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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K

(MARK ONE)



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM
 TO

COMMISSION FILE NUMBER 000-28009

RAINMAKER SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 33-0442860                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|900 EAST HAMILTON AVE
CAMPBELL, CALIFORNIA                     |  | 95008                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

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

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



|                                         |  |                                           
|---------------------------------------- |  | ------------------------------------------
|Title of Each Class                      |  | Names of Each Exchange on which Registered
|Common Stock, $0.001 par value per share |  | The NASDAQ Global Market LLC              

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

None

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

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

Note  Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act from their obligations under those Sections.

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  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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

Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act. (Check one):



|                           |  |  |                   |   |  |  |                       |   |  |  |                           |  
|-------------------------- |  |  | ----------------- | - |  |  | --------------------- | - |  |  | ------------------------- | -
|Large accelerated filer   ̈ |  |  | Accelerated filer |  ̈ |  |  | Non-accelerated filer |  ̈ |  |  | Smaller reporting company | x

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

The aggregate market value of common stock held by non-affiliates of the registrant was approximately $16.7 million as of June 30,
2010, the last business day of the registrants most recently completed second fiscal quarter, based upon the closing sales price of the registrants common stock reported by the Nasdaq Global Market on that date. For purposes of this
disclosure, shares of common stock held by persons who hold more than 5% of the outstanding shares of common stock and shares held by officers and directors of the registrant have been excluded in that such persons may be deemed to be affiliates.

At March 2, 2011, registrant had 23,278,311 shares of Common Stock outstanding.









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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements in Managements Discussion and Analysis of Financial Condition and Results
of Operations and elsewhere. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as may, will, should,
expects, plans, anticipates, believes, estimates, predicts, potential or continue or the negative of such terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under Risk Factors, that may cause our, or our industrys, actual results, levels of activity,
performance or achievements to be materially different from any future results, levels of activities, performance or achievements expressed in or implied by such forward-looking statements.

Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are
general market conditions, the current very difficult macro-economic environment and its impact on our business as our clients are reducing their overall marketing spending and our clients customers are reducing their purchase of services
contracts, the high degree of uncertainty and our limited visibility due to economic conditions, our ability to execute our business strategy, our ability to integrate acquisitions without disruption to our business, the effectiveness of our sales
team and approach, our ability to target, analyze and forecast the revenue to be derived from a client and the costs associated with providing services to that client, the date during the course of a calendar year that a new client is acquired, the
length of the integration cycle for new clients and the timing of revenues and costs associated therewith, our client concentration given that we are currently dependent on a few significant client relationships, potential competition in the
marketplace, the ability to retain and attract employees, market acceptance of our service programs and pricing options, our ability to maintain and develop our existing technology platform and to deploy new technology, our ability to sign new
clients and control expenses, the possibility of the discontinuation of some client relationships, the potential for additional litigation and adverse outcomes to litigation the company is currently involved in, and the financial condition of our
clients businesses, our ability to raise additional equity or debt financing and other factors detailed in Part I Item 1ARisk Factors of this Form 10-K.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We assume no obligation to update such forward-looking statements publicly for any reason even if new information becomes available in the future, except as may be required by law.



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RAINMAKER SYSTEMS, INC.

Table of Contents



|          |  |          |  |                                                                                                                  |  |      |     | 
|--------- |  | -------- |  | ---------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|          |  |          |  |                                                                                                                  |  | Page |    
|PART I.   |  |          |  |                                                                                                                 
|          |  | Item 1.  |  | Business                                                                                                         |  |      | 4   | 
|          |  | Item 1A. |  | Risk Factors                                                                                                     |  |      | 14  | 
|          |  | Item 1B. |  | Unresolved Staff Comments                                                                                        |  |      | 28  | 
|          |  | Item 2.  |  | Properties                                                                                                       |  |      | 28  | 
|          |  | Item 3.  |  | Legal Proceedings                                                                                                |  |      | 29  | 
|          |  | Item 4.  |  | Removed and Reserved                                                                                             |  |      | 29  | 
|          | 
|PART II.  |  |          |  |                                                                                                                 
|          |  | Item 5.  |  | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |      | 30  | 
|          |  | Item 6.  |  | Selected Financial Data                                                                                          |  |      | 31  | 
|          |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                            |  |      | 32  | 
|          |  | Item 7A. |  | Qualitative and Quantitative Disclosures About Market Risk                                                       |  |      | 53  | 
|          |  | Item 8.  |  | Consolidated Financial Statements and Supplementary Data                                                         |  |      | 54  | 
|          |  | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure                             |  |      | 88  | 
|          |  | Item 9A. |  | Controls and Procedures                                                                                          |  |      | 88  | 
|          |  | Item 9B. |  | Other Information                                                                                                |  |      | 89  | 
|          | 
|PART III. |  |          |  |                                                                                                                 
|          |  | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                           |  |      | 90  | 
|          |  | Item 11. |  | Executive Compensation                                                                                           |  |      | 93  | 
|          |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  |      | 100 | 
|          |  | Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                        |  |      | 101 | 
|          |  | Item 14. |  | Principal Accountants Fees and Services                                                                          |  |      | 101 | 
|          | 
|PART IV.  |  |          |  |                                                                                                                 
|          |  | Item 15. |  | Exhibits and Financial Statement Schedules                                                                       |  |      | 103 | 
|          |  |          | 
|          |  |          |  | Signatures                                                                                                       |  |      | 110 | 



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PART I



|ITEM 1. | BUSINESS
|------- | --------

Introduction

Rainmaker Systems, Inc. and its subsidiaries (Rainmaker, we, our or the
Company) is a leading global provider of cloud-based business-to-business, or B2B, selling solutions that are designed to drive higher customer acquisition, renewals, subscriptions and education sales for clients and their channel
partners. We have developed an integrated solution, the Rainmaker Revenue Delivery PlatformSM, that combines proprietary, on-demand application software and advanced analytics with specialized sales and marketing execution services, which can include marketing strategy development, websites,
e-commerce portal creation and hosting, both inbound and outbound e-mail, chat, direct mail and telesales services.

We use
the Rainmaker Revenue Delivery Platform to drive more revenue for our clients in a variety of ways to:



| |  |  | provide a hosted technology portal for our clients and their resellers to assist in selling new service/product contracts and contract renewals;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | sell, on behalf of our clients, as a client branded reseller or transaction processor, service contracts, software licenses and subscriptions and
warranties;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | generate, qualify and develop corporate leads, turning these prospects into qualified appointments for our clients field sales forces or leads
for their channel partners; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide a hosted application software platform that enables our clients to more effectively generate additional revenue from sales of Internet-based
and in-person training.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We operate as an extension of our clients, in that all of our interactions with our
clients customers, utilizing our multi-channel communications platform, incorporate our clients brands and trademarks, complementing and enhancing our clients sales and marketing efforts. Thus, our clients entrust us with some of
their most valuable assetstheir brand and reputation. In the course of delivering these services, we utilize our proprietary databases to access the appropriate technology buyers and key decision makers.

Our clients are primarily in the computer hardware and software, telecommunications and financial services industries.

We have acquired several businesses that have expanded our client base and geographic presence to include international operations in the
Philippines and Europe and enhanced the functionality of our Revenue Delivery Platform. These acquisitions have extended our technology capabilities and added new services which we offer across our expanding client base.

Industry Background

The
growth of the Internet, online advertising and multi-channel communications have created new methods for generating revenue. Although these developments have provided new ways of reaching existing and potential customers, they have also created
numerous challenges for companies. Organizations, unable to manage large volumes of customer and prospect information, are finding it increasingly difficult to efficiently convert prospect interactions into actionable leads. In addition, competitive
pressures are pushing companies to focus their direct sales force and other scarce sales and marketing resources on their most significant opportunities and new product sales rather than on contract renewals, warranty sales and other after-sales
products and services. Additional challenges and issues around data quality, sales channel complexity, marketing and sales efficiency, and resource allocation require companies to consider new approaches and solutions for efficiently meeting the
needs of their customers and maximizing revenue.



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A major trend taking place within the B2B marketplace today is that the kinds of
interactions that are happening in the consumer online marketplace are increasingly driving expectations of business customers and demand for B2B online sales. Whether immediate downloading of applications from an apps stores, online chat
interaction, or use of modern devices such as the iPad, the convenience, the simplicity, and the immediacy of the consumer online market is affecting what business customers expect and demand for B2B online selling.

Changing Market Dynamics.    The continued growth of the Internet as an effective marketing channel has
enabled companies to market to a broader audience, using a variety of alternative sales channels to support sales and follow-on services to these customers. At the same time, increasing competition has motivated companies to target their direct
sales forces at higher quality opportunities. These developments have increased the complexity of companies sales channels, partner relationships and the ability to measure the effectiveness of its marketing and sales efforts.

The Internet has become an important and more efficient way of reaching existing and potential customers. However, Internet leads often
provide limited information on the real intentions of prospective customers. Integrating this information with qualified data on key decision makers and past buying patterns can increase its value. Gathering this qualified information usually
involves direct marketing, including website development, direct mail correspondence, e-mail, telesales or chat, or any combination of these. Managing these disparate sales channels, especially if used to address the same customer, can be very
challenging. Once a prospect has been qualified, the lead must be delivered to the right sales person or channel partner at the right time in the buying process. Many companies, in addition to focusing on new customer growth, are also trying to
maximize revenue from existing customers. For many technology companies, particularly hardware and software vendors, this requires renewing software subscriptions and service contracts, and selling new software licenses and warranty extensions. An
additional source of revenue is the sale of training classes and online courses to a companys customers and channel partners. These products are often very profitable, recurring revenue streams for technology companies. Many of the same
processes and technologies used to generate qualified leads for new customers can be applied to selling and renewing service contracts or selling online training courses.

The increasingly complex and competitive environment is motivating companies to maximize the value of investments across their business. Measuring, analyzing and optimizing the effectiveness of their
investment in lead generation, contract renewals and training sales require sophisticated data-mining and analytical technology and expert personnel.

Existing Sales and Marketing Solutions and Services.    Companies have tried a variety of approaches to address these changing industry dynamics. Many organizations
simply task their internal sales and marketing personnel with the additional responsibilities of designing effective lead generation campaigns or selling service contracts. Some organizations purchase third party technology point solutions, such as
sales force automation software, analysis and reporting tools, and data cleansing technology. Alternatively, some companies have tried to shift part of their sales and marketing efforts to channel partners or other third party service providers such
as dedicated lead generation companies.

Many of these traditional approaches suffer from the following challenges:



| |  |  | Inefficient Resource Allocation.    Building effective sales and marketing programs for service sales, lead generation and
training sales requires a substantial investment of time, money and other resources. Using a companys direct sales force and marketing departments for these functions can be inefficient as it defocuses the sales force from driving new customer
sales. Investing in and integrating the appropriate technology and other infrastructure utilizes resources which could be redirected to the companys primary selling efforts.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Inadequate Information.    Unqualified or mistimed leads result in a significant loss of time and productivity for an
organizations sales personnel. Over time, sales personnel may become frustrated and less inclined to follow up on leads, realizing that most unqualified leads are unlikely to generate customers. Building and maintaining a comprehensive and
accurate database of corporate buyers is a
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | long-term effort and may not be a priority for many sales and marketing organizations given their other responsibilities. As a result, organizations and their channel partners are frequently
unable to reach the appropriate corporate buyer or other point of contact at the right time, leading to poor sales and renewal rates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Lack of Integration.    Many organizations that have invested in technologies have not integrated their selling efforts into
a cohesive sales and marketing platform. In part, this is the result of a lack of cross-departmental coordination and the complexity of managing and integrating multiple systems and third party service providers. It is complex to integrate data
cleansing, database population, marketing campaign management and data analytics with a companys customer relationship management, or CRM, and other internal systems. Effective programs should be executed across multiple channels, and
integrate with other sales and marketing initiatives, as well as with existing information technology, or IT infrastructure.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Rainmaker Solutions

Our
B2B online sales solution enables technology and other companies to bring the simplicity and capabilities of the online consumer model to the B2B marketplace and to sell online to their mid-market business customers in a more modern and efficient
way that they have not been able to do in the past. A consumer at home can go online to an apps store and purchase and download software immediately. That same person, going to their office the next day, expects to have the same level of experience
and capabilities for their business needs, whether downloading software for their enterprise computers, adding licenses, or obtaining e-learning certificates. We create online stores for our clients customers, enabling such business customers
to buy software and licenses online for their businesses in much the same manner and experience level as their online consumer purchases.

For example, when a technology company sells a product, it typically includes three key items: the product, a contract, and training. The product could be hardware, software or information, the contract
could be a subscription or maintenance agreement, and the training on how to use the product might include classroom training or online classes. With our B2B online sales solution, we are positioned to assist such companies at the initial sale and
at renewal for the full suite of products they sell to their business customers, and to do so globally.

Our solution combines
online sales and global sales agents to drive more revenue, which is proven in the B2B marketplace to be more effective than stand-alone online sales. Our flexible and modern B2B online sales platform enables our clients to optimize their selling
process on a global and consistent basis. With our capabilities to manage the full B2B online sales transaction in a global manner, we are well positioned to be the leading B2B online sales solution.

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



| |  |  | Data Integration and Enhancement.    At the launch of a client engagement, we are typically either provided with a customer
list or are asked to source and identify qualified prospects from our clients website or a website we develop using our clients branding. We take these lists and profile, cleanse and supplement the data with information from third party
databases, as well as our own proprietary data sources. The data cleansing and integration process improves the financial, contact and other relevant information that is used in our marketing processes. This process can be applied equally to
prospect information and to our clients current customer information which is often not updated with regard to financial and key decision maker information. We have an extensive set of technology tools that we use to integrate and enhance our
contact information, including our proprietary Prospect
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | IntelligenceSMdatabase which contains information on the appropriate technology buyers and key decision makers. Our database contains contact details of individuals collected over the course of 20 years. We can also
further qualify leads by contacting them using our extensive marketing campaign capabilities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

In support of our Revenue Delivery
Platform we offer a suite of analytics software and services to enable us and our clients to measure the effectiveness of our data integration and enhancement technologies and our marketing strategy development and execution. Our analytic software
allows us to quickly determine what is working and what is not for a particular campaign, and make adjustments to improve efficiency even while a campaign is ongoing. In addition, we frequently review past activity to better understand buying
patterns so that we can identify more valuable leads for our clients and design more effective sales processes, marketing campaigns and materials in the future.

We believe that we compete effectively by combining:



| |  |  | our proprietary technology platform, including our on-demand hosted application software, which includes Contract Renewals PlusSMfor subscriptions and warranties, LeadworksSMfor lead management, and our hosted training sales application;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our understanding of technology buyers behavior resulting, in part, from our proprietary Prospect Intelligence database;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | our multi-channel direct marketing capability, which includes marketing campaigns through e-mail, chat, personalized web portals, or microsites, phone,
direct mail, facsimile and voicemail;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our advanced data analytics expertise;
| | - |  | --------------------------------------



| |  |  | the efficiency of our business processes and the expertise and knowledge of our staff; and
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | our proficiency in integrating our proprietary technology platform with our clients technology systems.
| | - |  | --------------------------------------------------------------------------------------------------------

Strategy

Our objective
is to be the leading global provider of cloud-based B2B selling solutions that drive higher customer acquisition, renewals, subscriptions and education sales for clients and their channel partners. Key elements of our strategy include:

Generate More Revenue for Our Existing Clients.    We continue to seek to identify areas where we can apply
technology and our expertise to improve the renewal rates and sell higher levels of service on behalf of our



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service contract clients, to generate higher quality leads and appointments for our lead development clients, and to continually improve our hosted software to enable our clients to more
efficiently sell their training solutions.

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

Expand Our Services Internationally.We have expanded our geographic presence to
include operational divisions in the Philippines and in Europe. We believe we have the capabilities to offer our clients services for their global needs.

Sign New Clients. Our focus on certain sectors enables us to employ industry experts, pursue targeted sales and marketing campaigns, develop effective marketing and customer retention
programs, and capitalize on referrals from existing clients. We anticipate that for the foreseeable future we will continue to direct our service offerings to clients in the computer hardware and software, telecommunications and financial services
industries; however, our longer term strategy includes targeting clients in other industry verticals, such as healthcare.

Enhance Technology and Add New Products and Services.    We believe our technology platform is a key factor in
allowing us to compete effectively, and we will continue to seek to identify new products and services that enhance our Revenue Delivery Platform. During 2009, we acquired the eCommerce technology of Grow Commerce and continued to integrate and
leverage the Grow Commerce assets to advance our eCommerce strategy during the 2010 fiscal year.

Services and Hosted Software

We have developed our Revenue Delivery Platform to address many aspects of customer acquisition and retention. We believe
that technology is changing the role of sales and marketing. Although our customers may select any one of our service offerings, we designed all of our products around our integrated Revenue Delivery Platform that combines technology, data,
marketing expertise and services. With the expertise of our people and the efficiency of our processes, combined with our proprietary technology, we offer individual and integrated services that increase our clients revenue potential.

Our services and software are focused on generating incremental revenue for our clients by maximizing existing customer
revenue and adding new revenue through the acquisition of new customers. Our activities are comprised of the following: service contract sales and renewals, software license sales, subscription renewals and warranty extension sales; lead generation,
qualification and management; and hosted application software for training sales. In addition to helping to generate increased revenue for our clients, we also enable our clients to deepen the relationship they have with their existing customers. By
selecting us to improve the effectiveness of their sales and marketing activities, our clients can focus their attention on other business priorities.

Our core services and software are highlighted below:

Online Sales
Renewals.    Some clients engage us to market and sell their new service contracts and subscriptions, as well as renewals, directly to their customers on a commission basis. By allowing us to perform this service, our
clients entrust us with a major revenue generating business process.

We designed our solution to effectively analyze a
clients customer base and then market and sell relevant products and service contracts. We believe that the more information we obtain concerning a clients customer, the more likely that we will be able to market and sell services that
meet the needs of that customer. We implement our solution using a variety of proprietary systems and multiple communication channels, including direct mail, e-mail, Internet and e-commerce technology, online marketing, and one-to-one personal
assistance. We deliver revenue from the sale of extended warranties, subscription renewals and service contract sales. By



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keeping more customers under contract and by focusing on getting customers onto premium levels of support, we seek to maximize the revenue available from a clients existing customers, as
well as improve customer satisfaction so if maintenance or service issues arise, our clients customer is taken care of. Since all of the communications are under a clients brand we are also reinforcing that brand with their existing
customers. We seek to generate additional sales and cultivate closer customer relationships through innovative sales and marketing programs that include:



| |  |  | Website Portals and E-mail Interaction.    Our client-branded websites and e-commerce portals combined with e-mail
interaction allow our clients customers to obtain key information and purchase online. We develop, host and operate websites that reflect the look and feel of our clients corporate branding. E-mail marketing campaigns include links to
microsites, or personalized web portals, which alert our clients customers of product enhancements, special promotions or upcoming renewal dates. When they visit the microsite, customers can view a secure, personalized listing of the services
or add-on products associated with the initial products they have purchased from our clients. The microsite gives the customer the ability to view the service or product offerings, customize a quote, enter in its credit card information and transact
an online order.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Channel Enablement.    Our channel enablement services include a leading proprietary hosted technology portal which helps
our clients and their resellers in managing their customer base and selling software license subscription renewals. As a result of increasing reliance on resellers, our clients need to more effectively and profitably sell services through their
channel partners. Furthermore, the complexities involved in managing and selling services generally exceed the capabilities of a traditional reseller. We believe that by providing our platform to our clients resellers, our clients
generate more service revenue through their channel, increasing the revenue for themselves and the reseller. Our channel solution provides direct marketing, reseller support, management services and telesales support to improve the end customer
experience while also supporting the channel partners.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Direct Mail Marketing.    In addition to Internet and e-mail, we use sophisticated direct mail marketing programs. These
campaigns alert our clients customers to services and products, special promotions and renewal opportunities, which direct them to contact our telesales team, to purchase through our client-branded e-commerce sites or to transact through the
mail.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Personal Assistance and Telesales.    Our client teams are organized by vertical markets and trained to answer questions,
provide detailed product information, pursue cross-sell opportunities and close orders. We also provide inbound response and sales management to our clients customers who e-mail, call or fax in response to marketing campaigns.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With our service sales and subscription renewal offering, we believe we have been effective in driving
incremental revenues for our clients. By renewing contracts that might otherwise expire, we maintain contact with our clients customers on their behalf. As a result, we generate incremental revenue for our clients, while at the same time
maintaining our clients relationships with their customers.

Strategic Lead Development and Management (Lead
Development).    Some clients engage us to deliver a variety of lead development services including identification of potential customer needs and decision makers, appointment setting, and product trials and sales. We
utilize Prospect Intelligence, supplemented by the clients database, to contact potential customers through a variety of channels to identify product needs, key decision makers and other relevant marketing data. We utilize our advanced
analytics and reporting tools to measure and track the results of each marketing campaign so that we can improve our efficiency over time. We also provide these services to the channel partners of our clients.

Data Development and Analytics.    Data management of customer contact information is one of the
differentiators that we believe makes our sales and marketing solution a compelling business proposition for our clients, whether it is through our process of taking client data and validating the information, or the use of our technology to
identify anonymous website visits, or clicks to a clients website as potential customers to be contacted. We apply years of experience and what we believe to be best practices to monetize customer data.



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At the launch of a client engagement, we are able to profile, cleanse, supplement and append
data, as required, to ensure program success. By utilizing our marketing technology platform, our proprietary scoring tools turn data into actionable strategies for sales and direct marketing activities. Many of our clients also engage us to provide
data resources for cleansing, supplementing and appending data. This occurs when the customer information they have on file has not been updated and there is a need to contact the customers and conform or update their information. In conjunction
with these processes, we believe our proprietary Prospect Intelligence database provides access to the appropriate technology buyers and key decision makers. Our database contains key titles with contact details, organizational profiles and
purchasing plans in the major market segments that we target. We also leverage this database for the sales and marketing campaigns that we offer.

As the Internet has changed the way companies conduct business, it has also changed the way companies find new customers. We have developed a proprietary process whereby anonymous hits to a website are
actively pursued to identify potential customers and convert them into paying customers, called Click to
CashSM. By working with our clients to help manage their
website, we can source the data of prospect inquiries, white paper downloads, evaluations and live chat to narrow the scope of who or where a potential customer may be. This data, combined with our integrated sales and marketing services, is
intended to develop prospects by providing relevant content based on the discovery profile created and convert them into customers with greater lifetime value potential.

Webcasts and Event Management.    Increasingly, companies are using events on the Internet as a format to provide product information to their potential or existing
clients. Our service can invite potential attendees of these webcasts, register attendees and then follow up for feedback after the event. This service provides a format whereby all available customer information is captured and retained for future
sales and marketing activities.

Online Sales of Education Classes.    We offer a hosted
application software solution designed to enable our clients to more efficiently manage the sales of their online or in-person training classes. Our clients create their own content, and use our proprietary hosted software solution for e-mail
communications, automated event registration and confirmation, pre- and post-training surveys and payment processing. The solution offers streamlined, automated handling of such events, which is intended to increase our clients training
revenue and allows them to gauge the effectiveness of their training programs. Our solution also automatically tracks and reports compliance data to meet regulatory requirements. Increasingly, companies are using events on the Internet as a forum to
provide product information and training for their business customers. Our clients benefit both from the revenue as well as from having a customer base that is better educated on how to get the most out of their products. We believe these customers
are often more loyal and spend more over time on our clients products.

eCommerce.During 2009, we acquired the technology of Grow Commerce. Grow Commerce provides hosting
of fan club and membership websites that offer monthly subscriptions and the ability for fee-based downloading of music, videos and other items. Additionally, the technology offers the ability to route orders of merchandise for fulfillment. We
continued to integrate and leverage the Grow Commerce assets to advance our B2B eCommerce strategy during 2010.

Our Clients

Our clients consist of large enterprises in a range of industries, including computer hardware and software,
telecommunications and financial services. Our clients typically have large customer bases and products and services that require complex selling processes to generate sales, thereby enabling them to benefit from our focused sales and marketing
programs to generate more revenue. In the year ended December 31, 2010, three clients accounted for 10% or more of our net revenue, with Sun Microsystems representing approximately 17% of our net revenue, Hewlett-Packard representing
approximately 14% of our net revenue, and Symantec representing approximately 12% of our net revenue. In 2009, three clients accounted for 10% or more of our net revenue, with Sun Microsystems representing approximately 22% of our net revenue,
Hewlett-Packard representing approximately 16% of our net revenue and Symantec accounting for approximately 10% of our net



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revenue. In 2008, Hewlett-Packard accounted for approximately 20% of our net revenue and was the only client that accounted for 10% or more of our net revenue. On February 5, 2010, we
received written notice from Sun Microsystems that they had elected to terminate the Global Inside Sales Program Statement of Work agreement dated March 31, 2009, effective as of February 28, 2010. The notice followed the acquisition of
Sun Microsystems by Oracle Corporation and affected the contract sales services that we were performing for Sun. The Global Inside Sales Program services accounted for approximately 13% of our fiscal 2009 annual net revenue. The Global Inside Sales
agreement had a minimum term with notice periods to August 31, 2010. We entered into a settlement agreement on March 8, 2010, and received a cash payment of $4,550,000 from Oracle Corporation for the buyout of the Global Inside Sales
agreement. The settlement payment was recognized as revenue in the first quarter of 2010. In addition, Oracle agreed to reimburse us $347,000 for employee severance costs related to terminating employees who worked on the Global Inside Sales
program. This reimbursement was recognized in payroll and payroll tax expense to offset the employee severance costs. As of December 31, 2010, none of our previous programs with Sun Microsystems were continuing.

Sales and Marketing

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

Technology and Development

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

Our
practice is to select market-leading commercial products and to leverage open-systems development environments for our internal development efforts. We believe this provides a stable technical foundation for the development and operation of our
technical systems. We focus our proprietary technology development on business functions that are part of the sales and marketing process. These business functions include: profiling, cleansing and analyzing of data, direct marketing and telesales
activities such as customer interaction tracking, pricing configuration and tracking, e-commerce tools, rapid deployment of client branded service, contract websites, and billing and reporting systems that expedite invoicing and collections as well
as the transfer of data and reports to our clients.

Employees

As of December 31, 2010, we employed approximately 1,450 full-time employees. This compares to approximately 950 full-time employees as of December 31, 2009. The growth in full-time employees is
attributable to our Asia business process outsourcing (BPO) operations. In January 2010, we also added 46 full-time employees with the acquisition of Optima Consulting Partners, Ltd. (Optima), a B2B lead development provider
with its primary office in the United Kingdom. None of our employees are represented by a labor union or are subject to a collective bargaining agreement, nor have we experienced any work stoppage. We consider our relationships with our employees to
be good.



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Competition

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



| |  |  | ability to offer integrated solutions, for both Internet and traditional sales and marketing;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | sales and marketing focus and domain expertise;
| | - |  | -----------------------------------------------



| |  |  | product performance, scalability and reliability;
| | - |  | -------------------------------------------------



| |  |  | breadth and depth of solutions;
| | - |  | -------------------------------



| |  |  | strong reference customers;
| | - |  | ---------------------------



| |  |  | return on investment; and
| | - |  | -------------------------



| |  |  | total cost of ownership.
| | - |  | ------------------------

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



| |  |  | solutions designed to sell service contracts and provide lead generation services from companies such as Encover and ServiceSource;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | providers of business databases, data processing and database marketing services such as Harte-Hanks and infoUSA;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | eCommerce capabilities from companies such as Digital River and GSI Commerce;
| | - |  | -----------------------------------------------------------------------------



| |  |  | companies that offer various online marketing services, technologies and products, including ValueClick; and
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | companies that offer training management systems, such as Saba and SumTotal.
| | - |  | ----------------------------------------------------------------------------

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

Intellectual Property

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



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Government Regulation

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

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

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

Our business is also subject to regulation in connection with our direct marketing activities. The
Federal Trade Commissions, or FTCs, telesales rules prohibit misrepresentations of the cost, terms, restrictions, performance or duration of products or services offered by telephone solicitation and specifically addresses other
perceived telesales abuses in the offering of prizes. Additionally, the FTCs rules and various state laws limit the hours during which telemarketers may call consumers and which consumers may be called. The Federal Telephone Consumer
Protection Act of 1991 contains other restrictions on facsimile transmissions and on telemarketers, including a prohibition on the use of automated telephone dialing equipment to call certain telephone numbers. The Federal Controlling the Assault of
Non-Solicited Pornography and Marketing Act of 2003 contains restrictions on the content and distribution of commercial e-mail. A number of states also regulate telesales and some states have enacted restrictions similar to these federal laws. In
addition, a number of states regulate e-mail and facsimile transmissions. State regulations of telesales, e-mail and facsimile transmissions may be more restrictive than federal laws. The failure to comply with applicable statutes and regulations
could have a material adverse effect on our business. There can be no assurance that additional federal or state legislation, changes in regulatory implementation or judicial interpretation of existing or future laws would not limit our activities
in the future or significantly increase the cost of regulatory compliance.

Financial Information about Geographic Areas

For years prior to 2007, we had no revenue, assets or operations outside of the U.S. During 2007, we acquired the Canadian assets of CAS
Systems, Inc (CAS Systems) and all of the outstanding stock of Qinteraction Limited (Qinteraction), a Cayman Islands-based holding company that has operations in the Philippines. In the first quarter of 2009, we established
our Rainmaker Europe subsidiary in the United Kingdom. In January 2010, we acquired all the outstanding stock of Optima, a B2B lead development provider with offices at the time in the United Kingdom, France, and Germany. During 2010, we integrated
our European operations into one primary office in the United Kingdom and closed our German offices and Canadian call center facility. Thus, we currently have operations in the United States, the United Kingdom, the Philippines and France where we
perform services on behalf of our clients to customers who are primarily located in North America. While we



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exited our Canadian call center facility in September 2010, we continue to maintain managed telesales representatives in Canada. See Segment Reporting in Note 1 to our consolidated
financial statements for a summary of revenue by geographic area.

Corporate Information

We were founded in 1991 and are headquartered in Silicon Valley in Campbell, California. We also have operation centers in or near Austin,
Texas, Manila, Philippines, London, England and Paris, France. We are incorporated in Delaware. Our principal office is located at 900 East Hamilton Ave., Suite 400, Campbell, CA 95008 and our phone number is (408) 626-3800. Our website is
www.rmkr.com. We make available, free of charge, on or through our website, our annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with the
Securities and Exchange Commission, or SEC. Information contained on our website is not incorporated by reference into this Annual Report on Form 10-K.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Related to Our
Business

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

During the year ended December 31, 2010, three clients accounted for 10% or more of our net revenue, with Sun Microsystems
representing approximately 17% of our net revenue, Hewlett-Packard representing approximately 14% of our net revenue, and Symantec representing approximately 12% of our net revenue. In 2009, three clients accounted for 10% or more of our net
revenue, with Sun Microsystems representing approximately 22% of our net revenue, Hewlett-Packard representing approximately 16% of our net revenue and Symantec accounting for approximately 10% of our net revenue. In 2008, Hewlett-Packard accounted
for approximately 20% of our net revenue and was the only client that accounted for 10% or more of our net revenue. On February 5, 2010, we received written notice from Sun Microsystems that they had elected to terminate the Global Inside Sales
Program Statement of Work agreement dated March 31, 2009, effective as of February 28, 2010. The notice followed the acquisition of Sun Microsystems by Oracle Corporation and affected the contract sales services that we were performing for
Sun. The Global Inside Sales Program services accounted for approximately 13% of our fiscal 2009 annual net revenue. The Global Inside Sales agreement had a minimum term with notice periods to August 31, 2010. We entered into a settlement
agreement on March 8, 2010, and received a cash payment of $4,550,000 from Oracle Corporation for the buyout of the Global Inside Sales agreement. The settlement payment was recognized as revenue in the first quarter of 2010. In addition,
Oracle agreed to reimburse us $347,000 for employee severance costs related to terminating employees who worked on the Global Inside Sales program. This reimbursement was recognized in payroll and payroll tax expense to offset the employee severance
costs. As of December 31, 2010, none of our previous programs with Sun Microsystems were continuing. A client that provides business process call center services that has been outsourcing its Asia call center activities to us was acquired in
December 2010. We are currently in discussions with this clients new parent company to provide managed call center services for their new facility. This may take affect in the next three to nine months. This is likely to result in some
decrease in revenue compared to the outsourced call center services we now provide this client. The outcome of this negotiation is presently unknown. The potential impact on revenue is not determinable at this time. Its possible that our
current agreement with this client could terminate without transitioning to a new managed services arrangement if we are not able to come to mutually agreeable terms. Services to this client accounted for approximately 6% of our 2010 annual net
revenue and 8% of our fourth quarter 2010 net revenue.





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

Our clients may, from time to time, restructure their businesses or
get acquired by another company, which may adversely impact the revenues we generate from those clients. Sun Microsystems, a significant client, was acquired by Oracle Corporation in 2010, and thereafter elected to terminate certain of our services
as described above. Any restructuring, termination or non-renewal of our services by any of our significant clients could reduce the volume of services we provide and further reduce our expected future revenues, which would likely have a material
adverse effect on our financial position, cash flows and results of operations.

Current macro-economic conditions could
continue to negatively impact our results of operations.

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

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

Our business plan and expectations for the future require that we effectively manage our cost structure, including our operating expenses and capital expenditures. To the extent that we do not effectively
manage our costs, our financial results may be adversely affected, particularly if the current unfavorable macro-economic conditions in the U.S. and abroad continue to contribute to our clients reducing their overall marketing spending and our
clients customers reducing their purchases of our clients products and services, thereby negatively affecting our revenue.

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

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



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

Our service sales agreements and our lead generation agreements generally allow our clients to terminate such
agreements without cause with 90 to 180 days notice and 15 to 30 days notice, respectively. Our clients are under no obligation to renew their engagements with us when their contracts come up for renewal. In addition, our agreements with our clients
are generally not exclusive. Our agreements with Hewlett-Packard, a significant client, expire at various dates from October 2011 through May 2012, and can generally be terminated prior to expiration with ninety days notice. Our agreements with
Symantec, a significant client, expire at various dates from May 2011 through June 2012, and can generally be terminated prior to expiration with ninety days notice. We had various agreements with Sun Microsystems, our largest client during 2010,
with various termination provisions. On February 5, 2010, we received written notice from Sun Microsystems that they had elected to terminate the Global Inside Sales Program Statement of Work agreement dated March 31, 2009, effective as of
February 28, 2010. The notice followed the acquisition of Sun Microsystems by Oracle Corporation and affected the contract sales services that we were performing for Sun. The Global Inside Sales Program services accounted for approximately 13%
of our fiscal 2009 annual net revenue. The Global Inside Sales agreement had a minimum term with notice periods to August 31, 2010. We entered into a settlement agreement on March 8, 2010, and received a cash payment of $4,550,000 from
Oracle Corporation for the buyout of the Global Inside Sales agreement. The settlement payment was recognized as revenue in the first quarter of 2010. In addition, Oracle agreed to reimburse us $347,000 for employee severance costs related to
terminating employees who worked on the Global Inside Sales program. This reimbursement was recognized in payroll and payroll tax expense to offset the employee severance costs. A client that provides business process call center services that has
been outsourcing its Asia call center activities to us was acquired in December 2010. We are currently in discussions with this clients new parent company to provide managed call center services for their new facility. This may take affect in
the next three to nine months. This is likely to result in some decrease in revenue compared to the outsourced call center services we now provide this client. The outcome of this negotiation is presently unknown. The potential impact on revenue is
not determinable at this time. Its possible that our current agreement with this client could terminate without transitioning to a new managed services arrangement if we are not able to come to mutually agreeable terms. Services to this client
accounted for approximately 6% of our 2010 annual net revenue and 8% of our fourth quarter 2010 net revenue.

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

A significant portion of our
business consists of marketing and selling our clients products and services to their customers. In addition, a significant percentage of our revenue is based on a pay for performance model in which our revenue is based on the
amount of our clients products and services that we sell. Accordingly, if a particular clients products and services fail to appeal to its customers for reasons beyond our control, such as preference for a competing product or service,
our revenue may decline. In addition, revenue from our lead generation service offering could decline if our clients reduce their marketing efforts.

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

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

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



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

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



| |  |  | difficulties assimilating the operations, personnel, technologies, products and information systems of the combined companies;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention;
| | - |  | ------------------------------------



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



| |  |  | potential loss of key employees of acquired organizations.
| | - |  | ----------------------------------------------------------

We perform a valuation analysis on all of our acquisitions as a basis for initially recognizing and measuring intangible assets including goodwill in our financial statements. We are required to test for
impairment the carrying value of our goodwill at the reporting unit level at least annually, and we are required to test for impairment the carrying value of these assets as well as our other intangible assets that are subject to amortization and
our tangible long-lived assets whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Such events or changes in circumstances may include a persistent decline in stock price and market
capitalization, reduced future cash flow estimates, and slower growth rates in our industry. During the year ending December 31, 2008, we took a non-cash charge of approximately $13.7 million for impairment of goodwill and other intangible
assets from our acquisitions. Subsequent to this impairment write-down, we had $3.5 million in goodwill and $1.6 million of unamortized intangibles on our balance sheet at December 31, 2008.

During the fourth quarter of 2009 and again in the fourth quarter of 2010, we performed our annual impairment test as of October 31
and noted that no impairment existed at that time. At December 31, 2010, we have $5.3 million in goodwill and $432,000 of unamortized intangibles on our balance sheet. In the future, our test of impairment could result in further adjustments,
or in write-downs or write-offs of assets, which would negatively affect our financial position and operating results.

In
2007, we invested in Market2Lead, Inc. (Market2Lead), a software-as-a-service provider of business-to-business automated marketing solutions. Rainmaker provided Market2Lead with growth financing of $2.5 million in secured convertible and
term debt. In 2008, one-half of the debt was converted into preferred shares of Market2Lead. In 2009, we impaired approximately half the equity value. In 2010, we impaired the remaining equity value. In May 2010, we received payment from Market2Lead
for the $1,250,000 in remaining term debt. We no longer carry any values on our balance sheet related to Market2Lead.

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

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

On January 25, 2007, we acquired the business of CAS Systems, which had operations near Montreal, Canada. On July 19, 2007, we
acquired Qinteraction, which operated a call center in Manila, Philippines. In the first quarter of 2009, we established our Rainmaker Europe subsidiary in the United Kingdom. On January 29, 2010, we acquired Optima, headquartered near London,
England. Our growth strategy may include further



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expansion into international markets. Our international expansion may require significant additional financial resources and management attention, and could have a negative effect on our
financial position, cash flows and operating results. In addition, we may be exposed to associated risks and challenges, including:



| |  |  | regional and economic political conditions;
| | - |  | -------------------------------------------



| |  |  | foreign currency fluctuations;
| | - |  | ------------------------------



| |  |  | different or lesser protection of intellectual property rights;
| | - |  | ---------------------------------------------------------------



| |  |  | longer accounts receivable collection cycles;
| | - |  | ---------------------------------------------



| |  |  | different pricing environments;
| | - |  | -------------------------------



| |  |  | difficulty in staffing and managing foreign operations;
| | - |  | -------------------------------------------------------



| |  |  | laws and business practices favoring local competitors; and
| | - |  | -----------------------------------------------------------



| |  |  | foreign government regulations.
| | - |  | -------------------------------

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

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

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

Our success depends on our ability to
successfully manage growth.

