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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

---

FORM 10-Q

---

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|For the quarterly period ended March 31, 2005                
|or                                                           
|o                                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period
from                             to

000-31321(Commission File No.)

RIGHTNOW TECHNOLOGIES, INC.(Exact Name of Registrant as Specified in Its Charter)

|Delaware(State or Other Jurisdiction of
Incorporation or Organization) |  | 81-0503640(I.R.S. Employer
Identification No.)
|---------------------------------------------------------------------- |  | ----------------------------------------------

40 Enterprise Boulevard
Bozeman, Montana 59718-9300(Address of Principal Executive Offices) (Zip Code)

(406) 522-4200(Registrant's Telephone Number, Including Area Code)

N/A(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The number of shares outstanding of the registrant's common stock, $0.001 par value, as of May 4, 2005 was 30,116,719.







RightNow Technologies, Inc.
Quarterly Report on Form 10-Q

For the Quarterly Period Ended March 31, 2005

INDEX



|           |  |                                                                                       |  |                                                     
|---------- |  | ------------------------------------------------------------------------------------- |  | ----------------------------------------------------
|Part I.    |  | FINANCIAL INFORMATION                                                                
|Item 1.    |  | Financial Statements                                                                 
|           |  | a)                                                                                    |  | Condensed consolidated balance sheets               
|           |  | b)                                                                                    |  | Condensed consolidated statements of operations     
|           |  | c)                                                                                    |  | Condensed consolidated statements of cash flows     
|           |  | d)                                                                                    |  | Notes to condensed consolidated financial statements
|Item 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations
|           |  | Risk Factors                                                                         
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                           
|Item 4.    |  | Controls and Procedures                                                              
|Part II.   |  | OTHER INFORMATION                                                                    
|Item 1.    |  | Legal Proceedings                                                                    
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                          
|Item 3.    |  | Defaults Upon Senior Securities                                                      
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                  
|Item 5.    |  | Other Information                                                                    
|Item 6.    |  | Exhibits                                                                             
|SIGNATURES





Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

RightNow Technologies, Inc.        Condensed Consolidated Balance Sheets        (In thousands) (Unaudited)

|                                           |                                      | December 31, 2004 |        | March 31,
2005 |  
|------------------------------------------ | ------------------------------------ | ----------------- | ------ | -------------- | -
|Assets                                     |                                      |                   |        |                |  
|Cash and cash equivalents                  |                                      | $                 | 18,944 |                | $
|Short-term investments                     |                                      |                   | 31,188 |                |  
|Accounts receivable                        |                                      |                   | 16,939 |                |  
|Term receivables, current                  |                                      |                   | 10,090 |                |  
|Allowance for doubtful accounts            |                                      |                   | (1,581 | )              |  
|                                           |                                      |                   |        |                |  
|Receivables, net                           |                                      |                   | 25,488 |                |  
|                                           |                                      |                   |        |                |  
|Prepaid expenses                           |                                      |                   | 1,255  |                |  
|                                           |                                      |                   |        |                |  
|Total current assets                       |                                      |                   | 76,835 |                |  
|                                           |                                      |                   |        |                |  
|Property and equipment, net                |                                      |                   | 4,393  |                |  
|Term receivables, non-current              |                                      |                   | 5,756  |                |  
|Intangible assets, net                     |                                      |                   | 1,113  |                |  
|Other                                      |                                      |                   | 212    |                |  
|                                           |                                      |                   |        |                |  
|Total Assets                               |                                      | $                 | 88,309 |                | $
|                                           |                                      |                   |        |                |  
|Liabilities and Stockholders' Equity       |                                      |                   |        |                |  
|Accounts payable                           |                                      | $                 | 1,720  |                | $
|Commissions and bonuses payable            |                                      |                   | 2,648  |                |  
|Other accrued liabilities                  |                                      |                   | 3,715  |                |  
|Current portion of deferred revenue        |                                      |                   | 36,020 |                |  
|                                           |                                      |                   |        |                |  
|Total current liabilities                  |                                      |                   | 44,103 |                |  
|                                           |                                      |                   |        |                |  
|Deferred revenue, net of current portion   |                                      |                   | 13,105 |                |  
|Stockholders' equity:                      |                                      |                   |        |                |  
|                                           | Common stock                         |                   |        | 29             |  
|                                           | Warrants                             |                   |        | 291            |  
|                                           | Additional paid-in capital           |                   |        | 72,367         |  
|                                           | Accumulated other comprehensive loss |                   |        | (605           | )
|                                           | Accumulated deficit                  |                   |        | (40,981        | )
|                                           |                                      |                   |        |                |  
|                                           | Total stockholders' equity           |                   |        | 31,101         |  
|                                           |                                      |                   |        |                |  
|Total Liabilities and Stockholders' Equity |                                      | $                 | 88,309 |                | $
|                                           |                                      |                   |        |                |  

See
accompanying notes to condensed consolidated financial statements.



RightNow Technologies, Inc.        Condensed Consolidated Statements of Operations        (In thousands, except per share amounts) (Unaudited)

|                                         |                               | Three Months Ended
March 31, |      
|---------------------------------------- | ----------------------------- | ---------------------------- | -----
|
|Revenue:                                 |                               |                              |      
|                                         | Software, hosting and support |                              | $    
|                                         | Professional services         |                              |      
|                                         |                               |                              |      
|                                         | Total revenue                 |                              |      
|Cost of revenue:                         |                               |                              |      
|                                         | Software, hosting and support |                              |      
|                                         | Professional services         |                              |      
|                                         |                               |                              |      
|                                         | Total cost of revenue         |                              |      
|                                         |                               |                              |      
|Gross profit                             |                               |                              | 9,968
|Operating expenses:                      |                               |                              |      
|                                         | Sales and marketing           |                              |      
|                                         | Research and development      |                              |      
|                                         | General and administrative    |                              |      
|                                         |                               |                              |      
|                                         | Total operating expenses      |                              |      
|                                         |                               |                              |      
|Income from operations                   |                               |                              | 162  
|Interest and other income (expense), net |                               |                              | (64  
|                                         |                               |                              |      
|Income before income taxes               |                               |                              | 98   
|Provision for income taxes               |                               |                              | (18  
|                                         |                               |                              |      
|Net income                               |                               | $                            | 80   
|                                         |                               |                              |      
|Net income per share:                    |                               |                              |      
|                                         | Basic                         |                              | $    
|                                         | Diluted                       |                              | $    
|Shares used in the computation:          |                               |                              |      
|                                         | Basic                         |                              |      
|                                         | Diluted                       |                              |      

See
accompanying notes to condensed consolidated financial statements.





RightNow Technologies, Inc.        Condensed Consolidated Statements of Cash Flows        (In thousands) (Unaudited)

|                                                              |                                              | Three Months Ended March 31, |      
|------------------------------------------------------------- | -------------------------------------------- | ---------------------------- | -----
|
|Operating activities:                                         |                                              |                              |      
|Net income                                                    |                                              | $                            | 80   
|Non-cash adjustments:                                         |                                              |                              |      
|                                                              | Depreciation and amortization                |                              |      
|                                                              | Provisions for losses on accounts receivable |                              |      
|Changes in operating accounts:                                |                                              |                              |      
|                                                              | Receivables                                  |                              |      
|                                                              | Prepaid expenses                             |                              |      
|                                                              | Accounts payable                             |                              |      
|                                                              | Commissions and bonuses payable              |                              |      
|                                                              | Other accrued liabilities                    |                              |      
|                                                              | Deferred revenue                             |                              |      
|                                                              | Other                                        |                              |      
|                                                              |                                              |                              |      
|                                                              | Cash provided by operating activities        |                              |      
|                                                              |                                              |                              |      
|Investing activities:                                         |                                              |                              |      
|Net change in short-term investments                          |                                              |                              |     
|Acquisition of property and equipment                         |                                              |                              | (761 
|                                                              |                                              |                              |      
|Cash provided by (used for) investing activities              |                                              |                              | (761 
|                                                              |                                              |                              |      
|Financing activities:                                         |                                              |                              |      
|Proceeds from long-term debt                                  |                                              |                              | 878  
|Proceeds from issuance of common stock:                       |                                              |                              |      
|                                                              | Initial public offering, less offering costs |                              |      
|                                                              | Employee stock options                       |                              |      
|Repurchase of common stock                                    |                                              |                              | (2   
|Payments on long-term debt                                    |                                              |                              | (404 
|                                                              |                                              |                              |      
|Cash provided by financing activities                         |                                              |                              | 411  
|                                                              |                                              |                              |      
|Effect of foreign exchange rates on cash and cash equivalents |                                              |                              | 9    
|                                                              |                                              |                              |      
|Increase (decrease) in cash and cash equivalents              |                                              |                              | (8   
|Cash and cash equivalents at beginning of period              |                                              |                              | 8,360
|                                                              |                                              |                              |      
|Cash and cash equivalents at end of period                    |                                              | $                            | 8,352
|                                                              |                                              |                              |      

See
accompanying notes to condensed consolidated financial statements.





