Company Quick10K Filing
Quick10K
Rimini Street
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$5.03 65 $328
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
8-K 2019-08-08 Earnings, Regulation FD, Exhibits
8-K 2019-06-20 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-06-06 Shareholder Vote
8-K 2019-05-09 Earnings, Regulation FD, Exhibits
8-K 2019-03-19 Regulation FD, Exhibits
8-K 2019-03-14 Earnings, Regulation FD, Earnings, Exhibits
8-K 2019-03-08 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-11-09 Officers
8-K 2018-11-08 Earnings, Regulation FD, Earnings, Exhibits
8-K 2018-09-27 Regulation FD, Other Events, Exhibits
8-K 2018-09-12 Other Events
8-K 2018-09-05 Regulation FD, Exhibits
8-K 2018-08-22 Other Events, Exhibits
8-K 2018-08-14 Other Events, Exhibits
8-K 2018-08-09 Earnings, Regulation FD, Earnings, Exhibits
8-K 2018-07-19 Enter Agreement, Leave Agreement, Off-BS Arrangement, Sale of Shares, Shareholder Rights, Amend Bylaw, Other Events, Exhibits
8-K 2018-07-12 Shareholder Vote
8-K 2018-06-25 Other Events, Exhibits
8-K 2018-06-18 Enter Agreement, Sale of Shares, Other Events, Exhibits
8-K 2018-06-07 Shareholder Vote, Exhibits
8-K 2018-05-15 Regulation FD, Exhibits
8-K 2018-03-02 Other Events, Exhibits
8-K 2018-01-24 Other Events, Exhibits
8-K 2018-01-16 Regulation FD, Other Events, Exhibits
8-K 2018-01-08 Other Events, Exhibits
HRL Hormel Foods 21,160
CHD Church & Dwight 17,890
OC Owens Corning 5,450
TFSL TFS Financial 4,810
CVA Covanta Holding 2,320
INBK First Internet Bancorp 223
DAIO Data I/O 38
ODYY Odyssey Group 0
WCRS Western Capital Resources 0
ULNV Porter Holding International 0
RMNI 2019-06-30
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Nature of Business and Basis of Presentation
Note 2 - Liquidity and Significant Accounting Policies
Note 3 - Other Financial Information
Note 4 - Debt
Note 5 - Redeemable Series A Preferred Stock
Note 6-Restricted Stock Units, Stock Options and Warrants
Note 7 - Income Taxes
Note 8 - Commitments and Contingencies
Note 9 - Related Party Transactions
Note 10 -Earnings (Loss) per Share
Note 11 - Financial Instruments and Significant Concentrations
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 exhibit311q22019.htm
EX-31.2 exhibit312q22019.htm
EX-32.1 exhibit321q22019.htm
EX-32.2 exhibit322q22019.htm

Rimini Street Earnings 2019-06-30

RMNI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 rmniq22019-10q.htm 10-Q Document



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2019
o
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: 001-37397
Rimini Street, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
36-4880301
(State or other jurisdiction of incorporation or
organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3993 Howard Hughes Parkway, Suite 500,
Las Vegas, NV
 
89169
(Address of principal executive offices)
 
(Zip Code)
 
 
 
Registrant's telephone number, including area code:
 
(702) 839-9671
Not Applicable
(Former name or former address, if changed since last report) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Trading Symbol(s)
Name of each exchange on which registered:
 
 
 
 
Common Stock, par value $0.0001 per share
 
RMNI
The Nasdaq Global Market
 
 
 
 
Public Units, each consisting of one share of Common
Stock, $0.0001 par value, and one-half of one Warrant
 
RMNIU
 OTC Pink Current Information Marketplace
 
 
 
 
Warrants, exercisable for one share of Common Stock, $0.0001 par value
 
RMNIW
OTC Pink Current Information Marketplace

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 þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes þ No ¨







Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer þ
Non-accelerated filer ¨
Smaller reporting company ¨
 
Emerging growth company þ
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ¨ 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        
Yes ¨ No þ
The registrant had approximately 66,533,000 shares of its $0.0001 par value common stock outstanding as of August 6, 2019. 
 







RIMINI STREET, INC.
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
Unaudited Condensed Consolidated Balance Sheets
 
 
 
 
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
 
 
 
 
Unaudited Condensed Consolidated Statements of Stockholders' Deficit
 
 
 
 
Unaudited Condensed Consolidated Statements of Cash Flows
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1




PART I - FINANCIAL INFORMATION
 
ITEM 1. Financial Statements.
 
RIMINI STREET, INC. 
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except per share amounts) 
 
June 30,
 
December 31,
 
2019
 
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
49,847

 
$
24,771

Restricted cash
436

 
435

Accounts receivable, net of allowance of $503 and $489, respectively
71,423

 
80,599

Prepaid expenses and other
11,470

 
7,099

Total current assets
133,176

 
112,904

Long-term assets:
 
 
 
Property and equipment, net of accumulated depreciation and amortization of $9,525 and $8,543, respectively
3,793

 
3,634

Deposits and other
1,769

 
1,438

Deferred income taxes, net
987

 
909

Total assets
$
139,725

 
$
118,885

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$

 
$
2,372

Accounts payable
3,509

 
12,851

Accrued compensation, benefits and commissions
21,860

 
22,503

Other accrued liabilities
21,700

 
20,424

Deferred revenue
190,914

 
180,358

Total current liabilities
237,983

 
238,508

Long-term liabilities:
 
 
 
Deferred revenue
28,637

 
28,898

Accrued PIK dividends payable
1,115

 
1,056

Other long-term liabilities
2,181

 
2,011

Total liabilities
269,916

 
270,473

Commitments and contingencies (Note 8)


 


Redeemable Series A Preferred Stock:
 
 
 
Authorized 180 shares; issued and outstanding 153 shares and 141 shares as of June 30, 2019 and December 31, 2018, respectively. Liquidation preference of $152,967, net of discount for $26,955 and $140,846, net of discount for $26,848, as of June 30, 2019 and December 31, 2018, respectively.
126,012

 
113,998

Stockholders’ deficit:
 
 
 
Preferred stock; $0.0001 par value. Authorized 99,820 shares (excluding 180 shares of Series A Preferred Stock); no other series has been designated

 

Common stock; $0.0001 par value. Authorized 1,000,000 shares; issued and outstanding 66,387 and 64,193 shares as of June 30, 2019 and December 31, 2018, respectively
7

 
6

Additional paid-in capital
101,887

 
108,347

Accumulated other comprehensive loss
(1,636
)
 
(1,567
)
Accumulated deficit
(356,461
)
 
(372,372
)
Total stockholders' deficit
(256,203
)
 
(265,586
)
Total liabilities, redeemable preferred stock and stockholders' deficit
$
139,725

 
$
118,885

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2




RIMINI STREET, INC. 
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share amounts) 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
67,956

 
$
62,649

 
$
134,216

 
$
122,454

Cost of revenue
25,034

 
26,084

 
48,871

 
49,625

Gross profit
42,922


36,565

 
85,345

 
72,829

Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
26,345

 
23,097

 
49,721

 
43,304

General and administrative
11,266

 
10,324

 
23,690

 
21,129

Litigation costs and related recoveries:
 
 
 
 
 
 
 
Professional fees and other defense costs of litigation
444

 
9,113

 
2,485

 
18,012

Litigation appeal refunds

 

 
(12,775
)
 
(21,285
)
Insurance costs and recoveries, net
(300
)
 

 
4,339

 
(7,583
)
 Litigation costs and related recoveries, net
144

 
9,113

 
(5,951
)
 
(10,856
)
Total operating expenses
37,755


42,534

 
67,460

 
53,577

Operating income (loss)
5,167

 
(5,969
)
 
17,885

 
19,252

Non-operating expenses:
 
 
 
 
 
 
 
Interest expense
(116
)
 
(9,323
)
 
(348
)
 
(22,732
)
Other debt financing expenses

 
(1,339
)
 

 
(9,956
)
Loss from change in fair value of embedded derivatives

 
(6,700
)
 

 
(6,200
)
Other expense, net
(343
)
 
(1,568
)
 
(300
)
 
(1,240
)
Income (loss) before income taxes
4,708


(24,899
)
 
17,237

 
(20,876
)
Income tax expense
(621
)
 
(547
)
 
(1,326
)
 
(1,063
)
Net income (loss)
4,087


(25,446
)
 
15,911

 
(21,939
)
Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation loss
(70
)
 
(315
)
 
(69
)
 
(352
)
Comprehensive income (loss)
$
4,017


$
(25,761
)
 
$
15,842

 
$
(22,291
)
 
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
(2,233
)
 
$
(25,446
)
 
$
2,906

 
$
(21,939
)
 
 
 
 
 
 
 
 
Net earnings (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
Basic
$
(0.03
)
 
$
(0.43
)
 
$
0.04

 
$
(0.37
)
Diluted
$
(0.03
)
 
$
(0.43
)
 
$
0.04

 
$
(0.37
)
Weighted average number of shares of Common Stock outstanding:
 
 
 
 
 
 
 
Basic
65,535

 
59,800

 
65,080

 
59,534

Diluted
65,535

 
59,800

 
69,202

 
59,534

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3




RIMINI STREET, INC.
Unaudited Condensed Consolidated Statements of Stockholders' Deficit
(In thousands) 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Common Stock, Shares
 
 
 
 
 
 
 
  Beginning of period
65,242

 
59,440

 
64,193

 
59,314

    Exercise of stock options for cash
1,018

 
565

 
1,685

 
691

    Restricted stock units vested
19

 

 
157

 

    Issuance of Common Stock in Private Placement, net
73

 

 
207

 

    Issuance of Common Stock
35

 

 
145

 

  End of period
66,387

 
60,005

 
66,387

 
60,005

 
 
 
 
 
 
 
 
Total Stockholders' Deficit, beginning of period
$
(256,652
)
 
$
(205,811
)
 
$
(265,586
)
 
$
(210,301
)
Common Stock, Amount
 
 
 
 
 
 
 
  Beginning of period
7

 
6

 
6

 
6

    Exercise of stock options for cash

 

 
1

 

    Restricted stock units vested

 

 

 

    Issuance of Common Stock in Private Placement, net

 

 

 

    Issuance of Common Stock

 

 

 

  End of period
7

 
6

 
7

 
6

Additional Paid-in Capital
 
 
 
 
 
 
 
  Beginning of period
105,455

 
95,987

 
108,347

 
94,967

    Stock based compensation expense
1,052

 
1,098

 
2,208

 
1,965

    Exercise of stock options for cash
1,186

 
578

 
1,968

 
731

    Restricted stock units vested

 

 

 

    Issuance of Common Stock in Private Placement, net
332

 

 
934

 

    Issuance of Common Stock
182

 

 
780

 

    Accretion of discount on Series A Preferred Stock
(1,449
)
 

 
(2,808
)
 

    Accrued dividends on Series Preferred Stock:
 
 
 
 
 
 
 
      Payable in cash
(3,747
)
 

 
(7,340
)
 

      Payable in kind
(1,124
)
 

 
(2,202
)
 

  End of period
101,887

 
97,663

 
101,887

 
97,663

Accumulated Other Comprehensive Loss
 
 
 
 
 
 
 
  Beginning of period
(1,566
)
 
(904
)
 
(1,567
)
 
(867
)
    Foreign currency loss
(70
)
 
(315
)
 
(69
)
 
(352
)
  End of period
(1,636
)
 
(1,219
)
 
(1,636
)
 
(1,219
)
Accumulated Deficit
 
 
 
 
 
 
 
  Beginning of period
(360,548
)
 
(300,900
)
 
(372,372
)
 
(304,407
)
    Net income (loss)
4,087

 
(25,446
)
 
15,911

 
(21,939
)
  End of period
(356,461
)
 
(326,346
)
 
(356,461
)
 
(326,346
)
Total Stockholders' Deficit, end of period
$
(256,203
)
 
$
(229,896
)
 
$
(256,203
)
 
$
(229,896
)


The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.