Any future growth will place additional demands on our managerial, administrative,
operational and financial resources. We will need to improve our operational, financial and managerial controls and information systems and procedures and will need to train and manage our overall work force. If we are unable to manage additional
growth effectively, our business will be harmed.

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

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

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

We incurred a net loss in each of the four quarters of 2008 and in three of the four quarters of both 2009 and 2010.
Our accumulated deficit through December 31, 2010 is $106.9 million. We may continue to incur losses in the future. Factors which may cause us to incur losses in the future include:



| |  |  | the growth of the market for our sales and marketing solutions;
| | - |  | ---------------------------------------------------------------



| |  |  | the demand for and acceptance of our services;
| | - |  | ----------------------------------------------



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| |  |  | the demand for our clients products and services;
| | - |  | --------------------------------------------------



| |  |  | the length of the sales and integration cycle for our new clients;
| | - |  | ------------------------------------------------------------------



| |  |  | our ability to expand relationships with existing clients;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to develop and implement additional services, products and technologies;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the success of our direct sales force;
| | - |  | --------------------------------------



| |  |  | our ability to retain existing clients;
| | - |  | ---------------------------------------



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



| |  |  | new product and service offerings from our competitors;
| | - |  | -------------------------------------------------------



| |  |  | general economic conditions, especially given the very difficult and challenging macroeconomic environment and the difficulty in predicting demand
during these uncertain times;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | regulatory compliance costs;
| | - |  | ----------------------------



| |  |  | our ability to integrate acquisitions and the costs and write-downs associated with them, including the amortization of intangibles;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to expand our operations, including potential further international expansion; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the loss of a significant client.
| | - |  | ---------------------------------

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

We may wish to secure additional capital for the acquisition of businesses, products or technologies that are complementary to ours, or to
fund our working capital and capital expenditure requirements. To date, we have raised capital through both equity and debt financings. On April 25, 2007, we completed a follow-on public offering of our common stock in which we issued an
additional 3.5 million shares and raised $27 million in net proceeds. On January 28, 2011, we filed a form S-3 registration statement and on February 18, 2011, we filed a form S-3/A amended registration statement for the potential
issuance of up to $15 million of securities in the form of our common stock, preferred stock, warrants, units, and/or debt securities, subject to SEC rules limiting any issuance under such registration statement to one-third of our nonaffiliate
market capitalization (public float) over any period of 12 calendar months for so long as our public float is less than $75 million. We may choose any combination of such securities depending on the market conditions at the time of
issuance, if any. Any additional equity financing will be dilutive to stockholders, and additional debt financing, if available, may involve restrictive covenants and interest expenses that will affect our financial results. Additional funding may
not be available when needed or on terms acceptable to us. If we are unable to obtain additional capital, we may be required to delay or reduce the scope of our operations. At December 31, 2010, our unrestricted cash balance was $12.2 million,
and our net working capital was $4.2 million. We expect we will need to raise additional funds over the next twelve months to meet our planned growth objectives. If we are unable to raise additional funds, our planned growth objectives may be
limited, and we may need to reduce the size of our operations.

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

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

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



| |  |  | the growth of the market for our sales and marketing solutions;
| | - |  | ---------------------------------------------------------------



| |  |  | the demand for and acceptance of our services;
| | - |  | ----------------------------------------------



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| |  |  | the demand for our clients products and services;
| | - |  | --------------------------------------------------



| |  |  | the length of the sales and integration cycle for our new clients;
| | - |  | ------------------------------------------------------------------



| |  |  | our ability to expand relationships with existing clients;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to develop and implement additional services, products and technologies;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | the success of our direct sales force;
| | - |  | --------------------------------------



| |  |  | our ability to retain existing clients;
| | - |  | ---------------------------------------



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



| |  |  | new product and service offerings from our competitors;
| | - |  | -------------------------------------------------------



| |  |  | general economic conditions;
| | - |  | ----------------------------



| |  |  | regulatory compliance costs;
| | - |  | ----------------------------



| |  |  | our ability to integrate acquisitions and the costs and write-downs associated with them, including the amortization of intangibles;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to expand our operations, including potential further international expansion; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | the loss of a significant client.
| | - |  | ---------------------------------

We are subject to certain financial covenants under our loan agreement with Bridge Bank. If we are unable to satisfy these covenants or obtain a waiver, the lender could demand immediate
repayment of their loans made to us.

The Company is a party to a loan agreement with Bridge Bank, which is secured by
substantially all of the Companys assets. We are required to comply with certain financial covenants under the loan agreement with Bridge Bank, including not incurring a quarterly non-GAAP profit or loss negatively exceeding by more than 10%
the amount of the non-GAAP profit or loss recited in the Companys operating plan approved by Bridge Bank, and maintaining unrestricted cash with Bridge Bank equal to the greater of $2.0 million or the aggregate principal amount of the
indebtedness from time to time outstanding with Bridge Bank plus $500,000. If we are not able to comply with such covenants, the Companys outstanding loan balance could become due and payable immediately and our existing credit facilities with
Bridge Bank could be cancelled. Unless we are able to obtain a waiver from Bridge Bank for any covenant violations, our business, financial condition and results of operations would be significantly harmed. For the three months ended March 31,
2010 and June 30, 2010, we did not meet the performance to plan financial covenant as our quarterly non-GAAP loss exceeded by 10% the amount of quarterly non-GAAP loss in our operating plan approved by Bridge Bank for our first and second
quarters results of operations. We received a waiver from Bridge Bank for the violation of this covenant for the three months ended March 31, 2010 and June 30, 2010. For the three months ended September 30, 2010 and December 31,
2010, we met this performance to plan financial covenant.

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

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



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

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

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

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

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

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

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

We have made significant investments in technology and system
improvements related to servicing clients and capitalized those costs while the technology was being developed. We have invested $6.5 million in client technology and system improvements, which has a carrying value of $2.0 million as of
December 31, 2010, and is generally amortized over two to five years. If unforeseen events or circumstances prohibit us from using these systems, we may be forced to impair one or more of these systems, which could result in a non-cash
impairment charge to our financial results. We expect to invest additional amounts into technology and system improvements in the future which would bear similar risks.



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

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



| |  |  | our inability to execute our services on behalf of our clients;
| | - |  | ---------------------------------------------------------------



| |  |  | delays in payment to us by customers;
| | - |  | -------------------------------------



| |  |  | damage to our reputation;
| | - |  | -------------------------



| |  |  | diversion of our resources;
| | - |  | ---------------------------



| |  |  | legal claims, including product liability claims, against us;
| | - |  | -------------------------------------------------------------



| |  |  | increased service and warranty expenses or financial concessions; and
| | - |  | ---------------------------------------------------------------------



| |  |  | increased insurance costs.
| | - |  | --------------------------

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

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

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

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

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



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

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

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

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

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

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

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

Risks Related to Our
Industry and Other Risks

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

The industry in which we operate is rapidly changing and
evolving. The evolution of this industry makes our risks, capital needs and operating results difficult to predict. Any failure to adapt our services in response to changing market and technological requirements could adversely affect our operating
results. In connection with our 2009 acquisition of the eCommerce technology of Grow Commerce, we have also entered into new lines of business to integrate the Grow Commerce assets to advance our eCommerce strategy. We have limited
experience in these new lines of business, and we will be required to devote substantial financial, technical,



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managerial and other resources to them. We cannot assure you that these new lines of business will be successful.

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

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

The demand for sales and marketing services is highly uncertain.

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

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

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

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

We are required to comply with the management certification requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We are
required to report, among other things, control deficiencies that constitute a material weakness or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A
material weakness is a deficiency or combination of deficiencies that results in a



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reasonable possibility that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. If we fail to continue to comply with the
requirements of Section 404, we might be subject to sanctions or investigation by regulatory authorities such as the SEC. In addition, failure to comply with Section 404 or the report by us of a material weakness may cause investors to
lose confidence in our consolidated financial statements, and our stock price may be adversely affected as a result. If we fail to remedy any material weakness, our consolidated financial statements may be inaccurate, we may face restricted access
to the capital markets and our stock price may be adversely affected.

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

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

Risks Associated with Our Stock

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

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

Our common stock price is volatile.

During the year ended December 31, 2010, the price for our common stock fluctuated between $0.87 per share and $1.84 per share. During the year ended December 31, 2009, the price for our common
stock fluctuated between $0.47 per share and $1.83 per share. The trading price of our common stock may continue to fluctuate widely, including due to:



| |  |  | quarter to quarter variations in results of operations;
| | - |  | -------------------------------------------------------



| |  |  | loss of a major client;
| | - |  | -----------------------



| |  |  | changes in the economic environment which could reduce our potential;
| | - |  | ---------------------------------------------------------------------



| |  |  | announcements of technological innovations by us or our competitors;
| | - |  | --------------------------------------------------------------------



| |  |  | changes in, or our failure to meet, the expectations of securities analysts;
| | - |  | ----------------------------------------------------------------------------



| |  |  | new products or services offered by us or our competitors;
| | - |  | ----------------------------------------------------------



| |  |  | changes in market valuations of similar companies;
| | - |  | --------------------------------------------------



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| |  |  | announcements of strategic relationships or acquisitions by us or our competitors;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | other events or factors that may be beyond our control;
| | - |  | -------------------------------------------------------



| |  |  | dilution resulting from the raising of additional capital; or
| | - |  | -------------------------------------------------------------



| |  |  | other factors discussed elsewhere in this Item 1ARisk Factors.
| | - |  | -----------------------------------------------------------------

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

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

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

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

If we fail to meet the Nasdaq Global Market listing requirements, our common stock will be delisted.

Trading of our common stock moved from the Nasdaq Capital Market to the Nasdaq Global Market on January 8, 2007. The Nasdaq Global
Market listing requirements are more onerous than the listing requirements for the Nasdaq Capital Market. If we experience losses from our operations, are unable to raise additional funds or our stock price does not meet minimum standards, we may
not be able to maintain the standards for continued listing on the Nasdaq Global Market, which include, among other things, that our common stock maintain a minimum closing bid price of at least $1.00 per share and minimum shareholders equity
of $10 million (subject to applicable grace and cure periods). Our common stock has traded below the minimum $1.00 closing bid price during both 2009 and 2010. If, as a result of the application of such listing requirements, our common stock is
delisted from the Nasdaq Global Market, our stock would become harder to buy and sell. Consequently, if we were removed from the Nasdaq Global Market, the ability or willingness of broker-dealers to sell or make a market in our common stock might
decline. As a result, the ability to resell shares of our common stock could be adversely affected.

Our directors,
executive officers and their affiliates own a significant percentage of our common stock and can significantly influence all matters requiring stockholder approval.

As of December 31, 2010, our directors, executive officers and entities affiliated with them together beneficially control approximately 19% of our outstanding shares. As a result, these
stockholders, acting together, may have the ability to disproportionately influence all matters requiring stockholder approval, including the election of all directors, and any merger, consolidation or sale of all or substantially all of our assets.
Accordingly, such concentration of ownership may have the effect of delaying, deferring or preventing a change in control of our company, which, in turn, could depress the market price of our common stock.



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

The market price of our common stock could decline as a result of sales of a large number of shares of our common
stock or the perception that these sales could occur. This might also make it more difficult for us to raise funds through the issuance of securities. As of December 31, 2010, we had 23,275,199 outstanding shares of common stock which included
2,457,063 unvested shares issued pursuant to restricted stock awards granted to certain employees and directors. These restricted shares will become available for public sales subject to the respective employees and directors continued
employment or service with the company over vesting periods of not more than four years. In addition, there were an aggregate of 1,473,430 shares of common stock issuable upon exercise of outstanding stock options and warrants, including 673,431
shares of common stock issuable upon exercise of options outstanding under our option plan and 799,999 shares of common stock issuable upon exercise of the outstanding warrants issued to the investors in our private placement transaction completed
on February 7, 2006. These warrants expired on February 7, 2011. We may issue and/or register additional shares, options, or warrants in the future in connection with acquisitions, employee compensation or otherwise.

On July 19, 2007, we completed a stock purchase agreement with the shareholders of Qinteraction. Under the terms of the purchase
agreement, the Company issued 559,284 shares of its common stock, representing approximately $4.8 million in Rainmaker common stock based upon the five-day average closing stock price before and after July 23, 2007, the date on which the
transaction was announced. Such shares were initially subject to a contractual prohibition of sale with shares available for sale from closing as follows: 241,890 shares were subject to 6 months lockup which has now expired and these shares are now
freely tradable, 241,891 shares were subject to 12 months lockup which has now expired and these shares are now freely tradable. In addition, 75,503 of the shares of the common stock consideration have been placed in escrow to secure certain
customary indemnity obligations under the Purchase Agreement. Two-thirds of the escrow was scheduled to be released after 12 months from closing and the remaining one-third was scheduled for release after 15 months from closing. The release of such
shares from escrow is subject to post-closing conditions, potential adjustments and offsets. No shares have been released from escrow as of yet as the Company has filed a claim against the escrow. The agreement also provided for a potential
additional payment at the end of twelve months following the closing, based on the achievement of certain financial milestones which the Company had determined have not been achieved, and which would have resulted in the issuance of up to $3.5
million in additional Rainmaker common stock and a payment of $4.5 million in cash. Based upon the financial milestone measurement, the Company determined that no contingent payment had been earned. Accordingly, no additional purchase price was
recorded.

On January 29, 2010, we completed a stock purchase agreement with the shareholders of Optima. Under the terms
of the acquisition, we issued 480,000 shares of Rainmaker common stock. Such shares are initially subject to a contractual prohibition of sale with shares available for sale from closing as follows: 25% of such shares became freely tradeable after 6
months, 50% of such shares became freely tradeable after 12 months and all of such shares may be freely traded after 18 months, or July 29, 2011. The agreement also provides for two potential additional payments of $375,000 each in a
combination of stock and/or cash contingent on certain performance metrics in fiscal 2010 and fiscal 2011, and subject to post closing conditions. Based upon the performance metric measurement, the Company determined that no contingent payment had
been earned in 2010. Accordingly, the Company recorded a gain on fair value re-measurement.

On January 28, 2011, we
filed a form S-3 registration statement and on February 18, 2011, we filed a form S-3/A amended registration statement for the potential issuance of up to $15 million of securities in the form of our common stock, preferred stock, warrants,
units, and/or debt securities, subject to SEC rules limiting any issuance under such registration statement to one-third of our nonaffiliate market capitalization (public float) over any period of 12 calendar months for so long as our
public float is less than $75 million. We may choose any combination of such securities depending on the market conditions at the time of issuance, if any.



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

The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business. If any of the analysts who cover us issue an
adverse opinion regarding our stock, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn
could cause our stock price or trading volume to decline.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

Facilities

Our headquarters is located in one building in Campbell, California. In October 2009, we executed a second amendment to the operating
lease for our corporate headquarters in Campbell, California to reduce our lease cost. Under this amendment, we reduced the amount of space that we lease by 6,719 square feet to 16,430 square feet starting October 1, 2009, and reduced our lease
cost per square foot by approximately 18%. We obtained a first right of refusal to the reduced space (6,719 square feet). The lease term originally began on November 1, 2005 and, after the first amendment, was set to end on January 31,
2010. Under this second amendment, the lease will expire on January 31, 2013. Annual gross rent under the amended lease was approximately $227,000 in the first year of the lease which ended September 30, 2010, and the base rent will
increase by approximately 5% each year thereafter for the remaining term expiring January 31, 2013. In addition, we will continue to pay our proportionate share of operating costs, maintenance on some of the common areas and taxes based on our
occupancy. The original letter of credit issued to the landlord in the amount of $100,000 for a security deposit remains in place.

In September 2010, we extended an existing lease in Austin, Texas on approximately 21,388 square feet of space for a term of 12 months through December 31, 2011. Annual rent in the facility will
approximate $208,000, or $17,000 monthly. Additionally, we pay our proportionate share of maintenance on some of the common areas in the business park.

On September 24, 2008, we entered into an agreement to lease approximately 20,000 square feet of space and moved our Canadian operations to this new location which is close to Montreal. The lease has
a minimum term of 3 years and commenced on January 1, 2009. Annual gross rent is $400,000 Canadian dollars for the initial 3 year term. Based on the exchange rate at December 31, 2010, annual rent is approximately $400,000 in US dollars.
Additionally, Rainmaker is responsible for its proportionate share of utilities, taxes and other common area maintenance charges during the lease term. We exited our Canadian call center facility in September 2010 and took a restructuring charge for
this lease commitment of $416,000, a write off of certain leasehold improvements of $106,000 and other facility costs of $46,000. We are actively working to sublease the facility through the end of our lease term of December 31, 2011.

With our acquisition of Qinteraction, we assumed existing lease obligations at their Manila, Philippines offices. We assumed
two office space leases and a parking lease. During 2008 and 2009, we amended and then terminated our lease in the Pacific Star building and we currently do not occupy any space in this building. We currently occupy approximately 40,280 square feet
on three floors in the BPI building in Manila. Our current lease for this space commenced on April 1, 2008, has a five year term and terminates on March 31, 2013. Based on the exchange rate at December 31, 2010, our annual base rent
will escalate from approximately $673,000 for the twelve months ending December 31, 2011 to $727,000 for the 2012 calendar year, the final full year of the lease that ends in March 2013. Our parking lease began in March 2006, has a five year
term and terminates in



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March 2011. Based on the exchange rate at December 31, 2010, our annual base rent on this lease is approximately $14,000. To accommodate growth in our call center business, we expanded our
facilities in the Philippines by entering into a lease commencing on May 1, 2010 to occupy approximately 15,850 square feet on the 4thfloor of the Alphaland Southgate Tower in Manila. The lease has a 3 year term and terminates on April 30, 2013.
Based on the exchange rate at December 31, 2010, our annual base rent will escalate from approximately $254,000 for the twelve months ending December 31, 2011 to $287,000 for the 2012 calendar year, the final full year of the lease that
ends in April 2013.

With our acquisition of Optima in January 2010, we assumed office leases in the United Kingdom, where we
have a call center and sales operation, in France where we have a small call center, and in Munich and Frankfurt, Germany where we had sales operations. In the first quarter of 2010, we consolidated our existing Rainmaker Europe operations in the
United Kingdom into Optimas office and terminated our then existing month-to-month lease in London effective March 31, 2010. In the United Kingdom, we have leased space in Godalming outside of London. This lease commenced in November
2009, has a 3 year term and terminates in October 2012. In October 2010, we expanded the amount of space that we lease under this lease agreement to accommodate growth. Combined annual base rent for this facility is £134,000 Great Britain
Pounds. Based on the exchange rate at December 31, 2010, annual rent is approximately $207,000 in U.S. dollars. We maintain a month-to-month lease located in Paris, France with monthly rent of 1,770 Euros or $2,300 based on the exchange
rate at December 31, 2010. We terminated our month-to-month leases in Munich and Frankfurt, Germany during July 2010.

We
believe these facilities are adequate for our current needs.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

From
time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would
have a material adverse effect on our financial condition or results of our operations. However, we are currently involved in litigation in the Philippines. Three former employees of our Asia operation have individually brought employment related
claims against the Company and each of those claims is awaiting final resolution. Additionally, the founders of Qinteraction have filed suit against the Company, in the Philippine courts, to pursue obtaining the shares held in escrow in connection
with the Companys purchase of Qinteraction, and have also asserted claims for additional money. The Company believes that any ultimate liability surrounding these claims, if any, will not have a material impact on its financial position or
results of operations. See Item 1A Risk Factors for additional discussion of the litigation and regulatory risks facing our Company.



|ITEM 4. | (REMOVED AND RESERVED)
|------- | ----------------------



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PART II



|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ----------------------------------------------------------------------------------------------------------------

Our common stock is traded on the Nasdaq Global Market under the symbol RMKR. The following table lists the high and low sale
prices for our common stock as reported on Nasdaq for each full quarterly period within the two most recent fiscal years.



|     |  |    |      |  |    |   |      |    |  |   |      |  |  |   |      | 
|---- |  | -- | ---- |  | -- | - | ---- | -- |  | - | ---- |  |  | - | ---- | 
|     |  | Q1 |      |  | Q2 |   |      | Q3 |  |   | Q4   | 
|2010 |  |    |      |  |    |   |      |    |  |   |      |  |  |   |      | 
|High |  | $  | 1.74 |  |    | $ | 1.71 |    |  | $ | 1.84 |  |  | $ | 1.45 | 
|Low  |  | $  | 0.87 |  |    | $ | 0.91 |    |  | $ | 0.91 |  |  | $ | 1.07 | 
|2009 |  |    |      |  |    |   |      |    |  |   |      |  |  |   |      | 
|High |  | $  | 1.35 |  |    | $ | 1.65 |    |  | $ | 1.83 |  |  | $ | 1.55 | 
|Low  |  | $  | 0.47 |  |    | $ | 0.58 |    |  | $ | 1.08 |  |  | $ | 1.19 | 

As of March 2,
2011, we had approximately 145 common stockholders of record. On March 2, 2011, the last reported sale price of our common stock on the Nasdaq Global Market was $1.32 per share.

Dividend Policy

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

Securities Authorized for Issuance Under Equity Compensation Plans



|                                                           |  |                                                                                          |           |  |                                                                          |   |      |                                                                                                                                        |  |  |        | 
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- | --------- |  | ------------------------------------------------------------------------ | - | ---- | -------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------ | 
|Plan category                                              |  | Number of securities tobe issued upon exerciseof outstanding
options,warrants and rights |           |  | Weighted averageexercise price ofoutstanding options,warrants and
rights |   |      | Number of securitiesremaining available
forfuture issuance under equitycompensation plans(excluding securitiesreflected in column (a)) | 
|                                                           |  | (a)                                                                                      |           |  | (b)                                                                      |   |      | (c)                                                                                                                                    | 
|Equity compensation plans approved by security holders     |  |                                                                                          | 3,130,494 |  |                                                                          | $ | 2.25 |                                                                                                                                        |  |  | 86,806 | 
|Equity compensation plans not approved by security holders |  |                                                                                          |          |  |                                                                          |   |     |                                                                                                                                        |  |  |       | 
|Total                                                      |  |                                                                                          | 3,130,494 |  |                                                                          | $ | 2.25 |                                                                                                                                        |  |  | 86,806 | 

Stock Repurchase Plan

In July 2008, the Companys Board of Directors approved a Stock Repurchase Program (the Program) authorizing
the repurchase of up to $3 million of its common stock. Under the Program, shares were repurchased from time to time in open market transactions at prevailing market prices. The timing and actual number of shares purchased depended on a variety of
factors, such as price, corporate and regulatory requirements, and market conditions. Repurchases under the Program were made using the Companys available cash or borrowings. The Program initially had a one-year term and could be commenced,
suspended or terminated at any time, or from time-to-time, at managements discretion without prior notice. In May 2009, the Companys Board of Directors approved extending the Program through January 31, 2010, and on December 3,
2009, the Companys Board of Directors approved extending the Program through July 31, 2010. During the year ended December 31, 2010, we purchased 79,237 shares at a cost of approximately $98,000 or an average cost of $1.24 per share.
Since inception of the Program, we have purchased 726,045 shares at a cost of approximately



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$1,020,000 or an average cost of $1.40 per share. The Program was not extended beyond July 31, 2010 and is no longer in effect.

During the twelve months ended December 31, 2010, the Company had restricted stock awards that vested. The Company is required to
withhold income taxes at statutory rates based on the closing market value of the vested shares on the date of vesting. The Company offers employees the ability to have vested shares withheld by the Company in an amount equal to the amount of taxes
to be withheld. Based on this, the Company purchased 356,931 shares during the twelve months ended December 31, 2010, with a cost of approximately $455,000 from employees to cover federal and state taxes due.



|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

Not applicable for smaller reporting companies.



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

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

Overview

We are a leading global provider of cloud-based B2B selling solutions that are designed to drive
higher customer acquisition, renewals, subscriptions and education sales for our clients and their channel partners. We have developed an integrated solution, the Rainmaker Revenue Delivery PlatformSM, that combines proprietary, on-demand application software and
advanced analytics with expert sales and marketing execution services, which can include marketing strategy development, websites, e-commerce portal creation and hosting, both inbound and outbound e-mail, direct mail, chat and telesales services.
Our Revenue Delivery Platform combines (1) our proprietary technology platform, including hosted application software, (2) our proprietary database of corporate buyers of technology products and services, (3) our data development and
analytics services and (4) our sales and marketing execution services. We are headquartered in Silicon Valley in Campbell, California, and have additional operations in or near Austin, Texas, Manila, Philippines, London, England and Paris,
France. While we exited our Canadian call center facility in September 2010, we continue to maintain some telesales representatives in Canada. Our current clients consist primarily of large enterprises operating in the computer hardware and
software, telecom and financial services industries.

Our strategy for long-term, sustained growth is to maintain and improve
our position as a leading global provider of integrated sales and marketing solutions. Key elements of our strategy include continuing to enhance the execution of our service offerings to generate more revenue for our existing clients thereby
increasing our revenue, continuing to seek cross-selling opportunities to increase the range of services provided to our approximately 80 existing clients, expanding our offerings to address international opportunities, signing new clients,
continuing to identify new services and capabilities that enhance or complement our Revenue Delivery Platform and selectively pursuing strategic acquisitions.

Prior to 2005, substantially all of our net revenue was derived from the commissions we earned on the sale of service contract renewals, software licenses and subscriptions, and warranties. Since 2005, we
have added multiple sources of revenue, including lead development services and hosted application software.

Background

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

In February 2005, we completed our first acquisition, Sunset Direct, which added a new service offeringthe generation of sales leads, or lead generation, for clients. Sunset Direct provided us with
new clients for our service contract sales solution. We relocated most of our operations from California to Sunset Directs lower cost location in Texas. Our net revenues grew to $32.1 million in 2005 from $15.3 million in 2004. This growth was
due both to $3.9 million, or 25%, year-over-year growth (excluding acquisitions) in our service contract sales solution and $12.9 million from our lead development services. In 2005, we incurred losses of $5.0 million, due in part to redundancy,
severance and other transition costs incurred in moving our base of operations to Texas.

We achieved our first profitable
quarter in the period ended March 31, 2006 due primarily to revenue growth from existing and new customers and the lower costs resulting from the relocation of our operations to Texas. Our acquisition of ViewCentral in September 2006 added
hosted application software for training sales to



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our service offerings and a significant new customer base. We reported net revenue of $48.9 million for the year 2006, representing year-over-year growth, excluding acquisitions, of 49%, in
addition to the $1.2 million of net revenue from our hosted application software for training sales offering. We were profitable in each quarter of 2006 and reported net income of $3.4 million for the year.

In January 2007, we acquired CAS Systems to provide additional complementary lead development functionality, customers, execution
expertise and an international presence with its location near Montreal, Canada. In July 2007, we purchased all of the outstanding stock of Qinteraction Limited, which operates an offshore call center located in the Philippines. Qinteraction
provides a variety of business solutions including inbound sales and order taking, inbound customer care, outbound telemarketing and lead generation, logistics support, and back-office processing. The nature of these services is highly complementary
to our other lead development and contract sales product offerings. In October 2009, we acquired the eCommerce technology of Grow Commerce. Grow Commerce provides hosting of fan club and membership websites that offer monthly subscriptions and the
ability for fee-based downloading of music, videos and other items. Additionally, the technology offers the ability to route orders of merchandise for fulfillment. We continued to integrate and leverage the Grow Commerce assets into our eCommerce
strategy during the 2010 fiscal year.

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

On February 5, 2010, we received written notice from Sun Microsystems that they had elected to terminate the
Global Inside Sales Program Statement of Work agreement dated March 31, 2009, effective as of February 28, 2010. The notice followed the acquisition of Sun Microsystems by Oracle Corporation and affected the contract sales services that we
were performing for Sun. The Global Inside Sales Program services accounted for approximately 13% of our fiscal 2009 annual net revenue. The Global Inside Sales agreement had a minimum term with notice periods to August 31, 2010. We entered
into a settlement agreement on March 8, 2010, and received a cash payment of $4,550,000 from Oracle Corporation for the buyout of the Global Inside Sales agreement. The settlement payment was recognized as revenue in the first quarter of 2010.
In addition, Oracle agreed to reimburse us $347,000 for employee severance costs related to terminating employees who worked on the Global Inside Sales program. This reimbursement was recognized in payroll and payroll tax expense to offset the
employee severance costs.

We reported net revenue of $42.8 million in 2010, representing an 11% decline over the prior year
due primarily to customer losses including the loss of Sun Microsystems during 2010. We reported a net loss of $10.0 million for 2010.

Net Revenue

We derive revenue from the following: the sale of
service contract renewals, software licenses and subscriptions, and warranties (Contract Sales); from the provision of services related to the development of qualified leads and appointments (Lead Development); from the licensing of our hosted
application software platform for our clients training sales (Training Sales); and from transaction fees related to the Grow Commerce eCommerce technology.

Service Contract Renewals, Software Licenses and Subscriptions, and Warranty Extensions (Contract Sales).    We sell, on behalf of our clients, service contract renewals,
software licenses and subscriptions and warranty extensions. We earn commissions on the sale of these services to our clients customers, which we report as our net revenue. We are typically responsible for the complete sales process, including
marketing and customer identification and order processing. We also take responsibility for collecting the amount paid by our clients customer. As a result, when we complete a sale, we record the full amount of the sale on our balance sheet as
accounts receivable. We record revenue for the commissions we earn on the transaction, which is based on a fixed percentage of the amount payable by our clients customer based on the agreement with our client. We



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record the difference between the sale amount and our commission as an account payable, representing the amount we will remit to our client according to our payment terms, generally 30 to 60 days
from the initial sale. Our clients customers pay us by credit card, check or on payment terms which are generally 30 days from sale, and none of our clients customers represented more than 10% of our net revenue. Because our revenue from
sales of service contract renewals, software licenses and subscriptions, and warranty extensions are commission-based, this revenue can vary significantly. Our agreements with our clients for these services typically have two- to three-year terms,
with automatic renewal provisions. These agreements are generally terminable on 90 to 180 days notice by either party.

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

Lead Development.    We provide lead
development services to generate, qualify and develop corporate leads, turning these prospects into sales opportunities and qualified appointments for our clients field sales forces and for their channel partners. Our agreements with our
clients are generally for fixed fees, have terms ranging from three months to one year and require us to provide fixed resources for the term of the contract. Some of our contracts contain performance requirements. For the significant majority of
our lead generation agreements, we recognize revenue as our services are provided; for our performance based contracts, we recognize revenue as we meet the performance objectives. To the extent that our clients pay us in advance of the provision of
services, we record deferred revenue and recognize the revenue ratably over the contract period. These agreements are generally terminable on 15 to 30 days notice by either party.

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

eCommerce.    During 2009, we acquired the eCommerce technology of Grow Commerce along with their existing
customer base. Grow Commerce provides hosting of fan club and membership websites that offer monthly subscriptions and the ability for fee-based downloading of music, videos and other items. Additionally, the eCommerce technology offers the ability
to route orders of merchandise for fulfillment. We license this hosted eCommerce software on a month-to-month basis to our clients. Clients are typically invoiced at the beginning of each month in advance for their monthly hosting fees for that
month and for the media downloads and merchandise orders from the previous month. Payment terms are 30 days from receipt of invoice and we typically recognize revenue when the monthly invoice payments are received. eCommerce revenue is included with
our Contract Sales revenue for 2009 and 2010 as the total amount is insignificant for both years.

Gross Margin

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



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Sales and Marketing Expenses

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

Technology and Development Expenses

Technology and development expenses include costs associated with the technology infrastructure that supports our
Rainmaker Revenue Delivery Platform. These costs include compensation and related costs for technology personnel, consultants, purchases of non-capitalizable software and hardware, and support and maintenance costs related to our systems. We have
also invested in the continued development of our Revenue Delivery Platform. Technology and Development Expenses do not include depreciation of hardware and software systems.

General and Administrative Expenses

General and administrative
expenses include costs associated with the administration of our business and consist primarily of compensation and related costs for administrative personnel, insurance, and legal, audit and other professional fees. Most of these costs relate to
personnel, insurance and facilities and are relatively fixed.

Stock-Based Compensation

Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718, Compensation-Stock
Compensation, establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains employee services in
share-based payment transactions. This guidance requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over
the requisite service periods in the Companys Consolidated Statement of Operations.

Depreciation and Amortization
Expenses

Depreciation and amortization expenses consist of depreciation and amortization of property, equipment and
software licenses, and intangible assets. We have completed the acquisition of several businesses in the past five years, and accordingly have been amortizing the intangible assets, other than goodwill, acquired in these transactions. We took a
charge to write-down a significant portion of our amortizable intangible assets in the fourth quarter of 2008 and as a result amortization expense decreased significantly in 2009. In January 2010, we purchased Optima adding $243,000 to our
amortizable intangible assets. See the discussions below regarding the Goodwill and Other Intangible Assets and the Impairment of Goodwill & Other Intangible Assets.

Interest and Other Expense, Net

Interest and other expense, net
reflects income received on cash and cash equivalents, interest expense on leases to secure equipment, software and other financing agreements, foreign currency gains/losses, and other income and expense.

Critical Accounting Policies/Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles
generally



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accepted in the U.S. (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial
statements. Although actual results have historically been reasonably consistent with managements expectations, future results may differ from these estimates or our estimates may be affected by different assumptions or conditions.

Management has discussed the development of our critical accounting policies with the audit committee of the board of directors and has
reviewed the disclosures of such policies and managements estimates in this Managements Discussion and Analysis of Financial Condition and Results of Operations.

We disclosed our critical accounting policies and estimates in Managements Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2009. Management believes there have been no significant changes during the year ended December 31, 2010.

Use of Estimates

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



| |  |  | revenue recognition and financial statement presentation;
| | - |  | ---------------------------------------------------------



| |  |  | the allowance for doubtful accounts;
| | - |  | ------------------------------------



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



| |  |  | measurement of our deferred tax assets and corresponding valuation allowance;
| | - |  | -----------------------------------------------------------------------------



| |  |  | allocation of purchase price in business combinations; and
| | - |  | ----------------------------------------------------------



| |  |  | fair value estimates for the expense of employee stock options.
| | - |  | ---------------------------------------------------------------

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

Revenue Recognition and
Financial Statement Presentation

Substantially all of our revenue is generated from the sale of service contracts and
maintenance renewals, lead development services, software subscriptions for hosted Internet sales of web based training and from hosting fees related to the Grow Commerce eCommerce technology. We recognize revenue from the sale of our clients
service contracts and maintenance renewals on the net basis, which represents the amount billed to the end customer less the amount paid to our client. Revenue from the sale of service contracts and maintenance renewals is recognized
when a purchase order from a clients customer is received, the service contract or maintenance agreement is delivered, the fee is fixed or determinable, the collection of the receivable is reasonably assured, and no significant post-delivery
obligations remain unfulfilled. Revenue from lead development services we perform is recognized as the services are accepted and is generally earned ratably over the service contract period. Some of our lead development service revenue is earned
when we achieve certain attainment levels and is recognized upon customer acceptance of the service. We earn revenue from our software



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

We also evaluate our agreements for multiple element arrangements.Our agreements typically do not contain multiple deliverables. However, in the few instances where our agreements have contained
multiple deliverables, they usually do not have value to our customers on a standalone basis, and therefore the deliverables are considered together as one unit of accounting. Revenue is then recorded using the proportional performance model, where
revenue is recognized as performance occurs over the term of the contract and any initial set up fees are recognized over the estimated customer life.

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

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

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our clients and clients customers to make required payments of amounts due to us. The allowance is
comprised of specifically identified account balances for which collection is currently deemed doubtful. In addition to specifically identified accounts, estimates of amounts that may not be collectible from those accounts whose collection is not
yet deemed doubtful but which may become doubtful in the future are made based on historical bad debt write-off experience. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. At December 31, 2010 and 2009, our allowance for potentially uncollectible accounts was $102,000 and $58,000, respectively.

Goodwill and Other Intangible Assets

We completed several acquisitions during the period January 1, 2005 through December 31, 2010. Goodwill represents the excess of the acquisition purchase price over the estimated fair value of
net tangible and intangible assets acquired. Goodwill is not amortized, but instead tested for impairment at least annually or more frequently if events and circumstances indicate that the asset might be impaired. In our analysis of goodwill and
other intangible assets we apply the guidance of FASB ASC 350-20-35, Intangibles  Goodwill and Other-Subsequent Measurement in determining whether any impairment conditions exist. In our analysis of other finite lived amortizable
intangible assets, we apply the guidance of FASB ASC 360-10-35, Property, Plant and Equipment-Subsequent Measurement, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying
amount exceeds the assets fair value. Intangible assets are attributable to the various technologies, customer relationships and trade names of the businesses we have acquired.

In the 4thquarter of 2008, we performed our annual goodwill impairment evaluation required under FASB ASC 350-20-35 and
concluded that goodwill was impaired along with our other intangible assets under FASB ASC 360-10-35. The impairment was a result of our market capitalization declining significantly with the price of our stock, declining sales, depressed market
conditions, deteriorating industry trends, and a significant downward revision of our forecasts. The ultimate result of the impairment evaluation was a charge in the 4th



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quarter of $11.5 million to write off the entire amount of goodwill on two of our reporting units (Lead Development and Rainmaker Asia) and a charge of approximately $2.2 million to write off a
majority of the other intangible assets contained in these same two reporting units.

In January 2010, we acquired Optima,
assigning $1.5 million to goodwill and $243,000 to amortizable intangible assets.

In the 4thquarter of 2009 and again in the 4thquarter of 2010, we performed our annual goodwill impairment
evaluation and concluded that our remaining goodwill balance was not impaired. At December 31, 2010, we had approximately $3.8 million in goodwill recorded on our Contract Sales reporting unit and $1.5 million in goodwill recorded on our
Rainmaker Europe reporting unit. Based on our analysis performed in the 4thquarter of 2010, the estimated fair values of the Contract Sales and Rainmaker Europe reporting units exceeded their carrying values by more than 20%.

We report segment results in accordance with FASB ASC 280, Segment Reporting. The method for determining what information is
reported is based on the way that management organizes the operating segments for making operational decisions and assessments of financial performance. The Companys chief operating decision maker reviews financial information presented on a
consolidated basis, accompanied by detailed information listing revenues by customer and product line, for purposes of making operating decisions and assessing financial performance. Currently the chief operating decision maker does not use product
line financial performance as a basis for business operating decisions. Accordingly, the Company has concluded that it has one operating and reportable segment. However, in accordance with FASB ASC 350-20-35, we are required to test goodwill for
impairment at the reporting unit level which is an operating segment or one level below an operating segment. Thus, our reporting units for goodwill impairment testing are Contract Sales, Lead Development, Rainmaker Asia and Rainmaker Europe.

Long-Lived Assets

Long-lived assets including our purchased intangible assets are amortized over their estimated useful lives. In accordance with FASB ASC 360-10-35, Property, Plant and Equipment-Subsequent
Measurement, long-lived assets, such as property, equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds
its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported
at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.

In the 4thquarter of 2008, in connection with the goodwill impairment testing discussed above, we had to evaluate our other
long-lived assets which included amortized intangible assets. Based on this analysis, we determined that the carrying value of our amortizable intangible assets exceeded their fair value based upon the estimated discounted cash flows related to the
assets and we recorded impairment charges of approximately $1.1 million related to intangible assets held at the Lead Development reporting unit and approximately $1.1 million related to intangible assets held at the Rainmaker Asia reporting unit.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and equipment is recorded using the straight-line method over the assets estimated useful lives. Computer equipment and
capitalized software are depreciated over two to five years and furniture and fixtures are depreciated over five years. Amortization of



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leasehold improvements is recorded using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Amortization of fixed assets under capital leases
is included in depreciation expense.