RightNow Technologies, Inc.        Notes to Condensed Consolidated Financial Statements        (Unaudited)

(1)   Business Description and Basis of Presentation

Business Description

RightNow Technologies, Inc. (the "Company" or "RightNow") provides on-demand customer relationship management software solutions for companies
of all sizes. The Company's on-demand software supports multiple customer interaction points in a business's customer service, marketing and sales operations. Founded in 1997, RightNow is
headquartered in Bozeman, Montana, with additional offices in Dallas, Texas; San Mateo, California; Princeton, New Jersey; London, England; Sydney, Australia, Munich, Germany; and a liaison office in
Tokyo, Japan. The Company operates in one segment, which is the customer relationship management market.

Basis of Presentation

The accompanying interim consolidated financial statements are unaudited. These financial statements and notes should be read in conjunction with the audited
consolidated financial statements and related notes, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 2004.

The
accompanying interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. In the opinion of
management, the interim consolidated financial statements and notes have been prepared on the same basis as the audited consolidated financial statements in the Annual Report on
Form 10-K and include all adjustments necessary for the fair presentation of the Company's financial position at March 31, 2005, and results of operations and cash flows for
the three month periods ended March 31, 2004 and 2005. The interim period results are not necessarily indicative of the results to be expected for the full year.

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. Management evaluates these estimates and assumptions on an
on-going basis. Significant estimates and assumptions made by management include estimates and assumptions regarding revenue recognition, valuation allowances for trade receivables and
deferred income tax assets, and accounting for equity-based compensation.

(2)   Certain Risks and Concentrations

The Company's revenue is derived from the license, hosting and support of its software products and provision of related professional services. The market in
which the Company operates is highly competitive and rapidly changing. Significant technological changes, changes in customer requirements, or the emergence of competitive products with new
capabilities or technologies could adversely affect the Company's operating results. The Company has historically derived a majority of its revenue from customer service software solutions. These
products are expected to continue to account for a significant portion of revenue for the foreseeable future. As a result of this revenue concentration, the Company's business could be harmed by a
decline in demand for, or in the prices of, these products or as a result of, among other factors, any change in pricing model, a maturation in the markets for these products, increased price
competition or a failure by the Company to keep up with technological change.

The
Company's customers are worldwide with approximately 70% to 75% of sales in the United States. No individual customer accounted for more than 10% of the Company's revenue in 2004 or
the first three months of 2005, or represented more than 10% of receivables at December 31, 2004 or March 31, 2005.

As
of December 31, 2004 and March 31, 2005, assets located outside the United States were 7% of total assets. The loss from operations outside of the United States totaled
$2.8 million for the year ended December 31, 2004 and $1.6 million for the three months ended March 31, 2005. Revenue by geographical region follows (in thousands):

Three Months Ended March 31,2004

2005United States

$
9,188

$
13,757Europe


2,443


2,751Asia Pacific


1,226


1,834$
12,857

$
18,342


(3)   Net Income Per Share

A reconciliation of the denominator used in the calculation of basic and diluted net income per share is as follows (in thousands):

Three Months Ended March 31,2004

2005Weighted average common shares outstanding for basic net income per share

14,792

29,816Effect of dilutive securities:Convertible preferred stock

7,265

Employee stock options

3,086

3,684Warrants



64Weighted average shares outstanding for dilutive net income per share

25,143

33,564


The
following common stock equivalents were excluded from the computation of diluted earnings per share because their impact was anti-dilutive (in thousands):

Three Months Ended March 31,2004

2005Employee stock options

577

288Warrants

115






(4)   Comprehensive Income (Loss)

Comprehensive income (loss) for the comparative periods was as follows (in thousands):

Three Months Ended March 31,2004

2005Net income

$
80

$
801Other comprehensive income (loss):Unrealized loss on short-term investments





(41
)Foreign currency translation adjustments


(113
)

28Comprehensive income (loss)

$
(33
)
$
788


(5)   Equity-Based Compensation

The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, and Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based CompensationTransition and Disclosure, but applies Accounting Principles Board Opinion No. 25 ("APB 25") and related interpretations in
accounting for its stock plans. Under APB 25, when the exercise price of an employee stock option equals the estimated market price of the underlying stock on the date of grant, no compensation
expense is recognized.

Pro
forma information regarding results of operations has been determined as if the Company had accounted for its stock options under the appropriate minimum value or fair value method.
The Company uses the Black-Scholes valuation model to estimate the value of stock options granted under the 2004 Equity Incentive Plan and the Employee Stock Purchase Plan. The estimated weighted
average value per share of stock options granted in the three months ended March 31, 2004 and 2005 was $0.53 and $8.01, respectively. The estimated value of shares purchased under the
Employee Stock Purchase Plan for the three months ended March 31, 2005 was $5.79. Assumptions used to obtain the estimated values were:

Three Months Ended March 31,2004

2005Employee Stock OptionsWeighted average risk free rate

3.1
%
3.9
%Expected term

5 yrs

5 yrsVolatility

0
%
74
%Dividend yield

0
%
0
%Employee Stock Purchase PlanRisk free rate



2.9
%Expected term



0.5 yrsVolatility



74
%Dividend yield



0
%




Had
the Company recorded compensation expense in accordance with SFAS No. 123, net income (loss) would have been (in thousands, except per share data):

Three Months Ended
September 30,2004

2005Net income as reported

$
80

$
801Less equity-based compensation


(91
)

(591
)Pro forma net income (loss)

$
(11
)
$
210Net income (loss) per share:Basic:As reported

$
0.01

$
0.03Pro forma


0.00


0.01Diluted:As reported

$
0.00

$
0.02Pro forma


0.00


0.01


From
time to time the Company grants to certain of its consultants options to purchase stock. The Company accounts for consultant stock options in accordance with SFAS 123 and
Emerging Issues Task Force Consensus Issue No. 96-18 ("EITF 96-18"),Accounting for Equity Instruments that are Issued to Other Than Employees
for Acquiring, or in Conjunction With Selling, Goods or Services. Compensation expense for the grant of stock options to consultants is determined based on the estimated fair
value of the stock options at the measurement date as defined in EITF 96-18 and is recognized over the vesting period.

In
December 2004, the Financial Accounting Standards Board issued SFAS No. 123R ("123R"),Share-Based Payment, which
replaces SFAS No. 123 and supercedes APB 25. Statement 123R covers a wide range of share-based compensation, including share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. The statement requires the recognition of compensation cost related to share-based payment plans to be recognized in financial statements based
on the fair value of the equity or liability instruments issued. The Company expects that this accounting change will materially and adversely affect our reported results of operations because the
stock-based compensation expense will be charged directly against earnings. The Company expects to adopt the provisions of 123R beginning January 1, 2006.

(6)   Commitments and Contingencies

Warranties and Indemnification

The Company's on-demand application service is typically warranted to perform in accordance with its user documentation.

The
Company's arrangements generally include certain provisions for indemnifying customers against liabilities if its products or services infringe a third-party's intellectual property
rights. To date, the Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in the accompanying consolidated
financial statements.

The
Company has entered into service level agreements with a small number of its customers warranting certain levels of uptime reliability and permitting those customers to receive
credits or terminate their license agreements in the event that the Company fails to meet those levels. To date, the Company has not provided any material credits, or cancelled any agreements related
to these service level agreements.

The
Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of
these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person's service as a director or officer, including any action by the
Company, arising out of that person's services as the Company's director or officer or that person's services provided to any other company or enterprise at the Company's request.

Litigation

From time to time, the Company is involved in legal proceedings arising in the normal course of business. The Company believes that the resolution of these
matters will not have a material effect on the Company's consolidated financial position, results of operations or liquidity.

(7)   Recent Developments

Acquisition of Convergent Voice Assets

In May 2005, the Company purchased the intellectual property and other assets, and hired certain personnel, of Convergent Voice, Inc. Convergent
Voice has developed voice enabled automation technologies that, when combined with the Company's applications, provide for: a) telephone queries of the Company's knowledgebase;
b) submission of questions over the phone that can be subsequently answered either electronically or via a return phone call; and c) submission of queries that access back office
systems, such as an order processing system, to obtain status of an order. The Company had previously licensed the Convergent Voice technology for approximately two years.

The
purchase price of $1 million was paid in cash on May 5, 2005. The Company expects that the substantial majority of the purchase price will be allocated to identifiable
intangible assets, which will then be amortized to earnings over their remaining lives of approximately 5 years.

Commitments

The Company leases its office facilities and certain office equipment under non-cancelable operating lease agreements with various expiration dates
through 2011. In March 2005 the Company extended two office lease agreements, and entered into a new office lease agreement, with Genesis Partners, LLC. Annual minimum payments under operating
leases are approximately $1.2 million in 2005 through 2009, approximately $750,000 in 2010, and approximately $150,000 thereafter.





Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the
financial statements and related notes in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from
those projected in the forward-looking statements as a result of factors, including those discussed under "Risk Factors" and elsewhere in this report. We assume no obligation to update the
forward-looking statements or such risk factors.

Overview

We are a leading provider of on-demand solutions for the customer relationship management ("CRM") market. We offer a broad suite of solutions to
address the customer service, sales and marketing requirements of large, medium and small enterprises.

We
released our initial version of RightNow Service in 1997. This product addressed the new customer service needs resulting from the increasing use of the Internet as a customer service
channel. Since then, we have significantly enhanced product features and functionality to address customer service needs across multiple communication channels, including web, interactive voice,
e-mail, chat, telephone and proactive outbound e-mail communications. We have also added several products that are complementary to our RightNow Service solution, including
RightNow Metrics and RightNow Locator. In 2003, we introduced an e-mail marketing automation solution, RightNow Outbound. In October 2004, we introduced RightNow CRM, which is
comprised of three applications built on a common base: RightNow Service, RightNow Sales, and RightNow Marketing. To date, approximately 90% of our revenue has been generated from sales of RightNow
Service.