4






RIMINI STREET, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
 
Six Months Ended June 30,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
15,911

 
$
(21,939
)
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Accretion and amortization of debt discount and issuance costs
185

 
11,652

Write-off of debt discount and issuance costs

 
7,169

Gain from change in fair value of embedded derivatives

 
6,200

Stock-based compensation expense
2,208

 
1,965

Paid-in-kind interest expense

 
1,724

Depreciation and amortization
966

 
950

Deferred income taxes
(74
)
 
(249
)
Make-whole applicable premium included in interest expense

 
3,103

Other
141

 
704

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
9,225

 
(349
)
Prepaid expenses, deposits and other
(4,591
)
 
(600
)
Accounts payable
(9,364
)
 
737

Accrued compensation, benefits, commissions and other liabilities
150

 
4,392

Deferred insurance settlement

 
(8,033
)
Deferred revenue
10,228

 
19,765

Net cash provided by operating activities
24,985

 
27,191

CASH FLOWS USED IN INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(641
)
 
(493
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net proceeds from issuance of Series A Preferred Stock and Common Stock
9,110

 

Principal payments on borrowings
(2,555
)
 
(25,932
)
Payments for deferred offering and financing costs
(452
)
 
(1,681
)
Make-whole applicable premium related to prepayment of borrowings

 
(3,103
)
Payments of cash dividends on Series A Preferred Stock
(7,127
)
 

Principal payments on capital leases
(281
)
 
(342
)
Proceeds from exercise of employee stock options
1,969

 
731

Net cash provided by (used in) financing activities
664

 
(30,327
)
Effect of foreign currency translation changes
69

 
(911
)
Net change in cash, cash equivalents and restricted cash
25,077

 
(4,540
)
Cash, cash equivalents and restricted cash at beginning of period
25,206

 
40,027

Cash, cash equivalents and restricted cash at end of period
$
50,283

 
$
35,487

 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
 


5




RIMINI STREET, INC. 
Unaudited Condensed Consolidated Statements of Cash Flows, Continued
(In thousands)


 
Six Months Ended June 30,
 
2019
 
2018
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid for interest
$
183

 
$
10,316

Cash paid for income taxes
1,056

 
773

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Discount on shares issued in Private Placements:
 
 
 
  Fair value of 207 shares of Common Stock issued for no consideration regarding Private Placements
$
1,098

 
$

  Original issuance discount on Series A Preferred Stock
500

 

  Transaction costs
390

 

  Issuance of 120 shares of Common Stock for consent regarding Private Placement
638

 

Redeemable Series A Preferred Stock Dividends and Accretion:
 
 
 
  Accrued cash dividends
$
3,747

 
$

  Accrued PIK dividends
1,124

 

  Accretion of discount on Series A Preferred Stock
2,808

 

  Issuance of Series A Preferred Stock for PIK dividends
2,121

 

 
 
 
 
Adjustment for updated calculation of mandatory trigger event exit fees
$

 
$
3,952

Purchase of equipment under capital lease obligations
213

 
126

Increase in payables for:
 
 
 
  Deferred offering costs
$

 
$
1,514

  Capital expenditures
281

 
102



The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.



6


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION
 
Nature of Business
 
Rimini Street, Inc. (“the Company”) is a global provider of enterprise software support services. The Company’s subscription-based software support products and services offer enterprise software licensees a choice of solutions that replace or supplement the support products and services offered by enterprise software vendors. 

Basis of Presentation and Consolidation
 
The unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, are prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”). All significant intercompany balances and transactions have been eliminated. The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the unaudited condensed consolidated financial statements have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2018, included in the Company’s 2018 Annual Report on Form 10-K as filed with the SEC on March 14, 2019 (the “2018 Form 10-K”).
 
The accompanying condensed consolidated balance sheet and related disclosures as of December 31, 2018 have been derived from the Company’s audited financial statements. The Company’s financial condition as of June 30, 2019, and operating results for both the three and six months ended June 30, 2019 are not necessarily indicative of the financial condition and results of operations that may be expected for any future interim period or for the year ending December 31, 2019.
 
NOTE 2 — LIQUIDITY AND SIGNIFICANT ACCOUNTING POLICIES
 
Liquidity
 
As of June 30, 2019, the Company’s current liabilities exceeded its current assets by $104.8 million, and the Company earned net income of $4.1 million for the three months ended June 30, 2019. As of June 30, 2019, the Company had available cash, cash equivalents and restricted cash of $50.3 million. As of June 30, 2019, the Company's current liabilities included $190.9 million of deferred revenue whereby the historical costs of fulfilling the Company's commitments to provide services to its customers was approximately 37% of the related deferred revenue for the three months ended June 30, 2019.

As discussed in Note 5, the Company completed a third private placement on June 20, 2019, which provided additional net proceeds of $3.0 million from the sale of 3,500 shares of 13.00% Series A Redeemable Convertible Preferred Stock, par value $0.0001 per share (the Series A Preferred Stock) and 72,414 shares of Common Stock. On March 7, 2019, the Company had completed a second private placement, which provided additional net cash proceeds of $5.0 million from the sale of 6,500 shares of the Series A Preferred Stock and 134,483 shares of Common Stock. In 2018, the Company had previously refinanced and repaid its Credit Facility (defined below) on July 19, 2018 through aggregate cash payments of $132.8 million that resulted in the termination of the Credit Facility. These cash payments were funded from the Initial Private Placement (defined below) discussed in Note 5 that resulted in cash proceeds of $133.0 million from the sale of 140,000 shares of Series A Preferred Stock and approximately 2.9 million shares of Common Stock.

These refinancing arrangements are expected to improve the Company’s liquidity and capital resources whereby cash dividends are payable at 10.0% per annum that will result in quarterly cash dividends ranging from $3.7 million to $4.3 million over the initial 5-year period beginning on the issuance date assuming all shares of Series A Preferred Stock remain outstanding, and thereafter, if not previously redeemed or converted, cash dividends will be payable at 13.0% per annum.

Additionally, as discussed in Note 4, the Company repaid the $1.2 million note payable to GPIC, Ltd. (GP Sponsor) during the second quarter of 2019, and is obligated to make operating and capital lease payments that are due within the next 12 months in the aggregate amount of $6.1 million. The Company believes that current cash, cash equivalents, restricted cash, and future cash flow from operating activities will be sufficient to meet the Company’s anticipated cash needs, including cash

7


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



dividend requirements, working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of these financial statements.
 
Use of Estimates
 
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires the Company to make judgments, assumptions, and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. The Company bases its estimates and assumptions on current facts, historical experience, and various other factors that it believes are reasonable under the circumstances, to determine the carrying values of assets and liabilities that are not readily apparent from other sources. The Company’s significant accounting estimates include, but are not necessarily limited to, accounts receivable, valuation assumptions for stock options, deferred income taxes and the related valuation allowances, and the evaluation and measurement of contingencies. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future consolidated results of operation may be affected.
 
Recent Accounting Pronouncements
 
Recently Adopted Standards. The following accounting standards were adopted during the first quarter of fiscal year 2019:

In May 2017, the FASB issued ASU No. 2017-9, Compensation-Stock Compensation: Scope of Modification Accounting, which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This standard does not change the accounting for modifications of share-based payment awards but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. This standard did not have a material impact for the Company during the three and six months ended June 30, 2019.

In August 2018, the SEC adopted a final rule that extends the current annual requirement to disclose changes in stockholders’ equity to interim periods and also requires interim disclosure of dividends per share for each class of shares (including the Company’s Series A Preferred Stock). These disclosure provisions became effective beginning in the first quarter of 2019, whereby the Company is required to disclose changes in stockholders’ deficit for the current and comparative fiscal quarters as well as the current and comparative year-to-date periods presented in interim condensed consolidated financial statements. The Company has provided an unaudited condensed consolidated statement of stockholders' deficit for the three and six months ended June 30, 2019 and 2018.

The following accounting standards are not yet effective; Management has not completed its evaluation to determine the impact that adoption of these standards will have on the Company’s consolidated financial statements.
 
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition standards under U.S. GAAP. The new standard provides a five-step process for recognizing revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires expanded qualitative and quantitative disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new standard allows for two transition methods: (i) a full retrospective method applied to each prior reporting period presented, or (ii) a modified retrospective method applied with the cumulative effect of adoption recognized on adoption date. The Company currently intends to adopt this standard using the full retrospective method. Due to the Company’s emerging growth company status and certain elections made, the new standard is effective for the Company in fiscal year 2019. As an emerging growth company for interim reporting purposes, we can elect to initially apply the standard either in the year of adoption or in the subsequent year. The Company has elected to adopt the standard for interim reporting purposes beginning in the first quarter of fiscal 2020. As a result of this election, fiscal year 2019 interim periods will continue to be reported under legacy GAAP while full year 2019 results will be reported under the new standard.

We have made significant progress in our analysis of how the standard will impact our revenue, but we have not completed our evaluation and therefore the full impact upon adoption of this standard is not known and cannot be reasonably estimated. Based on our preliminary evaluation to date, we believe that the primary change will be the accelerated timing of revenue recognition for certain contracts due to the removal of the current limitation associated with revenue contingent upon the future delivery of support services. In addition, we expect to capitalize costs incurred to obtain new client contracts, which is primarily comprised of sales commissions. Such costs, which are expensed as

8


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



incurred under the current standard, will be capitalized and amortized over their estimated useful lives under the new standard. We will complete our evaluation during fiscal year 2019.

In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires organizations that lease assets (“lessees”) to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months. Under the new standard, both finance and operating leases will be required to be recognized on the balance sheet. Additional quantitative and qualitative disclosures, including significant judgments made by management, will also be required. The standard will be effective for the Company beginning in the first quarter of fiscal 2020. Early adoption is permitted, and the new standard was initially required to be adopted retrospectively to each prior reporting period presented upon initial adoption. However, in July 2018 the FASB issued ASU No. 2018-11 Targeted Improvements, which provides lessees the option to apply the new leasing standard to all open leases as of the adoption date by recognizing a cumulative-effect adjustment to accumulated deficit in the period of adoption without restating prior periods. The Company is still evaluating which transition approach will be implemented upon its adoption of ASU No. 2016-02.

NOTE 3 — OTHER FINANCIAL INFORMATION
  
Other Accrued Liabilities
 
As of June 30, 2019 and December 31, 2018, other accrued liabilities consist of the following (in thousands):
 
 
2019
 
2018
Accrued sales and other taxes
$
4,445

 
$
5,687

Accrued professional fees
6,557

 
7,035

Accrued dividends on Redeemable Series A Preferred Stock
3,756

 
3,521

Current maturities of capital lease obligations
278

 
387

Income taxes payable
802

 
767

Other accrued expenses
5,862

 
3,027

Total other accrued liabilities
$
21,700

 
$
20,424


Other accrued expenses includes amount due to an insurance company as a result of the U.S. Supreme Court decision, which is described in Note 8.

NOTE 4 — DEBT
 
Debt is presented net of debt discounts and issuance costs (“DDIC”) in the Company’s balance sheets. As of June 30, 2019 and December 31, 2018, the net carrying value and balance sheet classification of debt is summarized as follows (in thousands): 
 
2019
 
2018
Note payable to GP Sponsor, net of DDIC
$

 
$
2,372

Less current maturities

 
2,372

Long-term debt, net of current maturities
$

 
$

 
For purposes of classifying current maturities of long-term debt in the Company’s balance sheets, none of the discount is attributed to the current portion until the maturity date is less than one year from the balance sheet date. As discussed below, the Company has repaid the related party note payable to GP Sponsor during the second quarter of 2019. Also discussed below, the Company repaid in full and terminated its former Credit Facility on July 19, 2018.

Related Party Note Payable
 
Upon consummation of the merger with GP Investments Acquisition Corp. ("GPIA") in May 2017, an outstanding note payable to GP Sponsor with an initial face amount of approximately $3.0 million was assumed by the Company. This note was originally non-interest bearing and was not due and payable until the outstanding principal balance under the former Credit Facility was less than $95.0 million. At the inception of this note, the maturity date was expected to occur in June 2020 based on the scheduled principal payments under the Credit Facility. Interest was initially imputed under this note payable at the rate of 15.0% per annum. The net carrying value of this note payable was $2.1 million as of December 31, 2017, and the Company recognized

9


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



accretion expense of $0.2 million and $0.4 million for the three months and six months ended June 30, 2018, respectively. This note payable was amended twice in 2018 which resulted in further changes to the effective interest rate.

The second amendment to the loan agreement was effective on December 21, 2018, and provided for an extension of the maturity date from January 4, 2019 to June 28, 2019. In addition, the parties agreed that the note payable would retroactively bear interest at 13.0% per annum from July 19, 2018 through the maturity date. Total retroactive interest amounted to $0.2 million which is accounted for as DDIC that was being accreted through the maturity date. In addition, the second amendment provided for monthly principal payments starting in December 2018 of approximately $0.4 million plus accrued interest. In December 2018, the Company made a payment of $0.6 million, primarily consisting of payment of retroactive interest of $0.2 million and the first monthly principal payment of $0.4 million. The Company made principal and interest payments totaling $1.3 million and $2.7 million during the three months and six months ended June 30, 2019, respectively. The effective interest rate for accretion of DDIC was 26.4% for the period from December 21, 2018 through June 28, 2019. The note was paid off on June 28, 2019.

Former Credit Facility
 
Overview. In June 2016, the Company entered into a multi-draw term loan Financing Agreement (the “Credit Facility”) with a syndicate of lenders (the “Lenders”). The Credit Facility would have matured in June 2020 but was repaid and terminated in July 2018 as discussed below. The Credit Facility provided for an aggregate commitment of up to $125.0 million which consisted of an initial term loan for $30.0 million, a “delayed draw A Term Loan” for $65.0 million, and a “delayed draw B Term Loan” for $30.0 million. An origination fee equal to 5.0% of the $125.0 million commitment was paid in cash to the Lenders from the proceeds of the initial term loan. The Credit Facility provided for an Original Issue Discount (“OID”) of 2.0% of the initial face amount of borrowings. Origination fees and OID were accounted for as DDIC.

Borrowings under the Credit Facility were collateralized by substantially all assets of the Company, including certain cash depository accounts that were subject to control agreements with the Lenders.
 
Interest and Fees. The outstanding principal balance under the former Credit Facility provided for monthly interest payments at 15.0% per annum, consisting of 12.0% per annum that was payable in cash and 3.0% per annum that was payable through the issuance of additional borrowings beginning on the interest payment due date (referred to as paid-in-kind, or “PIK” interest). In addition, a make-whole applicable premium payment of approximately 15.0% per annum through June 2019 was required for certain principal prepayments as defined in the Credit Facility.

The Credit Facility provided for collateral monitoring fees at the rate of 2.5% of the outstanding principal balance during 2018 until the Credit Facility was terminated. The Credit Facility also required unused line fees of 5.0% per annum on the $17.5 million undrawn portion of the Credit Facility during 2018 until the termination date. All unused line fees and collateral monitoring fees were payable monthly in arrears and were recorded as a component of other debt financing expenses in the period incurred.
 
Accretion and Amortization. DDIC that relates to the entire Credit Facility was allocated pro rata between the funded and unfunded portions of the Credit Facility based on the relative amounts that were cumulatively borrowed versus the undrawn portion of the $125.0 million commitment. DDIC related to funded debt was accreted to interest expense using the effective interest method based on the aggregate principal obligations to the Lenders and consulting and Trigger Event exit fee obligations to one of the lenders that served as the origination agent (the “Origination Agent”). DDIC associated with unfunded debt was amortized using the straight-line method from the date incurred through the maturity date of the Credit Facility, which was included in other debt financing expenses in the accompanying unaudited condensed consolidated statements of operations and comprehensive loss.

Termination of the Credit Facility. In connection with the closing on July 19, 2018 of the Initial Private Placement discussed in Note 5, the Company used substantially all of the $133.0 million of gross proceeds from the Initial Private Placement (together with cash-on-hand) to repay all outstanding indebtedness and fees under the Credit Facility, and the Credit Facility was terminated. The aggregate cash payments to terminate the Credit Facility amounted to $132.8 million and consisted of the following (in thousands):


10


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Contractual principal and exit fees:
 
 
  Principal balance
 
$
102,576

  Mandatory trigger event exit fees
 
13,624

  Mandatory consulting
 
2,000

    Subtotal
 
118,200

Make-whole applicable premium
 
7,307

Amendment fees and related liabilities
 
6,250

Accrued interest and fees payable
 
1,073

    Total cash termination payments
 
$
132,830

 
 
Interest Expense
 
The components of interest expense are presented below (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Credit Facility:
 
 
 
 
 
 
 
Interest expense at 12.0%
$

 
$
3,156

 
$

 
$
6,882

PIK interest at 3.0%

 
793

 

 
1,724

Accretion expense for funded debt

 
5,181

 

 
10,599

Make-whole applicable premium

 

 

 
3,103

Accretion expense for GP Sponsor note payable
57

 
160

 
185

 
367

Interest on other borrowings
59

 
33

 
163

 
57

Total interest expense
$
116


$
9,323

 
$
348

 
$
22,732


Other Debt Financing Expenses
 
The components of other debt financing expenses are presented below (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Write-off of DDIC related to Credit Facility
$

 
$

 
$

 
$
7,169

Collateral monitoring fees

 
659

 

 
1,435

Amortization of DDIC related to unfunded debt

 
343

 

 
686

Unused line fees

 
223

 

 
439

Amortization of prepaid agent fees and other

 
114

 

 
227

Total other debt financing fees
$


$
1,339

 
$

 
$
9,956

 


NOTE 5 — REDEEMABLE SERIES A PREFERRED STOCK

June 2019 Securities Purchase Agreement
On June 20, 2019, the Company entered into a securities purchase agreement (the "June 2019 SPA") with accredited investors for a private placement (the “June 2019 Private Placement”) of (i) 3,500 shares of Series A Preferred Stock, (ii) 72,414 shares of Common Stock, and (iii) a Convertible Note (as defined below) with no principal balance outstanding. The shares of the Series A Preferred Stock were authorized pursuant to the CoD (as defined below) and are subject to the provisions set forth in

11


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



an amended Security Agreement (as defined below), a Convertible Note and a registration rights agreement that is substantially similar in all material respects to the Registration Rights Agreement (as defined below) entered into connection with the 2018 Securities Purchase Agreement discussed below. The accredited investors in the June 2019 Private Placement are not affiliated with the accredited investors in the March 2019 Private Placement (as defined below) or the Initial Private Placement.
The aggregate cash proceeds from the June 2019 Private Placement were $3.3 million in cash (after a 5.0% discount or $0.2 million). The net proceeds were approximately $3.0 million after estimated transaction costs payable by the Company of $0.3 million. The transaction costs consisted of 35,000 shares of Common Stock issued to the existing holders of the Series A Preferred Stock for their consent at a cost of approximately $0.2 million and direct transaction costs of approximately $0.2 million related to professional fees of the investors, existing holders of Series A Preferred Stock and the Company. The net proceeds were allocated based on their relative fair values at issuance of the Series A Preferred Stock and the Common Stock. The allocation of the net proceeds from the June 2019 Private Placement are set forth below (dollars in thousands):
 
Series A Preferred Stock
 
Common
 
Convertible
 
 
 
Shares
 
Amount
 
Stock
 
Notes
 
Total
Fair value on June 20, 2019:
 
 
 
 
 
 
 
 
 
  Series A Preferred Stock
3,500

 
$
2,997

(1)  
$

 
$

 
$
2,997

  Common Stock

 

 
376

(2) 

 
376

  Convertible Notes

 

 

 

 

    Total
3,500

 
$
2,997

 
$
376

 
$

 
$
3,373

 
 
 
 
 
 
 
 
 
 
Relative fair value allocation on June 20, 2019:
 
 
 
 
 
 
 
 
 
  Aggregate cash proceeds on June 20, 2019
3,500

 
$
2,954

(3) 
$
371

(3) 
$

 
$
3,325

  Incremental and direct costs

 
(301
)
(4) 
(38
)
(4) 

 
(339
)
Net carrying value on June 20, 2019
3,500

 
$
2,653

 
$
333

 
$

 
$
2,986


(1)
The liquidation preference for each share of Series A Preferred Stock on the closing date for the June 2019 Private Placement was $1,000 per share for an aggregate liquidation preference of $3.5 million. The estimated fair value of the Series A Preferred Stock was approximately $3.0 million on June 20, 2019, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
(2)
The fair value of the issuance of approximately 72,414 shares of the Common Stock was based on the closing price of $5.19 per share on the date prior to closing of the transaction.
(3)
The aggregate cash proceeds of $3.3 million on June 20, 2019 were allocated pro rata based on the fair value of all consideration issued.
(4)
Incremental and direct costs related to the June 2019 Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs included the issuance of 35,000 shares of Common Stock to the Initial Private Placement investors in the Series A Preferred Stock for their consent of approximately $0.2 million and financial advisory and professional fees that were incurred of approximately $0.2 million that were either paid or accrued directly by the Company as of June 30, 2019.

March 2019 Securities Purchase Agreement
On March 7, 2019, the Company entered into a securities purchase agreement (the “March 2019 SPA”) with an accredited investor for a private placement (the "March 2019 Private Placement") of (i) 6,500 shares of Series A Preferred Stock, (ii) 134,483 shares of Common Stock, and (iii) a Convertible Note (as defined below) with no principal balance outstanding. The shares of Series A Preferred Stock were authorized pursuant to the CoD (as defined below) and are subject to the provisions set forth in an amended Security Agreement (as defined below), a Convertible Note and a registration rights agreement that is substantially similar in all material respects to the Registration Rights Agreement (as defined below) entered into in connection with the 2018 Securities Purchase Agreement discussed below. The accredited investor in the March 2019 Private Placement is affiliated with one of the accredited investors in the Initial Private Placement.
The aggregate cash proceeds from the March 2019 Private Placement were $5.8 million in cash (after an 11.0% discount or $0.7 million). The net proceeds were approximately $5.0 million after estimated transaction costs payable by the Company of $0.8 million. The transaction costs consisted of 85,000 shares of Common Stock issued to the existing holders of the Series A Preferred Stock for their consent at a cost of approximately $0.5 million and direct transaction costs of approximately $0.3 million related to due diligence and professional fees. The net proceeds were allocated based on their relative fair values at issuance of the Series A Preferred Stock and the Common Stock. The allocation of the net proceeds from the March 2019 Private Placement are set forth below (dollars in thousands):


12


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



 
Series A Preferred Stock
 
Common
 
Convertible
 
 
 
Shares
 
Amount
 
Stock
 
Notes
 
Total
Fair value on March 7, 2019:
 
 
 
 
 
 
 
 
 
  Series A Preferred Stock
6,500

 
$
5,313

(1)  
$

 
$

 
$
5,313

  Common Stock

 

 
722

(2) 

 
722

  Convertible Notes

 

 

 

 

    Total
6,500

 
$
5,313

 
$
722

 
$

 
$
6,035

 
 
 
 
 
 
 
 
 
 
Relative fair value allocation on March 7, 2019:
 
 
 
 
 
 
 
 
 
  Aggregate cash proceeds on March 7, 2019
6,500

 
$
5,093

(3) 
$
692

(3) 
$

 
$
5,785

  Incremental and direct costs

 
(661
)
(4) 
(90
)
(4) 

 
(751
)
Net carrying value on March 7, 2019
6,500

 
$
4,432

 
$
602

 
$

 
$
5,034



(1)
The liquidation preference for each share of Series A Preferred Stock on the closing date for the March 2019 Private Placement was $1,000 per share for an aggregate liquidation preference of $6.5 million. The estimated fair value of the Series A Preferred Stock was approximately $5.3 million on March 7, 2019, which is the basis for allocation of the net proceeds. Please refer to Note 11 for further discussion of the valuation methodology employed.
(2)
The fair value of the issuance of approximately 134,483 shares of the Common Stock was based on the closing price of $5.37 per share on the date prior to closing of the transaction.
(3)
The aggregate cash proceeds of $5.8 million on March 7, 2019 were allocated pro rata based on the fair value of all consideration issued.
(4)
Incremental and direct costs related to the March 2019 Private Placement were allocated pro rata based on the fair value of all consideration issued. Such costs included the issuance of 85,000 shares of Common Stock to the Initial Private Placement investors in the Series A Preferred Stock for their consent of approximately $0.5 million and financial advisory and professional fees that were incurred of approximately $0.3 million that were either paid or accrued directly by the Company as of March 31, 2019.