Costs of internal use software are accounted for in accordance with FASB ASC 350-40,
Internal Use Software and FASB ASC 350-50, Website Development Costs. This guidance requires that we expense computer software and website development costs as they are incurred during the preliminary project stage. Once the
capitalization criteria of FASB ASC 350-40 and ASC 350-50 have been met, external direct costs of materials and services consumed in developing or obtaining internal-use software, including website development, the payroll and payroll-related costs
for employees who are directly associated with and who devote time to the internal use computer software and associated interest costs are capitalized. Capitalized costs are amortized using the straight-line method over the shorter of the term of
related client agreement, if such development relates to a specific outsource client, or the softwares estimated useful life, ranging from two to five years. Capitalized internal use software and website development costs are included in
property and equipment in the accompanying balance sheets.

Income Taxes

We account for income taxes using the liability method. The liability method requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in our financial statements, but have not been reflected in our taxable income. A valuation allowance is established to reduce deferred tax assets to their estimated
realizable value. Therefore, we provide a valuation allowance to the extent that we do not believe it is more likely than not that we will generate sufficient taxable income in future periods to realize the benefit of our deferred tax assets. At
December 31, 2010 and December 31, 2009, we had gross deferred tax assets of $27.8 million and $25.8 million, respectively. In 2010 and 2009, the deferred tax asset was subject to a 100% valuation allowance and therefore is not recorded on
our balance sheet as an asset. Realization of our deferred tax assets is limited and we may not be able to fully utilize these deferred tax assets to reduce our tax rates.

FASB ASC 740, Income Taxes, prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under
this guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax
position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FASB ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and
transition.

Our policy for recording interest and penalties related to uncertain tax positions is to record such items as a
component of income before taxes. Penalties, interest paid and interest received are recorded in interest and other expense, net, in the statement of operations. There were immaterial amounts accrued for interest and penalties related to uncertain
tax positions as of December 31, 2010.

Stock-Based Compensation

FASB ASC 718, Compensation-Stock Compensation, establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services, primarily focusing on accounting for transactions where an entity obtains employee services in share-based payment transactions. This guidance requires companies to estimate the fair value of
share-based payment awards on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the consolidated statement of operations. See Note 9 for
further discussion of this statement and its effects on the financial statements presented herein.



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Foreign Currency Translation

During January 2007, we established a Canadian foreign subsidiary and subsequently purchased the Canadian-based assets of CAS Systems.
Additionally, in July 2007, we purchased Qinteraction Limited and its Philippine-based subsidiary. In the first quarter of 2009, we established our Rainmaker Europe subsidiary in London, England. In January 2010, we acquired Optima, whose operations
are primarily located in the United Kingdom. The functional currency of our foreign subsidiaries was determined to be their respective local currencies (Canadian Dollar, Philippine Peso, and Great Britain Pound). Foreign currency assets and
liabilities are translated at the current exchange rates at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates in effect during the year. The related unrealized gains and losses from foreign currency
translation are recorded in accumulated other comprehensive loss as a separate component of stockholders equity in the consolidated balance sheet and consolidated statement of stockholders equity and comprehensive loss. Net gains and
losses resulting from foreign exchange transactions are included in interest and other expense, net in the consolidated statement of operations.

Significant Client Concentrations

We have generated a significant portion
of our revenue from sales to customers of a limited number of clients. In the year ended December 31, 2010, three clients accounted for 10% or more of our net revenue, with Sun Microsystems representing approximately 17% of our net revenue,
Hewlett-Packard representing approximately 14% of our net revenue and Symantec representing approximately 12% of our net revenue. In 2009, three clients accounted for 10% or more of our net revenue, with Sun Microsystems representing approximately
22% of our net revenue, Hewlett-Packard representing approximately 16% of our net revenue and Symantec accounting for approximately 10% of our net revenue. In 2008, Hewlett-Packard accounted for approximately 20% of our net revenue and was the only
client that accounted for 10% or more of our net revenue.

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

On February 5, 2010, we received written notice from Sun Microsystems
that they had elected to terminate the Global Inside Sales Program Statement of Work agreement dated March 31, 2009, effective as of February 28, 2010. The notice followed the acquisition of Sun Microsystems by Oracle Corporation and
affected the contract sales services that we were performing for Sun. The Global Inside Sales Program services accounted for approximately 13% of our fiscal 2009 annual net revenue, The Global Inside Sales agreement had a minimum term with notice
periods to August 31, 2010. We entered into a settlement agreement on March 8, 2010, and received a cash payment of $4,550,000 from Oracle Corporation for the buyout of the Global Inside Sales agreement. The settlement payment was
recognized as revenue in the first quarter of 2010. In addition, Oracle agreed to reimburse us $347,000 for employee severance costs related to terminating employees who worked on the Global Inside Sales program. This reimbursement was recognized in
payroll and payroll tax expense to offset the employee severance costs. A client that provides business process call center services that has been outsourcing its Asia call center activities to us was acquired in December 2010. We are currently in
discussions with this clients new parent company to provide managed call center services for their new facility. This may take affect in the next three to nine months. This is likely to result in some decrease in revenue compared to the
outsourced call center services we now provide this client. The outcome of this negotiation is presently unknown. The potential impact on revenue is not determinable at this time. Its possible that our current agreement with this client could
terminate without transitioning to a new managed services arrangement if we are not able to come to mutually agreeable terms. Services to this client accounted for approximately 6% of our 2010 annual net revenue and 8% of our fourth quarter 2010 net
revenue.

We have outsourced services agreements with our clients that expire at various dates ranging through June 2012. Our
agreements with Hewlett-Packard, a significant client, expire at various dates from October 2011



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through May 2012, and can generally be terminated prior to expiration with ninety days notice. Our agreements with Symantec, a significant client, expire at various dates from May 2011 through
June 2012, and can generally be terminated prior to expiration with ninety days notice.

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

Related Party Transactions

We made purchases of computer equipment and services from several vendors including Hewlett-Packard, one of our largest clients that contributed 10% or more of our net revenue for the year ended
December 31, 2010. During the years ended December 31, 2010, 2009 and 2008, we purchased equipment from Hewlett-Packard for approximately $122,000, $53,000 and $217,000, respectively. We did not have any purchases from Sun Microsystems or
Symantec during the years ended December 31, 2010, 2009 and 2008, other than cost of sales transactions for our contract sales program with Symantec.

The Chairman of our board of directors also serves on the board of Saama Technologies, a technology services firm. During the year ended December 31, 2010, we paid Saama Technologies approximately
$11,000 for technology services. In 2009 and 2008, we paid Saama Technologies approximately $170,000 and $290,000, respectively, for technology services. We may continue to utilize their services and may expand the scope of Saama Technologies
engagement.

In October 2007, we closed an OEM licensing agreement with Market2Lead, Inc. (Market2Lead), a
software-as-a-service provider of business to business automated marketing solutions, to further enhance Rainmakers on-demand marketing automation application. In connection with this agreement, Rainmaker provided Market2Lead with growth
financing of $2.5 million in secured convertible and term debt. During the years ended December 31, 2009 and 2008, we paid Market2Lead approximately $94,000 and $264,000, respectively, for marketing services. We did not utilize their services
in 2010.

Results of Operations

The following table presents, for the periods given, selected financial data as a percentage of our net revenue.



|                                                 |  |                         |       |    |      |  |       |      |  |  |       |   
|------------------------------------------------ |  | ----------------------- | ----- | -- | ---- |  | ----- | ---- |  |  | ----- | --
|                                                 |  | Year Ended December 31, |      
|                                                 |  | 2010                    |       |    | 2009 |  |       | 2008 | 
|Net revenue                                      |  |                         | 100.0 | %  |      |  | 100.0 | %    |  |  | 100.0 | % 
|Costs of services                                |  |                         | 55.8  |    |      |  | 55.2  |      |  |  | 59.3  |   
|                                                 |  |                         |       |    |      |  |       |      |  |  |       |   
|Gross margin                                     |  |                         | 44.2  |    |      |  | 44.8  |      |  |  | 40.7  |   
|                                                 |  |                         |       |    |      |  |       |      |  |  |       |   
|Operating expenses:                              |  |                         |       |    |      |  |       |      |  |  |       |   
|Sales and marketing                              |  |                         | 8.7   |    |      |  | 9.2   |      |  |  | 11.9  |   
|Technology and development                       |  |                         | 21.4  |    |      |  | 21.7  |      |  |  | 22.8  |   
|General and administrative                       |  |                         | 23.6  |    |      |  | 19.0  |      |  |  | 19.1  |   
|Depreciation and amortization                    |  |                         | 11.2  |    |      |  | 11.7  |      |  |  | 11.7  |   
|Gain on fair value re-measurement                |  |                         | (0.4  | )  |      |  |      |      |  |  |      |   
|Impairment of goodwill & other intangible assets |  |                         |      |    |      |  |      |      |  |  | 20.7  |   
|                                                 |  |                         |       |    |      |  |       |      |  |  |       |   
|Total operating expenses                         |  |                         | 64.5  |    |      |  | 61.6  |      |  |  | 86.2  |   
|                                                 |  |                         |       |    |      |  |       |      |  |  |       |   
|Operating loss                                   |  |                         | (20.3 | )  |      |  | (16.8 | )    |  |  | (45.5 | ) 
|Interest and other expense, net                  |  |                         | (2.3  | )  |      |  | (0.2  | )    |  |  | (0.1  | ) 
|                                                 |  |                         |       |    |      |  |       |      |  |  |       |   
|Loss before income tax expense                   |  |                         | (22.6 | )  |      |  | (17.0 | )    |  |  | (45.6 | ) 
|Income tax expense                               |  |                         | 0.7   |    |      |  | 0.4   |      |  |  | 0.5   |   
|                                                 |  |                         |       |    |      |  |       |      |  |  |       |   
|Net loss                                         |  |                         | (23.3 | )% |      |  | (17.4 | )%   |  |  | (46.1 | )%
|                                                 |  |                         |       |    |      |  |       |      |  |  |       |   



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Comparison of Years Ended December 31, 2010 and 2009

Net Revenue.    Net revenue decreased $5.0 million, or 11%, to $42.8 million in the year ended
December 31, 2010, as compared to the year ended December 31, 2009. The following table shows the change in net revenue by product line between the periods (in thousands):



|                 |  |                        |        |  |      |   |        |          |  |   |          |   |  |  |     |   
|---------------- |  | ---------------------- | ------ |  | ---- | - | ------ | -------- |  | - | -------- | - |  |  | --- | --
|                 |  | Year EndedDecember 31, |        |  |      |   |        |          | 
|                 |  | 2010                   |        |  | 2009 |   |        | $ Change |  |   | % Change |  
|Contract sales   |  | $                      | 21,066 |  |      | $ | 24,953 |          |  | $ | (3,887   | ) |  |  | (16 | )%
|Lead development |  |                        | 17,884 |  |      |   | 18,456 |          |  |   | (572     | ) |  |  | (3  | )%
|Training sales   |  |                        | 3,818  |  |      |   | 4,385  |          |  |   | (567     | ) |  |  | (13 | )%
|                 |  |                        |        |  |      |   |        |          |  |   |          |   |  |  |     |   
|Total            |  | $                      | 42,768 |  |      | $ | 47,794 |          |  | $ | (5,026   | ) |  |  | (11 | )%
|                 |  |                        |        |  |      |   |        |          |  |   |          |   |  |  |     |   

Net revenue from our contract sales product line decreased compared to the prior year as customer losses of
approximately $3.6 million and lower contract sales net revenue with Hewlett-Packard of approximately $1.7 million exceeded net revenue growth from existing and new customers. Lead development product line net revenue declined predominantly from
decreases in net revenues from existing U.S. clients, including Sun Microsystems, as they reduced their marketing budgets or canceled programs during the year, offset partially by increased sales in Asia and Europe. The acquisition of Optima in the
first quarter of 2010 contributed approximately $2.0 million in lead development product line net revenue during the year ended December 31, 2010. Net revenue from our training sales product line declined as compared to the prior year due to
customer attrition.

Costs of Services and Gross Margin.    Costs of services decreased $2.5
million, or 10%, to $23.9 million in the year ended December 31, 2010, as compared to the 2009 comparative period. The decrease is attributable primarily to reductions in our telesales workforce and is in line with the decline in net revenue.
Our gross margin percentage decreased to 44% in the year ended December 31, 2010 as compared to 45% for the year ended December 31, 2009 primarily as a result of a shift in the mix of our business from contract sales to lead development,
which has a lower gross margin percentage. Our contract sales product line decreased to 49% of total net revenue for the year ended December 31, 2010, as compared to 52% of total net revenue in the 2009 comparable period. Revenue from our lead
development product line increased to 42% of total net revenue for the year ended December 31, 2010, as compared to 39% of total net revenue in the 2009 comparable period. Revenue from our training sales product line remained flat at
approximately 9% of total net revenue in 2010 and in the 2009 comparable period. We estimate that gross margin will fluctuate during 2011 depending on the volume of net revenue and based on the revenue mix.

Sales and Marketing Expenses.    Sales and marketing expenses decreased $663,000, or 15%, to $3.7 million in
the year ended December 31, 2010, as compared to the 2009 comparative period. The decrease is primarily due to approximately $658,000 decrease in overall personnel costs due to reductions in sales and marketing staff and decreased
commissions from reductions in sales. We expect sales and marketing expenses to increase in 2011 as compared to 2010 as we hired a new senior vice president of sales and marketing with an e-commerce and software industry background to increase our
sales and marketing effort to reach more clients and drive higher revenue growth.

Technology and Development
Expenses.    Technology and development expenses decreased $1.2 million, or 12%, to $9.2 million during the year ended December 31, 2010, as compared to the 2009 comparative period. The decrease is primarily attributable
to our focus in 2010 on developing our eCommerce and training platforms that will benefit future periods resulting in a $1.4 million increase in capitalized development costs partially offset by a $300,000 increase in fees paid to outside
consultants. We expect technology and development expenses to decrease in 2011 as compared to 2010 as we continue to reduce spending due to the challenging macroeconomic environment.



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General and Administrative Expenses.    General and
administrative expenses increased $979,000, or 11%, to $10.1 million during the year ended December 31, 2010, as compared to the year ended December 31, 2009. The increase was primarily due to approximately $568,000 in costs to exit our
Montreal facility, $438,000 in higher stock compensation charges, and $292,000 in costs due to the acquisition of Optima offset partially by cost savings initiatives. We expect general and administrative expenses to decrease in 2011 as compared to
2010 as we continue to reduce spending.

Depreciation and Amortization Expenses.    Depreciation
and amortization expenses decreased $777,000, or 14%, to $4.8 million for the year ended December 31, 2010, as compared to the 2009 period. Depreciation expense decreased due to a smaller asset base for facility and equipment in the U.S. and
Canada. Amortization of intangible assets decreased by approximately $362,000 in the 2010 period due primarily to the completion of amortization on the ViewCentral assets, partially offset by amortization of intangibles resulting from the Optima
acquisition which occurred in January 2010. We expect depreciation and amortization expense to increase during 2011 as compared to 2010 as a result of capital expenditures during 2010 and planned capital expenditures during 2011.

Gain on Fair Value Re-measurement.During the year ended December 31, 2010, the Company reduced the
fair value of the contingent consideration liability related to Optima by $190,000 and recorded a corresponding gain on re-measurement of this liability for the 2010 earnout component based on performance to date and projections of performance
through 2011.

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



|                                 |  |                        |      |   |      |   |      |        |  |   |      |  
|-------------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | ------ |  | - | ---- | -
|                                 |  | Year EndedDecember 31, |      |   |      |  
|                                 |  | 2010                   |      |   | 2009 |   |      | Change | 
|Interest income                  |  | $                      | 37   |   |      | $ | 93   |        |  | $ | (56  | )
|Interest expense                 |  |                        | (239 | ) |      |   | (220 | )      |  |   | (19  | )
|Currency transaction gain (loss) |  |                        | (53  | ) |      |   | 41   |        |  |   | (94  | )
|Write-down of investment         |  |                        | (740 | ) |      |   |     |        |  |   | (740 | )
|                                 |  |                        |      |   |      |   |      |        |  |   |      |  
|                                 |  | $                      | (995 | ) |      | $ | (86  | )      |  | $ | (909 | )
|                                 |  |                        |      |   |      |   |      |        |  |   |      |  

The decrease in interest income is partially attributable to our decrease in cash from $15.1 million as of
December 31, 2009 to $12.2 million at December 31, 2010 as we had historically invested the net proceeds received from our follow-on offering of common stock in April 2007 in interest bearing deposit accounts. The receipt of payment in
full of an interest bearing note during 2010 also contributed to the decline in interest income.

Interest expense was
relatively flat for the year ended December 31, 2010, as compared to the 2009 period as there were no significant changes to interest rates on our debt or average debt balances in 2010 as incremental and new borrowings did not occur until late
in 2010.

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

In May 2010, we received payment from Market2Lead for the $1,250,000 in remaining term debt plus accrued interest of approximately
$170,000 in connection with the acquisition of Market2Lead by a third party. In connection with this acquisition, we wrote-off the carrying value of our minority equity investment of $740,000 in this company. We no longer carry any values on our
balance sheet related to Market2Lead.

Income Tax Expense.    Income tax expense increased $74,000,
or 36%, to $279,000 for the year ended December 31, 2010, as compared to the year ended December 31, 2009. Even though we incurred book and tax



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losses over the last three years, we have not recorded any deferred tax benefits for such losses due to managements assessment that deferred tax assets are not more than likely to be
realized in the future. Therefore, we recorded no deferred tax benefits for the losses. Our income tax expense for the year ended December 31, 2010, primarily consists of estimates of foreign taxes, which include, but are not limited
to, gross income taxes from one of our foreign subsidiaries, and certain state minimum and franchise taxes which are also determined largely based on gross income rather than net loss.

Comparison of Years Ended December 31, 2009 and 2008

Net Revenue.    Net revenue decreased $18.5 million, or 28%, to $47.8 million in the year ended
December 31, 2009, as compared to the year ended December 31, 2008. The following table shows the change in net revenue by product line between the periods (in thousands):



|                 |  |                        |        |  |      |   |        |          |  |   |          |   |  |  |       |   
|---------------- |  | ---------------------- | ------ |  | ---- | - | ------ | -------- |  | - | -------- | - |  |  | ----- | --
|                 |  | Year EndedDecember 31, |        |  |      |   |        |          | 
|                 |  | 2009                   |        |  | 2008 |   |        | $ Change |  |   | % Change |  
|Contract sales   |  | $                      | 24,953 |  |      | $ | 25,574 |          |  | $ | (621     | ) |  |  | (2.4  | )%
|Lead development |  |                        | 18,456 |  |      |   | 36,368 |          |  |   | (17,912  | ) |  |  | (49.3 | )%
|Training sales   |  |                        | 4,385  |  |      |   | 4,385  |          |  |   |         |   |  |  | 0.0   | % 
|                 |  |                        |        |  |      |   |        |          |  |   |          |   |  |  |       |   
|Total            |  | $                      | 47,794 |  |      | $ | 66,327 |          |  | $ | (18,533  | ) |  |  | (27.9 | )%
|                 |  |                        |        |  |      |   |        |          |  |   |          |   |  |  |       |   

Revenue from our contract sales product line decreased compared to the prior year as a result of a $5.3
million reduction in revenue from Dell which was partially offset by the receipt of a one-time settlement payment of $1.4 million during the third quarter of 2009 and increased revenue from new and existing clients. Lead development product line
revenue declined predominantly from decreases in revenues from existing clients as they reduced their marketing budgets or canceled programs during the year, offset partially by revenues from several new clients in the period. Revenue from our
training sales product line was flat as compared to the prior year.

Costs of Services and Gross
Margin.    Costs of services decreased $13.0 million, or 33%, to $26.4 million in the year ended December 31, 2009, as compared to the 2008 comparative period. The decrease was attributable primarily to reductions in
telesales workforce related to declining sales from our contract sales and lead development product lines. Our gross margin percentage increased to 45% in the year ended December 31, 2009 as compared to 41% for the year ended December 31,
2008 primarily as a result of the $1.4 million one-time settlement payment received in the quarter ended September 30, 2009, a shift in the mix of our business from lead development to contract sales and lower costs as a result of cost
reduction activities reducing our facilities and workforce. Our contract sales product line increased to 52% of total net revenue for the year ended December 31, 2009, as compared to 39% of total net revenue in the 2008 comparable period.
Revenue from our lead development product line decreased to approximately 39% of total net revenue for the year ended December 31, 2009, as compared to 55% of total net revenue in the 2008 comparable period. Revenue from our training sales
product line increased to approximately 9% of total net revenue in 2009 as compared to 6% in the 2008 comparable period.

Sales and Marketing Expenses.    Sales and marketing expenses decreased $3.5 million, or 44%, to $4.4 million
in the year ended December 31, 2009, as compared to the 2008 comparative period. The decrease was primarily due to approximately $2.6 million in decreased personnel costs due to decreases in sales and marketing staffing, decreased commissions
from reductions in sales, and decreases in recruiting and relocation costs. Additionally, marketing costs decreased approximately $285,000 and consulting and outsourced services fees decreased approximately $240,000 due to reduced project spending
related to corporate website development, and travel costs decreased approximately $201,000 due to corporate initiatives put in place to reduce these expenses.

Technology and Development Expenses.    Technology and development expenses decreased $4.8 million, or 32%, to $10.4 million during the year ended December 31, 2009, as
compared to the 2008 comparative period.



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The decrease was primarily attributable to an approximately $2.0 million reduction in fees paid to outside consultants and service providers as a result of reduced usage of these services,
decreases in personnel costs of approximately $2.5 million, and decreased travel and entertainment costs of approximately $281,000 due to the reduction in our workforce.

General and Administrative Expenses. General and administrative expenses decreased $3.6 million, or 28%, to $9.1 million during the year ended December 31, 2009, as compared to the year
ended December 31, 2008. The decrease was primarily due to approximately $2.8 million in decreased personnel costs related to the reduction in our workforce during 2008 and 2009. We also reduced travel and entertainment expenses
approximately $236,000. Rent decreased approximately $716,000 during the year ended December 31, 2009, due primarily to our reduction in office space in the Philippines and in Austin. Legal and professional fees decreased approximately $373,000
during the 2009 period as compared to the prior year due primarily to litigation settled during the 2009 fiscal year.

Depreciation and Amortization Expenses. Depreciation and amortization expenses decreased $2.2 million, or 28%, to $5.6
million for the year ended December 31, 2009, as compared to the 2008 period. Amortization of intangible assets decreased by approximately $2.2 million in the 2009 period, primarily as a result of the write-off of approximately $2.2 million of
our amortizable intangible assets in the fourth quarter of our 2008 fiscal year.

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



|                                 |  |                        |      |   |      |   |      |        |  |   |      |  
|-------------------------------- |  | ---------------------- | ---- | - | ---- | - | ---- | ------ |  | - | ---- | -
|                                 |  | Year EndedDecember 31, |      |   |      |  
|                                 |  | 2009                   |      |   | 2008 |   |      | Change | 
|Interest income                  |  | $                      | 93   |   |      | $ | 865  |        |  | $ | (772 | )
|Interest expense                 |  |                        | (220 | ) |      |   | (112 | )      |  |   | (108 | )
|Currency transaction gain (loss) |  |                        | 41   |   |      |   | 96   |        |  |   | (55  | )
|Write-down of investment         |  |                        |     |   |      |   | (749 | )      |  |   | 749  |  
|Other                            |  |                        |     |   |      |   | (134 | )      |  |   | 134  |  
|                                 |  |                        |      |   |      |   |      |        |  |   |      |  
|                                 |  | $                      | (86  | ) |      | $ | (34  | )      |  | $ | (52  | )
|                                 |  |                        |      |   |      |   |      |        |  |   |      |  

The decrease in interest income was primarily attributable to our decrease in cash from $20.0 million as of
December 31, 2008 to $15.1 million at December 31, 2009 as we had historically invested the net proceeds received from our follow-on offering of common stock in April 2007 in interest bearing deposit accounts. Interest expense was the
result of interest incurred on the notes payable issued with the purchase of the assets of CAS Systems and interest incurred on the Bridge Bank Equipment Sub-facility portion of our Revolving Line of Credit which converted to term debt at a minimum
interest rate of 6% in January 2009. We made principal payments on the CAS Systems loan and the Bridge Bank loan during the year ended December 31, 2009.

The currency transaction gain (loss) is primarily due to the fluctuation of currency exchange rates on a note payable to a third party denominated in United States dollars that is owed by our Canadian
subsidiary in connection with our acquisition of CAS Systems.

Income Tax Expense.    Income tax
expense decreased $130,000, or 39%, to $205,000 for the year ended December 31, 2009, as compared to the year ended December 31, 2008. Even though we incurred book and tax losses over the last two years, we have not recorded any deferred
tax benefits for such losses due to managements assessment that deferred tax assets are not more than likely to be realized in the future. Therefore, we recorded no deferred tax benefits for the losses. Our income tax expense for the
year ended December 31, 2009, primarily consists of estimates of foreign taxes, which included, but were not limited to, gross income taxes from one of our foreign subsidiaries, and certain state minimum and franchise taxes which were
determined largely based on gross income rather than net loss.



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Liquidity and Sources of Capital

Cash used in operating activities for the year ended December 31, 2010 of $982,000 was primarily the result of a net loss
totaling $10.0 million largely offset by non-cash charges. Significant non-cash charges included $4.8 million for depreciation and amortization of property and intangibles, $3.0 million for stock-based compensation charges, $740,000 for the
write-down of a minority equity investment and a $226,000 provision for allowance for doubtful accounts.

Cash used in
operating activities for the year ended December 31, 2009 was $990,000. Cash used in operating activities for the year ended December 31, 2009 was primarily the result of a net loss totaling $8.3 million, changes in operating
assets and liabilities that accounted for $799,000 of the decrease and the credit for the recovery of allowance for doubtful accounts that totaled $311,000. These decreases were almost entirely offset by non-cash expenditures for depreciation and
amortization of property and intangibles of $5.6 million, stock-based compensation charges of $2.5 million, and the loss on disposal of fixed assets of $343,000.

Our net change in operating assets and liabilities during 2010 was $396,000, the largest components of which are in accounts receivable and accounts payable. When we sell a service or maintenance contract
for a client, we record the sales price of the contract to the clients customer as our receivable and also record our payable to the client for our cost of the contract, which is effectively the same amount less our compensation for obtaining
the contract for our client. For this reason, our accounts payable includes amounts due to our clients for service and maintenance contracts we sold on their behalf. Accounts payable therefore decreases in relation to our decreased sales of service
contracts on behalf of our clients.

Accounts receivable decreased at December 31, 2010 as compared to December 31,
2009 as a result of lower overall sales during 2010 as compared to 2009. Our days sales outstanding, or DSO, increased to 37 days at December 31, 2010 as compared to 31 days at December 31, 2009. Since we record the gross billing to the
end customer of our contract sales clients in our accounts receivable, we calculate DSO based on our ability to collect those gross billings from the end customers. We record revenue based on the net commission we retain.

Cash used in investing activities was $2.6 million in the year ended December 31, 2010, as compared to cash used in investing
activities of $1.1 million in the year ended December 31, 2009. The change is primarily the result of increases in capital expenditures of $1.7 million in the year ended December 31, 2010, as compared to the year ended December 31,
2009. Our restricted cash balance increased approximately $75,000 in the year ended December 31, 2010, as compared to a decrease of $929,000 in the restricted cash balance for the year ended December 31, 2009. Restricted cash represents
the reserve for the refund due for non-service payments inadvertently paid to the Company by our clients customers instead of paid directly to the Companys clients. At the time of cash receipt, the Company records a current liability for
the amount of non-service payments received. The increase in restricted cash represents the increase of our balance of refunds due to customers. In January 2010, we used $492,000 in cash, along with shares of our stock and debt, to acquire Optima as
described below. In October 2009, we used $510,000 in cash to acquire certain assets of Grow Commerce. The remaining $90,000 pertaining to the acquisition of Grow Commerce was held back by the Company and paid on October 7, 2010. That payment
was subject to potential offsets to secure certain customary indemnity obligations under the purchase agreement. In May 2010, we received payment from Market2Lead for a $1,250,000 note receivable in connection with the acquisition of Market2Lead by
a third party.

Cash provided by financing activities was approximately $519,000 in the year ended December 31, 2010, as
compared to cash used in financing activities of $2.7 million in the year ended December 31, 2009. Cash provided by financing activities in 2010 was primarily a result of net borrowings under new and existing credit agreements of $3.2 million
partly offset by scheduled principal payments on our credit facility of $1.1 million, the repayment of other notes payable of $784,000, including the final payment of $666,000 for the CAS notes payable, and the repayment of our capital lease
obligations of $240,000. We also purchased $455,000 of treasury stock from employees for shares withheld for income taxes payable on restricted stock awards vested during



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2010 and purchased $98,000 of treasury stock under our company announced share repurchase plan. Additionally in 2010, we received approximately $18,000 from the exercise of stock options during
the period.

Cash used in financing activities in 2009 was primarily a result of principal payments of $1.7 million on our
term loans and CAS Systems notes, payments on our capital lease obligations of $226,000, purchases of treasury stock under our Company announced share repurchase plans of $410,000, and purchases of $372,000 of treasury stock from employees for
shares withheld for income taxes payable on restricted stock awards vested during 2009. Additionally in 2009, we received approximately $8,000 from the exercise of stock options during the period and $3,000 from the purchase of shares in our
Employee Stock Purchase Program.

Our principal source of liquidity as of December 31, 2010 consisted of $12.2 million of
cash and cash equivalents and approximately $3.0 million available for borrowing under our Credit Facility subject to borrowing base requirements. We anticipate that our existing capital resources will enable us to maintain our current level of
operations and our planned capital expenditures for at least the next twelve months. We expect we will need to raise additional funds over the next twelve months to meet our planned growth objectives. If we are unable to raise additional funds, our
planned growth objectives may be limited, and we may need to reduce the size of our operations.

On January 29, 2010, we
completed a stock purchase agreement with the shareholders of Optima. Under the terms of the acquisition, we paid $492,000 cash at closing and we issued 480,000 shares of Rainmaker common stock valued at approximately $701,000. Such shares are
initially subject to a contractual prohibition of sale. Additionally, we entered into a promissory note for $350,000 payable in two installments, with $200,000 plus accrued interest due eighteen months from the closing date and $150,000 plus accrued
interest due twenty four months from the closing date. The agreement also provides for two potential additional payments of $375,000 each in a combination of stock and/or cash contingent on certain performance metrics in fiscal 2010 and fiscal 2011,
and subject to post closing conditions. The fair value of the potential additional payments was derived using Company estimates (Level 3 inputs) of a 50% probability of achievement. The 2010 achievement level was not met. Accordingly, the Company
reduced the fair value of the contingent consideration liability by $190,000 and recorded a corresponding gain on re-measurement of this liability within operating expenses.

On January 29, 2010, we borrowed $1.7 million from the term loan line of our Credit Facility. Approximately $1.2 million was used to cover the CAS Systems note payment and the cash payment in the
Optima acquisition both of which are mentioned above. The remaining portion was used for general corporate working capital. On December 31, 2010, we borrowed an additional $500,000 from the term loan line of our Credit Facility. We expect these
proceeds to be used for general corporate working capital.

In October 2010, we entered into a business loan agreement with
HSBC Bank (the Loan Line Facility). The Loan Line Facility provides borrowing availability up to a maximum of $630,000 secured by a Standby Documentary Credit and matures in October 2011. Interest rates are based on prevailing rates at
the time of drawdown and may be revised periodically with advance notice. Current interest rates are 3.45% and 3.795% and will be revised in March 2011. Interest payments are due at the end of every interest rate revision term or payment of
principal. Proceeds from this loan are used to fund our general operations located in the Philippines.

On November 25,
2010, our subsidiary, Rainmaker EMEA Limited (formerly Optima), established an overdraft facility with Barclays Bank in the amount of £247,500 Great Britain Pounds, or $383,000 based on the exchange rate at December 31 2010. At
December 31, 2010, we had borrowed $356,000 under this facility and used these proceeds to repay the remaining balance on the existing note payable to Barclays Bank that we assumed as part of the Optima acquisition and for the general working
capital needs of our Rainmaker Europe operation.

On February 5, 2010, we received written notice from Sun Microsystems
that they had elected to terminate the Global Inside Sales Program Statement of Work agreement dated March 31, 2009, effective as of February 28, 2010. The notice followed the acquisition of Sun Microsystems by Oracle Corporation and
affected the contract sales services that we were performing for Sun. The Global Inside Sales Program services accounted for approximately 13% of our fiscal 2009 annual net revenue. The Global Inside Sales agreement had a minimum



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term with notice periods to August 31, 2010. We entered into a settlement agreement on March 8, 2010, and received a cash payment of $4,550,000 from Oracle Corporation for the buyout of
the Global Inside Sales agreement. The settlement payment was recognized as revenue in the first quarter of 2010. In addition, Oracle agreed to reimburse us $347,000 for employee severance costs related to terminating employees who worked on the
Global Inside Sales program. This reimbursement was recognized in payroll and payroll tax expense to offset the employee severance costs.

On January 28, 2011, we filed a form S-3 registration statement and on February 18, 2011, we filed a form S-3/A amended registration statement for the potential issuance of up to $15 million of
securities in the form of our common stock, preferred stock, warrants, units, and/or debt securities, subject to SEC rules limiting any issuance under such registration statement to one-third of our nonaffiliate market capitalization (public
float) over any period of 12 calendar months for so long as our public float is less than $75 million. We may choose any combination of such securities depending on the market conditions at the time of issuance, if any.

Credit Arrangements

In September 2010, we executed further amendments to our existing business loan agreement and commercial security agreement with Bridge Bank (the Credit Facility). The amendments renewed the
facility for an additional 14 months to December 10, 2011. In addition, the amendments added a new $500,000 term loan sub-facility which could be used for borrowings until December 31, 2010. The maximum amount of revolving credit available
to the Company remains at $6 million, subject to a borrowing base, and includes a $1.0 million existing sub-facility for standby letters of credit, a $2.8 million existing term loan sub-facility and the new $500,000 term loan sub-facility. The
interest rate per annum for revolving advances under the Credit Facility is equal to the greater of (i) 3.5%, or (ii) one quarter of one percent (0.25%) above the prime lending rate, currently at 3.25% as of December 31, 2010. The
interest rate per annum for advances under the term-loan sub-facilities is equal to a fixed rate of 6.0%. As of December 31, 2010, the company had $3.0 million outstanding under the term loan sub-facilities, as the Company borrowed the $500,000
allowed under the new term loan sub-facility on December 31, 2010, and had two undrawn letters of credit outstanding under the Credit Facility in the face amounts of $100,000 US dollars and £250,000 Great Britain Pounds (approximately
$387,000 US dollars at the December 31, 2010 exchange rate). All term loan sub-facility advances outstanding as of December 31, 2010 were re-amortized, and will be payable in twenty seven (27) equal monthly installments of
approximately $112,000, beginning on January 10, 2011, and continuing on the same day of each month thereafter through March 31, 2013, at which time all amounts owed, if any, shall be immediately due and payable.

The amended Credit Facility is secured by substantially all of Rainmakers consolidated assets including intellectual property.
Rainmaker must comply with certain financial covenants, including not incurring a quarterly non-GAAP profit or loss negatively exceeding by more than 10% the amount of the non-GAAP profit or loss recited in the Companys operating plan approved
by Bridge Bank, and maintaining unrestricted cash with Bridge Bank equal to the greater of $2.0 million or the aggregate principal amount of the indebtedness from time to time outstanding with Bridge Bank plus $500,000.

The Credit Facility contains customary covenants that will, subject to limited exceptions, require Bridge Banks approval to, among
other things, (i) create liens; (ii) make annual capital expenditures above a certain level; (iii) pay cash dividends; and (iv) merge or consolidate with another company above a certain amount of total consideration. The Credit
Facility also provides for customary events of default, including nonpayment, breach of covenants, payment defaults of other indebtedness, and certain events of bankruptcy, insolvency and reorganization that may result in acceleration of outstanding
amounts under the Credit Facility.

For the three months ended March 31, 2010 and June 30, 2010, we did not meet the
performance to plan financial covenant as our quarterly non-GAAP loss exceeded by 10% the amount of non-GAAP loss in our operating plan approved by Bridge Bank for our first and second quarters results of operations. We received a waiver from
Bridge Bank for the violation of this covenant for the three months ended March 31, 2010 and June 30, 2010. For the three months ended September 30, 2010 and December 31, 2010, we met this performance to plan financial covenant.



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On January 29, 2010, we entered into and closed a stock purchase agreement for Optima.
In accordance with this agreement, we entered into a note payable for $350,000 payable in two installments with $200,000 plus accrued interest due eighteen months from the closing date and $150,000 plus accrued interest due twenty four months after
the closing date, subject to post-closing conditions. The interest rate on the note payable is 0.4% per year and we have recorded the present value of the note payable, discounted over 2 years at a rate of 6.2%. Additionally, in connection with
the Optima acquisition, we assumed an existing note payable to Barclays Bank in the amount of £78,000 Great Britain Pounds (GBP) or approximately $120,000 as of the closing date of the acquisition. This note was repaid during 2010.

Off-Balance Sheet Arrangements

Leases

As of December 31, 2010, our off-balance sheet
arrangements include operating leases for our facilities and certain property and equipment that expire at various dates through 2013. These arrangements allow us to obtain the use of the equipment and facilities without purchasing them. If we were
to acquire these assets, we would be required to obtain financing and record a liability related to the financing of these assets. Leasing these assets under operating leases allows us to use these assets for our business while minimizing the
obligations and upfront cash flow related to purchasing the assets.

In October 2009, we executed a second amendment to the
operating lease for our corporate headquarters in Campbell, California to reduce our lease cost. Under this amendment, we reduced the amount of space that we lease by 6,719 square feet to 16,430 square feet starting October 1, 2009, and reduced
our lease cost per square foot by approximately 18%. We obtained a first right of refusal to the reduced space (6,719 square feet). The lease term originally began on November 1, 2005 and, after the first amendment, was set to end on
January 31, 2010. Under this second amendment, the lease will expire on January 31, 2013. Annual gross rent under the amended lease was approximately $227,000 in the first year of the lease which ended September 30, 2010, and the base
rent will increase by approximately 5% each year thereafter for the remaining term expiring January 31, 2013. In addition, we will continue to pay our proportionate share of operating costs, maintenance on some of the common areas and taxes
based on our occupancy. The original letter of credit issued to the landlord in the amount of $100,000 for a security deposit remains in place.

In September 2010, we extended an existing lease in Austin, Texas on approximately 21,388 square feet of space for a term of 12 months through December 31, 2011. Annual rent in the facility will
approximate $208,000, or $17,000 monthly. Additionally, we pay our proportionate share of maintenance on some of the common areas in the business park.

On September 24, 2008, we entered into an agreement to lease approximately 20,000 square feet of space and moved our Canadian operations to this new location which is close to Montreal. The lease has
a minimum term of three years and commenced on January 1, 2009. Annual gross rent is $400,000 Canadian dollars for the initial 3 year term. Based on the exchange rate at December 31, 2010, annual rent is approximately $400,000 U.S.
dollars. Additionally, Rainmaker is responsible for its proportionate share of utilities, taxes and other common area maintenance charges during the lease term. We exited our Canadian call center facility in September 2010 and took a restructuring
charge for this lease commitment of $416,000, a write off of certain leasehold improvements of $106,000 and other facility costs of $46,000. We are actively working to sublease the facility through the end of our lease term of December 31,
2011.

With our acquisition of Qinteraction, we assumed existing lease obligations at their Manila, Philippines offices. We
assumed two office space leases and a parking lease. We occupy approximately 40,280 square feet on three floors in the BPI building in Manila. Our current lease for this space commenced on April 1, 2008, has a five-year term and terminates on
March 31, 2013. Based on the exchange rate at December 31, 2010, our annual base rent will escalate from approximately $673,000 for the twelve months ending December 31, 2011 to



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$727,000 for the 2012 calendar year, the final full year of the lease that ends in March 2013. Our parking lease began in March 2006, has a five-year term and terminates in March 2011. Based on
the exchange rate at December 31, 2010, our annual base rent on this lease is approximately $14,000. To accommodate growth in our call center business, we expanded our facilities in the Philippines by entering into a lease commencing on
May 1, 2010 to occupy approximately 15,850 square feet on the 4thfloor of the Alphaland Southgate Tower in Manila. The lease has a 3 year term and terminates on April 30, 2013. Based on the exchange rate at December 31, 2010, our annual base rent will
escalate from approximately $254,000 for the twelve months ending December 31, 2011 to $287,000 for the 2012 calendar year, the final full year of the lease that ends in April 2013.

With our acquisition of Optima in January 2010, we assumed office leases in the United Kingdom, where we have call center and sales
operations, in France where we have a small call center, and in Munich and Frankfurt, Germany where we had sales operations. In the first quarter of 2010, we consolidated our existing Rainmaker Europe operations in the United Kingdom into
Optimas office and terminated our existing month-to-month lease in London effective March 31, 2010. In the United Kingdom, we have leased space in Godalming outside of London. This lease commenced in November 2009, has a 3 year term and
terminates in October 2012. In October 2010, we expanded the amount of space that we lease under this agreement to accommodate growth. Combined annual base rent for this facility is £134,000 Great Britain Pounds. Based on the exchange rate at
December 31, 2010, annual rent is approximately $207,000 in U.S. dollars. We maintain a month-to-month lease located in Paris, France with monthly rent of 1,770 Euros or $2,300. We terminated our month-to-month leases in Munich and
Frankfurt, Germany during July 2010.

Rent expense, net of sub-lease income, under operating lease agreements during the years
ended December 31, 2010, 2009 and 2008 was $2.1 million, $1.8 million and $2.5 million, respectively. 2010 rent expense includes $416,000 as a result of the recording of the estimated rent expense related to the Montreal office closure. There
was no sublease income in 2010. The 2009 rent expense was net of approximately $56,000 in sublease income from our Austin property. The 2008 rent expense included approximately $227,000 as a result of the recording of the estimated rent expense
related to the Oakland office closure and was net of approximately $125,000 in sublease income from our Austin property.

Guarantees

In July 2005, we issued an irrevocable standby letter of credit in the amount of $100,000 to our landlord for a security deposit for our corporate headquarters located in Campbell, California. The letter
of credit was issued under the Credit Facility described above. As of December 31, 2010, no amounts had been drawn against the letter of credit.

In December 2010, we issued an irrevocable standby letter of credit in the amount of £250,000 Great Britain Pounds, or $387,000 based on the exchange rates as of December 31, 2010, to Barclays
Bank. The letter of credit was issued under the Credit Facility described above. As of December 31, 2010, no amounts had been drawn against the letter of credit.

From time to time, we enter into certain types of contracts that contingently require us to indemnify parties against third party claims. These obligations primarily relate to certain agreements with our
officers, directors and employees, under which we may be required to indemnify such persons for liabilities arising out of their employment relationship. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated.
Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, we have not had to make any payments for these obligations, and
no liabilities have been recorded for these obligations on our balance sheets as of December 31, 2010 and 2009.



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Contractual Obligations

Capital Leases

In March 2008, we entered into a 3-year software
licensing agreement with Microsoft GP. In accordance with the terms of the agreement, we paid three annual installments of approximately $254,000 beginning in April 2008 for the licensing rights to use certain Microsoft software. We made the final
payment on this lease in the first quarter of 2010.

Credit Facility

In September 2010, we executed further amendments to our Credit Facility. The latest amendment extends the maturity date of the Credit
Facility to December 10, 2011. The maximum amount of revolving credit available to the company remains at $6 million, subject to a borrowing base, and includes a $1 million existing sub-facility for standby letters of credit, a $2.8 million
existing term loan sub-facility and a new $500,000 term loan sub-facility. The interest rate per annum for revolving advances under the Credit Facility is equal to the greater of (i) 3.5%, or (ii) one quarter of one percent (0.25%) above
the prime lending rate, currently at 3.25%. The interest rate per annum for advances under the term loan sub-facilities is equal to a fixed rate of 6.0%. As of December 31, 2010, the company had $3.0 million outstanding under the term loan
sub-facilities and had two undrawn letters of credit outstanding under the Credit Facility in the aggregate face amount of $487,000. All existing term loan sub-facility advances together with all new term loan advances outstanding on
December 31 2010 were re-amortized, and shall be payable in twenty seven (27) equal monthly installments of approximately $112,000, beginning on January 10, 2011, and continuing on the same day of each month thereafter through
March 31, 2013, at which time all amounts owed, if any, will be immediately due and payable.

On January 29, 2010,
we borrowed $1.7 million from the term loan line of our Credit Facility. Approximately $1.2 million was used to cover the CAS Systems note payment and the cash payment in the Optima acquisition both of which are mentioned herein. The remaining
portion was used for general corporate working capital. On December 31, 2010, we borrowed an additional $500,000 from the new term loan line of our Credit Facility. We expect these proceeds to be used for general corporate working capital.

Loan Line Facility

In October 2010, we entered into a business loan agreement with HSBC Bank (the Loan Line Facility). The Loan Line Facility provides borrowing availability up to a maximum of $630,000 secured
by a Standby Documentary Credit and matures in October 2011. Interest rates are based on prevailing rates at the time of drawdown and may be revised periodically with advance notice. Current interest rates are 3.45% and 3.795% for our drawdowns to
date and will be revised in March 2011. Interest payments are due at the end of every interest rate revision term or payment of principal. Proceeds from this loan are used to fund our general operations located in the Philippines.

Notes Payable

In January 2007, we acquired the assets of CAS Systems. In connection with our acquisition, Rainmaker and its Canadian subsidiary issued notes payable in the amounts of $1.4 million and $600,000,
respectively. The two notes were payable in three consecutive annual installments of approximately $466,000 and $200,000, respectively, each, commencing on January 25, 2008, with subsequent installments payable on the anniversary date in 2009
and 2010. The notes incurred interest at a fixed rate of 5.36% per annum. The final payments of approximately $466,000 and $200,000 plus accrued interest were paid in January 2010.

On January 29, 2010, we entered into and closed a stock purchase agreement for Optima. In accordance with this agreement, we entered
into a note payable for $350,000 payable in two installments with $200,000 plus accrued interest due eighteen months from the closing date and $150,000 plus accrued interest due twenty four



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months after the closing date, subject to post-closing conditions. The interest rate on the note payable is 0.4% per year and we have recorded the present value of the note payable,
discounted over 2 years at a rate of 6.2%.

Additionally, in connection with the Optima acquisition, we assumed an existing
note payable to Barclays Bank in the amount of £78,000 Great Britain Pounds, or approximately $120,000, as of the closing date of the acquisition. This note was paid in full during 2010.

Overdraft Facility

On November 25, 2010, our subsidiary, Rainmaker EMEA Limited (formerly Optima), established an overdraft facility with Barclays Bank in the amount of £247,500 Great Britain Pounds, or $383,000
based on the exchange rate at December 31 2010. At December 31, 2010, we had borrowed $356,000 under this facility and used these proceeds to repay the remaining balance on the existing note payable to Barclays Bank that we assumed as part
of the Optima acquisition and for the general working capital needs of our Rainmaker Europe operation.

Potential Impact of Inflation

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

Recently Issued Accounting Standards

In December 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-28When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative
Carrying Amounts. This update provides amendments to ASC Topic 350Intangibles, Goodwill and Other that requires an entity to perform Step 2 impairment test even if a reporting unit has zero or negative carrying amount. Step 1 tests whether
the carrying amount of a reporting unit exceeds its fair value. Previously reporting units with zero or negative carrying value passed Step 1 because the fair value was generally greater than zero. Step 2 requires impairment testing and impairment
valuation be calculated in between annual tests if an event or circumstances indicate that it is more likely than not that goodwill has been impaired. ASU 2010-28 is effective beginning January 1, 2011. As a result of this standard, goodwill
impairments may be reported sooner than under current practice. We do not expect ASU 2010-28 to have a material impact on our financial statements.

In January 2010, the FASB issued ASU No. 2010-06Improving Disclosures about Fair Value Measurements. This update provides amendments to ASC Topic 820Fair Value Measurements and
Disclosures that requires additional disclosures about significant transfers into and out of Levels 1 and 2 in the fair value measurements, as well as reasons for the transfers. It also clarifies existing disclosures related to the level of
disaggregation in the disclosures as well as the required disclosures about inputs and valuation techniques. The adoption of this portion of the standard which was effective January 1, 2010, has not had a material impact on our financial
statements. Additionally a portion of this standard is effective for interim and annual reporting periods beginning after December 15, 2010. This portion requires disclosure of purchases, sales, issuance and settlements in the reconciliation of
Level 3 fair value measurements. This portion of the standard is not expected to have a material impact on our financial statements.

In October 2009, the FASB issued ASU No. 2009-13, which amends ASC Topic 605Revenue Recognition, to require companies to allocate revenue in multiple-element arrangements based on an
elements estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective beginning January 1, 2011. Based on current sales contracts in place at December 31, 2010, we do
not expect ASU 2009-13 to have a material impact on our financial results. We may enter into sales contracts with multiple deliverable element conditions in the future which may affect the timing of our revenue recognition and have a material impact
on our financial statements.



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In September 2009, the FASB issued ASU No. 2009-14Certain Revenue Arrangements
That Include Software ElementsA consensus of the FASB Emerging Issues Task Force ASU 2009-14 which amends ASC 985-605Software: Revenue Recognition to exclude from its scope certain tangible products containing both software
and non-software components that function together to deliver the products essential functionality. This guidance focuses on determining which arrangements are within the scope of the software revenue guidance in Topic 985 (previously included
in AICPA Statement of Position 97-2, Software Revenue Recognition (SOP 97-2)) and which are not. This guidance also removes tangible products from the scope of the software revenue guidance and provides guidance on determining whether
software deliverables in an arrangement that include a tangible product are within the scope of the software revenue guidance. This guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010 and shall be applied on a prospective basis. We do not expect ASU 2009-14 to have a material impact on our financial statements.



|ITEM 7A. | QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Not applicable for smaller reporting companies.



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|ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | --------------------------------------------------------

Index to Financial Statements and Schedule



|                                                                                                                              |  |      |     | 
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                              |  | Page |    
|Consolidated Financial Statements:                                                                                            |  |      |     | 
|Report of Independent Registered Public Accounting Firm                                                                       |  |      | 55  | 
|Consolidated Balance Sheets as of December 31, 2010 and December 31, 2009                                                     |  |      | 56  | 
|Consolidated Statements of Operations for the years ended December 31, 2010, 2009, and
2008                                   |  |      | 57  | 
|Consolidated Statements of Stockholders Equity and Comprehensive Loss for the years ended December 31,
 2010, 2009, and 2008 |  |      | 58  | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009, and
2008                                   |  |      | 59  | 
|Notes to Consolidated Financial Statements                                                                                    |  |      | 60  | 
|                                                                                                                              | 
|Consolidated Financial Statement Schedule:                                                                                    |  |      |     | 
|Schedule II  Valuation and Qualifying Accounts                                                                               |  |      | 109 | 



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

Rainmaker Systems, Inc.

Campbell, California

We have audited the accompanying consolidated balance sheets of Rainmaker Systems, Inc. as of December 31, 2010 and 2009 and the
related consolidated statements of operations, stockholders equity and comprehensive loss, and cash flows for each of the three years in the period ended December 31, 2010. In connection with our audits of the financial statements, we
have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Rainmaker Systems, Inc. at December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

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

/s/    BDO USA, LLP

San Francisco, California

March 4, 2011



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RAINMAKER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                                   |  | December 31, |         
|                                                                                                                                                                                                                                   |  | 2010         |          |   | 2009 |  
|ASSETS                                                                                                                                                                                                                             |  |              |          |   |      |   |         |  
|Current assets:                                                                                                                                                                                                                    |  |              |          |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                                          |  | $            | 12,171   |   |      | $ | 15,129  |  
|Restricted cash                                                                                                                                                                                                                    |  |              | 88       |   |      |   | 13      |  
|Accounts receivable, less allowance for doubtful accounts of $102 and $58 at December 31, 2010 and 2009                                                                                                                            |  |              | 6,889    |   |      |   | 7,604   |  
|Prepaid expenses and other current assets                                                                                                                                                                                          |  |              | 1,087    |   |      |   | 1,895   |  
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|Total current assets                                                                                                                                                                                                               |  |              | 20,235   |   |      |   | 24,641  |  
|Property and equipment, net                                                                                                                                                                                                        |  |              | 6,140    |   |      |   | 6,952   |  
|Intangible assets, net                                                                                                                                                                                                             |  |              | 432      |   |      |   | 890     |  
|Goodwill                                                                                                                                                                                                                           |  |              | 5,269    |   |      |   | 3,777   |  
|Other noncurrent assets                                                                                                                                                                                                            |  |              | 833      |   |      |   | 2,409   |  
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|Total assets                                                                                                                                                                                                                       |  | $            | 32,909   |   |      | $ | 38,669  |  
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                                               |  |              |          |   |      |   |         |  
|Current liabilities:                                                                                                                                                                                                               |  |              |          |   |      |   |         |  
|Accounts payable                                                                                                                                                                                                                   |  | $            | 6,706    |   |      | $ | 8,290   |  
|Accrued compensation and benefits                                                                                                                                                                                                  |  |              | 1,168    |   |      |   | 1,079   |  
|Other accrued liabilities                                                                                                                                                                                                          |  |              | 2,792    |   |      |   | 2,221   |  
|Deferred revenue                                                                                                                                                                                                                   |  |              | 2,820    |   |      |   | 2,656   |  
|Current portion of capital lease obligations                                                                                                                                                                                       |  |              |         |   |      |   | 240     |  
|Current portion of notes payable                                                                                                                                                                                                   |  |              | 2,520    |   |      |   | 1,350   |  
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                                          |  |              | 16,006   |   |      |   | 15,836  |  
|Deferred tax liability                                                                                                                                                                                                             |  |              | 384      |   |      |   | 281     |  
|Long-term deferred revenue                                                                                                                                                                                                         |  |              | 244      |   |      |   | 229     |  
|Other long-term liabilities                                                                                                                                                                                                        |  |              | 182      |   |      |   |        |  
|Notes payable, less current portion                                                                                                                                                                                                |  |              | 1,834    |   |      |   | 1,257   |  
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|Total liabilities                                                                                                                                                                                                                  |  |              | 18,650   |   |      |   | 17,603  |  
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|Commitments and contingencies (Notes 4, 5 and 6)                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|                                                                                                                                                                                                                                   |  |             
|Stockholders equity:                                                                                                                                                                                                              |  |              |          |   |      |   |         |  
|Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding                                                                                                                                        |  |              |         |   |      |   |        |  
|Common stock, $0.001 par value; 50,000,000 shares authorized; 24,750,009 shares issued and 23,275,199 shares outstanding at
December 31, 2010, and 23,034,645 shares issued and 21,996,003 shares outstanding at December 31, 2009 |  |              | 22       |   |      |   | 20      |  
|Additional paid-in capital                                                                                                                                                                                                         |  |              | 124,826  |   |      |   | 121,138 |  
|Accumulated deficit                                                                                                                                                                                                                |  |              | (106,947 | ) |      |   | (96,997 | )
|Accumulated other comprehensive loss                                                                                                                                                                                               |  |              | (1,375   | ) |      |   | (1,381  | )
|Treasury stock, at cost, 1,474,810 shares at December 31, 2010 and 1,038,642 shares at December 31,
2009                                                                                                                           |  |              | (2,267   | ) |      |   | (1,714  | )
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|Total stockholders equity                                                                                                                                                                                                         |  |              | 14,259   |   |      |   | 21,066  |  
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                                         |  | $            | 32,909   |   |      | $ | 38,669  |  
|                                                                                                                                                                                                                                   |  |              |          |   |      |   |         |  

See accompanying notes.



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RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)



|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                  |  | Year Ended December 31, |       
|                                                  |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|Net revenue                                       |  | $                       | 42,768 |   |      | $ | 47,794 |      |  | $ | 66,327  |  
|Costs of services                                 |  |                         | 23,871 |   |      |   | 26,383 |      |  |   | 39,361  |  
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Gross margin                                      |  |                         | 18,897 |   |      |   | 21,411 |      |  |   | 26,966  |  
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Operating expenses:                               |  |                         |        |   |      |   |        |      |  |   |         |  
|Sales and marketing                               |  |                         | 3,713  |   |      |   | 4,376  |      |  |   | 7,849   |  
|Technology and development                        |  |                         | 9,159  |   |      |   | 10,371 |      |  |   | 15,134  |  
|General and administrative                        |  |                         | 10,075 |   |      |   | 9,096  |      |  |   | 12,697  |  
|Depreciation and amortization                     |  |                         | 4,816  |   |      |   | 5,593  |      |  |   | 7,777   |  
|Gain on fair value re-measurement                 |  |                         | (190   | ) |      |   |       |      |  |   |        |  
|Impairment of goodwill & other intangible assets  |  |                         |       |   |      |   |       |      |  |   | 13,747  |  
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Total operating expenses                          |  |                         | 27,573 |   |      |   | 29,436 |      |  |   | 57,204  |  
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Operating loss                                    |  |                         | (8,676 | ) |      |   | (8,025 | )    |  |   | (30,238 | )
|Interest and other expense, net                   |  |                         | (995   | ) |      |   | (86    | )    |  |   | (34     | )
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Loss before income tax expense                    |  |                         | (9,671 | ) |      |   | (8,111 | )    |  |   | (30,272 | )
|Income tax expense                                |  |                         | 279    |   |      |   | 205    |      |  |   | 335     |  
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Net loss                                          |  | $                       | (9,950 | ) |      | $ | (8,316 | )    |  | $ | (30,607 | )
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Basic net loss per share                          |  | $                       | (0.49  | ) |      | $ | (0.43  | )    |  | $ | (1.58   | )
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Diluted net loss per share                        |  | $                       | (0.49  | ) |      | $ | (0.43  | )    |  | $ | (1.58   | )
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Shares used to compute basic net loss per share   |  |                         | 20,380 |   |      |   | 19,345 |      |  |   | 19,333  |  
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Shares used to compute diluted net loss per share |  |                         | 20,380 |   |      |   | 19,345 |      |  |   | 19,333  |  
|                                                  |  |                         |        |   |      |   |        |      |  |   |         |  



See accompanying notes.



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RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE LOSS

(in thousands, except share data)



|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|----------------------------------------------------------- |  | ------------ | ---------- | - | -------------- | - | -- | ------------------------ |  |  | ------------------ |  |  | --------------------------------- | ------ | - | ----- | - | ------- |  |  | - | -------- | - |  | - | ------ | - |  | - | ------- | -
|                                                            |  | Common Stock |            |   | Treasury Stock |   |    | Additionalpaid-incapital |  |  | Accumulateddeficit |  |  | Accumulatedothercomprehensiveloss |        |   | Total |  
|                                                            |  | Shares       |            |   | Amount         |   |    | Shares                   |  |  | Amount             |  |  |                                   |        |  
|Balance at December 31, 2007                                |  |              | 20,325,960 |   |                | $ | 19 |                          |  |  | 33,600             |  |  | $                                 | (233   | ) |       | $ | 116,391 |  |  | $ | (58,074  | ) |  | $ | (51    | ) |  | $ | 58,052  |  
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Net loss                                                    |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   | (30,607  | ) |  |   |       |   |  |   | (30,607 | )
|Foreign currency translation loss                           |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   | (1,304 | ) |  |   | (1,304  | )
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                          |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (31,911 | )
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Exercise of employee stock options                          |  |              | 18,665     |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 32      |  |  |   |         |   |  |   |       |   |  |   | 32      |  
|Issuance of common stock under employee stock purchase plan |  |              | 5,277      |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 13      |  |  |   |         |   |  |   |       |   |  |   | 13      |  
|Issuance of restricted stock awards                         |  |              | 1,474,000  |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   |        |  
|Cancellation of restricted stock awards                     |  |              | (278,251   | ) |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   |        |  
|Stock based compensation  option plan                      |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 587     |  |  |   |         |   |  |   |       |   |  |   | 587     |  
|Stock based compensation  restricted stock awards          |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 1,605   |  |  |   |         |   |  |   |       |   |  |   | 1,605   |  
|Surrender of shares for tax withholding                     |  |              | (78,959    | ) |                |   |   |                          |  |  | 78,959             |  |  |                                   | (187   | ) |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (187    | )
|Purchases of treasury stock                                 |  |              | (288,682   | ) |                |   |   |                          |  |  | 288,682            |  |  |                                   | (512   | ) |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (512    | )
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2008                                |  |              | 21,178,010 |   |                |   | 19 |                          |  |  | 401,241            |  |  |                                   | (932   | ) |       |   | 118,628 |  |  |   | (88,681  | ) |  |   | (1,355 | ) |  |   | 27,679  |  
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Net loss                                                    |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   | (8,316   | ) |  |   |       |   |  |   | (8,316  | )
|Foreign currency translation loss                           |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   | (26    | ) |  |   | (26     | )
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                          |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (8,342  | )
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Exercise of employee stock options                          |  |              | 8,644      |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 8       |  |  |   |         |   |  |   |       |   |  |   | 8       |  
|Issuance of common stock under employee stock purchase plan |  |              | 2,500      |   |                |   | 1  |                          |  |  |                   |  |  |                                   |       |   |       |   | 2       |  |  |   |         |   |  |   |       |   |  |   | 3       |  
|Issuance of restricted stock awards                         |  |              | 1,846,500  |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   |        |  
|Cancellation of restricted stock awards                     |  |              | (402,250   | ) |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   |        |  
|Stock based compensation  option plan                      |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 358     |  |  |   |         |   |  |   |       |   |  |   | 358     |  
|Stock based compensation  restricted stock awards          |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 2,142   |  |  |   |         |   |  |   |       |   |  |   | 2,142   |  
|Surrender of shares for tax withholding                     |  |              | (279,275   | ) |                |   |   |                          |  |  | 279,275            |  |  |                                   | (372   | ) |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (372    | )
|Purchases of treasury stock                                 |  |              | (358,126   | ) |                |   |   |                          |  |  | 358,126            |  |  |                                   | (410   | ) |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (410    | )
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2009                                |  |              | 21,996,003 |   |                |   | 20 |                          |  |  | 1,038,642          |  |  |                                   | (1,714 | ) |       |   | 121,138 |  |  |   | (96,997  | ) |  |   | (1,381 | ) |  |   | 21,066  |  
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Net loss                                                    |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   | (9,950   | ) |  |   |       |   |  |   | (9,950  | )
|Foreign currency translation gain                           |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   | 6      |   |  |   | 6       |  
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Comprehensive loss                                          |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (9,944  | )
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Issuance of common stock for purchase of Optima             |  |              | 480,000    |   |                |   | 1  |                          |  |  |                   |  |  |                                   |       |   |       |   | 700     |  |  |   |         |   |  |   |       |   |  |   | 701     |  
|Exercise of employee stock options                          |  |              | 18,835     |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 18      |  |  |   |         |   |  |   |       |   |  |   | 18      |  
|Issuance of restricted stock awards                         |  |              | 1,569,000  |   |                |   | 1  |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   | 1       |  
|Cancellation of restricted stock awards                     |  |              | (352,471   | ) |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   |        |  |  |   |         |   |  |   |       |   |  |   |        |  
|Stock based compensation  option plan                      |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 267     |  |  |   |         |   |  |   |       |   |  |   | 267     |  
|Stock based compensation  restricted stock awards          |  |              |           |   |                |   |   |                          |  |  |                   |  |  |                                   |       |   |       |   | 2,703   |  |  |   |         |   |  |   |       |   |  |   | 2,703   |  
|Surrender of shares for tax withholding                     |  |              | (356,931   | ) |                |   |   |                          |  |  | 356,931            |  |  |                                   | (455   | ) |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (455    | )
|Purchases of treasury stock                                 |  |              | (79,237    | ) |                |   |   |                          |  |  | 79,237             |  |  |                                   | (98    | ) |       |   |        |  |  |   |         |   |  |   |       |   |  |   | (98     | )
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2010                                |  |              | 23,275,199 |   |                | $ | 22 |                          |  |  | 1,474,810          |  |  | $                                 | (2,267 | ) |       | $ | 124,826 |  |  | $ | (106,947 | ) |  | $ | (1,375 | ) |  | $ | 14,259  |  
|                                                            |  |              |            |   |                |   |    |                          |  |  |                    |  |  |                                   |        |   |       |   |         |  |  |   |          |   |  |   |        |   |  |   |         |  

See accompanying notes.



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RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|-------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                                             |  | Year Ended December 31, |       
|                                                                                             |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|Operating activities:                                                                        |  |                         |        |   |      |   |        |      |  |   |         |  
|Net loss                                                                                     |  | $                       | (9,950 | ) |      | $ | (8,316 | )    |  | $ | (30,607 | )
|Adjustment to reconcile net loss to net cash used in operating activities:                   |  |                         |        |   |      |   |        |      |  |   |         |  
|Depreciation and amortization of property and equipment                                      |  |                         | 4,127  |   |      |   | 4,543  |      |  |   | 4,542   |  
|Amortization of intangible assets                                                            |  |                         | 689    |   |      |   | 1,050  |      |  |   | 3,235   |  
|Impairment of goodwill & other intangible assets                                             |  |                         |       |   |      |   |       |      |  |   | 13,747  |  
|Gain on fair value re-measurement                                                            |  |                         | (190   | ) |      |   |       |      |  |   |        |  
|Stock based compensation charges                                                             |  |                         | 2,970  |   |      |   | 2,500  |      |  |   | 2,192   |  
|(Credit) provision for allowance for doubtful accounts                                       |  |                         | 226    |   |      |   | (311   | )    |  |   | 637     |  
|Loss on disposal of fixed assets                                                             |  |                         | 10     |   |      |   | 343    |      |  |   | 169     |  
|Write-down of investment                                                                     |  |                         | 740    |   |      |   |       |      |  |   | 749     |  
|Changes in operating assets and liabilities, net of assets acquired and liabilities assumed: |  |                         |        |   |      |   |        |      |  |   |         |  
|Accounts receivable                                                                          |  |                         | 1,163  |   |      |   | 3,275  |      |  |   | 9,428   |  
|Prepaid expenses and other assets                                                            |  |                         | 461    |   |      |   | 295    |      |  |   | 977     |  
|Accounts payable                                                                             |  |                         | (1,728 | ) |      |   | (1,971 | )    |  |   | (15,205 | )
|Accrued compensation and benefits                                                            |  |                         | (90    | ) |      |   | (147   | )    |  |   | (836    | )
|Other accrued liabilities                                                                    |  |                         | 674    |   |      |   | (830   | )    |  |   | (452    | )
|Income tax payable                                                                           |  |                         | (145   | ) |      |   | (23    | )    |  |   | (44     | )
|Deferred tax liability                                                                       |  |                         | 47     |   |      |   | 85     |      |  |   | 31      |  
|Deferred revenue                                                                             |  |                         | 14     |   |      |   | (1,483 | )    |  |   | 426     |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Net cash used in operating activities                                                        |  |                         | (982   | ) |      |   | (990   | )    |  |   | (11,011 | )
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Investing activities:                                                                        |  |                         |        |   |      |   |        |      |  |   |         |  
|Purchases of property and equipment                                                          |  |                         | (3,170 | ) |      |   | (1,471 | )    |  |   | (5,313  | )
|Restricted cash, net                                                                         |  |                         | (75    | ) |      |   | 929    |      |  |   | (785    | )
|Acquisition of businesses, net of cash acquired                                              |  |                         | (582   | ) |      |   | (510   | )    |  |   | (1,000  | )
|Repayment of note receivable                                                                 |  |                         | 1,250  |   |      |   |       |      |  |   |        |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Net cash used in investing activities                                                        |  |                         | (2,577 | ) |      |   | (1,052 | )    |  |   | (7,098  | )
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Financing activities:                                                                        |  |                         |        |   |      |   |        |      |  |   |         |  
|Proceeds from issuance of common stock from option exercises                                 |  |                         | 18     |   |      |   | 8      |      |  |   | 32      |  
|Proceeds from issuance of common stock from ESPP                                             |  |                         |       |   |      |   | 3      |      |  |   | 13      |  
|Repayment of notes payable                                                                   |  |                         | (1,893 | ) |      |   | (1,718 | )    |  |   | (1,062  | )
|Repayment of capital lease obligations                                                       |  |                         | (240   | ) |      |   | (226   | )    |  |   | (253    | )
|Proceeds from notes payable                                                                  |  |                         | 3,187  |   |      |   |       |      |  |   | 3,000   |  
|Tax payments in connection with treasury stock surrendered                                   |  |                         | (455   | ) |      |   | (372   | )    |  |   | (187    | )
|Purchases of treasury stock                                                                  |  |                         | (98    | ) |      |   | (410   | )    |  |   | (512    | )
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Net cash provided by (used in) financing activities                                          |  |                         | 519    |   |      |   | (2,715 | )    |  |   | 1,031   |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Effect of exchange rate changes on cash                                                      |  |                         | 82     |   |      |   | (154   | )    |  |   | (289    | )
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Net decrease in cash and cash equivalents                                                    |  |                         | (2,958 | ) |      |   | (4,911 | )    |  |   | (17,367 | )
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Cash and cash equivalents at beginning of year                                               |  |                         | 15,129 |   |      |   | 20,040 |      |  |   | 37,407  |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Cash and cash equivalents at end of year                                                     |  | $                       | 12,171 |   |      | $ | 15,129 |      |  | $ | 20,040  |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Supplemental disclosures of cash flow information:                                           |  |                         |        |   |      |   |        |      |  |   |         |  
|Cash paid for interest                                                                       |  | $                       | 235    |   |      | $ | 223    |      |  | $ | 108     |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Cash paid for income taxes                                                                   |  | $                       | 316    |   |      | $ | 114    |      |  | $ | 312     |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Supplemental non-cash investing and financing activities:                                    |  |                         |        |   |      |   |        |      |  |   |         |  
|Acquisitions of assets under capital lease                                                   |  | $                       |       |   |      | $ |       |      |  | $ | 719     |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Common stock issued in acquisition                                                           |  | $                       | 701    |   |      | $ |       |      |  | $ |        |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|Notes payable issued in acquisition                                                          |  | $                       | 321    |   |      | $ |       |      |  | $ |        |  
|                                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  

See accompanying notes.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Business

Rainmaker Systems, Inc. and its subsidiaries (Rainmaker, we, our or the Company) is a
global provider of cloud-based B2B selling solutions that are designed to drive higher customer acquisition, renewals, subscriptions and education sales for clients and their channel partners. Our core services include the following: service
contract sales and renewals, software license sales, subscription renewals and warranty extension sales (Contract Sales); lead generation, qualification and management (Lead Development); and hosted application software for training sales (Training
Sales).

We have operations within the United States of America, the Philippines, the United Kingdom and France where we
perform services on behalf of our clients to customers who are primarily located in North America. While we exited our Canadian call center facility in September 2010, we continue to maintain managed telesales representatives in the region.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Rainmaker Systems, Inc. and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in
consolidation.

Basis of Presentation

Reclassifications.Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no effect on previously reported results of operations,
total assets or accumulated deficit.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Our estimates are based on historical experience,
input from sources outside of the company, and other relevant facts and circumstances. Actual results could differ materially from those estimates. Accounting policies that include particularly significant estimates are revenue recognition and
presentation policies, valuation of accounts receivable, measurement of our deferred tax asset and the corresponding valuation allowance, allocation of purchase price in business combinations, fair value estimates for the expense of employee stock
options and the assessment of recoverability and measuring impairment of goodwill, intangible assets, fixed assets and commitments and contingencies.

Cash and Cash Equivalents

We consider all highly liquid investments
purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents generally consist of money market funds and certificates of deposit. The fair market value of cash equivalents represents the quoted market prices
at the balance sheet dates and approximates their carrying value.



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The following is a summary of our cash and cash equivalents at December 31, 2010 and
2009, (in thousands):



|                                |  |              |        |  |      |   |        | 
|------------------------------- |  | ------------ | ------ |  | ---- | - | ------ | 
|                                |  | December 31, |       
|                                |  | 2010         |        |  | 2009 |  
|Cash and cash equivalents:      |  |              |        |  |      |   |        | 
|Cash                            |  | $            | 6,253  |  |      | $ | 8,465  | 
|Money market funds              |  |              | 5,918  |  |      |   | 6,664  | 
|                                |  |              |        |  |      |   |        | 
|Total cash and cash equivalents |  | $            | 12,171 |  |      | $ | 15,129 | 
|                                |  |              |        |  |      |   |        | 

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our clients and clients customers to make required payments of amounts due to us. The allowance is
comprised of specifically identified account balances for which collection is currently deemed doubtful. In addition to specifically identified accounts, estimates of amounts that may not be collectible from those accounts whose collection is not
yet deemed doubtful but which may become doubtful in the future are made based on historical bad debt write-off experience. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. At December 31, 2010 and 2009, our allowance for potentially uncollectible accounts was $102,000 and $58,000, respectively.

Property and Equipment

Property and equipment are stated at cost.
Depreciation of property and equipment is recorded using the straight-line method over the assets estimated useful lives. Computer equipment and capitalized software are depreciated over two to five years and furniture and fixtures are
depreciated over five years. Amortization of leasehold improvements is recorded using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Amortization of fixed assets under capital leases is
included in depreciation expense.

Costs of internal use software are accounted for in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) 350-40, Internal Use Software and FASB ASC 350-50, Website Development Costs. This guidance requires that we expense computer software and website
development costs as they are incurred during the preliminary project stage. Once the capitalization criteria of FASB ASC 350-40 and ASC 350-50 have been met, external direct costs of materials and services consumed in developing or obtaining
internal-use software, including website development, the payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal use computer software and associated interest costs are capitalized.
Capitalized costs are amortized using the straight-line method over the shorter of the term of related client agreement, if such development relates to a specific outsource client, or the softwares estimated useful life, ranging from two to
five years. Capitalized internal use software and website development costs are included in property and equipment in the accompanying balance sheets.

Goodwill and Other Intangible Assets

We completed several
acquisitions during the period January 1, 2005 through December 31, 2010. Goodwill represents the excess of the acquisition purchase price over the estimated fair value of net tangible and intangible assets acquired. Goodwill is not
amortized, but instead tested for impairment at least annually or more frequently if events and circumstances indicate that the asset might be impaired. In our analysis of goodwill and other intangible assets we apply the guidance of FASB ASC
350-20-35, Intangibles  Goodwill and Other-Subsequent Measurement in determining whether any impairment conditions exist. In our analysis of other finite lived amortizable intangible assets, we apply the guidance of FASB ASC 360-10-35,
Property, Plant and Equipment-Subsequent Measurement, in determining whether any impairment conditions exist. An impairment loss is recognized to the extent that the carrying amount exceeds the assets fair value. Intangible
assets are attributable to the various technologies and customer relationships of the businesses we have acquired.



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In the 4thquarter of 2008, we performed our annual goodwill impairment evaluation required under FASB ASC 350-20-35 and
concluded that goodwill was impaired along with our other intangible assets under FASB ASC 360-10-35. The impairment was a result of our market capitalization declining significantly with the price of our stock, declining sales, depressed market
conditions, deteriorating industry trends, and a significant downward revision of our forecasts. The ultimate result of the impairment evaluation was a charge in the 4thquarter of $11.5 million to write off the entire amount of goodwill on two of our reporting units (Lead Development
and Rainmaker Asia) and a charge of approximately $2.2 million to write off a majority of the other intangible assets on these same two reporting units. In the 4thquarter of 2009 and again in the 4thquarter of 2010, we performed our annual goodwill impairment evaluation and concluded that our remaining goodwill
balance was not impaired. At December 31, 2010, we had approximately $3.8 million in goodwill recorded on our Contract Sales reporting unit and $1.5 million recorded on our Rainmaker Europe reporting unit. Based on our analysis performed in the
4thquarter of 2010, the estimated fair values of the
Contract Sales and Rainmaker Europe reporting units exceeded their carrying values by more than 20%.

We report segment
results in accordance with FASB ASC 280, Segment Reporting. The method for determining what information is reported is based on the way that management organizes the operating segments for making operational decisions and assessments of
financial performance. The Companys chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by detailed information listing net revenues by customer and product line, for purposes of making
operating decisions and assessing financial performance. Currently, the chief operating decision maker does not use product line financial performance as a basis for business operating decisions. Accordingly, the Company has concluded that it has
one operating and reportable segment. However, in accordance with FASB ASC 350-20-35, we are required to test goodwill for impairment at the reporting unit level which is an operating segment or one level below an operating segment. Thus, our
reporting units for goodwill impairment testing are Contract Sales, Lead Development, Rainmaker Asia and Rainmaker Europe.

Long-Lived
Assets

Long-lived assets including our purchased intangible assets are amortized over their estimated useful lives. In
accordance with FASB ASC 360-10-35, Property, Plant and Equipment-Subsequent Measurement, long-lived assets, such as property, equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows
expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets
to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

In the 4thquarter of 2008, in connection with the goodwill impairment testing discussed above, we had to evaluate our other long-lived assets which included amortized intangible assets. Based on this analysis, we determined that the carrying value of our
amortizable intangible assets exceeded their fair value based upon the estimated discounted cash flows related to the assets and we recorded impairment charges of approximately $1.1 million related to intangible assets held at the Lead Development
reporting unit and approximately $1.1 million related to intangible assets held at the Rainmaker Asia reporting unit. In 2010 and 2009, we did not record any impairment charges related to amortizable intangible assets.

Revenue Recognition and Presentation

Substantially all of our revenue is generated from the sale of service contracts and maintenance renewals, lead development services and software subscriptions for hosted Internet sales of web based
training. We recognize revenue from the sale of our clients service contracts and maintenance renewals on the net basis,



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which represents the amount billed to the end customer less the amount paid to our client. Revenue from the sale of service contracts and maintenance renewals is recognized when a purchase order
from a clients customer is received, the service contract or maintenance agreement is delivered, the fee is fixed or determinable, the collection of the receivable is reasonably assured, and no significant post-delivery obligations remain
unfulfilled. Revenue from lead development services we perform is recognized as the services are accepted and is generally earned ratably over the service contract period. Some of our lead development service revenue is earned when we achieve
certain attainment levels and is recognized upon customer acceptance of the service. We earn revenue from our software application subscriptions of hosted online sales of web based training ratably over each contract period. Since these
software subscriptions are usually paid in advance, we have recorded a deferred revenue liability on our balance sheet that represents the prepaid portions of subscriptions that will be earned over the next one to two years.

We also evaluate our agreements for multiple element arrangements.Our agreements typically do not contain multiple deliverables.
However, in the few instances where our agreements have contained multiple deliverables, they usually do not have value to our customers on a standalone basis, and therefore the deliverables are considered together as one unit of accounting. Revenue
is then recorded using the proportional performance model, where revenue is recognized as performance occurs over the term of the contract and any initial set up fees are recognized over the estimated customer life.

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

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

Costs of Services

Costs of services consist of costs associated with promoting and selling our clients products and services including compensation
costs of sales personnel, sales commissions and bonuses, costs of designing, producing and delivering marketing services, and salaries and other personnel expenses related to fee-based activities. Costs of services also include the cost of allocated
facility and telephone usage for our telesales representatives as well as other direct costs associated with the delivery of our services. Most of the costs are personnel related and are mostly variable in relation to our net revenue. Bonuses and
sales commissions will typically change in proportion to net revenue or profitability.

Advertising

We expense advertising costs as incurred. These costs were not material in the years ended December 31, 2010, 2009 and 2008 and are
included in sales and marketing expense.

Income Taxes

We account for income taxes using the liability method. The liability method requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been
recognized in our financial statements, but have not been reflected in our taxable income. A valuation allowance is established to reduce deferred tax assets to their estimated realizable value. Therefore, we provide a valuation allowance to the
extent that we do not believe it is more likely than not that we will generate sufficient taxable income in



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future periods to realize the benefit of our deferred tax assets. At December 31, 2010 and December 31, 2009, we had gross deferred tax assets of $27.8 million and $25.8 million,
respectively. In 2010 and 2009, the deferred tax asset was subject to a 100% valuation allowance and therefore is not recorded on our balance sheet as an asset. Realization of our deferred tax assets is limited and we may not be able to fully
utilize these deferred tax assets to reduce our tax rates.

FASB ASC 740, Income Taxes, prescribes a recognition
threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Under this guidance, the impact of an uncertain income tax position on the income tax return must be recognized
at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, FASB ASC
740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Our policy for recording interest and penalties related to uncertain tax positions is to record such items as a component of income before taxes. Penalties, interest paid and interest received are
recorded in interest and other expense, net, in the statement of operations. There were immaterial amounts accrued for interest and penalties related to uncertain tax positions as of December 31, 2010 and 2009.

Stock-Based Compensation

FASB ASC 718, Compensation-Stock Compensation, establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily
focusing on accounting for transactions where an entity obtains employee services in share-based payment transactions. This guidance requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the
portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Companys Consolidated Statement of Operations. See Note 9 for further discussion of this statement and its effects on
the financial statements presented herein.

Concentrations of Credit Risk and Credit Evaluations

Our financial instruments that expose us to concentrations of credit risk consist primarily of cash and cash equivalents and trade
accounts receivable.

We place our cash and cash equivalents in a variety of financial institutions and limit the amount of
credit exposure through diversification and by investing the funds in money market accounts and certificates of deposit which are insured by the Federal Deposit Insurance Corporation (the FDIC). At times, the balance of cash deposits is
in excess of the FDIC insurance limits.

We sell our clients products and services primarily to business end users and,
in most transactions, assume full credit risk on the sale. Credit is extended based on an evaluation of the financial condition of our clients customer, and collateral is generally not required. Credit losses have traditionally been
immaterial, and such losses have been within managements expectations. We have generated a significant portion of our revenue from sales to customers of a limited number of clients. In the year ended December 31, 2010, three clients
accounted for 10% or more of our net revenue, with Sun Microsystems representing approximately 17% of our net revenue, Hewlett-Packard representing approximately 14% of our net revenue and Symantec representing approximately 12% of our net revenue.
In 2009, three clients accounted for 10% or more of our net revenue, with Sun Microsystems representing approximately 22% of our net revenue, Hewlett-Packard representing approximately 16% of our net revenue and Symantec accounting for approximately
10% of our net revenue. In 2008, Hewlett-Packard accounted for approximately 20% of our net revenue and was the only client that accounted for 10% or more of our net revenue.



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

We have outsourced services agreements with our clients that expire at various dates ranging through
June 2012. Our agreements with Hewlett-Packard, a significant client, expire at various dates from October 2011 through May 2012, and can generally be terminated prior to expiration with ninety days notice. Our agreements with Symantec, a
significant client, expire at various dates from May 2011 through June 2012, and can generally be terminated prior to expiration with ninety days notice. We had various agreements with Sun Microsystems, our largest client during 2010, with various
termination provisions. On February 5, 2010, we received written notice from Sun Microsystems that they had elected to terminate the Global Inside Sales Program Statement of Work agreement dated March 31, 2009, effective as of
February 28, 2010. The notice followed the acquisition of Sun Microsystems by Oracle Corporation and affected the contract sales services that we were performing for Sun. The Global Inside Sales Program services accounted for approximately 13%
of our fiscal 2009 annual net revenue. The Global Inside Sales agreement had a minimum term with notice periods to August 31, 2010. We entered into a settlement agreement on March 8, 2010, and received a cash payment of $4,550,000 from
Oracle Corporation for the buyout of the Global Inside Sales agreement. The settlement payment was recognized as revenue in the first quarter of 2010. In addition, Oracle agreed to reimburse us $347,000 for employee severance costs related to
terminating employees who worked on the Global Inside Sales program. This reimbursement was recognized in payroll and payroll tax expense to offset the employee severance costs. A client that provides business process call center services that has
been outsourcing its Asia call center activities to us was acquired in December 2010. We are currently in discussions with this clients new parent company to provide managed call center services for their new facility. This may take affect in
the next three to nine months. This is likely to result in some decrease in revenue compared to the outsourced call center services we now provide this client. The outcome of this negotiation is presently unknown. The potential impact on revenue is
not determinable at this time. Its possible that our current agreement with this client could terminate without transitioning to a new managed services arrangement if we are not able to come to mutually agreeable terms. Services to this client
accounted for approximately 6% of our 2010 annual net revenue.

Fair Value of Financial Instruments

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

The fair value of short-term and long-term capital lease and debt obligations is
estimated based on current interest rates available to us for debt instruments with similar terms, degrees of risk and remaining maturities. The carrying values of these obligations, as of each period presented, approximate their respective fair
values.

Segment Reporting

We report segment results in accordance with FASB ASC 280, Segment Reporting. The method for determining what information is reported is based on the way that management organizes the operating
segments for making operational decisions and assessments of financial performance. The Companys chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by detailed information listing
revenues by customer and product line, for purposes of making operating decisions and assessing financial performance. Currently the chief operating decision maker does not use product line financial performance as a basis for business operating
decisions. Accordingly, the Company has concluded that it has one operating and reportable segment. We have call centers within the United States of America, the Philippines, the United Kingdom and France where we perform services on behalf of our
clients to customers who are primarily located in North America. While we exited our Canadian call center facility in September 2010, we continue to maintain a network of managed telesales representatives in the region.



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The following is a breakdown of net revenue by product line for the years ended
December 31, 2010, 2009 and 2008 (in thousands):



|                 |  |                         |        |  |      |   |        |      |  |   |        | 
|---------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                 |  | Year Ended December 31, |       
|                 |  | 2010                    |        |  | 2009 |   |        | 2008 | 
|Contract sales   |  | $                       | 21,066 |  |      | $ | 24,953 |      |  | $ | 25,574 | 
|Lead development |  |                         | 17,884 |  |      |   | 18,456 |      |  |   | 36,368 | 
|Training sales   |  |                         | 3,818  |  |      |   | 4,385  |      |  |   | 4,385  | 
|                 |  |                         |        |  |      |   |        |      |  |   |        | 
|Total            |  | $                       | 42,768 |  |      | $ | 47,794 |      |  | $ | 66,327 | 
|                 |  |                         |        |  |      |   |        |      |  |   |        | 

Foreign revenues are attributed to the country of the business entity that executed the contract. The
Company utilizes our call centers in the United States, the Philippines, the United Kingdom and France and a network of managed telesales representatives in Canada to fulfill these contracts. Although we do not have a call center in the Cayman
Islands, our Cayman Islands-based holding company, obtained as part of the Qinteraction Limited acquisition, has operations in the Philippines. The following is a geographic breakdown of our net revenue for the years ended December 31, 2010,
2009 and 2008 (in thousands):



|               |  |                         |        |  |      |   |        |      |  |   |        | 
|-------------- |  | ----------------------- | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|               |  | Year Ended December 31, |       
|               |  | 2010                    |        |  | 2009 |   |        | 2008 | 
|United States  |  | $                       | 30,785 |  |      | $ | 41,526 |      |  | $ | 58,136 | 
|Cayman Islands |  |                         | 8,235  |  |      |   | 4,476  |      |  |   | 6,307  | 
|Europe         |  |                         | 1,956  |  |      |   |       |      |  |   |       | 
|Philippines    |  |                         | 1,792  |  |      |   | 1,792  |      |  |   | 1,884  | 
|               |  |                         |        |  |      |   |        |      |  |   |        | 
|Total          |  | $                       | 42,768 |  |      | $ | 47,794 |      |  | $ | 66,327 | 
|               |  |                         |        |  |      |   |        |      |  |   |        | 

Property and equipment information is based on the physical location of the assets, and goodwill and
intangible information is based on the country of the business entity to which these are allocated. The following is a geographic breakdown of net long-lived assets as of December 31, 2010 and 2009 (in thousands):



|               |  |                          |       |  |          |   |       |                       |  |   |     | 
|-------------- |  | ------------------------ | ----- |  | -------- | - | ----- | --------------------- |  | - | --- | 
|               |  | Property &Equipment, Net |       |  | Goodwill |   |       | IntangibleAssets, Net | 
|2010           |  |                          |       |  |          |   |       |                       |  |   |     | 
|United States  |  | $                        | 3,277 |  |          | $ | 3,777 |                       |  | $ | 241 | 
|Cayman Islands |  |                          |      |  |          |   |      |                       |  |   | 121 | 
|Philippines    |  |                          | 2,689 |  |          |   |      |                       |  |   |    | 
|Canada         |  |                          | 43    |  |          |   |      |                       |  |   |    | 
|Europe         |  |                          | 131   |  |          |   | 1,492 |                       |  |   | 70  | 
|               |  |                          |       |  |          |   |       |                       |  |   |     | 
|2010 Total     |  | $                        | 6,140 |  |          | $ | 5,269 |                       |  | $ | 432 | 
|               |  |                          |       |  |          |   |       |                       |  |   |     | 
|2009           |  |                          |       |  |          |   |       |                       |  |   |     | 
|United States  |  | $                        | 4,097 |  |          | $ | 3,777 |                       |  | $ | 576 | 
|Cayman Islands |  |                          |      |  |          |   |      |                       |  |   | 314 | 
|Philippines    |  |                          | 2,507 |  |          |   |      |                       |  |   |    | 
|Canada         |  |                          | 217   |  |          |   |      |                       |  |   |    | 
|Europe         |  |                          | 131   |  |          |   |      |                       |  |   |    | 
|               |  |                          |       |  |          |   |       |                       |  |   |     | 
|2009 Total     |  | $                        | 6,952 |  |          | $ | 3,777 |                       |  | $ | 890 | 
|               |  |                          |       |  |          |   |       |                       |  |   |     | 

Foreign Currency Translation

During January 2007, we established a Canadian foreign subsidiary and subsequently purchased the Canadian based assets of CAS Systems. Additionally, in July 2007, we purchased Qinteraction Limited and its
Philippine-based subsidiary. In the first quarter of 2009, we established our Rainmaker Europe subsidiary in



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London, England. In January 2010, we purchased Optima Consulting Partners Limited with primary offices in England. The functional currency of our foreign subsidiaries was determined to be their
respective local currencies (Canadian Dollar, Philippine Peso, and Great Britain Pound). Foreign currency assets and liabilities are translated at the current exchange rates at the balance sheet date. Revenues and expenses are translated at weighted
average exchange rates in effect during the year. The related unrealized gains and losses from foreign currency translation are recorded in accumulated other comprehensive loss as a separate component of stockholders equity in the consolidated
balance sheet and consolidated statement of stockholders equity and comprehensive loss. Net gains and losses resulting from foreign exchange transactions are included in interest and other expense, net in the consolidated statements of
operations.

Exit or Disposal Cost Obligations

FASB ASC 420, Exit or Disposal Cost Obligationsconsiders exit or disposal cost obligations including costs to terminate a contract other than a capital lease, costs to close facilities and
relocate employees, and one-time employee termination benefits. A liability for exit or disposal costs shall be recognized and measured initially at its fair value in the period the liability is incurred. Future obligations are measured at current
fair value. Subsequent changes to the measurement liability are reported in the income statement during the period of change.

On September 24, 2008, we entered into an agreement to lease approximately 20,000 square feet of space for our Canadian operations.
The lease has a minimum term of three years and commenced on January 1, 2009. Annual gross rent is $400,000 Canadian dollars for the initial three-year term. Based on the exchange rate at December 31, 2010, annual rent is approximately
$400,000 U.S. dollars. Additionally, Rainmaker is responsible for its proportionate share of utilities, taxes and other common area maintenance charges during the lease term. We exited our Canadian call center facility in September 2010 and took a
restructuring charge for this lease commitment of $416,000, a write off of certain leasehold improvements of $106,000 and other facility costs of $46,000. We are actively working to sublease the facility through the end of our lease term of
December 31, 2011. At December 31, 2010, the remaining liability for the Montreal facility closure was $324,000.

Recently
Issued Accounting Standards

In December 2010, the FASB issued Accounting Standards Update (ASU) No.
2010-28When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. This update provides amendments to ASC Topic 350Intangibles, Goodwill and Other that requires an entity to
perform Step 2 impairment test even if a reporting unit has zero or negative carrying amount. Step 1 tests whether the carrying amount of a reporting unit exceeds its fair value. Previously reporting units with zero or negative carrying value passed
Step 1 because the fair value was generally greater than zero. Step 2 requires impairment testing and impairment valuation be calculated in between annual tests if an event or circumstances indicate that it is more likely than not that goodwill has
been impaired. ASU 2010-28 is effective beginning January 1, 2011. As a result of this standard, goodwill impairments may be reported sooner than under current practice. We do not expect ASU 2010-28 to have a material impact on our financial
statements.

In January 2010, the FASB issued ASU No. 2010-06Improving Disclosures about Fair Value
Measurements. This update provides amendments to ASC Topic 820Fair Value Measurements and Disclosures that requires additional disclosures about significant transfers into and out of Levels 1 and 2 in the fair value measurements, as well
as reasons for the transfers. It also clarifies existing disclosures related to the level of disaggregation in the disclosures as well as the required disclosures about inputs and valuation techniques. The adoption of this portion of the standard
which was effective January 1, 2010, has not had a material impact on our financial statements. See Note 7 for further discussion of this statement and its effect on the financial statements presented herein. Additionally a portion of this
standard is effective for interim and annual reporting periods beginning after December 15, 2010. This portion requires disclosure of purchases, sales, issuance and settlements in the reconciliation of Level 3 fair value measurements. This
portion of the standard is not expected to have a material impact on our financial statements.



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In October 2009, the FASB issued ASU No. 2009-13Multiple-Deliverable Revenue
Arrangements a Consensus of the FASB Emerging Issues Task Force, which amends ASC Topic 605Revenue Recognition, to require companies to allocate revenue in multiple-element arrangements based on an elements estimated selling
price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective beginning January 1, 2011. Based on current sales contracts in place at December 31, 2010, we do not expect ASU 2009-13 to have a
material impact on our financial results. We may enter into sales contracts with multiple deliverable element conditions in the future which may affect the timing of our revenue recognition and may have a material impact on our financial statements.

In September 2009, the FASB issued ASU No. 2009-14Certain Revenue Arrangements That Include Software
ElementsA consensus of the FASB Emerging Issues Task Force, which amends ASC 985-605Software: Revenue Recognition to exclude from its scope certain tangible products containing both software and non-software components that
function together to deliver the products essential functionality. This guidance focuses on determining which arrangements are within the scope of the software revenue guidance in Topic 985 (previously included in AICPA Statement of Position
97-2, Software Revenue Recognition (SOP 97-2)) and which are not. This guidance also removes tangible products from the scope of the software revenue guidance and provides guidance on determining whether software deliverables in an
arrangement that include a tangible product are within the scope of the software revenue guidance. This guidance is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and
shall be applied on a prospective basis. We do not expect ASU 2009-14 to have a material impact on our financial statements.

2. Net
Loss Per Share

Basic net loss per common share is computed using the weighted-average number of shares of common stock
outstanding during the year, less shares subject to repurchase. Diluted earnings per common share also gives effect, as applicable, to the potential dilutive effect of outstanding stock options, using the treasury stock method, and convertible
securities, using the if converted method, as of the beginning of the period presented or the original issuance date, if later.

The following table presents the calculation of basic and diluted net loss per common share (in thousands, except per share data):



|                                                                             |  |                         |        |   |      |   |        |      |  |   |         |  
|---------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                             |  | Year Ended December 31, |       
|                                                                             |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|Net loss                                                                     |  | $                       | (9,950 | ) |      | $ | (8,316 | )    |  | $ | (30,607 | )
|Weighted-average shares used to compute basic and diluted net loss per share |  |                         | 20,380 |   |      |   | 19,345 |      |  |   | 19,333  |  
|Basic and diluted net loss per share                                         |  | $                       | (0.49  | ) |      | $ | (0.43  | )    |  | $ | (1.58   | )

For the years ended
December 31, 2010, 2009 and 2008 the Company excluded all 3.6 million, 4.2 million and 4.6 million options, warrants and unvested restricted share awards from the calculation of diluted net loss per share because these securities
were antidilutive.



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3. Balance Sheet Components (in thousands)



|                                                |  |                      |            |  |              |      |         |      |  |   |         |  
|----------------------------------------------- |  | -------------------- | ---------- |  | ------------ | ---- | ------- | ---- |  | - | ------- | -
|                                                |  |                      |            |  | December 31, |     
|                                                |  |                      |            |  | 2010         |      |         | 2009 | 
|Prepaid expenses and other current assets:      |  |                      |            |  |              |      |         |      |  |   |         |  
|Prepaid insurance                               |  |                      |            |  |              | $    | 110     |      |  | $ | 218     |  
|Prepaid support and maintenance contracts       |  |                      |            |  |              |      | 401     |      |  |   | 675     |  
|Deferred commission expense                     |  |                      |            |  |              |      | 123     |      |  |   | 208     |  
|Other prepaid expenses and other current assets |  |                      |            |  |              |      | 453     |      |  |   | 794     |  
|                                                |  |                      |            |  |              |      |         |      |  |   |         |  
|                                                |  |                      |            |  |              | $    | 1,087   |      |  | $ | 1,895   |  
|                                                |  |                      |            |  |              |      |         |      |  |   |         |  
|                                                |  |                     
|                                                |  | Estimated UsefulLife |            |  | December 31, |     
|                                                |  |                      | 2010       |  |              | 2009 |        
|Property and equipment:                         |  |                      |            |  |              |      |         |      |  |   |         |  
|Computer equipment                              |  |                      | 3 years    |  |              | $    | 10,094  |      |  | $ | 9,420   |  
|Capitalized software and development            |  |                      | 2-5 years  |  |              |      | 12,044  |      |  |   | 10,568  |  
|Furniture and fixtures                          |  |                      | 5 years    |  |              |      | 710     |      |  |   | 714     |  
|Leasehold improvements                          |  |                      | Lease term |  |              |      | 1,368   |      |  |   | 1,171   |  
|                                                |  |                      |            |  |              |      |         |      |  |   |         |  
|                                                |  |                      |            |  |              |      | 24,216  |      |  |   | 21,873  |  
|Accumulated depreciation and amortization       |  |                      |            |  |              |      | (18,397 | )    |  |   | (15,282 | )
|Construction in process (1)                     |  |                      |            |  |              |      | 321     |      |  |   | 361     |  
|                                                |  |                      |            |  |              |      |         |      |  |   |         |  
|Property and equipment, net                     |  |                      |            |  |              | $    | 6,140   |      |  | $ | 6,952   |  
|                                                |  |                      |            |  |              |      |         |      |  |   |         |  



|(1) | Construction in process at December 31, 2010, consists primarily of costs incurred to further develop and enhance the Companys eCommerce platform. Estimated
costs to complete these projects are in the range of $150,000 to $200,000, subject to future revisions.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                 |  |                      |           |  |              |      |        |   |  |   |        |  
|------------------------------------------------ |  | -------------------- | --------- |  | ------------ | ---- | ------ | - |  | - | ------ | -
|                                                 |  | Estimated UsefulLife |           |  | December 31, |     
|                                                 |  |                      | 2010      |  |              | 2009 |       
|Intangible assets:                               |  |                      |           |  |              |      |        |   |  |   |        |  
|Developed technology (2)                         |  |                      | 3-5 years |  |              | $    | 330    |   |  | $ | 1,250  |  
|Customer relations (3)                           |  |                      | 2-5 years |  |              |      | 3,022  |   |  |   | 2,790  |  
|Database (4)                                     |  |                      | 5 years   |  |              |      |       |   |  |   | 147    |  
|                                                 |  |                      |           |  |              |      |        |   |  |   |        |  
|                                                 |  |                      |           |  |              |      | 3,352  |   |  |   | 4,187  |  
|Accumulated amortization                         |  |                      |           |  |              |      | (2,920 | ) |  |   | (3,297 | )
|                                                 |  |                      |           |  |              |      |        |   |  |   |        |  
|Intangibles and indefinite life intangibles, net |  |                      |           |  |              | $    | 432    |   |  | $ | 890    |  
|                                                 |  |                      |           |  |              |      |        |   |  |   |        |  



|(2) | In the 1st quarter of 2010, we wrote-off developed technology that was fully amortized, causing a reduction in both developed technology and accumulated amortization of
$920,000.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | In the 1st quarter of 2010, we acquired $243,000, or $232,000 based on the exchange rate at December 31, 2010, in customer relations intangible assets with the
acquisition of Optima.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | In the 1st quarter of 2010, we wrote-off a database intangible asset that was fully amortized, causing a reduction in both database asset and accumulated amortization
of $147,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Future amortization of intangible assets at December 31, 2010 is as follows:



|                          |  |                        |     | 
|------------------------- |  | ---------------------- | --- | 
|                          |  | IntangibleAmortization |    
|2011                      |  | $                      | 329 | 
|2012                      |  |                        | 103 | 
|                          |  |                        |     | 
|Total future amortization |  | $                      | 432 | 
|                          |  |                        |     | 



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The customer relations intangible is being amortized on an accelerated basis to match the
estimated future cash flows generated from this intangible asset. Developed technology and database are being amortized using a straight-line method.

The value of our intangibles is based on allocations of the purchase price of assets included in our acquisitions (see Note 5). For developed technology, the allocation was based on the estimated
cost to reproduce the technology as well as market comparisons for similar purchases. For customer relations, we estimated the cash flows associated with the excess earnings the contacts would generate and allocated the present value of those
earnings to the asset. For the database, we estimated the relief from royalties that we would have had to otherwise pay to use these assets and allocated the present value of those payments to the assets. See Note 5 for a discussion of
discount rates used.

The following table reflects the activity in our accounting for goodwill for the years ended
December 31, 2010 and 2009:



|                             |  |                   |     |  |             |   |       |              |  |   |        |  |  |       |       |   |  |   |       |  
|---------------------------- |  | ----------------- | --- |  | ----------- | - | ----- | ------------ |  | - | ------ |  |  | ----- | ----- | - |  | - | ----- | -
|                             |  | BusinessTelemetry |     |  | ViewCentral |   |       | GrowCommerce |  |   | Optima |  |  | Total |      
|Balance at December 31, 2008 |  | $                 | 658 |  |             | $ | 2,849 |              |  | $ |       |  |  | $     |      |   |  | $ | 3,507 |  
|Acquisition of Grow Commerce |  |                   |    |  |             |   |      |              |  |   | 270    |  |  |       |      |   |  |   | 270   |  
|                             |  |                   |     |  |             |   |       |              |  |   |        |  |  |       |       |   |  |   |       |  
|Balance at December 31, 2009 |  |                   | 658 |  |             |   | 2,849 |              |  |   | 270    |  |  |       |      |   |  |   | 3,777 |  
|Acquisition of Optima        |  |                   |    |  |             |   |      |              |  |   |       |  |  |       | 1,562 |   |  |   | 1,562 |  
|Foreign currency adjustments |  |                   |    |  |             |   |      |              |  |   |       |  |  |       | (70   | ) |  |   | (70   | )
|                             |  |                   |     |  |             |   |       |              |  |   |        |  |  |       |       |   |  |   |       |  
|Balance at December 31, 2010 |  | $                 | 658 |  |             | $ | 2,849 |              |  | $ | 270    |  |  | $     | 1,492 |   |  | $ | 5,269 |  
|                             |  |                   |     |  |             |   |       |              |  |   |        |  |  |       |       |   |  |   |       |  

At December 31, 2010, 2009 and 2008, we had accumulated impairment losses of $11.5 million.

In the fourth quarter of 2010 and 2009, we performed our annual goodwill impairment evaluation required under FASB ASC 350-20-35,
Intangibles  Goodwill and Other-Subsequent Measurement, and concluded that goodwill was not impaired.

As a
result of our acquisition of Optima in the first quarter of 2010, we now have four reporting units (Contract Sales, Lead Development, Rainmaker Asia and Rainmaker Europe).



|                                  |  |              |     |  |      |   |       | 
|--------------------------------- |  | ------------ | --- |  | ---- | - | ----- | 
|                                  |  | December 31, |    
|                                  |  | 2010         |     |  | 2009 |  
|Other long-term assets:           |  |              |     |  |      |   |       | 
|Deposits                          |  | $            | 543 |  |      | $ | 313   | 
|Note Receivable  Market2Lead (5) |  |              |    |  |      |   | 1,250 | 
|Investment in Market2Lead (5)     |  |              |    |  |      |   | 740   | 
|Credit card reserve deposits      |  |              | 290 |  |      |   | 106   | 
|                                  |  |              |     |  |      |   |       | 
|                                  |  | $            | 833 |  |      | $ | 2,409 | 
|                                  |  |              |     |  |      |   |       | 



|(5) | In October 2007, we provided $2.5 million in growth capital to this privately-held company. The transaction was structured as a $1.25 million
convertible loan and a $1.25 million term loan secured by substantially all of the assets of the privately-held company including intellectual property. We also received a warrant as a part of this transaction to purchase approximately 411,000
shares of common stock of the privately-held company. In October 2008, the convertible debt automatically converted to 619,104 shares of Series A Preferred stock of the privately-held company. Because the private equity investment represented less
than 20% in the investee company, and because the Company did not have any significant influence on the investee company, the investment was accounted for in accordance with the cost method. During the fourth quarter of 2008, we assessed our
investment for impairment as we observed that there were indicators of impairment. As a result we took an impairment charge in other expense of approximately $749,000 which
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | represented a write-off of the remaining carrying value of the warrant of $239,000 and a write-down of the carrying value of the investment in Series A Preferred stock of the privately-held
company of $510,000 in order to write-down these assets to their respective fair values. In May 2010, we received payment from Market2Lead for the $1,250,000 in remaining term debt plus accrued interest of approximately $170,000 in connection with
the acquisition of Market2Lead by a third party. In connection with this acquisition, we took a non-cash charge in the first quarter of 2010 for the carrying value of our minority equity investment of $740,000. We no longer carry any values on our
balance sheet related to Market2Lead.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4. Capital Leases, Financing Agreements, Financing Obligations and Guarantees

Capital Leases

In March 2008, we entered into a 3-year software licensing agreement with Microsoft GP. In accordance with the terms of the agreement, we paid three annual installments of approximately $254,000 beginning
in April 2008 for the licensing rights to use certain Microsoft software. We made the final payment on this lease in the first quarter of 2010.

Financing Agreements

Notes payable consists of the following at December 31, 2010 and 2009 (in thousands):



|                                           |  |              |        |   |      |   |        |  
|------------------------------------------ |  | ------------ | ------ | - | ---- | - | ------ | -
|                                           |  | December 31, |       
|                                           |  | 2010         |        |   | 2009 |  
|Notes PayableCAS Systems                  |  | $            |       |   |      | $ | 666    |  
|Notes PayableOptima (net of $14 discount) |  |              | 336    |   |      |   |       |  
|Credit Facility                            |  |              | 3,032  |   |      |   | 1,941  |  
|Loan Line Facility                         |  |              | 630    |   |      |   |       |  
|Overdraft Facility                         |  |              | 356    |   |      |   |       |  
|                                           |  |              |        |   |      |   |        |  
|Total Notes Payable                        |  |              | 4,354  |   |      |   | 2,607  |  
|Less: Current Portion                      |  |              | (2,520 | ) |      |   | (1,350 | )
|                                           |  |              |        |   |      |   |        |  
|Notes Payable, less current portion        |  | $            | 1,834  |   |      | $ | 1,257  |  
|                                           |  |              |        |   |      |   |        |  

Notes PayableCAS Systems

In January 2007, we acquired the assets of CAS Systems. In connection with our acquisition, Rainmaker and its Canadian subsidiary issued notes payable in the amounts of $1.4 million and $600,000,
respectively. The two notes were payable in three consecutive annual installments of approximately $466,000 and $200,000, respectively, each, commencing on January 25, 2008, with subsequent installments payable on the anniversary date in 2009
and 2010. The notes incurred interest at a fixed rate of 5.36% per annum. The final payment of approximately $666,000 plus accrued interest was paid in January 2010.

Notes PayableOptima acquisition

On January 29, 2010, we
entered into and closed a stock purchase agreement for Optima. In accordance with this agreement, we entered into a note payable for $350,000 payable in two installments with $200,000 plus accrued interest due eighteen months from the closing date
and $150,000 plus accrued interest due twenty four months after the closing date, subject to post-closing conditions. The interest rate on the note payable is 0.4% per year, and we have recorded the present value of the note payable, discounted
over two years at a rate of 6.2%.

Additionally, in connection with the Optima acquisition, we assumed an existing note
payable to Barclays Bank in the amount of £78,000 Great Britain Pounds, or approximately $120,000, as of the closing date of the acquisition. This note was paid in full during 2010.



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Credit Facility

In April 2004, we entered into a business loan agreement and a commercial security agreement with Bridge Bank (the Credit Facility). The Credit Facility originally matured in May 2005, and
provided borrowing availability up to a maximum of $3.0 million through a secured revolving line of credit that included a $1.0 million letter of credit facility. In December 2005, our Credit Facility was increased to $4.0 million. In October 2008,
we executed further amendments to the Credit Facility. The amendments extended the maturity date to October 10, 2009 and increased the maximum amount of revolving credit available from $4 million to $6 million, with a $1 million sub-facility
for standby letters of credit and a new $3 million sub-facility for the purpose of purchasing new equipment until December 31, 2008. Advances under the equipment finance sub-facility were being repaid in equal monthly installments that
commenced in January 2009 and were to continue through October 2011. On December 3, 2009, we executed a further amendment to the Credit Facility. The amendment extended the maturity date of the Credit Facility to October 10, 2010. The
maximum amount of revolving credit available to the Company remained at $6 million, with a $1 million existing sub-facility for standby letters of credit, and a $3.5 million maximum sub-facility that was a combination of the equipment finance
sub-facility and a term loan line which was used for borrowings until March 10, 2010. In accordance with the amended Credit Facility, any advances made under the term loan line were combined with the existing equipment sub-facility advances
outstanding on March 31, 2010, and were re-amortized and payable in thirty six (36) equal monthly installments of principal, plus all accrued interest, beginning on April 10, 2010, and continuing on the same day of each month
thereafter through March 31, 2013, at which time all amounts owed, if any, would be immediately due and payable.

In
September 2010, we executed further amendments to the Credit Facility. The amendments renewed the facility for an additional 14 months to December 10, 2011. In addition, the amendments added a new $500,000 term loan sub-facility which was used
for borrowings through December 31, 2010. The maximum amount of revolving credit available to the company remains at $6 million, subject to a borrowing base, and includes a $1.0 million existing sub-facility for standby letters of credit, a
$2.8 million existing term loan sub-facility, and the new $500,000 term loan sub-facility. The interest rate per annum for revolving advances under the Credit Facility is equal to the greater of (i) 3.5%, or (ii) one quarter of one percent
(0.25%) above the prime lending rate, currently at 3.25%. The interest rate per annum for advances under the term-loan sub-facilities is equal to a fixed rate of 6.0%. As of December 31, 2010, the company had $3.0 million outstanding under the
existing term loan sub-facility, as the Company borrowed the $500,000 allowed under the new term loan subfacility on December 31, 2010, and had two undrawn letters of credit outstanding under the Credit Facility in the aggregate face amount of
$487,000. All existing term loan sub-facility advances outstanding as of December 31, 2010 were re-amortized, and will be payable in twenty seven (27) equal monthly installments of approximately $112,000, beginning on January 10,
2011, and continuing on the same day of each month thereafter through March 31, 2013, at which time all amounts owed, if any, shall be immediately due and payable.

The amended Credit Facility is secured by substantially all of Rainmakers consolidated assets including intellectual property. Rainmaker must comply with certain financial covenants, including not
incurring a quarterly non-GAAP profit or loss negatively exceeding by more than 10% the amount of the non-GAAP profit or loss recited in the companys operating plan approved by Bridge Bank, and maintaining unrestricted cash with Bridge Bank
equal to the greater of $2.0 million or the aggregate principal amount of the indebtedness from time to time outstanding with Bridge Bank plus $500,000.

The Credit Facility contains customary covenants that will, subject to limited exceptions, require Bridge Banks approval to, among other things, (i) create liens; (ii) make annual capital
expenditures above a certain level; (iii) pay cash dividends; and (iv) merge or consolidate with another company above a certain amount of total consideration. The Credit Facility also provides for customary events of default, including
nonpayment, breach of covenants, payment defaults of other indebtedness, and certain events of bankruptcy, insolvency and reorganization that may result in acceleration of outstanding amounts under the Credit Facility.



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For the three months ended March 31, 2010 and June 30, 2010, we did not meet the
performance to plan financial covenant as our quarterly non-GAAP loss exceeded by 10% the amount of non-GAAP loss in our operating plan approved by Bridge Bank for our first and second quarters results of operations. We received waivers from
Bridge Bank for the violation of this covenant for the three months ended March 31, 2010 and June 30, 2010. For the three months ended September 30, 2010 and December 31, 2010, we met this performance to plan financial covenant.

In July 2005, we issued an irrevocable standby letter of credit in the amount of $100,000 to our landlord for a security
deposit for our corporate headquarters located in Campbell, California. In December 2010, we issued an irrevocable standby letter of credit in the amount of £250,000 Great Britain Pounds, or $387,000 based on the exchange rate as of
December 31, 2010, to Barclays Bank PLC to secure our overdraft facility described below. Both letters of credit were issued under the Credit Facility described above. As of December 31, 2010, no amounts had been drawn against the letters
of credit.

Loan Line Facility

On October 28, 2010, we entered into a business loan agreement with HSBC Bank (the Loan Line Facility). The Loan Line Facility provides borrowing availability up to a maximum of $630,000
secured by a standby documentary credit and matures in October 2011. On December 1, 2010 and December 14, 2010, we borrowed $300,000 and $330,000, respectively, under this Loan Line Facility. Interest rates are based on prevailing rates at
the time of drawdown and may be revised periodically with advance notice. Current interest rates are 3.45% and 3.795% for our drawdowns to date and will be revised in March 2011. Interest payments are due at the end of every interest rate revision
term or payment of principal.

Overdraft Facility

On November 25, 2010, our subsidiary, Rainmaker EMEA Limited, established an overdraft facility with Barclays Bank PLC (the Bank) in the amount of £247,500 Great Britain Pounds, or
$383,000 based on the exchange rate at December 31, 2010. The interest rate is 3.5% per annum over the Banks Base Rate, as defined in the agreement, or 4.0% at December 31, 2010. This overdraft facility is secured by an
irrevocable standby letter of credit issued by Bridge Bank in the amount of £250,000 Great Britain Pounds, or $387,000 based on the exchange rate at December 31, 2010. The facility does not have a cancellation date but the Bank may review
the overdraft facility from time to time and at least annually. The next annual review is schedule for review by November 5, 2011. At December 31, 2010, we had borrowed $356,000 under this facility.

Future debt maturities at December 31, 2010 are as follows (in thousands):



|                                     |  |   |       | 
|------------------------------------ |  | - | ----- | 
|Fiscal year ending December 31, 2011 |  | $ | 2,520 | 
|Fiscal year ending December 31, 2012 |  |   | 1,497 | 
|Fiscal year ending December 31, 2013 |  |   | 337   | 
|                                     |  |   |       | 
|Total                                |  | $ | 4,354 | 
|                                     |  |   |       | 

Guarantees

From time to time, we enter into certain types of contracts that contingently require us to indemnify parties against third party claims. These obligations primarily relate to certain agreements with our
officers, directors and employees, under which we may be required to indemnify such persons for liabilities arising out of their employment relationship. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated.
Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, we have not been obligated to make any payments for these
obligations, and no liabilities have been recorded for these obligations on our balance sheets as of December 31, 2010 and 2009.



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Restricted Cash

Restricted cash is comprised of cash receipts inadvertently remitted to the Company for goods and services sold by our clients.

5. Acquisitions

Optima Consulting Partners Ltd.

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

The stock purchase agreement also
provides for two potential additional payments of $375,000 each in a combination of stock and/or cash contingent on certain performance metrics in fiscal 2010 and fiscal 2011, and subject to post closing conditions. The fair value of the potential
additional payments was derived using Company estimates (Level 3 inputs) of a 50% probability of achievement. The 2010 achievement level was not met. Accordingly, the Company reduced the estimated fair value of the contingent consideration liability
by $190,000 and recorded a corresponding gain on re-measurement of this liability within operating expenses.

Our acquisition
of Optima has been accounted for as a business combination under FASB ASC 805, Business Combinations. Assets acquired and liabilities assumed from Optima were recorded at their estimated fair values as of January 29, 2010. The total
purchase price was approximately $1.9 million as follows (in thousands):



|                                                             |  |   |       | 
|------------------------------------------------------------ |  | - | ----- | 
|Issuance of 480,000 shares of Rainmaker common stock         |  | $ | 701   | 
|Cash payment for acquisition of Optima                       |  |   | 492   | 
|Promissory note (discounted value)                           |  |   | 321   | 
|Estimated fair value of future potential additional payments |  |   | 375   | 
|                                                             |  |   |       | 
|Total purchase price                                         |  | $ | 1,889 | 
|                                                             |  |   |       | 

Our acquisition of Optima has been accounted for as a business combination under FASB ASC 805, Business
Combinations. A portion of the purchase price was allocated to Optimas net identifiable tangible and intangible assets based on their estimated fair values. The excess of the purchase price over the net identifiable tangible and intangible
assets was recorded as goodwill. The total purchase price was allocated as follows (in thousands):



|                                |  |   |       |  
|------------------------------- |  | - | ----- | -
|Identified tangible assets      |  | $ | 796   |  
|Customer relationships          |  |   | 243   |  
|Goodwill                        |  |   | 1,562 |  
|Liabilities assumed             |  |   | (712  | )
|                                |  |   |       |  
|Total purchase price allocation |  | $ | 1,889 |  
|                                |  |   |       |  

Amortization of the customer relationships intangible asset is recorded using an accelerated method that is
based on the estimated future cash flows from the relationships. The estimated useful life of the customer relationships acquired is two years. We estimated the cash flows associated with the excess earnings the customers would generate and
allocated the present value of those earnings to the asset. We used a discount rate of 25.0%.



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No pro forma information is presented for the Optima acquisition since the effect of this
acquisition on the results of operations was deemed insignificant.

Grow Commerce

On October 5, 2009, we entered into and closed an asset purchase agreement with Grow Commerce, Inc., a California corporation. Grow
Commerce was engaged in the business of providing e-commerce solutions to business customers and had developed certain technology that we plan to continue to integrate into our technology platform to advance our eCommerce strategy during the 2011
fiscal year and future years. Under the terms of the asset purchase agreement, we purchased certain software products, customer contracts, vendor and other contracts, and all intellectual property rights of Grow Commerce for $600,000. A cash payment
of $510,000 was made at closing and $90,000 was withheld as a reserve for the purposes of securing indemnity obligations under the asset purchase agreement. The $90,000 reserve payment was paid in October 2010.

Our acquisition of Grow Commerce has been accounted for as a business combination under FASB ASC 805 Business Combinations. A
portion of the purchase price was allocated to Grow Commerces net identifiable intangible assets based on their estimated fair values. The excess of the purchase price over the net identifiable intangible assets was recorded as goodwill. The
total purchase price was allocated as follows (in thousands):



|                                |  |   |     | 
|------------------------------- |  | - | --- | 
|Developed Technology            |  | $ | 330 | 
|Goodwill                        |  |   | 270 | 
|                                |  |   |     | 
|Total purchase price allocation |  | $ | 600 | 
|                                |  |   |     | 

Amortization of the intangible assets is recorded using the straight-line method for the developed
technology over an estimated useful life of three years. To determine the fair value of developed technology, we estimated the future cash flows associated with the excess earnings the technology would generate and allocated the present value of
those earnings to the asset using a discount rate of approximately 20%.

No pro forma information is presented for the Grow
Commerce acquisition since the effect of this acquisition on the results of operations was deemed insignificant.

6. Commitments and
Contingencies

Commitments

As of December 31, 2010, our off-balance sheet arrangements include operating leases for our facilities that expire at various dates through 2013, including the lease for the Companys corporate
headquarters in Campbell, California and the leases for our current operations in or near Austin, Texas, Manila, Philippines, London, England and Paris, France, and our former operation near Montreal, Canada. All of these leases are described in
detail below. These arrangements allow us to obtain the use of the facilities without purchasing them. If we were to acquire these assets, we would be required to obtain financing and record a liability related to the financing of these assets.
Leasing these assets under operating leases allows us to use these assets for our business while minimizing the obligations and upfront cash flow related to purchasing the assets.

Our headquarters is located in one building in Campbell, California. In October 2009, we executed a second amendment to the operating
lease for our corporate headquarters in Campbell, California to reduce our lease cost. Under this amendment, we reduced the amount of space that we lease by 6,719 square feet to 16,430 square feet starting October 1, 2009, and reduced our lease
cost per square foot by approximately 18%. We obtained a first right of refusal to the reduced space (6,719 square feet). The lease term originally began on November 1, 2005 and, after the first amendment, was set to end on January 31,
2010. Under this second amendment, the lease will expire on January 31, 2013. Annual gross rent under the amended lease increases from approximately $227,000 in the first year of the lease which ended September 30, 2010, and the base rent
will increase by approximately 5% each year thereafter for the remaining term expiring January 31, 2013. In addition, we will continue to pay



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our proportionate share of operating costs, maintenance on some of the common areas and taxes based on our occupancy. The original letter of credit issued to the landlord in the amount of
$100,000 for a security deposit will remain in place.

In June 2009, we signed a lease for approximately 21,388 square feet of
space in Austin, Texas that commenced on June 16, 2009 for a term of 18.5 months through December 31, 2010. In September 2010, we extended this lease on all 21,388 square feet of space for a term of 12 months through December 31,
2011. Annual rent in the facility will approximate $208,000, or $17,000 monthly. Additionally, we pay our proportionate share of maintenance on some of the common areas in the business park.

On September 24, 2008, we entered into an agreement to lease approximately 20,000 square feet of space and moved our Canadian call
center to this new location which is close to Montreal. The lease has a minimum term of three years and commenced on January 1, 2009. Annual gross rent is $400,000 Canadian dollars for the initial 3 year term. Based on the exchange rate at
December 31, 2010, annual rent is approximately $400,000 in US dollars. Additionally, Rainmaker is responsible for its proportionate share of utilities, taxes and other common area maintenance charges during the lease term. We exited our
Canadian call center facility in September 2010 and took a restructuring charge for this lease commitment of $416,000, a write off of certain leasehold improvements of $106,000 and other facility costs of $46,000. We are actively working to sublease
the facility through the end of our lease term of December 31, 2011.

With our acquisition of
Qinteraction, we assumed existing lease obligations at their Manila, Philippines offices. We assumed 2 office space leases and a parking lease. During 2008 and 2009, we amended and then terminated our lease in the Pacific Star building and we
currently do not occupy any space in this building. We currently occupy approximately 40,280 square feet on 3 floors in the BPI building in Manila. Our current lease for this space commenced on April 1, 2008, has a 5-year term and terminates on
March 31, 2013. Based on the exchange rate at December 31, 2010, our annual base rent will escalate from approximately $673,000 for the twelve months ending December 31, 2011 to $727,000 for the 2012 calendar year, the final full year
of the lease that ends in March 2013. Our parking lease began in March 2006, has a 5-year term and terminates in March 2011. Based on the exchange rate at December 31, 2010, our annual base rent on this lease is approximately $14,000. To
accommodate growth in our call center business, we expanded our facilities in the Philippines by entering into a lease commencing on May 1, 2010 to occupy approximately 15,850 square feet on the 4thfloor of the Alphaland Southgate Tower in Manila. The lease has a
3-year term and terminates on April 30, 2013. Based on the exchange rate at December 31, 2010, our annual base rent will escalate from approximately $254,000 for the twelve months ending December 31, 2011 to $287,000 for the 2012
calendar year, the final full year of the lease that ends in April 2013.

With the establishment of our Rainmaker Europe
subsidiary in 2009, we signed a short-term office services agreement for shared office space in London, England. Rainmaker renewed the office services agreement on a month-to-month basis through March 2010.

With our acquisition of Optima in January 2010, we assumed office leases in the United Kingdom, where we have a call center and sales
operation, in France where we have a small call center, and in Munich and Frankfurt, Germany where we had sales operations. In the first quarter 2010, we consolidated our existing Rainmaker Europe operations in the United Kingdom into Optimas
office and terminated our existing month-to-month lease in London effective March 31, 2010. In the United Kingdom, we have leased space in Godalming outside of London. This lease commenced in November 2009, has a 3 year term and terminates in
October 2012. In October 2010, we expanded the area of our United Kingdom lease to accommodate growth. Combined annual base rent for this facility is £134,000 Great Britain Pounds. Based on the exchange rate at December 31, 2010, annual
rent is approximately $207,000 per year. The lease has a term that expires in October 2012. We continue to maintain a month-to-month lease located in Paris, France with monthly rent of 1,770 Euros or approximately $2,300 based on the exchange
rate at December 31, 2010. We terminated our month-to-month leases in Munich and Frankfurt, Germany during July 2010.



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Future minimum payments under our non-cancelable operating leases with terms in excess of
one year at December 31, 2010 are as follows (in thousands):



|                       |  |   |       | 
|---------------------- |  | - | ----- | 
|2011                   |  | $ | 1,376 | 
|2012                   |  |   | 1,439 | 
|2013                   |  |   | 305   | 
|                       |  |   |       | 
|Total minimum payments |  | $ | 3,120 | 
|                       |  |   |       | 

Rent expense, net of sub-lease income, under operating lease agreements during the years ended
December 31, 2010, 2009 and 2008 was $2,075,000, $1,817,000, and $2,485,000, respectively. The 2010 rent expense included approximately $416,000 as a result of the recording of the estimated rent expense related to the Montreal office closure.
There was no sublease income during 2010. The 2009 rent expense was net of approximately $56,000 in sublease income from our Austin property. The 2008 rent expense included approximately $227,000 as a result of the recording of the estimated rent
expense related to the Oakland office closure, and was net of approximately $125,000 in sublease income from our Austin property.

Contingencies

Claims have been asserted against the Company and, currently, we are involved in litigation in the Philippines. Three former employees of
our Asia operation have individually brought employment related claims against the Company and each of those claims is awaiting final resolution. Additionally, the founders of Qinteraction have filed suit against the Company, in the Philippine
courts, to pursue obtaining the shares held in escrow in connection with the Companys purchase of Qinteraction, and have also asserted claims for additional money. The Company believes that any ultimate liability surrounding these claims, if
any, will not have a material impact on its financial position or results of operations.

7. Fair Value Measurements

Fair value is the exchange price that would be the amount received for an asset or paid to transfer a liability in an orderly transaction
between market participants. In arriving at a fair value measurement, we use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable. The three levels of inputs used to
establish fair value are the following:



|        |  |   |  |                                                                                                                                                                                                                                                                                                                                            
|------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  |  |  | Quoted prices in active markets for identical assets or liabilities;                                                                                                                                                                                                                                                                       
|        |  |  
|Level 2 |  |  |  | Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
|        |  |  
|Level 3 |  |  |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.                                                                                                                                                                                            

A summary of the activity of the fair value of the Level 3 liabilities is as follows (in thousands):



|                             |  |                                     |   |  |                                  |   |     |                                  |  |   |                           |   |  |                                        |    |   |  |   |     | 
|---------------------------- |  | ----------------------------------- | - |  | -------------------------------- | - | --- | -------------------------------- |  | - | ------------------------- | - |  | -------------------------------------- | -- | - |  | - | --- | 
|                             |  | BeginningValue ofLevel 3Liabilities |   |  | ContingentConsiderationLiability |   |     | Gain on FairValue Re-measurement |  |   | ForeignCurrencyAdjustment |   |  | Ending FairValue of Level 3Liabilities |   
|Year ended December 31, 2010 |  | $                                   |  |  |                                  | $ | 375 |                                  |  | $ | (190                      | ) |  | $                                      | (3 | ) |  | $ | 182 | 



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The following table represents the fair value hierarchy for our financial assets and
liabilities held by the Company measured at fair value on a recurring basis (in thousands):



|                                   |  |         |       |  |         |   |   |         |  |   |       |  |  |   |       | 
|---------------------------------- |  | ------- | ----- |  | ------- | - | - | ------- |  | - | ----- |  |  | - | ----- | 
|December 31, 2010                  |  | Level 1 |       |  | Level 2 |   |   | Level 3 |  |   | Total | 
|Assets:                            |  |         |       |  |         |   |   |         |  |   |       |  |  |   |       | 
|Money market funds(1)              |  | $       | 5,918 |  |         | $ |  |         |  | $ |      |  |  | $ | 5,918 | 
|Liabilities:                       |  |         |       |  |         |   |   |         |  |   |       | 
|Contingent considerationOptima(2) |  | $       |      |  |         | $ |  |         |  | $ | 182   |  |  | $ | 182   | 
|                                   |  |         |       | 
|December 31, 2009                  |  |         |       |  |         |   |   |         |  |   |       | 
|Assets:                            |  |         |       |  |         |   |   |         |  |   |       |  |  |   |       | 
|Money market funds(1)              |  | $       | 6,664 |  |         | $ |  |         |  | $ |      |  |  | $ | 6,664 | 



|(1) | Money market funds are valued using active quoted market rates.
|--- | ---------------------------------------------------------------

|(2) | Contingent considerationOptima is valued based on the Companys estimate of achieving the performance metrics as listed in the stock purchase agreement.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------

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

The fair value of short-term and long-term capital
lease and debt obligations is estimated based on current interest rates available to us for debt instruments with similar terms, degrees of risk and remaining maturities. The carrying values of these obligations, as of each period presented,
approximate their respective fair values.

8. Income Taxes

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



|              |  |                         |        |   |      |   |        |      |  |   |         |  
|------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|              |  | Year Ended December 31, |       
|              |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|United States |  | $                       | (9,294 | ) |      | $ | (7,131 | )    |  | $ | (20,830 | )
|Foreign       |  |                         | (377   | ) |      |   | (980   | )    |  |   | (9,442  | )
|              |  |                         |        |   |      |   |        |      |  |   |         |  
|              |  | $                       | (9,671 | ) |      | $ | (8,111 | )    |  | $ | (30,272 | )
|              |  |                         |        |   |      |   |        |      |  |   |         |  

Income tax expense for the years ended December 31, 2010, 2009 and 2008 consists of the following (in
thousands):



|                         |  |                         |     |   |      |   |      |      |  |   |     |  
|------------------------ |  | ----------------------- | --- | - | ---- | - | ---- | ---- |  | - | --- | -
|                         |  | Year Ended December 31, |    
|                         |  | 2010                    |     |   | 2009 |   |      | 2008 | 
|Current:                 |  |                         |     |   |      |   |      |      |  |   |     |  
|Federal                  |  | $                       |    |   |      | $ | (152 | )    |  | $ | 30  |  
|State                    |  |                         | 45  |   |      |   | 87   |      |  |   | 103 |  
|Foreign                  |  |                         | 184 |   |      |   | 184  |      |  |   | 173 |  
|                         |  |                         |     |   |      |   |      |      |  |   |     |  
|                         |  |                         | 229 |   |      |   | 119  |      |  |   | 306 |  
|                         |  |                         |     |   |      |   |      |      |  |   |     |  
|Deferred                 |  |                         |     |   |      |   |      |      |  |   |     |  
|Federal                  |  |                         | 88  |   |      |   | 80   |      |  |   | 44  |  
|State                    |  |                         | 6   |   |      |   | 6    |      |  |   | 4   |  
|Foreign                  |  |                         | (44 | ) |      |   |     |      |  |   | (19 | )
|                         |  |                         |     |   |      |   |      |      |  |   |     |  
|                         |  |                         | 50  |   |      |   | 86   |      |  |   | 29  |  
|                         |  |                         |     |   |      |   |      |      |  |   |     |  
|Total income tax expense |  | $                       | 279 |   |      | $ | 205  |      |  | $ | 335 |  
|                         |  |                         |     |   |      |   |      |      |  |   |     |  



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A reconciliation between the income tax benefit computed by applying the U.S. federal tax
rate to loss before income taxes and actual income tax expense for the years ended December 31, 2010, 2009 and 2008 is as follows (in thousands):



|                                               |  |                         |        |   |      |   |        |      |  |   |         |  
|---------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                               |  | Year Ended December 31, |       
|                                               |  | 2010                    |        |   | 2009 |   |        | 2008 | 
|Tax benefit computed at federal statutory rate |  | $                       | (3,288 | ) |      | $ | (2,758 | )    |  | $ | (10,292 | )
|Effect of state income taxes                   |  |                         | 34     |   |      |   | 61     |      |  |   | 71      |  
|Foreign rate differential                      |  |                         | 143    |   |      |   | 528    |      |  |   | 3,074   |  
|Change in valuation allowance                  |  |                         | 2,900  |   |      |   | 1,636  |      |  |   | 5,726   |  
|Stock based compensation                       |  |                         | 379    |   |      |   | 409    |      |  |   | 577     |  
|Goodwill impairment                            |  |                         |       |   |      |   |       |      |  |   | 1,096   |  
|Other                                          |  |                         | 111    |   |      |   | 329    |      |  |   | 83      |  
|                                               |  |                         |        |   |      |   |        |      |  |   |         |  
|Total income tax expense                       |  | $                       | 279    |   |      | $ | 205    |      |  | $ | 335     |  
|                                               |  |                         |        |   |      |   |        |      |  |   |         |  

Deferred income taxes reflect the net tax effects of temporary differences between the value of assets and
liabilities used for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets as of December 31, 2010 and 2009 are as follows (in thousands):



|                                 |  |              |         |   |      |   |         |  
|-------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                 |  | December 31, |        
|                                 |  | 2010         |         |   | 2009 |  
|Deferred tax assets:             |  |              |         |   |      |   |         |  
|Net operating loss carryforwards |  | $            | 23,540  |   |      | $ | 21,267  |  
|Depreciation and amortization    |  |              | 3,223   |   |      |   | 3,530   |  
|Accrued reserves and other       |  |              | 1,078   |   |      |   | 1,036   |  
|                                 |  |              |         |   |      |   |         |  
|Total deferred tax assets        |  |              | 27,841  |   |      |   | 25,833  |  
|Valuation allowance              |  |              | (27,841 | ) |      |   | (25,833 | )
|                                 |  |              |         |   |      |   |         |  
|Net deferred tax asset           |  |              |        |   |      |   |        |  
|                                 |  |              |         |   |      |   |         |  
|Deferred tax liabilities:        |  |              |         |   |      |   |         |  
|Acquired goodwill                |  |              | (384    | ) |      |   | (281    | )
|                                 |  |              |         |   |      |   |         |  
|Net deferred tax liability       |  |              | (384    | ) |      |   | (281    | )
|                                 |  |              |         |   |      |   |         |  
|Total net deferred tax liability |  | $            | (384    | ) |      | $ | (281    | )
|                                 |  |              |         |   |      |   |         |  

Realization of deferred tax assets is dependent upon future taxable earnings, the timing and amount of which
are uncertain. Due to the cumulative operating losses in earlier years and continued significant amount of loss in the most recent year, management believes that it is not more likely than not that the deferred tax assets will be realizable in
future periods. The valuation allowance for deferred tax assets increased approximately $2.0 million during each of the years ended December 31, 2010 and 2009. The increase in valuation allowance is due to current year losses.

As of December 31, 2010, we had net operating loss carryforwards for federal and state of California tax purposes of $61.5 million
and $41.1 million, respectively. The net operating loss carryforwards will expire at various dates beginning in 2020 through 2030 for federal, if not utilized. California has suspended the net operating losses for taxable years 2008 and 2009,
extended the loss carryforward period by two years and extended its net operating loss carry forward period from 10 years to 20 years for net operating losses generated in tax years beginning on or after January 1, 2008. As a result of these law
changes, the net operating loss of California will begin to expire in 2014 through 2030, if not utilized.

We performed an
analysis of prior ownership changes under IRC Section 382 up to December 31, 2006, and we have not performed a new ownership change analysis pursuant to IRC Section 382 since this date. The



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analysis indicated that the Company twice had ownership changes and that none of the operating losses subject to the limitations would expire unutilized due to the limitations. In the event that
the company had another ownership change as defined under IRC section 382 since December 31, 2006, the utilization of these losses could be further limited.

Effective April, 2007, the Companys BPI Buendia Center facility in the Philippines was certified by the Philippine Economic Zone Authority (PEZA), a government corporation, as a PEZA
enterprise, as the facility is housed in a PEZA accredited building and has export revenue of not less than 70% of its total revenues. One of the incentives of PEZA certification is a lower rate tax of 5% based on gross income, which is defined as
gross revenue less certain costs of services and other allowed deductions. For the period of July 2007 to December 2010, this facility has been subject to the 5% gross income tax and is expected to continue to enjoy the 5% gross income tax
throughout 2011. Effective May 2010, the Companys Alphaland Southgate Tower facility in the Philippines is subject to a four year tax holiday.

The Company has adopted the accounting policy that interest and penalties will be classified as a component of the operating income and losses. Amounts of accrued interest and penalty recorded are not
material as of December 31, 2010 and 2009.

Federal income taxes have not been provided for on a portion of the
unremitted earnings of foreign subsidiaries because such earnings are intended to be permanently reinvested. The amount of unremitted earnings as of December 31, 2010 is approximately $1.6 million.

The Company does not anticipate any significant changes to the FASB ASC 740 (formerly known as FIN48) liability for unrecognized tax
benefits within twelve months of this reporting date. The Company adopted the provisions of FASB ASC 740 as of January 1, 2007. The amount of unrecognized tax benefit as of December 31, 2010 is not material.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. There are no ongoing examinations by income
taxation authorities at this time. The Companys tax years from 2007 to 2010 remain open to United States federal income tax and California examination while 2006 to 2010 remain open to Texas examination. The Companys tax years from no
earlier than 2007 to 2010 remain open to examination in certain foreign tax jurisdictions.

9. Stockholders Equity

Preferred Stock

We have 5,000,000 shares of preferred stock authorized. The board of directors has the authority to issue the preferred stock and to fix
or alter the rights, privileges, preferences and restrictions related to the preferred stock, and the number of shares constituting any such series or designation. No shares of preferred stock were outstanding at December 31, 2010 and 2009.

Common Stock

As described in Note 5, we have issued common stock as consideration given in one acquisition during the three year period ended December 31, 2010. The following table summarizes the common stock
issued in this transaction:



|                                |  |                                                      |                  |  |                         |  |         |                           |  |   |                       |  |  |                            |     |  |  |  |                | 
|------------------------------- |  | ---------------------------------------------------- | ---------------- |  | ----------------------- |  | ------- | ------------------------- |  | - | --------------------- |  |  | -------------------------- | --- |  |  |  | -------------- | 
|                                |  | ($ in thousands, except share and per share amounts) |                 
|Acquisition                     |  | TransactionDate                                      |                  |  | # of CommonSharesIssued |  |         | Market PriceUsed perShare |  |   | Value of SharesIssued |  |  | RegistrationEffective Date |    
|Optima Consulting Partners Ltd. |  |                                                      | January 29, 2010 |  |                         |  | 480,000 |                           |  | $ | 1.46                  |  |  | $                          | 701 |  |  |  | Not applicable | 



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These shares were not registered, as they are sellable under Rule 144 and the holding period
has expired as of December 31, 2010. Half of these shares are subject to a contractual agreement and remain non-transferrable until July 29, 2011.

Treasury Stock

During the 2009 and 2010 fiscal years, the Company
had restricted stock awards that vested. The Company is required to withhold income taxes at statutory rates based on the closing market value of the vested shares on the date of vesting. The Company offers the ability to have vested shares withheld
by the Company in an amount equal to the amount of taxes to be withheld. During 2010, the Company purchased 356,931 shares with a cost of approximately $455,000 from employees to cover federal and state taxes due. During 2009, the Company purchased
279,275 shares with a cost of approximately $373,000 from employees to cover federal and state taxes due.

In July 2008, the
Companys board of directors approved a Stock Repurchase Program (the Program) authorizing the repurchase of up to $3 million of its common stock. Under the Program, shares were repurchased from time to time in open market
transactions at prevailing market prices. The timing and actual number of shares purchased depended on a variety of factors, such as price, corporate and regulatory requirements, and market conditions. Repurchases under the Program were made using
the Companys available cash or borrowings. The Program initially had a one-year term and could be commenced, suspended or terminated at any time, or from time-to-time at managements discretion without prior notice. In May 2009, the board
of directors approved extending the program for an additional six months through January 31, 2010, and in December 2009 the board of directors approved extending the program for an additional six months through July 30, 2010. During the
year ended December 31, 2010, we purchased 79,237 shares at a cost of approximately $98,000 or an average cost of $1.24 per share. During the year ended December 31, 2009, we purchased 358,126 shares at a cost of approximately $410,000 or
an average cost of $1.14 per share. During the year ended December 31, 2008, we purchased 288,682 shares at a cost of approximately $512,000 or an average cost of $1.77 per share. The Program expired on July 30, 2010 and is no longer in
effect.

Stock Option Plans

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

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



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four months from the date of grant. Unvested options expire twelve months from the termination date of service as a non-employee member of the board of directors.

At the beginning of the 2010 and 2009 fiscal years, the number of shares authorized for grant under the 2003 Plan automatically increased
on the first trading date of January by an amount equal to the lesser of 4% of our outstanding common stock at December 31 or 1,000,000 shares. For 2010 and 2009, the number of shares authorized for grant under the 2003 Plan increased 879,840
shares and 847,120 shares, respectively. In the quarter ended June 30, 2008, our stockholders approved a one-time increase of 950,000 shares in the number of shares available for grant under our 2003 Stock Incentive Plan. In the future, the
Company may seek shareholder approval to increase the shares available to grant to employees based on the growth of the Company.

Shares forfeited that were granted under this plan are available for future grant.

In 1999, the board of directors adopted and the shareholders approved the 1999 Stock Incentive Plan (the 1999 Plan). The 1999
Plan provides for the issuance of incentive stock options or nonqualified stock options to employees, consultants and non-employee members of the board of directors, and issuance of shares of common stock for purchase or as a bonus for services
rendered. Options granted under the 1999 Plan are priced at not less than 100% of the fair value of the common stock on the date of grant and have a maximum term of ten years from the date of grant. In the case of incentive stock options granted to
employees who own 10% or more of our outstanding common stock, the exercise price may not be less than 110% of the fair value of the common stock on the date of grant and such options will have a maximum term of five years from the date of grant.
Options granted to employees and consultants become exercisable and vest in one or more installments over varying periods ranging up to five years as specified by the board of directors. Unexercised options expire upon, or within, six months of
termination of employment, depending on the circumstances surrounding termination. The 1999 Plan provided for a fixed issuance amount to non-employee members of the board of directors at prices not less than 100% of the fair value of the common
stock on the date of grant and a maximum term of ten years from the date of grant. Generally, options granted to non-employee members of the board of directors are immediately exercisable and vest in two or more installments over periods ranging
from twelve to twenty-four months from the date of grant. Unvested options expire twelve months from the date termination of service as a non-employee member of the board of directors.

No additional shares will be granted under the 1999 Plan and any shares forfeited that were granted under this plan are not available for
future grant.

Stock-Based Compensation Expense

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

The fair value of stock-based awards to employees is calculated using
the Black-Scholes option pricing model. The Black-Scholes model requires subjective assumptions, including expected time to exercise, future stock price volatility, risk-free interest rates, dividend rates and estimated forfeiture rates which
greatly affect the calculated values. These factors could change in the future, which would affect the stock-based compensation expense in future periods. The estimated fair value of stock-based compensation awards to employees is amortized using
the straight-line method over the vesting period of the options.



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We expense stock-based compensation to the same operating expense categories that the
respective award grantees salary expense is reported. The table below reflects stock based compensation expense for the years ended December 31, 2010, 2009 and 2008 as follows (in thousands):



|                                           |  |                         |       |  |      |   |       |      |  |   |       | 
|------------------------------------------ |  | ----------------------- | ----- |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                           |  | Year ended December 31, |      
|                                           |  | 2010                    |       |  | 2009 |   |       | 2008 | 
|Stock based compensation expense included: |  |                         |       |  |      |   |       |      |  |   |       | 
|Cost of services                           |  | $                       | 145   |  |      | $ | 215   |      |  | $ | 186   | 
|Sales and marketing                        |  |                         | 235   |  |      |   | 277   |      |  |   | 218   | 
|Technology                                 |  |                         | 346   |  |      |   | 202   |      |  |   | 231   | 
|General and administrative                 |  |                         | 2,244 |  |      |   | 1,806 |      |  |   | 1,557 | 
|                                           |  |                         |       |  |      |   |       |      |  |   |       | 
|                                           |  | $                       | 2,970 |  |      | $ | 2,500 |      |  | $ | 2,192 | 
|                                           |  |                         |       |  |      |   |       |      |  |   |       | 

At December 31, 2010, approximately $3.0 million of stock-based compensation relating to unvested
awards had not been amortized and will be expensed in future periods through 2014. Under current grants unvested and outstanding, approximately $2.0 million is estimated to be expensed in 2011 as stock-based compensation.

We calculate the value of our stock option awards when they are granted. Accordingly, we review our valuation assumptions for volatility
each quarter that option grants are awarded and we review our valuation assumptions for the risk free interest rate each month that option grants are awarded. Annually, we prepare an analysis of the historical activity within our option plans as
well as the demographic characteristics of the grantees of options within our stock option plan to determine the estimated life of the grants and possible ranges of estimated forfeiture. The table below reflects the weighted average assumptions of
stock option awards for each of the years ended December 31, 2010, 2009 and 2008:



|                        |  |                                                                |      |   |      |  |      |      |  |  |      |  
|----------------------- |  | -------------------------------------------------------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                        |  | Weighted Average Valuation AssumptionsYears Ended December 31, |     
|                        |  | Options                                                        |     
|                        |  | 2010                                                           |      |   | 2009 |  |      | 2008 | 
|Expected life in years  |  |                                                                | 3.4  |   |      |  | 3.7  |      |  |  | 5.2  |  
|Volatility              |  |                                                                | 0.81 |   |      |  | 0.92 |      |  |  | 0.87 |  
|Risk-free interest rate |  |                                                                | 1.3  | % |      |  | 1.7  | %    |  |  | 2.7  | %
|Dividend rate           |  |                                                                |     |   |      |  |     |      |  |  |     |  
|Forfeiture Rates:       |  |                                                                |      |   |      |  |      |      |  |  |      |  
|Options                 |  |                                                                | 31.0 | % |      |  | 27.1 | %    |  |  | 21.1 | %
|Restricted share awards |  |                                                                | 16.8 | % |      |  | 9.5  | %    |  |  | 9.7  | %

Expected life is estimated
based on our analysis of our actual historical option exercises and cancellations. Expected stock price volatility is based on the historical volatility from traded shares of our stock over the expected term. The risk-free interest rate is based on
the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. We do not expect to pay dividends in the near term and therefore do not incorporate the dividend yield as part of our assumptions.



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A summary of activity under our Stock Incentive Plans for the years ended December 31,
2010, 2009 and 2008 is as follows:



|                             |  |                 |            |   |                              |   |      | 
|---------------------------- |  | --------------- | ---------- | - | ---------------------------- | - | ---- | 
|                             |  | Stock Options   |           
|                             |  | Number ofShares |            |   | WeightedAverageExercisePrice |  
|Balance at December 31, 2007 |  |                 | 1,377,248  |   |                              | $ | 5.03 | 
|Granted                      |  |                 | 671,000    |   |                              |   | 2.68 | 
|Exercised                    |  |                 | (18,665    | ) |                              |   | 1.70 | 
|Canceled                     |  |                 | (485,861   | ) |                              |   | 4.98 | 
|                             |  |                 |            |   |                              |   |      | 
|Balance at December 31, 2008 |  |                 | 1,543,722  |   |                              |   | 4.05 | 
|Granted                      |  |                 | 352,000    |   |                              |   | 1.12 | 
|Exercised                    |  |                 | (8,644     | ) |                              |   | 0.92 | 
|Canceled                     |  |                 | (1,015,839 | ) |                              |   | 4.51 | 
|                             |  |                 |            |   |                              |   |      | 
|Balance at December 31, 2009 |  |                 | 871,239    |   |                              |   | 2.35 | 
|Granted                      |  |                 | 137,500    |   |                              |   | 1.40 | 
|Exercised                    |  |                 | (18,835    | ) |                              |   | 0.90 | 
|Canceled                     |  |                 | (316,473   | ) |                              |   | 2.23 | 
|                             |  |                 |            |   |                              |   |      | 
|Balance at December 31, 2010 |  |                 | 673,431    |   |                              | $ | 2.25 | 
|                             |  |                 |            |   |                              |   |      | 

The weighted average grant date fair value of options granted during the years ended December 31, 2010,
2009 and 2008 was $0.78, $0.71 and $1.87, respectively, per share.

The following table summarizes the activity with regard to
restricted stock awards during the years ended December 31, 2010, 2009 and 2008. Restricted stock awards are issued from the 2003 Plan and any issuances reduce the shares available for grant as indicated in the previous table. Restricted stock
awards are valued at the closing market price on the date of the grant.



|                                                 |  |                        |            |   |                                   |   |      | 
|------------------------------------------------ |  | ---------------------- | ---------- | - | --------------------------------- | - | ---- | 
|                                                 |  | Restricted StockAwards |           
|                                                 |  | Number ofShares        |            |   | WeightedAverageGrantDateFairValue |  
|Balance of nonvested shares at December 31, 2007 |  |                        | 1,023,282  |   |                                   | $ | 7.08 | 
|Granted                                          |  |                        | 1,474,000  |   |                                   |   | 1.38 | 
|Vested                                           |  |                        | (262,906   | ) |                                   |   | 6.90 | 
|Forfeited                                        |  |                        | (278,251   | ) |                                   |   | 6.71 | 
|                                                 |  |                        |            |   |                                   |   |      | 
|Balance of nonvested shares at December 31, 2008 |  |                        | 1,956,125  |   |                                   |   | 2.87 | 
|Granted                                          |  |                        | 1,846,500  |   |                                   |   | 1.24 | 
|Vested                                           |  |                        | (962,562   | ) |                                   |   | 2.41 | 
|Forfeited                                        |  |                        | (402,250   | ) |                                   |   | 2.10 | 
|                                                 |  |                        |            |   |                                   |   |      | 
|Balance of nonvested shares at December 31, 2009 |  |                        | 2,437,813  |   |                                   |   | 1.94 | 
|Granted                                          |  |                        | 1,569,000  |   |                                   |   | 1.21 | 
|Vested                                           |  |                        | (1,197,279 | ) |                                   |   | 2.09 | 
|Forfeited                                        |  |                        | (352,471   | ) |                                   |   | 1.45 | 
|                                                 |  |                        |            |   |                                   |   |      | 
|Balance of nonvested shares at December 31, 2010 |  |                        | 2,457,063  |   |                                   | $ | 1.47 | 
|                                                 |  |                        |            |   |                                   |   |      | 





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The total fair value of the unvested restricted stock awards at grant date was $3.6 million
as of December 31, 2010.

Total shares available for grant under the 2003 Plan was 86,806 at December 31, 2010.

The following table summarizes information about stock options outstanding as of December 31, 2010:



|                        |  |                     |         |  |                                        |  |      |                              |  |   |                                                           |  |  |                   |        |  |                              |  |         |                                                           |  |   |      |  |  |   |        | 
|----------------------- |  | ------------------- | ------- |  | -------------------------------------- |  | ---- | ---------------------------- |  | - | --------------------------------------------------------- |  |  | ----------------- | ------ |  | ---------------------------- |  | ------- | --------------------------------------------------------- |  | - | ---- |  |  | - | ------ | 
|                        |  | Options Outstanding |         |  | Options Vested                         | 
|Range of ExercisePrices |  | NumberOutstanding   |         |  | WeightedAverageContractualLife (Years) |  |      | WeightedAverageExercisePrice |  |   | AggregateIntrinsic ValueClosing Price at12/31/10 of $1.42 |  |  | NumberExercisable |        |  | WeightedAverageExercisePrice |  |         | AggregateIntrinsic ValueClosing Price at12/31/10 of $1.42 | 
|$  0.81 - $  1.12       |  |                     | 212,248 |  |                                        |  | 8.10 |                              |  | $ | 1.04                                                      |  |  | $                 | 81,685 |  |                              |  | 90,261  |                                                           |  | $ | 1.03 |  |  | $ | 35,394 | 
|$  1.25 - $  1.59       |  |                     | 187,900 |  |                                        |  | 6.20 |                              |  |   | 1.38                                                      |  |  |                   | 11,908 |  |                              |  | 80,763  |                                                           |  |   | 1.41 |  |  |   | 1,408  | 
|$  2.18 - $  3.14       |  |                     | 208,085 |  |                                        |  | 5.87 |                              |  |   | 2.95                                                      |  |  |                   |       |  |                              |  | 168,337 |                                                           |  |   | 2.92 |  |  |   |       | 
|$  3.15 - $15.35        |  |                     | 65,198  |  |                                        |  | 4.87 |                              |  |   | 6.47                                                      |  |  |                   |       |  |                              |  | 59,843  |                                                           |  |   | 6.70 |  |  |   |       | 
|                        |  |                     |         |  |                                        |  |      |                              |  |   |                                                           |  |  |                   |        |  |                              |  |         |                                                           |  |   |      |  |  |   |        | 
|$  0.81 - $15.35        |  |                     | 673,431 |  |                                        |  | 6.57 |                              |  | $ | 2.25                                                      |  |  | $                 | 93,593 |  |                              |  | 399,204 |                                                           |  | $ | 2.75 |  |  | $ | 36,802 | 
|                        |  |                     |         |  |                                        |  |      |                              |  |   |                                                           |  |  |                   |        |  |                              |  |         |                                                           |  |   |      |  |  |   |        | 

The aggregate intrinsic value represents the net value which would have been received by the option holders
had all option holders exercised their in-the-money options as of December 31, 2010. The Company received cash proceeds from the exercise of stock options of $18,000, $8,000 and $32,000 in the years ended December 31, 2010, 2009 and 2008,
respectively. The total intrinsic value of the options exercised during the years ended December 31, 2010, 2009 and 2008 was approximately $5,000, $5,000 and $56,000, respectively.

Employee Stock Purchase Plan

In 1999, our board of directors
adopted and our shareholders approved the 1999 Employee Stock Purchase Plan (the Purchase Plan) and further amended the Purchase Plan on December 15, 2005 with regard to the discount price. The Purchase Plan is available for all full-time
employees possessing less than 5% of combined voting power on all outstanding classes of stock. The Purchase Plan provides for the issuance of common stock at a purchase price of 95% of the fair value of the common stock at the purchase date.
Purchase of shares is made through employee payroll deductions and may not exceed 15% of an employees total compensation. The Purchase Plan terminated on the last business day in October 2009 in accordance with the Purchase Plan. Prior to the
amendment on December 15, 2005, the Purchase Plan provided for the issuance of common stock at a purchase price of 85% of the fair value of the common stock at the beginning or end of the offering period, whichever was lower. As of
December 31, 2010, a total of 167,433 shares had been issued under the Purchase Plan.

Warrants

In conjunction with an equity transaction in February 2006, we issued warrants to purchase common shares of our stock. The following table
summarizes the terms of those outstanding warrants:



|                 |  |               |      |  |                                         |  |         |                           |  |  |            | 
|---------------- |  | ------------- | ---- |  | --------------------------------------- |  | ------- | ------------------------- |  |  | ---------- | 
|Date of Issuance |  | ExercisePrice |      |  | WarrantsOutstanding atDecember 31, 2010 |  |         | Term from Dateof Issuance | 
|February 7, 2006 |  | $             | 4.28 |  |                                         |  | 799,999 |                           |  |  | Five Years | 

These warrants
expired on February 7, 2011.



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10. Related Party Transactions

We made purchases of computer equipment and services from several vendors including Hewlett-Packard, one of our largest clients that
contributed 10% or more of our net revenue for the year ended December 31, 2010. During the years ended December 31, 2010, 2009 and 2008, we purchased equipment from Hewlett-Packard totaling approximately $122,000, $53,000 and $217,000,
respectively.

The Chairman of our board of directors also serves on the board of Saama Technologies, a technology services
firm. During the year ended December 31, 2010, we paid Saama Technologies approximately $11,000 for technology services. During the years ended December 31, 2009 and 2008, we paid Saama Technologies approximately $170,000 and $290,000,
respectively, for technology services. We may continue to utilize their services and may expand the scope of Saama Technologies engagement.

In October 2007, we closed an OEM licensing agreement with Market2Lead, Inc. (Market2Lead), a software-as-a-service provider of business-to-business automated marketing solutions, to further
enhance LeadWorks, Rainmakers on-demand marketing automation application. In connection with this agreement, Rainmaker provided Market2Lead with growth financing of $2.5 million in secured convertible and term debt. In October 2008, one-half
of the debt was converted into preferred shares of Market2Lead. In May 2010, we received payment from Market2Lead for the $1,250,000 in remaining term debt plus accrued interest of approximately $170,000 as Market2Lead was sold. In connection with
this sale, we took a non-cash charge in the first quarter of 2010 for the carrying value of our minority equity investment of $740,000. We no longer carry any values on our balance sheet related to Market2Lead. During the year ended
December 31, 2010, we did not utilize the services of Market2Lead. During the years ended December 31, 2009 and 2008, we paid Market2Lead approximately $94,000 and $264,000, respectively, for marketing services.

11. Employee Benefit Plan

We have a defined contribution benefit plan established under the provisions of Section 401(k) of the Internal Revenue Code. All
employees may elect to contribute up to 20% of their compensation to the plan through salary deferrals, subject to annual limitations. We previously matched 25% of the first 6% of the employees compensation contributed to the plan. During the
first quarter of 2009, we eliminated the Company match for the foreseeable future. Participants contributions are fully vested at all times. Our contributions vest incrementally over a four-year period. During the years ended December 31,
2010 and 2009, the Company had no matching contributions to the plan and incurred a credit of approximately $15,000 and $31,000, respectively, relating to forfeitures under the plan. During the year ended December 31, 2008, we expensed
$195,000, net of forfeitures, relating to our contributions under the plan.

12. Interest and Other Expense, Net

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



|                                 |  |                         |      |   |      |   |      |      |  |   |      |  
|-------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                 |  | Year Ended December 31, |     
|                                 |  | 2010                    |      |   | 2009 |   |      | 2008 | 
|Interest income                  |  | $                       | 37   |   |      | $ | 93   |      |  | $ | 865  |  
|Interest expense                 |  |                         | (239 | ) |      |   | (220 | )    |  |   | (112 | )
|Currency transaction gain (loss) |  |                         | (53  | ) |      |   | 41   |      |  |   | 96   |  
|Write-down of investment         |  |                         | (740 | ) |      |   |     |      |  |   | (749 | )
|Other                            |  |                         |     |   |      |   |     |      |  |   | (134 | )
|                                 |  |                         |      |   |      |   |      |      |  |   |      |  
|                                 |  | $                       | (995 | ) |      | $ | (86  | )    |  | $ | (34  | )
|                                 |  |                         |      |   |      |   |      |      |  |   |      |  

Interest income represents interest received from investing a portion of our cash balance in short-term
interest bearing deposit accounts along with accrued interest on a note receivable from our investment in a privately-held company made in 2007 and repaid in full during 2010.



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For the year ended December 31, 2010, interest expense primarily relates to interest
incurred on the Credit Facility at a fixed rate of 6%. Other debt did not significantly impact interest expense in 2010 as the notes payable related to the CAS Systems acquisition were repaid in January 2010 and borrowings on the Loan Line Facility
and Overdraft Facility occurred in December 2010. For the years ended December 31, 2009 and 2008, interest expense primarily related to interest incurred on the Credit Facility and notes payable from the CAS Systems acquisition at a fixed rate
of 5.36%. Interest expense is net of interest capitalized with regard to the development of our internal use software/systems. We capitalized interest totaling $9,000, $3,000 and $3,000 during the years ended December 31, 2010, 2009 and 2008,
respectively.

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

The write-down of investment in 2010 and 2008 relates to our former investment in Market2Lead, a privately-held company. In October 2007,
we provided $2.5 million in growth capital to this privately-held company. The transaction was structured as a $1.25 million convertible loan and a $1.25 million term loan secured by substantially all of the assets of the privately-held company
including intellectual property. We also received a warrant as a part of this transaction to purchase approximately 411,000 shares of common stock of the privately-held company. In October 2008, the convertible debt automatically converted to
619,104 shares of Series A Preferred stock of the privately-held company. Because the private equity investment represented less than 20% in the investee company, and because the Company did not have significant influence on the investee company,
the investment was accounted for in accordance with the cost method. In the fourth quarter of 2008, we took an impairment charge of approximately $749,000, which represented a write-off of the remaining carrying value of the warrant of $239,000 and
a write-down of the carrying value of the investment in Series A Preferred stock of the privately-held company of $510,000 in order to write-down these assets to their respective fair values. In May 2010, we received payment from Market2Lead for the
$1,250,000 in remaining term debt and recorded an impairment charge of $740,000 to write-off our minority equity investment. We no longer carry any values on our balance sheet related to Market2Lead.

13. Subsequent Events

On January 28, 2011, we filed a form S-3 registration statement and on February 18, 2011, we filed a form S-3/A amended
registration statement for the potential issuance of up to $15 million of securities in the form of our common stock, preferred stock, warrants, units, and/or debt securities, subject to SEC rules limiting any issuance under such registration
statement to one-third of our nonaffiliate market capitalization (public float) over any period of 12 calendar months for so long as our public float is less than $75 million. We may choose any combination of such securities depending on
the market conditions at the time of issuance, if any.

A client that provides business process call center services that has
been outsourcing its Asia call center activities to us was acquired in December 2010. We are currently in discussions with this clients new parent company to provide managed call center services for their new facility. This may take affect in
the next three to nine months. This is likely to result in some decrease in revenue compared to the outsourced call center services we now provide this client. The outcome of this negotiation is presently unknown. The potential impact on revenue is
not determinable at this time. Its possible that our current agreement with this client could terminate without transitioning to a new managed services arrangement if we are not able to come to mutually agreeable terms. Services to this client
accounted for approximately 6% of our 2010 annual net revenue.



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

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

(a)
Evaluation of Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Companys financial reports and to other members of senior management and the Board of Directors.

Based on their evaluation as of December 31, 2010, our management, including our principal executive officer and principal financial
officer, has concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that the information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and information required to be disclosed in the reports that it files or submits
under the Exchange Act is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

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

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

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework
in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that our internal control over financial reporting was
effective as of December 31, 2010, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

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



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(c) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our quarter ended December 31, 2010, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

Directors and Executive Officers of the Registrant

The following table
provides the name, age and positions of our directors and executive officers as of March 2, 2011.



|                       |  |     |  |                                                                                
|---------------------- |  | --- |  | -------------------------------------------------------------------------------
|Name                   |  | Age |  | Position                                                                       
|Michael Silton         |  | 46  |  | President, Chief Executive Officer and Director                                
|Steve Valenzuela       |  | 54  |  | Senior Vice President, Finance, Chief Financial Officer and Corporate Secretary
|Phil Johnson           |  | 57  |  | Vice President, Human Resources                                                
|Tom Venable            |  | 49  |  | Senior Vice President, Sales and Marketing                                     
|Alok Mohan (1)(2)(3)   |  | 62  |  | Chairman of the Board                                                          
|Robert Leff (1)(3)     |  | 64  |  | Director                                                                       
|Mitchell Levy (2)(3)   |  | 50  |  | Director                                                                       
|Bradford Peppard(1)(2) |  | 56  |  | Director                                                                       
|Gary Briggs            |  | 48  |  | Director                                                                       



|(1) | Member of the Audit Committee
|--- | -----------------------------

|(2) | Member of the Governance and Nominating Committee
|--- | -------------------------------------------------

|(3) | Member of the Compensation Committee
|--- | ------------------------------------

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

Michael Silton, 46, has served as Chief Executive Officer of our Company since it became publicly listed in November 1999 and as
President of our Company since March 2005. He also served as Chairman of the Board since our Companys inception through July 2003. In 1991, he founded our former business UniDirect, which specialized in the direct marketing and sales of
business software. Mr. Silton was nominated as a director of our Company due to his extensive marketing experience and background working in various capacities in the software industry and his extensive knowledge of our business and industry.
Mr. Siltons work experience enables him to bring valuable perspectives that are core to our Companys business.

Steve Valenzuela, 54, joined our Company in September 2004 as Vice President, Finance and Chief Financial Officer, was appointed
Corporate Secretary in March 2005, and was appointed Senior Vice President in April 2007. Prior to joining our Company, from February 2003 to September 2004, Mr. Valenzuela served as the Vice President of Finance and Chief Financial Officer for
the Thomas Kinkade Company, formerly Media Arts Group. From September 2000 to July 2002, Mr. Valenzuela served as the Senior Vice President and Chief Financial Officer for Silicon Access Networks, and from February 1999 to August 2000 as Senior
Vice President and Chief Financial Officer for PlanetRx. Prior to PlanetRx, from August 1998 to February 1999, Mr. Valenzuela served as the Chief Financial Officer for LinkExchange. Mr. Valenzuela earned an MBA from Santa Clara University
and a BS degree in Accounting from San Jose State University.

Philip Johnson, 57, joined our Company in February 2007
as Vice President, Human Resources. In his previous position as Vice President, Human Resources and Administration at InfoGain from 1997 to 2006, Mr. Johnson was responsible for hundreds of employees in offices spread across the Americas,
Europe and India. Prior to InfoGain, Mr. Johnson served from 1990 to 1997 at Tandem Computers, a global multi-million dollar corporation, as VP Human Resources and Public Affairs. There, he helped build a human resource organization sustaining
a staff of thousands worldwide. Additionally, Mr. Johnson served as VP, Human Resources, for Altos Computer Systems, an international company employing over a thousand high-tech professionals.



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Tom Venable, 49,joined our Company on December 6, 2010 as Senior Vice President
of Sales and Marketing. Mr. Venable brings more than 20 years of experience with software, e-commerce and Internet business models, including more than seven years as a senior sales executive with Digital River. At Digital River he served as
Senior Vice President, Sales and Business Development, directing new client acquisition, business development and revenue generation organizations. Immediately prior to Rainmaker, from January 2010 to December 2010, Mr. Venable served as a
Senior Vice President at Incentium. Prior to Incentium, Mr. Venable served as Vice President of Digital River from January 2009 to January 2010. From March 2007 to January 2009, Mr. Venable served as Executive Vice President,
Sales & Marketing at InnoCentive, and from January 2002 to March 2007, Mr. Venable served as Senior Vice President, Sales and Business Development at Digital River.

Alok Mohan, 62, has served as a director of our Company since 1996 and as our Companys Chairman of the Board since July
2003. Mr. Mohan also serves on the Companys Audit Committee, Compensation Committee and its Governance and Nominating Committee. Mr. Mohan also serves on the board of directors of Saama Technologies, a privately held technology
services firm, since April 2006, as well as Crystal Graphics, Inc. and WSO2, Inc., and served on the board of directors of Tech Team Global, Inc., a provider of outsourced, multilingual help desk services and specialized IT solutions listed on the
Nasdaq Global Market, from May 2006 to May 2009. Mr. Mohan served as the Chairman of the board of directors of Tarantella, until its acquisition by Sun Microsystems in 2005. Prior to that appointment, he served as Chief Executive Officer of
Santa Cruz Operations, or SCO, from July 1995 until April 1998 and served on its board from May 2001 to 2005. Prior to that, from May 1994 to July 1995, Mr. Mohan served as Senior Vice President, Operations and Chief Financial Officer of SCO.
Prior to joining SCO, Mr. Mohan was employed with NCR, a business software and services company, where he served as Vice President of Strategic Planning and Controller from July 1993 to May 1994. From January 1990 until July 1993,
Mr. Mohan served as Vice President and General Manager of the Workstation Products Division at NCR. The Board nominated Mr. Mohan due to his extensive software background, which enables him to bring a deep understanding of software
companies and their need for the outsourced services that Rainmaker provides, as well as valuable insights to our technology offerings.

Robert Leff, 64, has served as a director of the Company since 1996. He is currently a member of the Companys Audit Committee and our Compensation Committee. Mr. Leff is a strategic
consultant to early and growth stage companies in the personal computer industry since 1995. He is also a director of PackageX, a private company that delivers a web-based collaboration system for the packaging industry and Forfront TeleCare which
links behavioral experts such as psychiatrists and clinical psychologists to patients in smaller and remote healthcare facilities like nursing homes and clinics through their unique telehealth solution. In March 2001, while Mr. Leff served on
the Board of Directors and as acting Chief Executive Officer of Hiho Technologies, Inc., Hiho Technologies, Inc. completed an assignment for the benefit of creditors. Mr. Leff co-founded Merisel (formerly Softsel Computer Products) in 1980 and
successfully developed the venture into one of the nations largest and fastest growing service companies. In 1993, Merisel was named to both the Forbes 500 and Fortune Service 500 lists. Mr. Leff served as President of
Softsel for five years. Under his direction the company grew rapidly into a $200 million multinational computer products distributor. In 1985, Softsel was rated the fourth fastest growing private company in the US by Inc. magazine. As
Co-Chairman and European Managing Director he ran the companys European operations from its London headquarters during 1985 and 1986. He was responsible for product acquisitions from 1986 through 1990 and then served as Senior Vice President
of Worldwide MIS through 1992. Mr. Leff was named one of the PC industrys 25 most influential executives by CRN (Computer Reseller News) in 1988. In 1994, he retired from Merisel. Prior to founding Softsel, he worked in
various data processing development and management positions for companies including BASF, Informatics and Citibank. Mr. Leff earned a BS degree in business administration and a MS degree in computer science from the University at Albany. The
Board nominated Mr. Leff in consideration of his extensive operational and management experience in various industries together with a background in finance, which allows him to provide valuable guidance to our Company in a number of ways.



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Mitchell Levy, 50, has served as a director of our Company since 2004 and is
currently Chairman of the Companys Governance and Nominating Committee, and a member of our Compensation Committee for nearly 3 years. Since September 2004, he has served as Chief Executive Officer of Happy About, a quick2publish book
publishing company. Additionally, he has served as a partner in CXOnetworking since May 2007 and as President and CEO of ECnow.com, a strategic consulting firm, since November 1997, and served as a director of the Silicon Valley Executive Business
Program from March 2003 to May 2009. Mr. Levy is an author, consultant, educator, and evangelist of strategic management, and a frequent public speaker on business trends. Previously, he was the conference chair at four Comdex conferences,
founded and operated the E-Commerce Management Program at San Jose State University and spent nine years at Sun Microsystems, the last four of which he ran the eCommerce component of Sun Microsystems supply chain. The Board nominated
Mr. Levy in consideration of his extensive eCommerce experience, as well as the strategic vision he offers to provide valuable guidance to our Company.

Bradford Peppard, 56, has served as a director of our Company since 2004 and is currently the Companys Chairman of the Audit Committee and a member of our Governance and Nominating Committee.
Since 2002, Mr. Peppard has been President of Lime Tree Productions, a strategic marketing consulting firm. Mr. Peppard also served as a Director of International Sales at Smith Micro. From 1999 to 2002, Mr. Peppard was President of
CinemaScore Online, an online source of movie rating information. Prior to that, Mr. Peppard held Vice President of marketing positions at Aladdin Systems, Software Publishing Corporation and Quarterdeck Office Systems. Mr. Peppards
financial experience includes positions as Treasurer of Trader Joes, Director of Finance and Administration (Controller) for CBS TV and CBS/Fox Studios, an MBA from Stanford Business School with a concentration in Finance, and prior audit
committee experience with a number of public companies, including: Aladdin Systems, Monterey Bay Technology, and Oppenheimer Industries. The Board nominated Mr. Peppard in consideration of his extensive sales and marketing experience in various
industries together with deep finance experience, which allows him to provide valuable guidance to our Company.

Gary
Briggs, 48, was appointed to the board of directors of our Company effective March 30, 2010. Mr. Briggs has served as Vice President of Consumer Marketing at Google since October 2010. Mr. Briggs is Chairman of the Board of
privately held Plastic Jungle, a leading web-based gift card exchange where he also served as the Chief Executive Officer, from 2008 through October 2010. Prior to his position at Plastic Jungle, Mr. Briggs served as Senior Vice President and
Chief Marketing Officer at eBay from 2002 through 2008, responsible for eBays branding and marketing activities in North America, including advertising, Internet marketing, direct marketing, onsite merchandising, partner relationships, and
core category initiatives. In his six-year career at eBay, Mr. Briggs held numerous positions including VP of Consumer Marketing for eBay U.S., VP of Global Marketing for PayPal, and General Manager for eBay Canada. Prior to his tenure at
eBay, Mr. Briggs was a founder of OurHouse, Inc., an e-commerce company partnered with Ace Hardware, and has served in senior marketing positions with Pepsi-Cola and IBM. He was also an associate and engagement manager at McKinsey and
Company. He earned a Bachelor of Arts degree in 1984 from Brown University and a Masters in Business Administration in 1989 from J.L. Kellogg Graduate School of Management, Northwestern University. The Board nominated Mr. Briggs in
consideration of his strong marketing and e-commerce background that includes extensive expertise and experience with both large and small companies and the additional leadership qualities that he will bring to the Board.

Section 16(a) Beneficial Ownership Reporting Compliance

The members of the Board of Directors, the executive officers of the Company and persons who hold more than ten percent (10%) of the Companys outstanding Common Stock are subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act, of 1934 which require them to file reports with respect to their ownership of the Common Stock and their transactions in such Common Stock. To the Companys knowledge,
based solely on review of the copies of such reports furnished to the Company and written representation that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten
percent shareholders were complied with, except as follows: the initial Form 3 and a Form 4 for our newly hired Senior Vice President, Sales and Marketing, Tom Venable, were filed late. Mr. Venable was hired



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on December 6, 2010, and received an initial grant of restricted shares on January 17, 2011; however, his Form 3 and the Form 4 relating to his January 2011 restricted share grant were
filed late on January 21, 2011.

Code of Ethics

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

Our Standards of Business Ethics and Conduct is posted on our website, at www.rmkr.com, under the company / investors / corporate governance link. We will also disclose any amendment to, or waiver
from, a provision of the Standards of Business Ethics and Conduct that applies to a director or officer in accordance with applicable Nasdaq and SEC requirements.

Audit Committee

We have a separately designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee presently consists of Messrs. Leff, Mohan and Peppard. The Board has determined that Mr. Peppard, chairman of the Audit Committee, is an
audit committee financial expert as defined under applicable SEC rules. The Board of Directors has also determined that Mr. Peppard is an independent director as defined under Nasdaqs rules relating to listing on
the Nasdaq Global Market.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Compensation
Committee ReportExecutive Summary

Rainmakers executive compensation program for our named executive officers
(NEOs) is administered by the Compensation Committee of the Board of Directors. The Compensation Committee currently consists of non-employee directors Robert Leff, Alok Mohan and Mitchell Levy. None of the Companys executive officers serves
as a member of the Compensation Committee of the Company. The Compensation Committee acts pursuant to a written charter, a copy of which is available on our website at www.rmkr.com.

The Compensation Committee is responsible for (i) reviewing and approving matters relating to employee compensation and benefit
plans, (ii) reviewing and determining the salaries and bonuses of executive officers of the Company, including the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), and (iii) establishing the general compensation
policies for such individuals. During 2008, the Compensation Committee delegated limited authority to our CEO to increase the base salary for the NEOs, other than himself, by up to ten percent. With NEO retention as its purpose, this limited
delegation of authority provides the CEO with an ability to negotiate to retain an executive officer if he deem necessary. As of March 2, 2011 our CEO has not exercised his discretionary authority. We believe that the compensation programs for
the Companys NEOs should reflect the Companys performance and the value created for the Companys stockholders. In addition, the compensation programs should support the short-term and long-term strategic goals and values of the
Company, and should reward individual contributions to the Companys success.

On behalf of our shareholders, the
Compensation Committee has carefully monitored our executive compensation programs, and even reduced the salary of our CEO and CFO by 20% as a temporary cost-cutting measure in response to the economic downturn that struck in the first quarter of
2009. The Compensation Discussion and Analysis and tables that follow will show, we believe, structures for executive compensation that



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are appropriate and carefully considered in view of the Companys objectives and industry conditions and practices. It is our general objective to provide our NEOs with (i) base salary
at levels appropriate for our economic circumstances and the goals set for our management and (ii) performance-based incentives that reward solid financial performance with cash bonuses, restricted stock, and stock option awards.

Overall, the Compensation Committee believes that the compensation provided for NEOs in 2010 was appropriate based upon our financial
performance, general economic conditions, our analysis of compensation of surveyed companies, our assessments of individual and corporate performance, and other relevant factors.

Compensation Discussion and Analysis

1. Named Executive Officers

This Compensation Discussion and Analysis explains how our compensation program is designed and operates with respect
to our named executive officers (NEOs). Our NEOs include (i) our Chief Executive Officer (CEO), (ii) our two most highly compensated executive officers in the fiscal year ended December 31, 2010 and (iii) a departing executive
that would have qualified as an NEO if still employed with us at December 31, 2010. Our NEOs are identified in the Summary Compensation Table that appears following this Compensation Discussion and Analysis.

2. Overview of Executive Compensation Philosophy and Objectives

Our Compensation Committee firmly believes that the compensation provided to our NEOs should directly reflect the financial performance of
the Company, and be closely tied to stockholder value. Our compensation plans are consequently designed to link individual rewards with the Companys performance by applying objective, quantitative factors including the Companys own
business performance and general economic factors. We also rely upon subjective and qualitative factors such as technical expertise, leadership and management skills when structuring executive compensation in a manner consistent with our
pay-for-performance philosophy.

In addition to providing our NEOs with compensation opportunities that are based upon their
personal performance, the financial performance of the Company and their individual contribution to that performance, our Compensation Committee generally provides our NEOs with compensation that is competitive enough to retain highly skilled
individuals. The Company is engaged in a very competitive industry, and the Companys success depends upon its ability to attract and retain qualified executives through the competitive compensation packages it offers to such individuals.

3. Procedures for Determining Executive Compensation

In making its decision, the Compensation Committee considers all aspects of NEO compensation, and takes into account (i) our
corporate performance, (ii) the CEOs recommendations with respect to the total compensation for all NEOs, including his own, and (iii) the Radford Executive Compensation Survey data that our Human Resources department summarizes for
the Compensation Committee. In its sole discretion, the Compensation Committee may accept or reject, in whole or in part, the recommendations of our CEO. The Compensation Committee does not use a consultant, but has received some advice from Paul,
Hastings, Janofsky & Walker LLP, its outside legal counsel about industry practices generally. For 2010, the Compensation Committee reviewed the recommendations of our CEO with respect to the compensation of our NEOs, determined the
appropriateness of the recommendations in accordance with the market data and our corporate performance, and approved such recommendations without adjustment.

4. Elements of Executive Compensation

The material components of
compensation for our NEOs from year to year, as well as the specific principles and purpose of each component, are set forth below. We believe that these components of compensation are



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necessary and appropriate in order to attract and retain qualified executive officers. The compensation of our NEOs consists primarily of four major components:



| |  |  | Base salary;
| | - |  | ------------



| |  |  | Annual bonus;
| | - |  | -------------



| |  |  | Stock-based awards; and
| | - |  | -----------------------



| |  |  | Employee benefits programs:
| | - |  | ---------------------------



| |  |  | Perquisites and other personal benefits
| | - |  | ---------------------------------------



| |  |  | Severance and change in control benefits.
| | - |  | -----------------------------------------

(a) Base Salary.    In general, base salary is the compensation for services rendered in the position that the NEO serves. We establish base salaries after considering a variety
of factors including each NEOs qualifications and experience, prior employment, industry knowledge, scope of responsibilities, and individual performance, as well as internal pay equity and market survey data. Specific weightings are not
applied to these factors. Base salaries are generally set annually as part of the compensation review process.

(b) Annual
Bonus.    Our pay-for-performance philosophy ensures that annual incentive compensation awards are tied to the achievement of business specific goals. Certain of the Companys executive officers, including the CEO and
CFO, have entered into employment agreements which provide for, in addition to base salary, bonuses to be awarded on the basis of the Companys attainment of pre-established revenue and net income goals. It is the intent of the Compensation
Committee to use these bonuses, in conjunction with the executive officers equity incentives, to tie a potentially large portion of the executive officers total compensation to the financial performance of the Company.

Our NEOs participate in one of two bonus programs that the Company maintains: (i) the Rainmaker Systems, Inc. Corporate Bonus Plan,
which has been established for the benefit of our executive officers, and (ii) the Rainmaker Systems, Inc. General Manager Commission Plan, which has been established for the benefit of our general managers. The bonus plans are generally
structured as follows, with changes made from year-to-year to reflect changing business needs and competitive circumstances:



| |  |  | At the beginning of each fiscal year, our CEO and CFO recommend quarterly and annual financial performance targets, as discussed below, subject to the
approval of the Compensation Committee.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | At the close of each quarter of the fiscal year, the Compensation Committee assesses the Companys performance against the pre-established
quarterly metrics. Provided that the Company achieves at least 80 percent of its quarterly goals, the NEOs receive after the close of such quarter a bonus based on their individual payout target percentage and the weighted value of the applicable
goal.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Similarly, at the close of the fiscal year, the Compensation Committee assesses the Companys performance against the pre-established annual
metrics. Provided that the Company achieves at least 80 percent of its annual goals, the NEOs receive after the close of the fiscal year a bonus based on their individual payout target percentage and the weighted value of the applicable goal.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The bonus plans provide for cash bonuses to be paid quarterly and annually when certain predetermined
performance targets are achieved. The amount of the quarterly and annual bonuses that we pay to our NEOs is determined by a formula that weighs our quarterly and annual achievement of pre-established revenue and income goals. A bonus is only paid in
the event the Company achieves at least 80 percent of its performance target. If our performance for any measure falls between 80 percent and 100 percent, we interpolate to determine the applicable payout percentage. If our performance for any
measure exceeds 100 percent, the bonus amount payable to each such officer in respect of such component of the bonus formula shall be increased by 2.5% for each whole 1% increment achieved above such 100% attainment. The table below sets forth the
bonus plan in which each NEO participated in 2010, the bonus opportunity (expressed as a percentage of compensation), the performance targets, and the weights assigned to each target.



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Fiscal Year 2010 Annual Bonus Plan



|                                                     |  |      |                     |  |                         |  |     |                     |  |  |                                                           |  |  |  |      |   
|---------------------------------------------------- |  | ---- | ------------------- |  | ----------------------- |  | --- | ------------------- |  |  | --------------------------------------------------------- |  |  |  | ---- | --
|Executive                                            |  | Plan |                     |  | Target(% of basesalary) |  |     | Performance Targets |  |  | Weight                                                    | 
|                                                     |  |      |                     |  |                         |  |     |                     |  |  | Corporate Bonus Plan                                      |  |  |  |      |   
|Michael Silton
President, CEO and Director           |  |      | Corporate BonusPlan |  |                         |  | 100 | %                   |  |  | Companys achievement of      Quarterly revenue          |  |  |  | 40   | % 
|Steve Valenzuela
Sr. VP, CFO and Corporate Secretary |  |      | Corporate BonusPlan |  |                         |  | 51  | %                   |  |  |       Quarterly profitability      Annual profitability |  |  |  | 4020 | %%
|Mark de la Vega
Sr. VP, Products                     |  |      | Corporate BonusPlan |  |                         |  | 43  | %                   |  |  |                                                           |  |  |  |      |   
|Philip Johnson
VP, Human Resources                   |  |      | Corporate BonusPlan |  |                         |  | 40  | %                   |  |  |                                                           |  |  |  |      |   

In its August 27, 2009 meeting, the Compensation Committee approved the bonus plan and
components for 2010.

(c) Stock-based Awards.    The Company maintains the 2003 Stock Incentive
Plan (the 2003 Plan), which permits the Companys Board of Directors or Compensation Committee to make awards of incentive stock options, non-qualified stock options, stock appreciation rights, shares, and restricted stock. These awards are
designed to create a meaningful opportunity for stock ownership based upon the NEOs current position with the Company, the NEOs personal performance in recent periods and his or her potential for future responsibility and promotion over
the term of the award. The relevant weight given to each of these factors varies from individual to individual. Each grant is also designed to align the interests of the executive officer with those of the stockholders and provide each individual
with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. In past years, the Company has annually granted restricted stock awards, incentive stock options (subject to the volume
limitations contained in the Internal Revenue Code), and non-qualified stock options under the 2003 Plan to certain executive officers. Our Board has established the third Monday of November as the day in which to make annual grants of restricted
stock awards and stock option awards. The Board selected this time for grants because the annual grant dates in November generally fall within the middle of the fourth fiscal quarter (when the trading window is expected to be open). The Board has
the flexibility to set grants at other dates during the year, but prefers this annual grant date in order to ensure that there is no timing, nor reason to time, our release of material non-public information for the purpose of affecting the value of
executive compensation. Through authority delegated by the Board to the Chairman of the Compensation Committee, Robert Leff, the Compensation Committee may approve stock grants to new employees on the third Monday of each month following a new hire.

Regardless of when grants occur, the exercise price for stock options is always determined based on the closing market price
of the Companys common stock on the date of grant. Each stock option generally becomes exercisable in a series of installments over a four-year period, contingent upon the executive officers continued employment with the Company. Stock
option awards generally vest 25% at the end of one year following the grant date and 1/36 each month during the following three years. Restricted stock awards generally vest quarterly following the award date. The Company does not have stock
ownership requirements.

(d) Perquisites and Other Personal Benefits.    The NEOs receive
perquisites, principally pursuant to their employment agreements that were in effect in 2010. In various cases, the perquisites include personal expense reimbursements relating to health care premiums, car allowance and financial and tax planning.

(e) Severance and Change in Control Payments.    Our NEOs are entitled to severance and
change-in-control benefits pursuant to employment agreements or pursuant to offer letters entered into at the time of hire. The agreements were amended in December 2008 for compliance with section 409A of the Internal Revenue Code. The Company
currently has employment agreements with Michael Silton, President, Chief



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Executive Officer and Director; Steve Valenzuela, Senior Vice President, Finance, Chief Financial Officer and Corporate Secretary; and Philip Johnson, Vice President, Human Resources

The employment agreement, as amended, for Mr. Silton generally provides that if Mr. Siltons employment is constructively
terminated or terminated by the Company without cause, then Mr. Silton shall receive, with no duty to mitigate, the following: (i) an amount equal to one and one-quarter times Mr. Siltons base salary and target annual bonus, to
be paid in fifteen equal monthly payments; (ii) up to twelve months of health and life insurance benefits; and (iii) continued vesting of all unvested stock options and restricted stock awards up to fifteen months.

The employment agreement, as amended, for Mr. Valenzuela generally provides that if his employment is constructively terminated or
terminated by the Company without cause, then Mr. Valenzuela shall receive, with no duty to mitigate, the following: (i) an amount equal to three-quarters times his base salary and target annual bonus, to be paid in nine equal monthly
payments, (ii) nine months of health and life insurance benefits, and (iii) continued vesting of all unvested stock options and restricted stock awards for nine months.

To the extent not already vested, restricted stock awards and options to purchase Common Stock held by Mr. Silton and
Mr. Valenzuela will immediately become vested in the event of a merger or other transaction in which more than 50% of the Companys outstanding securities are transferred to persons different from those persons who are the Companys
stockholders prior to the merger or other transaction or upon the sale of all or substantially all the Companys assets in complete liquidation or dissolution. Mr. Silton shall have not less than twelve months to exercise his unexercised
options and Mr. Valenzuela shall have not less than nine months to exercise his unexercised options.

The employment
agreement for Mr. Johnson, dated February 5, 2007, generally provides that if his employment is constructively terminated or terminated by the Company without cause, then Mr. Johnson shall receive, with no duty to mitigate, an amount
equal to three months base salary.

(f) Inter-Relationship of Elements.    The Compensation
Committee reviews overall compensation including base salary, bonus and stock/option grants to make sure they are commensurate with the executives position and experience, and determines the weighting of each component of compensation based on
market survey information from the Radford Executive Compensation Survey data. The Compensation Committee allocates between long-term and currently-paid out compensation, based on market survey data, which shows the allocation of current paid-out
compensation and long-term compensation for comparable positions in the same general geographic area. Quarterly and annual cash bonuses are intended to provide each executive incentives to achieve the financial objectives for the current fiscal
period, whereas equity compensation is structured to reward the executive for long-term performance of the Company, since equity vests over a number of yearsusually two to four years.

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

(h) Financial Accounting
Considerations.    The relative expense associated with stock option and restricted stock awards factored into the Compensation Committees decision to consider restricted stock awards in addition to stock options,
because of the volatility of the Companys common stock and the resulting FAS123R stock option expense attached to stock options. The Compensation Committee feels that the option value for purposes of computing the FAS123R expense attached to
stock options is disproportionately high and that restricted stock provides NEOs with an appropriate long term incentive.



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(i) Tax Considerations.    Section 162(m) of the Code
imposes a limitation on the deductibility for federal income tax purposes of compensation exceeding $1.0 million paid to certain executive officers. Compensation above $1.0 million is not subject to the limitation if it is
performance-based compensation within the meaning of the Code. The Company anticipates that any compensation deemed paid by it (whether by the disqualifying disposition of incentive stock options or the exercise of non-statutory stock
options) in connection with options with exercise prices equal to the fair market of option shares on the grant date will qualify as performance-based compensation for purposes of Section 162(m) and will not have to be taken into account for
purposes of the $1.0 million limitation per covered individual. Because all compensation paid to the executive officers has not approached the 162(m) limitation, the Compensation Committee has not had to use any of the available exemptions from the
deduction limit.

We have granted stock options as incentive stock options in accordance with Section 422 of the Internal
Revenue Code, subject to the volume limitations. Generally, the exercise of an incentive stock option does not trigger any recognition of income or gain to the holder. If the stock is held until at least one year after the date of exercise (or two
years from the date the option is granted, whichever is later), all of the gain on the sale of the stock, when recognized for income tax purposes, will be capital gain rather than ordinary income to the recipient. Consequently, we do not receive a
tax deduction. For stock options that do not qualify as incentive stock options, we are entitled to a tax deduction in the year in which the stock options are exercised equal to the spread between the exercise price and the fair market value of the
stock for which the stock option was exercised. The holders of the non-qualified stock options are generally taxed on this same amount in the year of exercise.

Compensation Earned

The table below summarizes the compensation paid by
the Company to the CEO, CFO and other named executive officers for the fiscal years ended December 31, 2010, 2009 and 2008.

Summary Compensation Table



|                                                                       |  |      |      |  |              |         |         |             |  |   |                   |  |  |                    |         |  |                                           |   |   |                                             |  |         |                            |  |  |          |   |  |  |        |        |  |  |           |           | 
|---------------------------------------------------------------------- |  | ---- | ---- |  | ------------ | ------- | ------- | ----------- |  | - | ----------------- |  |  | ------------------ | ------- |  | ----------------------------------------- | - | - | ------------------------------------------- |  | ------- | -------------------------- |  |  | -------- | - |  |  | ------ | ------ |  |  | --------- | --------- | 
|Name and Principal Position                                            |  | Year |      |  | Salary($)(1) |         |         | Bonus($)(2) |  |   | StockAwards($)(3) |  |  | OptionAwards($)(3) |         |  | Non-EquityIncentivePlanCompensation($)(4) |   |   | Nonqualifieddeferredcompensationearnings($) |  |         | AllOtherCompensation($)(5) |  |  | Total($) |  
|Michael Silton                                                         |  |      | 2010 |  |              |         | 389,942 |             |  |   |                  |  |  |                    | 552,000 |  |                                           |   |  |                                             |  |         |                           |  |  |          |  |  |  |        | 56,922 |  |  |           | 998,864   | 
|President, Chief Executive Officer and Director                        |  |      | 2009 |  |              |         | 322,313 |             |  |   |                  |  |  |                    | 697,500 |  |                                           |   |  |                                             |  |         |                           |  |  |          |  |  |  |        | 58,554 |  |  |           | 1,078,367 | 
|                                                                       |  | 2008 |      |  |              | 405,000 |         |             |  |  |                   |  |  | 421,200            |         |  |                                           |  |   |                                             |  | 211,479 |                            |  |  |         |   |  |  | 43,128 |        |  |  | 1,080,807 |          
|                                                                       |  |      |      |  |              |         |         |             | 
|Steve Valenzuela                                                       |  |      | 2010 |  |              |         | 279,218 |             |  |   |                  |  |  |                    | 241,500 |  |                                           |   |  |                                             |  |         |                           |  |  |          |  |  |  |        | 30,618 |  |  |           | 551,336   | 
|Senior Vice President, Chief Financial Officer and Corporate Secretary |  |      | 2009 |  |              |         | 243,340 |             |  |   |                  |  |  |                    | 329,500 |  |                                           |   |  |                                             |  |         |                           |  |  |          |  |  |  |        | 31,024 |  |  |           | 603,864   | 
|                                                                       |  | 2008 |      |  |              | 290,000 |         |             |  |  |                   |  |  | 210,600            |         |  |                                           |  |   |                                             |  | 77,230  |                            |  |  |         |   |  |  | 38,708 |        |  |  | 616,538   |          
|                                                                       |  |      |      |  |              |         |         |             |  |   |                   |  |  |                    |         |  |                                           |   |   |                                             |  |         |                            |  |  |          |   |  |  |        |        |  |  |           |          
|                                                                       |  |      |      |  |              |         |         |             | 
|Mark de la Vega (6)                                                    |  |      | 2010 |  |              |         | 209,949 |             |  |   |                  |  |  |                    | 115,000 |  |                                           |   |  |                                             |  |         |                           |  |  |          |  |  |  |        | 5,707  |  |  |           | 330,656   | 
|Senior Vice President, Products                                        |  |      | 2009 |  |              |         | 192,994 |             |  |   |                  |  |  |                    | 172,000 |  |                                           |   |  |                                             |  |         |                           |  |  |          |  |  |  |        | 6,224  |  |  |           | 371,218   | 
|                                                                       |  | 2008 |      |  |              | 129,375 |         |             |  |  |                   |  |  | 208,325            |         |  |                                           |  |   |                                             |  | 14,510  |                            |  |  |         |   |  |  | 7,012  |        |  |  | 359,222   |          
|                                                                       |  |      |      |  |              |         |         |             | 
|Philip Johnson                                                         |  |      | 2010 |  |              |         | 192,564 |             |  |   |                  |  |  |                    | 115,000 |  |                                           |   |  |                                             |  |         |                           |  |  |          |  |  |  |        | 12,717 |  |  |           | 320,281   | 
|Vice President, Human Resources                                        |  |      | 2009 |  |              |         | 167,821 |             |  |   |                  |  |  |                    | 143,500 |  |                                           |   |  |                                             |  |         |                           |  |  |          |  |  |  |        | 8,468  |  |  |           | 319,789   | 
|                                                                       |  | 2008 |      |  |              | 200,000 |         |             |  |  |                   |  |  | 73,710             |         |  |                                           |  |   |                                             |  | 42,035  |                            |  |  |         |   |  |  | 11,784 |        |  |  | 327,529   |          



|(1) | In August 2009, the Compensation Committee decided that the base salaries that the NEOs would receive in 2010 be held at the same levels that were in effect in 2009.
However, as a temporary response to the broad economic downturn that affected the Company and its industry in early 2009, the Companys Board of Directors decided on March 16, 2009, to reduce the salaries of the CEO, CFO, Mr. de la Vega and Mr.
Johnson by 20% for the six-month period that began April 1, 2009. When economic conditions improved later in 2009, the Companys Board of Directors restored each NEOs salary reductions by reinstating one-half such reductions on December
1, 2009, and the other half on March 1, 2010.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Bonus relates to discretionary compensation, which was not awarded in 2008, 2009 or 2010.
|--- | -----------------------------------------------------------------------------------------



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|(3) | In 2010, the NEOs received restricted stock awards pursuant to the 2003 Plan. The Compensation Committee and the Board of Directors approved the awards of restricted
stock for 2010 (but not stock options) on November 15, 2010. The awards made in November 2010 will vest in equal quarterly amounts over two years following the award date. The Compensation Committee and Board of Directors decided to shorten from the
four-year schedule used prior to 2009 because of the volatility of the market in 2009 and 2010. Stock award amounts in this table relate to the aggregate grant date fair value of restricted stock awards granted to the NEO during the respective year
calculated in accordance with FASB ASC Topic 718 (formerly FAS 123R). Please see Note 9 in the Notes to the Consolidated Financial Statements included in the Companys Form 10-K for the year ended December 31, 2010 for assumptions used in
calculating these amounts.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Our NEOs are eligible to receive non-equity incentive plan compensation, which is a bonus paid based on a measurable attainment schedule. During 2008, our NEOs were
paid non-equity incentive plan compensation based on the achievement of performance goals. During 2009 and 2010, the performance goals were not achieved and no such bonus compensation was paid to any NEO.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | The figures reported in the All Other Compensation column above for 2010 include the following items:
|--- | -------------------------------------------------------------------------------------------------------



|                 |  |                     |        |  |                   |   |       |               |  |   |                            |  |  |                  |        |  |       |   |   |  |  |   |        | 
|---------------- |  | ------------------- | ------ |  | ----------------- | - | ----- | ------------- |  | - | -------------------------- |  |  | ---------------- | ------ |  | ----- | - | - |  |  | - | ------ | 
|Executive        |  | Company-paidMedical |        |  | FinancialPlanning |   |       | AutoAllowance |  |   | Company-paid LifeInsurance |  |  | SeverancePayment |        |  | Total |  
|Michael Silton   |  | $                   | 15,550 |  |                   | $ | 3,727 |               |  | $ | 22,182                     |  |  | $                | 15,464 |  |       | $ |  |  |  | $ | 56,922 | 
|Steve Valenzuela |  | $                   | 19,527 |  |                   | $ |      |               |  | $ | 11,091                     |  |  | $                |       |  |       | $ |  |  |  | $ | 30,618 | 
|Mark de la Vega  |  | $                   | 5,707  |  |                   | $ |      |               |  | $ |                           |  |  | $                |       |  |       | $ |  |  |  | $ | 5,707  | 
|Philip Johnson   |  | $                   | 12,717 |  |                   | $ |      |               |  | $ |                           |  |  | $                |       |  |       | $ |  |  |  | $ | 12,717 | 



|(6) | Mark de la Vegas hire date was June 9, 2008, and he resigned on December 3, 2010.
|--- | ----------------------------------------------------------------------------------

Outstanding Equity Awards

The following table sets forth certain
information regarding the stock option grants and stock awards to the named executive officers as of the end of 2010.

Outstanding Equity Awards at December 31, 2010



|                   |  |                                                               |              |  |                                                                  |  |   |                                                                                   |  |  |                               |  |  |                      |   |  |                                                       |  |   |                                                               |  |  |                                                                                             |  |  |                                                                                                                 |         |  |  |  |   |  |  |  |   | 
|------------------ |  | ------------------------------------------------------------- | ------------ |  | ---------------------------------------------------------------- |  | - | --------------------------------------------------------------------------------- |  |  | ----------------------------- |  |  | -------------------- | - |  | ----------------------------------------------------- |  | - | ------------------------------------------------------------- |  |  | ------------------------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------------------- | ------- |  |  |  | - |  |  |  | - | 
|Option Awards      |  |                                                               | Stock Awards | 
|Name andGrant Date |  | Number ofSecuritiesUnderlyingUnexercisedOptionsExercisable(#) |              |  | Number ofSecuritiesUnderlyingUnexercisedOptionsUnexerciseable(#) |  |   | EquityIncentivePlanAwards:Number
ofSecuritiesUnderlyingUnexercisedUnearnedOptions |  |  | OptionExercisePrice ($/Share) |  |  | OptionExpirationDate |   |  | Numberof Sharesor Unitsof StockThat Havenot Vested(#) |  |   | MarketValue ofShares orUnits
ofStock ThatHave notVested($)(1) |  |  | EquityIncentivePlanAwards:Number ofUnearnedShares,Units
orOtherRightsThat Havenot Vested(#) |  |  | EquityIncentivePlanAwards:Market orPayoutValue ofUnearnedShares,Units
orOther RightThat Havenot Vested($/Share) |        
|Michael Silton     |  |                                                               |              |  |                                                                  |  |   |                                                                                   |  |  |                               |  |  |                      |   |  |                                                       |  |   |                                                               |  |  |                                                                                             |  |  |                                                                                                                 |         |  |  |  |   |  |  |  |   | 
|11/15/10           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 480,000                                                                                     |  |  | $                                                                                                               | 681,600 |  |  |  |  |  |  |  |  | 
|11/16/09           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 182,500                                                                                     |  |  | $                                                                                                               | 259,150 |  |  |  |  |  |  |  |  | 
|11/17/08           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 260,000                                                                                     |  |  | $                                                                                                               | 369,200 |  |  |  |  |  |  |  |  | 
|11/19/07           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 60,000                                                                                      |  |  | $                                                                                                               | 85,200  |  |  |  |  |  |  |  |  | 
|                   |  |                                                               |              |  |                                                                  |  |   |                                                                                   | 
|Steve Valenzuela   |  |                                                               |              |  |                                                                  |  |   |                                                                                   |  |  |                               |  |  |                      |   |  |                                                       |  |   |                                                               |  |  |                                                                                             |  |  |                                                                                                                 |         |  |  |  |   |  |  |  |   | 
|11/15/10           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 210,000                                                                                     |  |  | $                                                                                                               | 298,200 |  |  |  |  |  |  |  |  | 
|11/16/09           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 92,500                                                                                      |  |  | $                                                                                                               | 131,350 |  |  |  |  |  |  |  |  | 
|11/17/08           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 130,000                                                                                     |  |  | $                                                                                                               | 184,600 |  |  |  |  |  |  |  |  | 
|11/19/07           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 16,250                                                                                      |  |  | $                                                                                                               | 23,075  |  |  |  |  |  |  |  |  | 
|                   |  |                                                               |              |  |                                                                  |  |   |                                                                                   | 
|Philip Johnson     |  |                                                               |              |  |                                                                  |  |   |                                                                                   |  |  |                               |  |  |                      |   |  |                                                       |  |   |                                                               |  |  |                                                                                             |  |  |                                                                                                                 |         |  |  |  |   |  |  |  |   | 
|11/15/10           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 100,000                                                                                     |  |  | $                                                                                                               | 142,000 |  |  |  |  |  |  |  |  | 
|11/16/09           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 37,500                                                                                      |  |  | $                                                                                                               | 53,250  |  |  |  |  |  |  |  |  | 
|11/17/08           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 45,500                                                                                      |  |  | $                                                                                                               | 64,610  |  |  |  |  |  |  |  |  | 
|11/19/07           |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 10,000                                                                                      |  |  | $                                                                                                               | 14,200  |  |  |  |  |  |  |  |  | 
|2/19/07            |  |                                                               |             |  |                                                                  |  |  |                                                                                   |  |  |                              |  |  |                      |  |  |                                                       |  |  |                                                               |  |  | 3,750                                                                                       |  |  | $                                                                                                               | 5,325   |  |  |  |  |  |  |  |  | 



|(1) | Market value of shares that have not vested was calculated by using our closing market price at December 31, 2010 of $1.42.
|--- | ---------------------------------------------------------------------------------------------------------------------------



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Compensation of Directors

Director Compensation Table



|                        |  |                                 |        |  |                   |  |        |                    |  |  |                                         |  |  |                                          |   |  |                          |  |   |           |  |  |   |  |  |  |         | 
|----------------------- |  | ------------------------------- | ------ |  | ----------------- |  | ------ | ------------------ |  |  | --------------------------------------- |  |  | ---------------------------------------- | - |  | ------------------------ |  | - | --------- |  |  | - |  |  |  | ------- | 
|Name and Title          |  | (1) FeesEarnedor Paidin Cash($) |        |  | (2)StockAwards($) |  |        | (2)OptionAwards($) |  |  | Non-EquityIncentive PlanCompensation($) |  |  | NonqualifiedDeferredCompensationEarnings |   |  | All OtherCompensation($) |  |   | Total ($) | 
|Alok Mohan, Chairman    |  |                                 | 99,936 |  |                   |  | 67,500 |                    |  |  |                                        |  |  |                                          |  |  |                          |  |  |           |  |  |  |  |  |  | 167,436 | 
|Robert Leff, Director   |  |                                 | 48,628 |  |                   |  | 27,000 |                    |  |  |                                        |  |  |                                          |  |  |                          |  |  |           |  |  |  |  |  |  | 75,628  | 
|Brad Peppard, Director  |  |                                 | 47,088 |  |                   |  | 27,000 |                    |  |  |                                        |  |  |                                          |  |  |                          |  |  |           |  |  |  |  |  |  | 74,088  | 
|Mitchell Levy, Director |  |                                 | 47,088 |  |                   |  | 27,000 |                    |  |  |                                        |  |  |                                          |  |  |                          |  |  |           |  |  |  |  |  |  | 74,088  | 
|Gary Briggs, Director   |  |                                 | 25,002 |  |                   |  |       |                    |  |  | 16,000                                  |  |  |                                          |  |  |                          |  |  |           |  |  |  |  |  |  | 41,002  | 



|(1) | Includes retainer fees as applicable to each Directors position on the Board and their participation in additional committees as well as any reimbursement for
travel or other fees.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Stock award amounts in this table relate to the aggregate grant date fair value of restricted stock awards and stock option awards granted to the director during the
respective year calculated in accordance with FASB ASC Topic 718 (formerly FAS 123R). Please see Note 9 in the Notes to the Consolidated Financial Statements included in the Companys Form 10-K for the year ended December 31, 2010 for
assumptions used in calculating these amounts.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Equity Compensation Plans

The following table sets forth information as of December 31, 2010 with respect to shares of the Companys Common Stock that may
be issued under the Companys existing equity compensation plans, including our 2003 Stock Incentive Plan and our 1999 Employee Stock Purchase Plan.



|                                                       |  |                                                                                          |           |  |                                                                           |   |      |                                                            |  |  |        |    
|------------------------------------------------------ |  | ---------------------------------------------------------------------------------------- | --------- |  | ------------------------------------------------------------------------- | - | ---- | ---------------------------------------------------------- |  |  | ------ | ---
|Plan Category                                          |  | Number of Securities to beIssued Upon Exercise ofOutstanding
Options,Warrants and Rights |           |  | Weighted Average ExercisePrice of Outstanding Options,Warrants and
Rights |   |      | Number of SecuritiesRemaining Availablefor Future Issuance | 
|Equity compensation plans approved by security holders |  |                                                                                          | 3,130,494 |  |                                                                           | $ | 2.25 |                                                            |  |  | 86,806 | (1)



|(1) | Includes 86,806 shares of our common stock remaining available for future issuance under our 2003 Stock Incentive Plan as of December 31, 2010. Our 1999 Employee
Stock Purchase Plan expired as of October 31, 2009 and no shares remain for future issuance under this plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Ownership
of Securities

The following table sets forth certain information as of March 2, 2011, regarding the ownership of our
common stock by (i) each person, to our knowledge, who is known by us to beneficially own more than five percent of our common stock, (ii) each named executive officer, (iii) each of our companys directors, and (iv) all of
our companys directors and executive officers as a group. This table lists applicable percentage ownership based on 23,278,311 shares of common stock outstanding as of March 2, 2011. Beneficial ownership is determined in accordance with
the rules and regulations of the SEC. Shares subject to options or warrants that are exercisable currently or within 60 days of March 2, 2011, are deemed to be outstanding and beneficially owned by the person for the purpose of computing share
and percentage ownership of that person. They are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table and as affected by applicable community
property laws, all persons listed



100



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have sole voting and investment power for all shares shown as beneficially owned by them. Unless otherwise indicated, all addresses for the stockholders set forth below is c/o Rainmaker Systems,
Inc., 900 East Hamilton Avenue, Suite 400, Campbell, California 95008.



|                                                   |  |                                                                                             |           |  |                                                                                                   |  |         |                                |  |  |      |  
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | --------- |  | ------------------------------------------------------------------------------------------------- |  | ------- | ------------------------------ |  |  | ---- | -
|Name of Beneficial Owner                           |  | Number of SharesBeneficially
Owned(Including the Numberof Shares Shown in theSecond Column) |           |  | Number of SharesOwned as a Result ofOptions
andWarrants ExercisableWithin 60 Days ofMarch 2, 2011 |  |         | Percentageof SharesOutstanding | 
|Diker Management LLC (1)                           |  |                                                                                             | 2,676,955 |  |                                                                                                   |  |        |                                |  |  | 11.5 | %
|Michael Silton                                     |  |                                                                                             | 2,375,965 |  |                                                                                                   |  |        |                                |  |  | 10.2 |  
|Lacuna Hedge Fund LLLP (2)                         |  |                                                                                             | 2,050,787 |  |                                                                                                   |  |        |                                |  |  | 8.8  |  
|Steve Valenzuela                                   |  |                                                                                             | 675,315   |  |                                                                                                   |  |        |                                |  |  | 2.9  |  
|Alok Mohan                                         |  |                                                                                             | 424,012   |  |                                                                                                   |  | 47,200  |                                |  |  | 1.8  |  
|Philip Johnson                                     |  |                                                                                             | 277,906   |  |                                                                                                   |  |        |                                |  |  | 1.2  |  
|Robert Leff                                        |  |                                                                                             | 240,988   |  |                                                                                                   |  | 47,200  |                                |  |  | 1.0  |  
|Bradford Peppard                                   |  |                                                                                             | 150,289   |  |                                                                                                   |  |        |                                |  |  | *    |  
|Mitchell Levy                                      |  |                                                                                             | 132,945   |  |                                                                                                   |  |        |                                |  |  | *    |  
|Mark de la Vega(3)                                 |  |                                                                                             | 76,738    |  |                                                                                                   |  |        |                                |  |  | *    |  
|Gary Briggs                                        |  |                                                                                             | 10,000    |  |                                                                                                   |  | 10,000  |                                |  |  | *    |  
|All directors and officers as a group (10 persons) |  |                                                                                             | 4,364,158 |  |                                                                                                   |  | 104,400 |                                |  |  | 18.7 | %



|* | Less than 1%
|- | ------------

|(1) | Beneficial ownership information is based on information contained in Amendment No. 7 to Schedule 13G filed with the SEC on February 14, 2011 by Diker GP,
L.L.C. on behalf of itself and affiliated persons and entities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Beneficial ownership information is based on information contained in Amendment No. 2 to Schedule 13G filed with the SEC on February 10, 2011 by Lacuna Hedge
Fund LLLP on behalf of itself and affiliated persons and entities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mark de la Vega left the Company effective December 3, 2010.
|--- | ------------------------------------------------------------



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

Transactions with Related Persons

The Chairman of our Board of Directors
also serves on the board of Saama Technologies, a technology services firm. During the year ended December 31, 2010, we paid Saama Technologies approximately $11,000 for technology services. During the prior year, we paid Saama Technologies
$170,000 for technology services. We may continue to utilize their services and may expand the scope of Saama Technologies engagement.

Although no formal written policy is in place, our Board of Directors is responsible for reviewing and approving the terms and conditions of all significant related party transactions.

Director Independence

The Board of Directors has determined that each of Messrs. Leff, Levy, Mohan, Peppard and Briggs is independent, as that term
is defined by applicable rules of the SEC and the Nasdaq Global Market.



|ITEM 14. | PRINCIPAL ACCOUNTANTS FEES AND SERVICES
|-------- | ---------------------------------------

BDO USA, LLP (BDO) was engaged as the Companys independent registered public accounting firm on October 7, 2004. Audit services provided by BDO during the 2010 fiscal year included
the audit of our annual financial statements and services related to filings with the SEC and other regulatory bodies.



101



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Principal Accountant Fees and Services

For the fiscal years ended December 31, 2010 and 2009, BDO, our independent registered public accounting firm, billed the approximate
fees set forth below:

Audit Fees

Aggregate fees consist of fees billed for professional services rendered for the audit of the Companys consolidated financial statements and internal control over financial reporting, reviews of the
interim condensed consolidated financial statements included in quarterly filings, and services that are normally provided by BDO in connection with statutory and regulatory filings or engagements, including comfort letters and consents, except
those not required by statute or regulation. Aggregate fees billed for audit services were $388,246 and $349,284 for the years ended December 31, 2010 and 2009, respectively.

Audit-Related Fees

Audit-related fees consist of fees billed for assurance
and related services that are reasonably related to the performance of the audit or review of the Companys consolidated financial statements and are not reported under Audit Fees. These services include due diligence and audits in
connection with acquisitions, and consultations concerning financial accounting and reporting standards. Aggregate fees billed for audit-related services were $0 and $11,569 for the years ended December 31, 2010 and 2009, respectively.

Tax Fees

Tax fees consist of fees billed for professional services rendered for state and federal tax compliance and advice, and tax planning.
Aggregate fees for tax services were $81,852 and $107,301 during the years ended December 31, 2010 and 2009, respectively.

All Other
Fees

None.

All engagements for services by BDO or other independent registered public accountants are subject to pre-approval by the Audit Committee; however, de minimis non-audit services may instead be approved in
accordance with applicable SEC rules. The pre-approval of the Audit Committee was obtained for all services provided by BDO in the 2010 fiscal year.



102



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PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------

The following documents are filed as part of this report:

1. Financial Statements

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

2. Financial Statement Schedules

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

3. Exhibit Index:

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



|          |  |                                                                                                                                                                                                                                   
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1)    |  | Restated Certificate of Incorporation of Rainmaker Systems, Inc.                                                                                                                                                                  
|          | 
|3.2(2)    |  | Bylaws of Rainmaker Systems, Inc.                                                                                                                                                                                                 
|          | 
|4.1(2)    |  | Specimen certificate representing shares of common stock of Rainmaker Systems, Inc.                                                                                                                                               
|          | 
|4.2(3)    |  | Purchase Agreement dated as of February 19, 2004, by and among Rainmaker Systems, Inc. and the purchasers set forth on the signature pages thereto.                                                                               
|          | 
|4.3(4)    |  | Stock Purchase Agreement dated as of June 10, 2004, by and among ABS Capital Partners III, L.P., Tarentella, Inc., Rainmaker Systems, Inc., and the purchasers identified on the
schedule thereto.                                
|          | 
|4.4(5)    |  | Registration Rights Agreement dated as of June 10, 2004, by and among ABS Capital Partners III, L.P., Tarentella, Inc., Rainmaker Systems, Inc., the purchasers identified on the
schedule thereto and SDS Capital Group SPC, Ltd.
|          | 
|4.5(6)    |  | Form of Stock Purchase Agreement dated as of June 15, 2005, by and among Rainmaker Systems, Inc., and the purchasers identified on the signature page thereto.                                                                    
|          | 
|4.6(7)    |  | Form of Registration Rights Agreement dated as of June 15, 2005, by and among Rainmaker Systems, Inc. and the purchasers identified on the signature page thereto.                                                                
|          | 
|4.7(8)    |  | Securities Purchase Agreement dated February 7, 2006, by and among the Company and the investors party thereto.                                                                                                                   
|          | 
|4.8(9)    |  | Securities Purchase Agreement dated February 7, 2006, by and among the Company and the investors party thereto.                                                                                                                   
|          | 
|10.1(2)*  |  | Form of Indemnification Agreement.                                                                                                                                                                                                
|          | 
|10.2(2)*  |  | 1999 Stock Incentive Plan.                                                                                                                                                                                                        
|          | 
|10.3(2)*  |  | 1999 Stock Purchase Plan.                                                                                                                                                                                                         
|          | 
|10.4(10)* |  | Form of Notice of Grant of Stock Option.                                                                                                                                                                                          
|          | 
|10.5(11)* |  | Form of Stock Option Agreement.                                                                                                                                                                                                   
|          | 
|10.6(12) |  | Internet Applications Division (IAD) Reseller Agreement dated March 22, 1999 between Sybase, Inc. and Rainmaker Systems, Inc.                                                                                                     
|          | 
|10.7(13) |  | Amendment No. 1, dated February 5, 2001, to Internet Applications Division (IAD) Reseller Agreement dated March 22, 1999 between Sybase, Inc. and Rainmaker Systems,
Inc.                                                         



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|10.8(14)   |  | Non Technical Services Agreement, dated April 6, 2001 between Rainmaker Systems, Inc. and International Business Machines Corporation.                                                                                                                                                                                                                                                  
|            | 
|10.10(15)   |  | Option Exchange Offer, dated November 30, 2001.                                                                                                                                                                                                                                                                                                                                         
|            | 
|10.11(16)* |  | Employment Agreement with Michael Silton, dated January 1, 2001.                                                                                                                                                                                                                                                                                                                        
|            | 
|10.12(17)  |  | Services Sales Outsourcing Partner Agreement dated September 25, 2000, between Rainmaker Systems, Inc. and Hewlett-Packard Company.                                                                                                                                                                                                                                                     
|            | 
|10.13(18)  |  | Services Sales Outsourcing Partner Agreement, Amendment No. 1 dated January 2, 2001, between Rainmaker Systems, Inc. and Hewlett-Packard Company.                                                                                                                                                                                                                                       
|            | 
|10.14(19)  |  | Schedule 4, Operational Plan/Business Rules Document to Service Sales Outsourcing Partner Agreement dated September 25, 2000, between Rainmaker Systems, Inc. and Hewlett-Packard
Company.                                                                                                                                                                                              
|            | 
|10.15(20)  |  | Services Sales Outsourcing Partner Agreement dated August 1, 2002, between Rainmaker Systems, Inc. and Hewlett-Packard Company.                                                                                                                                                                                                                                                         
|            | 
|10.16(21)  |  | Business Rules Approval dated September 5, 2002, between Rainmaker Systems, Inc. and Hewlett-Packard Company (amend/adds to Exhibit 10.23).                                                                                                                                                                                                                                             
|            | 
|10.17(22)  |  | Amendment to Internet Applications Division (IAD) Reseller Agreement and Outsourcing Addendum dated June 12, 2002, between Rainmaker Systems, Inc. and Sybase, Inc.                                                                                                                                                                                                                     
|            | 
|10.18(23)   |  | Business Rules Approval dated February 6, 2003, between Rainmaker Systems, Inc. and Hewlett-Packard Company (amends/adds to Schedule 4, Operational Plan/Business Rules Document to
Service Sales Outsourcing Partner Agreement dated September 25, 2000, filed as Exhibit 10.23 to the Report on Form 10-Q filed by Rainmaker Systems, Inc. on November 14, 2002).                     
|            | 
|10.19(24)   |  | Statement of Work for IBM ServicePac Sales Under IBM Non-Technical Service Agreement #4901AD0002 between International Business Machines and Rainmaker Systems, Inc. dated
June 16, 2003 (amends/adds to the IBM Non-Technical Service Agreement #4901AD0002 dated April 6, 2001 filed as Exhibit 10.27 to the Report on Form 10-Q filed by Rainmaker Systems, Inc. on August 10, 2001).
|            | 
|10.21(25)   |  | Agreement and Plan of Merger, dated as of February 8, 2005, by and among Rainmaker Systems, Inc., CW Acquisition, Inc., Quarter End, Inc., the individuals listed on Exhibit A
thereto and Jeffrey T. McElroy.                                                                                                                                                                          
|            | 
|10.22(26)*  |  | Amendment of Employment Agreement between Rainmaker Systems, Inc. and Michael Silton dated February 24, 2005.                                                                                                                                                                                                                                                                           
|            | 
|10.23(27)*  |  | Employment Agreement between Rainmaker Systems, Inc. and Steve Valenzuela dated February 24, 2005.                                                                                                                                                                                                                                                                                      
|            | 
|10.24(28)   |  | Asset Purchase Agreement, dated as of July 1, 2005, by and among Rainmaker Systems, Inc., Sunset Direct, Inc., Launch Project LLC, The Members Identified on the signature page
thereto, and Chad Nuss, as Representative.                                                                                                                                                              
|            | 
|10.25(29)   |  | Asset Purchase Agreement, dated as of May 12, 2006, by and among Rainmaker Systems, Inc., Business Telemetry, Inc., The Shareholders identified on the signature page thereto, and
Kenneth S. Forbes, III, as Representative.                                                                                                                                                           
|            | 
|10.26(30)   |  | Asset Purchase Agreement by and among Rainmaker Systems, Inc., ViewCentral, Inc., certain shareholders of ViewCentral and Dan Tompkins, as
representative.                                                                                                                                                                                                                              



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|           |  |                                                                                                                                                                                                                                                                                                               
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           | 
|10.27(31) |  | Standard Services Agreement dated November 6, 2006 between Rainmaker Systems, Inc. and Hewlett Packard Company, a Delaware corporation.                                                                                                                                                                       
|           | 
|10.28(32) |  | Asset Purchase Agreement by and among Rainmaker Systems, Inc., Rainmaker Systems (Canada) Inc., CAS Systems, Inc., certain shareholders of CAS, Barry Hanson, as representative, and
3079028 Nova Scotia Company in respect of the purchase of substantially all of the assets of CAS Systems, Inc.           
|           | 
|10.29(33) |  | Asset Purchase Agreement by and among Rainmaker Systems, Inc., Rainmaker Systems (Canada) Inc., CAS Systems, Inc., certain shareholders of CAS, Barry Hanson, as representative, and
3079028 Nova Scotia Company in respect of the purchase of substantially all of the assets of 3079028 Nova Scotia Company.
|           | 
|10.30(34)  |  | Promissory note between Rainmaker Systems, Inc. and CAS Systems, Inc.                                                                                                                                                                                                                                         
|           | 
|10.31(35)  |  | Promissory note between Rainmaker Systems (Canada) Inc., a Canadian federal corporation, and 3079028 Nova Scotia Company, a Nova Scotia unlimited liability company.                                                                                                                                          
|           | 
|10.32(36)* |  | Amendment to Executive Employment Agreement, dated as of February 1, 2007, by and among Rainmaker Systems, Inc. and Michael Silton.                                                                                                                                                                           
|           | 
|10.33(37)* |  | Amendment to Executive Employment Agreement, dated as of February 1, 2007, by and among Rainmaker Systems, Inc. and Steve Valenzuela.                                                                                                                                                                         
|           | 
|10.34(38) |  | Stock Purchase Agreement by and among Rainmaker Systems, Inc., Qinteraction Limited, and James F. Bere, as representative.                                                                                                                                                                                    
|           | 
|10.35(39)* |  | Amended and Restated Executive Employment Agreement, dated as of September 17, 2007, by and among Rainmaker Systems, Inc. and Moe Bawa.                                                                                                                                                                       
|           | 
|10.36(40)* |  | Amendment of Employment Agreement, dated as of November 19, 2007, by and among Rainmaker Systems, Inc. and Michael Silton.                                                                                                                                                                                    
|           | 
|10.37(41)* |  | Amendment of Employment Agreement, dated as of November 19, 2007, by and among Rainmaker Systems, Inc. and Steve Valenzuela.                                                                                                                                                                                  
|           | 
|10.38(42)* |  | 2003 Stock Incentive Plan, as amended and restated effective May 15, 2008.                                                                                                                                                                                                                                    
|           | 
|10.39(43)* |  | Executive Employment Agreement, dated as of June 9, 2008, by and among Rainmaker Systems, Inc. and Mark de la Vega.                                                                                                                                                                                           
|           | 
|10.40(44)  |  | Lease Agreement, dated as of September 24, 2008, by and among Rainmaker Systems (Canada) Ltd. as Tenant and 2748134 Canada Inc. as Landlord.                                                                                                                                                                  
|           | 
|10.41(45) |  | Global Inside Sales Program Statement of Work, dated as of March 31, 2009, and effective as of April 1, 2009, between Rainmaker Systems, Inc. and Sun Microsystems,
Inc.                                                                                                                                      
|           | 
|10.42(46) |  | Addendum No. 1 to the Master Purchase Agreement, dated as of March 31, 2009, between Rainmaker Systems, Inc. and Sun Microsystems, Inc.                                                                                                                                                                       
|           | 
|10.43(47) |  | Contact Center Master Services Agreement, dated as of August 30, 2009, between Rainmaker Systems, Inc. and Hewlett-Packard Company.                                                                                                                                                                           
|           | 
|10.44(48)  |  | Second Amendment to Lease Agreement, dated as October 14, 2009, between Rainmaker Systems, Inc. and Legacy III Campbell, LLC.                                                                                                                                                                                 
|           | 
|10.45(49)  |  | Loan and Security Agreement, dated as of November 17, 2009, between Rainmaker Systems, Inc. and Bridge Bank, N.A.                                                                                                                                                                                             
|           | 
|10.46(50) |  | Master Services Agreement, dated as of June 29, 2006 between Rainmaker Systems, Inc. and Symantec Corporation.                                                                                                                                                                                                
|           | 
|10.47(51) |  | Symantec Outsourced North American (NAM) Renewals Statement of Work effective as of April 1, 2008 between Rainmaker Systems, Inc. and Symantec
Corporation.                                                                                                                                                   



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|           |  |                                                                                                                                                             
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------
|           | 
|10.48(52) |  | Amendment Two to the Symantec Outsourced NAM Renewals Statement of Work, dated as of April 1, 2010 between Rainmaker Systems, Inc. and Symantec Corporation.
|           | 
|10.49(53)  |  | Loan and Security Modification Agreement, dated as of September 28, 2010, between Rainmaker Systems, Inc. and Bridge Bank, N.A.                             
|           | 
|10.50(54) |  | Vendor Services Agreement, dated as of February 26, 2010, between Rainmaker Systems, Inc. and Microsoft Corporation.                                        
|           | 
|10.51(55) |  | Statement of Work to the Vendor Services Agreement, dated as of September 20, 2010, between Rainmaker Systems, Inc. and Microsoft Corporation.              
|           | 
|10.52(56)* |  | Offer letter, dated November 16, 2010, between Rainmaker Systems, Inc. and Thomas Venable.                                                                  
|           | 
|14(57)     |  | Standards of Business Ethics and Conduct.                                                                                                                   
|           | 
|21.1       |  | List of Subsidiaries.                                                                                                                                       
|           | 
|23.1       |  | Consent of Independent Registered Public Accounting Firm.                                                                                                   
|           | 
|31.1       |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|           | 
|31.2       |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                         
|           | 
|32.1       |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.          
|           | 
|32.2       |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.          



|(1) | Incorporated by reference to Exhibit A to the Definitive Proxy Statement on Schedule 14A filed by Rainmaker on April 21, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated by reference to the similarly numbered Exhibit to the Registration Statement on Form S-1/A filed by Rainmaker on October 22, 1999 (Reg.
No. 333-86445).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-3 filed by Rainmaker on March 22, 2004 (Reg. No. 333-113812).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed by Rainmaker on June 18, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K filed by Rainmaker on June 18, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on June 16, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rainmaker on June 16, 2005.
|--- | ----------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on February 10, 2006.
|--- | --------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rainmaker on February 10, 2006.
|--- | --------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to Exhibit 99.2 to the Registration Statement on Form S-8 filed by Rainmaker on November 17, 1999 (Reg. No. 333-91095).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference to Exhibit 99.3 to the Registration Statement on Form S-8 filed by Rainmaker on November 17, 1999 (Reg. No. 333-91095).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference to Exhibit 10.20 to the Quarterly Report on Form 10-Q filed by Rainmaker on May 15, 2000.
|---- | -------------------------------------------------------------------------------------------------------------------



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|(13) | Incorporated by reference to Exhibit 10.26 to the Quarterly Report on Form 10-Q filed by Rainmaker on May 2, 2001.
|---- | ------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to Exhibit 10.27 to the Quarterly Report on Form 10-Q filed by Rainmaker on August 10, 2001.
|---- | ----------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to Exhibit (a)(1) to the Tender Offer Statement on Form SC TO-I filed by Rainmaker on November 30, 2001 (Reg. No 005-58179).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K filed by Rainmaker on March 29, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference to Exhibit 10.21 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 14, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference to Exhibit 10.22 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 14, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference to Exhibit 10.23 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 14, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference to Exhibit 10.24 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 14, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(21) | Incorporated by reference to Exhibit 10.25 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 14, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(22) | Incorporated by reference to Exhibit 10.26 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 14, 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(23) | Incorporated by reference to Exhibit 10.31 to the Quarterly Report on Form 10-Q filed by Rainmaker on May 15, 2003.
|---- | -------------------------------------------------------------------------------------------------------------------

|(24) | Incorporated by reference to Exhibit 10.32 to the Quarterly Report on Form 10-Q filed by Rainmaker on August 14, 2003.
|---- | ----------------------------------------------------------------------------------------------------------------------

|(25) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on February 11, 2005.
|---- | --------------------------------------------------------------------------------------------------------------------

|(26) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on February 25, 2005.
|---- | --------------------------------------------------------------------------------------------------------------------

|(27) | Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Rainmaker on February 25, 2005.
|---- | --------------------------------------------------------------------------------------------------------------------

|(28) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on July 5, 2005.
|---- | ---------------------------------------------------------------------------------------------------------------

|(29) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on May 16, 2006.
|---- | ---------------------------------------------------------------------------------------------------------------

|(30) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on September 19, 2006.
|---- | ---------------------------------------------------------------------------------------------------------------------

|(31) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on November 13, 2006.
|---- | --------------------------------------------------------------------------------------------------------------------

|(32) | Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed by Rainmaker on January 31, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------

|(33) | Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K filed by Rainmaker on January 31, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------

|(34) | Incorporated by reference to Exhibit 99.4 to the Current Report on Form 8-K filed by Rainmaker on January 31, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------

|(35) | Incorporated by reference to Exhibit 99.5 to the Current Report on Form 8-K filed by Rainmaker on January 31, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------

|(36) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on February 5, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------

|(37) | Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed by Rainmaker on February 5, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------

|(38) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on July 24, 2007.
|---- | ----------------------------------------------------------------------------------------------------------------



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|(39) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on September 20, 2007.
|---- | ---------------------------------------------------------------------------------------------------------------------

|(40) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on November 21, 2007.
|---- | --------------------------------------------------------------------------------------------------------------------

|(41) | Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed by Rainmaker on November 21, 2007.
|---- | --------------------------------------------------------------------------------------------------------------------

|(42) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on May 21, 2008.
|---- | ---------------------------------------------------------------------------------------------------------------

|(43) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on July 2, 2008.
|---- | ---------------------------------------------------------------------------------------------------------------

|(44) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on October 7, 2008.
|---- | ------------------------------------------------------------------------------------------------------------------

|(45) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on September 30, 2009.
|---- | ---------------------------------------------------------------------------------------------------------------------

|(46) | Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Rainmaker on September 30, 2009.
|---- | ---------------------------------------------------------------------------------------------------------------------

|(47) | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 13, 2009.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(48) | Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 13, 2009.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(49) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on December 8, 2009.
|---- | -------------------------------------------------------------------------------------------------------------------

|(50) | Incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K filed by Rainmaker on March 31, 2010.
|---- | ------------------------------------------------------------------------------------------------------------------

|(51) | Incorporated by reference to Exhibit 10.47 to the Annual Report on Form 10-K filed by Rainmaker on March 31, 2010.
|---- | ------------------------------------------------------------------------------------------------------------------

|(52) | Incorporated by reference to Exhibit 10.48 to the Annual Report on Form 10-K filed by Rainmaker on March 31, 2010.
|---- | ------------------------------------------------------------------------------------------------------------------

|(53) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on October 4, 2010.
|---- | ------------------------------------------------------------------------------------------------------------------

|(54) | Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q/A filed by Rainmaker on February 28, 2011.
|---- | -------------------------------------------------------------------------------------------------------------------------

|(55) | Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed by Rainmaker on November 12, 2010.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(56) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on December 8, 2010.
|---- | -------------------------------------------------------------------------------------------------------------------

|(57) | Incorporated by reference to Exhibit 14 to the Annual Report on Form 10-K filed by Rainmaker on March 18, 2004.
|---- | ---------------------------------------------------------------------------------------------------------------

| | Confidential treatment has previously been granted by the Commission for certain portions of the referenced exhibit.
|- | --------------------------------------------------------------------------------------------------------------------

|* | Management contracts or compensatory plan or arrangement.
|- | ---------------------------------------------------------



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SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008



|                                 |  |                            |     |  |                                      |   |      |              |  |   |                      |   |  |   |     | 
|-------------------------------- |  | -------------------------- | --- |  | ------------------------------------ | - | ---- | ------------ |  | - | -------------------- | - |  | - | --- | 
|Description                      |  | Balance atBeginningof Year |     |  | AdditionsCharged toCosts andExpenses |   |      | Deductions * |  |   | Balanceat Endof Year |  
|                                 |  | (in thousands)             |    
|Allowance for doubtful accounts: |  |                            |     |  |                                      |   |      |              |  |   |                      |   |  |   |     | 
|Year ended December 31, 2010     |  | $                          | 58  |  |                                      | $ | 226  |              |  | $ | (182                 | ) |  | $ | 102 | 
|Year ended December 31, 2009     |  | $                          | 550 |  |                                      | $ | (311 | )            |  | $ | (181                 | ) |  | $ | 58  | 
|Year ended December 31, 2008     |  | $                          | 285 |  |                                      | $ | 637  |              |  | $ | (372                 | ) |  | $ | 550 | 



|* | Uncollectible accounts written off, net of recoveries.
|- | ------------------------------------------------------



|                                      |  |                            |        |  |           |   |       |            |  |   |                      |  |  |   |        | 
|------------------------------------- |  | -------------------------- | ------ |  | --------- | - | ----- | ---------- |  | - | -------------------- |  |  | - | ------ | 
|Description                           |  | Balance atBeginningof Year |        |  | Additions |   |       | Deductions |  |   | Balanceat Endof Year | 
|                                      |  | (in thousands)             |       
|Deferred tax asset valuation account: |  |                            |        |  |           |   |       |            |  |   |                      |  |  |   |        | 
|Year ended December 31, 2010          |  | $                          | 25,833 |  |           | $ | 2,008 |            |  | $ |                     |  |  | $ | 27,841 | 
|Year ended December 31, 2009          |  | $                          | 23,851 |  |           | $ | 1,982 |            |  | $ |                     |  |  | $ | 25,833 | 
|Year ended December 31, 2008          |  | $                          | 17,884 |  |           | $ | 5,967 |            |  | $ |                     |  |  | $ | 23,851 | 



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Campbell, State of California, on the 4th day of March 2011.



RAINMAKER SYSTEMS, INC.By:

/s/    MICHAEL
SILTONMichael Silton, President, Chief Executive Officer and Director (Principal Executive
Officer)By:

/s/    STEVE
VALENZUELASteve Valenzuela, Senior Vice President, Finance, Chief Financial Officer and Corporate
Secretary (Principal Financial Officer and Principal Accounting Officer)By:

/s/    ALOK
MOHANAlok Mohan, Chairman of the BoardBy:

/s/    ROBERT
LEFFRobert Leff, DirectorBy:

/s/    MITCHELL
LEVYMitchell Levy, DirectorBy:

/s/    BRADFORD
PEPPARDBradford Peppard, DirectorBy:

/s/    GARY
BRIGGSGary Briggs, Director




110