Our
client base currently consists of more than 1,200 active clients. During the three months ended March 31, 2005, our products served more than 166 million
customer interactions, or unique sessions hosted by our solutions. Our solutions, whether sold pursuant to term or perpetual licenses, are available either on a hosted basis, where they are deployed
in our co-location facilities and accessed on-demand by our clients, or on a non-hosted basis, where our clients deploy them in their own facilities. Approximately
86% of our clients have elected the hosted option as of March 31, 2005. We distribute our solutions primarily through direct sales efforts and to a lesser extent through indirect channels.

Sources of Revenue

Our revenue is comprised of fees for term and perpetual licenses of our software, fees for hosting and support related to our licenses, and fees for professional
services. Our term license agreements, which are generally two years in length but can range from six months to four years, include our software and related upgrades, hosting and
support for the term of the agreement. The majority of our revenue in each of our last three years and the three months ended March 31, 2005 was derived from two-year
term license agreements. We also offer monthly term license agreements that contain a minimum commitment period of at least 12 months and include our software and related upgrades, hosting and
support. Perpetual licenses are typically sold with annual maintenance contracts that include upgrades, hosting and support.

Hosting
and support agreements provide maintenance and management of our software at a third party facility, technical support for our software products, and unspecified product upgrades
on a when and if available basis.

Professional
services revenue is comprised of revenue from consulting, education and development services, and reimbursement of related travel costs. Consulting and education services
include


implementation and best practices services consulting. Development services include customizations and integrations for a client's specific business application.

Our
software license agreements generally include capacity-based fees, which are measured primarily by web pages served, user seats, outgoing email transactions, or minutes used,
and certain fixed fees. A number of our agreements provide for additional fees for usage above established levels, which are billed and recognized into revenue when earned.

Professional
services, consisting of consulting, education and development services, are sold with initial license agreements and periodically over the client engagement. The average
deployment time for our clients is approximately 50 days. We typically invoice clients for the entire amount at the beginning of the agreement with payment generally due within 30 days
for our term and perpetual license agreements, or due monthly for our monthly agreements. Our typical education courses are billed on a per person, per class basis.

Depending
on the size and complexity of the client project, our consulting or development services contracts are either fixed price/fixed scope or, less frequently, billed on a time and
materials basis. We have determined that the professional services element of our software arrangements is not essential to the functionality of the software. We have also determined that our
professional services: a) are available from other vendors; b) do not involve a significant degree of risk or unique acceptance criteria; and c) qualify for separate accounting as
we have sufficient experience in providing such services.

Cost of Revenue and Operating Expenses

Cost of Revenue.Cost of revenue consists primarily of salaries and related expenses for our hosting, support and
professional services organizations, third-party costs and equipment depreciation relating to our hosting services, third-party costs for interactive voice self-service applications,
travel expenses related to providing professional services to our clients, amortization of acquired intangible assets and allocated overhead. We allocate most overhead expenses, such as office
supplies, computer supplies, utilities, rent, depreciation for furniture and equipment, payroll taxes and employee benefits, based on headcount. As a result, overhead expenses are reflected in each
cost of revenue and operating expense category.

Our
hosting costs are affected by the percentage of clients who license our products on a hosted basis and the number of times our clients and their customers use our solutions, which we
refer to as customer interactions. As a result of economies of scale in our hosting infrastructure and declines in computer hardware and telecommunications costs, we were able to reduce hosting costs
as a percentage of total revenue in 2003, and 2004, despite significant increases in the number of hosted clients and the level of customer interactions. Software, hosting and support costs as a
percent of total revenue increased slightly in the first three months of 2005 due to additions of technical support personnel.

As
our client base and solutions usage grows, we intend to continue to invest additional resources in our hosting services, technical support and professional services. We expect our
professional services costs to increase in absolute dollars as we increase our professional services as a percentage of total revenue. Because cost as a percentage of revenue is higher for
professional services revenue than for software, hosting and support revenue, an increase in professional services as a percentage of total revenue reduces gross profit as a percentage of total
revenue. During the first three months of 2005,
gross profit as a percentage of total revenue declined to 74% from 78% in 2004 primarily due to an increase in professional services as a percentage of total revenue.

Sales and Marketing Expenses.Sales and marketing expenses consist primarily of salaries and related expenses for employees
in sales and marketing, including commissions and bonuses, advertising, marketing events, corporate communications, product management expenses, travel costs and allocated



overhead. We expense our sales commissions at the time the related sale is invoiced to the client and we recognize the majority of our revenue from our agreements ratably over the terms of the
licenses. Accordingly, we generally experience a delay between increasing sales and marketing expenses and the recognition of corresponding revenue. We expect significant additional increases in sales
and marketing expenses in absolute dollars as we continue to hire additional sales and marketing personnel and increase the level of marketing activities.

Research and Development Expenses.Research and development expenses consist primarily of salary and related expenses for
development personnel and costs related to the development of new products, enhancement of existing products, translation fees, quality assurance, testing and allocated overhead. To date, we have not
capitalized any software development costs because the timing of the commercial releases of our products has substantially coincided with the attainment of technological feasibility. As a result,
research and development costs have been expensed as incurred. We intend to continue to expand and enhance our product offerings. To accomplish this, we plan to hire additional personnel and, from
time to time, contract with third parties. We expect that research and development expenses will increase in absolute dollars as we seek to expand our technology and product offerings.

General and Administrative Expenses.General and administrative expenses consist primarily of salary and related expenses for
management, finance and accounting, legal, information systems and human resources personnel, professional fees, other corporate expenses and allocated overhead. We anticipate that we will incur
additional employee salaries and related expenses, professional service fees and insurance costs related to the growth of our business and operations.

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. Preparing financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These assumptions are affected by management's
application of accounting policies. Our critical accounting policies include: revenue recognition; valuation of receivables and deferred tax assets; and accounting for equity-based compensation.

We
believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements:

Revenue Recognition

Software, hosting and support revenue is comprised of fees from term and perpetual licenses of the Company's software, hosting and support. To date we have not
entered into an arrangement solely for the license of products and, therefore we have not demonstrated vendor specific objective evidence (VSOE) of fair value for the license element. Consequently, we
recognize revenue for the fees associated with the term license and the related hosting and support ratably over the term of the agreement, which is generally two years, but can range between
six months and four years. We have established VSOE for the annual hosting and support elements sold with each perpetual license based on the price paid when sold separately.
Accordingly, we recognize revenue for each perpetual license using the residual method in accordance with Statement of Position (SOP) 98-9,Modification of SOP
97-2, Software Revenue Recognition With Respect to Certain Transactions.

We
begin to recognize revenue from the licensing, hosting and support of our products when all the following criteria are met: a) we have entered into a legally binding agreement
with the client; b) our products and services have been delivered or made available to the client; c) our fee for providing the products and services is determinable; and d) we
believe collection of our fee is reasonably probable.

Amounts
that have been invoiced to clients are recorded to accounts or term receivables and deferred revenue. Deferred revenue is then recognized into revenue when earned.

Allowance for doubtful accounts

We regularly assess the collectibility of outstanding customer invoices and, in so doing, we maintain an allowance for estimated losses resulting from the
non-collection of customer receivables. In estimating this allowance, we consider factors such as: historical collection experience; a customer's current creditworthiness; customer
concentration; age of the receivable balance; and general economic conditions that may affect a customer's ability to pay. Actual customer collections could differ from our estimates and exceed our
related loss allowance.

Income Taxes

We record income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment date. When applicable, a valuation allowance is established to reduce any deferred tax asset when it is determined that it
is more likely than not that some portion of the deferred tax asset will not be realized.

We
have established a valuation allowance equal to our net deferred tax assets due to uncertainties regarding the realization of our net operating loss carryforwards, tax credits, and
deductible timing differences. The uncertainty of realizing these benefits is based primarily on our lack of historical earnings.

Equity-Based Compensation

We account for our employee stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Option ("APB") No. 25, Accounting for Stock Issued to Employees. We make disclosure regarding employee stock-based compensation using the fair value method in accordance with
SFAS No. 123,Accounting for Stock-Based Compensation, and SFAS No. 148,Accounting for Stock-Based
CompensationTransition and Disclosure. We have calculated the fair value of options granted and have determined the pro forma impact on net income (loss). We
account for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF") No. 96-18, Accounting for Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services.

In
measuring the cost of equity-based compensation, we make assumptions regarding our stock price volatility and the average expected life of our outstanding stock options. Our
assumptions are based on our historical information, some of which was developed when we were a private company, which are then compared with other like companies for reasonableness. Actual results
could differ from our estimates.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123R ("SFAS 123R"), Share-Based
Payment, which replaces SFAS 123 and supercedes APB No. 25. The statement's effective date was amended in April 2005 to
apply to certain public companies beginning with their first fiscal year beginning after June 15, 2005. SFAS 123R covers a wide range of share-based compensation, including share
options, restricted share plans, performance-



based awards, share appreciation rights, and employee share purchase plans. The statement requires the recognition of compensation cost related to share-based payment plans to be recognized in
financial statements based on the fair value of the equity or liability instruments issued. We expect that adoption of the provisions of SFAS 123R in our 2006 fiscal year beginning
January 1, 2006 will materially and adversely affect our reported results of operations because the stock-based compensation expense will be charged directly against reported earnings. We do
not expect the accounting change to materially affect our liquidity because stock-based compensation is a non-cash expense.

Results of Operations

The following table sets forth certain consolidated statement of operations data expressed as a percentage of total revenue for the periods indicated:

Three Months Ended
March 31,2004

2005Revenue:Software, hosting and support

83
%
76
%Professional services

17

24Total revenue

100

100Cost of revenue:Software, hosting and support

12

11Professional services

10

15Total cost of revenue

22

26Gross profit

78

74Operating expenses:Sales and marketing

53

51Research and development

14

12General and administrative

9

8Total operating expenses

76

71Income from operations

2

3Interest and other income (expense), net

(1
)
1Income before income taxes

1

4Provision for income taxes



Net income

1
%
4
%




The
following table sets forth our on-demand customer interactions and percent of clients hosting and our revenue by type and geography expressed as a percentage of total
revenue for each of the periods indicated:

Three Months Ended
March 31,2004

2005Customer interactions (in millions)

102

166Percentage of clients hosting

85
%
86
%Revenue by type:Recurring (term licenses, hosting and support)

66
%
58
%Perpetual licenses

17

18Professional services

17

24Revenue by geography in:United States

71
%
75
%Europe

19

15Asia Pacific

10

10


Overview of Current Period and Outlook

The quarter ended March 31, 2005 represented our 29th consecutive quarter of revenue growth. Total revenue for the quarter ended
March 31, 2005 increased 43% over the comparable period in 2004 from growth in our average number of customers and growth in our average selling prices. Gross profit for the three months
ended March 31, 2005 was 4 percentage points lower than the comparable period in 2004 due to an increased mix of professional services revenue. Operating expenses for the
three months ended March 31, 2005, in total, increased 33% over the three months ended March 31, 2004 due to our investment in personnel to support our overall growth.
Operating income for the first quarter of 2005 was 3% of revenue as compared to 2% of revenue in the first quarter of 2004.

Our
revenue growth in 2004 and the first quarter of 2005 resulted from the release of broader product offerings, a corresponding increase in service offerings, and the addition of sales
personnel focused on new client acquisition. In the first quarter of 2005 we signed 60 new customers to bring our total active client base to 1,273, or 17% more than the 1,089 active clients at
March 31, 2004. On a sequential quarterly basis, our growth, as measured by the number of new clients acquired, declined in the first quarter ended March 31, 2005. We believe the lower
client acquisitions may be the result of seasonal buying patterns of our customers.

For
the three months ended March 31, 2005, we generated $3.2 million of cash from operations compared to $0.3 million of cash in the comparable 2004 quarter,
and increased our deferred revenue to $52.8 million at March 31, 2005 from $36.7 million one year earlier.

As
of March 31, 2005 we had an accumulated deficit of $40.2 million. This deficit resulted primarily from costs incurred in the development, sales and marketing of our
products and for general and administrative purposes. We intend to continue to invest in our sales and marketing activities, product development and business infrastructure. During periods of
investment and growth, because the majority of expenses are recorded as incurred and the majority of revenue is deferred, we anticipate that any growth in revenue will be largely offset by an increase
in cost of revenue and operating expenses.

Three Months Ended March 31, 2004 and 2005

Revenue

Three Months Ended March 31,2004

2005

Percent
Change(Amounts in thousands)Software, hosting and support

$
10,720

$
13,874

29
%Professional services


2,137


4,468

109Total revenue

$
12,857

$
18,342

43
%


Software, hosting and support

For the quarter ended March 31, 2005, software, hosting and support revenue increased $3.2 million, or 29%, over the first quarter of 2004. The
increase resulted primarily from a 10% increase in average revenue per client and an 18% increase in the average number of clients. Average revenue per client has grown from additional usage capacity
and upgrades and enhancements purchased by clients. Additional usage capacity purchased by clients is reflected by customer interactions, which grew to 166 million for the quarter ended
March 31, 2005 from 102 million in the comparable 2004 quarter. The increase in the average number of clients was primarily due to the addition of sales representatives focused on new
client acquisition. Recurring software, hosting and support revenue was $10.6 million in the quarter ended March 31, 2005, or 25% more than the comparable 2004 quarter.

Perpetual
license fee revenue represented 18% of total revenue in the quarter ended March 31, 2005 compared to 17% in the quarter ended March 31, 2004. The mix of perpetual
license revenue affects our overall profitability in any given period since it is recorded into revenue in full upon delivery instead of being ratably recognized into revenue, as is the case with term
licenses. Over the previous eight quarters, perpetual license revenue has ranged between 12% and 26% of total revenue. We believe there are many factors that cause our perpetual license revenue to
fluctuate as a percentage of total revenue, including the strategic importance of our products in client organizations, client planning horizons, and client purchasing preferences and patterns. For
these reasons, we expect perpetual license revenue to continue to fluctuate in future periods.

Professional services

For the quarter ended March 31, 2005, professional services revenue increased $2.3 million, or 109%, over the first quarter of 2004. Average
professional services revenue per client increased 77% in the first quarter of 2005 compared to the first quarter of 2004, and average number of clients increased 18%. Revenue per client increased
from higher utilization in the first quarter of 2005, and from our focus on expanding service offerings provided in conjunction with our broader product offerings. We increased our capacity to deliver
professional services by increasing our average employee count to 77 employees at March 31, 2005 from 40 employees one year earlier.

The
mix of professional services revenue to total revenue will also affect our operating results from period-to-period, due to the lower gross profit earned on
professional services revenue as compared to software, hosting and support revenue. We expect professional services revenue to range between 20% and 25% of total revenue in future periods.

Cost of Revenue

Three Months Ended March 31,2004

2005

Percent
Change(Amounts in thousands)Software, hosting and support

$
1,579

$
2,064

31
%Professional services


1,310


2,696

106Total cost of revenue

$
2,889

$
4,760

65
%


Software, hosting and support

For the quarter ended March 31, 2005, cost of software, hosting and support revenue increased $485,000, or 31%, over the comparable 2004 quarter mostly due
to the addition of staff to support new product offerings. Staff additions in our software, hosting and support organizations increased salaries and related employee costs by $255,000 in the first
quarter of 2005 over the first quarter of 2004, and equipment depreciation expenses and third-party hosting service costs increased $149,000. Average employee count in our hosting and support
organization was 52 in the first quarter of 2005 compared to 41 in the first quarter of 2004. As a percent of the associated revenue, cost of software, hosting and support remained constant at 15% in
the first quarter of 2005 and 2004.

Professional services

For the quarter ended March 31, 2005, professional services costs increased $1.4 million, or 106%, over the comparable 2004 quarter. As a percent of
the associated revenue, professional services costs were 60% in the 2005 quarter as compared to 61% in the 2004 quarter. The growth in absolute dollars in
the first quarter of 2005 resulted from staff additions and associated travel and living expenses. Average employee count in our professional services group was 77 in the first quarter of 2005
compared to 40 in the first quarter of 2004.

Operating Expenses

Three Months Ended March 31,2004

2005

Percent
Change(Amounts in thousands)Sales and marketing

$
6,848

$
9,457

38
%Research and development


1,805


2,161

20General and administrative


1,153


1,410

22Total operating expenses

$
9,806

$
13,028

33
%


Sales and Marketing Expenses

For the quarter ended March 31, 2005, sales and marketing expense increased $2.6 million, or 38%, over the comparable 2004 quarter primarily due to
the addition of employees to our sales and marketing group. Average employee count in our sales and marketing group was 188 for the first quarter of 2005 compared to 140 for the first quarter of 2004,
which increased salaries and related costs by approximately $1.4 million. In addition, we incurred incremental sales incentive costs of $0.7 million in the 2005 quarter due to growth in
new contracts signed. As a percent of total revenue,


sales and marketing expenses declined to 51% in the first quarter of 2005 from 53% in the first quarter of 2004.

Research and Development Expenses

For the quarter ended March 31, 2005, research and development expenses increased $356,000, or 20%, over the comparable 2004 quarter due to higher salaries
and related costs. Average employee count in our research and development organization grew to 89 employees in the first quarter of 2005 from 70 employees in the first quarter of 2004.

General and Administrative Expenses

For the quarter ended March 31, 2005, general and administrative expenses increased $257,000, or 22%, over the first quarter of 2004 primarily due to
employee growth. Average employees in our general and administrative organization were 37 in the first quarter of 2005 and 27 in the first quarter of 2004, which increased payroll and related costs by
approximately $229,000.

Recent Development

As discussed in Note 7, in May 2005 we purchased the assets and hired certain employees of Convergent Voice, Inc. We expect that the addition
of Convergent Voice assets and employees will increase cost of software, hosting and support by approximately $150,000 per quarter, and increase research and development expenses by approximately
$200,000 per quarter.

Interest and Other Income (Expenses), Net

Three Months Ended
March 31,2004

2005(Amounts in thousands)Interest income

$
23

$
303Interest expense


(86
)

Other


(1
)

(11
)Total interest and other income (expense)

$
(64
)
$
292


Interest
income of $303,000 in the quarter ended March 31, 2005 consisted of earnings on our cash equivalent and short-term investment portfolio, and to a lesser
extent, interest earned on long-term customer receivables. In August 2004, we completed our initial public offering of common stock and received net proceeds of approximately
$40 million, most of which was invested in short-term, interest-bearing securities. Interest expense in the first quarter of 2004 consisted primarily of amounts paid or accrued
under our outstanding long-term debt at that time. We paid down all of our long-term debt of in the second half of 2004.

Provision for Income Taxes

Our provision for income taxes was 5% of pre-tax income for the three months ended March 31, 2005 as compared to 18% in the first
quarter of 2004. The provision for both periods consists primarily of foreign withholdings for which net operating losses are not available. Our provision for income taxes is less than the statutory
rate mostly due to the utilization of U.S. net operating loss carryforwards.

At
March 31, 2005, we had $21.7 million of net deferred income tax assets that have been reserved in full by a valuation allowance. In the future, if available evidence
indicates that it is more likely than


not that we will be able to utilize some or all of our deferred tax assets, we will record an income tax benefit in the amount of the asset recognized. At that time, we expect that our effective tax
rate would likely increase.

Liquidity and Capital Resources

Information regarding deferred revenue and cash provided by operating activities follows (in thousands):

|                                      |  | Quarter Ended
|------------------------------------- |  | -------------
|
|
|Deferred revenue                      |  | $            
|Cash provided by operating activities |  |              

We
have historically funded our operations with cash from operations, equity financings and debt borrowings. In August 2004 we completed our initial public offering of
6.4 million shares of common stock and received net proceeds of approximately $40 million. The offering proceeds are invested in short-term, interest-bearing securities.
During the second half of 2004 we paid down all of our then outstanding long-term debt.

At
March 31, 2005 cash and cash equivalents, and short-term investments, totaled $52.9 million. In addition to our cash and short-term investments,
other sources of liquidity at March 31, 2005 included a $3.0 million bank line of credit facility under which there have been no borrowings.

Operating
activities provided $3.2 million of cash during the three months ended March 31, 2005, as compared to $0.3 million of cash from operations in the
corresponding period of the prior year. The majority of our cash from operations in the first quarter of 2005 was from growth in deferred revenue and collections of accounts receivable. We typically
bill customers on net 30-day terms at the beginning of the license period, which is reflected in accounts receivable and deferred revenue. Customers may elect a monthly payment option, or
in certain circumstances, installment payments, which are reflected in current and non-current term receivables. Our new business in the first quarter of 2005 included a higher dollar
volume of monthly payment options and, consequently, we expect collections of receivables to be slightly lower in our second quarter ending June 30, 2005.

Cash
required for income taxes has not been significant historically and is not expected to be significant for the remainder of 2005.

Investing
activities provided $10.4 million in cash during the three months ended March 31, 2005 due to the liquidation of short-term investments and
re-investment of proceeds in cash equivalents. Other investing activities included $1.1 million of equipment acquisitions for our hosting operations and employee growth.

As
discussed in recent developments, in May 2005 we acquired the intellectual property and other assets of Convergent Voice, Inc. for $1 million, which was paid in
cash upon closing. In addition to the asset purchase, we agreed to hire certain personnel of Convergent Voice. The asset acquisition and additional employees are not expected to have a material effect
on the Company's liquidity or financial condition.

Financing
activities provided $0.6 million in the three months ended March 31, 2005 from the exercise of employee stock options.

We
believe our existing cash and short-term investments, together with funds generated from operations, should be sufficient to fund operating and investment requirements for
at least the next twelve months. Our future capital requirements will depend on many factors, including our rate of


revenue growth and expansion of our sales and marketing activities, the possible acquisition of complementary products or businesses, the timing and extent of spending required for research and
development efforts, and the continuing market acceptance of our products. To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds
through public or private equity or debt financings. Additional equity or debt financing may not be available on terms favorable to us or at all.

Contractual Obligations and Commitments

During the quarter ended March 31, 2005, we entered into a new office lease agreement, and extended two existing office lease agreements, with Genesis
Partners LLC. As a result, our contractual obligations under operating lease agreements will increase by approximately $250,000 in 2005, and approximately $360,000 in 2006 through 2009.





Risk Factors

Before deciding to purchase, hold or sell our common stock, you should carefully consider the risks described below, in addition to the
other cautionary statements and risks described elsewhere and the other information contained in this report and in our other filings with the SEC, including our Registration Statement on
Form S-1 and subsequent reports on Forms 10-Q, 10-K and 8-K. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs
with material adverse effects on RightNow, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock could decline and
you may lose all or part of your investment.

Risks Related to Our Business



We may not be able to sustain or increase our profitability in the future. Prior to 2004, we incurred significant operating losses of approximately
$4.1 million in 2003, $2.7 million in 2002 and $15.3 million in 2001. As of March 31, 2005, we had an accumulated deficit of approximately $40.2 million. We expect
to continue to incur significant sales and marketing, research and development and general and administrative expenses as we expand our operations and, as a result, we will need to generate
significant revenue to maintain profitability. Even if we continue to achieve profitability, we may not be able to increase profitability on a quarterly or annual basis in the future, which may cause
the price of our stock to decline.



Our quarterly revenue and results of operations may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly
revenue or results of operations fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Fluctuations in our results of operations
may be due to a number of factors, including, but not limited to, those listed below and identified throughout this "Risk Factors" section:



Because
the sales cycle for the evaluation and implementation of our solutions typically ranges from 60 to 180 days, we may also experience a delay between increasing operating
expenses and the generation of corresponding revenue, if any. Moreover, because the majority of our clients purchase term licenses, and we recognize revenue from these licenses over the term of the
agreement, downturns or upturns in sales may not be immediately reflected in our operating results. Most of our expenses, such as salaries and third-party hosting co-location costs, are
relatively fixed in the short-term, and our expense levels are based in part on our expectations regarding future revenue levels. As a result, if revenue for a particular quarter is below
our expectations, we may not be able to proportionally reduce operating expenses for that quarter, causing a disproportionate effect on our expected results of operations for that quarter.

Due
to the foregoing factors, and the other risks discussed in this report, you should not rely on quarter-to-quarter comparisons of our results of operations as
an indication of our future performance.

If our efforts to enhance existing solutions, introduce new solutions or expand the applications for our products and solutions to broader CRM markets do not
succeed, our ability to grow our business will be adversely affected.

More
than 85% of our revenue is derived from RightNow Service, a suite of solutions used to optimize customer service operations. If we are unable to successfully develop and sell new
and enhanced
versions of RightNow Service, or introduce new products and solutions for the customer service market, our financial performance will suffer. Although to date we have focused our business on providing
solutions for customer service operations, we recently introduced RightNow Sales and RightNow Marketing to expand our solution offerings to the sales and marketing segments of the CRM market. Our
efforts to expand beyond the customer service market may not be successful because certain of our competitors have far greater experience and brand recognition in the broader segments of the CRM
market. In addition, our efforts to expand our on-demand software solutions beyond the customer service market may divert management resources from our existing operations and require us
to commit significant financial resources to a market where we are unproven, which may harm our business, financial condition and results of operations.

We face intense competition, and our failure to compete successfully could make it difficult for us to add and retain clients and could reduce or impede the
growth of our business.

The
market for customer relationship management solutions is highly competitive and fragmented, and is subject to rapidly changing technology, shifting client requirements, frequent
introductions of new products and services, and increased marketing activities of other industry participants. Competition has intensified with our most recent product releases. Increased competition
could result in pricing pressure, reduced sales, lower margins or the failure of our solutions to achieve or maintain broad market acceptance. If we are unable to compete effectively, it will be
difficult for us to add and retain clients, and our business, financial condition and results of operations will be seriously harmed.

We
face competition from:



Many
of our current and potential competitors have longer operating histories and larger presence in the general CRM market, greater name recognition, access to larger customer bases and
substantially greater financial, technical, sales and marketing, management, service, support and other resources than we have. As a result, such competitors may be able to respond more quickly than
we can to new or changing opportunities, technologies, standards or client requirements or devote greater resources to the promotion and sale of their products and services than we can. To the extent
our competitors have an existing relationship with a potential client, that client may be unwilling to switch vendors due to the time and financial commitments already made with our competitors.

In
addition, many of our current and potential competitors have established or may establish business, financial or strategic relationships among themselves or with existing or potential
clients, alliance partners or other third parties, or may combine and consolidate to become more formidable competitors with better resources. We also expect that new competitors, such as enterprise
software vendors and online service providers that have traditionally focused on enterprise resource planning or back office applications, will continue to enter the on-demand CRM market
with competing products as the on-demand CRM market develops and matures. It is possible that these new competitors could rapidly acquire significant market share.

The market for our on-demand application services is at an early stage of development, and if it does not develop or develops more slowly than we
expect, our business will be harmed.

The
market for on-demand application services is at an early stage of development, and it is uncertain whether these application services will achieve and sustain high levels
of demand and market acceptance. Our success will depend to a substantial extent on the willingness of companies to increase their use of on-demand application services in general and for
on-demand customer relationship management applications in particular. Many companies have invested substantial personnel and financial resources to integrate traditional enterprise
software into their businesses, and therefore may be reluctant or unwilling to migrate to on-demand application services. While we have supported and continue to support traditional
on-site deployment of our software applications, widespread market acceptance of our on-demand software solutions is critical to the success of our business. Other factors that
may affect the market acceptance of our solutions include:



If
businesses do not perceive the benefits of our on-demand solutions, then the market for these solutions may not develop further, or it may develop more slowly than we
expect, either of which would adversely affect our business, financial condition and results of operations.

Failure to effectively develop and expand our sales and marketing capabilities could harm our ability to increase our client base and achieve broader market
acceptance of our solutions.

Increasing
our client base and achieving broader market acceptance of our solutions will depend to a significant extent on our ability to expand our sales and marketing operations. We
plan to continue to expand our direct sales force and engage additional third-party channel partners, both domestically and internationally. This expansion will require us to invest significant
financial and other resources. Our business will be seriously harmed if our efforts do not generate a corresponding significant increase in revenue. We may not achieve anticipated revenue growth from
expanding our direct sales force if we are unable to hire and develop talented direct sales personnel, if our new direct sales personnel are unable to achieve desired productivity levels in a
reasonable period of time, or if we are unable to retain our existing direct sales personnel. We also may not achieve anticipated revenue growth from our third-party channel partners if we are unable
to attract and retain additional motivated channel partners, if any existing or future channel partners fail to successfully market, resell, implement or support our solutions for their customers, or
if they represent multiple providers and devote greater resources to market, resell, implement and support competing products and services.

The majority of our solutions are sold pursuant to term license agreements, and if our existing clients elect not to renew their licenses or to renew their
licenses on terms less favorable to us, our business, financial condition and results of operations will be adversely affected.

The
majority of our solutions are sold pursuant to term license agreements that are subject to renewal every two years or less and our clients have no obligation to renew their
licenses. Because our clients may elect not to renew, we may not be able to consistently and accurately predict future renewal rates. Our clients' renewal rates may decline or fluctuate as a result of
a number of factors, including their level of satisfaction with our solutions, their ability to continue their operations or invest in customer service, or the availability and pricing of competing
products. If large numbers of existing clients do not renew their licenses, or renew their licenses on terms less favorable to us, and if we cannot replace or supplement those non-renewals
with new licenses generating the same or greater level of revenue, our business, financial condition and results of operations will be adversely affected.

We have experienced rapid growth in recent periods. If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high
levels of service or adequately address competitive challenges.

We
have substantially expanded our overall business, headcount and operations in recent periods. We have increased our total number of full-time employees to 438 at
March 31, 2005 from 403 at December 31, 2004. To achieve our business objectives, we will need to continue to expand our business at a rapid pace. This expansion has placed, and is
expected to continue to place, a significant strain on our managerial, administrative, operational, financial and other resources. We anticipate that this expansion will require substantial management
effort and significant additional investment in our infrastructure. If we are unable to successfully manage our growth, our business, financial condition and results of operations will be adversely
affected.

Part
of the challenge that we expect to face in the course of our expansion is to maintain the high level of customer service to which our clients have become accustomed. To date, we
have focused on providing personalized account management and customer service on a frequent basis to ensure our clients are effectively leveraging the capabilities of our solution. We believe that
much of our success to date has been the result of high client satisfaction, attributable in part to this focus on client service. To the extent our client base grows, we will need to expand our
account management, client service and other personnel, and third party channel partners, in order to enable us to continue to maintain high levels of client service and satisfaction. If we are not
able to continue to provide high levels of client service, our reputation, as well as our business, financial condition and results of operations, could be harmed.

If there are interruptions or delays in our hosting services through third-party error, our own error or the occurrence of unforeseeable events, delivery of our
solutions could become impaired, which could harm our relationships with clients and subject us to liability.

As
of March 31, 2005, over 85% of our clients were using our hosting services for deployment of our software applications. We provide our hosting services through computer
hardware that we own and that is currently located in third-party web hosting co-location facilities maintained and operated in California and New Jersey. We do not maintain
long-term supply contracts with either of our co-location providers, and neither provider guarantees that our clients' access to hosted solutions will be uninterrupted,
error-free or secure. Our operations depend on our co-location providers' ability to protect their and our systems in their facilities against damage or interruption from
natural disasters, power or telecommunications failures, criminal acts and similar events. Our back-up computer hardware and systems located in our Montana headquarters have not been
tested under actual disaster conditions and may not have sufficient capacity to recover all data and services in the event of an outage occurring simultaneously at both the California and New Jersey
co-location facilities. In the event that our co-location facility arrangements were terminated, or there was a lapse of service or accidental or willful damage to such
facilities, we could experience lengthy interruptions in our hosting service as well as delays and/or additional expense in arranging new facilities and services. Any or all of these events could
cause our clients to lose access to their important data. In addition, the failure by our third-party co-location facilities to meet our capacity requirements could result in interruptions
in our service or impede our ability to scale our operations.

We
architect the system infrastructure and procure and own the computer hardware used at our hosting co-location facilities. Design and mechanical errors, spikes in usage
volume and failure to follow system protocols and procedures could cause our systems to fail, resulting in interruptions in our clients' service to their customers. Any interruptions or delays in our
hosting services, whether as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with clients and our
reputation. This in turn could reduce our revenue, subject us to liability, cause us to issue credits or pay penalties or cause clients to fail to renew their licenses, any of which could adversely
affect our business, financial condition and results of
operations. In the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur.

If the security of our clients' confidential information contained in our systems or stored by use of our software is breached or otherwise subjected to
unauthorized access, our hosting service or our software may be perceived as not being secure and clients may curtail or stop using our hosting service and our solutions.

Our
hosting systems and our software store and transmit proprietary information and critical data belonging to our clients and their customers. Any accidental or willful security
breaches or other unauthorized access could expose us to a risk of information loss, litigation and other possible liabilities. If security measures are breached because of third-party action,
employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any of our clients' data, our
relationships with clients and our reputation will be damaged, our business may suffer and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage
systems change frequently and generally are not recognized until launched against a target, we and our third-party hosting co-location facilities may be unable to anticipate these
techniques or to implement adequate preventative measures.

We have significant international sales and are subject to risks associated with operating in international markets.

International
sales comprised 25% of our revenue for the three-month period ended March 31, 2005, and comprised 27% of our revenue in the year ended December 31, 2004. We
intend to continue to pursue and expand our international business activities. Adverse political and economic conditions


could make it difficult for us to increase our international sales or to operate abroad. International operations are subject to many inherent risks, including:



We
believe that international sales will continue to represent a significant portion of our revenue for the foreseeable future, and that continued growth will require further expansion
of our international operations. A substantial percentage of our international sales are denominated in the local currency. As a result, an increase in the relative value of the dollar could make our
products more expensive and potentially less price competitive in international markets. We typically do not engage in any transactions as a hedge against risks of loss due to foreign currency
fluctuations. Any of these factors may adversely affect our future international sales and, consequently, affect our business, financial condition and results of operations.

If we fail to respond effectively to rapidly changing technology and evolving industry standards, particularly in the on-demand CRM industry, our
solutions may become less competitive or obsolete.

The
CRM industry is characterized by rapid technological advances, changes in client requirements, frequent new product and service introductions and enhancements, changes in protocols
and evolving industry standards. Our hosted business model and the on-demand CRM market are relatively new and may evolve even more rapidly than the rest of the CRM market. Competing
products and services based on new technologies or new industry standards may perform better or cost less than our solutions and could render our solutions less competitive or obsolete. In addition,
because our solutions are designed to operate on a variety of network hardware and software platforms using a standard Internet web browser, we will need to continuously modify and enhance our
solutions to keep pace with changes in Internet-related hardware, software, communication, browser and database technologies and to integrate with our clients' systems as they change and evolve.
Furthermore, uncertainties about the timing and nature of new network platforms or technologies, or modifications to existing platforms or technologies, could increase our research and development
expenses. If we are unable to successfully develop and market new and enhanced solutions that respond in a timely manner to changing technology and evolving industry standards, and if we are unable to
satisfy the diverse and evolving technology needs of our clients, our business, financial condition and results of operations will suffer.

Our failure to attract and retain qualified or key personnel may prevent us from effectively developing, marketing, selling, integrating and supporting our
products.

Our
success and future growth depends to a significant degree upon the skills, experience, performance and continued service of our senior management, engineering, sales, marketing,
service, support and other key personnel. Specifically, we believe that our future success is highly dependent on Greg Gianforte, our founder, Chairman and Chief Executive Officer. In addition, we do
not have employment agreements with any of our senior management or key personnel that require them to remain our employees and, therefore, they could terminate their employment with us at any time
without penalty. If we lose the services of Mr. Gianforte or any of our other key personnel, our business will be severely disrupted and we may be unable to operate effectively. We do not
maintain "key person" life insurance policies on any of our key employees except Mr. Gianforte. This life insurance policy would not be sufficient to compensate us for the loss of his services.
Our future success also depends in large part upon our ability to attract, train, integrate, motivate and retain highly skilled employees, particularly sales, marketing and professional services
personnel, software engineers, product trainers, and senior personnel. Competition for these personnel is intense, especially for engineers with high levels of expertise in designing and developing
software and for senior sales executives.

If our solutions fail to perform properly or if they contain technical defects, our reputation will be harmed, our market share would decline and we could be
subject to product liability claims.

Our
software products may contain undetected errors or defects that may result in product failures, slow response times, or otherwise cause our products to fail to perform in accordance
with client expectations. Because our clients use our products for important aspects of their business, any errors or defects in, or other performance problems with, our products could hurt our
reputation and may damage our clients' businesses. If that occurs, we could lose future sales, or our existing clients could elect to not renew or to delay or withhold payment to us, which could
result in an increase in our
provision for doubtful accounts and an increase in collection cycles for accounts receivable. Clients also may make warranty claims against us, which could result in the expense and risk of
litigation. Product performance problems could result in loss of market share, failure to achieve market acceptance and the diversion of development resources. If one or more of our products fails to
perform or contains a technical defect, a client may assert a claim against us for substantial damages, whether or not we are responsible for the product failure or defect. We do not currently
maintain any warranty reserves.

Product
liability claims could require us to spend significant time and money in litigation or to pay significant settlements or damages. Although we maintain general liability
insurance, including coverage for errors and omissions, this coverage may not be sufficient to cover liabilities resulting from such product liability claims. Also, our insurer may disclaim coverage.
Our liability insurance also may not continue to be available to us on reasonable terms, in sufficient amounts, or at all. Any product liability claims successfully brought against us would cause our
business to suffer.

If we are unable to protect our intellectual property rights, our competitive position could be harmed or we could be required to incur significant expenses to
enforce our rights.

Our
success depends to a significant degree upon the protection of our software and other proprietary technology rights. We rely on trade secret, copyright and trademark laws, patents
and confidentiality agreements with employees and third parties, all of which offer only limited protection. The steps we have taken to protect our intellectual property may not prevent
misappropriation of our proprietary rights or the reverse engineering of our solutions. We may not be able to obtain any further patents or trademarks, and our pending applications may not result in
the issuance of patents or trademarks. Any of our issued patents may not be broad enough to protect our proprietary rights or could be successfully challenged by one or more third parties, which could
result in our loss of the right to prevent others from exploiting the inventions claimed in those patents. Furthermore, legal standards relating to the validity, enforceability and scope of protection
of intellectual property rights in other


countries are uncertain and may afford little or no effective protection of our proprietary technology. Consequently, we may be unable to prevent our proprietary technology from being exploited
abroad, which could diminish international sales or require costly efforts to protect our technology. Policing the unauthorized use of our products, trademarks and other proprietary rights is
expensive, difficult and, in some cases, impossible. Litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of management resources, either of which could harm our business. Accordingly,
despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property.

Our product development efforts may be constrained by the intellectual property of others, and we may become subject to claims of intellectual property
infringement, which could be costly and time-consuming.

The
software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights, and by frequent litigation based upon allegations of
infringement or other violations of intellectual property rights. As we seek to extend our CRM product and service offerings, we may be constrained by the intellectual property of others. We have in
the past been named as a defendant in a lawsuit alleging intellectual property infringement, and we may again in the future have to defend against intellectual property lawsuits. We may not prevail in
any future intellectual property infringement litigation given the complex technical issues and inherent uncertainties in litigation. Any claims, regardless of their merit, could be
time-consuming and distracting to management, result in costly litigation or settlement, cause product development delays, or require us to enter into royalty or licensing agreements. If
any of our products violate third-party proprietary rights, we may be required to re-engineer our products or seek to obtain licenses from third parties, which may not be available on
reasonable terms or at all. Because many of our license agreements require us to indemnify our clients from any claim or finding of intellectual property infringement, any such litigation or
successful infringement claims could adversely affect our business, financial condition and results of operations. Any efforts to re-engineer our products, obtain licenses from third
parties on favorable terms or license a substitute technology may not be successful and, in any case, may substantially increase our costs and harm our business, financial condition and results of
operations. Further, our software products contain open source software components that are licensed to us under various public domain licenses, such as the GNU General Public License. While we
believe we have complied with our obligations under the various applicable licenses for open source software that we use, there is little or no legal precedent governing the interpretation of many of
the terms of certain of these licenses and therefore the potential impact of such terms on our business is somewhat unknown. Use of open source standards also may make us more vulnerable to
competition because the public availability of open source software could make it easier for new market entrants and existing competitors to introduce similar competing products quickly and cheaply.

Future acquisitions could disrupt our business and harm our financial condition and results of operations.

In
order to expand our addressable market, we may decide to acquire additional businesses, products and technologies. In May 2005, we acquired the intellectual property and other
assets of Convergent Voice, Inc., our first acquisition since becoming a public company. Acquisitions could require significant capital infusions and could involve many risks, including, but
not limited to, the following:



We
cannot assure you that we will be able to identify or consummate any future acquisitions on favorable terms, or at all. If we do pursue any acquisitions, it is possible that we may
not realize the anticipated benefits from the acquisitions or that the financial markets or investors will negatively view the acquisitions. Even if we successfully complete an acquisition, it could
adversely affect our business, financial condition and results of operations.

Changes in the accounting treatment of stock options will adversely affect our results of operations.

The
Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 123R,Share-Based Payment("SFAS 123R"). The statement requires that the compensation cost
relating to share-based payment transactions be recognized in financial statement based on the fair
value of the equity or liability instruments issued, and is effective for annual periods beginning after
June 15, 2005. SFAS 123R replaces SFAS No. 123,Accounting for Stock-Based Compensation, and supercedes Accounting Principles Board
Opinion No. 25,Accounting for Stock Issued to Employees("APB 25"). SFAS 123R requires us to value our employee stock option grants,
transactions under our Employee Stock Purchase Plan, and other possible equity-based transactions, pursuant to a fair value formula, and then amortize that value against our reported earnings over the
vesting period in effect for those transactions. We currently account for stock-based awards to employees in accordance with APB 25, and have adopted the disclosure-only alternative of
SFAS 123. This change in accounting treatment will materially and adversely affect our reported results of operations as the stock-based compensation expense would be charged directly against
our reported earnings.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs.

We
may require additional capital to respond to business challenges, including the need to develop new solutions or enhance our existing solutions, enhance our operating infrastructure,
fund expansion, respond to competitive pressures and acquire complementary businesses, products and technologies. Absent sufficient cash flow from operations, we may need to engage in equity or debt
financings to secure additional funds to meet our operating and capital needs. In addition, even though we may not need additional funds, we may still elect to sell additional equity or debt
securities or obtain credit facilities for other reasons. We may not be able to secure additional debt or equity financing on favorable terms, or at all, at the time when we need such funding. If we
raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and
any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. Any


debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult
for us to obtain additional capital, to pay dividends and to pursue business opportunities, including potential acquisitions. In addition, if we decide to raise funds through debt or convertible debt
financings, we may be unable to meet our interest or principal payments.





Risks Related to Our Industry

The success of our products and our hosted business depends on the continued growth and acceptance of the Internet as a business and
communications tool, and the related expansion of the Internet infrastructure.

The
future success of our products and our hosted business depends upon the continued and widespread adoption of the Internet as a primary medium for commerce, communication and business
applications. Our business growth would be impeded if the performance or perception of the Internet was harmed by security problems such as "viruses," "worms" and other malicious programs, reliability
issues arising from outages and damage to Internet infrastructure, delays in development or adoption of new standards and protocols to handle increased demands of Internet activity, increased costs,
decreased accessibility and quality of service, or increased government regulation and taxation of Internet activity.

Federal,
state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting data privacy, the solicitation, collection,
processing or use of personal or consumer information, the use of the Internet as a commercial medium and the use of e-mail for marketing or other consumer communications. In addition,
government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the Internet or for sending commercial e-mail. These laws or charges could limit
the growth of Internet-related commerce or communications generally, result in a decline in the use of the Internet and the viability of Internet- based services such as ours and reduce the demand for
our products, particularly our RightNow Marketing solution.

The
Internet has experienced, and is expected to continue to experience, significant user and traffic growth, which has, at times, caused user frustration with slow access and download
times. If Internet activity grows faster than Internet infrastructure or if the Internet infrastructure is otherwise unable to support the demands placed on it, or if hosting capacity becomes scarce,
our business growth may be adversely affected.

Privacy concerns and laws or other domestic or foreign regulations may adversely affect our business or reduce sales of our solutions.

Businesses
using our solutions collect personal information regarding their customers when those customers contact them with customer service inquiries. A valuable component of our
solutions is their ability to allow our clients to use and analyze their customers' information to increase sales, marketing and up-sell or cross-sell opportunities. Federal,
state and foreign government bodies and agencies, however, have adopted and are considering adopting laws and regulations regarding the collection, use and disclosure of personal information obtained
from consumers. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our clients may limit the use and adoption of this
component of our solutions and reduce overall demand for our solutions. Furthermore, even where a client desires to make full use of these features in our solutions, privacy concerns may cause our
clients' customers to resist providing the personal data necessary to allow our clients to use our solutions most effectively. Even the perception of privacy concerns, whether or not valid, may
inhibit market acceptance of our products. For example, regulations such as the Gramm-Leach-Bliley Act, which protects and restricts the use of consumer credit and financial information, and the
Children's Online Privacy Protection Act of 1998, which restricts the ability of companies to collect personal information online from children under the age of 13 without their parents' consent,
impose significant requirements and obligations on businesses that may affect the use and adoption of our solutions by existing and potential clients.

The
European Union has also adopted a directive that requires member states to impose restrictions on the collection and use of personal data that are far more stringent, and impose more
significant burdens on subject businesses, than current privacy standards in the United States. All of


these domestic and international legislative and regulatory initiatives may adversely affect our clients' ability to collect and/or use demographic and personal information from their customers, which
could reduce demand for our solutions.