The changes in the net carrying value of Series A Preferred Stock from December 31, 2018 to June 30, 2019, including the June 2019 Private Placement and March 2019 Private Placement, are set forth below (dollars in thousands):
 
Series A Preferred Stock
 
Shares
 
Amount
Net carrying value as of December 31, 2018
140,846

 
$
113,998

Issuance of shares to settle PIK Dividends on January 2, 2019
1,062

 
1,062

Additional shares issued on March 7, 2019
6,500

 
4,432

Accretion of discount for the three months ended March 31, 2019

 
1,359

Net carrying value as of March 31, 2019
148,408

 
120,851

Issuance of shares to settle PIK Dividends on April 1, 2019
1,059

 
1,059

Additional shares issued on June 20, 2019
3,500

 
2,653

Accretion of discount for the three months ended June 30, 2019

 
1,449

Net carrying value as of June 30, 2019
152,967

 
$
126,012


The Company plans to use the net proceeds for growth capital, including to fund sales and marketing expenses. For future calculations of earnings applicable to common stockholders, the aggregate discount applicable to the Series A Preferred Stock will be accreted using the effective interest method from the respective issuance dates through July 19, 2023 when the holders of all outstanding shares of Series A Preferred Stock may first elect to redeem their shares for cash.

2018 Securities Purchase Agreement

On July 19, 2018, the closing occurred for a Securities Purchase Agreement (the “2018 SPA”) with several accredited investors (the “Purchasers”) for a private placement (the “Initial Private Placement”) of (i) 140,000 shares of Series A Preferred Stock, (ii) approximately 2.9 million shares of Common Stock, and (iii) convertible secured promissory notes (the “Convertible Notes”), with no principal amount outstanding at issuance that solely collateralize amounts, if any, that may become payable by the Company pursuant to certain redemption provisions of the Series A Preferred Stock.


13


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



The aggregate cash proceeds from the Initial Private Placement were $133.0 million in cash (after taking into account a discount of $7.0 million, but before the incremental and direct transaction costs associated with the Initial Private Placement of $4.6 million).

The Company used the net proceeds from the 2018 SPA to repay all outstanding indebtedness and various fees and expenses under the former Credit Facility as discussed in Note 4, and to pay certain fees and expenses of the Purchasers and the Company in connection with the 2018 SPA.
 
Agreements Related to Private Placement Transactions
 
In connection with the completion of the Initial Private Placement, the Company, among other customary closing actions, (i) filed a Certificate of Designations with the State of Delaware setting forth the rights, preferences, privileges, qualifications, restrictions and limitations on the Series A Preferred Stock (the “CoD”), (ii) entered into a Registration Rights Agreement with the Purchasers setting forth certain registration rights of the Purchasers (the “Registration Rights Agreement”), (iii) delivered a Convertible Note to each Purchaser, and (iv) entered into a Security Agreement (the “Security Agreement”) in respect of the Company’s assets collateralizing the amounts that may become payable pursuant to the Promissory Notes if certain redemption provisions of the Series A Preferred Stock are triggered in the future. In connection with both the March 2019 and June 2019 Private Placements, the Company entered into a securities purchase agreement, a Registration Rights Agreement, a First (March 2019) and Second (June 2019) Amendment to the Security Agreement, as well as issued Convertible Notes to each investor, in each case substantially in the same form as entered into by the Company in the Initial Private Placement.

Certificate of Designations of the Series A Preferred Stock and Dividends

The CoD authorizes the issuance of up to 180,000 shares of Series A Preferred Stock. The holders of Series A Preferred Stock are entitled to (i) a cash dividend of 10.0% per annum (the “Cash Dividend”), payable quarterly in arrears, and (ii) a payment-in-kind dividend of 3.0% per annum (the “PIK Dividend” and together with the Cash Dividend, the “Dividends”). The PIK dividend is accrued quarterly in arrears for the first five years following the Closing and thereafter all Dividends accruing on such Series A Preferred Stock will be payable in cash at a rate of 13.0% per annum. The Series A Preferred Stock is classified as mezzanine equity in the Company’s consolidated balance sheet as of June 30, 2019 and December 31, 2018 since the holders have redemption rights beginning on July 19, 2023 (and earlier under certain circumstances).

As required under the CoD, the Cash Dividends and PIK Dividends for the period in which the Series A Preferred Stock was outstanding during the second quarter of 2019 were settled on July 1, 2019 to holders of record on June 16, 2019. Accordingly, the Company accrued a current liability for accrued Cash Dividends through June 30, 2019 for $3.8 million. A long-term liability was recorded for $1.1 million of PIK Dividends that accrued through June 30, 2019, and that were settled through the issuance of 1,115 shares of Series A Preferred Stock on July 1, 2019. Presented below is a summary of total and per share dividends declared through June 30, 2019 (dollars in thousands, except per share amounts):

 
 
Dividends Payable in:
 
Total
 
Dividends
 
 
Cash
 
PIK
 
Dividends
 
Per Share
Dividends payable as of December 31, 2018
 
$
3,521

 
$
1,056

 
$
4,577

 
$
32.50

  Cash Dividends @ 10% per annum
 
3,593

 

 
3,593

 
25.00

  PIK Dividends @ 3% per annum
 

 
1,065

 
1,065

 
7.41

Fractional PIK shares settled for cash
 
13

 

 
13

 
0.09

Less dividends settled January 2, 2019
 
(3,566
)
 
(1,062
)
 
(4,628
)
 
(32.62
)
Dividends payable as of March 31, 2019
 
3,561

 
1,059

 
4,620

 
31.13

  Cash Dividends @ 10% per annum
 
3,747

 

 
3,747

 
25.00

  PIK Dividends @ 3% per annum
 

 
1,115

 
1,115

 
7.44

Fractional PIK shares settled for cash
 
9

 

 
9

 
0.06

Less dividends settled April 1, 2019
 
(3,561
)
 
(1,059
)
 
(4,620
)
 
(30.82
)
Dividends payable as of June 30, 2019
 
$
3,756

 
$
1,115

 
$
4,871

 
$
31.84



14


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



The liquidation value of the Series A Preferred Stock is convertible into shares of Common Stock at an initial conversion rate of $10.00 per share for a total of 15.3 million shares of Common Stock based on 152,967 shares of Series A Preferred Stock outstanding as of June 30, 2019. Each share of Series A Preferred Stock is convertible at the holder’s option into one share of Common Stock at a conversion price equal to the quotient of (i) the Liquidation Preference (as defined below), and (ii) $10.00 (subject to appropriate adjustment in the event of a stock split, stock dividend, combination or other similar recapitalization) (the “Per Share Amount”). The Company has the right to convert outstanding shares of Series A Preferred Stock into Common Stock for the Per Share Amount after July 19, 2021, if the Company’s volume weighted average stock price for at least 30 trading days of the 45 consecutive trading days immediately preceding such conversion is greater than $11.50 per share. The Company can exercise this right to convert twice per calendar year for a maximum number of shares of Common Stock that has publicly traded over the 60 consecutive trading days prior to the conversion date (less any shares of Common Stock that have been issued pursuant to any such conversion during such 60-day period).

The Series A Preferred Stock will become mandatorily redeemable, upon the election by the holders of a majority of the then outstanding shares, on or after July 19, 2023. Any and all of the then outstanding liquidation value of the Series A Preferred Stock plus any capitalized PIK Dividends and any unpaid accrued Cash Dividends not previously included in the Liquidation Preference (the “Redemption Amount”) is required to be repaid in full in cash on such redemption date or satisfied in the form of obligations under the Convertible Notes. Additionally, in certain circumstances the Company may require the holders of shares of the Series A Preferred Stock to convert into shares of Common Stock in lieu of cash payable upon redemption.

The Series A Preferred Stock will also become mandatorily redeemable at any time upon the reasonable determination of the holders of a majority of the Series A Preferred Stock then outstanding of the occurrence of a Material Adverse Effect or the occurrence of a Material Litigation Effect (as such terms are defined in the CoD), with the Redemption Amounts payable automatically becoming payment obligations pursuant to the Convertible Notes with a concurrent cancellation of the shares of the Series A Preferred Stock, unless under certain circumstances, the Company redeems the Series A Preferred Stock for cash at such time.

Prior to July 19, 2021, the Company will have the right to redeem up to $80.0 million of shares of the Series A Preferred Stock for cash amounts equal to the Redemption Amount which would include a make-whole premium that provides the holders thereof with full yield maintenance as if the Series A Preferred Stock was held until July 19, 2021, provided that such redemptions are subject to certain conditions and limitations. After July 19, 2021, the Company will have the right to redeem shares of Series A Preferred Stock for a cash per share amount equal to the Redemption Amount.

The holders of Series A Preferred Stock may exercise their conversion rights prior to any optional redemption. In the event of a liquidation, dissolution or winding up of the Company, the Series A Preferred Stock is entitled to a liquidation preference in the amount of the greater of (i) $1,000 plus accrued but unpaid Dividends (the “Liquidation Preference”), and (ii) the per share amount of all cash, securities and other property to be distributed in respect of the Common Stock such holder would have been entitled to receive for its Series A Preferred Stock on an as-converted basis. In the event of a liquidation, dissolution or winding up of the Company prior to July 19, 2021, the holders are entitled to a make-whole premium that provides the holders thereof with full yield maintenance as if the shares of Series A Preferred Stock were held until July 19, 2021.

Until approximately 95% of the Series A Preferred Stock or Convertible Notes are no longer outstanding, the Company is restricted from incurring Indebtedness (as defined in the June 2019 SPA, March 2019 SPA and 2018 SPA), subject to certain exceptions.

Registration Rights Agreement

The original Registration Rights Agreement required the Company to register the resale of the shares of Common Stock and Series A Preferred Stock issued pursuant to the 2018 SPA. The Company satisfied such registration requirements in November 2018. The Registration Rights Agreements, entered into in connection with both the March 2019 and June 2019 Private Placements, require the Company to register the resale of the shares of Common Stock and Series A Preferred Stock pursuant to the March 2019 SPA and the June 2019 SPA within 120 days of the respective March 7, 2019 and June 20, 2019 closing dates. The Company satisfied such registration requirements in July 2019. Each such Registration Rights Agreement also includes customary “piggyback” registration rights, suspension rights, indemnification, contribution, and assignment provisions.


NOTE 6—RESTRICTED STOCK UNITS, STOCK OPTIONS AND WARRANTS
 
The Company’s stock option plans consist of the 2007 Stock Plan (the “2007 Plan”) and the 2013 Equity Incentive Plan, as amended and restated in July 2017 (the “2013 Plan”). The 2007 Plan and the 2013 Plan are collectively referred to as the

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RIMINI STREET, INC.
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“Stock Plans”. For additional information about the Stock Plans, please refer to Note 8 to the Company’s consolidated financial statements for the year ended December 31, 2018, included in the 2018 Form 10-K. The information presented below provides an update for activity under the Stock Plans for the six months ended June 30, 2019.
 
Restricted Stock Units
 
For the six months ended June 30, 2019, the Board of Directors granted restricted stock units (“RSUs”) under the 2013 Plan for an aggregate of approximately 878,000 shares of Common Stock to members of the Board of Directors, officers and employees of the Company. These RSUs vest over periods ranging from 12 to 36 months from the respective grant dates and the awards are subject to forfeiture upon termination of employment or service on the Board of Directors. Based on the weighted average fair market value of the Common Stock on the date of grant of $5.23 per share, the aggregate fair value for the shares underlying the RSUs amounted to $4.6 million as of the grant date that will be recognized as compensation cost over the vesting period. Accordingly, compensation expense of approximately $0.5 million and $0.2 million was recognized for the three months ended June 30, 2019 and 2018, respectively. Compensation expense of approximately $1.0 million and $0.4 million was recognized for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, the unrecognized expense of $3.7 million is expected to be charged to expense on a straight-line basis as the RSUs vest over a weighted-average period of approximately 2.2 years.
 
Stock Options
 
On February 13, 2019, the Board of Directors authorized an increase of approximately 2.6 million shares available for grant under the 2013 Plan. For the six months ended June 30, 2019, the Board of Directors granted stock options for the purchase of an aggregate of approximately 0.5 million shares of Common Stock at an exercise prices that were equal to or greater than the fair market value of the Common Stock on the date of grant. These stock options generally vest annually for one-third of the awards and expire ten years after the grant date.
 
The following table sets forth a summary of stock option activity under the Stock Plans for the six months ended June 30, 2019 (shares in thousands):
 
 
Shares
 
Price (1)
 
Term (2)
Outstanding, December 31, 2018
11,904

 
$
4.00

 
5.1
Granted
525

 
5.50

 
 
Forfeited
(355
)
 
7.80

 
 
Expired
(313
)
 
6.83

 
 
Exercised
(1,685
)
 
1.17

 
 
Outstanding, June 30, 2019 (3)(4)
10,076

 
4.33

 
5.1
Vested, June 30, 2019 (3)
8,162

 
3.70

 
4.2
 
 
(1)
Represents the weighted average exercise price.
(2)
Represents the weighted average remaining contractual term until the stock options expire.
(3)
As of June 30, 2019, the aggregate intrinsic value of all stock options outstanding was $17.2 million. As of June 30, 2019, the aggregate intrinsic value of vested stock options was $17.1 million.
(4)
The number of outstanding stock options that are not expected to ultimately vest due to forfeiture amounted to 0.2 million shares as of June 30, 2019.

The following table presents activity affecting the total number of shares available for grant under the Stock Plans for the six months ended June 30, 2019 (in thousands):
 
Available, December 31, 2018
2,758

Stock options granted
(525
)
Restricted stock units granted
(878
)
Forfeited options and restricted stock units under Stock Plans
670

Newly authorized by Board of Directors
2,567

Available, June 30, 2019
4,592


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The aggregate fair value of approximately 525,000 stock options granted for the six months ended June 30, 2019 amounted to $1.1 million, or $2.10 per share as of the grant date. Fair value was computed using the Black-Scholes-Merton (“BSM”) method and will result in the recognition of compensation cost over the vesting period of the stock options. For the six months ended June 30, 2019, the fair value of each stock option grant under the Stock Plans was estimated on the date of grant using the BSM option-pricing model, with the following weighted-average assumptions:
 
Expected life (in years)
6.0
Volatility
35%
Dividend yield
0%
Risk-free interest rate
2.5%
Fair value per common share on date of grant
$5.50
 
As of June 30, 2019 and December 31, 2018, total unrecognized compensation costs related to unvested stock options, net of estimated forfeitures, was $3.1 million and $4.5 million, respectively. As of June 30, 2019, the unrecognized costs are expected to be charged to expense on a straight-line basis over a weighted-average vesting period of approximately 1.8 years.
 
Stock-Based Compensation Expense
 
Stock-based compensation expense attributable to RSUs and stock options is classified as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Cost of revenues
$
169

 
$
201

 
$
378

 
$
366

Sales and marketing
307

 
450

 
648

 
817

General and administrative
576

 
447

 
1,182

 
782

Total
$
1,052

 
$
1,098

 
$
2,208

 
$
1,965


Warrants
 
As of June 30, 2019, warrants are outstanding for an aggregate of 18.1 million shares of Common Stock, including 3.4 million shares of Common Stock exercisable at $5.64 per share, and an aggregate of 14.7 million shares of Common Stock exercisable at $11.50 per share. For additional information about these warrants, please refer to Note 8 to the Company’s consolidated financial statements for the year ended December 31, 2018, included in the 2018 Form 10-K.
 
NOTE 7 — INCOME TAXES
 
In December 2017, the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”) was enacted into law which significantly revises the Internal Revenue Code of 1986, as amended. The Tax Act, among other things, contains significant changes to corporate taxation, including a flat corporate tax rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings, limitation of the deduction for newly generated net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated (the “Transition Tax”), future taxation of certain classes of offshore earnings regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits beginning in 2018.

The imposition of the Transition Tax may reduce or eliminate U.S. federal deferred taxes on the unremitted earnings of the Company’s foreign subsidiaries. However, the Company may still be liable for withholding taxes, state taxes, or other income taxes that might be incurred upon the repatriation of foreign earnings. The Company has not made any provision for additional income taxes on undistributed earnings of its foreign subsidiaries.
 
For the three months ended June 30, 2019 and 2018, our effective rate was 13.2% and (2.2)%, respectively. For the six months ended June 30 2019 and 2018, our effective tax rate was 7.7% and (5.1)%, respectively. Our income tax expense was attributable to earnings in foreign jurisdictions subject to income taxes. For both the three and six months ended June 30, 2019

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RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



and 2018, no income tax expense was recorded in the United States as a result of historical net operating losses being incurred. The Company did not have any material changes to its conclusions regarding valuation allowances for deferred income tax assets or uncertain tax positions for the three months ended June 30, 2019 and 2018.
 
NOTE 8 — COMMITMENTS AND CONTINGENCIES
 
Operating Leases
 
The Company leases its office facilities under non-cancellable operating lease agreements that expire from August 2019 to February 2025. The Company recognizes rent expense on a straight-line basis over the lease period. Rent expense for the three months ended June 30, 2019 and 2018 was $1.5 million and $1.4 million, respectively. Rent expense for the six months ended June 30, 2019 and 2018 was $3.0 million and $2.7 million, respectively.
 
Future minimum lease payments under the non-cancellable operating lease agreements are as follows (in thousands):
 
12 months ending June 30:
 
2020
$
5,833

2021
5,559

2022
4,965

2023
1,649

2024
498

Thereafter
201

Total
$
18,705

 
Series A Preferred Stock Dividends

In connection with the issuance of Series A Preferred Stock on June 20, 2019, March 7, 2019 and July 19, 2018 as discussed in Note 5, the Company is obligated to pay Cash Dividends and issue additional shares of Series A Preferred Stock in settlement of PIK Dividends. From January 1, 2019 through July 19, 2023 that the Series A Preferred Stock is expected to be outstanding, estimated Cash Dividends and PIK Dividends required to be declared are as follows (in thousands):
Year Ending December 31:
 
Cash
 
PIK
 
Total
2019
 
$
15,075

 
$
4,522

 
$
19,597

2020
 
15,819

 
4,746

 
20,565

2021
 
16,299

 
4,890

 
21,189

2022
 
16,794

 
5,038

 
21,832

2023
 
9,455

 
2,837

 
12,292

Total
 
$
73,442

 
$
22,033

 
$
95,475



Retirement Plan

The Company has a qualified 401(k) plan for all eligible U.S. employees. Employees may contribute up to the statutory maximum, which is set by law each year. The plan also provides for discretionary employer contributions in an amount equal to 100% of each employee’s contribution, not to exceed 4% of eligible compensation. The Company’s matching contribution to the plan totaled $0.6 million and $0.6 million for the three months ended June 30, 2019 and 2018, respectively. The Company's matching contribution to the plan totaled $1.3 million and $1.1 million for the six months ended June 30, 2019 and 2018, respectively.

Rimini I Litigation

In January 2010, certain subsidiaries of Oracle Corporation (together with its subsidiaries individually and collectively, “Oracle”) filed a lawsuit, Oracle USA, Inc. et al. v. Rimini Street, Inc. et al. (United States District Court for the District of

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Nevada) (“Rimini I”), against the Company and its Chief Executive Officer, Seth Ravin, alleging that certain of the Company’s processes violated Oracle’s license agreements with its customers and that the Company committed acts of copyright infringement and violated other federal and state laws. The litigation involved the Company’s business processes and the manner in which the Company provided services to its clients. To provide software support and maintenance services to its clients, the Company requests access to a separate environment for developing and testing the updates to the software programs. Prior to July 2014, PeopleSoft, J.D. Edwards, and Siebel clients switching from Oracle to the Company’s enterprise software support were given a choice of two models for hosting the development and testing environment for their software: the environment could be hosted on the client’s servers or on the Company’s servers. In addition to other allegations, Oracle challenged the Rimini Street-hosted model for certain Oracle license agreements with its customers that contained site-based restrictions. Oracle alleged that its license agreements with these customers restrict licensees’ rights to provide third parties, such as the Company, with copies of Oracle software and restrict where a licensee may physically install the software. Oracle alleged that, in the course of providing services, the Company violated such license agreements and illegally downloaded software and support materials without authorization. Oracle further alleged that the Company impaired its computer systems in the course of downloading materials for the Company’s clients. Oracle filed amended complaints (together, “Oracle’s amended complaint”) in April 2010 and June 2011. Specifically, Oracle’s amended complaint asserted the following causes of action: copyright infringement; violations of the Federal Computer Fraud and Abuse Act; violations of the Computer Data Access and Fraud Act; violations of Nevada Revised Statute 205.4765; breach of contract; inducing breach of contract; intentional interference with prospective economic advantage; negligent interference with prospective economic advantage; unfair competition; trespass to chattels; unjust enrichment/restitution; unfair practices; and a demand for an accounting. Oracle’s amended complaint sought the entry of a preliminary and permanent injunction prohibiting the Company from copying, distributing, using, or creating derivative works based on Oracle Software and Support Materials except as allowed by express license from Oracle; from using any software tool to access Oracle Software and Support Materials; and from engaging in other actions alleged to infringe Oracle’s copyrights or were related to its other causes of action. The parties conducted extensive fact and expert discovery from 2010 through mid-2012.

In March and September 2012, Oracle filed two motions seeking partial summary judgment as to, among other things, its claim of infringement of certain copyrighted works owned by Oracle. In February 2014, the District Court issued a ruling on Oracle’s March 2012 motion for partial summary judgment (i) granting summary judgment on Oracle’s claim of copyright infringement as it related to two of the Company’s PeopleSoft clients and (ii) denying summary judgment on Oracle’s claim with respect to one of the Company’s J.D. Edwards clients and one of the Company’s Siebel clients. The parties stipulated that the licenses among clients were substantially similar for purposes of the Rimini I action. In August 2014, the District Court issued a ruling on Oracle’s September 2012 motion for partial summary judgment (i) granting summary judgment on Oracle’s claim of copyright infringement as it relates to Oracle Database and (ii) dismissing the Company’s first counterclaim for defamation, business disparagement and trade libel and the Company’s third counterclaim for unfair competition. In response to the February 2014 ruling, the Company revised its business practices to eliminate the processes determined to be infringing. This process was completed no later than July 2014.

A jury trial in Rimini I commenced in September 2015. On October 13, 2015, the jury returned a verdict against the Company finding that (i) the Company was liable for innocent copyright infringement, (ii) the Company and Mr. Ravin were each liable for violating certain state computer access statutes, (iii) Mr. Ravin was not liable for copyright infringement, and (iv) neither the Company nor Mr. Ravin were liable for inducing breach of contract or intentional interference with prospective economic advantage. The jury determined that the copyright infringement did not cause Oracle to suffer lost profits, that the copyright infringement was not willful, and did not award punitive damages. Following post-trial motions, Oracle was awarded a final judgment of $124.4 million in October 2016, consisting of copyright infringement damages based on the fair market value license damages theory, damages for violation of certain state computer access statutes, prejudgment interest, and attorneys’ fees and costs. In addition, the District Court entered a permanent injunction prohibiting the Company from using certain processes.

The Company accounted for the $124.4 million judgment to Oracle by recording accrued legal settlement expense of (i) $100.0 million for the year ended December 31, 2014, (ii) $21.4 million for the year ended December 31, 2015, and (iii) pre-judgment interest of $3.0 million for the period from January l, 2016 through October 31, 2016.

Appeal of Rimini I Litigation

On October 31, 2016, the Company paid the full judgment amount of approximately $124.4 million to Oracle, and appealed the case to the United States Court of Appeals for the Ninth Circuit (the “Court of Appeals”) to appeal findings (i) and (ii) above as well as the injunction and attorneys’ fee award, non-taxable expenses, and interest. With respect to the injunction entered by the District Court, the Company argued on appeal that the injunction was vague and contains overly broad language that could be read to cover some of the Company’s current business practices that were not adjudicated to be infringing at trial and the

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injunction should not have been issued under applicable law. On December 6, 2016, the Court of Appeals granted the Company’s emergency motion for a stay of the permanent injunction pending resolution of the underlying appeal and agreed to consider the appeal on an expedited basis. The Court of Appeals heard argument on July 13, 2017.

On January 8, 2018, the Court of Appeals reversed certain awards totaling $50.3 million made in Oracle’s favor during and after the Company’s 2015 jury trial in Rimini I and vacated and remanded others, including the injunction that had previously been stayed by the Court of Appeals on December 6, 2016, and all awards and judgments against Mr. Ravin. The Court of Appeals reversed awards previously paid by the Company as part of the $124.4 million judgment, consisting of an award under state computer access statutes and taxable expenses and interest totaling $21.3 million, Oracle’s attorneys’ fees of $28.5 million (that was subsequently remanded to the District Court), and post-judgment interest of $0.5 million. The Court of Appeals also vacated and remanded the injunction originally ordered by the District Court. Although the Court of Appeals affirmed the findings of infringement against Rimini (which the jury had found to be “innocent” infringement) for the processes that the Company ceased using no later than July 2014, it stated in the opinion that the Company “provided third-party support for Oracle's enterprise software, in lawful competition with Oracle's direct maintenance services.”

As mandated by the Court of Appeals, on March 30, 2018 Oracle paid the Company $21.5 million for the reversal of the award under state computer access statutes and taxable expenses and interest totaling $21.3 million, and post-judgment interest of $0.2 million. Due to collection of this award in cash, the Company recognized a recovery of the 2016 judgment for $21.3 million and interest income of $0.2 million for the year ended December 31, 2018. Additionally, in May 2018, by stipulation of the parties, Oracle deposited $28.5 million into an escrow account with the District Court pending a decision by the District Court on the remanded attorneys’ fees award. On August 14, 2018, the District Court (i) imposed an injunction that was substantially identical to the injunction that the Court of Appeals had vacated in January 2018, and (ii) again awarded Oracle $28.5 million in attorneys’ fees, which were paid by funds deposited by Oracle with the District Court in May 2018.

On August 16, 2018, the Company filed a notice of appeal of the District Court’s renewed injunction and its decision to return the $28.5 million attorneys’ fee award to Oracle. The Company also filed in the District Court a motion to stay the injunction pending appeal. On September 11, 2018, the District Court denied the motion, but granted a temporary 60-day stay for the Company to seek a stay with the Court of Appeals. On September 14, 2018, the Company filed a motion with the Court of Appeals, seeking a stay of the permanent injunction pending appeal and requesting a decision before the expiration of the temporary stay entered by the District Court. On November 5, 2018, the Court of Appeals denied the Company’s motion for a stay pending appeal of the injunction issued by the District Court without addressing the merits of the Company’s appeal, and it confirmed the briefing schedule for the appeal. The Company is pursuing an appeal of the injunction and the attorneys’ fee award. The Company has incurred additional expenses in the range of 1% to 2% of revenue for additional labor costs because, as drafted, the injunction contains language that could be read to cover some current support practices that are being litigated in the “Rimini II” lawsuit (described below) and that have not been found to be infringing. Briefing on the appeal to the Court of Appeals was completed on March 14, 2019, and on July 12, 2019, the Court of Appeals heard oral arguments on the appeal. The Company does not expect a ruling from the Court of Appeals until December 2019 or January 2020, but the opinion could be issued before or after these dates.

As long as the injunction is still in place, Oracle may file contempt proceedings against the Company at any time to attempt to enforce its interpretation of the injunction or if it has reason to believe the Company is not in compliance with express terms of the injunction. The Company believes that it is in compliance with the terms of the injunction insofar as they are comprehensible and within the scope of the judgment in Rimini I. On February 27, 2019, Oracle filed in the District Court a motion to reopen discovery in Rimini I and a motion to modify the protective order in Rimini II to permit Oracle to use discovery from Rimini II in Rimini I, in a purported effort to investigate whether the Company is complying with the injunction. On April 4, 2019, the District Court granted Oracle’s motion to reopen discovery in Rimini I, and on May 14, 2019, the District Court granted Oracle’s motion to modify the protective order in Rimini II to permit Oracle to use discovery from that case in Rimini I. Pursuant to the discovery scheduling order issued in Rimini I, Oracle is permitted to conduct limited discovery regarding Rimini’s compliance with the injunction. Discovery is set to close on October 8, 2019, and the deadline for Oracle to file an order to show cause for contempt is October 20, 2019.

Petition for Rehearing En Banc and Appeal to the United States Supreme Court
In January 2018, the Company filed a petition for rehearing en banc with the Court of Appeals regarding two other components of the final judgment awarded to Oracle. First, the Company asked the Court of Appeals to rehear the calculation of prejudgment interest, arguing that the District Court set the interest rate using a date that precedes the filing of Oracle's complaint, which resulted in an additional judgment amount of approximately $20.2 million that was paid by the Company to Oracle in October 2016. Second, the Company asked the Court of Appeals to rehear the award of non-taxable expenses, arguing that this decision is in direct conflict with decisions in other federal circuit courts and decisions of the Supreme Court of the

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United States (the “U.S. Supreme Court”) and resulted in the Company paying approximately $12.8 million that it would not have had to pay in other court jurisdictions. The Court of Appeals denied the petition for rehearing en banc on March 2, 2018, and the mandate was issued on March 13, 2018. On May 31, 2018, the Company filed a petition for writ of certiorari in the U.S. Supreme Court appealing the decision of the Court of Appeals on the non-taxable expenses issue. On September 27, 2018, the U.S. Supreme Court granted the Company’s petition for a writ of certiorari. Briefing on the Company’s appeal was completed in early 2019, and a hearing on the appeal was held on January 14, 2019. On March 4, 2019, the U.S. Supreme Court issued a unanimous decision reversing earlier decisions by the lower courts and ruling that Oracle must return approximately $12.8 million in non-taxable expenses that the Company had previously paid to Oracle (plus interest of $0.2 million). As mandated by the U.S. Supreme Court, on April 5, 2019, Oracle paid the Company $13.0 million (the principal amount plus post-judgment interest). The award received by the Company will be required to be shared on a pro rata basis with an insurance company that previously paid for part of the judgment and reimbursed a portion of defense costs after deducting the costs of all of our past and pending appeal and remand proceedings in Rimini I. As a result of the U.S. Supreme Court decision, the Company recognized a recovery of the non-taxable expenses for $12.8 million and interest income of $0.2 million for the six months ended June 30, 2019, excluding any contractual amounts due to the insurance company.

Rimini II Litigation

In October 2014, the Company filed a separate lawsuit, Rimini Street Inc. v. Oracle Int‘l Corp. (United States District Court for the District of Nevada) (“Rimini II”), against Oracle seeking a declaratory judgment that the Company’s revised development processes, in use since at least July 2014, do not infringe certain Oracle copyrights. In February 2015, Oracle filed a counterclaim alleging copyright infringement, which included (i) the same allegations asserted in Rimini I but limited to clients not addressed in Rimini I, and (ii) new allegations that the Company’s revised support processes also infringe Oracle copyrights. Oracle’s counterclaim also included allegations of violation of the Lanham Act, intentional interference with prospective economic advantage, breach of contract and inducing breach of contract, unfair competition, and unjust enrichment/restitution. It also sought an accounting. On February 28, 2016, Oracle filed amended counterclaims adding allegations of violation of the Digital Millennium Copyright Act. On December 19, 2016, the Company filed an amended complaint against Oracle asking for a declaratory judgment of non-infringement of copyright and alleging intentional interference with contract, intentional interference with prospective economic advantage, violation of the Nevada Deceptive Trade Practices Act, violation of the Lanham Act, and violation of California Business & Professions Code §17200 et seq. On January 17, 2017, Oracle filed a motion to dismiss the Company’s amended claims and filed its third amended counterclaims, adding three new claims for a declaratory judgment of no intentional interference with contractual relations, no intentional interference with prospective economic advantage, and no violation of California Business & Professions Code §17200 et seq. On February 14, 2017, the Company filed its answer and motion to dismiss Oracle’s third amended counterclaim. On March 7, 2017, Oracle filed a motion to strike the Company’s copyright misuse affirmative defense. By stipulation of the parties, the District Court granted the Company’s motion to file its third amended complaint to add claims arising from Oracle’s purported revocation of access by the Company to its support websites on behalf of the Company’s clients, which was filed and served on May 2, 2017. By agreement of the parties, Oracle filed its motion to dismiss the Company’s third amended complaint on May 30, 2017, and the Company’s opposition was filed on June 27, 2017, and Oracle’s reply was filed on July 11, 2017. On September 22, 2017, the District Court issued an order granting in part and denying in part the Company’s motion to dismiss Oracle’s third amended counterclaims. The District Court granted the Company’s motion to dismiss Oracle's intentional interference with prospective economic advantage and unjust enrichment counterclaims. On October 5, 2017, Oracle filed a motion for reconsideration of the District Court’s September 22, 2017 Order. The Company filed its opposition to Oracle’s motion for reconsideration on October 19, 2017. Oracle filed its reply to its motion for reconsideration on October 26, 2017. On November 7, 2017, the District Court issued an order granting in part and denying in part Oracle’s motion to dismiss the Company’s third amended complaint. The District Court granted Oracle’s motion to dismiss as to the Company’s third cause of action for a declaratory judgment that Oracle has engaged in copyright misuse, fifth cause of action for intentional interference with prospective economic advantage; sixth cause of action for a violation of Nevada’s Deceptive Trade Practices Act under the “bait and switch” provision of NRS § 598.0917; and seventh cause of action for violation of the Lanham Act. The District Court denied Oracle’s motion as to the Company’s causes of action for intentional interference with contractual relations, violation of Nevada Deceptive Trade Practices Act, under the “false and misleading” provision of NRS § 598.0915(8) and unfair competition. On November 17, 2017 the District Court denied Oracle’s motion for reconsideration of the District Court’s September 22, 2017 Order. On June 5, 2018, the District Court denied the Company’s motion for reconsideration of the District Court’s November 7, 2017 Order.

Fact discovery with respect to the above action substantially ended by March 2018, and expert discovery ended in September 2018. Briefing on the parties’ motions for summary judgment was completed December 14, 2018, and the parties await the District Court’s ruling on those motions. On February 27, 2019, Oracle filed a motion to modify the protective order to permit

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Oracle to use discovery from Rimini II in Rimini I, in connection with injunction compliance issues. On May 14, 2019, the District Court granted Oracle’s motion, permitting Oracle to use in Rimini I the discovery gathered in Rimini II.

There is currently no trial date scheduled, and the Company does not expect a trial to occur in this matter earlier than 2021, but the trial could occur earlier or later than that. At this time, the Company does not have sufficient information regarding possible damages exposure for the counterclaims asserted by Oracle or possible recovery by the Company in connection with its claims against Oracle. Both parties are seeking injunctive relief in addition to monetary damages in this matter. As a result, an estimate of the range of loss cannot be reasonably determined. The Company also believes that an award for damages is not probable, so no accrual has been made as of June 30, 2019.
 
Other Litigation
 
From time to time, the Company may be a party to litigation and subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of judgment, defense and settlement costs, diversion of management resources and other factors. At each reporting period, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under ASC 450, Contingencies. Legal fees are expensed as incurred.
 
Insurance Settlement Agreement
 
On March 31, 2017, the Company entered into a Settlement Agreement, Release and Policy Buyback Agreement (the “Settlement Agreement”) with an insurance company that previously provided coverage for the defense costs related to the Oracle litigation referred to as Rimini II. The Settlement Agreement provided for aggregate payments to the Company of $24.0 million and resulted in the termination of coverage under the insurance policies. Prior to execution of the Settlement Agreement, the insurance company reimbursed the Company an aggregate of $4.7 million of defense costs, and pursuant to the settlement agreed to make an additional payment to the Company of $19.3 million that was received in April 2017. In April 2017, the Company paid $0.6 million of settlement expenses, and the remaining $18.7 million of settlement proceeds was used to make a mandatory $14.1 million principal payment, and a $4.6 million make-whole applicable premium payment due to the Lenders pursuant to the terms of the Credit Facility discussed in Note 4.

The Settlement Agreement was initially accounted for by recognizing a deferred insurance settlement liability for $19.3 million. This deferred insurance settlement liability was reduced as legal defense costs related to Rimini II were incurred subsequent to March 31, 2017. Accordingly, the deferred insurance settlement liability was eliminated as of March 31, 2018 due to legal defense costs of $11.3 million incurred for the year ended December 31, 2017, resulted in a reduction of the deferred insurance settlement liability to $8.0 million as of December 31, 2017. There was no remaining liability as of December 31, 2018.

Governmental Inquiry
 
On March 2, 2018, the Company received a federal grand jury subpoena, issued from the United States District Court for the Northern District of California, requesting the Company produce certain documents relating to specified support and related operational practices. The Company is cooperating with this inquiry and has complied with the related document request.

Proceeds from the U.S. Supreme Court Decision

On April 5, 2019, the Company received payment from Oracle of $13.0 million related to the U.S. Supreme Court ruling on March 4, 2019, which reversed earlier decisions by the lower courts that Oracle must return approximately $12.8 million in non-taxable expenses previously paid by the Company plus post-judgment interest. The award is required to be shared with an insurance company on pro rata basis, whereby the insurance company may be entitled to 60% of the award after deducting the Company's costs for all appeal and remand proceedings. As a result, the Company has recognized a recovery of non-taxable expenses of $12.8 million and recorded interest income of $0.2 million for the six months ended June 30, 2019. The Company also recognized costs of $4.3 million, during the six months ended June 30, 2019, reflecting the current estimate of the amounts owed to the insurance company to date pursuant to the Settlement Agreement described above. This liability is subject to decrease as additional costs related to any future Rimini I appeal and remand proceedings are incurred.

Liquidated Damages

22


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



 
The Company enters into agreements with clients that contain provisions related to liquidated damages that would be triggered in the event that the Company is no longer able to provide services to these clients. The maximum cash payments related to these liquidated damages is approximately $31.4 million and $30.4 million as of June 30, 2019 and December 31, 2018, respectively. To date, the Company has not incurred any costs as a result of such provisions and has not accrued any liabilities related to such provisions in these unaudited condensed consolidated financial statements.
 
NOTE 9 — RELATED PARTY TRANSACTIONS
 
Upon consummation of the Merger Agreement, an outstanding note payable to GP Sponsor with a face amount of approximately $3.0 million was assumed by the Company. As discussed more thoroughly in Note 4, the note was amended twice in 2018 whereby the maturity date changed to June 28, 2019 and has now been repaid in full as of June 30, 2019.
Prior to repayment, the parties agreed that the note would retroactively bear interest at 13.0% per annum from July 19, 2018 through the maturity date. The second amendment also provides for monthly principal payments of approximately $0.4 million plus accrued interest. An affiliate of GP Sponsor is member of the Company’s Board of Directors.

An affiliate of Adams Street Partners ("ASP") is a member of the Company’s Board of Directors. As of June 30, 2019, ASP owned approximately 35.7% of the Company’s issued and outstanding shares of Common Stock. In July 2018, ASP acquired 19,209 shares of Series A Preferred Stock and approximately 0.4 million shares of Common Stock issued in the Initial Private Placement discussed in Note 5 for total consideration of approximately $19.2 million. As of June 30, 2019, ASP had voting control of approximately 31.4% of the Company’s issued and outstanding shares of Common Stock, including voting rights associated with the 19,610 shares of Series A Preferred Stock. Prior to termination on July 19, 2018 of the amended Credit Facility discussed in Note 4, ASP owned a $10.0 million indirect interest in the amended Credit Facility. For the three months ended June 30, 2019 and 2018, the Company recognized revenue for software support services provided to certain ASP investees for an aggregate of $0.3 million and $0.4 million, respectively. For the six months ended June 30, 2019 and 2018, the Company recognized revenue for software support services provided to certain ASP investees for approximately $0.7 million and $1.0 million, respectively. Accounts receivable includes $0.1 million and $1.2 million due from ASP investees for software support services as of June 30, 2019 and December 31, 2018, respectively.

NOTE 10 —EARNINGS (LOSS) PER SHARE

We compute earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share for each class of stock to be calculated using the two-class method. The holders of Series A Preferred Stock are entitled to participate in Common Stock dividends, if and when declared, on a one-to-one per-share basis. Accordingly, in periods in which the Company has net income, earnings per share will be computed using the two-class method whereby the pro rata dividends on Common Stock that are also distributable to the holders of Series A Preferred Stock will be deducted from earnings applicable to common stockholders, regardless of whether a dividend is declared for such undistributed earnings. Under the two-class method, earnings for the reporting period are allocated between the holders of our Common Stock and the Series A Preferred Stock based on their respective participation rights in undistributed earnings.
Basic earnings per Common Stock share is computed by dividing net income attributable to common stockholders by the weighted average number of shares of basic Common Stock outstanding. Net income allocated to the holders of our Series A Preferred Stock is calculated based on the shareholders’ proportionate share of the weighted average shares of Common Stock outstanding on an if-converted basis. Diluted earnings per Common Stock share is calculated by adjusting the basic earnings per Common Stock share for the effects of potential dilutive Common Stock shares outstanding such as stock options, restricted stock units and warrants.
For both the three months and six months ended June 30, 2019 and 2018, basic and diluted net earnings per share of Common Stock were computed by dividing the net income attributable to common stockholders by the weighted average number of common shares outstanding during the respective periods. The following table sets forth the computation of basic and diluted net income attributable to common stockholders for both the three and six months ended June 30, 2019 and 2018 (in thousands, except per share amounts):



23


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Income attributable to common stockholders:
 
 
 
 
 
 
 
  Net income (loss)
$
4,087

 
$
(25,446
)
 
$
15,911

 
$
(21,939
)
  Dividends and accretion related to Series A Preferred Stock:
 
 
 
 
 
 
 
    Cash dividends declared
(3,747
)
 

 
(7,340
)
 

    PIK dividends declared
(1,124
)
 

 
(2,202
)
 

    Accretion of discount
(1,449
)
 

 
(2,808
)
 

     
(2,233
)
 
(25,446
)
 
3,561

 
(21,939
)
    Undistributed earnings allocated using the two-class method

 

 
(655
)
 

      Net income (loss) attributable to common stockholders
$
(2,233
)
 
$
(25,446
)
 
$
2,906

 
$
(21,939
)
 
 
 
 
 
 
 
 
 
2019
 
2018
 
2019
 
2018
Weighted average number of shares of Common Stock outstanding
65,535

 
59,800

 
65,080

 
59,534

Additional shares outstanding if Series A Preferred Stock is converted to Common Stock
14,989

 

 
14,681

 

Total shares outstanding if Series A Preferred Stock is converted to Common Stock
80,524

 
59,800

 
79,761

 
59,534

      Percentage of shares allocable to Series A Preferred Stock
18.6
%
 
%
 
18.4
%
 
%
Weighted average number of shares of Common Stock outstanding:
 
 
 
 
 
 
 
  Basic
65,535

 
59,800

 
65,080

 
59,534

  Effect of dilutive securities:
 
 
 
 
 
 
 
      Origination Agent warrants

 

 

 

      Stock options

 

 
4,028

 

      Restricted stock units

 

 
94

 

  Diluted
65,535

 
59,800

 
69,202

 
59,534

Net earnings (loss) per share attributable to common stockholders:
 
 
 
 
 
 
 
  Basic
$
(0.03
)
 
$
(0.43
)
 
$
0.04

 
$
(0.37
)
  Diluted
$
(0.03
)
 
$
(0.43
)
 
$
0.04

 
$
(0.37
)


For the six months ended June 30, 2019, share-based awards for approximately 21.5 million shares were not included in the computation of diluted earnings per share as they were anti-dilutive.

For the three months ended June 30, 2019 and 2018 as well as the six months ended June 30, 2018, basic and diluted loss per share attributable to common stockholders were the same because all Common Stock equivalents were anti-dilutive.

As of June 30, 2019 and 2018, the following potential Common Stock equivalents were excluded from the computation of diluted net (loss) per share for the respective periods ending on these dates since the impact of inclusion was anti-dilutive (in thousands): 
 
 
2019
 
2018
Series A Preferred Stock
15,297

 

Restricted stock units
918

 
176

Stock options
10,076

 
12,706

Warrants
18,128

 
18,128

Total
44,419

 
31,010


24


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



 

NOTE 11 — FINANCIAL INSTRUMENTS AND SIGNIFICANT CONCENTRATIONS
 
Fair Value Measurements
 
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. When determining fair value, the Company considers the principal or most advantageous market in which it transacts, and considers assumptions that market participants would use when pricing the asset or liability. Additional information on fair value measurements is included in Note 13 to the Company’s consolidated financial statements for the year ended December 31, 2018, included in the 2018 Form 10-K.
 
As discussed in Note 5, the fair value for our Series A Preferred Stock issuances on June 20, 2019 and March 7, 2019 were determined to be $3.0 million and $5.3 million, respectively, which were utilized to determine the basis for allocating the net proceeds. The fair value was determined by utilizing a combination of a discounted cash flow methodology related to funds generated by the Series A Preferred Stock, along with the BSM option-pricing model in relation to the conversion feature. Key assumptions applied for the discounted cash flow and BSM analysis included (i) three different scenarios whereby the Series A Preferred Stock would remain outstanding between 4 and 5 years along with a probability weighting assigned to each scenario, (ii) an implied yield of the Series A Preferred Stock ranging from 20.9% to 22.9% calibrated to the transaction values as of June 20, 2019 and March 7, 2019, respectively, (iii) risk-free interest rates of 1.72% and 2.44%, and (iv) historical volatility of 30.0%.

For the three and six months ended June 30, 2018, the Company’s embedded derivative liability was the only liability that was carried at fair value on a recurring basis and was classified within Level 3 of the fair value hierarchy. Details of the embedded derivative, including valuation methodology and key assumptions and estimates used, were disclosed in Part II, Item 8 of our 2018 Form 10-K, in the Company's audited consolidated financial statements for the year ended December 31, 2018, within Note 5. All embedded derivative liabilities were eliminated on July 19, 2018 upon termination of the Credit Facility. These embedded derivatives had an aggregate fair value of $7.8 million and $1.6 million as of June 30, 2018 and December 31, 2017, respectively. The change in fair value of embedded derivatives resulted in the Company recognizing a loss of $6.7 million and $6.2 million for the three and six months ended June 30, 2018, respectively. The Company’s policy is to recognize asset or liability transfers among Level 1, Level 2 and Level 3 as of the actual date of the events or change in circumstances that caused the transfer. As of June 30, 2019, the Company does not have any assets or liabilities that are carried at fair value on a recurring basis.

The carrying amounts of the Company’s financial instruments including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate fair values due to their short-term maturities. Based on borrowing rates currently available to the Company for debt with similar terms, the carrying value of capital lease obligations approximate fair value as of the respective balance sheet dates.
 
Significant Concentrations
 
The Company attributes revenues to geographic regions based on the location of its customers’ contracting entity. The following table shows revenues by geographic region (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
United States of America
$
44,019

 
$
39,297

 
$
86,890

 
$
79,042

International
23,937

 
23,352

 
47,326

 
43,412

Total
$
67,956

 
$
62,649

 
$
134,216

 
$
122,454

 
No customers represented more than 10% of revenue for the both three months and six months ended June 30, 2019 and 2018. As of June 30, 2019 and December 31, 2018, no customers accounted for more than 10% of total net accounts receivable.
 
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash, and accounts receivable. The Company maintains its cash, cash equivalents and restricted cash at high-quality financial institutions, primarily in the United States of America. Deposits, including those held in foreign branches of global

25


RIMINI STREET, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



banks, may exceed the amount of insurance provided on such deposits. As of June 30, 2019 and December 31, 2018, the Company had cash, cash equivalents and restricted cash with a single financial institution for an aggregate of $42.1 million and $19.9 million, respectively. As of June 30, 2019 and December 31, 2018, the Company had restricted cash of $0.4 million and $0.4 million, respectively. The Company has never experienced any losses related to these balances.
 
Generally, credit risk with respect to accounts receivable is diversified due to the number of entities comprising the Company’s customer base and their dispersion across different geographies and industries. The Company performs ongoing credit evaluations on certain customers and generally does not require collateral on accounts receivable. The Company maintains reserves for potential bad debts and historically such losses are generally not significant.
 
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q (this “Report”) includes forward-looking statements. All statements other than statements of historical facts contained in this Report, including statements regarding our future results of operations and financial position, business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements include, but are not limited to, information concerning:
the evolution of the enterprise software management and support landscape facing our customers and prospects;
our ability to educate the market regarding the advantages of our enterprise software management and support services and products;
estimates of our total addressable market;
projections of customer savings;
our ability to maintain an adequate rate of revenue growth;
our expectations about future financial, operating and cash flow results;
the sufficiency of future cash and cash equivalents to meet our liquidity requirements;
our business plan and our ability to effectively manage our growth and associated investments;
beliefs and objectives for future operations;
our ability to expand our leadership position in independent enterprise software support and sell our application managed services;
our ability to attract and retain customers;
our ability to further penetrate our existing customer base;
our ability to maintain our competitive technological advantages against new entrants in our industry;
our ability to timely and effectively scale and adapt our existing technology;
our ability to innovate new products and bring them to market in a timely manner, including our recently announced salesforce.com and application management services offerings;
our ability to maintain, protect, and enhance our brand and intellectual property;
our ability to capitalize on changing market conditions including a market shift to hybrid and cloud/SaaS offerings for information technology environments and retirement of certain software releases by software vendors;
our ability to develop strategic partnerships;
benefits associated with the use of our services;
our ability to expand internationally;
our ability to raise equity or debt financing in the future;
the effects of increased competition in our market and our ability to compete effectively;
our intentions with respect to our pricing model;
cost of revenues, including changes in costs associated with production, manufacturing, and customer support;
operating expenses, including changes in sales and marketing, and general administrative expenses;
anticipated income tax rates;
our ability to maintain our good standing with the United States and international governments and capture new contracts;
costs associated with defending intellectual property infringement and other claims, such as those claims discussed under the section titled “Business—Legal Proceedings” in our 2018 Annual Report on Form 10-K, as filed with the SEC on March 14, 2019 (the “2018 Form 10-K”);
the final amount and timing of any refunds from Oracle related to our litigation;

26




our expectations concerning relationships with third parties, including channel partners and logistics providers;
economic and industry trends or trend analysis;
the attraction and retention of qualified employees and key personnel;
future acquisitions of or investments in complementary companies, products, subscriptions or technologies;
uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmarks;
the effects of seasonal trends on our results of operations; and
other risks and uncertainties, including those discussed under "Risk Factors" in Part II, Item 1A of this Report.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those referred to Part II, Item 1A of this Report. Moreover, we operate in very competitive and rapidly changing markets. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements in this Report are made as of the date of the filing, and except as required by law, we disclaim and do not undertake any obligation to update or revise publicly any forward-looking statements in this Report. You should read this Report and the documents that we reference in this Report and have filed with the SEC as exhibits with the understanding that our actual future results, levels of activity and performance, as well as other events and circumstances, may be materially different from what we expect.
 

Overview
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes to those statements included in Part I, Item 1 of this Report, and our audited consolidated financial statements for the year ended December 31, 2018, included in our 2018 Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk Factors” in Part II, Item 1A of this Report.
 
Certain figures, such as interest rates and other percentages included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated based on such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in our unaudited condensed consolidated financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

We were incorporated as Rimini Street, Inc. (“RSI”) in the state of Nevada in September 2005. In May 2017, RSI entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GP Investments Acquisition Corp. (“GPIA”), a publicly-held special purpose acquisition company incorporated in the Cayman Islands and formed for the purpose of effecting a business combination with one or more businesses. Substantially all of GPIA’s assets consisted of cash and cash equivalents. The Merger Agreement was approved by the respective shareholders of RSI and GPIA in October 2017, and closing occurred on October 10, 2017, resulting in (i) the merger of a wholly-owned subsidiary of GPIA with and into RSI, with RSI as the surviving corporation, after which (ii) RSI merged with and into GPIA, with GPIA as the surviving corporation. Prior to consummation of the mergers, GPIA domesticated as a Delaware corporation (the “Delaware Domestication”). Immediately after the Delaware Domestication and the consummation of the second merger, GPIA was renamed “Rimini Street, Inc.” (referred to herein as the Company, as distinguished from RSI with the same legal name).


27




We are a global provider of enterprise software management and support products and services, and the leading independent software support provider for Oracle and SAP products, based on both the number of active clients supported and recognition by industry analyst firms.

In 2018, we announced plans to support Software as a Service ("SaaS") solutions beginning with Salesforce products. As a partner of Salesforce, we provide our award-winning service and support for custom code, release updates and application integrations in addition to ongoing administrative, configuration and enhancement of Salesforce’s industry leading cloud solutions.

In August 2019, we announced plans to globally offer our Application Management Services for SAP, expanding the scope of support we will offer clients globally. We are already providing the service to clients in North and South America. The service includes system administration, monitoring, and tasks that would be considered standard for operating the SAP system day-to-day.
 
We founded our company to disrupt and redefine the enterprise software support market by developing and delivering innovative new products and services that fill a then unmet need in the market. We believe we have achieved our leadership position in independent enterprise software support by recruiting and hiring experienced, skilled and proven staff; delivering outcomes-based, value-driven and award-winning enterprise software support products and services; seeking to provide an exceptional client-service, satisfaction and success experience; and continuously innovating our unique products and services by leveraging our proprietary knowledge, tools, technology and processes.
 
Enterprise software support products and services is one of the largest categories of overall global information technology (“IT”) spending. We believe core enterprise resource planning (“ERP”), customer relationship management (“CRM”), product lifecycle management (“PLM”) and technology software platforms have become increasingly important in the operation of mission-critical business processes over the last 30 years, and also that the costs associated with failure, downtime, security exposure and maintaining the tax, legal and regulatory compliance of these core software systems have also increased. As a result, we believe that licensees often view software support as a mandatory cost of doing business, resulting in recurring and highly profitable revenue streams for enterprise software vendors. For example, for fiscal year 2018, SAP reported that support revenue represented approximately 44% of its total revenue and, for fiscal year 2019, Oracle reported a margin of 86% for cloud services and license support.

We believe that software vendor support is an increasingly costly model that has not evolved to offer licensees the responsiveness, quality, breadth of capabilities or value needed to meet the needs of licensees. Organizations are under increasing pressure to reduce their IT costs while also delivering improved business performance through the adoption and integration of emerging technologies, such as mobile, virtualization, internet of things (“IoT”) and cloud computing. Today, however, the majority of IT budget is spent operating, maintaining and supporting existing infrastructure and systems. As a result, we believe organizations are increasingly seeking ways to redirect budgets from maintenance to new technology investments that provide greater strategic value, and our software management and support products and services help clients achieve these objectives by reducing the total cost of support.
 
As of June 30, 2019, we employed over 1,170 professionals and supported over 1,890 active clients globally, including 80 Fortune 500 companies and 21 Fortune Global 100 companies across a broad range of industries. We define an active client as a distinct entity, such as a company, an educational or government institution, or a business unit of a company that purchases our services to support a specific product. For example, we count as two separate active client instances in circumstances where we provide support for two different products to the same entity.
 
Our subscription-based revenue provides a strong foundation for, and visibility into, future period results. For the three months ended June 30, 2019 and 2018, we generated revenue of $68.0 million and $62.6 million, respectively, representing an increase of 8%. We have a history of losses, and as of June 30, 2019, we had an accumulated deficit of $356.5 million. Approximately 65% and 63% of our revenue was generated in the United States for the three months ended June 30, 2019 and 2018, respectively. Approximately 35% and 37% of our revenue was generated in foreign jurisdictions for the three months ended June 30, 2019 and 2018, respectively.
 
Since our inception, we have financed our operations through cash collected from clients and net proceeds from equity financings and borrowings. As of June 30, 2019, we no longer have any outstanding contractual debt obligations under a former note payable to a related party. In addition as discussed in Notes 4 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report, we terminated our former Credit Facility on July 19, 2018.
 

28




We intend to continue investing for long-term growth. We have invested and expect to continue investing in expanding our ability to market, sell and provide our current and future products and services to clients globally. We also expect to continue investing in the development and improvement of new and existing products and services to address client needs. We currently do not expect to be profitable for the year ending December 31, 2019.


Recent Developments

Reference is made to Note 5 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for a discussion of recent developments related to the securities purchase agreements entered into on June 20, 2019 and March 7, 2019, and the related private placements of Series A Preferred Stock, Common Stock and Convertible Notes.

Additionally, reference is made to Note 8 to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Report for a discussion of developments in our litigation with Oracle. On March 4, 2019, the U.S. Supreme Court issued a unanimous decision reversing earlier decisions by the lower courts and ruling that Oracle must return approximately $12.8 million in non-taxable expenses that we had previously paid to Oracle (plus interest). Oracle paid us approximately $13.0 million (the principal amount plus post-judgment interest) on April 5, 2019. As a result, we recognized a recovery of non-taxable expenses for $12.8 million and recorded interest income of $0.2 million for the six months ended June 30, 2019. The award that we received is required to be shared on a pro rata basis with an insurance company, which had previously paid for part of the judgment and reimbursed a portion of defense costs, after deducting the costs of all of our past and pending appeal and remand proceedings in Rimini I. Therefore, we also incurred costs of $4.3 million for the six months ended June 30, 2019, reflecting the current estimated contractual amounts due to the insurance company to date. We recorded a benefit of $0.3 million during the three months ended June 30, 2019 as we incurred additional appeal and remand proceeding costs during the period. The liability is subject to decrease as additional costs related to any future Rimini I appeal and remand proceedings are incurred.


Key Business Metrics
 
Number of clients
 
Since we founded our company, we have made the expansion of our client base a priority. We believe that our ability to expand our client base is an indicator of the growth of our business, the success of our sales and marketing activities, and the value that our services bring to our clients. We define an active client as a distinct entity, such as a company, an educational or government institution, or a business unit of a company that purchases our services to support a specific product. For example, we count as two separate active clients when support for two different products is being provided to the same entity. As of June 30, 2019 and 2018, we had over 1,890 and 1,620 active clients, respectively.

We define a unique client as a distinct entity, such as a company, an educational or government institution or a subsidiary, division or business unit of a company that purchases one or more of our products or services. We count as two separate unique clients when two separate subsidiaries, divisions or business units of an entity purchase our products or services. As of June 30, 2019 and 2018, we had over 1,100 and 955 unique clients, respectively.
 
The increase in both our active and unique client counts have been almost exclusively from new unique clients and not from sales of new products and services to existing unique clients. However, as noted previously, we intend to focus future growth on both new and existing clients. We believe that the growth in our number of clients is an indication of the increased adoption of our enterprise software products and services.