Rainmaker Systems, Inc. : Rainmaker Reports Second Quarter 2013 Financial Results

Mallorie Burak

Chief Financial Officer

Rainmaker Systems, Inc.

(408) 340-2510

mallorie.burak@rmkr.com

Net revenue in the second quarter of 2013 was $4.7 million, compared to net revenue in the preceding quarter of

$4.7 million and net revenue in the second quarter of 2012 of $6.9 million. Net revenue for the six months ended

June 30, 2013 was $9.4 million compared to $13.3 million in the 2012 comparative period.

Net loss from continuing operations for the second quarter of 2013 was $3.0 million, or a net loss of $0.08 per share, compared to a net loss from continuing operations in the preceding quarter of $3.5 million, or a net loss of

$0.12 per share, and a net loss from continuing operations in the second quarter of 2012 of $0.9 million, or a net loss of $0.03 per share. Net loss from continuing operations for the six months ended June 30, 2013 was $6.4 million, or a net loss of $0.19 per share, compared to a net loss from continuing operations of $2.1 million, or a net loss of $0.08 per share, in the 2012 comparative period.

Total cash and cash equivalents were $5.0 million at June 30, 2013, compared to $4.5 million at December 31,

2012.

"We have made significant progress in the last quarter toward achieving stable revenue streams and operations," said Don Massaro, President and CEO. "The second quarter results and the recently announced $8.6 million of bookings activity were very encouraging and demonstrate that the Company is setting the foundation to capitalize on the next stage of revenue growth."

Rainmaker Systems will host a conference call and webcast today at 2 p.m. Pacific Daylight Time (5 p.m. Eastern

Daylight Time) to discuss its second quarter 2013 financial results. Those wishing to participate in the live call should dial 888-438-5525 using the passcode 9256461. A replay of the call will be available for one week beginning approximately two hours after the call's conclusion by dialing 888-203-1112 and entering the passcode

9256461. To access the live webcast of the call, go to the Investors section of Rainmaker's website at www.rainmakersystems.com . A webcast replay of the conference call will be available for one year on the Conference Calls/Events page of the Investors section at www.rainmakersystems.com.

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Rainmaker Systems is a B2B e-Commerce company that helps organizations of all sizes, ranging from Fortune 500 enterprises to small-to-medium-sized businesses, create new revenue streams from segments of their customer base that extend beyond traditional sales team capabilities. With its unique approach, Rainmaker Systems delivers proprietary cloud-based e-Commerce technology, global and localized sales-assist agents, and best-practice sales and marketing expertise, allowing customers to discover and monetize untapped revenue opportunities.

Rainmaker trades in the U.S. on OTCQX under the symbol "RMKR."

NOTE: Rainmaker Systems and the Rainmaker logo are registered with the U.S. Patent and Trademark Office. All other service marks or trademarks are the property of their respective owners.

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Safe Harbor Statement

This press release may contain forward-looking statements regarding future events. These forward-looking statements are based on information available to Rainmaker as of this date and we assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance, and actual results could differ materially from current expectations. Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are our ability to raise additional equity or debt financing to fund our operations, our client concentration, as we depend on a small number of clients for a significant percentage of our revenue, the possibility of the discontinuation and/or realignment of some client relationships, general market conditions, the current difficult macro-economic environment and its impact on our business, as our clients are reducing their overall marketing spending and our clients' customers are reducing their purchase of services contracts, the high degree of uncertainty and our limited visibility due to economic conditions, our ability to execute our business strategy, our ability to integrate acquisitions without disruption to our business, our ability to transition to a new Chief Executive Officer without disruption to our business, the effectiveness of our sales team and approach, our ability to target, analyze and forecast the revenue to be derived from a client and the costs associated with providing services to that client, the date during the course of a calendar year that a new client is acquired, the length of the integration cycle for new clients and the timing of revenues and costs associated therewith, our ability to expand our channel hosted contract solution and drive adoption of this solution by resellers, potential competition in the marketplace, the ability to retain and attract employees, market acceptance of our service programs and pricing options, our ability to maintain our existing technology platform and to deploy new technology, our ability to sign new clients and control expenses, the financial condition of our clients' businesses, and other factors detailed in the Company's filings with the Securities and Exchange Commission ("SEC"), including our filings on Forms 10-K and 10-Q.

- Financial tables to follow -

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Current assets:

June 30, 2013 December 31, 2012

Cash and cash equivalents $ 4,970 $ 4,494
Restricted cash 38 52

Accounts receivable, net 3,548 3,720
Prepaid expenses and other current assets 949 1,292

Total current assets 9,505 9,558
Property and equipment, net 2,483 2,455

Goodwill 5,245 5,337
Other non-current assets 502 416
Total assets $ 17,735 $ 17,766
Current liabilities:

Accounts payable $ 7,887 $ 7,159
Accrued compensation and benefits 965 425

Other accrued liabilities 2,880 3,142
Deferred revenue 1,005 2,311

Current portion of notes payable 2,540 2,727
Total current liabilities 15,277 15,764

Deferred tax liability 595 567
Long-term deferred revenue 1,230 44

Common stock warrant liability 134 348
Notes payable, less current portion 1,200 1,800

Total liabilities 18,436 18,523
Commitments and contingencies

Stockholders' deficit:
Preferred stock, $0.001 par value; 5,000 shares authorized, none issued and outstanding
- -
Common stock, $0.001 par value; 50,000 shares authorized; 44,472 shares issued and 42,139 shares outstanding at June 30, 2013, and 30,454 shares issued and 28,428 shares

outstanding at December 31, 2012 41 27
Additional paid-in capital 137,053 130,402

Accumulated deficit (134,523) (128,198) Accumulated other comprehensive loss (434) (261)

Treasury stock, at cost, 2,204 shares at June 30, 2013 and 2,026 shares at December 31,

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Three Months Ended Six Months Ended

June 30, June 30,

2013 2012 2013 2012

Net revenue $ 4,730 $ 6,895 $ 9,386 $ 13,296

Cost of services 3,068 3,882 6,103 7,507
Gross profit 1,662 3,013 3,283 5,789

Operating expenses:
Sales and marketing 852 505 1,517 1,045

Technology and development 1,472 1,530 2,594 3,119
General and administrative 1,771 1,384 4,751 2,752

Depreciation and amortization 439 402 845 806
Total operating expenses 4,534 3,821 9,707 7,722

Operating loss (2,872) (808) (6,424) (1,933) Gain due to change in fair value of warrant liability 11 (15) (214) (22) Interest and other expense, net 53 43 146 71

Loss before income tax expense (2,936) (836) (6,356) (1,982) Income tax expense 25 65 55 118

Net loss from continuing operations (2,961) (901) (6,411) (2,100) Net income (loss) from discontinued operations (69) $ (1,710) 87 (1,986)
Net loss $ (3,030) $ (2,611) $ (6,324) $ (4,086)
Foreign currency translation adjustments (86) (110) (172) (109)

Comprehensive loss $ (3,116) $ (2,721) $ (6,496) $ (4,195)

Basic and diluted net income (loss) per per share:
Net loss from continuing operations $ (0.08) $ (0.03) $ (0.19) $ (0.08) Net income (loss) from discontinued operations $ - $ (0.07) $ - $ (0.07)

Weighted average common shares:

Basic and diluted 39,124 27,049 32,964 26,929

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Six Months Ended

June 30,

2013 2012

Net loss $ (6,324) $ (4,086) Adjustment for income (loss) from discontinued operations, net of tax (87) 1,986
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment 845 749
Gain due to change in fair value of warrant liability (214) (22)
Provision (credit) for allowances for doubtful accounts 13 (30)

Changes in operating assets and liabilities:
Accounts receivable 151 (647) Prepaid expenses and other assets (27) (329)

Accrued compensation and benefits 512 164
Other accrued liabilities (284) (166) Income tax payable 23 40

Deferred revenue (120) (646) Net cash used in continuing operations (3,290) (45) Net cash provided by (used in) discontinued operations 87 (410) Net cash used in operating activities (3,203) (455)

Purchases of property and equipment (873) (553)

Proceeds from borrowings 200 4,493

Repayment of borrowings (987) (3,926) Repayment of acquisition earnout - (113) Net proceeds from overdraft facility - (381) Tax payments in connection with treasury stock surrendered (111) (191) Net cash provided by (used in) continuing operations 4,636 (118)

Net cash used in discontinued operations - (680) Net cash provided by (used in) financing activities 4,636 (798)
Effect of exchange rate changes on cash (98) 96

Net increase (decrease) in cash and cash equivalents 476 (2,458) Cash and cash equivalents at beginning of year 4,494 8,490

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