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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under Part I Item 1A – “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2013
, as filed with the SEC on April 1, 2014, that may cause our, or our industry’s, actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activities, performance or achievements expressed in or implied by such forward-looking statements.
Important factors which could cause actual results to differ materially from those in the forward-looking statements include:
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our ability to raise additional equity or debt financing,
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our ability to restructure our debt,
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our ability to execute our business strategy,
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our client concentration given that we are currently dependent on a few significant client relationships,
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the possibility of the discontinuation of some client relationships,
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market acceptance of our solutions and pricing options,
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our ability to acquire new clients and increase demand,
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our ability to control costs,
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general market conditions,
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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,
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the high degree of uncertainty and our limited visibility due to economic conditions,
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the effectiveness of our sales team and approach, our ability to target, analyze and forecast the revenue to be derived from a client and the costs associated with providing services to that client,
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the date during the course of a calendar year that a new client is acquired,
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the length of the integration cycle for new clients and the timing of revenues and costs associated therewith,
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potential competition in the marketplace,
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the ability to retain and attract employees and board members,
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our ability to maintain and develop our existing technology platform and to deploy new technology,
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the financial condition of our clients’ businesses,
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the protection of our intellectual property,
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our ability to integrate domestic and/or foreign acquisitions without disruption to our business,
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we may be subject to additional obligations to collect and remit sales tax and successful action by state, foreign or other authorities to collect additional sales tax could adversely harm our business,
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and other factors as detailed in in Part I Item 1A - “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the SEC on April 1, 2014.
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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We assume no obligation to update such forward-looking statements publicly for any reason even if new information becomes available in the future, except as may be required by law.
Overview
Rainmaker 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 ("SMB"). 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.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. Although actual results have historically been reasonably consistent with management’s expectations, future results may differ from these estimates or our estimates may be affected by different assumptions or conditions.
Management has discussed the development of our critical accounting policies with the audit committee of the board of directors and they have reviewed the disclosures of such policies and management’s estimates in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
With the establishment of our Canadian foreign subsidiary and the subsequent purchase of Canadian based assets in 2007, we adopted a policy for recording foreign currency transactions and translation in accordance with FASB ASC 830,
Foreign Currency Matters.
For our Canadian subsidiary, the functional currency has been determined to be the local currency, and therefore, assets and liabilities are translated at period-end exchange rates, and statement of operations items are translated at an average exchange rate prevailing during the period. Such translation adjustments are recorded in accumulated comprehensive loss, a component of stockholders’ equity, and in the consolidated statements of operations and comprehensive loss. In January of 2009, we established our Rainmaker Europe subsidiary in the United Kingdom. We adopted the policy mentioned above for recording foreign currency transactions and translations for this subsidiary as the functional currency has been determined to be the local currency (Great Britain Pound) for the UK-based subsidiary. For continuing operations, gains and losses from foreign currency denominated transactions are included in interest and other expense, net, in the consolidated statements of operations.
Management believes there have been no significant changes during the
six
months ended
June 30, 2014
to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2013
, as filed with the SEC on April 1, 2014.
Results of Operations
The following table sets forth for the periods given selected financial data as a percentage of our net revenue. The table and discussion below should be read in connection with the financial statements and the notes thereto which appear elsewhere in this report as well as with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2013
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Three Months Ended June 30,
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Six Months Ended June 30,
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2014
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2013
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2014
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2013
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Net revenue
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100.0
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%
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100.0
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%
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100.0
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%
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100.0
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%
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Cost of services
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94.5
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67.7
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85.9
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67.3
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Gross margin
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5.5
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%
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32.3
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%
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14.1
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%
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32.7
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%
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Operating expenses:
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Sales and marketing
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28.1
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18.0
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25.0
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16.2
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Technology and development
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26.9
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28.3
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24.0
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25.4
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General and administrative
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23.6
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37.4
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25.9
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50.6
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Depreciation and amortization
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2.7
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9.3
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2.3
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9.0
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Total operating expenses
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81.3
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%
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93.0
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%
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77.2
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%
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101.2
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%
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Operating loss
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(75.8
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(60.7
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(63.1
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(68.5
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)
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Gain due to change in fair value of warrant liability
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—
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0.2
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(0.2
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(2.3
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)
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Interest and other expense, net
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5.4
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1.1
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3.7
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1.6
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Loss before income tax expense
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(81.2
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)%
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(62.0
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)%
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(66.6
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)%
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(67.8
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)%
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Income tax expense
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0.2
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0.5
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0.5
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0.6
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Net loss from continuing operations
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(81.4
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)%
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(62.5
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)%
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(67.1
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)%
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(68.4
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)%
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Income from discontinued operations, net of tax
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—
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(1.5
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)
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—
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0.9
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Net loss
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(81.4
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)%
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(64.0
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)%
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(67.1
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)%
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(67.5
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)%
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Foreign currency translation adjustments
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(0.8
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(1.8
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(0.5
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(1.8
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Comprehensive loss
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(82.2
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)%
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(65.8
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)%
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(67.6
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)%
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(69.3
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)%
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Comparison of Three Months Ended
June 30, 2014
and
2013
Net Revenue
. Net revenue
decreased
$1.6 million
, or
34%
, to
$3.1 million
in the three months ended
June 30, 2014
, as compared to
$4.7 million
for the three months ended
June 30, 2013
primarily due to the elimination of non-strategic client programs and the loss of clients through acquisition or contract termination or expiration totaling $2.2 million, lower revenue due to the expiration of the Symantec contracts as of March 31, 2014 of $1.0 million and lower revenue related to the ViewCentral business of $154,000 offset by growth from existing and new customers of $1.7 million. Microsoft contracts representing $1.1 million of net revenue for the three months ended June 30, 2014 expired on June 30, 2014.
Cost of Services and Gross Margin.
Cost of services
decreased
$240,000
, or
8%
, to
$3.0 million
in the three months ended
June 30, 2014
, as compared to
$3.2 million
in the
2013
comparative period primarily due to lower revenue as described above. Our gross margin percentages were
5%
and
32%
, respectively, in the three months ended
June 30, 2014
and
2013
. The erosion in gross margin is due to declines in our higher margin GrowCommerce business with the the expiration of the Symantec contracts and decrease in the ViewCentral business.
Sales and Marketing Expenses
. Sales and marketing expenses
increased
$27,000
, or
3%
, to
$879,000
in the three months ended
June 30, 2014
, as compared to
$852,000
in the
2013
comparative period. The increase was primarily attributable to higher compensation expense of $58,000 and an increase in lead development activities of $39,000 offset by lower variable compensation expense of $72,000.
Technology and Development Expenses.
Technology and development expenses
decreased
$498,000
, or
37%
, to
$842,000
during the three months ended
June 30, 2014
, as compared to
$1.3 million
in the
2013
comparative period. The decrease was primarily attributable to a decrease in compensation expense of $492,000, lower recruiting fees of $51,000, lower stock compensation expense of $51,000 and lower maintenance expense of $58,000.
General and Administrative Expenses
. General and administrative expenses
decreased
$1.0 million
, or
58%
, to
$739,000
during the three months ended
June 30, 2014
, as compared to
$1.8 million
in the
2013
comparative period. The decrease was primarily due to lower compensation expense of $91,000 , lower variable compensation expense of $116,000, lower audit and legal fees of $589,000, lower investor relations cost of $95,000, lower board compensation expense of $89,000 and the charge recorded in the three months ended June 30, 2013 for the closure of the Austin, Texas facility of $150,000 offset by an increase in bank fees related to default fees on notes payable of $35,000 and higher software expense of $33,000.
Depreciation and Amortization Expenses
. Depreciation and amortization expenses
decreased
$355,000
, or
81%
, to
$84,000
for the three months ended
June 30, 2014
, as compared to
$439,000
in the
2013
comparative period. The decrease in depreciation and amortization expense was due to a lower asset base from the impairment charge on long-lived assets taken in the year ended December 31, 2013 of $2.3 million.
Interest and Other Expense, Net.
The components of interest and other expense, net, are as follows (in thousands):
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Three Months Ended June 30,
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Change
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2014
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2013
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Interest expense, net
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$
|
162
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$
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54
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$
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108
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Currency translation loss
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(3
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)
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(1
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)
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(2
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)
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Other
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11
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—
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11
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Total
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$
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170
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$
|
53
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$
|
117
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|
Income Tax Expense.
Income tax expense was
$6,000
for the three months ended
June 30, 2014
as compared to
$25,000
for the three months ended
June 30, 2013
. Our income tax expense for the three months ended
June 30, 2014
was based on our estimate of taxable income for the full year ending
December 31, 2014
, and primarily consists of estimates of foreign taxes and domestic gross margin taxes for certain states.
Loss from Discontinued Operations, Net of Tax.
Loss from discontinued operations for the three months ended
June 30, 2013
of
$69,000
is attributable to an adjustment to the sales price pursuant to the stock purchase agreement for the sale of the Company's Manila operations in December 2012.
Comparison of Six Months Ended
June 30, 2014
and
2013
Net Revenue
. Net revenue
decreased
$2.1 million
, or
23%
, to
$7.3 million
in the six months ended
June 30, 2014
, as compared to
$9.4 million
for the six months ended
June 30, 2013
primarily due to the elimination of non-strategic client programs and the loss of clients through acquisition or contract termination or expiration totaling $4.9 million, lower GrowCommerce platform volume of $825,000 and lower revenue related to the ViewCentral business of $368,000 offset by growth from existing and new customers of $3.9 million. Microsoft contracts representing $2.8 million of net revenue for the six months ended June 30, 2014 expired on June 30, 2014. Symantec contracts representing $925,000 of net revenue in the six months ended
June 30, 2014
expired on March 31, 2014.
Cost of Services and Gross Margin.
Cost of services
decreased
$82,000
, or
1%
, to
$6.2 million
in the six months ended
June 30, 2014
, as compared to
$6.3 million
for the six months ended
June 30, 2013
. Our gross margin percentages were
14%
and
33%
, respectively, in the six months ended
June 30, 2014
and
2013
. The erosion in gross margin is due to declines in our higher margin GrowCommerce business and ViewCentral business and lower margin on the telesales business.
Sales and Marketing Expenses
. Sales and marketing expenses
increased
$298,000
, or
20%
, to
$1.8 million
in the six months ended
June 30, 2014
, as compared to
$1.5 million
in the
2013
comparative period. The change was primarily attributable to an increase in sales and marketing staff compensation expense of $289,000 and higher outside services for public relations and marketing services of $80,000 offset by lower stock compensation expense of $84,000 and lower recruiting fees of $72,000.
Technology and Development Expenses.
Technology and development expenses
decreased
$641,000
, or
27%
, to
$1.7 million
during the six months ended
June 30, 2014
, as compared to
$2.4 million
in the
2013
comparative period. The decrease was primarily attributable to a decrease in compensation expense of $847,000 and lower stock compensation expense of $65,000 offset by higher consulting and temporary services of $96,000 and higher software expense of $53,000.
General and Administrative Expenses
. General and administrative expenses
decreased
$2.9 million
, or
60%
, to
$1.9 million
during the six months ended
June 30, 2014
, as compared to
$4.8 million
in the
2013
comparative period. The decrease was primarily due to non-recurring expenses recorded in the six months ended June 30, 2013 of $1.4 million comprised of $345,000 for relocation of the finance function from the Austin, Texas facility to our Campbell, California facility, a charge of $150,000 to close the Austin facility, $280,000 impairment charge against vendor deposits and $582,000 related to stock compensation expense for restricted stock awards which were fully vested upon grant and acceleration of vesting of restricted stock awards for a former CFO. In the six months ended
June 30, 2014
, we recorded lower legal and audit expense of $1.0 million, and lower variable compensation expense of $228,000, lower board compensation expense of $128,000, lower investor relations expense of $88,000 and lower stock compensation expense of $157,000.
Depreciation and Amortization Expenses
. Depreciation and amortization expenses
decreased
$677,000
, or
80%
, to
$168,000
for the six months ended
June 30, 2014
, as compared to
$845,000
in the
2013
comparative period. The decrease in depreciation and amortization expense was due to a lower asset base from the impairment charge on long-lived assets taken in the year ended December 31, 2013 of $2.3 million.
Interest and Other Expense, Net.
The components of interest and other expense, net, are as follows (in thousands):
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Six Months Ended June 30,
|
|
Change
|
|
|
2014
|
|
2013
|
|
|
Interest expense, net
|
$
|
241
|
|
|
$
|
109
|
|
|
$
|
132
|
|
|
Currency translation loss
|
5
|
|
|
1
|
|
|
4
|
|
|
Other
|
22
|
|
|
36
|
|
|
(14
|
)
|
|
Total
|
$
|
268
|
|
|
$
|
146
|
|
|
$
|
122
|
|
Income Tax Expense.
Income tax expense was
$33,000
for the six months ended
June 30, 2014
as compared to
$55,000
for the six months ended
June 30, 2013
. Our income tax expense for the six months ended
June 30, 2014
was based on our estimate of taxable income for the full year ending
December 31, 2014
, and primarily consists of estimates of foreign taxes and domestic gross margin taxes for certain states.
Income from Discontinued Operations, Net of Tax.
Income from discontinued operations for the six months ended
June 30, 2013
of $87,000 is a result of the winddown of a contract that was assigned to Shore Solutions, Inc. as part of the sale of our Manila operations in December 2012 offset by an adjustment to the sales price pursuant to the stock purchase agreement for that sale.
Liquidity and Sources of Capital
Cash used in operating activities for the
six
months ended
June 30, 2014
was
$128,000
, as compared to cash used in operating activities of
$3.2 million
in the
six
months ended
June 30, 2013
. Cash used in operating activities in the
six
months ended
June 30, 2014
was primarily the result of the net loss of
$4.9 million
, offset by non-cash expenses for depreciation of property of
$168,000
, stock-based compensation expenses of
$247,000
and changes in operating assets and liabilities that provided cash of
$4.2 million
as a result of collecting receivables and extending accounts payable.
Cash used in operating activities for the
six
months ended
June 30, 2013
was
$3.2 million
, primarily as a result of the net loss from continuing operations of
$6.3 million
, offset by non-cash expenses for depreciation of property of
$845,000
and stock-based compensation expenses of
$1.1 million
, a charge for impairment related to vendor deposits of
$280,000
, changes in operating assets and liabilities that provided cash of
$1.1 million
, primarily as a result of the reduction of accounts receivable and managing working capital, and cash provided by discontinued operations of
$87,000
.
Cash used in investing activities was
$540,000
in the
six
months ended
June 30, 2014
, as compared to cash used in investing activities of
$859,000
in the
six
months ended
June 30, 2013
. Cash used in investing activities in the
six
months ended
June 30, 2014
was a result of capital expenditures of
$540,000
. Cash used in investing activities in the
six
months ended
June 30, 2013
was primarily the result of capital expenditures of
$873,000
and an increase in restricted cash of
$14,000
related to misdirected cash receipts to be refunded.
Cash used in financing activities was approximately
$2.4 million
in the
six
months ended
June 30, 2014
, as compared to cash provided by financing activities of
$4.6 million
in the
six
months ended
June 30, 2013
. Cash used in financing activities in the
six
months ended
June 30, 2014
was primarily a result of repayment of borrowings of
$2.0 million
under our Term Loan and Revolving Line with Comerica Bank,
$103,000
under our line of credit with Agility Capital II, LLC and
$208,000
under the insurance note payable to First Insurance Funding Corp and the funding of a restricted cash account of
$58,000
to secure a standby letter of credit with Comerica Bank. Cash provided by financing activities in the
six
months ended
June 30, 2013
was primarily the result of net proceeds of
$5.5 million
from the sale of common stock, repayment of borrowings of
$987,000
under our Term Loan and Revolving Line with Comerica Bank and purchases of
$111,000
of treasury stock from employees for shares withheld for income tax payable on restricted stock awards vested during the
six
months ended
June 30, 2013
, offset by borrowings of
$200,000
under our Revolving Line with Comerica Bank.
At
June 30, 2014
, the Company had a net working capital deficit of
$19.3 million
. Our principal source of liquidity as of
June 30, 2014
consisted of
$568,000
of cash and cash equivalents and
$1.8 million
of net accounts receivable. Notes payable due as of
June 30, 2014
was
$1.4 million
, of which
$1.0 million
was due to Comerica Bank and
$432,000
was due to Agility Capital II, LLC. On July 15, 2014, the Company raised $2.6 million in debt financing and used a portion of the net proceeds from the financing to repay its outstanding indebtedness owing to Comerica Bank and Agility Capital II, LLC. See below under "Credit Arrangements" for further discussion of our debt agreements. Our accounts payable balance increased from
$13.0 million
as of December 31, 2013 to
$15.6 million
as of
June 30, 2014
.
$12.9 million
of the
June 30, 2014
accounts payable balance is related to a merchant account of a customer.
In order to meet our operating requirements, we will need to raise additional capital from outside third parties or from the sale of assets and restructure our obligations. 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 assets or restructuring our obligations. 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.
In addition to the liquidity issues noted above, some key vendors of the Company have either formally or informally, via phone, email, mail, or a combination of one or more of these methods, given the Company a notice of material breach for non-payment, and have informed us of their rights under the various service agreements to which we entered. Their rights include the suspension or cancellation of service and a demand for immediate payment, among other remedies. The Company is in communications with these vendors and in some cases has worked out extended payment terms. There is no guarantee that the Company will be able to reach agreements with all vendors or that it will in all future circumstances be able to fulfill the terms of all extended payment terms, which could have a significant negative impact on our operations and financial position. Our revenue generation is dependent on the ability of the Company to continue to (1) avoid the cancellation of key vendor services (2) raise money through the sale of assets or the addition of new debt or equity to pay down and pay off key vendors and (3) meet the terms of existing and future payment plans. The failure to accomplish these goals could seriously impact our operations and financial position.
Credit Arrangements
On July 15, 2014, the Company entered into a Purchase Agreement with certain investors pursuant to which the Company agreed to issue units each consisting of (i) a secured convertible promissory note in the face amount of $1.00 (the “Convertible Notes”), (ii) a supplemental secured promissory note in the face amount of $0.50 (the “Supplemental Notes”) and (iii) warrants to purchase up to four shares of the Company’s common stock (the “Warrants”) (collectively, the “Financing Transaction”).
On July 15, 2014, the Company completed an initial closing of the Financing Transaction for the sale of 2,550,000 units, representing gross proceeds to the Company of
$2.6 million
and net proceeds of approximately
$2.3 million
after deducting fees and estimated expenses payable by the Company. On August 12, 2014, the Company completed a secondary closing of the Financing Transaction for the sale of
450,000
units, representing gross proceeds to the Company of
$450,000
and net proceeds of approximately
$415,000
. The Company used a portion of the net proceeds from the Financing Transaction to repay its outstanding indebtedness owing to Comerica Bank and Agility Capital II, LLC and intends to use the balance of the net proceeds for general corporate purposes, including working capital.
The Convertible Notes of
$3.0 million
will mature on July 15, 2019 and will accrue interest at a fixed rate of 8.0% per annum payable quarterly. Interest accrued from date of issuance through June 30, 2015 will be paid in kind and added to the principal amount of the Convertible Notes quarterly. Subject to stockholder approval of an increase in the number of authorized shares of the Company’s common stock in an amount sufficient to permit full conversion of the Convertible Notes, the Convertible Notes will be convertible into shares of the Company’s common stock at a conversion rate of $0.25 per share. The Convertible Notes also contain provisions that protect the holders thereof against dilution by adjustment of the conversion rate in certain events such as stock dividends, stock splits and other similar events and certain issuances of common stock by the Company at a price per share less than the conversion rate then in effect.
The Supplemental Notes of
$1.5 million
will mature on July 15, 2019 and will accrue interest at a fixed rate of 8.0% per annum payable at maturity. However, the Supplemental Notes can be canceled two years after if certain insolvency related events have been remediated.
The Convertible Notes and Supplemental Notes are secured by substantially all of the Company’s consolidated assets. The Convertible Notes and Supplemental Notes contain covenants that will, subject to limited exceptions, require the approval of the holders of a majority of the outstanding principal amount thereof to, among other things, (i) incur other indebtedness; (ii) create liens; (iii) pay cash dividends; and (iv) merge or consolidate with another company. Additionally, the Purchase Agreement requires the Company to implement certain changes in its senior management. The Convertible Notes and Supplemental Notes also provide for customary events of default, including nonpayment, breach of covenants, material adverse events, payment defaults of other indebtedness and certain events of bankruptcy, insolvency and reorganization that may result in acceleration of outstanding amounts under the Convertible Notes and Supplemental Notes. If we are not able to comply with such covenants or if any event of default otherwise occurs, our outstanding note balances could become due and payable immediately.
In connnection with the Financing Transaction, the Company issued
12,000,000
Warrants which have an initial 10-year term. Subject to stockholder approval of an increase in the number of authorized shares of the Company’s common stock in an amount sufficient to permit full exercise of the Warrants, the Warrants will be exercisable into shares of the Company’s common stock at an initial exercise price of $0.08 per share. The Warrants may also 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 and issuances of common stock at a price per share less than the exercise price then in effect.
On June 14, 2012, the Company entered into a Loan and Security Agreement with Comerica Bank (the "Comerica Credit Facility"). 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. The outstanding amount under the Term Loan was repaid by the Company in June 2014, and as of June 30, 2014, the outstanding amount of the Term Loan was zero. Amounts borrowed under the Revolving Line became due on December 14, 2013, which was subsequently extended to May 1, 2014. As of
June 30, 2014
, there was
$1.0 million
outstanding under the Revolving Line. The outstanding amount under the Revolving Line was repaid by the Company on July 15, 2014 and the Comerica Credit Facility was terminated. However, Comerica continues to maintain a cash-secured letter of credit in the face amount of
$61,000
issued to our landlord for our leased headquarters in Campbell, California.
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 could be increased to
$650,000
under certain conditions (the “Maximum Revolving Line”). The Agility Loan Agreement became due on December 14, 2013, commensurate with the Comerica Credit Facility, which was subsequently extended to May 1, 2014, commensurate with the extension of the scheduled maturity date of the Comerica Revolving Line. As of
June 30, 2014
, there was
$432,000
outstanding under the Agility Loan Agreement. The outstanding amount under the Agility Loan Agreement was repaid by the Company on July 15, 2014, and the Agility Loan Agreement was terminated.
Off-Balance Sheet Arrangements
As of
June 30, 2014
and
December 31, 2013
, we had no off-balance sheet arrangements or obligations as defined under SEC rules and regulations.
Potential Impact of Inflation
To date, inflation has not had a material impact on our business.
Recent Accounting Standards
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers: Topic
606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements.