloud based, on-demand, training management system, available 24x7 with no software installation. This self-service platform is highly configurable, so our customers utilize only the modules they need, branded as they choose. Designed specifically to automate time-consuming manual administration and to maximize training participation, the ViewCentral suite contains tools for before, during and after course delivery.

Our strategy for long-term, sustained growth is to maintain and improve our position as a leading global provider of B2B sales and marketing solutions in selected markets. A key aspect of this enhanced solution is to provide our clients a way to partner with Rainmaker on a scalable, repeatable and reliable sales model. This enables our clients to turn customer contacts into revenue generating opportunities while simplifying otherwise complex sales and marketing needs. We operate as a seamless extension of our clients' sales and marketing teams incorporating their brands and trademarks and leveraging business practices to amplify existing efforts.

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

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 and its operating activities are segregated from the Company's continuing operations including within the consolidated statement of comprehensive loss, and classified solely under the caption loss from discontinued operations, net of tax. As such, certain amounts reported in the accompanying financial statements for 2011 have been retrospectively revised to conform to the 2012 and 2013 presentation. There were no other reclassifications that had a material effect on the previously reported results of operations, total assets or accumulated deficit which are included in the accompanying financial statements.

Going Concern

As reflected in the accompanying consolidated financial statements, we had a net loss from continuing operations of $21.0 million and $4.0 million for the years ended December 31, 2013 and 2012, respectively. During the year ended December 31, 2013, we used $3.2 million in operating activities from continuing operations.

At December 31, 2013, the Company had a net working capital deficit of $14.5 million and our principal source of liquidity consisted of $3.6 million of cash and cash equivalents and $3.6 million of net accounts receivable. Our debt balance as of December 31, 2013 was $3.6 million, of which $3.0 million is due to Comerica Bank on May 1, 2014 and $500,000 due to Agility Capital II, LLC on May 1, 2014, commensurate with the Comerica Credit Facility. See Note 6 for further discussion of our debt agreements. Our accounts payable balance increased from $7.2 million as of December 31, 2012 to $13.0 million as of December 31, 2013. $11.1 million of the December 31, 2013 accounts payable balance is related to a merchant account of a customer that has elected not to renew its contract.

In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross cash proceeds of approximately $5.8 million. In order to meet our operating requirements, we will need to raise additional capital from outside third parties or from the sale of non-strategic assets and restructure our debt. Additionally, we are pursuing a plan to achieve profitable operations through a combination of increased sales and decreased expenses. There can be no assurance that we will be successful in obtaining third party capital, selling non-strategic assets or restructuring our debt. We do not have adequate

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cash or financial resources to operate for the next twelve months without raising significant additional capital, which raises substantial doubt about our ability to continue as a going concern.

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. Our ability 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 we are 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, fair value estimates for the expense of employee stock options and warrants and the assessment of recoverability and impairment of goodwill, intangible assets, fixed assets and commitments and contingencies.

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 carrying value.

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

	December 31,
	2013		2012
Cash and cash equivalents:
Cash	$	1,992	$	2,854
Money market funds	1,641		1,640
Total cash and cash equivalents	$	3,633	$	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 December 31, 2013 and 2012, our allowance for potentially uncollectible accounts was $11,000 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 develop the internal-use computer software

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and associated interest costs are capitalized. We capitalized approximately $1.5 million, $1.1 million and $1.3 million of such costs during the years ended December 31, 2013, 2012 and 2011, 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. For the year ended December 31, 2013, we recorded a charge of $2.3 million to impair long-lived assets. See Note 4 for further discussion of the impairment of long-lived 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 goodwill might be impaired.

In our analysis of goodwill and other intangible assets, we apply the guidance of FASB ASC 350-20-35, Intangibles – Goodwill and Other-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.

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. As of December 31, 2013 and 2012, we concluded that we have one operating and reportable segment and one reporting unit.

As of December 31, 2013, we performed our annual goodwill impairment evaluation, as required under FASB ASC 350-20-35, and concluded that goodwill was impaired as the carrying value exceeded the estimated implied fair value and a charge of $5.4 million was recorded in the year ended December 31, 2013. At December 31, 2013 and 2012, we had approximately $0 and $5.3 million, respectively, in goodwill recorded on our consolidated balance sheets. At December 31, 2013 and 2012, we had accumulated impairment losses of $16.9 million and $11.5 million, respectively.

Long-Lived Assets

Long-lived assets including our purchased intangible assets are amortized over their estimated useful lives. In accordance with FASB ASC 360-10-35, long-lived assets, such as property, equipment and purchased intangibles subject to amortization, 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 would be 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 meet certain criteria for being held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. For the year ended December 31, 2013, we recorded a charge of $2.3 million to impair long-lived assets. See Note 4 for further discussion of the impairment of long-lived assets.

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 our clients’ service contracts and maintenance renewals, (iii) lead development and other telesales services, and (iv) software subscriptions for hosted internet sales of web-based training. 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 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 that we perform is recognized as the services are provided

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and is generally earned ratably over the service contract period. We earn revenue from our software application subscriptions of hosted online sales of web-based training ratably over each contract period. Since these software subscriptions are usually paid in advance, we have recorded a deferred revenue liability on our balance sheet that represents the prepaid portions of subscriptions that will be earned over the next one to five years.

Our agreements typically do not contain multiple deliverables, however, if an agreement contains multiple elements, we allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE"), if available, third-party evidence ("TPE"), if VSOE is not available, or estimated selling price ("ESP"), if neither VSOE nor TPE is available. As we are unable to establish VSOE or TPE for the elements of our arrangements, we establish ESP for each element. If an agreement contains multiple deliverables that do not qualify for separate accounting for the product and service transactions, then the revenue and the cost of related professional services on the entire arrangement is recognized ratably over the contract term beginning on the date of delivery of product or service with customer-specific customization, if any. Entering into agreements with multiple elements with stand-alone value in the future may affect the timing of our revenue recognition and may have an impact on our future financial statements.

Our revenue recognition policy involves significant judgments and estimates about collectability. We assess the probability of collection based on a number of factors, including past transaction history and/or the creditworthiness of our clients’ customers, which is based on current published credit ratings, current events and circumstances regarding the business of our clients’ customers and other factors that we believe are relevant. If we determine that collection is not reasonably assured, we defer revenue recognition until such time as collection becomes reasonably assured, which is generally upon receipt of cash payment.

In addition, we provide an allowance in accrued liabilities for the cancellation of service contracts that occurs within a specified time after the sale, which is typically less than 30 days. This amount is calculated based on historical results and constitutes a reduction of the net revenue we record for the commission we earn on the sale.

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, outsourced call center services, 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.

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 December 31, 2013 and 2012, we had gross deferred tax assets of $46.0 million and $31.8 million, respectively. At December 31, 2013 and 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, disclosure and transition.

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 comprehensive loss. There were immaterial amounts accrued for interest and penalties related to uncertain tax positions as of December 31, 2013, 2012 and 2011.

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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 10 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 historically been immaterial, and such losses have been within management’s expectations.

In the year ended December 31, 2013, we recorded an out-of-period adjustment to decrease revenue by $38,000 and increase general and administrative expense by $420,000 for an overstatement of credit card receivables. The overstatement of an aggregate of $458,000 relates to unrecorded chargebacks of $293,000 and $165,000 during the third and fourth quarters of fiscal 2012 following the suspension in August 2012 of a merchant account relating to a customer contract. This out-of-period item did not have a material impact on the current and the previously reported periods.

In the year ended December 31, 2013, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 43% of our net revenue, Symantec representing approximately 24% of our net revenue and Hewlett-Packard representing approximately 10% of our net revenue. In the year ended December 31, 2012, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 35% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 11% of our net revenue. In the year ended December 31, 2011, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 22% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 14% of our net revenue.

No individual client’s end-user customer accounted for 10% or more of our revenues in any period presented.

As of December 31, 2013, three customers accounted for 10% or more of our net accounts receivable, with Symantec representing approximately 40% of our net accounts receivable, Microsoft representing approximately 25% of our net accounts receivable, and Hewlett-Packard representing approximately 11% of our net accounts receivable. As of December 31, 2012, three customers accounted for 10% or more of our net accounts receivable with Hewlett-Packard representing approximately 13% of our net accounts receivable, Symantec representing approximately 12% of our net accounts receivable and Comcast representing approximately 11% of our net accounts receivable.

We have outsourced services agreements with our significant clients that expire at various dates ranging through March 2018. Our agreements with Microsoft expire at various dates from June 2014 through June 2015, and can be terminated with thirty days notice. Our agreements with Hewlett-Packard expire in October 2014 and March 2018 and can generally be terminated prior to expiration with sixty days notice. Symantec has elected not to renew its customer contracts with the Company, which expire on March 31, 2014.

Fair Value of Financial Instruments

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

The amounts reported as fair value of notes payable are at carrying value at December 31, 2013 and 2012. Accounts payable and notes payable are estimated at December 31, 2013 to have a fair value, using Level 3 input assumptions, of $6.2 million and $3.6 million, respectively, for financial statement disclosure purposes only. At December 31, 2012 the carrying value of notes payable approximated fair value.

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Segment Reporting

In accordance with FASB ASC 280, Segment Reporting, we concluded that we have one operating and reportable segment.

Foreign Currency Translation

The functional currency of our foreign subsidiaries was determined to be their respective local currencies (Canadian Dollar, Philippine Peso and Great Britain Pound). 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, consolidated statement of operations and comprehensive loss. Net gains and losses resulting from foreign exchange transactions are included in interest and other expense, net, in the consolidated statements of operations and comprehensive loss.

Recent Accounting Standards

In February 2013, the FASB issued ASU No. 2013-02 - Reporting of Amounts Reclassified Out of Accumulated OtherComprehensive Income. This update improves the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted this standard in the first quarter of 2013. Adoption of this standard did not have any material impact on our financial position, results of operations or cash flows.

In March 2013, the FASB issued ASU No. 2013-05 – Foreign Currency Matters. This update requires that an entity should release cumulative currency translation adjustments to net income when the entity ceases to have controlling financial interest in a foreign entity or a group of financial assets in a foreign entity. This new guidance is effective for the first reporting period beginning after December 15, 2013. We adopted this standard in the fourth quarter of 2012 in accounting for the sale of RSL.

2.    NET LOSS PER SHARE

Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the year. Diluted net 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):

	Year Ended December 31,
	2013			2012			2011
Net loss from continuing operations	$	(21,021	)	$	(3,965	)	$	(10,448	)
Net income (loss) from discontinued operations	50			(6,307		)	(531		)
Net loss	$	(20,971	)	$	(10,272	)	$	(10,979	)
Weighted-average shares of common stock outstanding – basic and diluted	38,639			27,123			25,050
Basic and diluted net loss per share - continuing operations	$	(0.54	)	$	(0.15	)	$	(0.42	)
Basic and diluted net income (loss) per share - discontinued operations	—			(0.23		)	(0.02		)
Basic and diluted net loss per share	$	(0.54	)	$	(0.38	)	$	(0.44	)

For the years ended December 31, 2013, 2012 and 2011, we excluded approximately 3.7 million, 4.0 million and 3.9 million options, warrants and unvested restricted share awards, respectively, from the calculation of diluted net loss per share as these financial instruments were anti-dilutive.

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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, as described below. RSL's operating results for the years ended December 31, 2013, 2012 and 2011 are reported as discontinued operations in the consolidated financial statements.

On December 17, 2012, the Company closed a stock purchase agreement (the “SPA”) with Shore pursuant to which the Company agreed to sell the Company's Manila-based operations of Rainmaker Systems, Ltd. and its wholly owned subsidiary, Rainmaker Asia, Inc., to Shore.

Pursuant to the SPA, Shore acquired 100% of the issued and outstanding stock of RSL. Under the SPA, the Company received an initial cash payment at closing of $845,000. In addition to the closing payment, the Company may receive additional contingent consideration based on multiple earn-out provisions included within the stock purchase agreement, 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 year ended December 31, 2013. Rainmaker determined the loss on disposal of our Manila-based operations based on the net book value of RSL as of December 17, 2012 offset by the closing payment, net of the Company’s closing costs. All contingent consideration will be considered earned as determinable at the future measurement periods. The loss on disposal of discontinued operations for the year ended December 31, 2012 was $3.3 million.

The accompanying consolidated statements of operations and comprehensive loss and cash flows have been reclassified for all periods presented to remove the operating results of RSL from continuing operations and to present the results of RSL as loss from discontinued operations, net of tax. The operating results for the year ended December 31, 2013 represent payments and true up adjustments. Loss on disposal of discontinued operations of $69,000 for the year ended December 31, 2013 is a post-closing adjustment in the working capital at the closing date pursuant to the SPA. Income (loss) from discontinued operations, net of income taxes for all periods presented reflect the operating results of RSL and are as follows (in thousands):

	Year ended December 31,
	2013			2012			2011
Revenue	$	156		$	10,225		$	11,888
Cost of services	37			11,103			10,048
Gross margin	119			(878		)	1,840
Operating expenses	—			1,988			2,190
Non-operating expenses	—			100			181
Income (loss) from discontinued operations, net of tax	119			(2,966		)	(531		)
Loss on disposal of discontinued operations	(69		)	(3,341		)	—
Net income (loss) from discontinued operations	$	50		$	(6,307	)	$	(531	)

RSL cost of services for the year ended December 31, 2012 includes $499,000 related to the write-off of a receivable due to the bankruptcy of a client.

4.    BALANCE SHEET COMPONENTS (in thousands)

Prepaids and Other Current Assets

Prepaids and other current assets consist of the following (in thousands):

	December 31,
	2013		2012
Prepaids and other current assets:
Prepaid expenses	$	623	$	174
Deferred professional service costs	252		—
VAT tax receivable	440		—
Credit card deposits	—		895
Other current assets	303		223
Prepaids and other current assets	$	1,618	$	1,292

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Property and Equipment

	Estimated Useful Life	December 31,
		2013			2012
Property and equipment:
Computer equipment	3 years	$	3,993		$	3,974
Capitalized software and development	2-5 years	13,208			13,686
Furniture and fixtures	5 years	309			437
Leasehold improvements	Lease term	123			232
		17,633			18,329
Accumulated depreciation and amortization		(17,099		)	(16,015		)
Construction in process (1)		157			141
Property and equipment, net		$	691		$	2,455

 _____________

(1) Construction in process at December 31, 2013 consists primarily of costs incurred to further develop and enhance our ViewCentral platform and implement a new ERP system . Estimated costs to complete the projects are in the range of $125,000 to $150,000, subject to future revisions.

We evaluated the contract base related to our e-commerce platform business at December 31, 2013 and determined that the property and equipment, principally capitalized software development costs, supporting this business was impaired. An analysis was performed using the Discounted Cash Flow Method of Income Approach using Level 3 inputs under ASC 820. The net cash flows are those expected to be generated from the forecasted base of business, discounted at the Company's weighted average cost of capital of 23%. Based on this analysis, we recorded an impairment charge of $2.3 million in the year ending December 31, 2013.

Goodwill

The following table reflects the activity in our accounting for goodwill for the years ended December 31, 2013 and 2012 (in thousands):

Goodwill:	Total
Balance at December 31, 2011	$	5,268
Foreign currency adjustments	69
Balance at December 31, 2012	5,337
Foreign currency adjustments	31
Impairment	(5,368		)
Balance at December 31, 2013	$	—

At December 31, 2013, we reported a stockholder' deficit and therefore had a negative carrying value for its single reporting unit. In accordance with Accounting Standards Update 2010-28, due to certain qualitative factors constituting indicators of impairment, we performed a Step 2 analysis of goodwill during the quarter ended December 31, 2013. Such indicators of impairment included a significant decline in revenues, the loss of customers, a deterioration of the Company's liquidity situation and an event of default for the Company's borrowing arrangements. The Step 2 analysis indicated that the carrying value of goodwill exceeded the implied value of goodwill and a charge for impairment of goodwill of $5.4 million was recorded for the year ended December 31, 2013.

The following valuation methods were employed in determining the implied value of goodwill:

• The Discounted Cash Flow method of the Income Approach;

• The Multi-period Excess Earnings Method of the Income Approach was utilized to derive the fair value of the Customer Relationships;

• The Relief from Royalty Method of the Income Approach was utilized to derive the fair value of the Existing Technology and Trade Name; and

• The Cost Approach was utilized to derive the fair value of the Assembled & Trained Workforce.

The significant assumptions that are Level 3 unobservable inputs used in the impairment analysis are as follows:

• Weighted average cost of capital of 23%;

• Customer attrition rate of 20%; and

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• Terminal growth rate of 5%.

At December 31, 2013 and 2012, we had accumulated goodwill impairment losses of $16.9 million and $11.5 million, respectively.

Other Non-current Assets

Other non-current assets consist of the following (in thousands):

	December 31,
	2013		2012
Other non-current assets:
Deposits	$	4	$	26
Credit card reserve deposits	391		390
Deferred professional service costs	445		—
Other non-current assets	$	840	$	416

Other Accrued Liabilities

Other accrued liabilities consist of the following (in thousands):

	December 31,
	2013		2012
Other accrued liabilities:
Payable to customers	$	1,158	$	1,058
Accrued professional fees	663		652
Accrued VAT taxes	248		148
Accrued sales tax	229		320
Settlement liability	200		—
Reseller rebates	190		196
Other liabilities	977		768
Other accrued liabilities	$	3,665	$	3,142

5.     ACQUISITIONS

Optima Consulting Partners Ltd.

On January 29, 2010, our wholly-owned subsidiary Rainmaker Europe entered into and closed a stock purchase agreement with the shareholders of Optima, a B2B lead development provider with offices then in England, France and Germany. Under the terms of the agreement, we acquired all of the outstanding stock of Optima in exchange for a cash payment of $492,000, 480,000 shares of Rainmaker common stock valued at approximately $701,000, and a note payable of $350,000 payable in two installments with $200,000 plus accrued interest due eighteen months from the closing date and $150,000 plus accrued interest due twenty-four months after the closing date, subject to post closing conditions.

The stock purchase agreement also provided for two potential additional payments of $375,000 each in a combination of stock and/or cash contingent on the achievement of certain performance metrics in fiscal 2010 and fiscal 2011, and subject to post closing conditions. The fair value of the potential additional payments was derived using the Company's estimates (Level 3 inputs) of a 50% probability of achievement. The 2010 achievement level was not met. In 2010, the Company reduced the estimated fair value of the contingent consideration liability by $190,000 and recorded a corresponding gain on re-measurement of this liability within operating expenses. In 2011, the Company recorded a $44,000 loss on the re-measurement of this liability as it became apparent that a portion of the achievement level was met. As of December 31, 2011, the Company accrued $225,000 as contingent consideration relating to the Optima acquisition. In April 2012, the Company made a payment of $225,000 based on the achievement of performance metrics for the year ended December 31, 2011 per the stock purchase agreement. The liability was settled with both cash and equity consideration in accordance with the stock purchase agreement. Also see Note 8 for disclosure regarding the fair value of financial instruments.

As noted above, we issued common stock as consideration in the Optima acquisition during the two-year period ended December 31, 2012. The following table summarizes the common stock issued in this transaction:

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	(in thousands, except share and per share amounts)
Acquisition	Transaction Date	# of Common Shares Issued	Market Price Used per Share		Value of Shares Issued		Registration Effective Date
Optima Consulting Partners Ltd.	January 29, 2010	480,000	$	1.46	$	701	Not applicable

These shares were not registered, as they are sellable under Rule 144 of the Securities Act of 1933, as amended, and the holding period had expired as of December 31, 2012. Half of these shares were subject to a contractual agreement and remained non-transferrable until July 29, 2011.

6.    LONG-TERM DEBT OBLIGATIONS

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

	December 31, 2013			December 31, 2012
Comerica term loan	$	1,800		$	3,000
Comerica revolving line	1,230			1,493
Agility line of credit, net of discount of $96 and $0	404			—
Notes payable – insurance	207			34
Total notes payable	3,641			4,527
Less: current portion	(3,641		)	(2,727		)
Total notes payable, less current portion	$	—		$	1,800

Comerica Bank Credit Facility

On June 14, 2012, the Company entered into a Loan and Security Agreement with Comerica Bank (the “Comerica Credit Facility”), which replaced Bridge Bank, N.A. as the Company's primary lender. The maximum amount of credit available to the Company under the Comerica Credit Facility at inception was $5 million, comprised of a $3 million term loan facility (“Term Loan”) and a $2 million revolving line of credit (“Revolving Line”), which included a $500,000 sub-facility for letters of credit and certain credit card services. Under the terms of the Comerica Credit Facility, The Company could request advances under (i) the Term Loan until December 14, 2012, and (ii) the Revolving Line in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the borrowing base, which is 80% of our 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. Term Loan advances outstanding on December 14, 2012 became payable in thirty equal monthly installments of principal, plus accrued interest, beginning on January 1, 2013. Amounts borrowed under the Revolving Line became due on December 14, 2013, which was subsequently extended to May 1, 2014, as described below. As of December 31, 2013, there was $1.8 million outstanding under the Term Loan and $1.2 million outstanding under the Revolving Line

The interest rate per annum for advances under the Comerica Credit Facility is the Prime Referenced Rate, as defined in the Comerica Credit Facility, plus the applicable margin. Prior to March 1, 2014, 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. Beginning March 1, 2014, the applicable margin is two and one quarter percent (2.25%) per annum for the Revolving Line and one and one half percent (1.50%) per annum for the Term Loan. The interest rates on our Term Loan and Revolving Line were 5.50% and 4.75%, respectively, as of December 31, 2013.

The Comerica Credit Facility is secured by substantially all of Rainmaker’s consolidated assets. Rainmaker must comply with certain financial covenants, including maintaining a minimum liquidity ratio with respect to all indebtedness owing to Comerica Bank of at least 1.25 to 1.00. The Comerica Credit Facility contains customary covenants that will, subject to limited exceptions, require Comerica Bank’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 Comerica 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 Comerica Credit Facility. If we are not able to comply with such covenants or if any event of default otherwise occurs, our outstanding loan balance could become due and payable immediately and our existing credit facilities with Comerica Bank could be canceled. As of December 31, 2013, we were not in compliance with all loan covenants as we were past due on repayment of the amounts outstanding under the Revolving Line.

On February 27, 2014, Comerica Bank issued a notice of default as the amounts outstanding under the Revolving Line were past due. The notice of default also stated that Comerica Bank would not take any action to enforce its rights and remedies under the Comerica Credit Facility but reserved the right to do so in the future. On March 19, 2014, the Company and Comerica Bank

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entered into a forbearance agreement pursuant to which Comerica Bank agreed to extend the scheduled maturity date of the Revolving Line until May 1, 2014. In addition, under the terms of the forbearance agreement, (i) the amounts outstanding under the Term Loan are due on May 1, 2014, coterminous with the Revolving Line, (ii) advances under the Revolving Line are limited to $1,000,000 at any time outstanding, (iii) restricted cash in the amount of $1,562,000 will be held in a segregated deposit account at Comerica Bank as additional collateral for the Term Loan, (iv) effective March 1, 2014, the applicable margin for the Revolving Line was increased to two and one quarter percent (2.25%), and for the Term Loan was decreased to one and one half percent (1.50%), and (v) the Company must satisfactorily address a material accounts payable owed to a customer by April 1, 2014.

Agility Capital Credit Facility

On October 30, 2013, the Company closed a Loan Agreement (the "Agility Loan Agreement") with Agility Capital II, LLC (“Agility”), providing for a revolving line of credit of up to $500,000, which amount may be increased to $650,000 under certain conditions (the “Maximum Revolving Line”). The Company may request advances under the Agility Loan Agreement in an aggregate outstanding amount not to exceed the lesser of (i) the applicable Maximum Revolving Line or (ii) a borrowing base equal to 30% of the Company's eligible accounts receivable balances. Amounts borrowed under the Agility Loan Agreement are due on the earlier of (i) the date on which the Company’s borrowings under its loan agreement with Comerica Bank become due and payable, and (ii) October 25, 2014. The interest rate per annum for advances under the Loan Agreement is 12.00%. If a default occurs under the Loan Agreement, the interest rate per annum for advances under the Loan Agreement would increase to 18.00%. In addition, if a default in the payment of principal occurs under the Loan Agreement, the Company would be required to pay a default fee equal to $10,000 plus an additional $15,000 for each subsequent 30-day period during which such payment default remains uncured. The Agility Loan Agreement became due on December 14, 2013, commensurate with the Comerica Credit Facility. On February 28, 2014, Agility issued a notice of default due to the notice of default issued by Comerica Bank, as discussed above. The Company paid a default fee of $10,000 to Agility on February 28, 2014 for failure to pay principal when due. Such default was subsequently cured as a result of the extension of the maturity date to May 1, 2014, commensurate with the extension of the scheduled maturity date of the Revolving Line.

The Agility Loan Agreement is secured by substantially all of Rainmaker’s consolidated assets. The Agility Loan Agreement contains customary covenants that will, subject to limited exceptions, require Agility’s approval to, among other things, (i) create liens; (ii) acquire or transfer assets outside of the ordinary course of business; (iii) pay cash dividends; and (iv) merge or consolidate with another company. The Agility Loan Agreement also requires that the Company comply with the financial covenants contained in its loan agreement with Comerica Bank. The Agility Loan Agreement also provides for customary events of default, including nonpayment, breach of covenants, payment defaults of other indebtedness, and certain events of bankruptcy, insolvency and reorganization that may result in acceleration of outstanding amounts under the Agility Loan Agreement. The Company’s obligations under the Agility Loan Agreement are subordinated to the Company’s obligations under its loan agreement with Comerica Bank, pursuant to a subordination agreement between Agility and Comerica Bank. As of December 31, 2013, there was $500,000 outstanding under the Agility Loan Agreement.

In addition, Agility received a warrant to purchase 216,667 shares of the Company's common stock. The warrant has a 7-year term and an exercise price of $0.45 per share. The warrant may also be exercised by way of a cashless exercise. The 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 future issuances of common stock at a price below the warrant's exercise price, stock dividends, stock splits and other similar events. The fair value of the warrant upon issuance is recorded as a discount to the face value of the Maximum Revolving Line and is amortized to interest expense over the one year life of the note.

Bridge Bank Credit Facility

In April 2004, we entered into a business loan agreement and a commercial security agreement with Bridge Bank (the “Bridge Credit Facility”). The Bridge Credit Facility, as last amended in November 2011, had a maturity date of December 10, 2012. The maximum amount of credit that could be borrowed under the Bridge Credit Facility was $6 million, subject to a borrowing base, and included a $1.0 million sub-facility for standby letters of credit. The interest rate per annum for advances under the Bridge Credit Facility was equal to the greater of (i) 3.5%, or (ii) one quarter of one percent (0.25%) above the prime lending rate. In June 2012, we terminated the Bridge Credit Facility and repaid all borrowings thereunder.

In July 2005, 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 issued by Bridge Bank was replaced in July 2012 by a letter of credit in like amount issued by Comerica Bank under the Credit Facility described above.

In December 2010, we issued an irrevocable standby letter of credit in the amount of 250,000 Great Britain Pounds to Barclays Bank PLC to secure our overdraft facility described below. The letter of credit was issued by Bridge Bank and we terminated this letter of credit in June 2012.

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Overdraft Facility

On November 25, 2010, our subsidiary, Rainmaker EMEA Limited, established an overdraft facility with Barclays Bank PLC in the amount of 247,500 Great Britain Pounds. This overdraft facility was secured by a 250,000 Great Britain Pounds standby letter of credit issued by Bridge Bank as noted above. In June 2012, we repaid and terminated the overdraft facility.

Notes Payable – Optima acquisition

On January 29, 2010, we entered into and closed a stock purchase agreement for Optima Consulting Partners Limited (“Optima”). In accordance with this agreement, we entered into a note payable for $350,000 payable in two installments, with $200,000 plus accrued interest due eighteen months from the closing date and $150,000 plus accrued interest due twenty-four months after the closing date. We paid the first installment of the note in July 2011 and fully settled the liability by paying the second installment in January 2012. The interest rate on the note payable was 0.4% per year and we recorded the present value of the note payable discounted over two years at a rate of 6.2%. The resulting discount on note payable was amortized over the two-year term of the note.

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 was 6.07% and the note was payable in nine equal monthly installment payments beginning in September 2012. The note was fully paid in July 2013.

On December 11, 2013, we entered into an agreement with AON Private Risk Management to finance our 2013 to 2014 insurance premiums with First Insurance Funding Corp. in the amount of $237,000. The interest rate on the note payable is 4.99% and the note is payable in eight equal monthly installment payments beginning in December 2013. As of December 31, 2013, the remaining liability under this financing agreement was $207,000.

Future debt maturities at December 31, 2013 are as follows (in thousands):

2014	$	3,737
2015 and thereafter	—
Total	$	3,737

7.    COMMITMENTS AND CONTINGENCIES

Lease Commitments

As of December 31, 2013, our operating commitments include operating leases for our facilities and certain property and equipment that expire at various dates through 2015 which are described in more detail below. These arrangements allow us to obtain the use of 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 of 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 Campbell operating lease, effective February 1, 2013, providing an additional 3,936 square feet of space. The fourth amendment did not modify the three-year term of the third amendment to the Campbell operating lease. Annual base rent under the amended lease was approximately $365,000 in the first year of the lease, or $208,000 after deducting free base rent in the first three months of the amended lease, and increases by approximately 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 an irrevocable standby letter of credit issued to the landlord was reduced to $40,000 for a security deposit. On July 2, 2013, we executed the fifth amendment to the Campbell operating lease effective July 1, 2013, providing an additional 6,771 square feet of space. The fifth amendment to the Campbell operating lease did not change the terms of the lease as previously amended. Annual base rent under the amended lease is approximately $536,000 in the first year of the lease and increases by 3% each year thereafter for the remaining term. The fifth amendment to the Campbell operating lease increased the irrevocable standby letter of credit issued to the landlord to $61,000.

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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 approximated $212,000, or $18,000 monthly. Additionally, we paid 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 were to be consolidated in our headquarters in Campbell, California and our United Kingdom location as part of a strategic reallocation of resources designed to increase levels of service to customers and generate operating cost savings. On May 10, 2013, the Company agreed to terminate the Austin facility lease effective September 15, 2013. During the year ended December 31, 2013, the Company recorded a charge of $179,000 related to the Austin facility closure.

In October 2012, we executed an office lease agreement for office space in Godalming outside of London, where we have call center operations. The facility’s 5,000 square feet of call center space will be utilized to better accommodate our current operations in Europe and provide additional space for expansion. The lease has a thirty-month term and terminates in March 2015. Annual base rent for this facility is 28,000 Great Britain Pounds. Based on the exchange rate at December 31, 2013, annual rent is approximately $45,000.

Rent expense under operating lease agreements for continuing operations during the years ended December 31, 2013, 2012 and 2011 was $535,000, $773,000 and $903,000 respectively. Rent expense for the year ended December 31, 2011 includes $99,000 related to the closure of our Montreal facility. The Company incurred rent expense under operating lease agreement for our discontinued operations during the years ended December 31, 2013, 2012 and 2011 of $0, $158,000 and $207,000, respectively.

Future minimum payments under our non-cancelable operating leases with terms in excess of one year at December 31, 2013 are as follows (in thousands):

2014	$	590
2015	566
2016 and thereafter	46
Total minimum payments	$	1,202

Contingencies

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 sought full payment of severance benefits in the amount of approximately $1.0 million, plus compensation for unused vacation, related penalties and punitive damages. On March 21, 2013, the Company filed a responsive pleading in the arbitration proceedings. On May 15, 2013, the American Arbitration Association appointed an arbitrator. Thereafter, Mr. Silton withdrew his arbitration claim and on May 22, 2013, filed a complaint against the Company in the Santa Clara Superior Court. The allegations and causes of action were the same as the complaint filed with the American Arbitration Association. On July 5, 2013, the Company filed an answer to Mr. Silton's complaint and a cross-complaint against Mr. Silton. On or about August 1, 2013, Mr. Silton filed an answer to the cross-complaint. Between July and December 2013, the parties served and responded to written discovery requests and produced documents. In January 2014, the parties agreed to proceed to mediation. On January 28, 2014, the parties reached a settlement at mediation and executed a confidential settlement agreement. Pursuant to the settlement agreement, and in exchange for a release of claims, Mr. Silton received a payment from the Company's insurer and 1,000,000 shares of the Company's common stock. A portion of the payment and the shares of common stock was paid to Mr. Silton's legal counsel. After effectuating the terms of the settlement, the case was formally dismissed on March 17, 2014. In connection with the settlement agreement, the Company recorded a charge of $200,000 in the year ended December 31, 2013.

On July 9, 2013, YKnot Holdings LLC (“YKnot”) filed a complaint seeking damages against the Company in the Santa Clara Superior Court alleging breach of contract and related causes of action arising from the eCommerce Processor Agreement (the “Agreement”) entered into by YKnot and the Company in January 2012.  The central allegation in the complaint alleged that the Company failed to timely pay over certain reserves held by the Company against chargebacks and returns relating to YKnot's products in accordance with the Agreement.  On August 12, 2013, the Company filed an answer to the complaint and filed a cross-complaint against YKnot.  In January 2014, the parties agreed to proceed to mediation. On January 28, 2014, the parties reached a settlement at mediation and executed a settlement agreement pursuant to which the Company and YKnot agreed to a mutual "walk away" settlement and release with no money or other consideration paid to either party.

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From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of operations.

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. On October 31, 2012, the Company executed a third amendment to the Campbell operating lease for our corporate headquarters in which the security deposit was reduced to $30,000. On January 31, 2013, the Company executed a fourth amendment to the Campbell operating lease in which the security deposit was increased to $40,000. On July 2, 2013, the Company executed a fifth amendment to the Campbell operating lease in which the security deposit was increased to $61,000.

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 December 31, 2013 and 2012.

Restricted Cash

Restricted cash represents the reserve for the refunds due for non-service payments inadvertently paid to us by our clients’ customers instead of paid directly to our clients. At the time of cash receipt, we record a current liability for the amount of non-service payments received.

8.    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 years ended December 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
December 31, 2013
Common stock warrant liability	$	348	$	89		$	(344	)	$	—		$	93
December 31, 2012
Contingent consideration — Optima (1)	$	225	$	(225	)	$	—		$	—		$	—
Common stock warrant liability	$	517	$	—		$	(169	)	$	—		$	348
December 31, 2011
Contingent consideration — Optima (1)	$	182	$	—		$	44		$	(1	)	$	225
Common stock warrant liability	$	—	$	815		$	(298	)	$	—		$	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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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
December 31, 2013
Assets:
Money market funds (1)	$	1,641	$	—	$	—
Liabilities:
Common stock warrant liability (2)	$	—	$	—	$	93
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 6 - Long-Term Debt Obligations and Note 10 - 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 common stock warrant liability at December 31, 2013 and 2012, which were determined in a manner consistent with that described for stock option awards as set forth in Note 10:

	December 31,
	2013		2012
Expected life in years	2.50 - 6.75		3.50
Volatility	88.84	%	65.99	%
Risk-free interest rate	0.78% to 2.45%		0.34	%
Dividend rate	—	%	—	%

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

The amounts reported as fair value of notes payable are at carrying value at December 31, 2013 and 2012. Accounts payable and notes payable are estimated at December 31, 2013 to have a fair value, using Level 3 input assumptions, of $6.2 million and $3.6 million, respectively, for financial statement disclosure purposes only. At December 31, 2012 the carrying value of notes payable approximated fair value. The Company also used Level 3 input assumptions to determine the fair value of goodwill and certain capitalized software which are not recorded on a recurring fair value basis.

9.     INCOME TAXES

The components of loss before income taxes from continuing operations are as follows (in thousands):

	Year Ended December 31,
	2013			2012			2011
United States	$	(20,536	)	$	(3,540	)	$	(10,176	)
Foreign	(1,142		)	(184		)	(253		)
Loss before income tax expense	$	(21,678	)	$	(3,724	)	$	(10,429	)

Income tax expense for the years ended December 31, 2013, 2012 and 2011 consists of the following (in thousands):

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	Year Ended December 31,
	2013			2012		2011
Current:
Federal	$	—		$	—	$	(38	)
State	(16		)	43		44
Foreign	(100		)	104		(74		)
	(116		)	147		(68		)
Deferred:
Federal	(522		)	86		86
State	(37		)	8		4
Foreign	18			—		(3		)
	(541		)	94		87
Total income tax (benefit) expense	$	(657	)	$	241	$	19

Income tax expense for discontinued operations for the years ended December 31, 2013, 2012 and 2011 (in thousands) is $0, $95, and $96, respectively. The income tax benefit recorded in the year ended December 31, 2013 is primarily a result of the impairment of goodwill.

A reconciliation between the income tax benefit computed by applying the U.S. federal tax rate to loss before income taxes and actual income tax expense for the years ended December 31, 2013, 2012 and 2011 is as follows (in thousands):

	Year Ended December 31,
	2013			2012			2011
Tax benefit computed at federal statutory rate	$	(7,353	)	$	(1,266	)	$	(3,546	)
Effect of state income taxes	(48		)	36			33
Foreign rate differential	466			61			8
Change in valuation allowance	6,284			1,163			3,392
Stock based compensation	120			96			391
Other	(126		)	151			(259		)
Total income tax (benefit) expense	$	(657	)	$	241		$	19

Deferred income taxes reflect the net tax effects of temporary differences between the value of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets as of December 31, 2013 and 2012 are as follows (in thousands):

	December 31,
	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	41,014		$	27,841
Depreciation and amortization	3,919			2,778
Accrued reserves and other	1,036			1,162
Total deferred tax assets	45,969			31,781
Valuation allowance	(45,964		)	(31,781		)
Net deferred tax asset	5			—
Deferred tax liabilities:
Fixed Assets	(31		)	—
Acquired goodwill	—			(567		)
Total deferred tax liability	$	(26	)	$	(567	)

Realization of deferred tax assets is dependent upon future taxable earnings, the timing and amount of which are uncertain. Due to the cumulative operating losses in earlier years and continued significant loss in the most recent year, management believes

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that it is more likely than not that the deferred tax assets will not be realizable in future periods. The valuation allowance for deferred tax assets increased approximately $13.5 million and $1.2 million during the years ended December 31, 2013 and 2012, respectively. The increase in valuation allowance is mainly due to current year losses.

As of December 31, 2013, we have net operating loss carryforwards for federal and state of California tax purposes of $101.6 million and $34.3 million, respectively. The net operating loss carryforwards will expire at various dates beginning in 2020 through 2033 for federal tax purposes, if not utilized. The net operating loss for California tax purposes will begin to expire in 2014 through 2033, if not utilized. As of December 31, 2013, we also have a capital loss of $11.5 million and $4.5 million, respectively, for federal and California income tax purposes. Both federal and California capital losses will expire in 2017, if not utilized.

Internal Revenue Code Section 382 places a limitation (the "Section 382 Limitation") on the amount of taxable income that can be offset by net operating loss carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has similar rules limiting net operating loss carryforwards. We performed a new analysis of prior ownership changes under IRC Section 382 up to December 31, 2013. The analysis concluded that the Company had not incurred any new ownership changes since the last performed analysis as of December 31, 2006.

Federal income taxes have not been provided for on a portion of the unremitted earnings of foreign subsidiaries because such earnings are intended to be permanently reinvested. There are no unremitted earnings as of December 31, 2013.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. There are no ongoing examinations by income taxation authorities at this time. The Company’s tax years from 2000 to 2013 remain open to United States federal income tax and California examination due to the carryforward of unutilized net operating losses. The Company’s tax years from no earlier than 2009 and forward remain open to examination in certain foreign tax jurisdictions.

The Company does not anticipate any significant changes to the FASB ASC 740 liability for unrecognized tax benefits within twelve months of this reporting date. The Company adopted the provisions of FASB ASC 740 as of January 1, 2007. The amount of unrecognized tax benefit as of December 31, 2013 and 2012 is not material.

The Company has adopted the accounting policy that interest and penalties will be classified as a component of operating income and losses. No interest and penalties were recorded as of December 31, 2013 and 2012.

In September 2013, the IRS released final tangible property regulations ("repair regulations") under Sections 162(a) and 263(a) of the Internal Revenue Code, regarding the deduction and capitalization of amounts paid to acquire, produce, or improve tangible property. The final regulations replace temporary regulations that were issued in December 2011 and are effective for tax years beginning January 1, 2014, with early adoption permitted for tax years beginning January 1, 2012. The final regulations are effective for the Company for its tax year beginning January 1, 2014, and the Company is currently evaluating the impact of the final repair regulations on its consolidated financial statements but does not expect this to have a material impact to the financial statements.

10.    STOCKHOLDERS' EQUITY

Preferred Stock

We have 5,000,000 shares of preferred stock authorized. Our board of directors has the authority to issue the preferred stock and to fix or alter the rights, privileges, preferences and restrictions related to the preferred stock, and the number of shares constituting any such series or designation. No shares of preferred stock were outstanding at December 31, 2013 and 2012.

Common Stock

In June 2011, we issued and sold 3.7 million shares of our common stock, together with warrants to purchase up to an aggregate 1.6 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.

In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross cash proceeds of approximately $5.8 million. The $5.5 million of net cash proceeds from the offering were used for general corporate purposes, including working capital and capital expenditures.

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Common Stock Warrants

The 1.5 million warrants issued to investors in the June 2011 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.

In October 2013, we issued a warrant to Agility Capital II, LLC to purchase 216,667 shares of the Company's common stock. The warrant has a 7-year term and an exercise price of $0.45 per share. The warrant may also be exercised by way of a cashless exercise. The 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 future issuances of common stock at a price below the warrant's exercise price, 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 in the consolidated statement of operations and comprehensive loss, under the caption “Gain due to change in fair value of warrant liability.” See Note 8 for disclosures regarding the fair value of financial instruments. In the years ended December 31, 2013 and 2012, we recorded gains of $344,000 and $169,000, respectively, on the fair value re-measurement of the warrants.

The following table summarizes the terms of those outstanding warrants:

Date of Issuance	Warrants Outstanding at December 31, 2013	Exercise Price	Term from Date of Issuance
June 22, 2011	110,092	$1.05	Five Years
June 24, 2011	1,467,887	$1.40	Five Years
October 30, 2013	216,667	$0.45	Seven Years

Treasury Stock

During the three year period ended December 31, 2013, the Company had restricted stock awards that vested. The Company is required to withhold income taxes at statutory rates based on the closing market value of the vested shares on the date of vesting. The Company offers employees the ability to sell their vested shares to the Company in an amount equal to the amount of income taxes to be withheld. During 2013, the Company purchased 273,724 shares with a cost of approximately $149,000 from employees to cover federal and state taxes due. During 2012, the Company purchased 152,399 shares with a cost of approximately $122,000 from employees to cover federal and state taxes due. During 2011, the Company purchased 398,741 shares with a cost of approximately $338,000 from employees to cover federal and state taxes due.

Equity Incentive Plans

2003 Stock Incentive Plan. In 2003, the Board of Directors adopted the 2003 Stock Incentive Plan (“2003 Plan”), which was approved by stockholders on May 14, 2003. The 2003 Plan was amended and restated effective May 15, 2007, again on May 15, 2008, again on February 18, 2013 and again on June 5, 2013. The 2003 Plan was amended in 2007 to provide for new annual grants to non-employee members of the Board to reflect the 5-for-1 reverse stock split of our common stock, which was effective as of December 15, 2005, and to reflect certain changes in applicable tax, securities and accounting rules arising after the date the 2003 Plan was adopted. The 2003 Plan was amended again in 2008 with the approval of the stockholders to increase the aggregate number of shares of common stock available for issuance under the 2003 Plan by 950,000 shares, to increase the maximum number of shares that could be issued under the annual evergreen provision of the 2003 Plan from 600,000 shares to 1,000,000 shares (or, if less, 4% of the total outstanding shares), and to permit awards with respect to such increased number of shares potentially through May 15, 2018. The 2003 Plan was further amended in February 2013 to increase the automatic annual grants to non-employee Board members occurring on the date of each annual stockholders meeting from 20,000 restricted shares to 100,000 restricted shares, to change the initial grant made to new directors upon their first election or appointment as a non-employee Board member from 20,000 options to 50,000 restricted shares, and to allow each non-employee Board member to elect to take all or a portion of such director's annual retainer fee or meeting fees in common stock in lieu of cash. The 2003 Plan was amended again in June

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2013 with the approval of the stockholders to increase the aggregate number of shares of common stock available for issuance under the 2003 Plan by 1,200,000 shares, to increase the maximum number of shares that can be issued under the annual evergreen provision of the 2003 Plan from 1,000,000 shares to 2,000,000 shares (or, if less 4% of the total outstanding shares) and to extend the term of the 2003 Plan through June 5, 2023.

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). Options granted under the 2003 Plan are priced at not less than 100% of the fair market value of the common stock on the date of grant and have a maximum term of ten years from the date of grant. In the case of incentive stock options granted to employees who own 10% or more of our outstanding common stock, the exercise price may not be less than 110% of the fair value of the common stock on the date of grant and such options will have a maximum term of five years from the date of grant. Options granted to employees and consultants become exercisable and vest in one or more installments over varying periods ranging up to four years as specified by the board of directors. Unexercised options generally expire upon, or within, three months of termination of employment, depending on the circumstances surrounding termination. Restricted stock awards granted to employees, consultants and non-employee directors typically vest over a one to four year period from the date of grant. Vesting of these awards is contingent upon continued service and any unvested awards are forfeited immediately upon termination of service, subject to the discretion of the board of directors.

The 2003 Plan also provides for a fixed issuance amount to non-employee members of the board of directors at prices not less than 100% of the fair value of the common stock on the date of grant and a maximum term of ten years from the date of grant. Generally, options granted to non-employee members of the board of directors are immediately exercisable and vest in two or more installments over periods ranging from twelve to twenty-four months from the date of grant. Unexercised options expire twelve months from the termination date of service as a non-employee member of the board of directors.

At the beginning of the 2013 and 2012 fiscal years, the number of shares authorized for grant under the 2003 Plan automatically increased on the first trading date of January by an amount equal to the lesser of 4% of our outstanding common stock at December 31 or 1,000,000 shares. For both 2013 and 2012, the number of shares authorized for grant under the 2003 Plan increased by 1,000,000 shares. Shares forfeited that were granted under the 2003 Plan are available for future grant. In the future, the Company may seek stockholder approval to increase the shares available to grant to employees, consultants, and non-employee directors based on the growth of the Company. Total shares available for grant under the 2003 Plan was 1,252,000 at December 31, 2013.

2012 Inducement Equity Incentive Plan. On December 21, 2012, the Board of Directors approved and adopted the Company's 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 was not required under Nasdaq Capital Market and SEC rules then applicable to the Company. Options granted under the 2012 Plan are priced at not less than 100% of the fair market value of the common stock on the date of grant and have a maximum term of ten years from the date of grant. Awards granted to employees under the 2012 Plan vest in accordance with a schedule determined by the Compensation Committee of our Board of Directors. In December 2012, the Compensation Committee granted an inducement equity award to Donald Massaro under the Company's 2012 Plan in connection with his entering into employment as our President and Chief Executive Officer. The number of shares subject to the awards issued to Mr. Massaro and the related vesting schedules are as follows: (1) a grant of 500,000 restricted shares of common stock which vest 1/16th quarterly over a four year term, (2) an option to purchase 500,000 shares of common stock which vest 1/16th quarterly over a four year term and (3) a grant of 250,000 restricted shares of common stock which vested in a single installment on March 31, 2013. On February 19, 2013, the Company authorized an additional 375,000 shares under the 2012 Plan in connection with an inducement equity award of 375,000 restricted shares of common stock issued to the Company's then incoming chief financial officer. Total shares available for grant under the 2012 Plan was 281,250 at December 31, 2013.

Stock-Based Compensation Expense

We account for stock-based compensation awards issued to employees and directors using the guidance from ASC 718, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains employee services in share-based payment transactions. This guidance requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of comprehensive loss.

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

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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 years ended December 31, 2013, 2012 and 2011 (in thousands):

	Year ended December 31,
	2013		2012		2011
Stock-based compensation expense from continuing operations included in:
Cost of services	$	75	$	84	$	73
Sales and marketing	150		51		169
Technology and development	215		116		186
General and administrative	1,070		559		1,594
	$	1,510	$	810	$	2,022

At December 31, 2013, approximately $1,167,000 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 $432,000 will be expensed in 2014 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. 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. 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.

During the years ended December 31, 2013, 2012 and 2011, 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:

	Year Ended December 31,
	2013		2012		2011
Expected life in years	3.94		3.76		3.76
Volatility	73.52	%	65.99	%	65.99	%
Risk-free interest rate	0.50	%	0.38	%	1.00	%
Dividend rate	—	%	—	%	—	%
Forfeiture Rates:
Options	21.53	%	27.61	%	27.61	%
Restricted stock	19.43	%	15.04	%	15.04	%

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A summary of option activity under our active Stock Incentive Plans for the years ended December 31, 2013, 2012 and 2011 is as follows:

	Number of Shares (in thousands)		Weighted Average Exercise Price
Balance at December 31, 2010	674		$	2.25
Granted	600		0.98
Exercised	(15	)	1.00
Canceled	(238	)	1.96
Balance at December 31, 2011	1,021		1.59
Granted	585		0.70
Exercised	—		—
Canceled	(437	)	1.29
Balance at December 31, 2012	1,169		1.25
Granted	2,155		0.46
Exercised	(5	)	0.81
Canceled	(621	)	1.00
Balance at December 31, 2013	2,698		$	0.67

The weighted average grant date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 was $0.33, $0.31 and $0.47, respectively, per share.

The following table summarizes information about stock options outstanding as of December 31, 2013:

	Options Outstanding						Options Vested
Range of Exercise Prices	Number Outstanding (in thousands)	Weighted Average Contractual Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value at Closing Price of $0.24 on 12/31/13		Number Exercisable (in thousands)	Weighted Average Exercise Price		Aggregate Intrinsic Value at Closing Price of $0.24 on 12/31/13
$0.35 - $  0.40	829	9.33	$	0.40	$	—	110	$	0.40	$	—
$0.41 - $  0.45	462	9.56	0.44		—		33	0.45		—
$0.46 - $  0.68	501	8.78	0.55		—		75	0.55		—
$0.69 - $ 0.69	500	8.99	0.69		—		125	0.69		—
$0.70 - $13.20	406	5.86	1.64				279	2.01
$0.35 - $13.20	2,698	8.68	$	0.67	$	—	622	$	1.20	$	—

The aggregate intrinsic value represents the net value which would have been received by the option holders had all option holders exercised their in-the-money options as of December 31, 2013. The Company received cash proceeds from the exercise of stock options of $4,000 and $15,000 in the years ended December 31, 2013 and 2011, respectively. There were no options exercised during the year ended December 31, 2012. The total intrinsic value of the options exercised during the years ended December 31, 2013 and 2011 was approximately $1,000 and $4,000, respectively.

Restricted stock awards are issued from the 2003 and 2012 Plans and any issuances reduce the shares available for grant. Restricted stock awards are valued at the closing market price of our stock on the date of the grant. During the year ended December 31, 2013, we granted restricted stock awards totaling 650,000 shares to four members of our board of directors with immediate vesting. One restricted stock award for 250,000 shares to one director was subsequently rescinded. During the year ended December 31, 2013, we granted restricted stock awards totaling 100,000 shares to two board advisors with vesting terms of one year and a fair value of $35,000 at date of grant. The following table summarizes the activity with regard to restricted stock awards during the years ended December 31, 2013, 2012 and 2011:

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	Number of Shares (in thousands)		Weighted Average Grant Price
Balance at December 31, 2010	2,457		$	1.47
Granted	995		1.03
Vested	(1,363	)	0.86
Forfeited	(743	)	1.36
Balance at December 31, 2011	1,346		1.03
Granted	2,145		0.79
Vested	(720	)	0.78
Forfeited	(516	)	0.93
Balance at December 31, 2012	2,255		0.78
Granted	1,518		0.70
Rescinded	(250	)	0.93
Vested	(1,986	)	0.52
Forfeited	(955	)	0.80
Balance at December 31, 2013	582		$	0.69

The total fair value of the nonvested restricted stock awards at grant date was $402,000 as of December 31, 2013.

11.     RELATED PARTY TRANSACTIONS

In June 2011, we issued and sold 3.7 million shares of our common stock, together with warrants to purchase up to an aggregate 1.6 million additional shares, in a public offering. Members of our board of directors purchased 135,660 shares at a price of $1.29 per share. They also received warrants to purchase up to an additional 54,264 shares with an initial exercise price of $1.40 per share. See Note 10 to our consolidated financial statements for more information regarding our equity offering.

In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross cash proceeds of 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.

12.    EMPLOYEE BENEFIT PLAN

We have a defined contribution benefit plan established under the provisions of Section 401(k) of the Internal Revenue Code. All employees may elect to contribute up to 20% of their compensation to the plan through salary deferrals, subject to annual limitations. Participants’ contributions are fully vested at all times. During the years ended December 31, 2013, 2012 and 2011, the Company had no matching contributions to the plan and incurred a credit of approximately $14,000, $19,000 and $12,000, respectively, relating to forfeitures under the plan.

13.     INTEREST AND OTHER EXPENSE, NET

The components of interest and other expense, net are as follows (in thousands):

	Year Ended December 31,
	2013	2012		2011
Interest expense, net	228	237		193
Currency transaction (gain) loss	35	(21	)	(15	)
Other	31	—		—
Interest and other expense, net	294	216		178

14.    SUBSEQUENT EVENTS

On January 28, 2014, we entered into a settlement agreement to settle a claim filed by Michael Silton, the Company's former Chief Executive Officer. See Note 7 for a discussion of the settlement agreement with Mr. Silton.

On January 28, 2014, we entered into a settlement agreement with YKnot Holdings LLC ("Yknot") to settle a claim filed by YKnot. See Note 7 for a discussion of the settlement agreement with Yknot.

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On February 27, 2014, Comerica Bank issued a notice of default as the amounts outstanding under the Revolving Line were past due. On February 28, 2014, Agility Capital II LLC ("Agility") issued a notice of default due to the notice of default issued by Comerica Bank. On March 19, 2014, the Company and Comerica Bank entered into a forbearance agreement pursuant to which Comerica Bank agreed to extend the scheduled maturity date of the Revolving Line until May 1, 2014. The Agility default was subsequently cured as a result of the extension of the maturity date to May 1, 2014, commensurate with the extension of the scheduled maturity date of the Revolving Line. See Note 6 for a discussion of the debt obligations to Comerica Bank and Agility.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(3) and 15d-15(e) under the Exchange Act, as of December 31, 2013.

Based on the evaluation as of December 31, 2013, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2013 to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and information required to be disclosed in the reports that it files or submits under the Exchange Act is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Our management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining an adequate system of internal control over financial reporting. This system of internal accounting controls is designed to provide reasonable assurance that assets are safeguarded, transactions are properly recorded and executed in accordance with management’s authorization and financial statements are prepared in accordance with GAAP. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework in Internal Control—Integrated Framework (1992 version) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2013, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this annual report.

(c) Changes in Internal Control Over Financial Reporting

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There have been no changes in our internal control over financial reporting during our quarter ended December 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

On December 6, 2013, Mr. James Chung, our former Chief Technology Officer and one of the “named executive officers” identified in our 2013 proxy statement, resigned from his employment with the Company.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers of the Registrant

The following table provides the name, age and positions of our directors and executive officers as of March 25, 2014.

Name	Age	Position
Donald Massaro	70	President, Chief Executive Officer, and Chairman
Bradford Peppard	59	Exeutive Vice President, Chief Financial Officer, Corporate Secretary and Director
C. Finnegan Faldi (1) (2) (3)	46	Director
James Hopkins	68	Director
Eric Salzman (1) (2) (3)	46	Director

___________________

(1) Member of the Audit Committee

(2) Member of the Governance and Nominating Committee

(3) Member of the Compensation Committee

Set forth below is a description of the backgrounds, including business experience over the past five years, for each of our directors and executive officers.

Donald J. Massaro, 70, joined our Company as President and Chief Executive Officer and a member of the Company's Board of Directors in December 2012. Mr. Massaro brings more than 30 years of experience, leading technology-based companies and bringing products to market. Most recently, he served as Chief Executive Officer of Sendmail, Inc., a leader in messaging infrastructure, from September 2006 to August 2012. Previously, Mr. Massaro was the President, CEO and founder of Reconnex Inc. from May 2003 to June 2005. From July 2001 to May 2003, he served as President and CEO of Array Networks, Inc. Mr. Massaro holds a BS degree in Aeronautical Engineering from the University of Notre Dame, a Master of Science degree in mechanical engineering from Northwestern University and studied for his PhD at University of California at Berkeley. Mr. Massaro’s previous work experience, including as a CEO of various other companies, enables him to bring valuable perspectives that are core to our Company’s business.

Bradford Peppard, 59, has served as Executive Vice President, Chief Financial Officer and Corporate Secretary since October 2013 and as a director of our Company since 2004 . Since 2002, Mr. Peppard has been President of Lime Tree Productions, a strategic marketing consulting firm. Mr. Peppard also served as a Director of International Sales at Smith Micro. From 1999 to 2002, Mr. Peppard was President of CinemaScore Online, an online source of movie rating information. Prior to that, Mr. Peppard held Vice President of marketing positions at Aladdin Systems, Software Publishing Corporation and Quarterdeck Office Systems. Mr. Peppard’s financial experience includes positions as Treasurer of Trader Joe’s, Director of Finance and Administration (Controller) for CBS TV and CBS/Fox Studios, an MBA from Stanford Business School with a concentration in Finance, and prior audit committee experience with a number of public companies, including: Aladdin Systems, Monterey Bay Technology, and Oppenheimer Industries.

C. Finnegan Faldi, 46, has served as a director of our Company since November 2012 and is currently Chairman of the Governance and Nominating Committee and a member of our Audit Committee and our Compensation Committee. Mr. Faldi brings nearly 20 years of senior management experience in both start-ups and public technology companies. Mr. Faldi is currently serving as President and Chief Executive Officer of TruEffect, Inc. Prior to that, Mr. Faldi served as Chief Operating Officer at Datalogix, a database marketing and digital media company, from October 2011 to October 2012. From December 2007 to October 2011, he served as a Vice President over a number of Yahoo’s businesses including Global Broadband, Search Affiliate, NA Mobile and Strategic Partnerships & Operations. Prior to that, he held various senior operational and business development positions including managing the sales, marketing, product and business development teams for both the eCommerce and Direct Merchant

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business at Solidus Networks from August 2004 to November 2007. Mr. Faldi received a BS degree in Economics, with a concentration in Strategic and Entrepreneurial Management, from the Wharton School at the University of Pennsylvania. He earned his MBA degree from the Graziadio School at Pepperdine University.

Eric Salzman, 46, has served as a director of our Company since October 2013 and is currently the Chairman of the Audit Committee and a member of our Compensation Committee and our Governance and Nominating Committee.  Mr. Salzman has nearly 20 years of experience in the financial services industry with expertise in M&A, private equity, special situations and restructuring.  He currently serves as the Managing Member of SarniHaan Capital Partners LLC, a boutique consulting firm he established to provide high impact strategic advice to public and private technology companies and maintains an investment banking affiliation with Monarch Capital Group, LLC.  Mr. Salzman previously spent several years at Lehman Brothers Inc., including as Managing Director in the Private Equity and Principal Investing Group and Managing Director in the Global Trading Strategies Division.  Mr. Salzman also serves as a director of 8x8, Inc., a provider of cloud-based unified communications and collaboration solutions , where he is currently the Chairman of the Compensation Committee and a member of the Audit and Governance and Nominating Committees.  Mr. Salzman graduated with an MBA from the Harvard Graduate School of Business and a BA Honors from the University of Michigan.

James Hopkins, 68, has served as a director of our Company since December 2013. Mr. Hopkins has over 30 years of experience working with small and medium sized technology companies. Most recently, he served as CEO of Certara from March 2007 to December 2013, when Certara was acquired by Arsenal Capital Partners, a New York-based private equity company. Certara is engaged in the business of providing modeling and informatics software and services to pharmaceutical and biotechnology companies to assist them in developing new drugs. Prior to that, Mr. Hopkins served on the Board of Directors of Corel Corporation, a software company, starting in October 2001 when Corel Corporation acquired Micrografx. Mr. Hopkins served a Chairman and CEO of Micrografx when acquired by Corel Corporation. Mr. Hopkins graduated with a BBA degree in Business and Information Systems from the University of Texas.

Section 16(a) Beneficial Ownership Reporting Compliance

Our directors, executive officers and persons who hold more than ten percent (10%) of the Company’s outstanding Common Stock are subject to the reporting requirements of Section 16(a) of the Exchange Act, which require them to file reports with respect to their ownership of the Common Stock and their transactions in such Common Stock. To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representation that no other reports were required, all Section 16(a) filing requirements applicable to its executive officers, directors and greater than ten percent shareholders were timely filed, except as follows: On October 3, 2014, Mr. Salzman joined the Board of Directors of the Company. The related Form 3 was filed on November 4, 2013. On December 20, 2014, Mr. Hopkins joined the Board of Directors of the Company. The related Form 3 was filed on February 26, 2014. On January 10, 2014, Mr. Salzman received an award of restricted common stock. The related Form 4 was filed on January 17, 2014. On January 10, 2014, Mr. Hopkins received an award of restricted common stock. The related Form 4 was filed on March 28, 2014.

Code of Ethics

Our directors, officers and employees are required to comply with our Standards of Business Ethics and Conduct. The purpose of our Standards of Business Ethics and Conduct is to deter wrongdoing and to promote, among other things, honest and ethical conduct and to ensure to the greatest possible extent that our business is conducted in a consistently legal and ethical manner. The Standards of Business Ethics and Conduct is intended to cover the requirement of a Code of Ethics for senior financial officers as provided by the SEC’s rules with respect to Section 406 of the Sarbanes-Oxley Act. Employees may submit concerns or complaints regarding ethical issues on a confidential basis by means of a telephone call to an assigned voicemail box or via e-mail. The Audit Committee investigates all such concerns and complaints.

Our Standards of Business Ethics and Conduct is posted on our website, at www.rainmakersystems.com, under the investors / corporate governance link. We will also disclose on our website any material amendment to, or waiver from, a provision of the Standards of Business Ethics and Conduct that applies to a director or officer.

Procedures for Shareholder Recommendations of Nominees to the Board of Directors

As of the date of this filing, there have been no material changes to the procedures described in our Proxy Statement relating to the 2013 Annual Meeting of Stockholders by which stockholders may recommend nominees to our Board of Directors.

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Audit Committee

We have a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee presently consists of Messrs. Salzman and Faldi. The Board has determined that Mr. Salzman, Chairman of the Audit Committee, is an “audit committee financial expert” as defined under applicable SEC rules. The Board of Directors has also determined that Mr. Salzman is an “independent director” as defined under Nasdaq and SEC rules.

ITEM 11. EXECUTIVE COMPENSATION

2013 Summary Compensation Table

The table below summarizes the compensation paid by the Company to our named executive officers for the fiscal years ended December 31, 2013 and 2012, as applicable.

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($) (1)	Option Awards ($) (1)	Non-Equity Incentive Plan Compensation ($) (2)	All Other Compensation ($) (3)	Total ($)
Donald Massaro (4)	2013	216,000	—	—	—	162,300	15,200	393,500
President and Chief Executive Officer	2012	—	—	517,500	142,000	—	—	659,500
Bradford Peppard (5)	2013	49,000	—	—	—	—	156,700	205,700
Executive Vice President and Chief Financial Officer	2012	—	—	—	—	—	—	—
Mallorie Burak (6)	2013	169,000	20,565	266,250	—	38,435	45,200	539,450
Former Chief Financial Officer	2012	—	—	—	—	—	—	—
James Chung (7)	2013	221,000	18,505	140,000	—	37,695	27,400	444,600
Former Chief Technology Officer	2012	235,000	—	60,800	—	800	—	296,600

___________________

(1) The amounts included under the “Stock Awards” and “Option Awards” columns reflect aggregate grant date fair value of the restricted stock and option awards granted in each respective fiscal year, computed in accordance with FASB ASC Topic 718, excluding the effect of any estimated forfeitures. Please see Note 10 in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K for assumptions used in calculating these amounts.

(2) Our NEO's are eligible to receive non-equity incentive plan compensation, which is compensation paid based on a measurable attainment schedule. See "Narrative Disclosure to Summary Compensation Table - Variable Compensation Plan" below for additional information.

(3) The amounts reported in the "All Other Compensation" column above include the following items:

Executive	Company Paid Medical	Severance Payment	Board Fees and Stock Awards	Total
Donald Massaro	15,200	—	—	15,200
Bradford Peppard	700	—	156,000	156,700
Mallorie Burak	—	45,200	—	45,200
James Chung	18,400	9,000	—	27,400

Mr. Peppard received board fees of $135,000 and stock awards of $21,000 as a non-employee director of our Board in 2013, including for service on a special committee of the Board formed in October 2012 to assist with the transition to a new Chief Executive Officer for the Company. See footnote (5) below for additional information on board fees and stock awards paid to Mr. Peppard as a non-employee director in 2013.

In connection with her separation from employment with the Company on October 11, 2013, Ms. Burak received severance of six months base salary payable over the 6-month period following her separation date in accordance with the Company’s normal payroll schedule, of which $45,200 was paid in 2013, and accelerated vesting of 46,875 shares of restricted stock. In connection with his separation from employment with the Company on December 6, 2013, Mr. Chung received severance of six months base salary payable over the 6-month period following his separation date in accordance with the Company’s normal payroll schedule, of which $9,000 was paid in 2013, and accelerated vesting of 81,250 shares of restricted stock.

(4) Donald Massaro was hired as President and Chief Executive Officer on December 11, 2012. Mr. Massaro agreed to forego a portion of his 2013 base salary and any potential variable compensation through March 31, 2013, and in lieu thereof he received a grant of 250,000 restricted shares of common stock of the Company. See "Narrative Disclosure to Summary Compensation Table - Equity Awards" below for additional information.

(5) Bradford Peppard was hired as Executive Vice President and Chief Financial Officer on October 3, 2013. Mr. Peppard served as a non-employee director of our Board until October 3, 2013, when he was hired as our Executive Vice President and Chief Financial Officer, and remains a director of the Company. Mr. Peppard’s compensation in 2013 as a non-employee director of our Board is included in the Summary Compensation Table above under the “All Other Compensation” column. Mr. Peppard’s 2013 director

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compensation consisted of (i) $25,000 in retainer fees paid for the first and second quarters of 2013, (ii) $110,000 in fees (of which $30,000 was earned in 2012) paid for service on a special committee of the Board formed in October 2012 to assist with the transition to a new Chief Executive Officer for our Company, (iii) a stock award of 250,000 shares of our common stock for service on the transition committee, which Mr. Peppard voluntarily rescinded in connection with his appointment as CFO, and (iv) a restricted stock award of 50,000 shares of our common stock granted on August 19, 2013, vesting 100% upon grant.

(6) Mallorie Burak was hired as Chief Financial Officer on January 24, 2013. Her employment ended on October 11, 2013.

(7) James Chung's employment as Chief Technology Officer of the Company ended on December 6, 2013.

Narrative Disclosure to Summary Compensation Table

Named Executive Officers. Our named executive officers (NEOs) include (i) our CEO (Donald Massaro), (ii) our two most highly compensated executive officers in the fiscal year ended December 31, 2013 who were serving as executive officers at the end the last completed fiscal year, which includes only our CFO (Bradford Peppard), and (iii) two former executives that would have qualified as NEOs if still employed with us at December 31, 2013 (Mallorie Burak and James Chung).

Salary. The amounts included under the "Salary" column represent the amount of the applicable NEO's annual base salary paid in 2013 for the full year or portion of the year for which the NEO was employed by the Company.

Bonus. The amounts included under the “Bonus” column represent cash bonuses approved by our Compensation Committee for the first quarter of 2013 based on a subjective assessment of the applicable NEO’s performance.

Variable Compensation Plan. The amounts included under the “Non-Equity Incentive Plan Compensation” column represent amounts earned by our NEOs in 2013 under our Variable Compensation Plan (VCP). The VCP was established beginning in the second quarter of 2013 for the benefit of our executive officers and other participating employees. The VCP provides for cash compensation to be paid quarterly when pre-determined individual and/or team goals and (beginning in the fourth quarter of 2013) Company performance targets are achieved. The portion of an NEO’s target variable compensation amount that is based on the Company’s achievement of performance targets is only paid in the event the Company achieves at least 50 percent of its performance target. If the Company’s performance for any measure falls between 50 percent and 100 percent, we interpolate to determine the applicable payout percentage. The amount of the quarterly cash compensation that we pay to our NEOs participating in the VCP is determined by a formula that weighs the quarterly achievement of the pre-established individual and/or team goals and (beginning in the fourth quarter of 2013) Company performance targets relative to the NEO’s target variable compensation amount. The table below sets forth the target variable compensation amount (expressed as a percentage of base salary) for each of our NEOs.

Fiscal Year 2013 Target Variable Compensation Amounts

Executive	Target (% of base salary)
Donald Massaro     President and CEO	75%
Bradford Peppard     CFO	100%
Mallorie Burak     Former CFO	50%
James Chung     Former Chief Technology Officer	35%

During the second and third quarters of 2013, all of our NEOs earned variable compensation under the VCP due to their achievement of individual and/or team goals. No variable compensation was earned by any of our NEOs for the fourth quarter of 2013. During 2012, Mr. Chung earned a bonus determined in accordance with the Company’s corporate bonus plan then in effect.

Equity Awards. In 2012, Mr. Massaro received (i) 500,000 restricted shares of common stock of the Company vesting 1/16 quarterly over four years upon his completion of each 3-month period of service over the 4-year period measured from the grant date, (ii) options to purchase 500,000 shares of common stock of the Company vesting 1/16 quarterly over four years upon his completion of each 3-month period of service over the 4-year period measured from the grant date, and (iii) an additional 250,000 restricted shares of common stock of the Company vesting in a single installment on March 31, 2013. In 2013, Ms. Burak received 375,000 restricted shares of common stock of the Company vesting 1/16 quarterly over four years upon her completion of each 3-month period of service over the 4-year period measured from the grant date. In 2012 and 2013, Mr. Chung received restricted stock awards of 60,750 restricted shares and 140,000 restricted shares, respectively, each vesting quarterly over two years. Mr. Peppard did not receive any stock awards or option awards as an NEO in 2013; however, under the terms of his employment agreement he is eligible to receive 500,000 restricted shares of common stock of the Company upon approval of the Compensation

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Committee vesting 1/16 quarterly over four years upon his completion of each 3-month period of service over the 4-year period measured from the grant date.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth certain information regarding the stock option grants and stock awards to the named executive officers as of December 31, 2013.

	Option Awards					Stock Awards
Name and Grant Date	Number of Securities Underlying Unexercised Options Unexercisable		Options Exercise Price ($/Share)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested		Market Value of Shares or Units of Stock That Have Not Vested ($)(1)
Donald Massaro
12/27/2012	375,000	(2)	$	0.69	12/27/2022	—		$	—
12/27/2012	—		—			375,000	(3)	$	90,000
Bradford Peppard
5/19/2010	—		—			5,000	(4)	$	1,200
5/19/2011	—		—			10,000	(5)	$	2,400
7/17/2012	—		—			15,000	(6)	$	3,600
Mallorie Burak	—		—		—	—		$	—
James Chung	—		—		—	—		$	—

___________________

(1) Market value of shares that have not vested was calculated by using our closing market price at December 31, 2013 of $0.24 per share.

(2) These options vest 6.25% quarterly over 4 years from 2012 to 2016 and will be fully vested in 2016.

(3) These restricted stock awards vest 6.25% quarterly from 2012 to 2016 and will be fully vested in 2016.

(4) These restricted stock awards vest 25% annually over 4 years from 2010 to 2014 and will be fully vested in 2014.

(5) These restricted stock awards vest 25% annually over 4 years from 2011 to 2015 and will be fully vested in 2015.

(6) These restricted stock awards vest 25% annually over 4 years from 2012 to 2016 and will be fully vested in 2016.

Severance and Change in Control Payments

Our CEO and CFO are entitled to severance and change-in-control benefits pursuant to their employment agreements with the Company. The employment agreements of each of Mr. Massaro and Mr. Peppard generally provide that if his employment is constructively terminated or terminated by the Company without cause, then he will receive, with no duty to mitigate, an amount equal to six months base salary. In addition, both Mr. Massaro and Mr. Peppard are eligible for accelerated vesting of unvested restricted stock and option grants upon a merger, sale or other change of control of the Company.

Adjustment or Recovery of Awards

Under Section 304 of Sarbanes-Oxley, if the Company is required to restate its financial statements due to material noncompliance with any financial reporting requirements as a result of misconduct, the CEO and CFO must reimburse the Company for (1) any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document, and (2) any profits realized from the sale of securities during those 12 months. The Company does not have other policies or recovery rights with respect to NEO compensation, other than the vesting schedules described above.

2013 Director Compensation

The following table summarizes the compensation paid by the Company to its non-employee directors for the year ended December 31, 2013. During 2013, all non-employee directors were eligible to receive (i) an aggregate annual retainer fee of $50,000, payable in equal quarterly installments of $12,500 for each quarter of Board service (payable in cash or restricted shares of the Company's common stock, at the election of each director); (ii) an annual grant of 100,000 restricted shares of the Company's common stock on the date each annual stockholders meeting, vesting in a series of four successive quarterly installments upon each director's completion of each three month period of service as a Board member over the 12-month period measured from the grant date, provided that such individual has served as a non-employee Board member for at least six (6) months; and (iii) an initial grant of 50,000 restricted shares of the Company's Common Stock to each new director upon such individual's first election or appointment as a non-employee Board member, vesting in a series of four successive quarterly installments upon such director's completion of each 3-month period of service as a Board member over the 12-month period measured from the grant date. In addition, in October 2012, our Board formed a special committee to assist with the transition to a new Chief Executive Officer

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for our Company. Messrs. Levy and Peppard were appointed to the committee and were paid $10,000 in monthly fees for their participation on the committee. Mr. Peppard deferred the starting date for payment of his transition committee fees until April 2013.

Name and Title	Fees Earned or Paid in Cash ($)	Stock Awards ($) (1)	All Other Compensation ($)	Total ($)
C. Finnegan Faldi, Director (2)	25,000	21,000	—	46,000
James Hopkins, Director (3)	—	17,250	—	17,250
Bradford Peppard, Director (4)	135,000	21,000	—	156,000
Eric Salzman, Director (5)	12,500	17,250	—	29,750
Mitchell Levy, former Director (6)	38,333	232,500	100,000	370,833
Gary Briggs, former Director (7)	25,000	21,000	—	46,000

___________________

(1) The amounts included under the “Stock Awards” column reflect aggregate grant date fair value of the restricted stock awards granted in 2013, computed in accordance with FASB ASC Topic 718, excluding the effect of any estimated forfeitures. Please see Note 10 to the Consolidated Financial Statements included in this Annual Report on Form 10-K for assumptions used in calculating these amounts.

(2) Mr. Faldi’s 2013 director compensation consisted of $25,000 in retainer fees paid for the first and second quarters of 2013 and a restricted stock award of 50,000 shares of our common stock granted on August 19, 2013, vesting 100% upon grant. Mr. Faldi voluntarily elected to forego the remaining balance of his annual retainer fee and to forego his annual grant of restricted shares following the 2013 annual meeting of stockholders.

(3) Mr. Hopkins joined our Board in December 2013, prior to which time he had been serving as an advisor to our Board since June 27, 2013. Mr. Hopkins received a restricted stock award of 50,000 shares of our common stock granted on July 15, 2013, vesting 25% quarterly from June 2013 to June 2014 upon his appointment as a Board advisor.

(4) Mr. Peppard served as a non-employee director of our Board until October 3, 2013, when he was hired as Executive Vice President and Chief Financial Officer of the Company. Mr. Peppard remains a director of the Company. Mr. Peppard’s 2013 director compensation consisted of (i) $25,000 in retainer fees paid for the first and second quarters of 2013, (ii) $110,000 in fees paid for service on the transition committee (of which $30,000 was earned in 2012), (iii) a stock award of 250,000 shares of our common stock for service on the transition committee, which Mr. Peppard voluntarily rescinded in connection with his appointment as CFO, and (iv) a restricted stock award of 50,000 shares of our common stock granted on August 19, 2013, vesting 100% upon grant. Mr. Peppard also elected to forego the remaining balance of his annual retainer fee and his annual grant of restricted shares following the 2013 annual meeting of stockholders. The compensation for Mr. Peppard relating to his service as an executive officer is set forth in the Summary Compensation Table above.

(5) Mr. Salzman joined our Board on October 3, 2013, prior to which time he had been serving as an advisor to our Board since June 27, 2013. Mr. Salzman’s 2013 director compensation consisted of $12,500 in retainer fees for the fourth quarter of 2013. Mr. Salzman received a restricted stock award of 50,000 shares of our common stock granted on July 15, 2013, vesting 25% quarterly from June 2013 to June 2014 upon his appointment as a Board advisor.

(6) Mr. Levy resigned from our Board on March 9, 2013. Mr. Levy’s 2013 director compensation consisted of (i) $8,333 in retainer fees, (ii) $30,000 in fees paid for service on the transition committee (of which $10,000 was earned in 2012), and (iii) a stock award of 250,000 shares of our common stock for service on the transition committee. Mr. Levy also received cash fees of $100,000 for consulting work performed for the Company in 2013 following his resignation from the Board, which fees are included under the heading “All Other Compensation".

(7) Mr. Briggs resigned from our Board on October 3, 2013. Mr. Briggs’ 2013 director compensation consisted of $25,000 in retainer fees paid for the first and second quarters of 2013 and a restricted stock award of 50,000 shares of our common stock granted on August 19, 2013, vesting 100% upon grant. Mr. Briggs voluntarily elected to forego the remaining balance of his annual retainer fee and to forego his annual grant of restricted shares following the 2013 annual meeting of stockholders.

As of December 31, 2013, each non-employee director had the following number of stock options and unvested shares of restricted stock outstanding:

	Outstanding options at December 31, 2013	Unvested restricted stock awards outstanding at December 31, 2013
C. Finnegan Faldi	20,000	37,500
James Hopkins	—	37,500
Eric Salzman	—	37,500

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plans

The following table sets forth information as of December 31, 2013 with respect to shares of the Company’s Common Stock that may be issued under the Company’s existing equity compensation plans, the 2003 Stock Incentive Plan, which was approved by stockholders, and the 2012 Inducement Equity Incentive Plan, which was not approved by stockholders as described below.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	2,198,310	$	0.67	1,252,266
Equity compensation plans not approved by security holders	500,000	0.69		281,250
Total	2,698,310	$	0.67	1,533,516

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). Options granted under the 2003 Plan are priced at not less than 100% of the fair market value of the common stock on the date of grant and have a maximum term of ten years from the date of grant. In the case of incentive stock options granted to employees who own 10% or more of our outstanding common stock, the exercise price may not be less than 110% of the fair value of the common stock on the date of grant and such options will have a maximum term of five years from the date of grant. Options granted to employees and consultants become exercisable and vest in one or more installments over varying periods ranging up to four years as specified by the board of directors. Unexercised options generally expire upon, or within, three months of termination of employment, depending on the circumstances surrounding termination. Restricted stock awards granted to employees, consultants and non-employee directors typically vest over a one to four year period from the date of grant. Vesting of these awards is contingent upon continued service and any unvested awards are forfeited immediately upon termination of service, subject to the discretion of the board of directors. The 2003 Plan also provides for a fixed issuance amount to non-employee members of the board of directors at prices not less than 100% of the fair value of the common stock on the date of grant and a maximum term of ten years from the date of grant. Generally, options granted to non-employee members of the board of directors are immediately exercisable and vest in two or more installments over periods ranging from twelve to twenty-four months from the date of grant. Unexercised options expire twelve months from the termination date of service as a non-employee member of the board of directors.

On December 21, 2012, the Board of Directors approved and adopted the Company's 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 was not required under SEC or Nasdaq Capital Market rules then applicable to the Company. Options granted under the 2012 Plan are priced at not less than 100% of the fair market value of the common stock on the date of grant and have a maximum term of ten years from the date of grant. Awards granted to employees under the 2012 Plan vest in accordance with a schedule determined by the Compensation Committee of our Board of Directors.

Beneficial Ownership of Securities

The following table sets forth certain information as of March 25, 2014, regarding the beneficial ownership of our common stock by (i) each person, to our knowledge, who is known by us to beneficially own more than five percent of our common stock, (ii) each named executive officer set forth in the Summary Compensation Table above, (iii) each of our Company’s directors, and (iv) all of our Company’s current directors and executive officers as a group. This table lists applicable percentage ownership based on 42,582,731 shares of common stock outstanding as of March 25, 2014. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. Shares subject to options or warrants that are exercisable currently or within 60 days of March 25, 2014, are deemed to be outstanding and beneficially owned by the person for the purpose of computing share and percentage ownership of that person. They are not deemed to be outstanding for the purpose of computing the percentage ownership

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of any other person. Except as indicated in the footnotes to this table and as affected by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them. Unless otherwise indicated, all addresses for the stockholders set forth below is c/o Rainmaker Systems, Inc., 900 East Hamilton Avenue, Suite 400, Campbell, California 95008.

Name of Beneficial Owner	Number of Shares Beneficially Owned (Including the Number of Shares Shown in the Second Column)	Number of Shares Owned as a Result of Options and Warrants Exercisable Within 60 Days of March 25, 2013	Percentage of Shares Outstanding
Diker Management, LLC (1)	3,265,488	—	7.7	%
Paul van Riel (2)	3,144,331	—	7.4
Perkins Capital Management, Inc (3)	2,692,249	350,000	6.3
Donald Massaro	1,239,765	156,250	2.9
Bradford Peppard	299,765	—	*
C. Finnegan Faldi	155,555	—	*
James Hopkins	100,000	—	*
Eric Salzman	100,000	—	*
Mallorie Burak	—	—	*
James Chung	201,768	—	*
All directors and officers as a group (7 persons)	2,096,853	156,250	4.9	%

___________________

*    Less than 1%.

(1) Beneficial ownership information is based solely on information contained in Schedule 13G/A filed with the SEC on February 12, 2014 by Diker Management, LLC on behalf of itself and affiliated persons and entities. The address for Diker Management, LLC is 730 Fifth Avenue, 15th Floor, New York, NY 10019.

(2) Beneficial ownership information is based solely on information contained in Schedule 13G/A filed with the SEC on June 3, 2013 by Paul van Riel on behalf of himself. The address for Mr. van Riel is Prinses Julianalaan 56, 3062DJ, Rotterdam, The Netherlands.

(3) Beneficial ownership information is based solely on information contained in Schedule 13G/A filed with the SEC on February 7, 2014 by Perkins Capital Management, Inc. on behalf of itself and affiliated persons and entities. The address for Perkins Capital Management, Inc. is 730 Lake St. E., Wayzata, MN 55391.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

There were no related party transactions required to be disclosed pursuant to Item 404(a) of Regulation S-K during the year ended December 31, 2013.

Director Independence

The Board of Directors has determined that each of Messrs. Faldi, Hopkins and Salzman is “independent,” as that term is defined by Nasdaq and SEC rules.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

BDO USA, LLP (“BDO”) was engaged as the Company’s independent registered public accounting firm on October 7, 2004. Audit services provided by BDO during the 2013 fiscal year included the audit of our annual financial statements and services related to filings with the SEC and other regulatory bodies.

Principal Accountant Fees and Services

For the fiscal years ended December 31, 2013 and 2012, BDO, our independent registered public accounting firm, billed the approximate fees set forth below:

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Audit Fees

Aggregate fees consist of fees billed for professional services rendered for the audit of the Company’s consolidated financial statements and internal control over financial reporting, reviews of the interim condensed consolidated financial statements included in quarterly filings, and services that are normally provided by BDO in connection with statutory and regulatory filings or engagements, including comfort letters and consents, except those not required by statute or regulation. Aggregate fees billed for audit services were $349,700 and $345,000 for the years ended December 31, 2013 and 2012, respectively.

Audit-Related Fees

Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” These services include due diligence and audits in connection with acquisitions, and consultations concerning financial accounting and reporting standards. Aggregate fees billed for audit-related services were $0 and $16,000 for the years ended December 31, 2013 and 2012, respectively.

Tax Fees

Tax fees consist of fees billed for professional services rendered for state and federal tax compliance and advice, including Canada, tax planning and a transfer pricing study. Aggregate fees for tax services were $64,000 and $23,000 during the years ended December 31, 2013 and 2012, respectively.

All Other Fees

None.

All engagements for services by BDO or other independent registered public accountants are subject to pre-approval by the Audit Committee; however, de minimis non-audit services may instead be approved in accordance with applicable SEC rules. The pre-approval of the Audit Committee was obtained for all services provided by BDO in the 2013 and 2012 fiscal year.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed with, or incorporated by reference into, this report:

1. Financial Statements

See Item 8 for a list of financial statements filed within.

2. Financial Statement Schedules

See Item 8 for a list of financial statement schedules filed herewith. All other schedules have been omitted because they are not applicable or the required information is shown elsewhere in the consolidated financial statements or notes thereto.

3. Exhibit Index:

The following Exhibits are incorporated herein by reference or are filed with this report as indicated below.

3.1	Restated Certificate of Incorporation of Rainmaker Systems, Inc. (Incorporated by reference to Exhibit A to the Definitive Proxy Statement on Schedule 14A filed by Rainmaker on April 21, 2006.)
3.2	Bylaws of Rainmaker Systems, Inc. (Incorporated by reference to the similarly numbered Exhibit to the Registration Statement on Form S-1/A filed by Rainmaker on October 22, 1999 (Reg. No. 333-86445).)
4.1	Specimen certificate representing shares of common stock of Rainmaker Systems, Inc. (Incorporated by reference to the similarly numbered Exhibit to the Registration Statement on Form S-1/A filed by Rainmaker on October 22, 1999 (Reg. No. 333-86445).)
4.2	Registration Rights Agreement dated as of June 10, 2004, by and among ABS Capital Partners III, L.P., Tarentella, Inc., Rainmaker Systems, Inc., the purchasers identified on the schedule thereto and SDS Capital Group SPC, Ltd. (Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K filed by Rainmaker on June 18, 2004.)

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4.3	Form of Registration Rights Agreement dated as of June 15, 2005, by and among Rainmaker Systems, Inc. and the purchasers identified on the signature page thereto. (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rainmaker on June 16, 2005.)
4.4	Form of Warrant (Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8 filed by Rainmaker on June 23, 2011.)
10.1†	Contact Center Master Services Agreement, dated as of August 30, 2009, between Rainmaker Systems, Inc. and Hewlett-Packard Company. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 13, 2009.)
10.2	Second Amendment to Lease Agreement, dated as October 14, 2009, between Rainmaker Systems, Inc. and Legacy III Campbell, LLC. (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 13, 2009.)
10.3†	Master Services Agreement, dated as of June 29, 2006, between Rainmaker Systems, Inc. and Symantec Corporation. (Incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K filed by Rainmaker on March 31, 2010.)
10.4†	Symantec Outsourced North American (NAM) Renewals Statement of Work effective as of April 1, 2008 between Rainmaker Systems, Inc. and Symantec Corporation. (Incorporated by reference to Exhibit 10.47 to the Annual Report on Form 10-K filed by Rainmaker on March 31, 2010.)
10.5†	Amendment Two to the Symantec Outsourced NAM Renewals Statement of Work, dated as of April 1, 2010 between Rainmaker Systems, Inc. and Symantec Corporation. (Incorporated by reference to Exhibit 10.48 to the Annual Report on Form 10-K filed by Rainmaker on March 31, 2010.)
10.6†	Statement of Work to the Vendor Service Agreement, dated as of September 20, 2010, between Rainmaker Systems, Inc. and Microsoft Corporation. (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 12, 2010.)
10.7†	Vendor Services Agreement, dated as of February 26, 2010, between Rainmaker Systems, Inc. and Microsoft Corporation (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q/A filed by Rainmaker on February 28, 2011)
10.8†	Statement of Work, dated as of July 12, 2011, between Rainmaker Systems, Inc. and Microsoft Corporation. (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed by Rainmaker on August 15, 2011.)
10.9	Amendment No. 1 to the Symantec Online Store Agreement, dated as of March 9, 2012 between Rainmaker Systems, Inc. and Symantec Corporation. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on May 15, 2012.)
10.10	Amendment No. 3 to the Symantec Outsourced NAM Renewals Statement of Work, dated as of March 9, 2012 between Rainmaker Systems, Inc. and Symantec Corporation. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on May 15, 2012.)
10.11	Amendment No. l to the Symantec Outsourced Latin American (LAM) Statement of Work, dated as of March 9, 2012 between Rainmaker Systems, Inc. and Symantec Corporation. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on May 15, 2012.)
10.12	Amendment No.1 to the Symantec License Renewal Center (LRC) Renewals Statement of Work, dated as of March 9, 2012 between Rainmaker Systems, Inc. and Symantec Corporation. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on May 15, 2012.)
10.13	Loan and Security Agreement dated as of June 14, 2012, between Rainmaker Systems, Inc. and Comerica Bank. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on August 14, 2012.)
10.14†	Master Services Agreement dated as of March 21, 2012 and Statement of Work #2 dated as of June 1, 2012, between Rainmaker Systems, Inc. and Comcast Cable Communications Management, LLC. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on August 14, 2012.)
10.15†	Statement of Work to the Vendor Service Agreement dated as of July 23, 2012, between Rainmaker Systems, Inc. and Microsoft Corporation. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on August 14, 2012.)

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10.16	Change Order (#CR000022) to Statement of Work to the Vendor Service Agreement dated as of September 20, 2010, between Rainmaker Systems, Inc. and Microsoft Corporation. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 14, 2012.)
10.17*	Executive Employment Agreement dated December 11, 2012, between Rainmaker Systems, Inc. and Donald Massaro. (Incorporated by reference to Exhibit 10.1 to the to the Current Report on Form 8-K filed by Rainmaker on December 13, 2012.)
10.18*	2012 Inducement Equity Incentive Plan. (Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed by Rainmaker on December 27, 2012 (Reg. No. 333-185716).)
10.19*	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 filed by Rainmaker on April 1, 2013.)
10.20*	2003 Stock Incentive Plan, as amended and restated effective June 5, 2013 (Incorporated by reference to Exhibit 10.1 to the Definitive Proxy Statement on Schedule 14A filed by Rainmaker on May 1, 2013.)
10.21*	Executive Employment Agreement dated October 4, 2013, between Rainmaker Systems, Inc. and Bradford Peppard. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 19, 2013.)
10.22	Loan Agreement dated October 30, 2013 between Agility Capital II, LLC and Rainmaker Systems, Inc.
21.1	List of Subsidiaries.
23.1	Consent of Independent Registered Public Accounting Firm.
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, the interactive data file is 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, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections.

†	Confidential treatment has previously been granted by the Securities and Exchange Commission for certain portions of the referenced exhibit.
*	Management contracts or compensatory plan or arrangement.

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SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

(in thousands)

Description	Balance at Beginning of Year		Additions Charged to Costs and Expenses			Deductions *			Balance at End of Year
Allowance for doubtful accounts:
Year ended December 31, 2013	$	15	$	420		$	(424	)	$	11
Year ended December 31, 2012	$	80	$	(61	)	$	(4	)	$	15
Year ended December 31, 2011	$	79	$	(40	)	$	41		$	80

___________________

* Uncollectible accounts written off, net of recoveries.

Description	Balance at Beginning of Year		Additions		Deductions		Balance at End of Year
Deferred tax asset valuation account:
Year ended December 31, 2013	$	31,781	$	14,183	$	—	$	45,964
Year ended December 31, 2012	$	30,618	$	1,163	$	—	$	31,781
Year ended December 31, 2011	$	27,841	$	2,777	$	—	$	30,618

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
By:		/s/    DONALD MASSARO
		Donald Massaro, President and Chief Executive Officer (Principal Executive Officer)
Date:	April 1, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on April 1, 2014.

By:	/s/    DONALD MASSARO
	Donald Massaro, President and Chief Executive Officer, and Chairman (Principal Executive Officer)
By:	/s/   BRADFORD PEPPARD
	Bradford Peppard, Chief Financial Officer, and Director (Principal Financial Officer and Principal Accounting Officer)
By:	/s/    C. FINNEGAN FALDI
	C. Finnegan Faldi, Director
By:	/s/    JAMES HOPKINS
	James Hopkins, Director
By:	/s/    ERIC SALZMAN
	Eric Salzman, Director

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EX-10.22

EXHIBIT 10.22

LOAN AGREEMENT

Dated as of October 24, 2013

by and between

AGILITY CAPITAL II, LLC

as “Agility” or “Lender”

and

RAINMAKER SYSTEMS, INC.

as “Borrower”

TOTAL CREDIT AMOUNT: Initially up to $500,000, but may be up to $650,000

Maturity Date:	No later than April 24, 2014; see Section 1(f) of the Agreement.
Formula:	Variable, per Agreement
Facility Origination Fee:	$13,000
Interest:	12% fixed per annum
Warrants:	See Warrant for coverage

The information set forth above is subject to the terms and conditions set forth in the balance of this Agreement. The parties agree as follows:

1. Advance and Payments.

(a)Advances. Borrower may request one or more advances (each, an “Advance” and collectively, the “Advances”), up to the lesser of the principal amount of $500,000 (or $650,000 upon Lender’s receipt of a signed letter of intent between Borrower and a strategic investor in form and substance satisfactory to Lender in its sole discretion) or the Borrowing Base. “Borrowing Base” is the amount equal to 30% of Borrower’s Net Eligible Accounts Receivable, as defined in the Comerica Loan and Security Agreement dated June 14, 2012, as amended and in effect as of the date hereof (including pursuant to that certain Forbearance Agreement And Amendment To Loan and Security Agreement dated as of April 15, 2013 and that certain Second Amendment to Loan and Security Agreement dated as of September 25, 2013 (collectively, the “Comerica Agreement”). If at any time thereafter the outstanding Advances exceed the lesser of $650,000 or the Borrowing Base, Borrower shall immediately pay to Agility the amount of such excess. Borrower may repay and reborrow Advances at any time through the Maturity Date. Agility’s obligation to make any portion of the Advance under this Agreement is subject to (i) Agility’s determination, in its sole discretion, that there has not occurred a circumstance or circumstances that have a Material Adverse Effect, and (ii) the execution, delivery and filing of such certificates, instruments and agreements, as Agility reasonably deems appropriate, each in form and substance reasonably satisfactory to Agility, including but not limited to (A) a warrant to purchase stock; (B) subordination agreement with Borrower’s other creditors/noteholders (if any); and (C) that certain Subordination Agreement with Comerica Bank as of October ___, 2013 between Lender and Comerica Bank (the “Intercreditor Agreement”).

(b)Interest. Borrower shall pay interest on the outstanding principal balance of the Advances at a fixed rate per annum equal to twelve percent (12.0%). Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed, shall accrue from the date of the Advance and continue until such Advance has been repaid, and shall be payable in arrears on the first day of each month until such Advance has been repaid.

(c)Payments. Borrower shall make interest-only payments on the first day of each month as set forth in Section 1(b) above. Any partial month shall be prorated on the basis of a 30-day month based on the actual number of days outstanding. Borrower may prepay all or a portion of Advances at any time without penalty or premium, and reborrow such amounts until the Maturity Date, subject to the terms of this Agreement, All payments made to Agility shall be made via wire transfer per wire transfer instructions separately provided by Agility to Borrower or by automated clearing house (ACH) transfer. All payments received by Agility shall be applied first to outstanding fees and expenses owing to Agility, then to accrued and unpaid interest, then to principal. Any fees or interest not paid when due shall be compounded by becoming a part of the Obligations, and such fees or interest shall thereafter accrue interest at the applicable interest rate.

(d)Voluntary Termination; Prepayment. Borrower may terminate this Agreement prior to the Maturity Date, provided Borrower (i) provides written notice to Lender of its election to terminate the Agreement at least five (5) days prior to such termination, provided, however, that any such notice of termination may state that such notice is conditioned upon the effectiveness of other borrowings from a Person other than Lender or the completion of any other transaction, in which case such termination notice may be revoked by Borrower if such condition is not satisfied, and (ii) pays to the Lender on the termination date an amount equal to the sum of (A) all outstanding principal of the Advances plus accrued and unpaid interest thereon through the prepayment date, (B) a fee equal to $25,000 minus the aggregate amount of interest paid by Borrower prior to the termination date, plus (C) all of Lender’s fees and expenses incurred in connection with this Agreement and any other present or future agreement, document, or instrument entered into in connection herewith (collectively, the “Transaction Documents”).

(e)Fees. On the date hereof, Borrower shall pay to Agility an origination fee of $13,000, which is fully earned and nonrefundable, and shall be deducted from the initial proceeds of the Advance. Borrower shall pay Agility a loan management fee of $500 per month, payable in arrears on the first day of each month, each of which are fully earned and nonrefundable on each such date.

(f)Maturity Date. All amounts outstanding hereunder are due and payable on the earlier of (i) the date amounts owing to Comerica Bank become due (whether by the stated maturity date or acceleration of indebtedness) or (ii) October 25, 2014 (the “Maturity Date”).

(g)Late Payments; Default Interest; Default Fees. After the occurrence and during the continuance of an Event of Default under this Agreement as defined in Section 5, the Obligations shall bear interest at a rate equal to 18%. In addition, upon the occurrence of such Event of Default arising from Borrower’s failure to comply with any principal payment required under this Agreement, Borrower shall pay Agility a default fee of $10,000.For each subsequent 30 day period in which such Event of Default remains outstanding and uncured to Agility’s satisfaction, Borrower shall pay Agility an additional default fee of $15,000, until such Event of Default is cured and waived in writing by Agility. The terms of this paragraph shall not be construed as Agility’s consent to Borrower’s failure to pay any amounts in strict accordance with this Agreement, and Agility’s charging any such fees and default interest and/or acceptance of any such payments shall not restrict Agility’s exercise of any remedies arising out of any such failure.

(h)Use of Proceeds. The proceeds from the Advance shall be used for Borrower’s working capital purposes and other general corporate purposes.

2.Security Interest. As security for all present and future indebtedness, guarantees, liabilities, and other obligations of Borrower to Agility under the Transaction Documents, including all fees specified in Section 1 (collectively, the “Obligations”), Borrower grants Agility a security interest in all of Borrower’s personal property, whether now owned or hereafter acquired, including without limitation the property described on Exhibit A attached hereto, and all products, proceeds and insurance proceeds of the foregoing (collectively, the “Collateral”). Borrower authorizes Agility to execute such documents and take such actions as Agility reasonably deems appropriate from time to time to perfect or continue the security interest granted hereunder.

3.Representations, Warranties and Covenants. Borrower represents to Agility as follows (which shall be deemed continuing throughout the term of this Agreement, including the date the Advance is made):

(a)Authorization. The execution, delivery and performance by Borrower of the Transaction Documents, and all other documents contemplated hereby have been duly and validly authorized by all necessary corporate action, and do not violate Borrower’s Certificate of Incorporation or by-laws, or any law or any material agreement or instrument which is binding upon Borrower or its property.

(a)State of Incorporation; Places of Business; Locations of Collateral. Borrower is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which it is required to do so. The address set forth in this Agreement under Borrower’s signature is Borrower’s chief executive office. Other than the chief executive office, the Collateral is located at the address(es) set forth on Exhibit B.

(b)Title to Collateral; Permitted Liens. Borrower is now, and will at all times in the future be, the sole owner of all the Collateral. The Collateral now is and will remain free and clear of any and all liens, security interests, encumbrances and adverse claims, except for (i) purchase money security interests in specific items of equipment; (ii) leases of specific items of equipment; (iii) liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings, provided the same have no priority over any of Lender’s security interests; (iv) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations that are not delinquent; (v) the lien in favor of Comerica Bank (or any replacement lender providing senior working capital financing), provided such lien is subject to an intercreditor agreement in form and substance satisfactory to Lender; (vi) the liens set forth on Exhibit B; and (vii) other Permitted Liens (as defined in the Comerica Agreement in effect as of the date hereof, which defined term is incorporated herein, mutatis mutandis) (collectively, “Permitted Liens”).

(c)Financial Condition, Statements and Reports. The financial statements provided to Agility by Borrower have been prepared in accordance with generally accepted accounting principles, consistently applied (“GAAP”). All consolidated financial statements related to Borrower and any Subsidiary of Borrower that are delivered by Borrower to Lender fairly present in all material respects Borrower's consolidated financial condition as of the date thereof and Borrower's consolidated results of operations for the period then ended. There has not been a material adverse change in the consolidated financial condition of Borrower since the date of the most recent of such financial statements submitted to Bank. Borrower has timely filed, and will timely file, all material tax returns and reports required by applicable law, and Borrower has timely paid, and will timely pay, all applicable material taxes, assessments, deposits and contributions now or in the future owed by Borrower.

(d)Compliance with Law. Borrower has complied, and will comply, in all material respects, with all provisions of all material applicable laws and regulations.

4.Information. All information provided to Agility by or on behalf of Borrower on or prior to the date of this Agreement is true and correct in all material respects, and no representation or other statement made by Borrower to Agility contains any untrue statement of a material fact or omits to state a material fact necessary to make any statements made to Agility not misleading at the time made.

(e)Litigation. Except as disclosed on Exhibit B, there is no claim or litigation pending or (to best of Borrower’s knowledge) threatened against Borrower. Borrower will promptly inform Agility in writing of any material claim or litigation in the future. Borrower shall also provide Agility prompt updates to any substantive changes to the claims listed in Exhibit B.

(f)Subsidiaries; Investments. Except as disclosed on Exhibit B, Borrower has no wholly-owned or partially owned subsidiaries, and Exhibit B sets forth all loans by Borrower to, and all investments by Borrower in, any person, entity, corporation partnership or joint venture.

(g)Deposit and Investment Accounts. Borrower maintains only the operating, savings, deposit, securities and investment accounts listed on Exhibit B.

5.Other Covenants.

(a)Reports. Borrower will provide to Agility in form and substance acceptable to Agility reports consistent with those required in the Comerica Agreement for so long as such agreement is in effect; and thereafter: (i) within thirty (30) days after the last day of each month, monthly financial statements, prepared in accordance with GAAP, consistently applied; (ii) within fifteen (15) days after the last day of each month, copies of all reports and statements received by Borrower from any of its banks or other financial institutions (in lieu of such requirement, Borrower may grant Agility on-line “view only” access to all of its accounts on terms acceptable to Agility); (iii) annual financial statements prepared in accordance with GAAP, consistently applied, and audited by an independent certified public accountant of national standing or otherwise acceptable to Agility; (iv) within twenty (20) days of the end of each month, aged listings of accounts receivable and accounts payable along with a borrowing base certificate in substantially similar form as attached hereto; (v) copies of any additional periodic reports or information submitted to Comerica Bank (including all reports and information specified in Section 6.2 of the Comerica Agreement) (or any replacement lender providing senior working capital financing) at the same time such reports or information is due to such lender; and (vi) upon request, such other information relating to Borrower’s operations and condition, as Agility may reasonably request from time to time. Agility shall have the right to review and copy Borrower’s books and records and audit and inspect the Collateral, from time to time, upon reasonable notice to Borrower. Agility or its officers, employees, or agents shall have a right to visit Borrower’s premises and interview Borrower’s officers at Borrower’s expense. Notwithstanding the foregoing, unless an Event of Default has occurred and is continuing, Agility may so audit and inspect the Collateral or visit Borrower’s premises and interview Borrower’s officers no more than once in any 6-month period.

(b)Insurance. Borrower will maintain insurance on the Collateral and Borrower’s business, in amounts and of a type that are customary to businesses similar to Borrower’s, and Agility will be named in a loss payable endorsement in favor of Agility, in form reasonably acceptable to Agility, subject to the rights of Comerica Bank (or any replacement lender providing senior working capital financing) pursuant to an intercreditor agreement with Lender.

(c)Financial Covenants. Borrower shall comply with those covenants required in the Comerica Agreement for so long as such Agreement is in effect, and thereafter, comply with such financial covenants as may be mutually agreed upon by Lender and Borrower in good faith.

(d)Negative Covenants. Without Agility’s prior written consent, Borrower shall not do any of the following: (i) acquire any assets outside the ordinary course of business; (ii) sell, lease, license, transfer or otherwise dispose of (each, a “Transfer”) any Collateral except for except for Transfers (A) of inventory in the ordinary course of business; (B) of worn out or obsolete equipment that is, in the reasonable judgment of Borrower, no longer economically practicable to maintain or useful in the ordinary course of business of Borrower; (C) consisting of the sale or issuance of any stock of Borrower; (D) of non-exclusive licenses for the use of the property of Borrower or its subsidiaries in the ordinary course of business; and (E) other Permitted Transfers (as defined in the Comerica Agreement in effect as of the date hereof, which defined term is incorporated herein, mutatis mutandis); (iii) pay or declare any dividends on Borrower’s stock; (iv) redeem, repurchase or otherwise acquire, any of Borrower’s stock, other than the repurchase the stock of former employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase; (v) make any investments in, or loans or advances to, any person, including without limitation any investments in, or downstreaming of funds to, any subsidiary or affiliate of Borrower; other than Permitted Investments (as defined in the Comerica Agreement in effect as of the date hereof, which defined term is incorporated herein, mutatis mutandis); (vi) incur any indebtedness, including any guaranties or other contingent liabilities, other than (A) trade debt and capital lease obligations incurred in the ordinary course of business, (B) indebtedness owing to Comerica Bank (or any replacement lender providing senior working capital financing), provided such indebtedness is subject to an intercreditor agreement in form and substance satisfactory to Lender, (C) indebtedness existing on the date of this Agreement; and (D) other Permitted Indebtedness (as defined in the Comerica Agreement in effect as of the date hereof, which defined term is incorporated herein, mutatis mutandis); (vii) make any deposits or investments into any investment or depository accounts unless they are subject to an account control agreement acceptable to Agility, subject to the terms of any intercreditor agreement between Agility and Comerica Bank (or any replacement lender providing senior working capital financing); (viii) make any payment on any of Borrower’s indebtedness that is subordinate to the Obligations, other than in accordance with the subordination agreement, if any, in favor of Lender relating thereto; (ix) permit or suffer a merger, change of control, or acquisition of all or any substantial part of Borrower’s assets; (x) use any part of the Advances to repay loans (other than loans made under the Comerica Agreement) or pay deferred salaries or other amounts owing to any officers, directors, shareholders or affiliates of Borrower; or (xi) encumber any of the Collateral, except for Permitted Liens. Notwithstanding the foregoing provisions of this Section 4(d), it is the intent of Lender and Borrower that the negative covenants under this Section 4(d) shall be no more restrictive than the negative covenants applicable to the Borrower and its subsidiaries under the Comerica Agreement for so long as the Comerica Agreement is in effect. Accordingly, for so long as the Comerica Agreement is in effect, if any act or omission of Borrower or its subsidiaries shall be permitted under the terms of the Comerica Agreement, then such act or omission shall also be deemed permitted under the terms of this Agreement, notwithstanding anything to the contrary in this Section 4(d).

6.Events of Default. Any one or more of the following events shall constitute an Event of Default under this Agreement; provided however, for so long as the Comerica Agreement is in effect, to the extent that such event under the comparable provision in the Comerica Agreement is more favorable to Borrower or provides for a longer cure period than that which is provided for herein, then such event shall not constitute an Event of Default hereunder until such time as such event constitutes an Event of Default under the Comerica Agreement:

(a)Borrower shall fail to pay any principal or interest due hereunder within ten days after the date due, provided that any amounts due on the Maturity Date shall be paid on that date, with no grace period; or

(b)Borrower shall fail to comply with Section 4 of this Agreement; or

(c)Borrower shall fail to comply with any other provision of this Agreement other than those listed in Section 4 of this Agreement or any other Transaction Document and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure such default within ten (10) days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, so long as Borrower continues to diligently attempt to cure such default, and within such reasonable time period the failure to have cured such default shall not be deemed an Event of Default; or

(d)Any warranty, representation, statement, report or certificate made or delivered to Agility by Borrower or on Borrower’s behalf shall be untrue or misleading in a material respect as of the date given or made; or

(e)Any Event of Default under the Comerica Agreement; or any default or event of default occurs in any other agreement to which Borrower is subject or by which Borrower is bound (i) resulting in a right by the other party or parties, whether or not exercised, to accelerate the maturity of any indebtedness in excess of $100,000 or (ii) that could reasonably be expected to have a Material Adverse Effect; or

(f)Any portion of Borrower’s assets is attached, seized or levied upon, or a judgment for more than $50,000 is awarded against Borrower and is not stayed within ten days; or

(g)Dissolution or termination of existence of Borrower; or appointment of a receiver, trustee or custodian, for all or any material part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by or against Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect (except that, in the case of a proceeding commenced against Borrower, Borrower shall have 60 days after the date such proceeding was commenced to have it dismissed, provided Agility shall have no obligation to make any Advances during such period); or

(h)The occurrence of any circumstance that could reasonably be expected to have a “Material Adverse Effect”, which shall mean (i) a material adverse change in Borrower’s prospects, business or financial condition, or (ii) a material impairment in the prospect of repayment of all or any portion of the Obligations or in otherwise performing Borrower's obligations under the Transaction Documents, (iii) a material impairment in the perfection, value or priority of Lender’s security interests in the Collateral; or

(i)If any guaranty of all or a portion of the Obligations (a “Guaranty”), if any, ceases for any reason to be in full force and effect, or any guarantor fails to perform any obligation, or any event of default occurs, under the Guaranty, or if any of the circumstances described in clauses (c) through (g) above with respect to any guarantor or any guarantor dies or becomes subject to any criminal prosecution.

7.Remedies.

(a)Remedies. Upon the occurrence and during the continuance of any Event of Default, Agility, at its option, may do any one or more of the following: (i) Accelerate and declare the Obligations to be immediately due, payable, and performable; (ii) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Agility to enter Borrower’s premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge by Borrower for so long as Agility reasonably deems it necessary in order to complete the enforcement of its rights under this Agreement or any other Transaction Document; provided, however, that should Agility seek to take possession of any of the Collateral by Court process, Borrower hereby waives: (A) any bond and any surety or security relating thereto; (B) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (C) any requirement that Agility retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (iii) Require Borrower to assemble any or all of the Collateral and make it available to Agility at places designated by Agility; (iv) Complete the processing of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Agility shall have the right to use Borrower’s premises, equipment and all other property without charge by Borrower; (v) Collect and dispose of and realize upon any investment property, including withdrawal of any and all funds from any deposit or securities accounts; (vi) Dispose of any of the Collateral, at one or more public or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale; and (vii) Demand payment of, and collect any accounts, general intangibles or other Collateral and, in connection therewith, Borrower irrevocably authorizes Agility to endorse or sign Borrower’s name on all collections, receipts, instruments and other documents, and, in Agility’s good faith business judgment, to grant extensions of time to pay, compromise claims and settle accounts, general intangibles and the like for less than face value; Borrower grants Agility a license, exercisable from and after an Event of Default has occurred and while it is continuing, to use and copy any trademarks, service marks and other intellectual property in which Borrower has an interest to effect any of the foregoing remedies. All reasonable attorneys’ fees, expenses, costs, liabilities and obligations incurred by Agility with respect to the foregoing shall be added to and become part of the Obligations, and shall be due on demand.

(b)Application of Proceeds. All proceeds realized as the result of any sale or other disposition of the Collateral shall be applied by Agility first to the reasonable costs, expenses, liabilities, obligations and attorneys’ fees incurred by Agility in the exercise of its rights under this Agreement or any other Transaction Document, second to any fees and Obligations other than interest and principal, third to the interest due upon any of the Obligations, and fourth to the principal of the Obligations, in such order as Agility shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Agility for any deficiency.

(c)Remedies Cumulative. In addition to the rights and remedies set forth in this Agreement, Agility shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Agility and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by Agility of one or more of its rights or remedies shall not be deemed an election, nor bar Agility from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Agility to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed.

(d)Power of Attorney. After the occurrence and during the continuance of an Event of Default, Borrower irrevocably appoints Agility (and any of Agility’s designated employees or agents) as Borrower’s true and lawful attorney in fact to: endorse Borrower’s name on any checks or other forms of payment; make, settle and adjust all claims under and decisions with respect to Borrower’s policies of insurance; settle and adjust disputes and claims respecting accounts, general intangibles and other Collateral; execute and deliver all notices, instruments and agreements in connection with the perfection of the security interest granted in this Agreement; sell, lease or otherwise dispose of all or any part of the Collateral; and take any other action or sign any other documents required to be taken or signed by Borrower, or reasonably necessary to enforce Agility’s rights or remedies or otherwise carry out the purposes of this Agreement and the other Transaction Documents. The appointment of Agility as Borrower’s attorney in fact, and each of Agility’s rights and powers, being coupled with an interest, are irrevocable until all Obligations owing to Agility have been paid and performed in full.

8.Waivers. The failure of Agility at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other Transaction Document between Borrower and Agility shall not waive or diminish any right of Agility later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement shall be deemed to have been waived except by a specific written waiver signed by an authorized officer of Agility. Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, general intangible, document or guaranty at any time held by Agility on which Borrower is or may in any way be liable, and notice of any action taken by Agility, unless expressly required by this Agreement.

9.Indemnity. Borrower shall indemnify Agility for any costs or liabilities, including reasonable attorneys’ fees, incurred by Agility in connection with this Agreement or any other Transaction Document, except for any losses caused by Lender’s gross negligence or willful misconduct.

10.Confidentiality. In handling any confidential non-public information provided to Agility by Borrower, Agility shall exercise the same degree of care that it exercises with respect to its own proprietary information of the same types to maintain the confidentiality of the same, except that disclosure of such information may be made (i) to subsidiaries or affiliates of Agility in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Obligations, provided that they have entered into a comparable confidentiality agreement with respect thereto, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similar investigation of Agility, and (v) as Agility may deem appropriate in connection with the exercise of any remedies hereunder. Confidential information shall not include information that either: (a) is in the public domain, or becomes part of the public domain, after disclosure to Agility through no fault of Agility; or (b) is disclosed to Agility by a third party, provided Agility does not have actual knowledge that such third party is prohibited from disclosing such information.

11.Governing Law; Jurisdiction; Venue. The Transaction Documents, all acts and transactions under the Transaction Documents, and all rights and obligations of Agility and Borrower shall be governed by the internal laws (and not the conflict of laws rules) of the State of California. As a material part of the consideration to Agility to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to the Transaction Documents shall, at Agility’s option, be litigated in courts located within California, and, at Agility’s option, the venue therefor shall be Santa Barbara County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding.

12.MUTUAL WAIVER OF JURY TRIAL. BORROWER AND AGILITY EACH WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN AGILITY AND BORROWER INCLUDING ALL OTHER TRANSACTION DOCUMENTS, OR ANY CONDUCT, ACTS OR OMISSIONS OF AGILITY OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH AGILITY OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. IF THIS JURY WAIVER IS FOR ANY REASON UNENFORCEABLE, THE PARTIES AGREE TO RESOLVE ALL CLAIMS, CAUSES AND DISPUTES THROUGH JUDICIAL REFERENCE PURSUANT TO CODE OF CIVIL PROCEDURE SECTION 638 ET SEQ BEFORE A MUTUALLY ACCEPTABLE REFEREE SITTING WITHOUT A JURY OR, IF NO AGREEMENT ON THE REFEREE IS REACHED, BEFORE A REFEREE SELECTED BY THE PRESIDING JUDGE OF THE CALIFORNIA SUPERIOR COURT FOR SANTA BARBARA COUNTY. THIS PROVISION SHALL NOT RESTRICT A PARTY FROM EXERCISING NONJUDICIAL REMEDIES UNDER THE CODE.

13.General. This Agreement and the other Transaction Documents are the final, entire and complete agreement between Borrower and Agility and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement and the other Transaction Documents. There are no oral understandings, representations or agreements between the parties which are not set forth in the Transaction Documents. The terms and provisions of this Agreement or any other Transaction Document may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Agility. Agility may assign all or any part of its interest in this Agreement or any other Transaction Document and the Obligations to any person or entity, or grant a participation in, or security interest in, any interest in this or any other Transaction Document, with notice to, but without consent of, Borrower. Borrower may not assign any rights under or interest in this Agreement or any other Transaction Document without Agility’s prior written consent.

14.Publicity. Borrower authorizes Agility to use Borrower’s tradenames and logos in Agility’s marketing materials in respect of the transactions evidenced by this Agreement.

15.Lender’s License. This loan is made pursuant to the California Finance Lenders Law, Division 9 (commencing with Section 22000) of the Financial Code. Agility Capital II, LLC, 812 Anacapa Street, Suite A, Santa Barbara, CA 93101, License Number 603 H822. FOR INFORMATION CONTACT THE DEPARTMENT OF CORPORATIONS, STATE OF CALIFORNIA.

16.Subordination. The Obligations owing to Lender are subject to the terms of the Intercreditor Agreement.

[SIGNATURE PAGE FOLLOWS]

AGILITY CAPITAL II, LLC	RAINMAKER SYSTEMS, INC.
By:	By:
Title:	Title:
Address for notices:	Address for notices:
Agility Capital II, LLC 812 Anacapa Street, Suite A Santa Barbara, CA 93101 Attn: Jeff Carmody Fax: 805-568-0427	RAINMAKER SYSTEMS, INC. 900 East Hamilton Ave, Suite 400 Campbell, CA 95008 Attn: _________________ FAX: _________________

EXHIBIT A

COLLATERAL DESCRIPTION ATTACHMENT
TO LOAN AND SECURITY AGREEMENT

All personal property of Borrower (herein referred to as “Borrower” or “Debtor”) whether presently existing or hereafter created or acquired, and wherever located, including, but not limited to:

(a)     all accounts (including health-care-insurance receivables), chattel paper (including tangible and electronic chattel paper), commercial tort claims, deposit accounts, documents (including negotiable documents), equipment (including all accessions and additions thereto), general intangibles (including copyrights, patents, trademarks, goodwill and all intellectual property, payment intangibles and software), goods (including fixtures), instruments (including promissory notes), inventory (including all goods held for sale or lease or to be furnished under a contract of service, and including returns and repossessions), investment property (including securities and securities entitlements), letter of credit rights, money, and all of Debtor’s books and records with respect to any of the foregoing, and the computers and equipment containing said books and records; and

(b)     any and all cash proceeds and/or noncash proceeds of any of the foregoing, including, without limitation, insurance proceeds, and all supporting obligations and the security therefor or for any right to payment. All terms above have the meanings given to them in the California Uniform Commercial Code, as amended or supplemented from time to time.

Notwithstanding the foregoing, the term “Collateral” shall not include property that (i) is nonassignable by its terms without the consent of the licensor thereof or another party (but only to the extent such prohibition on transfer is enforceable under applicable law, including, without limitation, Sections 9406 and 9408 of the Code), (ii) the granting of a security interest therein is contrary to applicable law, provided that upon the cessation of any such restriction or prohibition, such property shall automatically become part of the Collateral, or (iii) constitutes the capital stock of a controlled foreign corporation (as defined in the IRC), in excess of 65% of the voting power of all classes of capital stock of such controlled foreign corporations entitled to vote.

EXHIBIT B

Places of Business and Locations of Collateral (Section 3(b)):

Permitted Liens (Section 3(c))

Litigation (Section 3(g)):

Subsidiaries and partnerships and joint ventures (Section 3(h)):

Accounts (Section 3(i))

CORPORATE RESOLUTIONS AND INCUMBENCY CERTIFICATE

Borrower: RAINMAKER SYSTEMS, INC.

I, the undersigned Secretary or Assistant Secretary of RAINMAKER SYSTEMS, INC. (the “Corporation”), HEREBY CERTIFY that the Corporation is organized and existing under and by virtue of the laws of the state of Delaware.

I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and complete copies of the Certificate of Incorporation and Bylaws of the Corporation, each of which is in full force and effect on the date hereof.

I FURTHER CERTIFY that by unanimous written consent of the Directors of the Corporation, (or by other duly authorized corporate action in lieu of a meeting), the following resolutions were adopted.

BE IT RESOLVED, that any one (1) of the following named officers, employees, or agents of this Corporation, whose actual signatures are shown below:

Names Position Actual Signatures

acting for and on behalf of this Corporation and as its act and deed be, and they hereby are, authorized and empowered:

Borrow Money. To borrow from time to time from Agility Capital II, LLC (“Agility”), on such terms as may be agreed upon between the officers, employees, or agents and Agility, such sum or sums of money as in their judgment should be borrowed, without limitation, including such sums as are specified in that certain Loan Agreement (the “Agreement”).

Execute Agreement. To execute and deliver the Agreement to Agility, and also one or more renewals, extensions, modifications, refinancings, consolidations, or substitutions for one or more of the notes, or any portion of the notes.

Grant Security. To grant a security interest to Agility in the Collateral described in the Agreement, which security interest shall secure all of the Corporation’s obligations, as described in the Agreement.

Issue Warrants. To issue one or more warrants to purchase the capital stock of the Corporation to Agility.

Further Acts. To designate additional or alternate individuals as being authorized to request advances thereunder, and in all cases, to do and perform such other acts and things, to pay any and all fees and costs, and to execute and deliver such other documents and agreements as they may in their discretion deem reasonably necessary or proper in order to carry into effect the provisions of these Resolutions.”

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these resolutions and performed prior to the passage of these resolutions are hereby ratified and approved, that these Resolutions shall remain in full force and effect and Agility may rely on these Resolutions until written notice of their revocation shall have been delivered to and received by Agility. Any such notice shall not affect any of the Corporation’s agreements or commitments in effect at the time notice is given.

I FURTHER CERTIFY that the officers, employees, and agents named above are duly elected, appointed, or employed by or for the Corporation, as the case may be, and occupy the positions set forth opposite their respective names; that the foregoing Resolutions now stand of record on the books of the Corporation; and that the Resolutions are in full force and effect and have not been modified or revoked in any manner whatsoever.

IN WITNESS WHEREOF, I have hereunto set my hand as of October 24, 2013 and attest that the signatures set opposite the names listed above are their genuine signatures.

CERTIFIED AND ATTESTED BY:

By:

 
Name:

 
Title:

1

1174858 v10/HN

EX-21.1

Exhibit 21.1

LIST OF SUBSIDIARIES

GrowCommerce, Inc., a Delaware corporation

Sunset Direct, Inc., an Idaho corporation

Rainmaker Systems (Canada), Inc., a Canadian federal corporation

Rainmaker Europe Ltd., a company incorporated under the laws of England and Wales

Rainmaker EMEA Limited, a company incorporated under the laws of England and Wales

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Rainmaker Systems, Inc.

Campbell, California

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-113812, 333-117625, 333-126267, 333-127492, 333-132353, 333-135265, 333-138640, 333-139888, 333-140877, 333-146773 and 333-171946) and Form S-8 (Nos. 333-91095, 333-63034, 333-85298, 333-107285, 333-113201, 333-123445, 333-132894, 333-146771, 333-149672, 333-153177, 333-159266, 333-165900, 333-172360, 333-179163, 333-185716, 333-186102, 333-186747 and 333-189571) of Rainmaker Systems, Inc. of our report dated April 1, 2014, relating to the consolidated financial statements and schedule, which appears in this Form 10-K. Our report contains an explanatory paragraph regarding the Company's ability to continue as a going concern.

/s/ BDO USA, LLP

San Jose, California

April 1, 2014

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Donald Massaro, certify that:

1. I have reviewed this annual report on Form 10-K 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of 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 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 (Rainmaker's Fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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 control over financial reporting.

Date:	April 1, 2014	/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, Bradford Peppard, certify that:

1. I have reviewed this annual report on Form 10-K 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of 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 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 (Rainmaker's Fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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 control over financial reporting.

Date:	April 1, 2014	/s/ Bradford Peppard
		Bradford Peppard
		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 Annual Report of the Company on Form 10-K for the year ended December 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)

April 1, 2014

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, Bradford Peppard, 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 Annual Report of the Company on Form 10-K for the year ended December 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/ Bradford Peppard

Bradford Peppard

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

April 1, 2014

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Goodwill (Details) (USD $)	12 Months Ended
	Dec. 31, 2013 reporting_unit	Dec. 31, 2013 segment	Dec. 31, 2012	Dec. 31, 2011
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of operating and reportable segment	1	1
Number of reporting unit	1	1
Goodwill	$ 0	$ 0	$ 5,337,000	$ 5,268,000
Goodwill, accumulated impairment loss	$ 16,900,000	$ 16,900,000	$ 11,500,000

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ACQUISITIONS - Contingent Consideration (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended			1 Months Ended	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Apr. 30, 2012 Optima	Dec. 31, 2012 Optima	Dec. 31, 2011 Optima	Jan. 29, 2010 Optima payment
Acquisitions:
Number of potential payments of contingent consideration							2
Estimated fair value of future potential additional payments							$ 375
Contingent consideration, probability of payment							50.00%
Repayment of acquisition earnout	0	113	0		44	190
Contingent consideration liability					225
Payments for contingent consideration				$ 225

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BALANCE SHEET COMPONENTS - Prepaids and Other Assets (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Balance Sheet Components [Abstract]
Prepaid expenses	$ 623	$ 174
Deferred professional service costs	252	0
VAT tax receivable	440	0
Credit card deposits	0	895
Other current assets	303	223
Prepaid expenses and other current assets	$ 1,618	$ 1,292

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STOCKHOLDERS' EQUITY - Preferred Stock and Common Stock (Details) (USD $)	1 Months Ended		12 Months Ended
	Apr. 30, 2013	Jun. 30, 2011	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Equity offering:
Preferred stock, authorized (in shares)			5,000,000	5,000,000
Preferred stock, outstanding (in shares)			0	0
Stock issued during period (in shares)	13,000,000
Proceeds from issuance of common stock, gross		$ 3,900,000
Proceeds from issuance of common stock	5,800,000	3,300,000	5,534,000	22,000	3,285,000
Net cash proceeds from the offering	$ 5,500,000
Common Stock
Equity offering:
Stock issued during period (in shares)		3,700,000
Stock issuable upon exercise of warrants (in shares)		1,600,000

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ACQUISITIONS - Summary of Common Stock Issued (Details) (Optima, Common Stock, USD $) In Thousands, except Share data, unless otherwise specified	0 Months Ended
	Jan. 29, 2010
Optima | Common Stock
Business Acquisition [Line Items]
Number of Common Shares Issued	480,000
Market Price Used per Share (USD per share)	$ 1.46
Value of Shares Issued	$ 701

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EMPLOYEE BENEFIT PLAN (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Compensation and Retirement Disclosure [Abstract]
Maximum annual contribution percentage per employee	20.00%
Credit incurred from forfeitures	$ 14	$ 19	$ 12

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NET LOSS PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Calculation of basic and diluted net loss per common share:
Net loss from continuing operations	$ (21,021)	$ (3,965)	$ (10,448)
Net income (loss) from discontinued operations	50	(6,307)	(531)
Net loss	$ (20,971)	$ (10,272)	$ (10,979)
Weighted-average shares of common stock outstanding - basic and diluted	38,639,000	27,123,000	25,050,000
Basic and diluted net loss per share - continuing operations (USD per share)	$ (0.54)	$ (0.15)	$ (0.42)
Basic and diluted net loss per share - discontinued operations (USD per share)	$ 0.00	$ (0.23)	$ (0.02)
Basic and diluted net loss per share (USD per share)	$ (0.54)	$ (0.38)	$ (0.44)
Antidilutive securities excluded from earnings per share (in shares)	3,700,000	4,000,000	3,900,000

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STOCKHOLDERS' EQUITY (Tables)

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Schedule of the Terms of Outstanding Warrants

The following table summarizes the terms of those outstanding warrants:

Date of Issuance	Warrants Outstanding at December 31, 2013	Exercise Price	Term from Date of Issuance
June 22, 2011	110,092	$1.05	Five Years
June 24, 2011	1,467,887	$1.40	Five Years
October 30, 2013	216,667	$0.45	Seven Years

Stock-based Compensation Expense

The table below reflects stock-based compensation expense for the years ended December 31, 2013, 2012 and 2011 (in thousands):

	Year ended December 31,
	2013		2012		2011
Stock-based compensation expense from continuing operations included in:
Cost of services	$	75	$	84	$	73
Sales and marketing	150		51		169
Technology and development	215		116		186
General and administrative	1,070		559		1,594
	$	1,510	$	810	$	2,022

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 years ended December 31, 2013, 2012 and 2011, 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:

	Year Ended December 31,
	2013		2012		2011
Expected life in years	3.94		3.76		3.76
Volatility	73.52	%	65.99	%	65.99	%
Risk-free interest rate	0.50	%	0.38	%	1.00	%
Dividend rate	—	%	—	%	—	%
Forfeiture Rates:
Options	21.53	%	27.61	%	27.61	%
Restricted stock	19.43	%	15.04	%	15.04	%

Summary of Activity Under Equity Incentive Plan

A summary of option activity under our active Stock Incentive Plans for the years ended December 31, 2013, 2012 and 2011 is as follows:

	Number of Shares (in thousands)		Weighted Average Exercise Price
Balance at December 31, 2010	674		$	2.25
Granted	600		0.98
Exercised	(15	)	1.00
Canceled	(238	)	1.96
Balance at December 31, 2011	1,021		1.59
Granted	585		0.70
Exercised	—		—
Canceled	(437	)	1.29
Balance at December 31, 2012	1,169		1.25
Granted	2,155		0.46
Exercised	(5	)	0.81
Canceled	(621	)	1.00
Balance at December 31, 2013	2,698		$	0.67

Schedule of Shares Authorized Under Stock Option Plans by Exercise Price Range

The following table summarizes information about stock options outstanding as of December 31, 2013:

	Options Outstanding						Options Vested
Range of Exercise Prices	Number Outstanding (in thousands)	Weighted Average Contractual Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value at Closing Price of $0.24 on 12/31/13		Number Exercisable (in thousands)	Weighted Average Exercise Price		Aggregate Intrinsic Value at Closing Price of $0.24 on 12/31/13
$0.35 - $  0.40	829	9.33	$	0.40	$	—	110	$	0.40	$	—
$0.41 - $  0.45	462	9.56	0.44		—		33	0.45		—
$0.46 - $  0.68	501	8.78	0.55		—		75	0.55		—
$0.69 - $ 0.69	500	8.99	0.69		—		125	0.69		—
$0.70 - $13.20	406	5.86	1.64				279	2.01
$0.35 - $13.20	2,698	8.68	$	0.67	$	—	622	$	1.20	$	—

Summary of Restricted Stock Award Activity

The following table summarizes the activity with regard to restricted stock awards during the years ended December 31, 2013, 2012 and 2011:

	Number of Shares (in thousands)		Weighted Average Grant Price
Balance at December 31, 2010	2,457		$	1.47
Granted	995		1.03
Vested	(1,363	)	0.86
Forfeited	(743	)	1.36
Balance at December 31, 2011	1,346		1.03
Granted	2,145		0.79
Vested	(720	)	0.78
Forfeited	(516	)	0.93
Balance at December 31, 2012	2,255		0.78
Granted	1,518		0.70
Rescinded	(250	)	0.93
Vested	(1,986	)	0.52
Forfeited	(955	)	0.80
Balance at December 31, 2013	582		$	0.69

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INTEREST AND OTHER EXPENSE, NET (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Other Income and Expenses [Abstract]
Interest expense, net	$ 228	$ 237	$ 193
Currency transaction (gain) loss	35	(21)	(15)
Other	31	0	0
Interest and other expense, net	$ 294	$ 216	$ 178

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STOCKHOLDERS' EQUITY - Equity Incentive Plans (Details)	12 Months Ended						0 Months Ended				12 Months Ended		0 Months Ended					0 Months Ended	12 Months Ended								0 Months Ended		0 Months Ended	12 Months Ended						0 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Restricted Stock	Dec. 31, 2012 Restricted Stock	Dec. 31, 2011 Restricted Stock	Jun. 05, 2013 2003 Plan	May 14, 2013 2003 Plan	May 15, 2008 2003 Plan	May 15, 2007 2003 Plan	Dec. 31, 2013 2003 Plan	Dec. 31, 2012 2003 Plan	May 14, 2013 2003 Plan New Directors	Jun. 05, 2013 2003 Plan Annual Evergreen Provision	May 14, 2013 2003 Plan Annual Evergreen Provision	Feb. 19, 2013 2003 Plan Restricted Stock Nonemployee Director	May 14, 2003 2003 Plan Restricted Stock Nonemployee Director	Feb. 19, 2013 2003 Plan Restricted Stock New Directors	Dec. 31, 2013 2003 Plan Restricted Stock Minimum Employees, Consultants and Nonemployee Directors	Dec. 31, 2013 2003 Plan Restricted Stock Maximum Employees, Consultants and Nonemployee Directors	Dec. 31, 2013 2003 Plan Stock Options	Dec. 31, 2013 2003 Plan Stock Options Nonemployee Director installments	Dec. 31, 2013 2003 Plan Stock Options Employees and Consultants installments	Dec. 31, 2013 2003 Plan Stock Options Minimum Nonemployee Director	Dec. 31, 2013 2003 Plan Stock Options Maximum Nonemployee Director	Dec. 31, 2013 2003 Plan Stock Options Maximum Employees and Consultants	Feb. 19, 2013 2012 Plan	Dec. 31, 2013 2012 Plan	Feb. 19, 2013 2012 Plan Restricted Stock Chief Financial Officer	Dec. 31, 2013 2012 Plan Restricted Stock Vesting Over Four Years	Dec. 31, 2013 2012 Plan Restricted Stock Vesting Over Four Years Chief Executive Officer	Dec. 31, 2013 2012 Plan Restricted Stock Vesting After One Year	Dec. 31, 2013 2012 Plan Stock Options	Dec. 31, 2013 2012 Plan Stock Options Vesting Over Four Years	Dec. 31, 2013 2012 Plan Stock Options Vesting Over Four Years Chief Executive Officer	Dec. 21, 2012 2012 Plan Stock Options Maximum
Equity incentive plans:
Reverse stock split ratio										5
Common stock available for issuance (in shares)							1,200,000		950,000																		375,000
Maximum increase to authorized shares								600,000	1,000,000		1,000,000	1,000,000		2,000,000	1,000,000
Maximum percent of outstanding common stock to increase authorized shares							4.00%		4.00%		4.00%
Total shares available for grant											1,252,000					100,000	20,000											281,250
Initigal grant of options (in shares)	2,155,000	585,000	600,000										20,000
Restricted shares granted				1,518,000	2,145,000	995,000												50,000												500,000		250,000
Minimum percent of the fair value of common stock option exercise price																					100.00%	100.00%											100.00%
Option maximum term																					10 years	10 years
Minimum percentage of employee owned outstanding common stock																					10.00%
Minimum percent of the fair value of common stock option exercise price for employees who own over 10% of common stock																					110.00%
Option maximum term for employees who own over 10% of common stock																					5 years
Minimum number of vesting installments																						2	1
Award vesting period																			1 year	4 years				12 months	24 months	4 years					4 years				4 years	10 years
Expiration period after termination																						12 months	3 months
Number of shares of common stock which vest 1/16th quarterly																																		500,000
Number of common stock shares issued																													375,000

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LONG-TERM DEBT OBLIGATIONS - Credit Facility (Details)														0 Months Ended		0 Months Ended					1 Months Ended
	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Mar. 19, 2014 Comerica Bank Revolving Line Secured Debt Subsequent Event USD ($)	Jun. 14, 2012 Comerica Bank Comerica Bank Credit Facility Secured Debt USD ($)	Dec. 31, 2013 Comerica Bank Comerica Bank Credit Facility Term Loan Secured Debt USD ($)	Dec. 31, 2012 Comerica Bank Comerica Bank Credit Facility Term Loan Secured Debt USD ($)	Jun. 14, 2012 Comerica Bank Comerica Bank Credit Facility Term Loan Secured Debt USD ($) installments	Mar. 01, 2014 Comerica Bank Comerica Bank Credit Facility Term Loan Secured Debt Subsequent Event	Dec. 31, 2013 Comerica Bank Comerica Bank Credit Facility Revolving Line Secured Debt USD ($)	Dec. 31, 2012 Comerica Bank Comerica Bank Credit Facility Revolving Line Secured Debt USD ($)	Jun. 14, 2012 Comerica Bank Comerica Bank Credit Facility Revolving Line Secured Debt USD ($)	Mar. 01, 2014 Comerica Bank Comerica Bank Credit Facility Revolving Line Secured Debt Subsequent Event	Jun. 14, 2012 Comerica Bank Comerica Bank Credit Facility Letter of Credit Secured Debt USD ($)	Oct. 30, 2013 Agility Capital II, LLC USD ($)	Dec. 31, 2013 Agility Capital II, LLC USD ($)	Feb. 28, 2014 Agility Capital II, LLC Subsequent Event USD ($)	Dec. 31, 2013 Agility Capital II, LLC Revolving Line Secured Debt USD ($)	Dec. 31, 2012 Agility Capital II, LLC Revolving Line Secured Debt USD ($)	Apr. 30, 2004 Bridge Bank Bridge Bank Credit Facility Secured Debt USD ($)	Apr. 30, 2004 Bridge Bank Bridge Bank Credit Facility Secured Debt Credit Facility Rate Option, Stated Percentage	Apr. 30, 2004 Bridge Bank Bridge Bank Credit Facility Secured Debt Credit Facility Rate Option, Percent in Excess of Prime Lending Rate	Apr. 30, 2004 Bridge Bank Bridge Bank Credit Facility Standby Letters of Credit Secured Debt USD ($)	Jul. 31, 2005 Bridge Bank Bridge Bank Credit Facility Standby Letters of Credit Secured Debt Security Deposit for Corporate Headquarters USD ($)	Dec. 31, 2010 Bridge Bank Bridge Bank Credit Facility Standby Letters of Credit Secured Debt Securement of Overdraft Facility Rainmaker EMEA Limited GBP (£)	Nov. 25, 2010 Bridge Bank Bridge Bank Credit Facility Standby Letters of Credit Secured Debt Securement of Overdraft Facility Rainmaker EMEA Limited GBP (£)	Nov. 25, 2010 Barclays Bank PLC Overdraft Facility Standby Letters of Credit Secured Debt Rainmaker EMEA Limited GBP (£)
Line of Credit Facility [Line Items]
Maximum borrowing capacity				$ 5,000,000			$ 3,000,000				$ 2,000,000		$ 500,000	$ 650,000					$ 6,000,000			$ 1,000,000.0	$ 100,000	£ 250,000	£ 250,000	£ 247,500
Percent of accounts receivable less credit issued used to determine borrowing base											80.00%
Number of monthly installments of principal							30
Total notes payable	3,641,000	4,527,000			1,800,000	3,000,000			1,230,000	1,493,000							404,000	0
Stated interest rate					5.50%		2.25%	2.25%	4.75%		1.50%	1.50%								3.50%
Minimum liquidity ratio				1.25
Maximum advances at any time outstanding			1,000,000
Restricted cash pledged as collateral			1,562,000
Current borrowing capacity														500,000
Borrowing based on accounts receivable balance, percentage														30.00%
Interest rate per annum on advances														12.00%
Interest rate per annum for advances if a default occurs														18.00%
Default fee														10,000		10,000
Additional default fee per subsequent 30-day period														15,000
Line of credit, amount outstanding															$ 500,000
Number of shares called by warrants														216,667
Term until expiration														7 years
Exercise price of warrants (USD per warrant)														0.45
Basis spread on variable rate																					0.25%

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STOCKHOLDERS' EQUITY - Exercise Price Ranges (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Aggregate intrinsic value closing price (USD per share)	$ 0.24
$0.35 - $ 0.40
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Range of Exercise Prices (USD per share)	$ 0.35
Upper Range of Exercise Prices (USD per share)	$ 0.40
Options Outstanding, Number Outstanding (in shares)	829
Options Outstanding, Weighted Average Contractual Life (Years)	9 years 3 months 29 days
Options Outstanding, Weighted Average Exercise Price (USD per share)	$ 0.40
Options Outstanding, Aggregate Intrinsic Value at Closing Price	$ 0
Options Vested, Number Exercisable (in shares)	110
Options Vested, Weighted Average Exercise Price (USD per share)	$ 0.40
Options Vested, Aggregate Intrinsic Value at Closing Price	0
$0.41 - $ 0.45
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Range of Exercise Prices (USD per share)	$ 0.41
Upper Range of Exercise Prices (USD per share)	$ 0.45
Options Outstanding, Number Outstanding (in shares)	462
Options Outstanding, Weighted Average Contractual Life (Years)	9 years 6 months 21 days
Options Outstanding, Weighted Average Exercise Price (USD per share)	$ 0.44
Options Outstanding, Aggregate Intrinsic Value at Closing Price	0
Options Vested, Number Exercisable (in shares)	33
Options Vested, Weighted Average Exercise Price (USD per share)	$ 0.45
Options Vested, Aggregate Intrinsic Value at Closing Price	0
$0.46 - $ 0.68
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Range of Exercise Prices (USD per share)	$ 0.46
Upper Range of Exercise Prices (USD per share)	$ 0.68
Options Outstanding, Number Outstanding (in shares)	501
Options Outstanding, Weighted Average Contractual Life (Years)	8 years 9 months 10 days
Options Outstanding, Weighted Average Exercise Price (USD per share)	$ 0.55
Options Outstanding, Aggregate Intrinsic Value at Closing Price	0
Options Vested, Number Exercisable (in shares)	75
Options Vested, Weighted Average Exercise Price (USD per share)	$ 0.55
Options Vested, Aggregate Intrinsic Value at Closing Price	0
$0.69 - $ 0.69
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Range of Exercise Prices (USD per share)	$ 0.69
Upper Range of Exercise Prices (USD per share)	$ 0.69
Options Outstanding, Number Outstanding (in shares)	500
Options Outstanding, Weighted Average Contractual Life (Years)	8 years 11 months 26 days
Options Outstanding, Weighted Average Exercise Price (USD per share)	$ 0.69
Options Outstanding, Aggregate Intrinsic Value at Closing Price	0
Options Vested, Number Exercisable (in shares)	125
Options Vested, Weighted Average Exercise Price (USD per share)	$ 0.69
Options Vested, Aggregate Intrinsic Value at Closing Price	0
$0.70 - $13.20
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Range of Exercise Prices (USD per share)	$ 0.70
Upper Range of Exercise Prices (USD per share)	$ 13.20
Options Outstanding, Number Outstanding (in shares)	406
Options Outstanding, Weighted Average Contractual Life (Years)	5 years 10 months 9 days
Options Outstanding, Weighted Average Exercise Price (USD per share)	$ 1.64
Options Vested, Number Exercisable (in shares)	279
Options Vested, Weighted Average Exercise Price (USD per share)	$ 2.01
$0.35 - $13.20
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Lower Range of Exercise Prices (USD per share)	$ 0.35
Upper Range of Exercise Prices (USD per share)	$ 13.20
Options Outstanding, Number Outstanding (in shares)	2,698
Options Outstanding, Weighted Average Contractual Life (Years)	8 years 8 months 4 days
Options Outstanding, Weighted Average Exercise Price (USD per share)	$ 0.67
Options Outstanding, Aggregate Intrinsic Value at Closing Price	0
Options Vested, Number Exercisable (in shares)	622
Options Vested, Weighted Average Exercise Price (USD per share)	$ 1.20
Options Vested, Aggregate Intrinsic Value at Closing Price	$ 0

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RELATED PARTY TRANSACTIONS (Details) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended		12 Months Ended
	Apr. 30, 2013	Jun. 30, 2011	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Related party transactions:
Stock issued during period (in shares)	13,000,000
Proceeds from issuance of common stock	$ 5,800	$ 3,300	$ 5,534	$ 22	$ 3,285
Director
Related party transactions:
Shares purchases from related party	500,025	135,660
Purchase price (USD per share)	$ 0.45	$ 1.29
Additional shares available for purchase subject to the exercise of warrants		54,264
Initial exercise price of warrants (USD per share)		$ 1.40
Common Stock
Related party transactions:
Stock issued in period (in shares)		3,700,000
Additional shares of common stock subject to exercise of warrants		1,600,000
Stock issued during period (in shares)		3,700,000

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STOCKHOLDERS' EQUITY - Common Stock Warrants (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended			1 Months Ended			12 Months Ended			0 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2011 Common Stock	Jun. 30, 2011 Common Stock Warrant warrant	Jun. 30, 2011 Common Stock Warrant, Issued to Placement Agent	Dec. 31, 2013 June 22, 2011	Dec. 31, 2013 June 24, 2011	Dec. 31, 2013 October 30, 2013	Oct. 30, 2013 Agility Capital II, LLC
Common stock warrants:
Stock warrants issued during period (in warrants)					1,500,000
Term until expiration					5 years	5 years	5 years	5 years	7 years	7 years
Exercise price of warrants (USD per warrant)					1.40	1.05	1.05	1.40	0.45	0.45
Period until warrants become exercisable from issuance					6 months	6 months
Percentage of number of shares purchased by investors used to determine warrant value						3.00%
Number of shares purchased by investors				110,000
Number of shares called by warrants										216,667
Gain due to change in fair value of warrant liability	$ 344	$ 169	$ 298
Warrants outstanding							110,092	1,467,887	216,667

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NET LOSS PER SHARE (Tables)

12 Months Ended

Dec. 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):

	Year Ended December 31,
	2013			2012			2011
Net loss from continuing operations	$	(21,021	)	$	(3,965	)	$	(10,448	)
Net income (loss) from discontinued operations	50			(6,307		)	(531		)
Net loss	$	(20,971	)	$	(10,272	)	$	(10,979	)
Weighted-average shares of common stock outstanding – basic and diluted	38,639			27,123			25,050
Basic and diluted net loss per share - continuing operations	$	(0.54	)	$	(0.15	)	$	(0.42	)
Basic and diluted net income (loss) per share - discontinued operations	—			(0.23		)	(0.02		)
Basic and diluted net loss per share	$	(0.54	)	$	(0.38	)	$	(0.44	)

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BALANCE SHEET COMPONENTS - Goodwill (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Activity in accounting for goodwill:
Beginning Balance	$ 5,337,000	$ 5,268,000
Foreign currency adjustments	31,000	69,000
Impairment	(5,368,000)	0	0
Ending Balance	0	5,337,000	5,268,000
Weighted average cost of capital	23.00%
Technology attirition rate	20.00%
Terminal growth rate	5.00%
Accumulated goodwill impairment losses	$ 16,900,000	$ 11,500,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Deferred tax assets, gross	$ 45,969	$ 31,781
Valuation allowance percentage	100.00%	100.00%

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STOCKHOLDERS' EQUITY - Stock Activity (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stock activity:
Weighted average grant date fair value, options granted (USD per share)	$ 0.33	$ 0.31	$ 0.47
Proceeds from stock option exercises	$ 4	$ 0	$ 15
Total intrinsic value of stock options exercised	1		4
Options outstanding, number of shares:
Balance at beginning of period (in shares)	1,169,000	1,021,000	674,000
Granted (in shares)	2,155,000	585,000	600,000
Exercised (in shares)	(5,000)	0	(15,000)
Canceled (in shares)	(621,000)	(437,000)	(238,000)
Balance at end of period (in shares)	2,698,000	1,169,000	1,021,000
Options outstanding, weighted average exercise price:
Balance at beginning of period (USD per share)	$ 1.25	$ 1.59	$ 2.25
Granted (USD per share)	$ 0.46	$ 0.70	$ 0.98
Exercised (USD per share)	$ 0.81	$ 0.00	$ 1.00
Canceled (USD per share)	$ 1.00	$ 1.29	$ 1.96
Balance at end of period (USD per share)	$ 0.67	$ 1.25	$ 1.59
Restricted Stock
Stock activity:
Total fair value of nonvested restricted stock awards	402
Stock award activity, restricted stock, number of shares:
Balance at beginning of period (in shares)	2,255,000	1,346,000	2,457,000
Granted (in shares)	1,518,000	2,145,000	995,000
Rescinded (in shares)	(250,000)
Vested (in shares)	(1,986,000)	(720,000)	(1,363,000)
Forfeited (in shares)	(955,000)	(516,000)	(743,000)
Balance at end of period (in shares)	582,000	2,255,000	1,346,000
Stock award activity, restricted stock, weighted average grant price:
Balance at beginning of period (USD per share)	$ 0.78	$ 1.03	$ 1.47
Granted (USD per share)	$ 0.70	$ 0.79	$ 1.03
Rescinded (USD per share)	$ 0.93
Vested (USD per share)	$ 0.52	$ 0.78	$ 0.86
Forfeited (USD per share)	$ 0.80	$ 0.93	$ 1.36
Balance at end of period (USD per share)	$ 0.69	$ 0.78	$ 1.03
Restricted Stock | Director
Stock activity:
Number of individuals granted with awards	4
Number of individuals previously granted with awards and subsequently rescinded	1
Stock award activity, restricted stock, number of shares:
Granted (in shares)	650,000
Rescinded (in shares)	(250,000)
Restricted Stock | Consultants
Stock activity:
Number of individuals granted with awards	2
Award vesting period	1 year
Fair value of awards granted	$ 35
Stock award activity, restricted stock, number of shares:
Granted (in shares)	100,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Allowance for Doubtful Accounts (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Allowance for doubtful accounts	$ 11	$ 15

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BALANCE SHEET COMPONENTS - Other Current Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Balance Sheet Components [Abstract]
Payable to customers	$ 1,158	$ 1,058
Accrued professional fees	663	652
Accrued VAT taxes	248	148
Accrued sales tax	229	320
Settlement liability	200	0
Reseller rebates	190	196
Other liabilities	977	768
Other accrued liabilities	$ 3,665	$ 3,142

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INCOME TAXES - Effective Income Tax Reconciliation (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income tax expense reconciliation:
Tax benefit computed at federal statutory rate	$ (7,353)	$ (1,266)	$ (3,546)
Effect of state income taxes	(48)	36	33
Foreign rate differential	466	61	8
Change in valuation allowance	6,284	1,163	3,392
Stock based compensation	120	96	391
Other	(126)	151	(259)
Total income tax (benefit) expense	$ (657)	$ 241	$ 19

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COMMITMENTS AND CONTINGENCIES - Contingencies (Details) (USD $)	1 Months Ended		0 Months Ended	12 Months Ended
	Apr. 30, 2013	Feb. 08, 2013 Breach of Employment Contract Threatened Litigation	Jan. 28, 2014 Breach of Employment Contract Settled Litigation Subsequent Event	Dec. 31, 2013 Breach of Employment Contract Settled Litigation Subsequent Event
Contingencies:
Estimate of possible loss		$ 1,000,000
Shares issued in pursuant to legal settlement	13,000,000		1,000,000
Litigation settlement charges				$ 200,000

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DISCONTINUED OPERATIONS (Details) (USD $) In Thousands, unless otherwise specified	0 Months Ended	12 Months Ended
	Dec. 17, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Discontinued operations:
Cash payment received		$ 0	$ 845	$ 0
Losses from discontinued operations:
Loss on disposal of discontinued operations		(3,341)
Net income (loss) from discontinued operations		50	(6,307)	(531)
Credit for allowance for doubtful accounts		(4)	(38)	5
RSL
Discontinued operations:
Stock percentage acquired by purchaser	100.00%
Cash payment received	845
Additional consideration possible		300
Losses from discontinued operations:
Revenue		156	10,225	11,888
Cost of services		37	11,103	10,048
Gross margin		119	(878)	1,840
Operating expenses		0	1,988	2,190
Non-operating expenses		0	100	181
Income (loss) from discontinued operations, net of tax		119	(2,966)	(531)
Loss on disposal of discontinued operations		(69)	(3,341)	0
Net income (loss) from discontinued operations		50	(6,307)	(531)
Credit for allowance for doubtful accounts			$ 499

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NET LOSS PER SHARE

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Net Loss Per Share

NET LOSS PER SHARE

Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the year. Diluted net 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):

	Year Ended December 31,
	2013			2012			2011
Net loss from continuing operations	$	(21,021	)	$	(3,965	)	$	(10,448	)
Net income (loss) from discontinued operations	50			(6,307		)	(531		)
Net loss	$	(20,971	)	$	(10,272	)	$	(10,979	)
Weighted-average shares of common stock outstanding – basic and diluted	38,639			27,123			25,050
Basic and diluted net loss per share - continuing operations	$	(0.54	)	$	(0.15	)	$	(0.42	)
Basic and diluted net income (loss) per share - discontinued operations	—			(0.23		)	(0.02		)
Basic and diluted net loss per share	$	(0.54	)	$	(0.38	)	$	(0.44	)

For the years ended December 31, 2013, 2012 and 2011, we excluded approximately 3.7 million, 4.0 million and 3.9 million options, warrants and unvested restricted share awards, respectively, from the calculation of diluted net loss per share as these financial instruments were anti-dilutive.

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COMMITMENTS AND CONTINGENCIES - Guarantees (Details) (USD $) In Thousands, unless otherwise specified	Jul. 02, 2013	Feb. 01, 2013	Oct. 31, 2012	Jul. 18, 2012 Standby Letter of Credit Notes Payable to Banks
Guarantees:
Guarantor obligation, maximum exposure				$ 100
Security deposit	$ 61	$ 40	$ 30

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk and Credit Evaluations (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended																						3 Months Ended		12 Months Ended
	Dec. 31, 2013 Revenue Customer Concentration Risk clients	Dec. 31, 2012 Revenue Customer Concentration Risk clients	Dec. 31, 2011 Revenue Customer Concentration Risk clients	Dec. 31, 2013 Accounts Receivable Customer Concentration Risk clients	Dec. 31, 2012 Accounts Receivable Customer Concentration Risk clients	Dec. 31, 2013 Microsoft Customer Concentration Risk	Dec. 31, 2013 Microsoft Revenue Customer Concentration Risk	Dec. 31, 2012 Microsoft Revenue Customer Concentration Risk	Dec. 31, 2013 Microsoft Accounts Receivable Customer Concentration Risk	Dec. 31, 2013 Symantec Revenue Customer Concentration Risk	Dec. 31, 2012 Symantec Revenue Customer Concentration Risk	Dec. 31, 2011 Symantec Revenue Customer Concentration Risk	Dec. 31, 2013 Symantec Accounts Receivable Customer Concentration Risk	Dec. 31, 2012 Symantec Accounts Receivable Customer Concentration Risk	Dec. 31, 2013 Hewlett-Packard Customer Concentration Risk	Dec. 31, 2013 Hewlett-Packard Revenue Customer Concentration Risk	Dec. 31, 2012 Hewlett-Packard Revenue Customer Concentration Risk	Dec. 31, 2011 Hewlett-Packard Revenue Customer Concentration Risk	Dec. 31, 2013 Hewlett-Packard Accounts Receivable Customer Concentration Risk	Dec. 31, 2012 Hewlett-Packard Accounts Receivable Customer Concentration Risk	Dec. 31, 2012 Comcast Accounts Receivable Customer Concentration Risk	Dec. 31, 2011 Sun Microsystems Revenue Customer Concentration Risk	Dec. 31, 2012 Unrecorded Chargebacks	Sep. 30, 2012 Unrecorded Chargebacks	Dec. 31, 2013 Unrecorded Chargebacks	Dec. 31, 2013 Revenue	Dec. 31, 2013 General and Administrative Expense
Concentrations of credit risk and credit evaluations:
Out-of-period adjustment																							$ 165	$ 293	$ 458	$ 38	$ 420
Number of significant clients	3	3	3	3	3
Concentration risk percentage							43.00%	35.00%	25.00%	24.00%	21.00%	14.00%	40.00%	12.00%		10.00%	11.00%	21.00%	11.00%	13.00%	11.00%	22.00%
Duration of notice needed to terminate agreement						30 days									60 days

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LONG-TERM DEBT OBLIGATIONS (Tables)

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Components of Long-term Debt

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

	December 31, 2013			December 31, 2012
Comerica term loan	$	1,800		$	3,000
Comerica revolving line	1,230			1,493
Agility line of credit, net of discount of $96 and $0	404			—
Notes payable – insurance	207			34
Total notes payable	3,641			4,527
Less: current portion	(3,641		)	(2,727		)
Total notes payable, less current portion	$	—		$	1,800

Schedule of Future Debt Maturities

Future debt maturities at December 31, 2013 are as follows (in thousands):

2014	$	3,737
2015 and thereafter	—
Total	$	3,737

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ACQUISITIONS (Tables)

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

Summary of Common Stock Issued in Acquisition

The following table summarizes the common stock issued in this transaction:

	(in thousands, except share and per share amounts)
Acquisition	Transaction Date	# of Common Shares Issued	Market Price Used per Share		Value of Shares Issued		Registration Effective Date
Optima Consulting Partners Ltd.	January 29, 2010	480,000	$	1.46	$	701	Not applicable

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LONG-TERM DEBT OBLIGATIONS - Summary of Debt (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Debt Instrument [Line Items]
Total notes payable	$ 3,641	$ 4,527
Less: current portion	(3,641)	(2,727)
Total notes payable, less current portion	0	1,800
Comerica Bank
Debt Instrument [Line Items]
Less: current portion	(3,000)
Agility Capital II, LLC
Debt Instrument [Line Items]
Less: current portion	(500)
Secured Debt | Agility Capital II, LLC | Revolving Line
Debt Instrument [Line Items]
Debt discount	96	0
Total notes payable	404	0
Secured Debt | Comerica Bank Credit Facility | Comerica Bank | Term Loan
Debt Instrument [Line Items]
Total notes payable	1,800	3,000
Secured Debt | Comerica Bank Credit Facility | Comerica Bank | Revolving Line
Debt Instrument [Line Items]
Total notes payable	1,230	1,493
Notes Payable, Other Payables
Debt Instrument [Line Items]
Total notes payable	$ 207	$ 34

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value of Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Fair value measurements:
Accounts payable	$ 13,042	$ 7,159
Notes payable	3,641	2,727
Fair Value | Level 3
Fair value measurements:
Accounts payable	6,200
Notes payable	$ 3,600

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Schedule of operating lease obligations

Future minimum payments under our non-cancelable operating leases with terms in excess of one year at December 31, 2013 are as follows (in thousands):

2014	$	590
2015	566
2016 and thereafter	46
Total minimum payments	$	1,202

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FAIR VALUE MEASUREMENTS (Tables)

12 Months Ended

Dec. 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 years ended December 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
December 31, 2013
Common stock warrant liability	$	348	$	89		$	(344	)	$	—		$	93
December 31, 2012
Contingent consideration — Optima (1)	$	225	$	(225	)	$	—		$	—		$	—
Common stock warrant liability	$	517	$	—		$	(169	)	$	—		$	348
December 31, 2011
Contingent consideration — Optima (1)	$	182	$	—		$	44		$	(1	)	$	225
Common stock warrant liability	$	—	$	815		$	(298	)	$	—		$	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.

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
December 31, 2013
Assets:
Money market funds (1)	$	1,641	$	—	$	—
Liabilities:
Common stock warrant liability (2)	$	—	$	—	$	93
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 6 - Long-Term Debt Obligations and Note 10 - 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 common stock warrant liability at December 31, 2013 and 2012, which were determined in a manner consistent with that described for stock option awards as set forth in Note 10:

	December 31,
	2013		2012
Expected life in years	2.50 - 6.75		3.50
Volatility	88.84	%	65.99	%
Risk-free interest rate	0.78% to 2.45%		0.34	%
Dividend rate	—	%	—	%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Notes)

12 Months Ended

Dec. 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. The Company has two business groups. Our Global Client Services division combines sales and marketing services designed to increase revenue on behalf of our clients. We have solution offerings consisting of service sales and renewals, “Click-to-Cash” or lead development, and sophisticated, high end global call center services. We have developed an integrated solution, the Rainmaker Revenue Delivery Platform^SM, that combines specialized sales and marketing services coupled with our proprietary, renewals software and business analytics.

Our ViewCentral business provides an end-to-end solution for managing and delivery of training and certification programs, or training-as-a-business, for corporations. The ViewCentral Learning Management System platform is a SaaS, cloud based, on-demand, training management system, available 24x7 with no software installation. This self-service platform is highly configurable, so our customers utilize only the modules they need, branded as they choose. Designed specifically to automate time-consuming manual administration and to maximize training participation, the ViewCentral suite contains tools for before, during and after course delivery.

Our strategy for long-term, sustained growth is to maintain and improve our position as a leading global provider of B2B sales and marketing solutions in selected markets. A key aspect of this enhanced solution is to provide our clients a way to partner with Rainmaker on a scalable, repeatable and reliable sales model. This enables our clients to turn customer contacts into revenue generating opportunities while simplifying otherwise complex sales and marketing needs. We operate as a seamless extension of our clients' sales and marketing teams incorporating their brands and trademarks and leveraging business practices to amplify existing efforts.

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

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 and its operating activities are segregated from the Company's continuing operations including within the consolidated statement of comprehensive loss, and classified solely under the caption loss from discontinued operations, net of tax. As such, certain amounts reported in the accompanying financial statements for 2011 have been retrospectively revised to conform to the 2012 and 2013 presentation. There were no other reclassifications that had a material effect on the previously reported results of operations, total assets or accumulated deficit which are included in the accompanying financial statements.

Going Concern

As reflected in the accompanying consolidated financial statements, we had a net loss from continuing operations of $21.0 million and $4.0 million for the years ended December 31, 2013 and 2012, respectively. During the year ended December 31, 2013, we used $3.2 million in operating activities from continuing operations.

At December 31, 2013, the Company had a net working capital deficit of $14.5 million and our principal source of liquidity consisted of $3.6 million of cash and cash equivalents and $3.6 million of net accounts receivable. Our debt balance as of December 31, 2013 was $3.6 million, of which $3.0 million is due to Comerica Bank on May 1, 2014 and $500,000 due to Agility Capital II, LLC on May 1, 2014, commensurate with the Comerica Credit Facility. See Note 6 for further discussion of our debt agreements. Our accounts payable balance increased from $7.2 million as of December 31, 2012 to $13.0 million as of December 31, 2013. $11.1 million of the December 31, 2013 accounts payable balance is related to a merchant account of a customer that has elected not to renew its contract.

In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross cash proceeds of approximately $5.8 million. In order to meet our operating requirements, we will need to raise additional capital from outside third parties or from the sale of non-strategic assets and restructure our debt. Additionally, we are pursuing a plan to achieve profitable operations through a combination of increased sales and decreased expenses. There can be no assurance that we will be successful in obtaining third party capital, selling non-strategic assets or restructuring our debt. We do not have adequate cash or financial resources to operate for the next twelve months without raising significant additional capital, which raises substantial doubt about our ability to continue as a going concern.

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. Our ability 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 we are 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, fair value estimates for the expense of employee stock options and warrants and the assessment of recoverability and impairment of goodwill, intangible assets, fixed assets and commitments and contingencies.

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 carrying value.

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

	December 31,
	2013		2012
Cash and cash equivalents:
Cash	$	1,992	$	2,854
Money market funds	1,641		1,640
Total cash and cash equivalents	$	3,633	$	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 December 31, 2013 and 2012, our allowance for potentially uncollectible accounts was $11,000 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 develop the internal-use computer software and associated interest costs are capitalized. We capitalized approximately $1.5 million, $1.1 million and $1.3 million of such costs during the years ended December 31, 2013, 2012 and 2011, 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. For the year ended December 31, 2013, we recorded a charge of $2.3 million to impair long-lived assets. See Note 4 for further discussion of the impairment of long-lived 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 goodwill might be impaired.

In our analysis of goodwill and other intangible assets, we apply the guidance of FASB ASC 350-20-35, Intangibles – Goodwill and Other-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.

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. As of December 31, 2013 and 2012, we concluded that we have one operating and reportable segment and one reporting unit.

As of December 31, 2013, we performed our annual goodwill impairment evaluation, as required under FASB ASC 350-20-35, and concluded that goodwill was impaired as the carrying value exceeded the estimated implied fair value and a charge of $5.4 million was recorded in the year ended December 31, 2013. At December 31, 2013 and 2012, we had approximately $0 and $5.3 million, respectively, in goodwill recorded on our consolidated balance sheets. At December 31, 2013 and 2012, we had accumulated impairment losses of $16.9 million and $11.5 million, respectively.

Long-Lived Assets

Long-lived assets including our purchased intangible assets are amortized over their estimated useful lives. In accordance with FASB ASC 360-10-35, long-lived assets, such as property, equipment and purchased intangibles subject to amortization, 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 would be 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 meet certain criteria for being held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. For the year ended December 31, 2013, we recorded a charge of $2.3 million to impair long-lived assets. See Note 4 for further discussion of the impairment of long-lived assets.

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 our clients’ service contracts and maintenance renewals, (iii) lead development and other telesales services, and (iv) software subscriptions for hosted internet sales of web-based training. 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 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 that we perform is recognized as the services are provided and is generally earned ratably over the service contract period. We earn revenue from our software application subscriptions of hosted online sales of web-based training ratably over each contract period. Since these software subscriptions are usually paid in advance, we have recorded a deferred revenue liability on our balance sheet that represents the prepaid portions of subscriptions that will be earned over the next one to five years.

Our agreements typically do not contain multiple deliverables, however, if an agreement contains multiple elements, we allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE"), if available, third-party evidence ("TPE"), if VSOE is not available, or estimated selling price ("ESP"), if neither VSOE nor TPE is available. As we are unable to establish VSOE or TPE for the elements of our arrangements, we establish ESP for each element. If an agreement contains multiple deliverables that do not qualify for separate accounting for the product and service transactions, then the revenue and the cost of related professional services on the entire arrangement is recognized ratably over the contract term beginning on the date of delivery of product or service with customer-specific customization, if any. Entering into agreements with multiple elements with stand-alone value in the future may affect the timing of our revenue recognition and may have an impact on our future financial statements.

Our revenue recognition policy involves significant judgments and estimates about collectability. We assess the probability of collection based on a number of factors, including past transaction history and/or the creditworthiness of our clients’ customers, which is based on current published credit ratings, current events and circumstances regarding the business of our clients’ customers and other factors that we believe are relevant. If we determine that collection is not reasonably assured, we defer revenue recognition until such time as collection becomes reasonably assured, which is generally upon receipt of cash payment.

In addition, we provide an allowance in accrued liabilities for the cancellation of service contracts that occurs within a specified time after the sale, which is typically less than 30 days. This amount is calculated based on historical results and constitutes a reduction of the net revenue we record for the commission we earn on the sale.

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, outsourced call center services, 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.

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 December 31, 2013 and 2012, we had gross deferred tax assets of $46.0 million and $31.8 million, respectively. At December 31, 2013 and 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, disclosure and transition.

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 comprehensive loss. There were immaterial amounts accrued for interest and penalties related to uncertain tax positions as of December 31, 2013, 2012 and 2011.

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 10 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 historically been immaterial, and such losses have been within management’s expectations.

In the year ended December 31, 2013, we recorded an out-of-period adjustment to decrease revenue by $38,000 and increase general and administrative expense by $420,000 for an overstatement of credit card receivables. The overstatement of an aggregate of $458,000 relates to unrecorded chargebacks of $293,000 and $165,000 during the third and fourth quarters of fiscal 2012 following the suspension in August 2012 of a merchant account relating to a customer contract. This out-of-period item did not have a material impact on the current and the previously reported periods.

In the year ended December 31, 2013, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 43% of our net revenue, Symantec representing approximately 24% of our net revenue and Hewlett-Packard representing approximately 10% of our net revenue. In the year ended December 31, 2012, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 35% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 11% of our net revenue. In the year ended December 31, 2011, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 22% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 14% of our net revenue.

No individual client’s end-user customer accounted for 10% or more of our revenues in any period presented.

As of December 31, 2013, three customers accounted for 10% or more of our net accounts receivable, with Symantec representing approximately 40% of our net accounts receivable, Microsoft representing approximately 25% of our net accounts receivable, and Hewlett-Packard representing approximately 11% of our net accounts receivable. As of December 31, 2012, three customers accounted for 10% or more of our net accounts receivable with Hewlett-Packard representing approximately 13% of our net accounts receivable, Symantec representing approximately 12% of our net accounts receivable and Comcast representing approximately 11% of our net accounts receivable.

We have outsourced services agreements with our significant clients that expire at various dates ranging through March 2018. Our agreements with Microsoft expire at various dates from June 2014 through June 2015, and can be terminated with thirty days notice. Our agreements with Hewlett-Packard expire in October 2014 and March 2018 and can generally be terminated prior to expiration with sixty days notice. Symantec has elected not to renew its customer contracts with the Company, which expire on March 31, 2014.

Fair Value of Financial Instruments

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

The amounts reported as fair value of notes payable are at carrying value at December 31, 2013 and 2012. Accounts payable and notes payable are estimated at December 31, 2013 to have a fair value, using Level 3 input assumptions, of $6.2 million and $3.6 million, respectively, for financial statement disclosure purposes only. At December 31, 2012 the carrying value of notes payable approximated fair value.

Segment Reporting

In accordance with FASB ASC 280, Segment Reporting, we concluded that we have one operating and reportable segment.

Foreign Currency Translation

The functional currency of our foreign subsidiaries was determined to be their respective local currencies (Canadian Dollar, Philippine Peso and Great Britain Pound). 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, consolidated statement of operations and comprehensive loss. Net gains and losses resulting from foreign exchange transactions are included in interest and other expense, net, in the consolidated statements of operations and comprehensive loss.

Recent Accounting Standards

In February 2013, the FASB issued ASU No. 2013-02 - Reporting of Amounts Reclassified Out of Accumulated OtherComprehensive Income. This update improves the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted this standard in the first quarter of 2013. Adoption of this standard did not have any material impact on our financial position, results of operations or cash flows.

In March 2013, the FASB issued ASU No. 2013-05 – Foreign Currency Matters. This update requires that an entity should release cumulative currency translation adjustments to net income when the entity ceases to have controlling financial interest in a foreign entity or a group of financial assets in a foreign entity. This new guidance is effective for the first reporting period beginning after December 15, 2013. We adopted this standard in the fourth quarter of 2012 in accounting for the sale of RSL.

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Components of Income (Loss) Before Income Taxes from Continuing Operations

The components of loss before income taxes from continuing operations are as follows (in thousands):

	Year Ended December 31,
	2013			2012			2011
United States	$	(20,536	)	$	(3,540	)	$	(10,176	)
Foreign	(1,142		)	(184		)	(253		)
Loss before income tax expense	$	(21,678	)	$	(3,724	)	$	(10,429	)

Components of Income Tax Expense

Income tax expense for the years ended December 31, 2013, 2012 and 2011 consists of the following (in thousands):

	Year Ended December 31,
	2013			2012		2011
Current:
Federal	$	—		$	—	$	(38	)
State	(16		)	43		44
Foreign	(100		)	104		(74		)
	(116		)	147		(68		)
Deferred:
Federal	(522		)	86		86
State	(37		)	8		4
Foreign	18			—		(3		)
	(541		)	94		87
Total income tax (benefit) expense	$	(657	)	$	241	$	19

Reconciliation of Effective Income Tax Rate

A reconciliation between the income tax benefit computed by applying the U.S. federal tax rate to loss before income taxes and actual income tax expense for the years ended December 31, 2013, 2012 and 2011 is as follows (in thousands):

	Year Ended December 31,
	2013			2012			2011
Tax benefit computed at federal statutory rate	$	(7,353	)	$	(1,266	)	$	(3,546	)
Effect of state income taxes	(48		)	36			33
Foreign rate differential	466			61			8
Change in valuation allowance	6,284			1,163			3,392
Stock based compensation	120			96			391
Other	(126		)	151			(259		)
Total income tax (benefit) expense	$	(657	)	$	241		$	19

Components of Deferred Tax Assets

Significant components of our deferred tax assets as of December 31, 2013 and 2012 are as follows (in thousands):

	December 31,
	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	41,014		$	27,841
Depreciation and amortization	3,919			2,778
Accrued reserves and other	1,036			1,162
Total deferred tax assets	45,969			31,781
Valuation allowance	(45,964		)	(31,781		)
Net deferred tax asset	5			—
Deferred tax liabilities:
Fixed Assets	(31		)	—
Acquired goodwill	—			(567		)
Total deferred tax liability	$	(26	)	$	(567	)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Long-Lived Assets (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Impairment of long-lived assets	$ 2,330	$ 0	$ 0

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ACQUISITIONS (Details) (Optima, USD $) In Thousands, except Share data, unless otherwise specified	0 Months Ended
	Jan. 29, 2010 installments
Acquisitions:
Cash payment	$ 492
Liabilities incurred	350
Number of installment payments	2
Amount due in eighteen months from closing date	200
Period after closing date for first payment due date	18 months
Amount due in twenty-four months from closing date	150
Period after closing date for second payment due date	24 months
Common Stock
Acquisitions:
Number of common shares issued	480,000
Value of common stock issued	$ 701

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STOCKHOLDERS' EQUITY - Treasury Stock (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Treasury stock:
Payments related to tax withholding	$ 149	$ 237	$ 223
Treasury Stock
Treasury stock:
Shares paid for tax withholding	273,724	152,399	398,741
Payments related to tax withholding	$ 149	$ 122	$ 338

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 3,633	$ 4,494
Restricted cash	3	52
Accounts receivable, net	3,554	3,720
Prepaid expenses and other current assets	1,618	1,292
Total current assets	8,808	9,558
Property and equipment, net	691	2,455
Goodwill	0	5,337
Other non-current assets	840	416
Total assets	10,339	17,766
Current liabilities:
Accounts payable	13,042	7,159
Accrued compensation and benefits	1,001	425
Other accrued liabilities	3,665	3,142
Deferred revenue	1,965	2,311
Current portion of notes payable	3,641	2,727
Total current liabilities	23,314	15,764
Deferred tax liability	26	567
Long-term deferred revenue	1,629	44
Common stock warrant liability	93	348
Other non-current liabilities	172	0
Notes payable, less current portion	0	1,800
Total liabilities	25,234	18,523
Commitments and contingencies (Note 7)
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, 43,975 shares issued and 41,495 shares outstanding at December 31, 2013 and 30,454 shares issued and 28,428 shares outstanding at December 31, 2012	41	27
Additional paid-in capital	137,445	130,402
Accumulated deficit	(149,169)	(128,198)
Accumulated other comprehensive loss	(336)	(261)
Treasury stock, at cost; 2,300 shares at December 31, 2013 and 2,026 shares at December 31, 2012	(2,876)	(2,727)
Total stockholders’ deficit	(14,895)	(757)
Total liabilities and stockholders’ deficit	$ 10,339	$ 17,766

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Segment Reporting (Details)	12 Months Ended
	Dec. 31, 2013 segment	Dec. 31, 2013 reporting_unit
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Number of operating and reportable segments	1	1

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock	Treasury Stock	Additional Paid-in Capital	Accumulated Deficit	Accumulated Other Comprehensive Loss	Public Offering	Public Offering Common Stock	Public Offering Additional Paid-in Capital	Registered Direct Offering	Registered Direct Offering Common Stock	Registered Direct Offering Additional Paid-in Capital
Balance at beginning of period at Dec. 31, 2010	$ 14,259	$ 22	$ (2,267)	$ 124,826	$ (106,947)	$ (1,375)
Balance at beginning of period (in shares) at Dec. 31, 2010		23,275,199	1,474,810
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(10,979)				(10,979)
Foreign currency translation gain (loss)	(452)					(452)
Issuance of common stock (in shares)								3,669,709
Issuance of common stock							3,285	4	3,281
Proceeds from public offering allocated to warrant liability	(815)			(815)
Exercise of employee stock options (in shares)	15,000	14,581
Exercise of employee stock options	15	0		15
Issuance of restricted stock awards (in shares)		995,000
Issuance of restricted stock awards	1	1
Cancellation of restricted stock awards (in shares)		(742,813)
Cancellation of restricted stock awards	(1)	(1)
Stock based compensation	2,066			2,066
Surrender of shares for tax withholding (in shares)		(398,741)	398,741
Surrender of shares for tax withholding	(338)		(338)
Purchases of treasury stock (in shares)		0	0
Purchases of treasury stock	0		0
Balance at end of period at Dec. 31, 2011	7,041	26	(2,605)	129,373	(117,926)	(1,827)
Balance at end of period (in shares) at Dec. 31, 2011		26,812,935	1,873,551
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(10,272)				(10,272)
Foreign currency translation gain (loss)	329					329
Issuance of common stock (in shares)		138,499
Issuance of common stock	135			135
Release of foreign currency translation loss related to disposal of discontinued operations	1,237					1,237
Exercise of employee stock options (in shares)	0
Issuance of restricted stock awards (in shares)		2,145,000
Issuance of restricted stock awards	2	2
Cancellation of restricted stock awards (in shares)		(515,875)
Cancellation of restricted stock awards	(1)	(1)
Stock based compensation	894			894
Surrender of shares for tax withholding (in shares)		(152,399)	152,399
Surrender of shares for tax withholding	(122)		(122)
Balance at end of period at Dec. 31, 2012	(757)	27	(2,727)	130,402	(128,198)	(261)
Balance at end of period (in shares) at Dec. 31, 2012		28,428,160	2,025,950
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(20,971)				(20,971)
Foreign currency translation gain (loss)	(75)					(75)
Issuance of common stock (in shares)		40,000									12,981,704
Issuance of common stock	8			8						5,534	13	5,521
Exercise of employee stock options (in shares)	5,000	4,895
Exercise of employee stock options	4	0		4
Issuance of restricted stock awards (in shares)		1,517,993
Issuance of restricted stock awards	2	2
Rescission of restricted stock award (in shares)		(250,000)
Rescission of restricted stock award	0	0
Cancellation of restricted stock awards (in shares)		(954,500)
Cancellation of restricted stock awards	(1)	(1)
Stock based compensation	1,510			1,510
Surrender of shares for tax withholding (in shares)		(273,724)	273,724
Surrender of shares for tax withholding	(149)		(149)
Balance at end of period at Dec. 31, 2013	$ (14,895)	$ 41	$ (2,876)	$ 137,445	$ (149,169)	$ (336)
Balance at end of period (in shares) at Dec. 31, 2013		41,494,528	2,299,674

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LONG-TERM DEBT OBLIGATIONS - Future Maturities of Debt (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Debt Disclosure [Abstract]
2014	$ 3,737
2015 and thereafter	0
Total	$ 3,737

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Going Concern (Details) (USD $)	1 Months Ended		12 Months Ended
	Apr. 30, 2013	Jun. 30, 2011	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Debt Instrument [Line Items]
Current maturities of debt			$ 3,641,000	$ 2,727,000
Accounts payable			13,042,000	7,159,000
Net loss from continuing operations			(21,021,000)	(3,965,000)	(10,448,000)
Net cash used in operating activities from continuing operations			(3,181,000)	(10,000)	(5,592,000)
Working capital deficit			(14,500,000)
Cash and cash equivalents			3,633,000	4,494,000	8,490,000	11,757,000
Accounts receivable, net			3,554,000	3,720,000
Debt balance			3,641,000	4,527,000
Stock issued during period (in shares)	13,000,000
Proceeds from issuance of common stock	5,800,000	3,300,000	5,534,000	22,000	3,285,000
Comerica Bank
Debt Instrument [Line Items]
Current maturities of debt			3,000,000
Agility Capital II, LLC
Debt Instrument [Line Items]
Current maturities of debt			500,000
Customer Merchant Account
Debt Instrument [Line Items]
Accounts payable			$ 11,144,000

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INCOME TAXES - Components of Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Components of income (loss) before income taxes from continuing operations:
United States	$ (20,536)	$ (3,540)	$ (10,176)
Foreign	(1,142)	(184)	(253)
Loss before income tax (benefit) expense	$ (21,678)	$ (3,724)	$ (10,429)

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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

12 Months Ended

Dec. 31, 2013

Valuation and Qualifying Accounts [Abstract]

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

(in thousands)

Description	Balance at Beginning of Year		Additions Charged to Costs and Expenses			Deductions *			Balance at End of Year
Allowance for doubtful accounts:
Year ended December 31, 2013	$	15	$	420		$	(424	)	$	11
Year ended December 31, 2012	$	80	$	(61	)	$	(4	)	$	15
Year ended December 31, 2011	$	79	$	(40	)	$	41		$	80

___________________

* Uncollectible accounts written off, net of recoveries.

Description	Balance at Beginning of Year		Additions		Deductions		Balance at End of Year
Deferred tax asset valuation account:
Year ended December 31, 2013	$	31,781	$	14,183	$	—	$	45,964
Year ended December 31, 2012	$	30,618	$	1,163	$	—	$	31,781
Year ended December 31, 2011	$	27,841	$	2,777	$	—	$	30,618

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cash and Cash Equivalents (Details) (USD $) In Thousands, unless otherwise specified					12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2013 Maximum	Dec. 31, 2013 Cash	Dec. 31, 2012 Cash	Dec. 31, 2013 Money Market Funds	Dec. 31, 2012 Money Market Funds
Cash and cash equivalents:
Original maturity term of investments considered to be cash and cash equivalents					3 months
Cash and cash equivalents	$ 3,633	$ 4,494	$ 8,490	$ 11,757		$ 1,992	$ 2,854	$ 1,641	$ 1,640

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

12 Months Ended

Dec. 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 December 31, 2013 and 2012 (in thousands):

	December 31,
	2013		2012
Cash and cash equivalents:
Cash	$	1,992	$	2,854
Money market funds	1,641		1,640
Total cash and cash equivalents	$	3,633	$	4,494

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INCOME TAXES - Components of Deferred Tax Assets and Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Deferred tax assets:
Net operating loss carryforwards	$ 41,014	$ 27,841
Depreciation and amortization	3,919	2,778
Accrued reserves and other	1,036	1,162
Total deferred tax assets	45,969	31,781
Valuation allowance	(45,964)	(31,781)
Net deferred tax asset	5	0
Deferred tax liabilities:
Fixed Assets	(31)	0
Acquired goodwill	0	(567)
Total deferred tax liability	$ (26)	$ (567)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Operating activities:
Net loss	$ (20,971)	$ (10,272)	$ (10,979)
Adjustment for net (income) loss from discontinued operations	(50)	6,307	531
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment	1,697	1,555	2,151
Amortization of intangible assets	0	87	229
Amortization of debt discount	20	0	0
Loss (gain) on fair value re-measurement	0	0	44
Gain due to change in fair value of warrant liability	(344)	(169)	(298)
Stock-based compensation expense	1,510	810	2,022
Provision (credit) for allowance for doubtful accounts	(4)	(38)	5
Provision for impairment of credit card receivable	420	0	0
Impairment of other assets	280	0	0
Impairment of long-lived assets	2,330	0	0
Provision for impairment of goodwill	5,368	0	0
Changes in operating assets and liabilities:
Accounts receivable	(365)	908	(255)
Prepaid expenses and other assets	(902)	(397)	29
Accounts payable	5,947	1,900	1,017
Accrued compensation and benefits	508	(202)	(81)
Other accrued liabilities	807	(324)	247
Income tax payable	(130)	110	(89)
Deferred tax liability	(541)	93	91
Deferred revenue	1,239	(378)	(256)
Net cash used in continuing operations	(3,181)	(10)	(5,592)
Net cash provided by (used in) discontinued operations	50	(2,050)	265
Net cash used in operating activities	(3,131)	(2,060)	(5,327)
Investing activities:
Purchases of property and equipment	(2,250)	(1,146)	(1,568)
Restricted cash, net	49	(34)	70
Consideration received in disposal of discontinued operations	0	845	0
Net cash used in continuing operations	(2,201)	(335)	(1,498)
Net cash used in discontinued operations	0	(842)	(98)
Net cash used in investing activities	(2,201)	(1,177)	(1,596)
Financing activities:
Proceeds from issuance of common stock	5,534	22	3,285
Proceeds from issuance of common stock from option exercises	4	0	15
Proceeds from borrowings	911	4,555	1,224
Repayment of borrowings	(1,727)	(3,954)	(680)
Repayment of acquisition earnout	0	(113)	0
Net proceeds (repayment) on overdraft facility	0	(381)	46
Tax payments in connection with treasury stock surrendered	(149)	(237)	(223)
Net cash provided by (used in) continued operations	4,573	(108)	3,667
Net cash provided by (used in) discontinued operations	0	(738)	115
Net cash provided by (used in) financing activities	4,573	(846)	3,782
Effect of exchange rate changes on cash	(102)	87	(126)
Net decrease in cash and cash equivalents	(861)	(3,996)	(3,267)
Cash and cash equivalents at beginning of period	4,494	8,490	11,757
Cash and cash equivalents at end of period	3,633	4,494	8,490
Supplemental disclosures of cash flow information:
Cash paid for interest	215	187	189
Cash paid for income taxes	49	36	36
Supplemental disclosures of non-cash investing and financing activities:
Warrants issued in borrowings of notes payable	89	0	0
Common stock issued in acquisitions	$ 0	$ 112	$ 0

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CONSOLIDATED BALANCE SHEETS CONSOLIDATED BALANCE SHEET (PARENTHETICALS) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Stockholders' Equity
Preferred stock, par value (USD per share)	$ 0.001	$ 0.001
Preferred stock, authorized (in shares)	5,000,000	5,000,000
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)	50,000,000	50,000,000
Common stock, issued (in shares)	43,795,000	30,454,000
Common stock, outstanding (in shares)	41,495,000	28,428,000
Treasury stock (in shares)	2,300,000	2,026,000

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STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

Stockholders' Equity

STOCKHOLDERS' EQUITY

Preferred Stock

We have 5,000,000 shares of preferred stock authorized. Our board of directors has the authority to issue the preferred stock and to fix or alter the rights, privileges, preferences and restrictions related to the preferred stock, and the number of shares constituting any such series or designation. No shares of preferred stock were outstanding at December 31, 2013 and 2012.

Common Stock

In June 2011, we issued and sold 3.7 million shares of our common stock, together with warrants to purchase up to an aggregate 1.6 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.

In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross cash proceeds of approximately $5.8 million. The $5.5 million of net cash proceeds from the offering were used for general corporate purposes, including working capital and capital expenditures.

Common Stock Warrants

The 1.5 million warrants issued to investors in the June 2011 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.

In October 2013, we issued a warrant to Agility Capital II, LLC to purchase 216,667 shares of the Company's common stock. The warrant has a 7-year term and an exercise price of $0.45 per share. The warrant may also be exercised by way of a cashless exercise. The 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 future issuances of common stock at a price below the warrant's exercise price, 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 in the consolidated statement of operations and comprehensive loss, under the caption “Gain due to change in fair value of warrant liability.” See Note 8 for disclosures regarding the fair value of financial instruments. In the years ended December 31, 2013 and 2012, we recorded gains of $344,000 and $169,000, respectively, on the fair value re-measurement of the warrants.

The following table summarizes the terms of those outstanding warrants:

Date of Issuance	Warrants Outstanding at December 31, 2013	Exercise Price	Term from Date of Issuance
June 22, 2011	110,092	$1.05	Five Years
June 24, 2011	1,467,887	$1.40	Five Years
October 30, 2013	216,667	$0.45	Seven Years

Treasury Stock

During the three year period ended December 31, 2013, the Company had restricted stock awards that vested. The Company is required to withhold income taxes at statutory rates based on the closing market value of the vested shares on the date of vesting. The Company offers employees the ability to sell their vested shares to the Company in an amount equal to the amount of income taxes to be withheld. During 2013, the Company purchased 273,724 shares with a cost of approximately $149,000 from employees to cover federal and state taxes due. During 2012, the Company purchased 152,399 shares with a cost of approximately $122,000 from employees to cover federal and state taxes due. During 2011, the Company purchased 398,741 shares with a cost of approximately $338,000 from employees to cover federal and state taxes due.

Equity Incentive Plans

2003 Stock Incentive Plan. In 2003, the Board of Directors adopted the 2003 Stock Incentive Plan (“2003 Plan”), which was approved by stockholders on May 14, 2003. The 2003 Plan was amended and restated effective May 15, 2007, again on May 15, 2008, again on February 18, 2013 and again on June 5, 2013. The 2003 Plan was amended in 2007 to provide for new annual grants to non-employee members of the Board to reflect the 5-for-1 reverse stock split of our common stock, which was effective as of December 15, 2005, and to reflect certain changes in applicable tax, securities and accounting rules arising after the date the 2003 Plan was adopted. The 2003 Plan was amended again in 2008 with the approval of the stockholders to increase the aggregate number of shares of common stock available for issuance under the 2003 Plan by 950,000 shares, to increase the maximum number of shares that could be issued under the annual evergreen provision of the 2003 Plan from 600,000 shares to 1,000,000 shares (or, if less, 4% of the total outstanding shares), and to permit awards with respect to such increased number of shares potentially through May 15, 2018. The 2003 Plan was further amended in February 2013 to increase the automatic annual grants to non-employee Board members occurring on the date of each annual stockholders meeting from 20,000 restricted shares to 100,000 restricted shares, to change the initial grant made to new directors upon their first election or appointment as a non-employee Board member from 20,000 options to 50,000 restricted shares, and to allow each non-employee Board member to elect to take all or a portion of such director's annual retainer fee or meeting fees in common stock in lieu of cash. The 2003 Plan was amended again in June 2013 with the approval of the stockholders to increase the aggregate number of shares of common stock available for issuance under the 2003 Plan by 1,200,000 shares, to increase the maximum number of shares that can be issued under the annual evergreen provision of the 2003 Plan from 1,000,000 shares to 2,000,000 shares (or, if less 4% of the total outstanding shares) and to extend the term of the 2003 Plan through June 5, 2023.

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). Options granted under the 2003 Plan are priced at not less than 100% of the fair market value of the common stock on the date of grant and have a maximum term of ten years from the date of grant. In the case of incentive stock options granted to employees who own 10% or more of our outstanding common stock, the exercise price may not be less than 110% of the fair value of the common stock on the date of grant and such options will have a maximum term of five years from the date of grant. Options granted to employees and consultants become exercisable and vest in one or more installments over varying periods ranging up to four years as specified by the board of directors. Unexercised options generally expire upon, or within, three months of termination of employment, depending on the circumstances surrounding termination. Restricted stock awards granted to employees, consultants and non-employee directors typically vest over a one to four year period from the date of grant. Vesting of these awards is contingent upon continued service and any unvested awards are forfeited immediately upon termination of service, subject to the discretion of the board of directors.

The 2003 Plan also provides for a fixed issuance amount to non-employee members of the board of directors at prices not less than 100% of the fair value of the common stock on the date of grant and a maximum term of ten years from the date of grant. Generally, options granted to non-employee members of the board of directors are immediately exercisable and vest in two or more installments over periods ranging from twelve to twenty-four months from the date of grant. Unexercised options expire twelve months from the termination date of service as a non-employee member of the board of directors.

At the beginning of the 2013 and 2012 fiscal years, the number of shares authorized for grant under the 2003 Plan automatically increased on the first trading date of January by an amount equal to the lesser of 4% of our outstanding common stock at December 31 or 1,000,000 shares. For both 2013 and 2012, the number of shares authorized for grant under the 2003 Plan increased by 1,000,000 shares. Shares forfeited that were granted under the 2003 Plan are available for future grant. In the future, the Company may seek stockholder approval to increase the shares available to grant to employees, consultants, and non-employee directors based on the growth of the Company. Total shares available for grant under the 2003 Plan was 1,252,000 at December 31, 2013.

2012 Inducement Equity Incentive Plan. On December 21, 2012, the Board of Directors approved and adopted the Company's 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 was not required under Nasdaq Capital Market and SEC rules then applicable to the Company. Options granted under the 2012 Plan are priced at not less than 100% of the fair market value of the common stock on the date of grant and have a maximum term of ten years from the date of grant. Awards granted to employees under the 2012 Plan vest in accordance with a schedule determined by the Compensation Committee of our Board of Directors. In December 2012, the Compensation Committee granted an inducement equity award to Donald Massaro under the Company's 2012 Plan in connection with his entering into employment as our President and Chief Executive Officer. The number of shares subject to the awards issued to Mr. Massaro and the related vesting schedules are as follows: (1) a grant of 500,000 restricted shares of common stock which vest 1/16th quarterly over a four year term, (2) an option to purchase 500,000 shares of common stock which vest 1/16th quarterly over a four year term and (3) a grant of 250,000 restricted shares of common stock which vested in a single installment on March 31, 2013. On February 19, 2013, the Company authorized an additional 375,000 shares under the 2012 Plan in connection with an inducement equity award of 375,000 restricted shares of common stock issued to the Company's then incoming chief financial officer. Total shares available for grant under the 2012 Plan was 281,250 at December 31, 2013.

Stock-Based Compensation Expense

We account for stock-based compensation awards issued to employees and directors using the guidance from ASC 718, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains employee services in share-based payment transactions. This guidance requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our consolidated statements of comprehensive loss.

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 years ended December 31, 2013, 2012 and 2011 (in thousands):

	Year ended December 31,
	2013		2012		2011
Stock-based compensation expense from continuing operations included in:
Cost of services	$	75	$	84	$	73
Sales and marketing	150		51		169
Technology and development	215		116		186
General and administrative	1,070		559		1,594
	$	1,510	$	810	$	2,022

At December 31, 2013, approximately $1,167,000 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 $432,000 will be expensed in 2014 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. 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. 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.

During the years ended December 31, 2013, 2012 and 2011, 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:

	Year Ended December 31,
	2013		2012		2011
Expected life in years	3.94		3.76		3.76
Volatility	73.52	%	65.99	%	65.99	%
Risk-free interest rate	0.50	%	0.38	%	1.00	%
Dividend rate	—	%	—	%	—	%
Forfeiture Rates:
Options	21.53	%	27.61	%	27.61	%
Restricted stock	19.43	%	15.04	%	15.04	%

A summary of option activity under our active Stock Incentive Plans for the years ended December 31, 2013, 2012 and 2011 is as follows:

	Number of Shares (in thousands)		Weighted Average Exercise Price
Balance at December 31, 2010	674		$	2.25
Granted	600		0.98
Exercised	(15	)	1.00
Canceled	(238	)	1.96
Balance at December 31, 2011	1,021		1.59
Granted	585		0.70
Exercised	—		—
Canceled	(437	)	1.29
Balance at December 31, 2012	1,169		1.25
Granted	2,155		0.46
Exercised	(5	)	0.81
Canceled	(621	)	1.00
Balance at December 31, 2013	2,698		$	0.67

The weighted average grant date fair value of options granted during the years ended December 31, 2013, 2012 and 2011 was $0.33, $0.31 and $0.47, respectively, per share.

The following table summarizes information about stock options outstanding as of December 31, 2013:

	Options Outstanding						Options Vested
Range of Exercise Prices	Number Outstanding (in thousands)	Weighted Average Contractual Life (Years)	Weighted Average Exercise Price		Aggregate Intrinsic Value at Closing Price of $0.24 on 12/31/13		Number Exercisable (in thousands)	Weighted Average Exercise Price		Aggregate Intrinsic Value at Closing Price of $0.24 on 12/31/13
$0.35 - $  0.40	829	9.33	$	0.40	$	—	110	$	0.40	$	—
$0.41 - $  0.45	462	9.56	0.44		—		33	0.45		—
$0.46 - $  0.68	501	8.78	0.55		—		75	0.55		—
$0.69 - $ 0.69	500	8.99	0.69		—		125	0.69		—
$0.70 - $13.20	406	5.86	1.64				279	2.01
$0.35 - $13.20	2,698	8.68	$	0.67	$	—	622	$	1.20	$	—

The aggregate intrinsic value represents the net value which would have been received by the option holders had all option holders exercised their in-the-money options as of December 31, 2013. The Company received cash proceeds from the exercise of stock options of $4,000 and $15,000 in the years ended December 31, 2013 and 2011, respectively. There were no options exercised during the year ended December 31, 2012. The total intrinsic value of the options exercised during the years ended December 31, 2013 and 2011 was approximately $1,000 and $4,000, respectively.

Restricted stock awards are issued from the 2003 and 2012 Plans and any issuances reduce the shares available for grant. Restricted stock awards are valued at the closing market price of our stock on the date of the grant. During the year ended December 31, 2013, we granted restricted stock awards totaling 650,000 shares to four members of our board of directors with immediate vesting. One restricted stock award for 250,000 shares to one director was subsequently rescinded. During the year ended December 31, 2013, we granted restricted stock awards totaling 100,000 shares to two board advisors with vesting terms of one year and a fair value of $35,000 at date of grant. The following table summarizes the activity with regard to restricted stock awards during the years ended December 31, 2013, 2012 and 2011:

	Number of Shares (in thousands)		Weighted Average Grant Price
Balance at December 31, 2010	2,457		$	1.47
Granted	995		1.03
Vested	(1,363	)	0.86
Forfeited	(743	)	1.36
Balance at December 31, 2011	1,346		1.03
Granted	2,145		0.79
Vested	(720	)	0.78
Forfeited	(516	)	0.93
Balance at December 31, 2012	2,255		0.78
Granted	1,518		0.70
Rescinded	(250	)	0.93
Vested	(1,986	)	0.52
Forfeited	(955	)	0.80
Balance at December 31, 2013	582		$	0.69

The total fair value of the nonvested restricted stock awards at grant date was $402,000 as of December 31, 2013.

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DOCUMENT AND ENTITY INFORMATION Document (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Mar. 25, 2014	Jun. 28, 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-K
Document Period End Date	Dec. 31, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		42,582,731
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 16

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

RELATED PARTY TRANSACTIONS

In June 2011, we issued and sold 3.7 million shares of our common stock, together with warrants to purchase up to an aggregate 1.6 million additional shares, in a public offering. Members of our board of directors purchased 135,660 shares at a price of $1.29 per share. They also received warrants to purchase up to an additional 54,264 shares with an initial exercise price of $1.40 per share. See Note 10 to our consolidated financial statements for more information regarding our equity offering.

In April 2013, we issued and sold 13.0 million shares of our common stock in a registered direct offering and raised gross cash proceeds of 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.

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SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Allowance for Doubtful Accounts
Movement in valuation and qualifying accounts:
Balance at Beginning of Year	$ 15	$ 80	$ 79
Additions Charged to Costs and Expenses	420	(61)	(40)
Deductions	(424)	(4)	41
Balance at End of Year	11	15	80
Deferred Tax Asset Valuation Account
Movement in valuation and qualifying accounts:
Balance at Beginning of Year	31,781	30,618	27,841
Additions Charged to Costs and Expenses	14,183	1,163	2,777
Deductions	0	0	0
Balance at End of Year	$ 45,964	$ 31,781	$ 30,618

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Net revenue	$ 17,681	$ 25,360	$ 26,377
Cost of services	12,290	14,397	15,344
Gross margin	5,391	10,963	11,033
Operating expenses:
Sales and marketing	3,409	1,978	3,883
Technology and development	5,526	5,557	7,457
General and administrative	8,789	5,463	7,818
Depreciation and amortization	1,697	1,642	2,380
Impairment of long-lived assets	2,330	0	0
Impairment of goodwill	5,368	0	0
Loss on fair value re-measurement	0	0	44
Total operating expenses	27,119	14,640	21,582
Operating loss	(21,728)	(3,677)	(10,549)
Gain due to change in fair value of warrant liability	(344)	(169)	(298)
Interest and other expense, net	294	216	178
Loss before income tax (benefit) expense	(21,678)	(3,724)	(10,429)
Income tax (benefit) expense	(657)	241	19
Net loss from continuing operations	(21,021)	(3,965)	(10,448)
Net income (loss) from discontinued operations (including loss on disposal of $3,341 in 2012)	50	(6,307)	(531)
Net loss	(20,971)	(10,272)	(10,979)
Foreign currency translation adjustments	(75)	329	(452)
Comprehensive loss	$ (21,046)	$ (9,943)	$ (11,431)
Basic and diluted net loss per share:
Basic and diluted net loss per share - continuing operations (USD per share)	$ (0.54)	$ (0.15)	$ (0.42)
Basic and diluted net loss per share - discontinued operations (USD per share)	$ 0.00	$ (0.23)	$ (0.02)
Basic and diluted net loss per share (USD per share)	$ (0.54)	$ (0.38)	$ (0.44)
Weighted average common shares - basic and diluted	38,639	27,123	25,050

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ACQUISITIONS (Notes)

12 Months Ended

Dec. 31, 2013

Business Combinations [Abstract]

Acquisitions

ACQUISITIONS

Optima Consulting Partners Ltd.

On January 29, 2010, our wholly-owned subsidiary Rainmaker Europe entered into and closed a stock purchase agreement with the shareholders of Optima, a B2B lead development provider with offices then in England, France and Germany. Under the terms of the agreement, we acquired all of the outstanding stock of Optima in exchange for a cash payment of $492,000, 480,000 shares of Rainmaker common stock valued at approximately $701,000, and a note payable of $350,000 payable in two installments with $200,000 plus accrued interest due eighteen months from the closing date and $150,000 plus accrued interest due twenty-four months after the closing date, subject to post closing conditions.

The stock purchase agreement also provided for two potential additional payments of $375,000 each in a combination of stock and/or cash contingent on the achievement of certain performance metrics in fiscal 2010 and fiscal 2011, and subject to post closing conditions. The fair value of the potential additional payments was derived using the Company's estimates (Level 3 inputs) of a 50% probability of achievement. The 2010 achievement level was not met. In 2010, the Company reduced the estimated fair value of the contingent consideration liability by $190,000 and recorded a corresponding gain on re-measurement of this liability within operating expenses. In 2011, the Company recorded a $44,000 loss on the re-measurement of this liability as it became apparent that a portion of the achievement level was met. As of December 31, 2011, the Company accrued $225,000 as contingent consideration relating to the Optima acquisition. In April 2012, the Company made a payment of $225,000 based on the achievement of performance metrics for the year ended December 31, 2011 per the stock purchase agreement. The liability was settled with both cash and equity consideration in accordance with the stock purchase agreement. Also see Note 8 for disclosure regarding the fair value of financial instruments.

As noted above, we issued common stock as consideration in the Optima acquisition during the two-year period ended December 31, 2012. The following table summarizes the common stock issued in this transaction:

	(in thousands, except share and per share amounts)
Acquisition	Transaction Date	# of Common Shares Issued	Market Price Used per Share		Value of Shares Issued		Registration Effective Date
Optima Consulting Partners Ltd.	January 29, 2010	480,000	$	1.46	$	701	Not applicable

These shares were not registered, as they are sellable under Rule 144 of the Securities Act of 1933, as amended, and the holding period had expired as of December 31, 2012. Half of these shares were subject to a contractual agreement and remained non-transferrable until July 29, 2011.

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BALANCE SHEET COMPONENTS

12 Months Ended

Dec. 31, 2013

Balance Sheet Components [Abstract]

Balance Sheet Components

BALANCE SHEET COMPONENTS (in thousands)

Prepaids and Other Current Assets

Prepaids and other current assets consist of the following (in thousands):

	December 31,
	2013		2012
Prepaids and other current assets:
Prepaid expenses	$	623	$	174
Deferred professional service costs	252		—
VAT tax receivable	440		—
Credit card deposits	—		895
Other current assets	303		223
Prepaids and other current assets	$	1,618	$	1,292

Property and Equipment

	Estimated Useful Life	December 31,
		2013			2012
Property and equipment:
Computer equipment	3 years	$	3,993		$	3,974
Capitalized software and development	2-5 years	13,208			13,686
Furniture and fixtures	5 years	309			437
Leasehold improvements	Lease term	123			232
		17,633			18,329
Accumulated depreciation and amortization		(17,099		)	(16,015		)
Construction in process (1)		157			141
Property and equipment, net		$	691		$	2,455

 _____________

(1) Construction in process at December 31, 2013 consists primarily of costs incurred to further develop and enhance our ViewCentral platform and implement a new ERP system . Estimated costs to complete the projects are in the range of $125,000 to $150,000, subject to future revisions.

We evaluated the contract base related to our e-commerce platform business at December 31, 2013 and determined that the property and equipment, principally capitalized software development costs, supporting this business was impaired. An analysis was performed using the Discounted Cash Flow Method of Income Approach using Level 3 inputs under ASC 820. The net cash flows are those expected to be generated from the forecasted base of business, discounted at the Company's weighted average cost of capital of 23%. Based on this analysis, we recorded an impairment charge of $2.3 million in the year ending December 31, 2013.

Goodwill

The following table reflects the activity in our accounting for goodwill for the years ended December 31, 2013 and 2012 (in thousands):

Goodwill:	Total
Balance at December 31, 2011	$	5,268
Foreign currency adjustments	69
Balance at December 31, 2012	5,337
Foreign currency adjustments	31
Impairment	(5,368		)
Balance at December 31, 2013	$	—

At December 31, 2013, we reported a stockholder' deficit and therefore had a negative carrying value for its single reporting unit. In accordance with Accounting Standards Update 2010-28, due to certain qualitative factors constituting indicators of impairment, we performed a Step 2 analysis of goodwill during the quarter ended December 31, 2013. Such indicators of impairment included a significant decline in revenues, the loss of customers, a deterioration of the Company's liquidity situation and an event of default for the Company's borrowing arrangements. The Step 2 analysis indicated that the carrying value of goodwill exceeded the implied value of goodwill and a charge for impairment of goodwill of $5.4 million was recorded for the year ended December 31, 2013.

The following valuation methods were employed in determining the implied value of goodwill:

• The Discounted Cash Flow method of the Income Approach;

• The Multi-period Excess Earnings Method of the Income Approach was utilized to derive the fair value of the Customer Relationships;

• The Relief from Royalty Method of the Income Approach was utilized to derive the fair value of the Existing Technology and Trade Name; and

• The Cost Approach was utilized to derive the fair value of the Assembled & Trained Workforce.

The significant assumptions that are Level 3 unobservable inputs used in the impairment analysis are as follows:

• Weighted average cost of capital of 23%;

• Customer attrition rate of 20%; and

• Terminal growth rate of 5%.

At December 31, 2013 and 2012, we had accumulated goodwill impairment losses of $16.9 million and $11.5 million, respectively.

Other Non-current Assets

Other non-current assets consist of the following (in thousands):

	December 31,
	2013		2012
Other non-current assets:
Deposits	$	4	$	26
Credit card reserve deposits	391		390
Deferred professional service costs	445		—
Other non-current assets	$	840	$	416

Other Accrued Liabilities

Other accrued liabilities consist of the following (in thousands):

	December 31,
	2013		2012
Other accrued liabilities:
Payable to customers	$	1,158	$	1,058
Accrued professional fees	663		652
Accrued VAT taxes	248		148
Accrued sales tax	229		320
Settlement liability	200		—
Reseller rebates	190		196
Other liabilities	977		768
Other accrued liabilities	$	3,665	$	3,142

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 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

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 and its operating activities are segregated from the Company's continuing operations including within the consolidated statement of comprehensive loss, and classified solely under the caption loss from discontinued operations, net of tax. As such, certain amounts reported in the accompanying financial statements for 2011 have been retrospectively revised to conform to the 2012 and 2013 presentation. There were no other reclassifications that had a material effect on the previously reported results of operations, total assets or accumulated deficit

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, fair value estimates for the expense of employee stock options and warrants and the assessment of recoverability and impairment of goodwill, intangible assets, fixed assets and commitments and contingencies

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 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.

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 develop the internal-use computer software and associated interest costs are capitalized. We capitalized approximately $1.5 million, $1.1 million and $1.3 million of such costs during the years ended December 31, 2013, 2012 and 2011, 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 goodwill might be impaired.

In our analysis of goodwill and other intangible assets, we apply the guidance of FASB ASC 350-20-35, Intangibles – Goodwill and Other-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.

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. As of December 31, 2013 and 2012, we concluded that we have one operating and reportable segment and one reporting unit.

As of December 31, 2013, we performed our annual goodwill impairment evaluation, as required under FASB ASC 350-20-35, and concluded that goodwill was impaired as the carrying value exceeded the estimated implied fair value and a charge of $5.4 million was recorded in the year ended December 31, 2013.

Long-Lived Assets

Long-Lived Assets

Long-lived assets including our purchased intangible assets are amortized over their estimated useful lives. In accordance with FASB ASC 360-10-35, long-lived assets, such as property, equipment and purchased intangibles subject to amortization, 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 would be 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 meet certain criteria for being held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

Revenue Recognition and Presentation

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 our clients’ service contracts and maintenance renewals, (iii) lead development and other telesales services, and (iv) software subscriptions for hosted internet sales of web-based training. 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 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 that we perform is recognized as the services are provided and is generally earned ratably over the service contract period. We earn revenue from our software application subscriptions of hosted online sales of web-based training ratably over each contract period. Since these software subscriptions are usually paid in advance, we have recorded a deferred revenue liability on our balance sheet that represents the prepaid portions of subscriptions that will be earned over the next one to five years.

Our agreements typically do not contain multiple deliverables, however, if an agreement contains multiple elements, we allocate revenue to each element in an arrangement based on a selling price hierarchy. The selling price for a deliverable is based on its vendor-specific objective evidence ("VSOE"), if available, third-party evidence ("TPE"), if VSOE is not available, or estimated selling price ("ESP"), if neither VSOE nor TPE is available. As we are unable to establish VSOE or TPE for the elements of our arrangements, we establish ESP for each element. If an agreement contains multiple deliverables that do not qualify for separate accounting for the product and service transactions, then the revenue and the cost of related professional services on the entire arrangement is recognized ratably over the contract term beginning on the date of delivery of product or service with customer-specific customization, if any. Entering into agreements with multiple elements with stand-alone value in the future may affect the timing of our revenue recognition and may have an impact on our future financial statements.

Our revenue recognition policy involves significant judgments and estimates about collectability. We assess the probability of collection based on a number of factors, including past transaction history and/or the creditworthiness of our clients’ customers, which is based on current published credit ratings, current events and circumstances regarding the business of our clients’ customers and other factors that we believe are relevant. If we determine that collection is not reasonably assured, we defer revenue recognition until such time as collection becomes reasonably assured, which is generally upon receipt of cash payment.

In addition, we provide an allowance in accrued liabilities for the cancellation of service contracts that occurs within a specified time after the sale, which is typically less than 30 days. This amount is calculated based on historical results and constitutes a reduction of the net revenue we record for the commission we earn on the sale.

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, outsourced call center services, 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.

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 December 31, 2013 and 2012, we had gross deferred tax assets of $46.0 million and $31.8 million, respectively. At December 31, 2013 and 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, disclosure and transition.

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 comprehensive loss.

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.

Concentrations of Credit Risk and Credit Evaluations

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 historically been immaterial, and such losses have been within management’s expectations.

In the year ended December 31, 2013, we recorded an out-of-period adjustment to decrease revenue by $38,000 and increase general and administrative expense by $420,000 for an overstatement of credit card receivables. The overstatement of an aggregate of $458,000 relates to unrecorded chargebacks of $293,000 and $165,000 during the third and fourth quarters of fiscal 2012 following the suspension in August 2012 of a merchant account relating to a customer contract. This out-of-period item did not have a material impact on the current and the previously reported periods.

In the year ended December 31, 2013, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 43% of our net revenue, Symantec representing approximately 24% of our net revenue and Hewlett-Packard representing approximately 10% of our net revenue. In the year ended December 31, 2012, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 35% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 11% of our net revenue. In the year ended December 31, 2011, three clients each accounted for 10% or more of our net revenue, with Microsoft representing approximately 22% of our net revenue, Symantec representing approximately 21% of our net revenue and Hewlett-Packard representing approximately 14% of our net revenue.

No individual client’s end-user customer accounted for 10% or more of our revenues in any period presented.

As of December 31, 2013, three customers accounted for 10% or more of our net accounts receivable, with Symantec representing approximately 40% of our net accounts receivable, Microsoft representing approximately 25% of our net accounts receivable, and Hewlett-Packard representing approximately 11% of our net accounts receivable. As of December 31, 2012, three customers accounted for 10% or more of our net accounts receivable with Hewlett-Packard representing approximately 13% of our net accounts receivable, Symantec representing approximately 12% of our net accounts receivable and Comcast representing approximately 11% of our net accounts receivable.

We have outsourced services agreements with our significant clients that expire at various dates ranging through March 2018. Our agreements with Microsoft expire at various dates from June 2014 through June 2015, and can be terminated with thirty days notice. Our agreements with Hewlett-Packard expire in October 2014 and March 2018 and can generally be terminated prior to expiration with sixty days notice. Symantec has elected not to renew its customer contracts with the Company, which expire on March 31, 2014.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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

Segment Reporting

Segment Reporting

In accordance with FASB ASC 280, Segment Reporting, we concluded that we have one operating and reportable segment.

Foreign Currency Translation

Foreign Currency Translation

The functional currency of our foreign subsidiaries was determined to be their respective local currencies (Canadian Dollar, Philippine Peso and Great Britain Pound). 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, consolidated statement of operations and comprehensive loss. Net gains and losses resulting from foreign exchange transactions are included in interest and other expense, net, in the consolidated statements of operations and comprehensive loss.

Recent Accounting Standards

Recent Accounting Standards

In February 2013, the FASB issued ASU No. 2013-02 - Reporting of Amounts Reclassified Out of Accumulated OtherComprehensive Income. This update improves the reporting of reclassifications out of accumulated other comprehensive income by requiring an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted this standard in the first quarter of 2013. Adoption of this standard did not have any material impact on our financial position, results of operations or cash flows.

In March 2013, the FASB issued ASU No. 2013-05 – Foreign Currency Matters. This update requires that an entity should release cumulative currency translation adjustments to net income when the entity ceases to have controlling financial interest in a foreign entity or a group of financial assets in a foreign entity. This new guidance is effective for the first reporting period beginning after December 15, 2013. We adopted this standard in the fourth quarter of 2012 in accounting for the sale of RSL.

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EMPLOYEE BENEFIT PLAN

12 Months Ended

Dec. 31, 2013

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plan

EMPLOYEE BENEFIT PLAN

We have a defined contribution benefit plan established under the provisions of Section 401(k) of the Internal Revenue Code. All employees may elect to contribute up to 20% of their compensation to the plan through salary deferrals, subject to annual limitations. Participants’ contributions are fully vested at all times. During the years ended December 31, 2013, 2012 and 2011, the Company had no matching contributions to the plan and incurred a credit of approximately $14,000, $19,000 and $12,000, respectively, relating to forfeitures under the plan.

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FAIR VALUE MEASUREMENTS (Notes)

12 Months Ended

Dec. 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 years ended December 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
December 31, 2013
Common stock warrant liability	$	348	$	89		$	(344	)	$	—		$	93
December 31, 2012
Contingent consideration — Optima (1)	$	225	$	(225	)	$	—		$	—		$	—
Common stock warrant liability	$	517	$	—		$	(169	)	$	—		$	348
December 31, 2011
Contingent consideration — Optima (1)	$	182	$	—		$	44		$	(1	)	$	225
Common stock warrant liability	$	—	$	815		$	(298	)	$	—		$	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.

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
December 31, 2013
Assets:
Money market funds (1)	$	1,641	$	—	$	—
Liabilities:
Common stock warrant liability (2)	$	—	$	—	$	93
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 6 - Long-Term Debt Obligations and Note 10 - 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 common stock warrant liability at December 31, 2013 and 2012, which were determined in a manner consistent with that described for stock option awards as set forth in Note 10:

	December 31,
	2013		2012
Expected life in years	2.50 - 6.75		3.50
Volatility	88.84	%	65.99	%
Risk-free interest rate	0.78% to 2.45%		0.34	%
Dividend rate	—	%	—	%

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

The amounts reported as fair value of notes payable are at carrying value at December 31, 2013 and 2012. Accounts payable and notes payable are estimated at December 31, 2013 to have a fair value, using Level 3 input assumptions, of $6.2 million and $3.6 million, respectively, for financial statement disclosure purposes only. At December 31, 2012 the carrying value of notes payable approximated fair value. The Company also used Level 3 input assumptions to determine the fair value of goodwill and certain capitalized software which are not recorded on a recurring fair value basis.

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COMMITMENTS AND CONTINGENCIES - Lease Commitments (Details) In Thousands, unless otherwise specified	12 Months Ended						12 Months Ended	3 Months Ended	0 Months Ended				1 Months Ended
	Dec. 31, 2013 USD ($)	Dec. 31, 2012 USD ($)	Dec. 31, 2011 USD ($)	Jul. 02, 2013 USD ($)	Feb. 01, 2013 USD ($)	Oct. 31, 2012 USD ($)	Dec. 31, 2011 Facility Closing Montreal facility closure USD ($)	Dec. 31, 2013 Austin, Texas Contract Termination USD ($)	Jul. 02, 2013 Building Campbell, California, corporate headquarters USD ($) sqft	Feb. 01, 2013 Building Campbell, California, corporate headquarters USD ($) sqft	Oct. 31, 2012 Building Campbell, California, corporate headquarters	Oct. 31, 2009 Building Campbell, California, corporate headquarters sqft	Sep. 30, 2011 Building Austin, Texas USD ($) sqft	Oct. 31, 2012 Building Godalming, United Kingdom GBP (£) sqft	Dec. 31, 2013 Building Godalming, United Kingdom USD ($)
Lease commitments:
Area of leased space (in sqft)									6,771	3,936		16,430		5,000
Duration of lease											3 years		24 months	30 months
Gross rent in first year of lease									$ 536	$ 365
Gross rent after deducting free base rent in first three months of amended lease										208
Square footage adjustment to leased asset (in sqft)													21,388
Annual percentage of gross rent increase									3.00%	3.00%
Security deposit				61	40	30				40
Security deposit liability									61
Annual rent expense due													212
Monthly rent expense due													18
Restructuring Charges								179
Base rent in current lease year														28	45
Rent expense under operating leases	535	773	903				99
Rent expense related to discontinued operations	0	158	207
Future minimum payments under non-cancelable operating leases:
2013	590
2014	566
2015 and thereafter	46
Total minimum payments	$ 1,202

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LONG-TERM DEBT OBLIGATIONS

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Long-term Debt Obligations

LONG-TERM DEBT OBLIGATIONS

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

	December 31, 2013			December 31, 2012
Comerica term loan	$	1,800		$	3,000
Comerica revolving line	1,230			1,493
Agility line of credit, net of discount of $96 and $0	404			—
Notes payable – insurance	207			34
Total notes payable	3,641			4,527
Less: current portion	(3,641		)	(2,727		)
Total notes payable, less current portion	$	—		$	1,800

Comerica Bank Credit Facility

On June 14, 2012, the Company entered into a Loan and Security Agreement with Comerica Bank (the “Comerica Credit Facility”), which replaced Bridge Bank, N.A. as the Company's primary lender. The maximum amount of credit available to the Company under the Comerica Credit Facility at inception was $5 million, comprised of a $3 million term loan facility (“Term Loan”) and a $2 million revolving line of credit (“Revolving Line”), which included a $500,000 sub-facility for letters of credit and certain credit card services. Under the terms of the Comerica Credit Facility, The Company could request advances under (i) the Term Loan until December 14, 2012, and (ii) the Revolving Line in an aggregate outstanding amount not to exceed the lesser of (A) the Revolving Line or (B) the borrowing base, which is 80% of our 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. Term Loan advances outstanding on December 14, 2012 became payable in thirty equal monthly installments of principal, plus accrued interest, beginning on January 1, 2013. Amounts borrowed under the Revolving Line became due on December 14, 2013, which was subsequently extended to May 1, 2014, as described below. As of December 31, 2013, there was $1.8 million outstanding under the Term Loan and $1.2 million outstanding under the Revolving Line

The interest rate per annum for advances under the Comerica Credit Facility is the Prime Referenced Rate, as defined in the Comerica Credit Facility, plus the applicable margin. Prior to March 1, 2014, 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. Beginning March 1, 2014, the applicable margin is two and one quarter percent (2.25%) per annum for the Revolving Line and one and one half percent (1.50%) per annum for the Term Loan. The interest rates on our Term Loan and Revolving Line were 5.50% and 4.75%, respectively, as of December 31, 2013.

The Comerica Credit Facility is secured by substantially all of Rainmaker’s consolidated assets. Rainmaker must comply with certain financial covenants, including maintaining a minimum liquidity ratio with respect to all indebtedness owing to Comerica Bank of at least 1.25 to 1.00. The Comerica Credit Facility contains customary covenants that will, subject to limited exceptions, require Comerica Bank’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 Comerica 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 Comerica Credit Facility. If we are not able to comply with such covenants or if any event of default otherwise occurs, our outstanding loan balance could become due and payable immediately and our existing credit facilities with Comerica Bank could be canceled. As of December 31, 2013, we were not in compliance with all loan covenants as we were past due on repayment of the amounts outstanding under the Revolving Line.

On February 27, 2014, Comerica Bank issued a notice of default as the amounts outstanding under the Revolving Line were past due. The notice of default also stated that Comerica Bank would not take any action to enforce its rights and remedies under the Comerica Credit Facility but reserved the right to do so in the future. On March 19, 2014, the Company and Comerica Bank entered into a forbearance agreement pursuant to which Comerica Bank agreed to extend the scheduled maturity date of the Revolving Line until May 1, 2014. In addition, under the terms of the forbearance agreement, (i) the amounts outstanding under the Term Loan are due on May 1, 2014, coterminous with the Revolving Line, (ii) advances under the Revolving Line are limited to $1,000,000 at any time outstanding, (iii) restricted cash in the amount of $1,562,000 will be held in a segregated deposit account at Comerica Bank as additional collateral for the Term Loan, (iv) effective March 1, 2014, the applicable margin for the Revolving Line was increased to two and one quarter percent (2.25%), and for the Term Loan was decreased to one and one half percent (1.50%), and (v) the Company must satisfactorily address a material accounts payable owed to a customer by April 1, 2014.

Agility Capital Credit Facility

On October 30, 2013, the Company closed a Loan Agreement (the "Agility Loan Agreement") with Agility Capital II, LLC (“Agility”), providing for a revolving line of credit of up to $500,000, which amount may be increased to $650,000 under certain conditions (the “Maximum Revolving Line”). The Company may request advances under the Agility Loan Agreement in an aggregate outstanding amount not to exceed the lesser of (i) the applicable Maximum Revolving Line or (ii) a borrowing base equal to 30% of the Company's eligible accounts receivable balances. Amounts borrowed under the Agility Loan Agreement are due on the earlier of (i) the date on which the Company’s borrowings under its loan agreement with Comerica Bank become due and payable, and (ii) October 25, 2014. The interest rate per annum for advances under the Loan Agreement is 12.00%. If a default occurs under the Loan Agreement, the interest rate per annum for advances under the Loan Agreement would increase to 18.00%. In addition, if a default in the payment of principal occurs under the Loan Agreement, the Company would be required to pay a default fee equal to $10,000 plus an additional $15,000 for each subsequent 30-day period during which such payment default remains uncured. The Agility Loan Agreement became due on December 14, 2013, commensurate with the Comerica Credit Facility. On February 28, 2014, Agility issued a notice of default due to the notice of default issued by Comerica Bank, as discussed above. The Company paid a default fee of $10,000 to Agility on February 28, 2014 for failure to pay principal when due. Such default was subsequently cured as a result of the extension of the maturity date to May 1, 2014, commensurate with the extension of the scheduled maturity date of the Revolving Line.

The Agility Loan Agreement is secured by substantially all of Rainmaker’s consolidated assets. The Agility Loan Agreement contains customary covenants that will, subject to limited exceptions, require Agility’s approval to, among other things, (i) create liens; (ii) acquire or transfer assets outside of the ordinary course of business; (iii) pay cash dividends; and (iv) merge or consolidate with another company. The Agility Loan Agreement also requires that the Company comply with the financial covenants contained in its loan agreement with Comerica Bank. The Agility Loan Agreement also provides for customary events of default, including nonpayment, breach of covenants, payment defaults of other indebtedness, and certain events of bankruptcy, insolvency and reorganization that may result in acceleration of outstanding amounts under the Agility Loan Agreement. The Company’s obligations under the Agility Loan Agreement are subordinated to the Company’s obligations under its loan agreement with Comerica Bank, pursuant to a subordination agreement between Agility and Comerica Bank. As of December 31, 2013, there was $500,000 outstanding under the Agility Loan Agreement.

In addition, Agility received a warrant to purchase 216,667 shares of the Company's common stock. The warrant has a 7-year term and an exercise price of $0.45 per share. The warrant may also be exercised by way of a cashless exercise. The 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 future issuances of common stock at a price below the warrant's exercise price, stock dividends, stock splits and other similar events. The fair value of the warrant upon issuance is recorded as a discount to the face value of the Maximum Revolving Line and is amortized to interest expense over the one year life of the note.

Bridge Bank Credit Facility

In April 2004, we entered into a business loan agreement and a commercial security agreement with Bridge Bank (the “Bridge Credit Facility”). The Bridge Credit Facility, as last amended in November 2011, had a maturity date of December 10, 2012. The maximum amount of credit that could be borrowed under the Bridge Credit Facility was $6 million, subject to a borrowing base, and included a $1.0 million sub-facility for standby letters of credit. The interest rate per annum for advances under the Bridge Credit Facility was equal to the greater of (i) 3.5%, or (ii) one quarter of one percent (0.25%) above the prime lending rate. In June 2012, we terminated the Bridge Credit Facility and repaid all borrowings thereunder.

In July 2005, 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 issued by Bridge Bank was replaced in July 2012 by a letter of credit in like amount issued by Comerica Bank under the Credit Facility described above.

In December 2010, we issued an irrevocable standby letter of credit in the amount of 250,000 Great Britain Pounds to Barclays Bank PLC to secure our overdraft facility described below. The letter of credit was issued by Bridge Bank and we terminated this letter of credit in June 2012.

Overdraft Facility

On November 25, 2010, our subsidiary, Rainmaker EMEA Limited, established an overdraft facility with Barclays Bank PLC in the amount of 247,500 Great Britain Pounds. This overdraft facility was secured by a 250,000 Great Britain Pounds standby letter of credit issued by Bridge Bank as noted above. In June 2012, we repaid and terminated the overdraft facility.

Notes Payable – Optima acquisition

On January 29, 2010, we entered into and closed a stock purchase agreement for Optima Consulting Partners Limited (“Optima”). In accordance with this agreement, we entered into a note payable for $350,000 payable in two installments, with $200,000 plus accrued interest due eighteen months from the closing date and $150,000 plus accrued interest due twenty-four months after the closing date. We paid the first installment of the note in July 2011 and fully settled the liability by paying the second installment in January 2012. The interest rate on the note payable was 0.4% per year and we recorded the present value of the note payable discounted over two years at a rate of 6.2%. The resulting discount on note payable was amortized over the two-year term of the note.

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 was 6.07% and the note was payable in nine equal monthly installment payments beginning in September 2012. The note was fully paid in July 2013.

On December 11, 2013, we entered into an agreement with AON Private Risk Management to finance our 2013 to 2014 insurance premiums with First Insurance Funding Corp. in the amount of $237,000. The interest rate on the note payable is 4.99% and the note is payable in eight equal monthly installment payments beginning in December 2013. As of December 31, 2013, the remaining liability under this financing agreement was $207,000.

Future debt maturities at December 31, 2013 are as follows (in thousands):

2014	$	3,737
2015 and thereafter	—
Total	$	3,737

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COMMITMENTS AND CONTINGENCIES (Notes)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments Contingencies

COMMITMENTS AND CONTINGENCIES

Lease Commitments

As of December 31, 2013, our operating commitments include operating leases for our facilities and certain property and equipment that expire at various dates through 2015 which are described in more detail below. These arrangements allow us to obtain the use of 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 of 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 Campbell operating lease, effective February 1, 2013, providing an additional 3,936 square feet of space. The fourth amendment did not modify the three-year term of the third amendment to the Campbell operating lease. Annual base rent under the amended lease was approximately $365,000 in the first year of the lease, or $208,000 after deducting free base rent in the first three months of the amended lease, and increases by approximately 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 an irrevocable standby letter of credit issued to the landlord was reduced to $40,000 for a security deposit. On July 2, 2013, we executed the fifth amendment to the Campbell operating lease effective July 1, 2013, providing an additional 6,771 square feet of space. The fifth amendment to the Campbell operating lease did not change the terms of the lease as previously amended. Annual base rent under the amended lease is approximately $536,000 in the first year of the lease and increases by 3% each year thereafter for the remaining term. The fifth amendment to the Campbell operating lease increased the irrevocable standby letter of credit issued to the landlord to $61,000.

In September 2011, we extended an existing lease in Austin, Texas on approximately 21,388 square feet of space for a term of 24 months through December 31, 2013. Annual rent under the lease approximated $212,000, or $18,000 monthly. Additionally, we paid 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 were to be consolidated in our headquarters in Campbell, California and our United Kingdom location as part of a strategic reallocation of resources designed to increase levels of service to customers and generate operating cost savings. On May 10, 2013, the Company agreed to terminate the Austin facility lease effective September 15, 2013. During the year ended December 31, 2013, the Company recorded a charge of $179,000 related to the Austin facility closure.

In October 2012, we executed an office lease agreement for office space in Godalming outside of London, where we have call center operations. The facility’s 5,000 square feet of call center space will be utilized to better accommodate our current operations in Europe and provide additional space for expansion. The lease has a thirty-month term and terminates in March 2015. Annual base rent for this facility is 28,000 Great Britain Pounds. Based on the exchange rate at December 31, 2013, annual rent is approximately $45,000.

Rent expense under operating lease agreements for continuing operations during the years ended December 31, 2013, 2012 and 2011 was $535,000, $773,000 and $903,000 respectively. Rent expense for the year ended December 31, 2011 includes $99,000 related to the closure of our Montreal facility. The Company incurred rent expense under operating lease agreement for our discontinued operations during the years ended December 31, 2013, 2012 and 2011 of $0, $158,000 and $207,000, respectively.

Future minimum payments under our non-cancelable operating leases with terms in excess of one year at December 31, 2013 are as follows (in thousands):

2014	$	590
2015	566
2016 and thereafter	46
Total minimum payments	$	1,202

Contingencies

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 sought full payment of severance benefits in the amount of approximately $1.0 million, plus compensation for unused vacation, related penalties and punitive damages. On March 21, 2013, the Company filed a responsive pleading in the arbitration proceedings. On May 15, 2013, the American Arbitration Association appointed an arbitrator. Thereafter, Mr. Silton withdrew his arbitration claim and on May 22, 2013, filed a complaint against the Company in the Santa Clara Superior Court. The allegations and causes of action were the same as the complaint filed with the American Arbitration Association. On July 5, 2013, the Company filed an answer to Mr. Silton's complaint and a cross-complaint against Mr. Silton. On or about August 1, 2013, Mr. Silton filed an answer to the cross-complaint. Between July and December 2013, the parties served and responded to written discovery requests and produced documents. In January 2014, the parties agreed to proceed to mediation. On January 28, 2014, the parties reached a settlement at mediation and executed a confidential settlement agreement. Pursuant to the settlement agreement, and in exchange for a release of claims, Mr. Silton received a payment from the Company's insurer and 1,000,000 shares of the Company's common stock. A portion of the payment and the shares of common stock was paid to Mr. Silton's legal counsel. After effectuating the terms of the settlement, the case was formally dismissed on March 17, 2014. In connection with the settlement agreement, the Company recorded a charge of $200,000 in the year ended December 31, 2013.

On July 9, 2013, YKnot Holdings LLC (“YKnot”) filed a complaint seeking damages against the Company in the Santa Clara Superior Court alleging breach of contract and related causes of action arising from the eCommerce Processor Agreement (the “Agreement”) entered into by YKnot and the Company in January 2012.  The central allegation in the complaint alleged that the Company failed to timely pay over certain reserves held by the Company against chargebacks and returns relating to YKnot's products in accordance with the Agreement.  On August 12, 2013, the Company filed an answer to the complaint and filed a cross-complaint against YKnot.  In January 2014, the parties agreed to proceed to mediation. On January 28, 2014, the parties reached a settlement at mediation and executed a settlement agreement pursuant to which the Company and YKnot agreed to a mutual "walk away" settlement and release with no money or other consideration paid to either party.

From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of operations.

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. On October 31, 2012, the Company executed a third amendment to the Campbell operating lease for our corporate headquarters in which the security deposit was reduced to $30,000. On January 31, 2013, the Company executed a fourth amendment to the Campbell operating lease in which the security deposit was increased to $40,000. On July 2, 2013, the Company executed a fifth amendment to the Campbell operating lease in which the security deposit was increased to $61,000.

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 December 31, 2013 and 2012.

Restricted Cash

Restricted cash represents the reserve for the refunds due for non-service payments inadvertently paid to us by our clients’ customers instead of paid directly to our clients. At the time of cash receipt, we record a current liability for the amount of non-service payments received.

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INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The components of loss before income taxes from continuing operations are as follows (in thousands):

	Year Ended December 31,
	2013			2012			2011
United States	$	(20,536	)	$	(3,540	)	$	(10,176	)
Foreign	(1,142		)	(184		)	(253		)
Loss before income tax expense	$	(21,678	)	$	(3,724	)	$	(10,429	)

Income tax expense for the years ended December 31, 2013, 2012 and 2011 consists of the following (in thousands):

	Year Ended December 31,
	2013			2012		2011
Current:
Federal	$	—		$	—	$	(38	)
State	(16		)	43		44
Foreign	(100		)	104		(74		)
	(116		)	147		(68		)
Deferred:
Federal	(522		)	86		86
State	(37		)	8		4
Foreign	18			—		(3		)
	(541		)	94		87
Total income tax (benefit) expense	$	(657	)	$	241	$	19

Income tax expense for discontinued operations for the years ended December 31, 2013, 2012 and 2011 (in thousands) is $0, $95, and $96, respectively. The income tax benefit recorded in the year ended December 31, 2013 is primarily a result of the impairment of goodwill.

A reconciliation between the income tax benefit computed by applying the U.S. federal tax rate to loss before income taxes and actual income tax expense for the years ended December 31, 2013, 2012 and 2011 is as follows (in thousands):

	Year Ended December 31,
	2013			2012			2011
Tax benefit computed at federal statutory rate	$	(7,353	)	$	(1,266	)	$	(3,546	)
Effect of state income taxes	(48		)	36			33
Foreign rate differential	466			61			8
Change in valuation allowance	6,284			1,163			3,392
Stock based compensation	120			96			391
Other	(126		)	151			(259		)
Total income tax (benefit) expense	$	(657	)	$	241		$	19

Deferred income taxes reflect the net tax effects of temporary differences between the value of assets and liabilities used for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets as of December 31, 2013 and 2012 are as follows (in thousands):

	December 31,
	2013			2012
Deferred tax assets:
Net operating loss carryforwards	$	41,014		$	27,841
Depreciation and amortization	3,919			2,778
Accrued reserves and other	1,036			1,162
Total deferred tax assets	45,969			31,781
Valuation allowance	(45,964		)	(31,781		)
Net deferred tax asset	5			—
Deferred tax liabilities:
Fixed Assets	(31		)	—
Acquired goodwill	—			(567		)
Total deferred tax liability	$	(26	)	$	(567	)

Realization of deferred tax assets is dependent upon future taxable earnings, the timing and amount of which are uncertain. Due to the cumulative operating losses in earlier years and continued significant loss in the most recent year, management believes that it is more likely than not that the deferred tax assets will not be realizable in future periods. The valuation allowance for deferred tax assets increased approximately $13.5 million and $1.2 million during the years ended December 31, 2013 and 2012, respectively. The increase in valuation allowance is mainly due to current year losses.

As of December 31, 2013, we have net operating loss carryforwards for federal and state of California tax purposes of $101.6 million and $34.3 million, respectively. The net operating loss carryforwards will expire at various dates beginning in 2020 through 2033 for federal tax purposes, if not utilized. The net operating loss for California tax purposes will begin to expire in 2014 through 2033, if not utilized. As of December 31, 2013, we also have a capital loss of $11.5 million and $4.5 million, respectively, for federal and California income tax purposes. Both federal and California capital losses will expire in 2017, if not utilized.

Internal Revenue Code Section 382 places a limitation (the "Section 382 Limitation") on the amount of taxable income that can be offset by net operating loss carryforwards after a change in control (generally greater than 50% change in ownership) of a loss corporation. California has similar rules limiting net operating loss carryforwards. We performed a new analysis of prior ownership changes under IRC Section 382 up to December 31, 2013. The analysis concluded that the Company had not incurred any new ownership changes since the last performed analysis as of December 31, 2006.

Federal income taxes have not been provided for on a portion of the unremitted earnings of foreign subsidiaries because such earnings are intended to be permanently reinvested. There are no unremitted earnings as of December 31, 2013.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. There are no ongoing examinations by income taxation authorities at this time. The Company’s tax years from 2000 to 2013 remain open to United States federal income tax and California examination due to the carryforward of unutilized net operating losses. The Company’s tax years from no earlier than 2009 and forward remain open to examination in certain foreign tax jurisdictions.

The Company does not anticipate any significant changes to the FASB ASC 740 liability for unrecognized tax benefits within twelve months of this reporting date. The Company adopted the provisions of FASB ASC 740 as of January 1, 2007. The amount of unrecognized tax benefit as of December 31, 2013 and 2012 is not material.

The Company has adopted the accounting policy that interest and penalties will be classified as a component of operating income and losses. No interest and penalties were recorded as of December 31, 2013 and 2012.

In September 2013, the IRS released final tangible property regulations ("repair regulations") under Sections 162(a) and 263(a) of the Internal Revenue Code, regarding the deduction and capitalization of amounts paid to acquire, produce, or improve tangible property. The final regulations replace temporary regulations that were issued in December 2011 and are effective for tax years beginning January 1, 2014, with early adoption permitted for tax years beginning January 1, 2012. The final regulations are effective for the Company for its tax year beginning January 1, 2014, and the Company is currently evaluating the impact of the final repair regulations on its consolidated financial statements but does not expect this to have a material impact to the financial statements.

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FAIR VALUE MEASUREMENTS (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012
Assumptions used to measure the accrued warrant liability:
Accounts payable	$ 13,042		$ 7,159
Notes payable	3,641		2,727
Common Stock Warrant
Assumptions used to measure the accrued warrant liability:
Expected life in years			3 years 6 months
Volatility	88.84%		65.99%
Risk-free interest rate			0.34%
Dividend rate	0.00%		0.00%
Level 3 | Fair Value
Assumptions used to measure the accrued warrant liability:
Accounts payable	6,200
Notes payable	3,600
Measured at Fair Value on a Recurring Basis | Level 1
Assets:
Money market funds	1,641	[1]	1,640	[1]
Liabilities:
Common stock warrant liability	0	[2]	0	[2]
Measured at Fair Value on a Recurring Basis | Level 2
Assets:
Money market funds	0	[1]	0	[1]
Liabilities:
Common stock warrant liability	0	[2]	0	[2]
Measured at Fair Value on a Recurring Basis | Level 3
Assets:
Money market funds	0	[1]	0	[1]
Liabilities:
Common stock warrant liability	$ 93		$ 348	[2]
Minimum | Common Stock Warrant
Assumptions used to measure the accrued warrant liability:
Expected life in years	2 years 6 months
Risk-free interest rate	0.78%
Maximum | Common Stock Warrant
Assumptions used to measure the accrued warrant liability:
Expected life in years	6 years 9 months
Risk-free interest rate	2.45%

[1] Money market funds are valued using active quoted market rates.

[2] The fair value of our common stock warrant liability (see Note 6 - Long-Term Debt Obligations and Note 10 - 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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INCOME TAXES - Income Tax Expense (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Current:
Federal	$ 0	$ 0	$ (38)
State	(16)	43	44
Foreign	(100)	104	(74)
Current income tax expense (benefit)	(116)	147	(68)
Deferred:
Federal	(522)	86	86
State	(37)	8	4
Foreign	18	0	(3)
Deferred income tax expense	(541)	94	87
Total income tax (benefit) expense	(657)	241	19
Income tax expense for discontinued operations	$ 0	$ 95	$ 96

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FAIR VALUE MEASUREMENTS - Unobservable Input Reconciliation (Details) (Level 3, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012		Dec. 31, 2011
Optima | Measured at Fair Value on a Recurring Basis
Unobservable input reconciliation:
Contingent consideration paid				$ 225
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		0
Transfers In (Out)	89	0		815
Loss(Gain) on Fair Value Re- measurement	(344)	(169)		(298)
Foreign Currency Adjustment	0	0		0
Ending Fair Value of Level 3 Liabilities	93	348		517
Contingent Consideration - Optima
Summary of the activity of the fair value of the Level 3 liabilities:
Beginning Value of Level 3 Liabilities		225	[1]	182	[1]
Transfers In (Out)		(225)	[1]	0	[1]
Loss(Gain) on Fair Value Re- measurement		0	[1]	44	[1]
Foreign Currency Adjustment		0	[1]	(1)	[1]
Ending Fair Value of Level 3 Liabilities		$ 0	[1]	$ 225	[1]

[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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INTEREST AND OTHER EXPENSE, NET (Tables)

12 Months Ended

Dec. 31, 2013

Other Income and Expenses [Abstract]

Components of Interest and Other Expense, Net

The components of interest and other expense, net are as follows (in thousands):

	Year Ended December 31,
	2013	2012		2011
Interest expense, net	228	237		193
Currency transaction (gain) loss	35	(21	)	(15	)
Other	31	—		—
Interest and other expense, net	294	216		178

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BALANCE SHEET COMPONENTS - Other Long-term Assets (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Other Assets, Noncurrent [Abstract]
Deposits	$ 4	$ 26
Credit card reserve deposits	391	390
Deferred professional service costs	445	0
Total other long-term assets	$ 840	$ 416

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SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2013

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

On January 28, 2014, we entered into a settlement agreement to settle a claim filed by Michael Silton, the Company's former Chief Executive Officer. See Note 7 for a discussion of the settlement agreement with Mr. Silton.

On January 28, 2014, we entered into a settlement agreement with YKnot Holdings LLC ("Yknot") to settle a claim filed by YKnot. See Note 7 for a discussion of the settlement agreement with Yknot.

On February 27, 2014, Comerica Bank issued a notice of default as the amounts outstanding under the Revolving Line were past due. On February 28, 2014, Agility Capital II LLC ("Agility") issued a notice of default due to the notice of default issued by Comerica Bank. On March 19, 2014, the Company and Comerica Bank entered into a forbearance agreement pursuant to which Comerica Bank agreed to extend the scheduled maturity date of the Revolving Line until May 1, 2014. The Agility default was subsequently cured as a result of the extension of the maturity date to May 1, 2014, commensurate with the extension of the scheduled maturity date of the Revolving Line. See Note 6 for a discussion of the debt obligations to Comerica Bank and Agility.

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DISCONTINUED OPERATIONS (Tables)

12 Months Ended

Dec. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

Income Statement and Balance Sheet Disclosures for Discontinued Operations

Income (loss) from discontinued operations, net of income taxes for all periods presented reflect the operating results of RSL and are as follows (in thousands):

	Year ended December 31,
	2013			2012			2011
Revenue	$	156		$	10,225		$	11,888
Cost of services	37			11,103			10,048
Gross margin	119			(878		)	1,840
Operating expenses	—			1,988			2,190
Non-operating expenses	—			100			181
Income (loss) from discontinued operations, net of tax	119			(2,966		)	(531		)
Loss on disposal of discontinued operations	(69		)	(3,341		)	—
Net income (loss) from discontinued operations	$	50		$	(6,307	)	$	(531	)

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BALANCE SHEET COMPONENTS - Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2011
Components of property and equipment:
Property and equipment, gross	$ 17,633		$ 18,329
Accumulated depreciation and amortization	(17,099)		(16,015)
Construction in process	157	[1]	141	[1]
Property and equipment, net	691		2,455
Weighted average cost of capital	23.00%
Impairment of long-lived assets	2,330		0		0
Minimum
Components of property and equipment:
Construction in process, estimated cost to complete projects	125
Maximum
Components of property and equipment:
Construction in process, estimated cost to complete projects	150
Computer Equipment
Property and equipment:
Useful life of property and equipment	3 years
Components of property and equipment:
Property and equipment, gross	3,993		3,974
Computer Equipment | Minimum
Property and equipment:
Useful life of property and equipment	2 years
Computer Equipment | Maximum
Property and equipment:
Useful life of property and equipment	5 years
Capitalized Software and Development
Components of property and equipment:
Property and equipment, gross	13,208		13,686
Capitalized Software and Development | Minimum
Property and equipment:
Useful life of property and equipment	2 years
Capitalized Software and Development | Maximum
Property and equipment:
Useful life of property and equipment	5 years
Furniture and Fixtures
Property and equipment:
Useful life of property and equipment	5 years
Components of property and equipment:
Property and equipment, gross	309		437
Leasehold Improvements
Components of property and equipment:
Property and equipment, gross	$ 123		$ 232

[1] Construction in process at December 31, 2013 consists primarily of costs incurred to further develop and enhance our ViewCentral platform and implement a new ERP system . Estimated costs to complete the projects are in the range of $125,000 to $150,000, subject to future revisions.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition (Details)	12 Months Ended
	Dec. 31, 2013
Minimum | Subscription arrangement
Deferred revenue arrangement:
Term in which deferred revenue will be recognized	1 year
Maximum
Deferred revenue arrangement:
Common term after sale for contract cancellations to occur	30 days
Maximum | Subscription arrangement
Deferred revenue arrangement:
Term in which deferred revenue will be recognized	5 years

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - Parentheticals (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Income Statement [Abstract]
Loss on disposal of discontinued operations	$ (3,341)

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DISCONTINUED OPERATIONS

12 Months Ended

Dec. 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, as described below. RSL's operating results for the years ended December 31, 2013, 2012 and 2011 are reported as discontinued operations in the consolidated financial statements.

On December 17, 2012, the Company closed a stock purchase agreement (the “SPA”) with Shore pursuant to which the Company agreed to sell the Company's Manila-based operations of Rainmaker Systems, Ltd. and its wholly owned subsidiary, Rainmaker Asia, Inc., to Shore.

Pursuant to the SPA, Shore acquired 100% of the issued and outstanding stock of RSL. Under the SPA, the Company received an initial cash payment at closing of $845,000. In addition to the closing payment, the Company may receive additional contingent consideration based on multiple earn-out provisions included within the stock purchase agreement, 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 year ended December 31, 2013. Rainmaker determined the loss on disposal of our Manila-based operations based on the net book value of RSL as of December 17, 2012 offset by the closing payment, net of the Company’s closing costs. All contingent consideration will be considered earned as determinable at the future measurement periods. The loss on disposal of discontinued operations for the year ended December 31, 2012 was $3.3 million.

The accompanying consolidated statements of operations and comprehensive loss and cash flows have been reclassified for all periods presented to remove the operating results of RSL from continuing operations and to present the results of RSL as loss from discontinued operations, net of tax. The operating results for the year ended December 31, 2013 represent payments and true up adjustments. Loss on disposal of discontinued operations of $69,000 for the year ended December 31, 2013 is a post-closing adjustment in the working capital at the closing date pursuant to the SPA. Income (loss) from discontinued operations, net of income taxes for all periods presented reflect the operating results of RSL and are as follows (in thousands):

	Year ended December 31,
	2013			2012			2011
Revenue	$	156		$	10,225		$	11,888
Cost of services	37			11,103			10,048
Gross margin	119			(878		)	1,840
Operating expenses	—			1,988			2,190
Non-operating expenses	—			100			181
Income (loss) from discontinued operations, net of tax	119			(2,966		)	(531		)
Loss on disposal of discontinued operations	(69		)	(3,341		)	—
Net income (loss) from discontinued operations	$	50		$	(6,307	)	$	(531	)

RSL cost of services for the year ended December 31, 2012 includes $499,000 related to the write-off of a receivable due to the bankruptcy of a client.

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LONG-TERM DEBT OBLIGATIONS - Notes Payable (Details) (USD $) In Thousands, unless otherwise specified		0 Months Ended
	Dec. 11, 2013 AON Private Risk Management Notes Payable - Insurance installments	Jan. 29, 2010 Notes Payable, Other Payables Optima Notes Payable - Optima Acquisition installments	Jan. 29, 2010 Notes Payable, Other Payables Optima Notes Payable - Optima Acquisition Installment 1	Jan. 29, 2010 Notes Payable, Other Payables Optima Notes Payable - Optima Acquisition Installment 2	Dec. 31, 2013 Notes Payable, Other Payables AON Private Risk Management Notes Payable - Insurance	Aug. 13, 2012 Notes Payable, Other Payables AON Private Risk Management Notes Payable - Insurance installments
Debt Instrument [Line Items]
Notes payable		$ 350	$ 200	$ 150	$ 207	$ 62
Number of monthly installments of principal	8	2				9
Duration of first notes payable installment		18 months
Duration of second notes payable installment		24 months
Stated interest rate	4.99%	0.40%				6.068%
Discount amortization period		2 years
Effective rate		6.20%
Financing amount	$ 237

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INCOME TAXES - Narrative (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Income Tax Disclosure [Abstract]
Increase in valuation allowance for deferred tax assets	$ 13.5	$ 1.2
Federal
Operating loss carryforwards:
Net operating loss carryforwards	101.6
Federal | Capital Loss Carryforward [Member]
Operating loss carryforwards:
Capital loss	11.5
State of California
Operating loss carryforwards:
Net operating loss carryforwards	34.3
State of California | Capital Loss Carryforward [Member]
Operating loss carryforwards:
Capital loss	$ 4.5

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BALANCE SHEET COMPONENTS (Tables)

12 Months Ended

Dec. 31, 2013

Balance Sheet Components [Abstract]

Schedule of Prepaids and Other Current Assets

Prepaids and other current assets consist of the following (in thousands):

	December 31,
	2013		2012
Prepaids and other current assets:
Prepaid expenses	$	623	$	174
Deferred professional service costs	252		—
VAT tax receivable	440		—
Credit card deposits	—		895
Other current assets	303		223
Prepaids and other current assets	$	1,618	$	1,292

Components of Property and Equipment

	Estimated Useful Life	December 31,
		2013			2012
Property and equipment:
Computer equipment	3 years	$	3,993		$	3,974
Capitalized software and development	2-5 years	13,208			13,686
Furniture and fixtures	5 years	309			437
Leasehold improvements	Lease term	123			232
		17,633			18,329
Accumulated depreciation and amortization		(17,099		)	(16,015		)
Construction in process (1)		157			141
Property and equipment, net		$	691		$	2,455

 _____________

(1) Construction in process at December 31, 2013 consists primarily of costs incurred to further develop and enhance our ViewCentral platform and implement a new ERP system . Estimated costs to complete the projects are in the range of $125,000 to $150,000, subject to future revisions.

Schedule of Goodwill Activity

The following table reflects the activity in our accounting for goodwill for the years ended December 31, 2013 and 2012 (in thousands):

Goodwill:	Total
Balance at December 31, 2011	$	5,268
Foreign currency adjustments	69
Balance at December 31, 2012	5,337
Foreign currency adjustments	31
Impairment	(5,368		)
Balance at December 31, 2013	$	—

Components of Other Long-term Assets

Other non-current assets consist of the following (in thousands):

	December 31,
	2013		2012
Other non-current assets:
Deposits	$	4	$	26
Credit card reserve deposits	391		390
Deferred professional service costs	445		—
Other non-current assets	$	840	$	416

Schedule of Other Current Liabilities

Other accrued liabilities consist of the following (in thousands):

	December 31,
	2013		2012
Other accrued liabilities:
Payable to customers	$	1,158	$	1,058
Accrued professional fees	663		652
Accrued VAT taxes	248		148
Accrued sales tax	229		320
Settlement liability	200		—
Reseller rebates	190		196
Other liabilities	977		768
Other accrued liabilities	$	3,665	$	3,142

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STOCKHOLDERS' EQUITY - Stock-Based Compensation Expense (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Equity incentive plans:
Stock-based compensation expense	$ 1,510	$ 810	$ 2,022
Stock-based compensation relating to unvested awards	1,167
Current unvested and outstanding grants expected to be expensed in current year	432
Options
Weighted average valuation assumptions:
Expected life in years	3 years 11 months 8 days	3 years 9 months 3 days	3 years 9 months 3 days
Volatility	73.52%	65.99%	65.99%
Risk-free interest rate	0.50%	0.38%	1.00%
Dividend rate	0.00%	0.00%	0.00%
Forfeiture rate	21.53%	27.61%	27.61%
Restricted Stock
Weighted average valuation assumptions:
Forfeiture rate	19.43%	15.04%	15.04%
Cost of Services
Equity incentive plans:
Stock-based compensation expense	75	84	73
Sales and Marketing
Equity incentive plans:
Stock-based compensation expense	150	51	169
Technology and Development
Equity incentive plans:
Stock-based compensation expense	215	116	186
General and Administrative Expense
Equity incentive plans:
Stock-based compensation expense	$ 1,070	$ 559	$ 1,594

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property and Equipment (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Computer Equipment
Property and equipment:
Useful life of property and equipment	3 years
Furniture and Fixtures
Property and equipment:
Useful life of property and equipment	5 years
Internal Use Software
Property and equipment:
Internal use software cost capitalization	$ 1.5	$ 1.1	$ 1.3
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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INTEREST AND OTHER EXPENSE, NET

12 Months Ended

Dec. 31, 2013

Other Income and Expenses [Abstract]

Interest and Other Expense, Net

INTEREST AND OTHER EXPENSE, NET

The components of interest and other expense, net are as follows (in thousands):

	Year Ended December 31,
	2013	2012		2011
Interest expense, net	228	237		193
Currency transaction (gain) loss	35	(21	)	(15	)
Other	31	—		—
Interest and other expense, net	294	216		178