In
addition to government activity, privacy advocacy groups and the technology and direct marketing industries are considering various new, additional or different
self-regulatory standards that may place additional burdens on us. If the gathering of profiling information were to be curtailed in this manner, customer service CRM solutions would be
less effective, which would reduce demand for our solutions and harm our business.

Non-solicitation concerns, laws or regulations may adversely affect our clients' ability to perform outbound marketing and other e-mail
communications, which could reduce sales of our solutions.

In
January 2004, the federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM Act, became effective. The
CAN-SPAM Act regulates the transmission and content of commercial e-mails and, among other things, obligates the sender of such e-mails to provide recipients with
the ability to opt-out of receiving future e-mails from the sender, and establishes penalties for the transmission of e-mail messages which
are intended to deceive the recipient as to source or content. Many state legislatures also have adopted laws that impact the delivery of commercial e-mail, and laws that regulate
commercial e-mail practices are being developed or adopted in many of the international jurisdictions in which we do business, including Europe and Australia. In addition, Internet service
providers and licensors of software products have introduced a variety of systems and products to filter out certain types of commercial e-mail, without any common protocol to determine
whether the recipient desired to receive the e-mail being blocked. As a result, it is difficult for us to determine in advance whether or not e-mails generated by our clients
using our solutions will be permitted by spam filters to reach the intended recipients.

Our
RightNow Marketing solution specifically serves the market for mass distribution marketing and other e-mail communications. The increasing regulation of
e-mail delivery, both domestically and internationally, and the spam filtering practices of Internet service providers and e-mail users generally, will place significant
additional burdens on our clients who have outbound communication programs, and may cause those clients to substantially change their outbound communications programs or abandon them altogether. The
concerns and legal requirements surrounding non-solicitation and compliance with the CAN-SPAM Act and other laws may reduce sales of our RightNow Marketing solution, may make
it necessary to redesign our RightNow Marketing solution to make it easier for our clients to conform to the requirements of the CAN-SPAM Act and other laws and standards, which would
increase our expenses, or may make it necessary for us to redefine the market for and use of our RightNow Marketing solution, which could reduce our revenue.

General economic conditions could adversely affect our clients' ability or willingness to purchase our products, which could materially and adversely affect our
results of operations.

Our
clients consist of large and small companies in nearly all industry sectors and geographies. Potential new clients or existing clients could defer purchases of our products because
of unfavorable macroeconomic conditions, such as rising interest rates, fluctuations in currency exchange rates, industry or country economic downturns, industry purchasing patterns, and other
factors. Our ability to grow revenues may be adversely affected by unfavorable economic conditions.

Risks Related to Ownership of Our Common Stock

The significant control over stockholder voting matters and our office leases that may be exercised by our founder and Chief Executive
Officer will limit your ability to influence corporate actions and may require us to find alternative office space to lease or buy in the future.

Greg
Gianforte, our founder and Chief Executive Officer, and his spouse, Susan Gianforte, together beneficially own approximately 43% of our currently outstanding common stock and,
together with our other officers and directors, beneficially own approximately 64% of our currently outstanding common stock. In addition, none of the shares of common stock held by
Mr. Gianforte and Mrs. Gianforte are subject to vesting restrictions. As a result, Mr. Gianforte and Mrs. Gianforte, acting alone or together with some of our other
officers and directors, will be able to control all matters requiring stockholder approval, including the election of directors, management changes and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of RightNow, could deprive our stockholders of an opportunity to receive a premium for
their common stock as part of a sale of RightNow and might reduce the market price of our common stock.

In
addition, Mr. Gianforte beneficially owns, directly or indirectly, a 50% membership interest in Genesis Partners, LLC, our landlord from whom we lease our principal offices in
Bozeman, Montana. Consequently, Mr. Gianforte has significant control over any decisions by Genesis Partners regarding renewal, modification or termination of our Bozeman, Montana leases. In
the event that our current leases with Genesis Partners were terminated or otherwise could not be renewed, or came up for renewal on commercially unreasonable terms, we would be required to find
alternative office space to lease or buy.

Our management has broad discretion over the use of the proceeds from our initial public offering and might not apply the proceeds of our initial public offering
in ways that enhance our results of operations.

Our
management has broad discretion to use the net proceeds from our initial public offering. We expect to use the net proceeds from our initial public offering for general corporate
purposes, including working capital and capital expenditures, and for possible investments in, or acquisitions of, complementary businesses, services or technologies. We have not allocated these net
proceeds for any specific purposes. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds.

Anti-takeover provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may
affect the trading price of our common stock.

Provisions
of our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable and may
limit the market price of our common stock. These provisions include the following:



It
is possible that the provisions contained in our certificate of incorporation and bylaws, the existence of super voting rights held by insiders and the ability of our board of
directors to issue preferred stock without stockholder action may have the effect of delaying, deferring or preventing a


change in control of our company without further action by the stockholders, may discourage bids for our common stock at a premium over the market price of our common stock and may adversely affect
the market price of our common stock and the voting and other rights of the holders of our common stock.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Foreign Currency Exchange Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro, British
pound, Australian dollar, and Japanese yen, because our contracts are frequently denominated in local currency. To date, we have not entered into any hedge transactions since exchange rate
fluctuations have had little impact on our operating results and cash flows. In the future, we may utilize foreign currency forward and option contracts to manage currency exposures.

Interest Rate Sensitivity

Interest income and expense are sensitive to changes in the general level of U.S. interest rates. Net proceeds of our initial public offering of common stock are
invested in short-term, interest-bearing securities, which are subject to credit and interest rate risk. Our investment portfolio is investment-grade and diversified among issuers and
types to reduce credit risk. The average maturity of our investment portfolio is less than 90 days and we intend to hold the investments until maturity. If market interest rates were to
increase by 100 basis points from the level at March 31, 2005, the fair value of our investment portfolio would decline by approximately $117,000.

Item 4. Controls and Procedures



Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were
effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in the reports we file or submit under the Securities Exchange
Act of 1934.



During the most recent completed fiscal quarter covered by this report, there has been no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.





Part II. Other Information

Item 1. Legal Proceedings

From
time to time, we are involved in legal proceedings in the ordinary course of business. We believe that the resolution of these matters will not have a material effect on the
Company's consolidated financial position, results of operations or liquidity.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds



During the three months ended March 31, 2005, we issued and sold 26,709 shares of our common stock to one of our lenders upon its exercise of
certain warrants, previously issued in connection with our equipment and commercial bank financing arrangements, pursuant to the net exercise provision of such warrants. The sale and issuance of these
shares of our common stock were determined to be exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) of the Securities Act, as a
transaction by an issuer not involving a public offering, where the purchaser was
sophisticated and represented its intention to acquire the securities for investment purposes only and not with a view to or for sale in connection with any distribution thereof, and where the
purchaser received or had access to adequate information about us.



On August 5, 2004, the Securities and Exchange Commission declared effective our Registration Statement on From S-1 (Reg. File
No. 333-115331) under the Securities Act of 1933, as amended, in connection with the initial public offering of our common stock, par value $.0001 per share. Of the 7,245,000 shares
registered under the registration statement for an aggregate offering price of $50,715,000, we sold 6,416,961 shares, including shares sold upon exercise of the underwriters'
over-allotment option, for an aggregate offering price of $44,918,727, and 321,945 shares, including shares sold upon exercise of the underwriters' over-allotment option, were
sold by a selling stockholder for an aggregate offering price of $2,253,615. After deducting $3.3 million in underwriting discounts and commissions and $1.8 million in other offering
costs, we received net proceeds from the offering of approximately $40 million. We currently intend to use the offering net proceeds for general corporate purposes as described in the
prospectus for the offering. We are currently assessing the specific uses and allocations for these net proceeds. Pending these uses, the net proceeds from the offering are invested in
short-term, interest-bearing, investment-grade securities. None of the expenses and none of our net proceeds from the offering were paid directly or indirectly to any director, officer,
general partner of RightNow or their associates, persons owning 10% or more of any class of equity securities of RightNow, or an affiliate of RightNow.



Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibits

The exhibits listed below are part of this Form 10-Q, unless otherwise indicated.

|Exhibit 3.1    |  | Amended and Restated Certificate of Incorporation of the Registrant.                                                                                                                                
|--------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 3.2*    |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                      
|Exhibit 10.16** |  | Lease agreement, dated March 28, 2005, between RightNow Technologies, Inc. and Genesis Partners, LLC for office space located at 110 Enterpise Boulevard, Bozeman, Montana.                         
|Exhibit 10.17** |  | Renewed lease agreement, dated March 28, 2005, between RightNow Technologies, Inc. and Genesis Partners LLC for office space located at 77 Discovery Drive, Bozeman, Montana.                       
|Exhibit 10.18** |  | Renewed lease agreement, dated March 28, 2005, between RightNow Technologies, Inc. and Genesis Partners LLC for office space located at 45 Discovery Drive, Bozeman, Montana.                       
|Exhibit 31.1    |  | Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                              
|Exhibit 31.2    |  | Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) or 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                              
|Exhibit 32.1    |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).

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SIGNATURE

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

Dated:
May 13, 2005

RightNow Technologies, Inc.(Registrant)

|By: |  | /s/SUSAN J. CARSTENSENSusan J. Carstensen
Chief Financial Officer, Vice President,
Treasurer and Assistant Secretary
(Principal Financial and Accounting Officer) | 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |