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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2007

OR



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

FOR THE TRANSITION PERIOD FROMTO

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 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.  x

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  x        Non-accelerated
filer   ̈        Smaller reporting company   ̈

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 $113.7 million as of June 29, 2007, 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. This determination is not necessarily conclusive.

At February 26, 2008, registrant had 20,318,032 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, unfavorable 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 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 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                                                                                                     |  | 13  
|          |  | Item 1B. |  | Unresolved Staff Comments                                                                                        |  | 24  
|          |  | Item 2.  |  | Properties                                                                                                       |  | 24  
|          |  | Item 3.  |  | Legal Proceedings                                                                                                |  | 24  
|          |  | Item 4.  |  | Submission of Matters to a Vote of Security Holders                                                              |  | 24  
|          |  |         
|PART II.  |  |          |  |                                                                                                                 
|          |  | Item 5.  |  | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 25  
|          |  | Item 6.  |  | Selected Financial Data                                                                                          |  | 27  
|          |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                            |  | 28  
|          |  | Item 7A. |  | Qualitative and Quantitative Disclosures About Market Risk                                                       |  | 47  
|          |  | Item 8.  |  | Consolidated Financial Statements and Supplementary Data                                                         |  | 50  
|          |  | Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                             |  | 88  
|          |  | Item 9A. |  | Controls and Procedures                                                                                          |  | 88  
|          |  | Item 9B. |  | Other Information                                                                                                |  | 90  
|          |  |         
|PART III. |  |          |  |                                                                                                                 
|          |  | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                           |  | 91  
|          |  | Item 11. |  | Executive Compensation                                                                                           |  | 91  
|          |  | Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                   |  | 91  
|          |  | Item 13. |  | Certain Relationships and Related Transactions, and Director Independence                                        |  | 91  
|          |  | Item 14. |  | Principal Accountants Fees and Services                                                                          |  | 91  
|          |  |         
|PART IV.  |  |          |  |                                                                                                                 
|          |  | Item 15. |  | Exhibits and Financial Statement Schedules                                                                       |  | 92  
|          |  |          | 
|          |  |          |  | Signatures                                                                                                       |  | 100 



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PART I



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

Introduction

We are a leading provider of sales and marketing solutions, combining hosted application software
and execution services designed to drive more revenue for our clients. We have three primary product lines as follows: contract sales, lead development and training sales. 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 renewals;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | sell, on behalf of our clients, the renewal of 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.

We currently have over 100 clients, 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 Canada and the
Philippines 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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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 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.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | 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

We provide an integrated solution to the complex sales and marketing needs of our clients. We believe our solution helps our clients
address the challenges created by changing industry conditions more efficiently and effectively than traditional approaches. 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.

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 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 15 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
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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 Plus® for 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 integrated sales and marketing solutions in selected vertical markets. 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 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 Canada
and the Philippines. We believe we have the capabilities to offer our clients services for their international needs, much like we have provided in North America.

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.



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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. We also plan to continue to develop and refine our technology
for integrating with our clients IT infrastructure.

Selectively Pursue Strategic Acquisitions.    We have
completed six acquisitions in the past three years. We may consider strategic acquisitions that complement the functionality of our solutions or that expand our geographic footprint, including internationally. We intend to be selective with our
acquisitions and pursue those that meet our required financial and operational criteria and provide us with clear strategic and financial benefits.

Services and 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:

Contract Sales and Renewal (Contract
Sales).    Some clients engage us to market and sell their service contracts and subscription 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 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
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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.

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



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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 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 Training Classes (Training Sales).    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.

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. On a combined basis, sales of our top two clients services accounted for 43% of our net revenues in 2007, compared to 48% in 2006. In
2007, Dell, our largest client, accounted for 29.4% of our net revenues and Hewlett-Packard, our second largest client, accounted for 13.2% of our net revenues. In the fourth quarter of 2007, we reduced our revenue from Dell to 25%.

In February 2008, we received written notification from Dell that they will be terminating our service agreement. Under Dells transition plan set
forth in the notice, Dell moved approximately half of the services being provided by us under the agreement internally effective on February 4, 2008, and intends to move the remainder over the subsequent three months, at the conclusion of which
the Company would no longer be performing any services for Dell.

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.



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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, 2007, we employed
1,408 people. We also use temporary personnel from time to time, and they are not included in our headcount. 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.

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;
| | - |  | -----------------------------------------------------------------------------------------------------------------



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



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



| |  |  | Companies that offer training management systems, such as Saba and SumTotal; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | Enterprise application software providers such as Oracle and SAP.
| | - |  | -----------------------------------------------------------------



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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 service mark, 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, service mark, 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, service marks 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, Contract Renewals Plus, and
Education Sales Plus 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, the
Rainmaker mark and design in the U.S., Canada, Mexico and the European Community, the Contract Renewals Plus mark in the U.S. and Switzerland, and the Education Sales Plus mark in the U.S. and Switzerland.

Government Regulation

We are subject,
both directly and indirectly, to various laws and governmental regulations 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 could have a material adverse effect on our
business.

Although our online transmissions currently originate in California and Texas, the governments of other states or foreign
countries might 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 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.



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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 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 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 fiscal years prior to 2007, we had no revenue, assets or operations outside of the US. During 2007, we acquired the Canadian assets of CAS Systems, Inc (CAS Systems) and we acquired all of the
outstanding stock of Qinteraction Limited (Qinteraction) which is a Cayman Islands based holding company that has operations in the Philippines. Thus, we currently have operations in the United States, Canada and the Philippines where we
perform services on behalf of our clients to customers who are almost entirely located in North America. Most of our sales are made to our clients customers in the U.S. and Canada. See Segment Reporting in Note 1 to our
consolidated financial statements.

Corporate Information

We were founded in 1991 and are headquartered in Silicon Valley in Campbell, California. We also have operation centers in Austin, Texas; Oakland, California; Vaudreuil, Canada and Manila, Philippines. 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, 2007, two clients, Dell and Hewlett-Packard, each accounted for more than 10% of our net revenue and collectively
represented 43% of our net revenue for the year ended December 31, 2007. Our largest client, Dell, represented 29% of our net revenue for the year ended December 31, 2007. In the year ended December 31, 2006, these two clients
collectively represented 48% of our net revenue with the largest individual client, Dell, accounting for 38% of our net revenue.

In
February 2008, we received written notification from Dell that they will be terminating our service agreement. Under Dells transition plan set forth in the notice, Dell moved approximately half of the services



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being provided by us under the agreement internally effective on February 4, 2008, and intends to move the remainder over the subsequent three months,
at the conclusion of which the Company would no longer be performing any services for Dell. Dell accounted for 25% of our net revenue for the fourth quarter of 2007. After giving effect to the termination by Dell, Hewlett-Packard is currently the
only client that represents more than 10% of our net revenue.

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 would cause a significant decrease in our net 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 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, which may adversely impact the revenues we generate from
those clients. Any restructuring or termination of our services by one of our other 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.

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.

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 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 service sales agreement with Hewlett-Packard, our largest client after giving effect to the termination of Dells service agreement, can be terminated without cause upon 90 days notice.

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 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 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



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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 the
business-to-consumer market. 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 new channel contract sales solution to increase revenue from our clients resellers. This solution is still under development and may not yield sufficient results. Also, there is no assurance resellers will use this
solution.

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 valuation analyses on all acquisitions and reassess the valuations and carrying value of goodwill and other intangible assets on our balance sheet at least annually. As of December 31, 2007, we had
$14.5 million in goodwill and $7.0 million of unamortized intangibles. This reassessment has in the past resulted in adjustments in amortization schedules, and could in the future result in further adjustments, or in write-downs or write-offs of
assets, which would negatively affect our financial position and operating results.

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 has significant operations near Montreal, Canada. On July 19, 2007, we acquired Qinteraction Limited, which operates a call center in Manila, Philippines. Our
growth strategy may include further expansion into international markets. Our international expansion may require significant additional financial resources and management attention, and could have a



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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 services in international markets.

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.

Although we reported net income in each of the four quarters during 2006 and 2007, we incurred a net loss of $5.0 million for the year ended
December 31, 2005, and a net loss of $4.9 million for the year ended December 31, 2004. Our accumulated deficit through December 31, 2007 is $58.1 million. We may 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;
| | - |  | ----------------------------------------------



| |  |  | 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;
| | - |  | --------------------------------------



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



| |  |  | the costs of complying with Section 404 of the Sarbanes-Oxley Act;
| | - |  | ------------------------------------------------------------------



| |  |  | the granting of additional stock options and/or restricted stock awards resulting in additional FAS 123R stock option 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; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



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

We may need to raise additional capital which might not be available to us on acceptable terms, if at all.

We may require 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 stock in which we issued an additional 3.5 million
shares and raised $27 million in net proceeds. Any additional equity financing will be dilutive to stockholders, and 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.

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;
| | - |  | ----------------------------------------------



| |  |  | 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 costs of complying with Section 404 of the Sarbanes-Oxley Act;
| | - |  | ------------------------------------------------------------------



| |  |  | the granting of additional stock options and/or restricted stock awards resulting in additional FAS 123R stock option expense;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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

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 lead generation service offerings, we will experience seasonal fluctuations in our revenue as
companies spending on marketing can be stronger in the second and fourth quarters than in the first and third. 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.

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, Canada, and the Philippines 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.



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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 technology and system
improvements and capitalized those costs while the technology was being developed. During the year ended December 31, 2006, we deployed our new customer relationship management, or CRM system, which we had developed over an 18-month period. We
invested $3.2 million in this system, which has a carrying value of $2.0 million as of December 31, 2007 as capitalized software, and is being amortized over five years. We are using it as a CRM platform for our service sales clients. If
unforeseen events or circumstances prohibit us from using this system with all clients, we may be forced to impair some or all of this asset, which could result in a charge to our financial results.

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 these 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 the 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.



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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.

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 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 tax, either retroactively, prospectively or both, could adversely affect our results of operations and business.

Risks Related to Our Industry and Other Risks

We are subject to government regulation of
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. Any failure by us to comply with applicable statutes and regulations could result in penalties. 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.



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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.

As of by December 31, 2007 and going forward, we are required to comply with the management certification and auditor attestation 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 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. Additionally, we will be required to be Section 404 compliant by December 31, 2008 with respect to CAS Systems and Qinteraction Limited that were acquired during 2007,
and we can provide no assurance at this time that this will be completed.

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

In December 2004, the Financial Accounting Standards Board, or FASB, announced
its decision to require companies to expense employee stock options. The pro forma disclosure that the FASB previously permitted will no longer be an alternative to the financial statement recognition of the expense. We adopted the new accounting
pronouncement, Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, beginning on January 1, 2006. Our stock based compensation charges were approximately $1.8 million during 2007 and $207,000
during 2006. This change in accounting practices may adversely affect our future reported results of operations due to future changes to various assumptions used to determine the fair value of awards issued or the amount and type of equity awards
granted, but will have no impact on cash flows.

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



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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. When our common stock was listed on the Nasdaq Capital Market, we were subject to various
restrictions under California law that prohibited us from having a classified board. Now that our common stock is listed on the Nasdaq Global Market, we are no longer subject to those restrictions. Accordingly, we implemented a classified board at
our 2007 annual meeting of our stockholders. 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 may be volatile.

During the year ended December 31, 2007, the price for our common stock fluctuated between $5.99 per share and $11.21 per share. The trading price of
our common stock may continue to fluctuate widely due to:



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



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



| |  |  | 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;
| | - |  | --------------------------------------------------



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



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



| |  |  | dilution resulting from the raising of additional capital.
| | - |  | ----------------------------------------------------------

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.



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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). 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, 2007, our directors, executive officers and entities affiliated with them
together beneficially control approximately 11.2% 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.

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, 2007, we had 20,325,964 outstanding shares of common stock which included 1,023,282
shares issued pursuant to restricted stock awards granted to certain employees. These restricted shares will become available for public sales subject to the respective employees continued employment with the company over vesting periods of not more
than four years. In addition, there were an aggregate of 2,470,199 shares of common stock issuable upon exercise of outstanding stock options and warrants, including 1,377,248 shares of common stock issuable upon exercise of options outstanding
under our option plan and 1,092,951 shares of common stock issuable upon exercise of the outstanding warrants issued to the investors in our private placement transactions completed on February 7, 2006, June 15, 2005 and
February 20, 2004. We may issue and/or register additional shares, options, or warrants in the future in connection with acquisitions, employee compensation or otherwise.

On April 25, 2007, we completed a follow-on public offering of our common stock in which we issued 3,500,000 additional shares.



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On July 19, 2007, we completed a Stock Purchase Agreement with the shareholders of Qinteraction
Limited. 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 are 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, 292,226 shares will be available for public sale after one year following the closing, and 25,168 shares will be available for public sale after 15 months following the closing, subject to
certain post-closing conditions and potential adjustments. The agreement also provides for a potential additional payment at the end of twelve months following the closing, based on the achievement of certain financial milestones, and could result
in the issuance of up to $3.5 million in additional Rainmaker common stock and a payment of $4.5 million in cash.



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

None.



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

Facilities

Our headquarters is located in one building in Campbell, California. We occupy approximately 23,149 square feet of floor space covered by a lease that
expires in 2010. We also have a facility in Austin, Texas where we have approximately 59,466 square feet of space covered by a lease that expires in June 2009.

As a result of our acquisition of CAS Systems in January 2007, we now have facilities near Montreal, Canada, where we have approximately 18,426 square feet of space covered by leases that expire on December 31,
2009, with options for subsequent continuation, and in Oakland, California where we have approximately 10,039 square feet of space covered by a lease that expires on May 19, 2011. The provisions of our leases in Canada specify that either party
can terminate the lease for any reason by giving the other party at least 120 days prior written notice.

With our acquisition of
Qinteraction, we assumed existing lease obligations at their Manila, Philippines offices. We have assumed 2 office space leases and a parking lease. We occupy approximately 40,280 square feet on 3 floors in the BPI building in Manila. Our current
lease for this space terminates on March 31, 2008, and we have signed a new lease that commences on April 1, 2008, has a 5 year term and terminates on March 31, 2014. We occupy approximately 15,460 square feet in the Pacific Star
building in Manila. This lease commenced on October 1, 2007, has a 5 year term and terminates on September 30, 2012. Our parking lease began in March 2006, has a 5 year term and terminates in February 2011.

We believe these facilities are adequate for our current needs.



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

We currently are not a party to
any material legal proceedings and are not aware of any pending or threatened litigation that would have a material adverse effect on us or our business.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

None.



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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. Prior to January 8, 2007, our common stock had been traded
on the Nasdaq Capital Market. 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
|2007 |  |    |       |    |   |      |  |    |       |  |   |     
|High |  | $  | 11.21 |    | $ | 9.34 |  | $  | 10.00 |  | $ | 8.70
|Low  |  | $  | 7.11  |    | $ | 6.36 |  | $  | 7.05  |  | $ | 5.99
|2006 |  |    |       |    |   |      |  |    |       |  |   |     
|High |  | $  | 4.32  |    | $ | 6.74 |  | $  | 6.74  |  | $ | 8.32
|Low  |  | $  | 2.41  |    | $ | 4.00 |  | $  | 5.11  |  | $ | 5.51

As of February 26, 2008, we had approximately 131 common stockholders of record. On
February 26, 2008, the last reported sale price of our common stock on the Nasdaq Global Market was $3.03 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.



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Stock Performance Graph

The following graph compares, for the five year period ending December 31, 2007, the cumulative total stockholder return for the Company, the Nasdaq Composite Stock Market Index (U.S.), the Nasdaq
Computer & Data Processing Index, and an index of peer issuers selected in good faith by the Company that are in a similar line of business as the Company. The following performance graph shall not be deemed incorporated by reference by any
general statement incorporating by reference in the Annual Report on Form 10-K into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by
reference, and shall not otherwise be deemed filed under such Acts.

LOGO

| | * | $100 invested on 12/31/02 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.
| | - | ----------------------------------------------------------------------------------------------------------------



|                                  |  |        |  |        |  |        |  |        |  |        |  |       
|--------------------------------- |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|                                  |  | 12/02  |  | 12/03  |  | 12/04  |  | 12/05  |  | 12/06  |  | 12/07 
|Rainmaker Systems, Inc.           |  | 100.00 |  | 140.00 |  | 124.00 |  | 56.60  |  | 149.40 |  | 129.80
|NASDAQ Composite                  |  | 100.00 |  | 149.34 |  | 161.86 |  | 166.64 |  | 186.18 |  | 205.48
|NASDAQ Computer & Data Processing |  | 100.00 |  | 124.93 |  | 143.03 |  | 147.07 |  | 166.42 |  | 197.80
|Peer Group                        |  | 100.00 |  | 136.09 |  | 181.45 |  | 170.98 |  | 230.26 |  | 181.87

Measurement points are the last trading day of each of the Companys fiscal years ended
December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005, December 31, 2006, and December 31, 2007. The graph assumes that $100 was invested on December 31, 2002 in the Common Stock of the
Company, the Nasdaq Market Index, the Nasdaq Computer & Data Processing index and the index of peer issuers, and assumes reinvestment of any dividends. The stock price performance on the above graph is not necessarily indicative of future
stock price performance.

The companies included in the index of peer issuers for purposes of the preceding Stock Performance Graph are:
Concur Technologies, Inc., Digital River, Inc., Harte-Hanks, Inc., Peoplesupport, Inc. and Unica Corporation. The returns of each component issuer included in the index of peer issuers are weighted according to the respective issuers
approximate market capitalization at December 31, 2002.



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##### Table of Contents

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

The following selected
financial data should be read together with our consolidated financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this annual report. The statement of
operations data for the years ended December 31, 2007, 2006, and 2005 and the balance sheet data at December 31, 2007 and 2006 are derived from our audited financial statements that are included elsewhere in this annual report. The
statement of operations data for the years ended December 31, 2004 and 2003 and the balance sheet data as of December 31, 2005, 2004, and 2003 are derived from our audited financial statements not included herein. Certain prior year
amounts have been reclassified to conform to the 2007 presentation. Historical results of operations are not necessarily indicative of future results.



|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------- | ------ | ---- | - | ------ |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                         |  | Years ended December 31,              |       
|                                                                                                                         |  | 2007                                  |        | 2006 |   | 2005   |  |   | 2004   |   |  | 2003 |       
|                                                                                                                         |  | (in thousands, except per share data) |       
|Statement of Operations Data:                                                                                            |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Net revenue                                                                                                              |  | $                                     | 73,515 |      | $ | 48,921 |  | $ | 32,114 |   |  | $    | 15,323 |   |  | $ | 13,689 |  
|Costs of services                                                                                                        |  |                                       | 38,114 |      |   | 24,385 |  |   | 18,716 |   |  |      | 7,709  |   |  |   | 5,052  |  
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Gross margin                                                                                                             |  |                                       | 35,401 |      |   | 24,536 |  |   | 13,398 |   |  |      | 7,614  |   |  |   | 8,637  |  
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Operating expenses:                                                                                                      |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Sales and marketing                                                                                                      |  |                                       | 6,854  |      |   | 4,250  |  |   | 2,838  |   |  |      | 1,651  |   |  |   | 1,671  |  
|Technology and development                                                                                               |  |                                       | 10,738 |      |   | 5,990  |  |   | 4,248  |   |  |      | 2,826  |   |  |   | 2,920  |  
|General and administrative                                                                                               |  |                                       | 11,443 |      |   | 7,483  |  |   | 8,134  |   |  |      | 6,385  |   |  |   | 5,629  |  
|Depreciation and amortization                                                                                            |  |                                       | 5,711  |      |   | 3,299  |  |   | 3,114  |   |  |      | 1,740  |   |  |   | 1,497  |  
|(Recoveries of) restructuring and other related charges                                                                  |  |                                       |       |      |   |       |  |   |       |   |  |      |       |   |  |   | (23    | )
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Total operating expenses                                                                                                 |  |                                       | 34,746 |      |   | 21,022 |  |   | 18,334 |   |  |      | 12,602 |   |  |   | 11,694 |  
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Operating income (loss)                                                                                                  |  |                                       | 655    |      |   | 3,514  |  |   | (4,936 | ) |  |      | (4,988 | ) |  |   | (3,057 | )
|Interest and other income (expense), net                                                                                 |  |                                       | 1,407  |      |   | 187    |  |   | (68    | ) |  |      | 50     |   |  |   | (25    | )
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Income (loss) before income tax expense                                                                                  |  |                                       | 2,062  |      |   | 3,701  |  |   | (5,004 | ) |  |      | (4,938 | ) |  |   | (3,082 | )
|Income tax expense (benefit)                                                                                             |  |                                       | 558    |      |   | 298    |  |   |       |   |  |      |       |   |  |   | (23    | )
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Net income (loss)                                                                                                        |  | $                                     | 1,504  |      | $ | 3,403  |  | $ | (5,004 | ) |  | $    | (4,938 | ) |  | $ | (3,059 | )
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Basic net income (loss) per share (1)                                                                                    |  | $                                     | 0.09   |      | $ | 0.25   |  | $ | (0.48  | ) |  | $    | (0.57  | ) |  | $ | (0.39  | )
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Diluted net income (loss) per share (1)                                                                                  |  | $                                     | 0.08   |      | $ | 0.23   |  | $ | (0.48  | ) |  | $    | (0.57  | ) |  | $ | (0.39  | )
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Shares used to compute basic net income (loss) per share (1)                                                             |  |                                       | 17,569 |      |   | 13,662 |  |   | 10,464 |   |  |      | 8,715  |   |  |   | 7,791  |  
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Shares used to compute diluted net income (loss) per share (1)                                                           |  |                                       | 18,882 |      |   | 14,568 |  |   | 10,464 |   |  |      | 8,715  |   |  |   | 7,791  |  
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                                                                         |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|(1)    Adjusted to reflect the one-for-five reverse split of our outstanding common stock effected on
December 15, 2005. | 
|                                                                                                                         | 
|                                                                                                                         |  | As of December 31,                    |       
|                                                                                                                         |  | 2007                                  |        | 2006 |   | 2005   |  |   | 2004   |   |  | 2003 |       
|                                                                                                                         |  | (in thousands)                        |       
|Balance Sheet Data:                                                                                                      |  |                                       |        |      |   |        |  |   |        |   |  |      |        |   |  |   |        |  
|Cash and cash equivalents                                                                                                |  | $                                     | 37,407 |      | $ | 21,996 |  | $ | 9,746  |   |  | $    | 10,104 |   |  | $ | 4,854  |  
|Working capital                                                                                                          |  |                                       | 26,212 |      |   | 5,202  |  |   | (3,764 | ) |  |      | 2,372  |   |  |   | 970    |  
|Total assets                                                                                                             |  |                                       | 95,552 |      |   | 54,258 |  |   | 34,158 |   |  |      | 22,362 |   |  |   | 15,817 |  
|Long-term debt and capital lease obligations, less current portion                                                       |  |                                       | 1,333  |      |   | 417    |  |   | 1,917  |   |  |      | 42     |   |  |   | 31     |  
|Total stockholders equity                                                                                               |  |                                       | 58,052 |      |   | 21,702 |  |   | 6,119  |   |  |      | 5,576  |   |  |   | 3,847  |  

Effective January 1, 2006, we adopted FAS 123R as more fully described in Note 8 to the
consolidated financial statements contained in this Annual Report.



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##### Table of Contents

|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 here, and in the documents incorporated herein
by reference, including those factors described under Risk Factors.

Overview

We are a leading provider of sales and marketing solutions, combining hosted application software
and execution services designed to drive more revenue for our clients. We have three primary product lines as follows: contract sales, lead development and training sales. 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 Austin, Texas, Oakland, California, Vaudreuil, Canada, and Manila, Philippines. 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 more than 100 existing clients, expand 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 are highly
complimentary to our existing Lead Development and Contract Sales product offerings.

We reported net revenue of $73.5 million in 2007,
representing a 50% growth over the prior year. We were once again profitable in each quarter of 2007 and reported net income of $1.5 million for the year. In February 2008, we received written notification from Dell, our largest customer, that they
will be terminating our service agreement. For the year ended December 31, 2007, Dell accounted for 29% of our net revenue and approximately 25% of our net revenue for the fourth quarter of 2007. During the year ended December 31, 2006,
Dell accounted for approximately 38% of our net revenue. With this loss of this client, we expect our net revenue to be negatively impacted until we are able to replace the loss of Dell with new business and with additional business from our
existing clients.

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); and from the licensing of our hosted application software platform for our clients training sales (Training Sales).

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 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 renewal amount based on the agreement with our client. We 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 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 recently started to 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



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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.

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.

Gross Margin

Gross margin is calculated as net revenue less the costs associated with selling our clients products 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 relatively fixed. 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. Margins from sales of our clients
service contract renewals are higher than our lead generation services, and licensing from our hosted application software is our highest margin service.

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 are also investing 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 and other professional fees.
Most of these costs relate to personnel, insurance and facilities and are relatively fixed. In 2007



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we were required to be compliant with the auditor attestation provisions of Section 404 of the Sarbanes-Oxley Act of 2002. We incurred substantial
additional costs in 2007 to achieve this compliance with the Sarbanes-Oxley Act and therefore expect to continue to incur significant costs in general and administrative expenses in future years to maintain compliance. We will also incur costs in
2008 to achieve Section 404 compliance by December 31, 2008 for our CAS Systems and Qinteraction Limited operations acquired in 2007.

Stock-Based Compensation

Prior to 2006, cost of revenue and operating expenses include stock-based compensation
expense to the extent the fair value of our common stock exceeds the exercise price of stock options granted to employees on the date of grant. Effective in the first quarter of fiscal 2006, we adopted accounting provisions pursuant to the
requirements of SFAS 123(R), Share Based Payment. SFAS 123(R) addresses all forms of share-based payment awards, including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation
rights. SFAS 123(R) requires us to expense share-based payment awards with compensation cost for share-based payment transactions measured at fair value.

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 six businesses in the past three years, and accordingly have been increasing our intangible amortization expense.
In the first quarter of 2007, we completed the acquisition of CAS Systems, and in the third quarter of 2007, we completed the acquisition of Qinteraction Limited, and will therefore incur higher intangible asset amortization in the future.

Interest and Other Income (Expense), Net

Interest and other income (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
accepted in the U.S. 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, 2006. Management believes there have been no significant
changes during the year ended December 31, 2007.

Use of Estimates

The preparation of the financial statements and related disclosures, in conformity with accounting principles generally accepted in the U.S., requires us
to establish accounting policies that contain estimates and assumptions



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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;
| | - |  | --------------------



| |  |  | 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;
| | - |  | ------------------------------------------------------



| |  |  | 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 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 contract renewals, lead development services and software licenses for hosted
application software for training sales. We recognize revenue from the sale of our clients service contract renewals under the provisions of Staff Accounting Bulletin (SAB) 104 Revenue Recognition and on the
net basis in accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. Revenue from the sale of service contract renewals is recognized when an order from the
clients customer is received; the service contract 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 delivered 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 licensing of hosted software applications for training sales ratably over each contract period, having considered EITF 00-03: Application of AICPA SOP 97-2,
Software Revenue Recognition, to Arrangements That Include the Right to Use Software Stored on Another Entitys Hardware, which distinguishes hosting services that might fall under the scope of SOP 97-2: Software Revenue
Recognition. Since these software licenses are usually paid in advance, we record a deferred revenue liability on our balance sheet that represents the prepaid portions of licenses that will be earned over the next one to two years.

We also evaluate our agreements for multiple element arrangements, taking into consideration the guidance from both EITF 00-21: Revenue Arrangements
with Multiple Deliverables,and TPA 5100.39: Software Revenue Recognition 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 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, based on the relative value of the performance that has occurred at that point in time compared to that of the total contract.

Our revenue recognition policy involves significant judgments and estimates about collectibility. We assess the probability of collection based on a number of factors, including past transaction history and/or the



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creditworthiness of our clients customers, which is based on current published credit ratings, current events and circumstances regarding the business
of our clients customer 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, 2007 and 2006, our allowance for potentially uncollectible accounts was $285,000 and $233,000, respectively.

Long-Lived Assets

Long-lived assets (excluding goodwill) including our purchased intangible assets are amortized
over their estimated useful lives. In accordance with FASB No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, 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 undiscounted 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.

Goodwill and Other Intangible Assets

We apply the guidance of the Financial Accounting
Standards Board (FASB) Statement No. 141, Business Combinations in accounting for the assets related to our acquisitions. 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 Statement No. 142, Goodwill and Other Intangible Assets 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 tradenames of the businesses we have acquired. No circumstances or indicators have arisen to indicate that the carrying value has
been impaired.

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



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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 Statement of Position 98-1 (SOP 98-1), Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use and Emerging Issue Task Force Issue No. 00-02 (EITF 00-02), Accounting for Website Development Costs. SOP 98-1 and EITF 00-02 require that we expense computer
software and website development costs as they are incurred during the preliminary project stage. Once the capitalization criteria of SOP 98-1 and EITF 00-02 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 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. During 2006, we put in place a new customer relationship management system that included
capitalized internal development costs. In total, the system cost $3.2 million and is being amortized over five years on a straight-line basis.

Income Taxes

We account for income taxes using the liability method in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 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, 2007 and 2006, we had gross deferred tax assets of $17.9 million and $18.5 million,
respectively. In 2006 and 2007, 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.

In July 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in any entitys financial statements in accordance with
FASB Statement No. 109, Accounting for Income Taxes and 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 FIN 48, 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, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for
fiscal years beginning after December 15, 2006. We have adopted FIN 48 effective January 1, 2007 and as a result of the adoption, the Company recognized no adjustment to retained earnings and no change in the liability for unrecognized tax
benefits.

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123(R)) which establishes standards for the accounting of
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.



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The Company adopted SFAS 123(R) using the modified-prospective transition method, which requires the
application of the accounting standard as of January 1, 2006, the first day of the Companys fiscal year 2006. The Companys Consolidated Financial Statements as of and for the years ended December 31, 2007 and 2006 reflect the
impact of SFAS 123(R). In accordance with the modified-prospective transition method, the Companys Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing
model. 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. Prior to the adoption of SFAS 123(R), the
Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Companys Consolidated Statements of Operations, other than option grants to employees and directors below the fair market value of the
underlying stock at the date of grant. See Note 8 for further discussion of this statement and its effects on the financial statements presented herein.

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. The functional currency of our Canadian and Philippine subsidiaries
was determined to be their respective local currencies (Canadian Dollar and Philippine Peso), in accordance with FAS 52, Foreign Currency Translation. 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
income (loss) as a separate component of stockholders equity in the consolidated balance sheet and consolidated statement of stockholders equity and comprehensive income (loss). Net gains and losses resulting from foreign exchange
transactions are included in Interest and other income (expense), net in the consolidated statement of operations.

Significant Client Concentrations

In 2007, Dell and Hewlett-Packard each accounted for more than 10% of our net revenue and collectively represented 43% of our net
revenue, with Dell representing 29%. In 2006, these two clients accounted for 48% of our net revenue, with Dell representing 38% of our net revenue. In 2005, these two clients accounted for 47% of net revenue, with Dell accounting for 36% of our net
revenue.

In February 2008, we received written notification from Dell that they will be terminating our service agreement. Under
Dells transition plan set forth in the notice, Dell moved approximately half of the services provided by us under the agreement internally effective February 4, 2008, and intends to move the remainder over the subsequent three months, at
the conclusion of which the Company would no longer be performing any services for Dell. Dell accounted for 25% of our net revenue for the fourth quarter of 2007.

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

We have service agreements with our clients that expire at various dates ranging through May 2010. Many of our client agreements contain automatic renewal clauses. These clients may, however, terminate their contracts for cause in
accordance with the provisions of each contract. Substantially all clients must provide us with advance written notice of their intention to terminate. Hewlett-Packard may terminate their contract with 90



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days notice. Any loss or reduction of business of a significant client would likely have a material adverse effect on the Companys consolidated
financial position, cash flows and results of operations.

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 have made purchases of
computer equipment and services from several vendors including Dell and Hewlett-Packard, our two largest clients as of December 31, 2007. During the year ended December 31, 2007, we purchased equipment from Dell and Hewlett-Packard
totaling approximately $378,000 and $37,000, respectively. During the prior year ended December 31, 2006, we purchased equipment from Dell and Hewlett-Packard totaling $399,000 and $95,000, 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, 2007, we paid Saama Technologies approximately $293,000 for technology services. During the prior year, we paid Saama Technologies $150,000 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 year ended December 31, 2007, we paid Market2Lead approximately $50,000 for marketing services. We will continue to utilize their services and
may expand the scope of the services that they provide to us in the future.

Results of Operations

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



|                                         |  |                          |   |  |       |   |  |       |   
|---------------------------------------- |  | ------------------------ | - |  | ----- | - |  | ----- | --
|                                         |  | Years Ended December 31, |  
|                                         |  | 2007                     |   |  | 2006  |   |  | 2005  |   
|Net revenue                              |  | 100.0                    | % |  | 100.0 | % |  | 100.0 | % 
|Costs of services                        |  | 51.8                     |   |  | 49.8  |   |  | 58.3  |   
|                                         |  |                          |   |  |       |   |  |       |   
|Gross margin                             |  | 48.2                     |   |  | 50.2  |   |  | 41.7  |   
|                                         |  |                          |   |  |       |   |  |       |   
|Operating expenses:                      |  |                          |   |  |       |   |  |       |   
|Sales and marketing                      |  | 9.3                      |   |  | 8.7   |   |  | 8.9   |   
|Technology and development               |  | 14.6                     |   |  | 12.2  |   |  | 13.2  |   
|General and administrative               |  | 15.6                     |   |  | 15.3  |   |  | 25.3  |   
|Depreciation and amortization            |  | 7.8                      |   |  | 6.7   |   |  | 9.7   |   
|                                         |  |                          |   |  |       |   |  |       |   
|Total operating expenses                 |  | 47.3                     |   |  | 42.9  |   |  | 57.1  |   
|                                         |  |                          |   |  |       |   |  |       |   
|Operating income (loss)                  |  | 0.9                      |   |  | 7.3   |   |  | (15.4 | ) 
|Interest and other income (expense), net |  | 1.9                      |   |  | 0.3   |   |  | (0.2  | ) 
|                                         |  |                          |   |  |       |   |  |       |   
|Income (loss) before income tax expense  |  | 2.8                      |   |  | 7.6   |   |  | (15.6 | ) 
|Income tax expense                       |  | 0.8                      |   |  | 0.6   |   |  | 0.0   |   
|                                         |  |                          |   |  |       |   |  |       |   
|Net income (loss)                        |  | 2.0                      | % |  | 7.0   | % |  | (15.6 | )%
|                                         |  |                          |   |  |       |   |  |       |   

Comparison of Years Ended December 31, 2007 and 2006

Net Revenue.    Net revenue increased $24.6 million, or 50%, to $73.5 million in the year ended December 31, 2007, as
compared to the year ended December 31, 2006. Our lead development product line



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generated $16.2 million of the increase which includes approximately $12.6 million resulting from the acquisitions of CAS Systems and Qinteraction in January
2007 and July 2007, respectively. Approximately $5.7 million of the increase is related to our contract sales product line primarily due to increased sales from existing clients and approximately $2.7 million of the increase is related to our
training sales product line which was acquired in September 2006.

Costs of Services and Gross Margin.    Costs
of services increased $13.7 million, or 56%, to $38.1 million in the year ended December 31, 2007, as compared to the 2006 comparative period. The increase was primarily due to approximately $8.8 million in expenses from ViewCentral, CAS
Systems and Qinteraction that were acquired in September 2006, January 2007 and July 2007, respectively. The remaining portion of the increase is primarily due to increases in compensation costs which include salaries, bonuses and commissions
related to the hiring of additional staff and increases in outsourced services to support the increased sales volume in all of our product lines. Our gross margin percentage declined slightly to 48% in the 2007 period from 50% in the year ended
December 31, 2006 as lead development became a larger percentage of our revenue with the acquisitions of CAS Systems and Qinteraction. Historically, revenue from lead development has a lower margin than revenue from contract sales.

Sales and Marketing Expenses.    Sales and marketing expenses increased $2.6 million, or 61%, to $6.9 million in the year
ended December 31, 2007, as compared to the year ended December 31, 2006. The increase is primarily due to approximately $1.5 million in expenses from ViewCentral, CAS Systems and Qinteraction that were acquired in September
2006, January 2007 and July 2007, respectively. Additionally, increased compensation costs and travel & entertainment costs as a result of the addition of staff to our sales force and increased commissions from increased sales during
the period contributed to the overall increase. We expect sales and marketing expenses to continue to increase in absolute dollars and slightly as a percentage of sales in 2008 as a result of our larger sales force and increased sales and marketing
costs associated with the operations of our recent acquisitions.

Technology and Development
Expenses.    Technology and development expenses increased $4.7 million, or 79%, to $10.7 million during the year ended December 31, 2007, as compared to the 2006 comparative period. We are engaged in continuing
significant efforts to enhance our infrastructure and integrate our recent acquisitions. Approximately $2.0 million of the increase between the comparative periods is due to increased temporary staffing, outsourced services and consultants for our
infrastructure enhancements as well as the continued support of the database infrastructure which we rely on to service our customers. We believe that by using outsourced hosting for parts of our technology infrastructure, we will be able to better
leverage our technology infrastructure for the future expansion of our business. Additionally, approximately $1.6 million of the increase was due to increased compensation costs for additional staff added to support the growth in our business. The
remaining increase was primarily the result of our recent acquisitions and the additional technology and development expense from these entities. We expect technology and development expenses to increase on an absolute dollar basis and as a
percentage of net revenues in 2008 as we continue to invest in development of our solutions, including internationalization of our solutions, for our customers and in technology infrastructure.

General and Administrative Expenses.    General and administrative expenses increased $4.0 million, or 53%, to $11.4 million
during the year ended December 31, 2007, as compared to the year ended December 31, 2006. The overall increase was primarily due to approximately $1.6 million in increased compensation costs for additional staff added to support the growth
of the business and to assist in the Companys compliance efforts related to Sarbanes-Oxley, and increased audit and consulting fees of approximately $511,000 from Sarbanes-Oxley preparation and implementation. As a result of our recent
acquisitions, we incurred approximately $1.7 million in additional general and administrative expense during 2007. We expect to incur additional costs in 2008 and beyond to maintain compliance with the Sarbanes-Oxley Act and we will also need to
achieve compliance for our operations in Canada and the Philippines that were acquired in 2007. Therefore, we expect our general and administrative expenses to increase in absolute dollars in 2008.



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Depreciation and Amortization Expenses.    Depreciation and amortization
expenses increased $2.4 million, or 73%, to $5.7 million for the year ended December 31, 2007, as compared to the 2006 period. Amortization of intangible assets increased by approximately $2.1 million in the 2007 period primarily as a result of
the acquisitions of ViewCentral in September 2006, and CAS Systems and Qinteraction during 2007. The remaining increase is due to increased depreciation of property and equipment as a result of our acquisitions and capital expenditures over the last
year. Because of our acquisitions and the investments being made in our infrastructure, we expect depreciation and amortization expense to continue to increase in 2008.

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



|                          |  |                        |       |   |        |   |      |   |  |   |       |  
|------------------------- |  | ---------------------- | ----- | - | ------ | - | ---- | - |  | - | ----- | -
|                          |  | Year EndedDecember 31, |       |   | Change |  
|                          |  | 2007                   |       |   | 2006   |   |     
|Interest income           |  | $                      | 1,436 |   |        | $ | 377  |   |  | $ | 1,059 |  
|Interest expense          |  |                        | (186  | ) |        |   | (178 | ) |  |   | (8    | )
|Currency translation gain |  |                        | 137   |   |        |   |     |   |  |   | 137   |  
|Other                     |  |                        | 20    |   |        |   | (12  | ) |  |   | 32    |  
|                          |  |                        |       |   |        |   |      |   |  |   |       |  
|                          |  | $                      | 1,407 |   |        | $ | 187  |   |  | $ | 1,220 |  
|                          |  |                        |       |   |        |   |      |   |  |   |       |  

The increase in interest income is attributable to an increase in cash available to invest in
interest bearing deposits from the $27.1 million in net proceeds that we received from our follow-on offering of common stock in April 2007. Interest expense is the result of interest incurred with notes payable issued with the purchase of the
assets of CAS Systems, as well as remaining balances on the $3.0 million Term Loan obtained in February 2005 in connection with the acquisition of Sunset Direct, and interest on the $1.5 million June 2005 Term Loan to fund the purchase and
implementation of our new client management system. In the year ended December 31, 2006, we were required to capitalize $100,000 in interest costs associated with the development of our client management system, amortization of which began in
2006. Had this not been capitalized, interest expense in the 2006 period would have been higher than the 2007 period. Capitalized interest in 2007 amounted to approximately $4,000.

The currency translation gain 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. Fluctuations of currency exchange rates may have a negative effect in future periods on our financial results.

Income Tax Expense.    Income tax expense increased $260,000, or 87%, to $558,000 for the year ended December 31, 2007,
as compared to the year ended December 31, 2006. The Companys effective tax rate reflects the utilization of net operating loss carryforwards to offset taxable income. As of January 1, 2007, Texas changed its calculation of franchise
tax. The new calculation is computed on taxable margin, as defined under Texas statute. The increase in income tax expense is primarily due to the increase in the Texas state franchise tax and an increase in foreign taxes related to foreign
operations commenced in 2007 and companies acquired during 2007.

Comparison of Years Ended December 31, 2006 and 2005

Net Revenue.    Net revenue increased $16.8 million, or 52%, to $48.9 million in 2006 from $32.1 million in
2005. Revenue from service contract sales grew $9.7 million, or 51%, to $28.7 million substantially as a result of increased sales from existing clients. Revenue from lead development grew $5.9 million, or 45%, to $19.0 million primarily due to
expansion with existing clients and, to a lesser extent, the addition of new clients. Our acquisition of ViewCentral on September 15, 2006 added $1.2 million in revenue from the licensing of hosted software for training sales.



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Costs of Services and Gross Margin.    Costs of services increased $5.7
million, or 30%, to $24.4 million in 2006 from $18.7 million in 2005. Our gross margin percentage improved to 50% in 2006 from 42% in 2005 primarily as a result of the efficiencies and lower costs associated with the move of our base of operations
from California to Texas which was completed in 2005. In 2005, we incurred significant redundancy and transition expenses associated with managing two facilities

Sales and Marketing Expenses.    Sales and marketing expenses increased $1.5 million, or 50%, to $4.3 million in 2006 from $2.8 million in 2005. In 2006 we increased our corporate marketing
activities by $710,000 as a result of the addition of staff, the improvement of our website and participation in trade shows and conferences. The balance of the increased costs in 2006 was due to increased commissions arising from greater success by
our sales force and, to a slightly lesser extent, sales and marketing costs associated with ViewCentral, which was acquired in September 2006.

Technology and Development Expenses.    Technology expenses increased $1.8 million, or 41%, to $6.0 million in 2006 from $4.2 million in 2005. Despite this significant increase in absolute dollars, technology and
development costs decreased as a percentage of net revenue from 13.2% to 12.2%. We are engaged in continuing significant efforts to enhance our infrastructure. During 2005 and through the first quarter of 2006, we developed a new customer
relationship management, or CRM, system that we use for service sales. Certain internal costs were required to be capitalized in connection with this project, which resulted in approximately $700,000 less expense in 2005 than 2006 Approximately
$200,000 of the increase in 2006 was due to infrastructure hosting costs associated with additional software and network upgrades. We believe that by using outsourced hosting for parts of our technology infrastructure, we will be able to leverage
the future expansion of our business. We also incurred an additional $500,000 in technology consulting expense in 2006 relating to the general expansion of our technology infrastructure to support our growing business.

General and Administrative Expenses.    General and administrative expenses decreased $651,000, or 8%, from $8.1 million in
2005 to $7.5 million in 2006. General and Administrative expenses as a percentage of net revenue declined significantly, to 15% from 25%. In late 2005, we completed the transition of most of our finance operations from California to Texas. The
completion of this transition resulted in the reduction of redundant positions and reduced the need for more expensive temporary staff and contractors who were retained during the transition. We recorded $443,000 in severance costs in 2005
associated with a former officer that were not repeated in 2006.

Depreciation and Amortization
Expenses.    Depreciation and amortization expenses increased $185,000, or 6%, to $3.3 million from $3.1 million in 2005. Amortization of intangible assets increased by $570,000 in 2006 as a result of additional acquisitions,
partially offset by a decrease in depreciation expenses of $385,000 as some assets became fully depreciated.

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



|                 |  |                         |      |   |                     |   |      |       |  |   |     |   |  |      |  
|---------------- |  | ----------------------- | ---- | - | ------------------- | - | ---- | ----- |  | - | --- | - |  | ---- | -
|                 |  | Years EndedDecember 31, |      |   | Increase/(Decrease) |  
|                 |  | 2006                    |      |   | 2005                |   |      | $ Amt |  |   | %   |  
|Interest income  |  | $                       | 377  |   |                     | $ | 113  |       |  | $ | 264 |   |  | 234  | %
|Interest expense |  |                         | (178 | ) |                     |   | (177 | )     |  |   | (1  | ) |  | (1   | )
|Other            |  |                         | (12  | ) |                     |   | (4   | )     |  |   | (8  | ) |  | (200 | )
|                 |  |                         |      |   |                     |   |      |       |  |   |     |   |  |      |  
|                 |  | $                       | 187  |   |                     | $ | (68  | )     |  | $ | 255 |   |  | 375  | %
|                 |  |                         |      |   |                     |   |      |       |  |   |     |   |  |      |  

The increase in interest income is attributable to an increase in cash available to invest in
interest bearing deposits. Interest expense is the result of the $3.0 million Term Loan obtained in February 2005 in connection with the acquisition of Sunset Direct, interest on the $1.5 million June 2005 Term Loan to fund the purchase and



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implementation of our new client management system and interest on obligations under capital leases. We have been making principal payments on these term
loans and interest expense was therefore reduced in 2006. In 2005, we were required to capitalize $100,000 in interest costs associated with the development of our client management system, amortization of which began in 2006.

Selected Unaudited Quarterly Operating Results

The
tables below show our unaudited consolidated quarterly income statement data for each of our eight most recent quarters. This information has been derived from our unaudited financial statements, which, in our opinion, have been prepared on the same
basis as our audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the information for the quarters presented. This information should be read in conjunction
with the financial statements and related notes included elsewhere in this filing.



|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|---------------------------------------- |  | ------------------ | ------ | - | ------------- | - | ------ | ------------ |  | ------------ | ------ | ------------ | - | ------------- |  | ------------ | ------ |  | ------------ | ------ |  | - | ------ | - |  | - | ------
|                                         |  | Three Months Ended
|                                         |  | Dec. 31,2007       |        |   | Sept. 30,2007 |   |        | June 30,2007 |  | Mar. 31,2007 |        | Dec. 31,2006 |   | Sept. 30,2006 |  | June 30,2006 |        |  | Mar. 31,2006
|Statement of Operations Data:            |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Net revenue                              |  | $                  | 20,127 |   |               | $ | 19,081 |              |  | $            | 18,042 |              | $ | 16,265        |  | $            | 14,365 |  | $            | 12,219 |  | $ | 11,267 |   |  | $ | 11,070
|Costs of services                        |  |                    | 10,448 |   |               |   | 9,998  |              |  |              | 9,340  |              |   | 8,328         |  |              | 7,070  |  |              | 6,231  |  |   | 5,586  |   |  |   | 5,498 
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Gross margin                             |  |                    | 9,679  |   |               |   | 9,083  |              |  |              | 8,702  |              |   | 7,937         |  |              | 7,295  |  |              | 5,988  |  |   | 5,681  |   |  |   | 5,572 
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Operating expenses:                      |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Sales and marketing                      |  |                    | 1,848  |   |               |   | 1,578  |              |  |              | 1,738  |              |   | 1,690         |  |              | 1,592  |  |              | 1,034  |  |   | 892    |   |  |   | 732   
|Technology and development               |  |                    | 2,734  |   |               |   | 2,856  |              |  |              | 2,793  |              |   | 2,355         |  |              | 1,874  |  |              | 1,487  |  |   | 1,408  |   |  |   | 1,221 
|General and administrative               |  |                    | 3,417  |   |               |   | 3,166  |              |  |              | 2,662  |              |   | 2,198         |  |              | 1,889  |  |              | 1,745  |  |   | 1,779  |   |  |   | 2,070 
|Depreciation and amortization            |  |                    | 1,760  |   |               |   | 1,614  |              |  |              | 1,197  |              |   | 1,140         |  |              | 1,016  |  |              | 797    |  |   | 790    |   |  |   | 696   
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Total operating expenses                 |  |                    | 9,759  |   |               |   | 9,214  |              |  |              | 8,390  |              |   | 7,383         |  |              | 6,371  |  |              | 5,063  |  |   | 4,869  |   |  |   | 4,719 
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Operating income (loss)                  |  |                    | (80    | ) |               |   | (131   | )            |  |              | 312    |              |   | 554           |  |              | 924    |  |              | 925    |  |   | 812    |   |  |   | 853   
|Interest and other income (expense), net |  |                    | 439    |   |               |   | 448    |              |  |              | 391    |              |   | 129           |  |              | 133    |  |              | 56     |  |   | (23    | ) |  |   | 21    
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Income before income tax expense         |  |                    | 359    |   |               |   | 317    |              |  |              | 703    |              |   | 683           |  |              | 1,057  |  |              | 981    |  |   | 789    |   |  |   | 874   
|Income tax expense                       |  |                    | 138    |   |               |   | 159    |              |  |              | 133    |              |   | 128           |  |              | 114    |  |              | 112    |  |   | 18     |   |  |   | 54    
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Net income                               |  | $                  | 221    |   |               | $ | 158    |              |  | $            | 570    |              | $ | 555           |  | $            | 943    |  | $            | 869    |  | $ | 771    |   |  | $ | 820   
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Basic net income per share               |  | $                  | 0.01   |   |               | $ | 0.01   |              |  | $            | 0.03   |              | $ | 0.04          |  | $            | 0.06   |  | $            | 0.06   |  | $ | 0.06   |   |  | $ | 0.07  
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       
|Diluted net income per share             |  | $                  | 0.01   |   |               | $ | 0.01   |              |  | $            | 0.03   |              | $ | 0.03          |  | $            | 0.06   |  | $            | 0.06   |  | $ | 0.05   |   |  | $ | 0.06  
|                                         |  |                    |        |   |               |   |        |              |  |              |        |              |   |               |  |              |        |  |              |        |  |   |        |   |  |   |       



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



|                                         |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  
|---------------------------------------- |  | ------------------ | - |  | ------------- | - |  | ------------ | - |  | ------------ | - |  | ------------ | - |  | ------------- | - |  | ------------ | - |  | ------------ | -
|                                         |  | Three Months Ended |  
|                                         |  | Dec. 31,2007       |   |  | Sept. 30,2007 |   |  | June 30,2007 |   |  | Mar. 31,2007 |   |  | Dec. 31,2006 |   |  | Sept. 30,2006 |   |  | June 30,2006 |   |  | Mar. 31,2006 |  
|Net revenue                              |  | 100                | % |  | 100           | % |  | 100          | % |  | 100          | % |  | 100          | % |  | 100           | % |  | 100          | % |  | 100          | %
|Costs of services                        |  | 52                 |   |  | 52            |   |  | 52           |   |  | 51           |   |  | 49           |   |  | 51            |   |  | 50           |   |  | 50           |  
|                                         |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  
|Gross margin                             |  | 48                 |   |  | 48            |   |  | 48           |   |  | 49           |   |  | 51           |   |  | 49            |   |  | 50           |   |  | 50           |  
|                                         |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  
|Operating expenses:                      |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  
|Sales and marketing                      |  | 9                  |   |  | 8             |   |  | 10           |   |  | 10           |   |  | 11           |   |  | 8             |   |  | 8            |   |  | 7            |  
|Technology and development               |  | 13                 |   |  | 15            |   |  | 15           |   |  | 15           |   |  | 13           |   |  | 12            |   |  | 12           |   |  | 11           |  
|General and administrative               |  | 17                 |   |  | 17            |   |  | 15           |   |  | 14           |   |  | 14           |   |  | 14            |   |  | 16           |   |  | 18           |  
|Depreciation and amortization            |  | 9                  |   |  | 8             |   |  | 6            |   |  | 7            |   |  | 7            |   |  | 7             |   |  | 7            |   |  | 6            |  
|                                         |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  
|Total operating expenses                 |  | 48                 |   |  | 48            |   |  | 46           |   |  | 46           |   |  | 45           |   |  | 41            |   |  | 43           |   |  | 42           |  
|                                         |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  
|Operating income                         |  | 0                  |   |  | 0             |   |  | 2            |   |  | 3            |   |  | 6            |   |  | 8             |   |  | 7            |   |  | 8            |  
|Interest and other income (expense), net |  | 2                  |   |  | 2             |   |  | 2            |   |  | 1            |   |  | 1            |   |  |              |   |  |             |   |  |             |  
|                                         |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  
|Income before income tax expense         |  | 2                  |   |  | 2             |   |  | 4            |   |  | 4            |   |  | 7            |   |  | 8             |   |  | 7            |   |  | 8            |  
|Income tax expense                       |  | 1                  |   |  | 1             |   |  | 1            |   |  | 1            |   |  |             |   |  | 1             |   |  |             |   |  | 1            |  
|                                         |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  
|Net income                               |  | 1                  | % |  | 1             | % |  | 3            | % |  | 3            | % |  | 7            | % |  | 7             | % |  | 7            | % |  | 7            | %
|                                         |  |                    |   |  |               |   |  |              |   |  |              |   |  |              |   |  |               |   |  |              |   |  |              |  

Revenue

We have increased our revenue sequentially in each quarter over the last 2 years. These increases have been primarily due to acquisitions along with
organic revenue growth in our contract sales and lead development units. We added our hosted application software for training sales near the end of the third quarter of 2006, which contributed $1.2 million of revenue in the fourth quarter of
2006 and an increase in revenue of approximately $2.7 million for the 2007 fiscal year as compared to the prior year. In January 2007, we acquired CAS Systems which contributed $8.1 million in revenue for 2007. In July 2007, we acquired
Qinteraction Limited which contributed $4.4 million in revenue over the third and fourth quarter of 2007.

Gross Margin

Gross margins remained fairly constant in 2006, with minor fluctuations as a result of changes in our mix of services provided to our
clients. Gross margins decreased slightly in 2007 as lead development became a larger percentage of our revenue with the acquisitions of CAS Systems and Qinteraction. Historically, revenue from lead development has a lower margin than revenue from
contract sales.

Operating Expenses

Operating expense as a percentage of revenues increased during fiscal 2007. The increase can be attributed to General and Administrative expenses as a result of our investments towards the achievement of Sarbanes
Oxley compliance and increases in stock based compensation expense. We have also incurred increasing technology and development expenses relating to our investment in technology infrastructure, software development and tools in support of future
growth, as well as an increase in expense related to supporting client driven initiatives including project management staff and data resources.

Income (Loss) from Operations

We became profitable in the first quarter of 2006 and maintained profitability in each
quarter of 2007. Our operating income as a percentage of revenue decreased in 2007 due primarily to increases in non-cash costs for



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the amortization of intangibles related to the acquisition of CAS Systems in January of 2007 and Qinteraction in July of 2007, and lastly, in the fourth
quarter of 2007, an increase in stock based compensation expense as a result of additional equity awards to employees.

Liquidity and Sources of Capital

We generated $4.9 million of cash from operating activities in 2007. We used cash in operating activities in substantially all years
prior to 2006 and we funded our operations from cash proceeds from the sale of common stock and the incurrence of debt. From 2004 through 2006, we raised aggregate net proceeds of $14.2 million from private placements of common stock, and during
2007 we raised net proceeds of $27.2 million from a follow-on offering of common stock. During 2005, we raised an aggregate of $4.5 million from term loans from institutional lenders to fund our operations and support our acquisitions of other
businesses.

Cash flow from operating activities for 2007 was $4.9 million as compared to cash provided by operating activities of $10.5
million in 2006. Cash provided by operating activities in 2007 was primarily the result of net income totaling $1.5 million, non-cash expenditures of depreciation and amortization of property and intangibles of $5.7 million,
stock-based compensation charges of $1.8 million, the provision for allowance for doubtful accounts of $408,000, and changes in operating assets and liabilities, net of assets acquired and liabilities assumed, that used $4.6 million of cash for
the year.

The two largest components of our changes in operating assets and liabilities are accounts payable and accounts receivable. 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 is composed primarily of amounts due to our clients for service and maintenance contracts we sold on their behalf. Accounts payable
therefore increases in relation to our increased sales of service contracts on behalf of our clients. However, because we report as revenue only the net difference between our account receivable from the customer of our client and our account
payable to our client in accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, any increase in net revenue from service contract sales results in a much larger increase in our accounts
payable, which is treated as positive cash flow from operating activities.

Accounts receivable increased at December 31, 2007 as
compared to December 31, 2006 as a result of higher overall sales at the end of 2007 as compared to the end of 2006. Our days sales outstanding, or DSO, increased to 31 days at December 31, 2007 as compared to 28 days at December 31,
2006. Since we record the gross billing to the end customer of our clients in our accounts receivable, we calculate DSO based on our ability to collect those gross billings from the end customers. For the year ended December 31, 2007, our
accounts receivable balance is reflective of an additional $2.0 million in receivables from CAS Systems that was acquired on January 25, 2007. Additionally, we have approximately $1.2 million in receivables from Qinteraction that was acquired
in July 2007. The addition of these foreign operations that have slightly longer payment terms has contributed to the increase in DSO mentioned above.

Cash provided by operating activities in 2006 was primarily the result of net income totaling $3.4 million, non-cash expenditures of depreciation and amortization of property and intangibles of $3.3 million,
stock-based compensation charges of $207,000, the provision for allowance for doubtful accounts of 267,000, and changes in operating assets and liabilities, net of assets acquired and liabilities assumed, that provided $3.4 million.

Cash used in investing activities was $16.0 million and $1.0 million in 2007 and 2006, respectively. The increase in cash used in investing activities
was primarily due to our acquisition of CAS Systems in January 2007 for which we used cash of approximately $1.6 million and Qinteraction Limited in July 2007 for which we used cash of approximately $7.4 million. Additionally, we invested
approximately $4.7 million in purchases of property and equipment and invested $2.5 million in the purchase of notes receivable and warrants from



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Market2Lead. In the CAS Systems acquisition, we issued notes payable of approximately $2.0 million and in the Qinteraction Limited acquisition we issued
approximately $4.8 million of the Companys common stock. Restricted cash represents the reserve for the refund due for non-service payments inadvertently paid to the Company by its 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 decrease in restricted cash represents the reduction of our balance of refunds due to customers. During the year ended
December 31, 2006, we completed two business acquisitions. While the consideration we paid in both acquisitions was predominately our common stock, in the Metrics transaction, we incurred $68,000 of acquisition costs, and in the ViewCentral
transaction, we received cash of $433,000 net of acquisition costs. These two items are combined and recorded as acquisitions of businesses, net of cash acquired, in 2006.

Cash provided by financing activities was $26.8 million in 2007 and $2.7 million in 2006. Cash provided by financing activities in 2007 was primarily a
result of the net proceeds of $27.2 million received from the follow-on offering of common stock in April 2007. We also received approximately $1.2 million from the exercise of stock options, warrants and employee stock purchase plan purchases.
These amounts were partially offset by principal payments of $1.5 million on our term loans and purchases of $233,000 of treasury stock from employees and directors for shares withheld for income taxes payable on restricted stock awards vested. Cash
provided by financing activities in 2006 was primarily a result of net proceeds totaling $5.3 million from our placement of common stock in February 2006. We also received $1.3 million from the exercise of stock options, warrants and employee stock
purchase plan purchases. These amounts were offset in part by principal payments totaling $3.9 million on our line of credit, term loans and other financing obligations.

In connection with our acquisitions of CAS Systems in January 2007 and Qinteraction Limited in July 2007, the purchase agreements provide for a potential additional payment at the end of twelve months following each
acquisition, based on the achievement of certain financial milestones specific to each individual acquisition. In the first quarter of the 2008 fiscal year, the Company paid $1 million relating to the CAS Systems acquisition. Payment for the
Qinteraction Limited acquisition, if any, will be due during the Companys third fiscal quarter of 2008 and could result in an additional payment of up to $4.5 million in cash and $3.5 million in common stock.

Our principal source of liquidity as of December 31, 2007 consisted of $37.4 million of cash and cash equivalents. In connection with a financial
covenant related to our term loans, we are required to maintain unrestricted cash deposits of $500,000 with our lender Bridge Bank, N.A., or Bridge Bank, which is included in the $37.4 million of cash and cash equivalents. We anticipate that our
existing capital resources and cash flow expected to be generated from future operations will enable us to maintain our current level of operations, our planned operations and our planned capital expenditures for at least the next twelve months.

In February 2008, we received written notification from Dell that they will be terminating our service agreement. Under Dells
transition plan set forth in the notice, Dell moved approximately half of the services provided by us under the agreement internally effective February 4, 2008, and intends to move the remainder over the subsequent three months, at the
conclusion of which the Company would no longer be performing any services for Dell. Dell represented approximately 29% of our net revenue for the 2007 fiscal year and approximately 38% of our net revenue in 2006. For the fourth quarter of 2007, we
had reduced our revenue from Dell to 25%.

Credit Arrangements

On July 6, 2006, we executed a further amendment to our Revolving Credit Facility with our lender, Bridge Bank. The amendment extended the maturity
date of the Revolving Credit Facility from December 10, 2006 to October 10, 2007. We are currently in negotiations to extend the maturity of the Revolving Credit Facility. The amount of credit available to the company remains at $4.0
million with a $1.0 million subfacility for standby letters of credit, and the interest rate for any advances under the Revolving Credit Facility remains at the prime lending rate, 7.25% at December 31, 2007. As of December 31, 2007, we
had no borrowings under the Revolving



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Credit Facility and had one undrawn letter of credit outstanding under the Revolving Credit Facility with a face amount of $100,000. We had originally
entered into this Revolving Credit Facility with our lender in April 2004.

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 new corporate headquarters located in Campbell, California. In 2004, we issued an irrevocable standby letter of credit to one of our clients. The letter of credit was issued in
the amount of $325,000 as a guarantee for service contracts sold by us on behalf of our client and expired in September 2007. The letters of credit were issued under the Revolving Credit Facility described above. As of December 31, 2007, no
amounts have been drawn against the letters of credit.

In June 2005, we entered into a business loan agreement with Bridge Bank, pursuant
to which we obtained a $1.5 million term loan, or the June 2005 Term Loan, that was utilized to fund the purchase and implementation of our new client management system. The June 2005 Term Loan is to be repaid in 36 monthly installments of $42,000
plus interest at a variable rate of prime per annum (7.25% at December 31, 2007). The interest rate on the June 2005 Term Loan was reduced from prime plus 1% to prime in July 2006.

Concurrently with the closing of the merger transaction with Sunset Direct in February 2005, we entered into a Business Loan Agreement and Commercial
Security Agreement with Bridge Bank, and obtained a $3.0 million term loan, or the Term Loan, that we used to retire certain indebtedness and certain other liabilities of Sunset Direct. The Term Loan is repayable in 36 monthly installments of
$83,000 plus interest at a variable rate of prime per annum (7.25% at December 31, 2007). The interest rate on the Term Loan was reduced from prime plus 1% to prime in July 2006.

The Term Loan, June 2005 Term Loan and Revolving Credit Facility are secured by substantially all of our consolidated assets, including intellectual
property. We are subject to certain financial covenants, including maintenance of unrestricted cash with Bridge Bank, reducing from time to time to the outstanding amount of the Term Loan and June 2005 Term Loan referenced above rounded upwards to
the nearest $250,000 increment ($500,000 at December 31, 2007). We are obligated to maintain a specified minimum net income and minimum debt service coverage ratio. The Term Loan, the June 2005 Term Loan and the Revolving Credit Facility
contain customary covenants that will, subject to limited exceptions, limit our ability to, among other things, (i) create liens; (ii) make capital expenditures; (iii) pay cash dividends; and (iv) merge or consolidate with
another company. The Term Loan, June 2005 Term Loan and the Revolving Credit Facility also provide 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 Term Loan, the June 2005 Term Loan and Revolving Credit Facility. At December 31, 2007, we were in compliance with all loan covenants and had
$166,000 and $250,000 outstanding on the Term Loan and June 2005 Term Loan, respectively, and no amount outstanding on the Revolving Credit Facility. The Term Loan matures in February 2008 and the June 2005 Term Loan matures in June 2008.

Off-Balance Sheet Arrangements

Leases

As of December 31, 2006, our off-balance sheet arrangements include operating leases for our facilities
and certain property and equipment that expire at various dates through 2010, including an additional facility operating lease commitment assumed in connection with our acquisition of Sunset Direct in February 2005 and the lease for our corporate
headquarters in Campbell, California, as described below. 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 up front cash flow related to purchasing the assets.

On November 13, 2006, we executed an amendment to the operating lease for our corporate headquarters in Campbell, California. Under the lease and
its amendment, we have a total of 23,149 square feet of usable office



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space. The lease term originally began on November 1, 2005 and will end on January 31, 2010. Beginning January 1, 2007 and through the
expiration of the lease term, base rent will escalate from approximately $418,000 in 2008 to $440,000 in 2009, the final full year of the lease which expires in January 2010. In addition, we must pay its proportionate share of operating costs and
taxes. In connection with the execution of the lease, we have issued a letter of credit to the landlord in the amount of $100,000 as a security deposit.

In Austin, Texas we have rented a total 59,466 square feet of office space under a lease and its amendments that expire at various dates through June 2009. In August 2005, we renewed the existing lease for 46,366
square feet of space and then in March 2006 we further amended the lease for an additional 7,623 square feet of space. On April 16, 2007, we entered into a sublease agreement in the same building as our other lease in Austin for an additional
5,477 feet that expires on July 31, 2008. The rent on the sublease space is fixed at $2,700 per month. Under the lease and its amendments, our base rent will approximate $453,000 in 2008, the final full year of the lease that ends in June 2009.
In both the California and the Texas facilities, we pay rent and maintenance on some of the common areas in each of our leased facilities.

As a result of our acquisition of CAS Systems in January 2007, we now have facilities near Montreal, Canada, where we have approximately 18,426 square feet of space covered by leases that were scheduled to expire on December 31, 2007,
and in Oakland, California where we have approximately 10,039 square feet of space covered by a lease that expires on May 19, 2011. We have renewed the Canada leases as of January 1, 2008 for a 2-year term with options for subsequent
continuance. The provisions of the lease renewals in Canada specify that either party can terminate the lease for any reason by giving the other party at least 120 days prior written notice. Based on the exchange rate as of December 31, 2007,
our annual base rent under our Canada leases will escalate from approximately $319,000 in 2008 to $329,000 in 2009. For the future minimum lease payment table below, we have only included 4 months of lease payments for this lease which represents
the non-cancelable portion. Annual base rent under our Oakland lease will escalate from approximately $234,000 in 2008 to $248,000 in 2010, the final full year of the lease that ends in May 2011.

With our acquisition of Qinteraction, we assumed existing lease obligations at their Manila, Philippines offices. We have assumed 2 office space leases
and a parking lease. We occupy approximately 40,280 square feet on 3 floors in the BPI building in Manila. Our current lease for this space terminates on March 31, 2008, and we have signed a new lease that commences on April 1, 2008, has a
5 year term and terminates on March 31, 2014. Based on the exchange rate as of December 31, 2007, our annual base rent will escalate from approximately $518,000 in 2008 to $780,000 in 2013, the final full year of the lease that ends in
March 2014. We occupy approximately 15,460 square feet in the Pacific Star building in Manila. This lease commenced on October 1, 2007, has a 5 year term and terminates on September 30, 2012. Based on the exchange rate as of
December 31, 2007, our annual base rent will escalate from approximately $252,000 in 2008 to $281,000 in 2011, the final full year of the lease that expires in September 2012. Our parking lease began in March 2006, has a 5 year term and
terminates in February 2011. Based on the exchange rate as of December 31, 2007, our annual base rent on this lease is approximately $15,000.

Rent expense under operating lease agreements during the years ended December 31, 2007, 2006 and 2005 was $2,142,000, $869,000 and $771,000, respectively.

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 new corporate headquarters located in Campbell, California. In 2004, we issued an irrevocable standby letter of credit to one of our clients. The letter of credit was issued in the amount of
$325,000 as a guarantee for service contracts sold by us on behalf of our client and expired in September 2007. The letters of credit were issued under the Revolving Credit Facility described above. As of December 31, 2007, no amounts had been
drawn against the letters of credit.



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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, 2007 and 2006.

Contractual Obligations

Capital Leases

We leased certain property under capital leases that expired in early 2007.

Term Loans

In June 2005, we
entered into a business loan agreement with Bridge Bank, pursuant to which we obtained a $1.5 million term loan that is being utilized to fund the implementation of the Companys new client management system. The June 2005 Term Loan is to
be repaid in 36 monthly installments of $42,000 plus interest at a variable rate of prime per annum (7.25% at December 31, 2007). As of December 31, 2007, we had $250,000 outstanding on the June 2005 Term Loan and it matures in June
2008. The interest rate on the June 2005 Term Loan was reduced from prime plus 1% to prime by the amendment that we executed with our lender on July 6, 2006.

In February 2005, concurrent with the closing of the acquisition of Sunset Direct, we entered into a business loan agreement and commercial security agreement with Bridge Bank. The Term Loan is to be repaid in 36
monthly installments of $83,000 plus interest at a variable rate of prime per annum (7.25% at December 31, 2007). As of December 31, 2007, we had $167,000 outstanding on the Term Loan and it matures in February 2008. The interest rate
on the Term Loan was reduced from prime plus 1% to prime by the amendment that we executed with our lender on July 6, 2006.

Revolving Credit Facility

In April 2004, we entered into a business loan agreement and a commercial security
agreement with Bridge Bank. The Revolving 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 includes a $1.0 million letter of credit
facility. In December 2005, the total available under the Revolving Credit Facility was increased to $4.0 million and the maturity was extended to December 2006. In July 2006, the maturity date of the Revolving Credit Facility was further extended
to October 2007. We are currently in negotiations to extend the maturity of the Revolving Credit Facility. As of December 31, 2007, we had no amounts outstanding under the Revolving Credit Facility.

Future payments under our contracts and obligations at December 31, 2007 are as follows (dollars in thousands):



|                               |  |       |        |                 |   |            |  |            |       |                  |   |       |  |   |    
|------------------------------ |  | ----- | ------ | --------------- | - | ---------- |  | ---------- | ----- | ---------------- | - | ----- |  | - | ---
|Contractual obligations        |  | Total |        | Less than 1year |   | 1  3years |  | 3  5years |       | More than 5years
|Long-Term Debt Obligations (1) |  | $     | 2,416  |                 | $ | 1,083      |  | $          | 1,333 |                  | $ |      |  | $ |   
|Operating Lease Obligations    |  |       | 7,942  |                 |   | 1,995      |  |            | 2,971 |                  |   | 1,997 |  |   | 979
|                               |  |       |        |                 |   |            |  |            |       |                  |   |       |  |   |    
|Total                          |  | $     | 10,358 |                 | $ | 3,078      |  | $          | 4,304 |                  | $ | 1,997 |  | $ | 979
|                               |  |       |        |                 |   |            |  |            |       |                  |   |       |  |   |    



|(1) | Excludes interest payments.
|--- | ---------------------------



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Included in future minimum operating lease payments is our obligation relating to our facilities,
including the lease for our corporate headquarters in Campbell, California, and our operations in Austin, Texas, Vaudreuil, Canada and Manila, Philippines. The operating lease for our Austin, Texas facility expires in June 2009.

Potential Impact of Inflation

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

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements(SFAS 157). SFAS 157 replaces the different
definitions of fair value in the accounting literature with a single definition. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. SFAS 157 is effective for us for financial instruments beginning in January 2008 and non-financial instruments beginning in January 2009. We are required to adopt SFAS 157 in the first quarter of 2008. We are currently
evaluating the impact of adopting SFAS 157 on our Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159,
the Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). SFAS 159 gives entities the option to measure eligible financial assets and liabilities at fair value on an instrument by instrument basis, that are
otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability. Subsequent changes in the
fair value must be recorded in earnings. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. We are required to adopt SFAS 159 in the first quarter of
2008. We are currently evaluating the impact of adopting SFAS 159 on our Consolidated Financial Statements.

In December 2007, the FASB
issued SFAS No. 141R, Business Combinations (SFAS 141R). SFAS 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction at fair value as of
the acquisition date. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are required to adopt SFAS 141R
in the first quarter of 2009. We are currently evaluating the impact of adopting SFAS 141R on our Consolidated Financial Statements.

In
December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements(SFAS 160), an amendment of ARB No. 51. SFAS 160 amends ARB 51 to
establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as a minority
interest, is an ownership interest in the consolidated entity that should be reported as equity in our Consolidated Financial Statements. Among other requirements, this statement requires that the consolidated net income attributable the parent and
the noncontrolling interest be clearly identified and presented on the face of the consolidated income statement. SFAS 160 is effective for the first fiscal period beginning on or after December 15, 2008. We are required to adopt SFAS 160 in
the first quarter of 2009. We are currently evaluating the impact of adopting SFAS 160 on our Consolidated Financial Statements.



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

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our investment portfolio. We currently do not and do not plan to
use derivative financial instruments in our investment portfolio. We plan to ensure the safety and preservation of our



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invested principal funds by limiting default risk, market risk and investment risk. We mitigate default risk by investing in low-risk securities. To minimize
our risks, we maintain our portfolio of cash equivalents and short-term investments in a variety of short-term and liquid securities including money market funds, commercial paper, U.S. government and agency securities and municipal bonds. In
general, money market funds are not subject to market risk because the interest paid on such funds fluctuates with the prevailing interest rate. As of December 31, 2007, 100% of our portfolio was invested in instruments that mature in less than
90 days. See Note 1 of our consolidated financial statements.

Due to the short duration and conservative nature of our investment
portfolio at December 31, 2007, we do not believe we have a material exposure to interest rate risk. However, based upon the balance in our money market account at December 31, 2007 of approximately $25.9 million, a 1% change in interest
rates would have an approximate annual impact of $259,000 on our income before income taxes.

Our earnings are affected by changes in
short-term interest rates as a result of the February 2005 Term Loan, the June 2005 Term Loan and the Revolving Credit Facility, which bear interest at variable rates based on the prime lending rate (7.25% at December 31, 2007). Maturity dates
on these loans range from October 2007 to May 2008. At December 31, 2007, we had approximately $416,000 of debt outstanding under these loans. The February 2005 Term Loan matures in February 2008 and the June 2005 Term Loan matures in June
2008. Based on the outstanding principal balance at the end of 2007 and the maturity dates of both term loans, a 1% increase in interest rates would result in an immaterial amount of additional annual interest expense. Based on our debt level at
December 31, 2007, anticipated cash flows from operations, and the various financial alternatives available to management, should there be an adverse change in interest rates, we do not believe that we have significant exposure to market risks
associated with changing interest rates as of December 31, 2007. We do not use derivative financial instruments in our operations.

Foreign
Currency Risk

Prior to 2007, our business has typically been transacted in the U.S. dollar and, as such, has not been subject to
material foreign currency exchange rate risk. However, with our acquisitions of operations in Canada and the Philippines during 2007, we now have exposure to foreign currency fluctuations as well as other risks typical of international operations,
including, but not limited to, differing economic conditions, changes in political climate, differing tax structures and other regulations and restrictions. Accordingly, our future results could be materially adversely impacted by changes in these
or other factors.

Foreign exchange rate fluctuations may adversely impact our consolidated results of operations as exchange rate
fluctuations on transactions denominated in currencies other than our functional currencies result in gains and losses that are reflected in our consolidated statement of income. To the extent that the U.S. dollar weakens against foreign currencies,
the translation of these foreign currency denominated transactions will result in increased net revenues and operating expenses. Conversely, our net revenues and operating expenses will decrease when the U.S. dollar strengthens against foreign
currencies.

During 2007, international revenues accounted for approximately 6% of total revenues. The majority of the international
revenue was generated in the Cayman Islands and is U.S. dollar based. We are expanding our services to address our clients international operations and expect to conduct transactions on behalf of our clients in a number of geographies and
currencies.

We are also exposed to foreign exchange rate fluctuations as we convert the financial statements of our foreign subsidiaries
into US dollars in consolidation. If there is a change in foreign currency exchange rates, the conversion of the foreign subsidiaries financial statements into U.S. dollars will lead to a translation gain or loss which is recorded as a
component of accumulated other comprehensive income which is a component of shareholders equity. In addition, we have certain assets and liabilities that are denominated in currencies other than the relevant entitys functional currency.
Changes in the functional currency value of these assets and



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liabilities create fluctuations that will lead to a transaction gain or loss. For the fiscal year ended December 31, 2007, we recorded a net foreign
currency transaction gain of approximately $137,000, which is recorded in interest and other income (expense), net in the consolidated statements of operations.

We may enter into hedges in the future to manage foreign currency risk; however, we did not have anything in place as of December 31, 2007.



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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                                                                               |  | 51  
|Consolidated Balance Sheets as of December 31, 2007 and December 31, 2006                                                             |  | 52  
|Consolidated Statements of Operations for the years ended December 31, 2007, 2006, and 2005                                           |  | 53  
|Consolidated Statements of Stockholders Equity and Comprehensive Income (Loss) for the years ended December 31, 2007, 2006, and 2005 |  | 54  
|Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006, and 2005                                           |  | 55  
|Notes to Consolidated Financial Statements                                                                                            |  | 56  
|                                                                                                                                      | 
|Consolidated Financial Statement Schedule:                                                                                            |  |     
|Schedule II  Valuation and Qualifying Accounts                                                                                       |  | 99  



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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, 2007 and 2006 and the related
consolidated statements of operations, stockholders equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2007. 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. An audit 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
schedule. 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, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended
December 31, 2007, 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.

As discussed in Note 8 to the consolidated financial statements, effective January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123 (Revised 2004), Share-Based Payment.

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), Rainmaker System Inc.s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control  Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2008, expressed an unqualified opinion thereon.

/s/    BDO SEIDMAN, LLP

San Francisco, California

March 10, 2008



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RAINMAKER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                                                 |  | December 31, |        
|                                                                                                                                                                                                                 |  | 2007         |         |   | 2006 |  
|ASSETS                                                                                                                                                                                                           |  |              |         |   |      |   |         |  
|Current assets:                                                                                                                                                                                                  |  |              |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                                                        |  | $            | 37,407  |   |      | $ | 21,996  |  
|Restricted cash                                                                                                                                                                                                  |  |              | 157     |   |      |   | 315     |  
|Accounts receivable, less allowance for doubtful accounts of $285 and $233 at December 31, 2007 and 2006, respectively                                                                                           |  |              | 20,625  |   |      |   | 13,547  |  
|Prepaid expenses and other current assets                                                                                                                                                                        |  |              | 3,622   |   |      |   | 1,172   |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|Total current assets                                                                                                                                                                                             |  |              | 61,811  |   |      |   | 37,030  |  
|Property and equipment, net                                                                                                                                                                                      |  |              | 9,447   |   |      |   | 4,293   |  
|Intangible assets, net                                                                                                                                                                                           |  |              | 7,049   |   |      |   | 5,604   |  
|Goodwill                                                                                                                                                                                                         |  |              | 14,539  |   |      |   | 7,006   |  
|Other noncurrent assets                                                                                                                                                                                          |  |              | 2,706   |   |      |   | 325     |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|Total assets                                                                                                                                                                                                     |  | $            | 95,552  |   |      | $ | 54,258  |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                             |  |              |         |   |      |   |         |  
|Current liabilities:                                                                                                                                                                                             |  |              |         |   |      |   |         |  
|Accounts payable                                                                                                                                                                                                 |  | $            | 25,466  |   |      | $ | 22,522  |  
|Accrued compensation and benefits                                                                                                                                                                                |  |              | 2,062   |   |      |   | 1,979   |  
|Other accrued liabilities                                                                                                                                                                                        |  |              | 3,447   |   |      |   | 2,368   |  
|Deferred revenue                                                                                                                                                                                                 |  |              | 3,541   |   |      |   | 3,457   |  
|Current portion of capital lease obligations                                                                                                                                                                     |  |              |        |   |      |   | 2       |  
|Current portion of notes payable                                                                                                                                                                                 |  |              | 1,083   |   |      |   | 1,500   |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                                                        |  |              | 35,599  |   |      |   | 31,828  |  
|Deferred tax liability                                                                                                                                                                                           |  |              | 167     |   |      |   | 43      |  
|Long term deferred revenue                                                                                                                                                                                       |  |              | 401     |   |      |   | 268     |  
|Notes payable, less current portion                                                                                                                                                                              |  |              | 1,333   |   |      |   | 417     |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|Total liabilities                                                                                                                                                                                                |  |              | 37,500  |   |      |   | 32,556  |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|Commitments and contingencies (Notes 4, 5, 6, 9 and 10)                                                                                                                                                          |  |              |         |   |      |   |         |  
|                                                                                                                                                                                                                 |  |             
|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; 20,359,560 shares issued and 20,325,960 shares outstanding at December 31,
2007, and 15,088,294 shares issued and outstanding at December 31, 2006 |  |              | 19      |   |      |   | 15      |  
|Additional paid-in capital                                                                                                                                                                                       |  |              | 116,391 |   |      |   | 81,265  |  
|Accumulated deficit                                                                                                                                                                                              |  |              | (58,074 | ) |      |   | (59,578 | )
|Accumulated other comprehensive loss                                                                                                                                                                             |  |              | (51     | ) |      |   |        |  
|Treasury stock, at cost, 33,600 shares at December 31, 2007 and 0 shares at December 31, 2006                                                                                                                    |  |              | (233    | ) |      |   |        |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                                                       |  |              | 58,052  |   |      |   | 21,702  |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                                                       |  | $            | 95,552  |   |      | $ | 54,258  |  
|                                                                                                                                                                                                                 |  |              |         |   |      |   |         |  

See accompanying notes.



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RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)



|                                                           |  |                          |        |      |   |        |  |   |        |  
|---------------------------------------------------------- |  | ------------------------ | ------ | ---- | - | ------ |  | - | ------ | -
|                                                           |  | Years Ended December 31, |       
|                                                           |  | 2007                     |        | 2006 |   | 2005   | 
|Net revenue                                                |  | $                        | 73,515 |      | $ | 48,921 |  | $ | 32,114 |  
|Costs of services                                          |  |                          | 38,114 |      |   | 24,385 |  |   | 18,716 |  
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Gross margin                                               |  |                          | 35,401 |      |   | 24,536 |  |   | 13,398 |  
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Operating expenses:                                        |  |                          |        |      |   |        |  |   |        |  
|Sales and marketing                                        |  |                          | 6,854  |      |   | 4,250  |  |   | 2,838  |  
|Technology and development                                 |  |                          | 10,738 |      |   | 5,990  |  |   | 4,248  |  
|General and administrative                                 |  |                          | 11,443 |      |   | 7,483  |  |   | 8,134  |  
|Depreciation and amortization                              |  |                          | 5,711  |      |   | 3,299  |  |   | 3,114  |  
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Total operating expenses                                   |  |                          | 34,746 |      |   | 21,022 |  |   | 18,334 |  
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Operating income (loss)                                    |  |                          | 655    |      |   | 3,514  |  |   | (4,936 | )
|Interest and other income (expense), net                   |  |                          | 1,407  |      |   | 187    |  |   | (68    | )
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Income (loss) before income tax expense                    |  |                          | 2,062  |      |   | 3,701  |  |   | (5,004 | )
|Income tax expense                                         |  |                          | 558    |      |   | 298    |  |   |       |  
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Net income (loss)                                          |  | $                        | 1,504  |      | $ | 3,403  |  | $ | (5,004 | )
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Basic net income (loss) per share                          |  | $                        | 0.09   |      | $ | 0.25   |  | $ | (0.48  | )
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Diluted net income (loss) per share                        |  | $                        | 0.08   |      | $ | 0.23   |  | $ | (0.48  | )
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Shares used to compute basic net income (loss) per share   |  |                          | 17,569 |      |   | 13,662 |  |   | 10,464 |  
|                                                           |  |                          |        |      |   |        |  |   |        |  
|Shares used to compute diluted net income (loss) per share |  |                          | 18,882 |      |   | 14,568 |  |   | 10,464 |  
|                                                           |  |                          |        |      |   |        |  |   |        |  

See accompanying notes.



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RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except share data)



|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|----------------------------------------------------------- |  | ------------ | - | -------------- | ------ | -- | ------------------------- | ------ | ------------------ | - | ---- | ------------------------------------------ |  | - | ------- |  | - | ------- | - |  | - | --- | - |  | - | ------ | -
|                                                            |  | Common Stock |   | Treasury Stock |        |    | Additionalpaid in capital |        | Accumulateddeficit |   |      | Accumulatedothercomprehensiveincome/(loss) |  |   | Total   | 
|                                                            |  | Shares       |   |                | Amount |    | Shares                    |        | Amount             |   |      |                                            |  |  
|Balance at January 1, 2005                                  |  | 8,883,959    |   |                | $      | 9  |                           |       |                    | $ |     |                                            |  | $ | 63,544  |  | $ | (57,977 | ) |  | $ |    |   |  | $ | 5,576  |  
|Net loss                                                    |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   | (5,004  | ) |  |   |    |   |  |   | (5,004 | )
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Comprehensive loss                                          |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   |        |   |  |   |    |   |  |   | (5,004 | )
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Exercise of employee stock options                          |  | 258,116      |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 314     |  |   |        |   |  |   |    |   |  |   | 314    |  
|Issuance of common stock under employee stock purchase plan |  | 20,338       |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 46      |  |   |        |   |  |   |    |   |  |   | 46     |  
|Issuance of common stock in private placement               |  | 1,340,444    |   |                |        | 1  |                           |       |                    |   |     |                                            |  |   | 2,596   |  |   |        |   |  |   |    |   |  |   | 2,597  |  
|Issuance of common stock for Sunset acquisition             |  | 664,080      |   |                |        | 1  |                           |       |                    |   |     |                                            |  |   | 2,204   |  |   |        |   |  |   |    |   |  |   | 2,205  |  
|Issuance of common stock for Launch Project assets          |  | 140,000      |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 385     |  |   |        |   |  |   |    |   |  |   | 385    |  
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Balance at December 31, 2005                                |  | 11,306,937   |   |                |        | 11 |                           |       |                    |   |     |                                            |  |   | 69,089  |  |   | (62,981 | ) |  |   |    |   |  |   | 6,119  |  
|Net income                                                  |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   | 3,403   |   |  |   |    |   |  |   | 3,403  |  
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Comprehensive income                                        |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   |        |   |  |   |    |   |  |   | 3,403  |  
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Exercise of employee stock options                          |  | 405,285      |   |                |        | 1  |                           |       |                    |   |     |                                            |  |   | 1,015   |  |   |        |   |  |   |    |   |  |   | 1,016  |  
|Issuance of common stock upon exercise of warrants          |  | 79,083       |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 190     |  |   |        |   |  |   |    |   |  |   | 190    |  
|Issuance of common stock under employee stock purchase plan |  | 14,739       |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 53      |  |   |        |   |  |   |    |   |  |   | 53     |  
|Issuance of common stock in private placement               |  | 2,000,000    |   |                |        | 2  |                           |       |                    |   |     |                                            |  |   | 5,310   |  |   |        |   |  |   |    |   |  |   | 5,312  |  
|Issuance of common stock for Metrics assets                 |  | 158,480      |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 898     |  |   |        |   |  |   |    |   |  |   | 898    |  
|Issuance of common stock for ViewCentral assets             |  | 754,968      |   |                |        | 1  |                           |       |                    |   |     |                                            |  |   | 4,438   |  |   |        |   |  |   |    |   |  |   | 4,439  |  
|Issuance of restricted stock awards                         |  | 368,802      |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   |        |   |  |   |    |   |  |   |       |  
|Stock based compensation  option plan                      |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 98      |  |   |        |   |  |   |    |   |  |   | 98     |  
|Stock based compensation  employee stock purchase plan     |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 6       |  |   |        |   |  |   |    |   |  |   | 6      |  
|Stock based compensation  restricted stock awards          |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 103     |  |   |        |   |  |   |    |   |  |   | 103    |  
|Tax benefit of stock option exercises                       |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 65      |  |   |        |   |  |   |    |   |  |   | 65     |  
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Balance at December 31, 2006                                |  | 15,088,294   |   |                |        | 15 |                           |       |                    |   |     |                                            |  |   | 81,265  |  |   | (59,578 | ) |  |   |    |   |  |   | 21,702 |  
|Net income                                                  |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   | 1,504   |   |  |   |    |   |  |   | 1,504  |  
|Foreign currency translation loss                           |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   |        |   |  |   | (51 | ) |  |   | (51    | )
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Comprehensive income                                        |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   |        |   |  |   |    |   |  |   | 1,453  |  
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Exercise of employee stock options                          |  | 426,185      |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 1,111   |  |   |        |   |  |   |    |   |  |   | 1,111  |  
|Issuance of common stock upon exercise of warrants          |  | 23,167       |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 55      |  |   |        |   |  |   |    |   |  |   | 55     |  
|Issuance of common stock under employee stock purchase plan |  | 9,414        |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 76      |  |   |        |   |  |   |    |   |  |   | 76     |  
|Issuance of common stock in follow-on offering, net         |  | 3,500,000    |   |                |        | 3  |                           |       |                    |   |     |                                            |  |   | 27,200  |  |   |        |   |  |   |    |   |  |   | 27,203 |  
|Issuance of common stock for Qinteraction stock             |  | 559,284      |   |                |        | 1  |                           |       |                    |   |     |                                            |  |   | 4,816   |  |   |        |   |  |   |    |   |  |   | 4,817  |  
|Issuance of restricted stock awards                         |  | 920,250      |   |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   |        |   |  |   |    |   |  |   |       |  
|Cancellation of restricted stock awards                     |  | (167,034     | ) |                |        |   |                           |       |                    |   |     |                                            |  |   |        |  |   |        |   |  |   |    |   |  |   |       |  
|Stock based compensation  option plan                      |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 611     |  |   |        |   |  |   |    |   |  |   | 611    |  
|Stock based compensation  restricted stock awards          |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 1,203   |  |   |        |   |  |   |    |   |  |   | 1,203  |  
|Surrender of shares for tax withholding                     |  | (33,600      | ) |                |        |   |                           | 33,600 |                    |   | (233 | )                                          |  |   |        |  |   |        |   |  |   |    |   |  |   | (233   | )
|Tax benefit of stock option exercises                       |  |             |   |                |        |   |                           |       |                    |   |     |                                            |  |   | 54      |  |   |        |   |  |   |    |   |  |   | 54     |  
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  
|Balance at December 31, 2007                                |  | 20,325,960   |   |                | $      | 19 |                           | 33,600 |                    | $ | (233 | )                                          |  | $ | 116,391 |  | $ | (58,074 | ) |  | $ | (51 | ) |  | $ | 58,052 |  
|                                                            |  |              |   |                |        |    |                           |        |                    |   |      |                                            |  |   |         |  |   |         |   |  |   |     |   |  |   |        |  

See accompanying notes.



54



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##### Table of Contents

RAINMAKER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                  |  | Years EndedDecember 31, |        
|                                                                                                  |  | 2007                    |         |   | 2006 |   |        | 2005 | 
|Operating activities:                                                                             |  |                         |         |   |      |   |        |      |  |   |        |  
|Net income (loss)                                                                                 |  | $                       | 1,504   |   |      | $ | 3,403  |      |  | $ | (5,004 | )
|Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: |  |                         |         |   |      |   |        |      |  |   |        |  
|Depreciation and amortization of property and equipment                                           |  |                         | 2,646   |   |      |   | 1,831  |      |  |   | 2,216  |  
|Amortization of intangible assets                                                                 |  |                         | 3,065   |   |      |   | 1,468  |      |  |   | 898    |  
|Stock based compensation charges                                                                  |  |                         | 1,814   |   |      |   | 207    |      |  |   |       |  
|Provision for allowances for doubtful accounts                                                    |  |                         | 408     |   |      |   | 267    |      |  |   | 321    |  
|Amortization of discount on notes receivable                                                      |  |                         | (44     | ) |      |   |       |      |  |   |       |  
|Loss on disposal of fixed assets                                                                  |  |                         | 41      |   |      |   | 10     |      |  |   | 62     |  
|Changes in operating assets and liabilities, net of assets acquired and liabilities assumed:      |  |                         |         |   |      |   |        |      |  |   |        |  
|Accounts receivable                                                                               |  |                         | (5,634  | ) |      |   | (3,184 | )    |  |   | (1,322 | )
|Prepaid expenses and other assets                                                                 |  |                         | (1,440  | ) |      |   | 18     |      |  |   | (153   | )
|Accounts payable                                                                                  |  |                         | 2,185   |   |      |   | 4,781  |      |  |   | 2,015  |  
|Accrued compensation and benefits                                                                 |  |                         | (310    | ) |      |   | 552    |      |  |   | 299    |  
|Other accrued liabilities                                                                         |  |                         | 223     |   |      |   | 637    |      |  |   | 934    |  
|Deferred tax liability                                                                            |  |                         | 363     |   |      |   | 43     |      |  |   |       |  
|Deferred revenue                                                                                  |  |                         | 47      |   |      |   | 503    |      |  |   | (378   | )
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Net cash provided by (used in) operating activities                                               |  |                         | 4,868   |   |      |   | 10,536 |      |  |   | (112   | )
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Investing activities:                                                                             |  |                         |         |   |      |   |        |      |  |   |        |  
|Purchases of property and equipment                                                               |  |                         | (4,671  | ) |      |   | (1,660 | )    |  |   | (3,245 | )
|Restricted cash, net                                                                              |  |                         | 157     |   |      |   | 271    |      |  |   | (586   | )
|Acquisition of businesses, net of cash acquired                                                   |  |                         | (9,027  | ) |      |   | 365    |      |  |   | (4,509 | )
|Purchase of notes receivable and warrants                                                         |  |                         | (2,500  | ) |      |   |       |      |  |   |       |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Net cash used in investing activities                                                             |  |                         | (16,041 | ) |      |   | (1,024 | )    |  |   | (8,340 | )
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Financing activities:                                                                             |  |                         |         |   |      |   |        |      |  |   |        |  
|Proceeds from issuance of common stock from option exercises                                      |  |                         | 1,111   |   |      |   | 1,016  |      |  |   | 314    |  
|Proceeds from issuance of common stock from ESPP                                                  |  |                         | 76      |   |      |   | 53     |      |  |   | 46     |  
|Proceeds from issuance of common stock from warrant exercises                                     |  |                         | 55      |   |      |   | 190    |      |  |   |       |  
|Proceeds from issuance of common stock and warrants from private placement                        |  |                         |        |   |      |   | 5,312  |      |  |   | 2,597  |  
|Tax benefit of stock option exercises                                                             |  |                         | 54      |   |      |   | 65     |      |  |   |        |  
|Net proceeds from follow-on offering of common stock                                              |  |                         | 27,203  |   |      |   |       |      |  |   |       |  
|Proceeds from notes payable                                                                       |  |                         |        |   |      |   |       |      |  |   | 6,500  |  
|Proceeds under financing arrangements                                                             |  |                         |        |   |      |   |       |      |  |   | 334    |  
|Repayment of notes payable                                                                        |  |                         | (1,501  | ) |      |   | (3,500 | )    |  |   | (1,083 | )
|Repayment of financing arrangements                                                               |  |                         |        |   |      |   | (301   | )    |  |   | (388   | )
|Repayment of capital lease/debt obligations                                                       |  |                         | (2      | ) |      |   | (97    | )    |  |   | (226   | )
|Tax payments in connection with treasury stock surrendered                                        |  |                         | (233    | ) |      |   |       |      |  |   |       |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Net cash provided by financing activities                                                         |  |                         | 26,763  |   |      |   | 2,738  |      |  |   | 8,094  |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Effect of exchange rate changes on cash                                                           |  |                         | (179    | ) |      |   |       |      |  |   |       |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Net increase (decrease) in cash and cash equivalents                                              |  |                         | 15,411  |   |      |   | 12,250 |      |  |   | (358   | )
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Cash and cash equivalents at beginning of year                                                    |  |                         | 21,996  |   |      |   | 9,746  |      |  |   | 10,104 |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Cash and cash equivalents at end of year                                                          |  | $                       | 37,407  |   |      | $ | 21,996 |      |  | $ | 9,746  |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Supplemental disclosures of cash flow information:                                                |  |                         |         |   |      |   |        |      |  |   |        |  
|Cash paid for interest                                                                            |  | $                       | 208     |   |      | $ | 254    |      |  | $ | 148    |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Cash paid for income taxes                                                                        |  | $                       | 223     |   |      | $ | 108    |      |  | $ |       |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Supplemental non-cash investing and financing activities:                                         |  |                         |         |   |      |   |        |      |  |   |        |  
|Common stock issued in acquisitions                                                               |  | $                       | 4,817   |   |      | $ | 5,337  |      |  | $ | 2,590  |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Notes payable issued in acquisitions                                                              |  | $                       | 2,000   |   |      | $ |       |      |  | $ |       |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  
|Insurance premiums financed                                                                       |  | $                       |        |   |      | $ |       |      |  | $ | 334    |  
|                                                                                                  |  |                         |         |   |      |   |        |      |  |   |        |  

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. (we, our or the Company) is a leading provider of sales and marketing
solutions, combining hosted application software and execution services designed to drive more revenue for our clients. 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 operate in one business segment as determined by revenue generated from sales and marketing solutions. We have operations within the United States of
America, Canada and the Philippines where we perform services on behalf of our clients to customers who are mostly located in North America. We have contracted with third parties on behalf of our clients to perform marketing services in Europe.

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 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 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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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is a summary of our cash and cash equivalents at December 31, 2007 and 2006,
respectively (in thousands):



|                                |  |              |        |      |   |       
|------------------------------- |  | ------------ | ------ | ---- | - | ------
|                                |  | December 31,
|                                |  | 2007         |        | 2006
|Cash and cash equivalents:      |  |              |        |      |   |       
|Cash                            |  | $            | 11,536 |      | $ | 1,411 
|Money market funds              |  |              | 25,871 |      |   | 20,585
|                                |  |              |        |      |   |       
|Total cash and cash equivalents |  | $            | 37,407 |      | $ | 21,996
|                                |  |              |        |      |   |       

Included in cash and cash equivalents is $500,000 of unrestricted cash which must be maintained on
deposit with a lending institution as required under the loan agreement with the lender. (Note 4)

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our 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, 2007 and 2006, our allowance for potentially uncollectible accounts was $285,000 and $233,000, 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 Statement of Position 98-1
(SOP 98-1), Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, and Emerging Issue Task Force Issue No. 00-02 (EITF 00-02), Accounting for Website Development Costs. SOP 98-1 and EITF 00-02 require
that we expense computer software and website development costs as they are incurred during the preliminary project stage. Once the capitalization criteria of SOP 98-1 and EITF 00-02 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.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Goodwill and Other Intangible Assets

We apply the guidance of the Financial Accounting Standards Board (FASB) Statement No. 141, Business Combinations in accounting for the assets
related to our acquisitions. 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 Statement No. 142, Goodwill and Other Intangible
Assets 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 tradenames of the businesses we have acquired. To date, no circumstances or indicators have arisen to indicate that the carrying value has been impaired.

Long-Lived Assets

Long-lived assets including our purchased intangible assets are amortized
over their estimated useful lives. In accordance with FASB No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, 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.

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 under the
provisions of Staff Accounting Bulletin (SAB) 104, Revenue Recognition and on the net basis in accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent.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, having considered EITF 00-03: Application of AICPA SOP 97-2, Software Revenue Recognition, to Arrangements that Include the Right to Use Software Stored on Another Entitys
Hardware, which distinguishes hosting services that might fall under the scope of SOP 97-2: Software Revenue Recognition. 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, taking into consideration the guidance from both EITF 00-21: Revenue Arrangements with Multiple Deliverables,and TPA 5100.39: Software Revenue



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Recognition 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 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, based on the relative value of the performance that has occurred at that point in time compared to that of the total contract.

Our revenue recognition policy involves significant judgments and estimates about collectibility. 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
customer 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 relatively fixed. Bonuses and sales commissions will typically change in proportion to revenue or profitability.

Advertising

We expense advertising costs as incurred. These costs were not material and are included in sales and
marketing expense.

Income Taxes

We account for income taxes using the liability method in accordance with Financial Accounting Standards Board Statement No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 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, 2007 and 2006, we had gross deferred tax assets of $17.9 million and $18.5 million, respectively. In 2006 and 2007, 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.

In July 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in any entitys financial statements in accordance with FASB Statement No. 109, Accounting for



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Income Taxes and 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 FIN 48, 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, FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. See Note 7 for additional information.

The
Company has adopted the provisions of FIN 48 as of January 1, 2007. As a result of the implementation of FIN 48, the Company recognized no adjustment to retained earnings and no change in its liability for unrecognized tax benefits.

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 income (expense), net, in the statement of operations. There were no amounts accrued for interest and penalties related to uncertain tax positions as of
December 31, 2007.

Stock-Based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123(R)) which establishes standards for the accounting of
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.

The Company adopted SFAS 123(R) using the modified-prospective transition method, which requires the application of the accounting standard as of
January 1, 2006, the first day of the Companys fiscal year 2006. The Companys Consolidated Financial Statements as of and for the years ended December 31, 2007 and 2006 reflect the impact of SFAS 123(R). In accordance with the
modified-prospective transition method, the Companys Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. 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. Prior to the adoption of SFAS 123(R), the Company accounted for
stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). Under the
intrinsic value method, no stock-based compensation expense had been recognized in the Companys Consolidated Statements of Operations, other than option grants to employees and directors below the fair market value of the underlying stock at
the date of grant. See Note 8 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 FDIC. At times, the balance of cash deposits is in excess of the FDIC insurance
limits.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 2007, two clients accounted for more than 10% of our net revenue and collectively represented 43% of our net revenue with the largest client representing 29%. In 2006, these same two clients accounted for
48% of our net revenue with the largest representing 38% of our net revenue. In 2005, these clients accounted for 47% of net revenue with the largest individual client, Dell, accounting for 36% of our net revenue.

In February 2008, we received written notification from Dell, our largest customer, that they will be terminating our service agreement. Under
Dells intended transition plan set forth in the notice, Dell intends to move approximately half of the services presently being provided by us under the agreement internally effective immediately and the remainder over the next three months,
at the conclusion of which the Company would no longer be performing any services for Dell.

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

We have outsourced services agreements with our clients that expire at
various dates ranging through April 2009. Many of our client agreements contain automatic renewal clauses. These clients may, however, terminate their contracts for cause in accordance with the provisions of each contract. In most cases, a client
must provide us with advance written notice of its intention to terminate. Any loss of a single significant client may have a material adverse effect on the Companys consolidated financial position, cash flows and results of operations.

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 SFAS No. 131, Segment
Reporting (SFAS 131). The Companys chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by detailed information listing revenues by customer, for purposes of making operating decisions
and assessing financial performance. Accordingly, the Company has concluded that we have one reportable segment. We have call centers within the United States of America, Canada and the Philippines where we perform services on behalf of our clients
to customers who are almost entirely located in North America.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following is a breakdown of net revenue by product line for the years ended December 31,
2007, 2006 and 2005 (in thousands):



|                 |  |                          |        |      |   |        |  |   |       
|---------------- |  | ------------------------ | ------ | ---- | - | ------ |  | - | ------
|                 |  | Years Ended December 31,
|                 |  | 2007                     |        | 2006 |   | 2005  
|Contract sales   |  | $                        | 34,564 |      | $ | 28,857 |  | $ | 19,194
|Lead development |  |                          | 34,962 |      |   | 18,818 |  |   | 12,920
|Training sales   |  |                          | 3,989  |      |   | 1,246  |  |   |      
|                 |  |                          |        |      |   |        |  |   |       
|Total            |  | $                        | 73,515 |      | $ | 48,921 |  | $ | 32,114
|                 |  |                          |        |      |   |        |  |   |       

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, Canada and the Philippines to fulfill these contracts. 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 revenue and net long-lived assets, net as of December 31, 2007, and for the year then ended (in thousands):



|               |  |             |        |                       |   |          |  |                       |        |  |   |      
|-------------- |  | ----------- | ------ | --------------------- | - | -------- |  | --------------------- | ------ |  | - | -----
|               |  | Net Revenue |        | Property &Equip., Net |   | Goodwill |  | IntangibleAssets, Net
|United States  |  | $           | 69,069 |                       | $ | 5,893    |  | $                     | 7,734  |  | $ | 4,264
|Cayman Islands |  |             | 3,451  |                       |   |         |  |                       |       |  |   | 2,785
|Philippines    |  |             | 995    |                       |   | 3,343    |  |                       | 5,633  |  |   |     
|Canada         |  |             |       |                       |   | 211      |  |                       | 1,172  |  |   |     
|               |  |             |        |                       |   |          |  |                       |        |  |   |      
|Total          |  | $           | 73,515 |                       | $ | 9,447    |  | $                     | 14,539 |  | $ | 7,049
|               |  |             |        |                       |   |          |  |                       |        |  |   |      

We did not have any foreign revenue or assets in fiscal years prior to 2007.

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. The functional currency of our
Canadian and Philippine subsidiaries was determined to be their respective local currencies (Canadian Dollar and Philippine Peso), in accordance with FAS 52, Foreign Currency Translation. Foreign currency assets and liabilities are
translated at the current exchange rate 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 income (loss) as a separate component of stockholders equity in the consolidated balance sheet and consolidated statement of stockholders equity and comprehensive income (loss). Net gains and
losses resulting from foreign exchange transactions are included in Interest and other income (expense), net in the consolidated statement of operations.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements(SFAS 157). SFAS 157 replaces the different definitions of fair value in the accounting literature with a single definition. It defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 is effective for us for financial instruments beginning in January 2008 and non-financial instruments beginning in January 2009. We are
required to adopt SFAS 157 in the first quarter of 2008. We are currently evaluating the impact of adopting SFAS 157 on our Consolidated Financial Statements.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In February 2007, the FASB issued SFAS No. 159, the Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159). SFAS 159 gives entities the option to measure eligible financial assets and liabilities at fair value on an instrument by instrument basis, that are otherwise not permitted to be accounted for at
fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability. Subsequent changes in the fair value must be recorded in earnings. SFAS 159
is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. We are required to adopt SFAS 159 in the first quarter of 2008. We are currently evaluating the impact of
adopting SFAS 159 on our Consolidated Financial Statements.

In December 2007, the FASB issued SFAS No. 141R, Business
Combinations (SFAS 141R). SFAS 141R requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction at fair value as of the acquisition date. SFAS 141R is
effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are required to adopt SFAS 141R in the first quarter of 2009. We
are currently evaluating the impact of adopting SFAS 141R on our Consolidated Financial Statements.

In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements(SFAS 160), an amendment of ARB No. 51. SFAS 160 amends ARB 51 to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as a minority interest, is an ownership interest in
the consolidated entity that should be reported as equity in our Consolidated Financial Statements. Among other requirements, this statement requires that the consolidated net income attributable the parent and the noncontrolling interest be clearly
identified and presented on the face of the consolidated income statement. SFAS 160 is effective for the first fiscal period beginning on or after December 15, 2008. We are required to adopt SFAS 160 in the first quarter of 2009. We are
currently evaluating the impact of adopting SFAS 160 on our Consolidated Financial Statements.

2. Net Income (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 income (loss) per common share (in thousands, except per share data):



|                                                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|--------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                              |  | Years Ended December 31, |       
|                                                                                              |  | 2007                     |        |   | 2006 |   |        | 2005 | 
|Net income(loss)                                                                              |  | $                        | 1,504  |   |      | $ | 3,403  |      |  | $ | (5,004 | )
|Weighted-average common shares of common stock outstanding  basic                            |  |                          | 17,569 |   |      |   | 13,662 |      |  |   | 10,464 |  
|Plus: Outstanding dilutive options, warrants and unvested restricted stock awards outstanding |  |                          | 2,675  |   |      |   | 2,143  |      |  |   |       |  
|Less: weighted-average shares subject to repurchase                                           |  |                          | (1,362 | ) |      |   | (1,237 | )    |  |   |       |  
|                                                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|Weighted-average shares used to compute diluted net loss per share                            |  |                          | 18,882 |   |      |   | 14,568 |      |  |   | 10,464 |  
|                                                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|Basic net income (loss) per share                                                             |  | $                        | 0.09   |   |      | $ | 0.25   |      |  | $ | (0.48  | )
|                                                                                              |  |                          |        |   |      |   |        |      |  |   |        |  
|Diluted net income (loss) per share                                                           |  | $                        | 0.08   |   |      | $ | 0.23   |      |  | $ | (0.48  | )
|                                                                                              |  |                          |        |   |      |   |        |      |  |   |        |  



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



For the years ended December 31, 2007 and 2006, the Company excluded certain options and
warrants from the calculation of basic and diluted earnings per share because these securities were antidilutive. In 2007, the Company excluded approximately 368,000 options and warrants, and in 2006, approximately 735,000 options and warrants were
excluded. For the year ended December 31, 2005, the Company excluded all 2,226,472 outstanding warrants and stock options from the calculation of basic and diluted net loss per share because these securities were antidilutive.

3. Balance Sheet Components (in thousands)



|                                                |  |                      |  |              |         |   |      |   |         |  
|----------------------------------------------- |  | -------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                |  |                      |  | December 31, |        
|                                                |  |                      |  | 2007         |         |   | 2006 |  
|Prepaid expenses and other current assets:      |  |                      |  |              |         |   |      |   |         |  
|Prepaid insurance                               |  |                      |  | $            | 338     |   |      | $ | 388     |  
|Prepaid support and maintenance contracts       |  |                      |  |              | 496     |   |      |   | 176     |  
|Deferred commission expense                     |  |                      |  |              | 684     |   |      |   | 138     |  
|Note receivable, net of discount (1)            |  |                      |  |              | 1,150   |   |      |   |        |  
|Other prepaid expenses and other current assets |  |                      |  |              | 954     |   |      |   | 470     |  
|                                                |  |                      |  |              |         |   |      |   |         |  
|                                                |  |                      |  | $            | 3,622   |   |      | $ | 1,172   |  
|                                                |  |                      |  |              |         |   |      |   |         |  
|Property and equipment:                         |  |                      |  |              |         |   |      |   |         |  
|                                                |  | Estimated UsefulLife |  |              |         |   |      |  
|Computer equipment                              |  | 3 years              |  | $            | 6,223   |   |      | $ | 7,607   |  
|Capitalized software and development            |  | 2-5 years            |  |              | 12,685  |   |      |   | 11,353  |  
|Furniture and fixtures                          |  | 5 years              |  |              | 1,833   |   |      |   | 331     |  
|Leasehold improvements                          |  | Lease term           |  |              | 1,085   |   |      |   | 180     |  
|                                                |  |                      |  |              |         |   |      |   |         |  
|                                                |  |                      |  |              | 21,826  |   |      |   | 19,471  |  
|Accumulated depreciation and amortization       |  |                      |  |              | (12,988 | ) |      |   | (15,178 | )
|Construction in process (2)                     |  |                      |  |              | 609     |   |      |   |        |  
|                                                |  |                      |  |              |         |   |      |   |         |  
|Property and equipment, net                     |  |                      |  | $            | 9,447   |   |      | $ | 4,293   |  
|                                                |  |                      |  |              |         |   |      |   |         |  



|(1) | During 2007, we entered into an OEM licensing agreement and provided growth capital financing to Market2Lead, Inc. The financing was structured as a $1.5 million convertible note
receivable and a $1.5 million term note receivable. The notes bear interest at the rate of 5% per annum and have a three-year maturity. Principal and accrued interest is due at maturity. The outstanding principal and accrued interest of the
convertible note will automatically convert to equity securities of Market2Lead on October 1, 2008, subject to certain conditions. The notes are secured by substantially all of the assets of Market2Lead. The convertible note is included in
prepaid expenses and other current assets and the term note is included in other noncurrent assets. In connection with the financing provided, we also received a warrant to purchase up to 411,101 shares of common stock of Market2Lead at $1.52 per
share. The warrant was valued using the Black-Scholes pricing model with an expected term of 5 years, a volatility rate of 58.6%, a risk free interest rate of 4.2% and an expected dividend rate of 0%. The warrant value of $338,000 is included
in other noncurrent assets and the principal amount of each notes receivable has been discounted equally by the value of this warrant. The note receivable discount will be amortized to interest and other income on our statement of operations over
the expected maturity term of the notes.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Construction in process at December 31, 2007, consists primarily of costs incurred to develop internal use software for a proprietary web-based solution that
provides integrated campaign management, monitoring and recording capabilities, lead and distribution management, and robust reporting capabilities. At this time,
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



| | we estimate costs to complete this project will be in the range of $500,000 to $1 million, subject to potential future revisions.
| | ---------------------------------------------------------------------------------------------------------------------------------



|                                                 |  |                      |  |              |        |   |  |   |        |  
|------------------------------------------------ |  | -------------------- |  | ------------ | ------ | - |  | - | ------ | -
|                                                 |  | Estimated UsefulLife |  | December 31, |       
|                                                 |  | 2007                 |  |              | 2006   |  
|Intangible assets:                               |  |                      |  |              |        |   |  |   |        |  
|Developed technology (2)                         |  | 3-5 years            |  | $            | 1,980  |   |  | $ | 1,880  |  
|Customer relations (3)                           |  | 2-5 years            |  |              | 8,270  |   |  |   | 3,860  |  
|Database                                         |  | 5 years              |  |              | 1,100  |   |  |   | 1,100  |  
|Trade name                                       |  | 10 years             |  |              | 1,100  |   |  |   | 1,100  |  
|                                                 |  |                      |  |              |        |   |  |   |        |  
|                                                 |  |                      |  |              | 12,450 |   |  |   | 7,940  |  
|Accumulated amortization                         |  |                      |  |              | (5,401 | ) |  |   | (2,336 | )
|                                                 |  |                      |  |              |        |   |  |   |        |  
|Intangibles and indefinite life intangibles, net |  |                      |  | $            | 7,049  |   |  | $ | 5,604  |  
|                                                 |  |                      |  |              |        |   |  |   |        |  



|(2) | During 2007 we acquired $100,000 in developed technology intangible assets with the acquisition of CAS Systems.
|--- | ---------------------------------------------------------------------------------------------------------------

|(3) | During 2007 we acquired $1,100,000 in customer relations intangible assets with the acquisition of CAS Systems and $3,310,000 with the acquisition of Qinteraction Limited.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Future amortization of intangible assets at December 31, 2007 is as follows:



|                          |  |                        |      
|------------------------- |  | ---------------------- | -----
|                          |  | IntangibleAmortization
|2008                      |  | $                      | 3,204
|2009                      |  |                        | 2,152
|2010                      |  |                        | 997  
|2011                      |  |                        | 445  
|2012                      |  |                        | 133  
|Thereafter                |  |                        | 118  
|                          |  |                        |      
|Total future amortization |  | $                      | 7,049
|                          |  |                        |      

Customer relations and the trade name are being amortized on an accelerated basis to match the
estimated future cash flows generated from these intangible assets. 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 (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 and trade name, 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. In all cases we used a discount
rate between 16% and 25%.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table reflects the activity in our accounting for goodwill for the years ended
December 31, 2006 and 2007:



|                                               |  |              |       |    |               |   |                   |  |             |     |  |            |       |              |  |   |       |  |   |       |   |  |   |        |  
|---------------------------------------------- |  | ------------ | ----- | -- | ------------- | - | ----------------- |  | ----------- | --- |  | ---------- | ----- | ------------ |  | - | ----- |  | - | ----- | - |  | - | ------ | -
|                                               |  | SunsetDirect |       |    | LaunchProject |   | BusinessTelemetry |  | ViewCentral |     |  | CASSystems |       | Qinteraction |  |   | Total | 
|Balance at December 31, 2005                   |  | $            | 3,663 |    |               | $ | 258               |  | $           |    |  | $          |      |              |  | $ |      |  | $ |      |   |  | $ | 3,921  |  
|Acquisition of:                                |  |              |       |    |               |   |                   |  |             |     |  |            |       |              |  |   |       |  |   |       |   |  |   |        |  
|Business Telemetry                             |  |              |      |    |               |   |                  |  |             | 656 |  |            |      |              |  |   |      |  |   |      |   |  |   | 656    |  
|ViewCentral                                    |  |              |      |    |               |   |                  |  |             |    |  |            | 2,869 |              |  |   |      |  |   |      |   |  |   | 2,869  |  
|Infinite to finite classification of tradename |  |              | (440  | )* |               |   |                  |  |             |    |  |            |      |              |  |   |      |  |   |      |   |  |   | (440   | )
|                                               |  |              |       |    |               |   |                   |  |             |     |  |            |       |              |  |   |       |  |   |       |   |  |   |        |  
|Balance at December 31, 2006                   |  |              | 3,223 |    |               |   | 258               |  |             | 656 |  |            | 2,869 |              |  |   |      |  |   |      |   |  |   | 7,006  |  
|Purchase price adjustments                     |  |              |      |    |               |   |                  |  |             | 2   |  |            | (20   | )            |  |   |      |  |   |      |   |  |   | (18    | )
|Acquisition of:                                |  |              |       |    |               |   |                   |  |             |     |  |            |       |              |  |   |       |  |   |       |   |  |   |        |  
|CAS Systems                                    |  |              |      |    |               |   |                  |  |             |    |  |            |      |              |  |   | 1,710 |  |   |      |   |  |   | 1,710  |  
|Qinteraction                                   |  |              |      |    |               |   |                  |  |             |    |  |            |      |              |  |   |      |  |   | 5,751 |   |  |   | 5,751  |  
|Foreign currency adjustments                   |  |              |      |    |               |   |                  |  |             |    |  |            |      |              |  |   | 208   |  |   | (118  | ) |  |   | 90     |  
|                                               |  |              |       |    |               |   |                   |  |             |     |  |            |       |              |  |   |       |  |   |       |   |  |   |        |  
|Balance at December 31, 2007                   |  | $            | 3,223 |    |               | $ | 258               |  | $           | 658 |  | $          | 2,849 |              |  | $ | 1,918 |  | $ | 5,633 |   |  | $ | 14,539 |  
|                                               |  |              |       |    |               |   |                   |  |             |     |  |            |       |              |  |   |       |  |   |       |   |  |   |        |  



|* | See Note 5 with respect to Sunset Direct acquisition.
|- | -----------------------------------------------------

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

Capital Leases

All of the Companys capital lease obligations expired during 2007. As of December 31, 2006, property and equipment included amounts held under
capital leases of approximately $24,000 and related accumulated depreciation of approximately $22,000.

Financing Agreements

Notes payable consists of the following at December 31, 2007 and 2006 (in thousands):



|                                          |  |      |        |   |      |   |        |  
|----------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                          |  | 2007 |        |   | 2006 |  
|February 2005 Term Loan                   |  | $    | 166    |   |      | $ | 1,167  |  
|June 2005 Term Loan                       |  |      | 250    |   |      |   | 750    |  
|Notes Payable  CAS Systems               |  |      | 2,000  |   |      |   |       |  
|                                          |  |      |        |   |      |   |        |  
|Total Notes Payable                       |  |      | 2,416  |   |      |   | 1,917  |  
|Less: Current Portion                     |  |      | (1,083 | ) |      |   | (1,500 | )
|                                          |  |      |        |   |      |   |        |  
|Total Notes Payable, less current portion |  | $    | 1,333  |   |      | $ | 417    |  
|                                          |  |      |        |   |      |   |        |  

In February 2005, concurrent with the closing of the Sunset Direct merger transaction described in
Note 5, we entered into a Business Loan Agreement and Commercial Security Agreement with Bridge Bank, N.A. (the Lender) pursuant to which we obtained a $3.0 million term loan (the Term Loan) that was utilized to retire certain indebtedness and
certain other liabilities of Sunset Direct. The Term Loan is to be repaid in 36 monthly installments of $83,000 plus interest at a variable rate of prime per annum (7.25% at December 31, 2007) and matures in February 2008.

In June 2005, we entered into a Business Loan Agreement with the Lender pursuant to which we obtained a $1.5 million term loan (the June 2005 Term
Loan) that was utilized to fund the purchase and implementation



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



of our new client management system. The June 2005 Term Loan is to be repaid in 36 monthly installments of $42,000 plus interest at a variable rate of prime
per annum and matures in June 2008.

In December 2005, our Business Loan Agreement and a Commercial Security Agreement (the Revolving
Credit Facility) was increased to $4.0 million from the then existing $2.0 million. In addition, on July 6, 2007 the maturity date was extended to October 2007 from December 2006. The Company is currently in discussions with the bank to extend
the maturity date. We had originally entered into this Revolving Credit Facility with our lender in April 2004. A component of the Revolving Credit Facility is a $1.0 million Letter of Credit facility. The Revolving Credit Facility is subject to
certain financial covenants, which include maintaining minimum net income, a minimum debt service coverage ratio, minimum working capital ratio and minimum tangible net worth and bears interest at the Prime Rate published in the Wall Street Journal
but not less than 4.0%. Borrowings and letter of credit issuances are subject to borrowing base calculations and other limitations. The Term Loan, June 2005 Term Loan and the Revolving Credit Facility are secured by substantially all of our
consolidated assets, including intellectual property. We must comply with certain financial covenants, including maintaining a minimum quick ratio and maintaining unrestricted cash with Bridge Bank, reducing from time to time to the outstanding
amount of Rainmakers Term Loan and June 2005 Term Loan referenced above rounded upwards to the nearest $250,000 increment ($500,000 at December 31, 2007). Prior to the July 6, 2006 amendment, we were required to maintain minimum
unrestricted cash of $3.0 million. The Term Loan, June 2005 Term Loan and the Revolving Credit Facility also contain customary covenants that will, subject to limited exceptions, limit the Companys ability to, among other things,
(i) create liens; (ii) make capital expenditures; (iii) pay cash dividends; and (iv) merge or consolidate with another company. The Revolving 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 Term Loan, June 2005 Term Loan and Revolving Credit
Facility. As of December 31, 2007, no amounts were outstanding under the Revolving Credit Facility. Interest on the Revolving Line of Credit is a variable rate of prime per annum (7.25% at December 31, 2007). In addition, one letter
of credit in the aggregate face amount of $100,000 was outstanding under the Revolving Credit Facility (as described below).

In January
2007, we acquired the assets of CAS Systems. In connection with our acquisition, Rainmaker issued notes payable in the amounts of $1.4 million and $600,000, respectively. The two notes are payable in three consecutive annual installments of
approximately $467,000 and $200,000, respectively, each, commencing on January 25, 2008, with subsequent installments payable on the anniversary date in 2009 and 2010. The notes bear interest at a fixed rate of 5.36% per annum which is
payable for the outstanding principal at the end of each calendar quarter.

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 new corporate headquarters located in Campbell, California. In 2004, we issued Irrevocable Standby Letters of Credit to two of our clients. The letters of credit were issued in
the amount of $325,000 as a guarantee for service contracts sold by us on behalf of our clients and expired in September 2007. The letters of credit were issued under the Revolving Credit Facility described above. As of December 31, 2007, no
amounts have been drawn against the letters of credit.

Future debt maturities at December 31, 2007 are as follows (in thousands):



|                                     |  |   |      
|------------------------------------ |  | - | -----
|Fiscal year ending December 31, 2008 |  | $ | 1,083
|Fiscal year ending December 31, 2009 |  |   | 667  
|Fiscal year ending December 31, 2010 |  |   | 666  
|                                     |  |   |      
|Total                                |  | $ | 2,416
|                                     |  |   |      



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Financing Obligations

In November 2005, we entered into a Commercial Insurance Premium Finance and Security Agreement (the Financing Agreement) to finance certain of our liability insurance premiums in the amount of $334,000. Amounts owed
under the Financing Agreement bear interest at an annual rate of 6.0% and principal and interest are payable in monthly installments of approximately $33,000, through September 2006. At December 31, 2005, our liability related to the Financing
Agreement was $301,000 which was fully paid in 2006. In 2006, we did not renew such a financing arrangement and instead paid for the liability insurance premiums in advance.

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, 2007 and
2006.

Restricted Cash

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

5.
Acquisitions

Qinteraction Limited

On July 19, 2007, we entered into and closed a Stock Purchase Agreement (the Purchase Agreement) with the shareholders of Qinteraction Limited (Qinteraction), a Cayman Islands company, and James F. Bere, Jr. as
representative of the shareholders. Qinteraction operates an offshore call center located in Manila, Philippines that 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. Additionally, Qinteraction is an established provider of innovative and cost-effective business solutions that help businesses significantly grow their revenue and has clients that
range from start-up companies to Fortune 500 companies in logistics, telecommunications, technology and manufacturing. The nature of the services that Qinteraction offers is highly complimentary to our existing lead development and contract sales
product offerings and the class and type of customer is similar to that of our existing clients. This acquisition provides the Company entry into an important geographic area and the opportunity to leverage a lower cost structure to further expand
our business internationally. The results of Qinteractions operations have been included in our consolidated financial statements since the acquisition date. Under the terms of the Purchase Agreement, in exchange for all the outstanding shares
of Qinteraction, Rainmaker paid at closing a total of $11.8 million, consisting of $7.0 million in cash and $4.8 million in Rainmaker common stock representing 559,284 shares based on the average closing stock price for the 5 days surrounding the
announcement of the closing. The agreement also provides for a potential additional payment at the end of twelve months, based on the achievement of certain financial milestones for the 12 month period ending June 30, 2008, ranging from no
additional payment up to a maximum of $4.5 million in cash and $3.5 million in Rainmaker common stock, subject to potential offset and post-closing conditions.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Our acquisition of Qinteraction has been accounted for as a business combination. Assets acquired and
liabilities assumed from Qinteraction were recorded at their estimated fair values as of July 19, 2007. The total purchase price was approximately $12.5 million as follows:



|                                                     |  |   |       
|---------------------------------------------------- |  | - | ------
|Issuance of 559,284 shares of Rainmaker common stock |  | $ | 4,817 
|Cash payment for acquisition of Qinteraction         |  |   | 7,000 
|Acquisition related transaction costs                |  |   | 726   
|                                                     |  |   |       
|Total purchase price                                 |  | $ | 12,543
|                                                     |  |   |       

Using the purchase method of accounting, the total purchase price was allocated to
Qinteractions net tangible and identifiable intangible assets based on their estimated fair values. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill, which will be amortized
over 15 years for tax purposes. Using the estimated future discounted cash flows from the assets acquired, management performed a valuation and the total purchase price was allocated as follows (in thousands):



|                                |  |   |        |  
|------------------------------- |  | - | ------ | -
|Cash                            |  | $ | 203    |  
|Identified tangible assets      |  |   | 4,414  |  
|Customer relationships          |  |   | 3,310  |  
|Goodwill                        |  |   | 5,751  |  
|Liabilities assumed             |  |   | (1,135 | )
|                                |  |   |        |  
|Total purchase price allocation |  | $ | 12,543 |  
|                                |  |   |        |  

The purchase price is still preliminary as we have not yet settled all of the acquisition related
transaction costs related to the Qinteraction purchase. Additionally, there is a potential additional payment of up to $4.5 million in cash and $3.5 million in common stock based on the achievement of certain financial milestones that could increase
the purchase price. Amortization of the customer relationships intangible asset is calculated using an accelerated method that is based on the estimated future cash flows for the relationships. The estimated useful life of the customer relationships
acquired is five 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 22.0%.

On October 17, 2007, Rainmaker filed a registration statement with the Securities and Exchange Commission with respect to the shares issued to
Qinteractions shareholders that became effective November 7, 2007. Such shares are initially subject to a contractual prohibition of sale with shares available for sale from closing as follows: 241,890 shares will be available for public
sale after 6 months, 292,226 shares will be available for public sale after one year, and 25,168 shares will be available for public sale after 15 months, subject to certain post-closing conditions and potential adjustments. 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 will be available for release after 12 months from closing and the
remaining one-third will be available for release after 15 months from closing, subject to post-closing conditions, potential adjustments and offsets.

CAS Systems Asset Purchase

On January 25, 2007, we and our wholly-owned subsidiary, Rainmaker Systems (Canada)
Inc., a Canadian federal corporation, simultaneously entered into and closed two Asset Purchase Agreements (the Purchase Agreements) with CAS Systems, Inc., a California corporation, 3079028 Nova Scotia Company, its wholly-



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



owned Canadian subsidiary (collectively CAS) and Barry Hanson, as representative of the shareholders of CAS. The results of CASs operations
have been included in our consolidated financial statements since that date. CAS increases the scale of our growing lead development operations by adding management strength, multiple locations, and an established international presence in Canada.
Under the terms of the Purchase Agreements, in exchange for substantially all of the assets of CAS and its Canadian subsidiary, Rainmaker paid a total of $2 million at closing, and will pay an additional $2 million over three years plus interest at
a fixed rate of 5.36% per annum. The Purchase Agreements also provide for a potential additional payment of $1 million contingent on attaining certain performance metrics at the end of the 12 months following the acquisition, subject to
adjustment. The performance metrics were achieved, therefore the payment of $1 million was made by the Company in January 2008 and will be considered additional purchase price and an addition to goodwill in the first fiscal quarter of 2008.

Our acquisition of CAS has been accounted for as a business combination. Assets acquired and liabilities assumed from CAS were recorded at
their estimated fair values as of January 25, 2007. The total purchase price was $4.3 million as follows (in thousands):



|                                      |  |   |      
|------------------------------------- |  | - | -----
|Cash payment for acquisition of CAS   |  | $ | 2,000
|Notes Payable for acquisition of CAS  |  |   | 2,000
|Acquisition related transaction costs |  |   | 297  
|                                      |  |   |      
|Total purchase price                  |  | $ | 4,297
|                                      |  |   |      

Using the purchase method of accounting, the total purchase price was allocated to CASs net
tangible and identifiable intangible assets based on their estimated fair values. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill, which will be amortized over 15 years for tax
purposes. Using the estimated future discounted cash flows from the assets acquired, management performed a valuation and the total purchase price was allocated as follows (in thousands):



|                                |  |   |       |  
|------------------------------- |  | - | ----- | -
|Cash                            |  | $ | 490   |  
|Identified tangible assets      |  |   | 1,387 |  
|Developed technology            |  |   | 100   |  
|Customer relationships          |  |   | 1,100 |  
|Goodwill                        |  |   | 1,710 |  
|Liabilities assumed             |  |   | (320  | )
|Deferred revenue assumed (1)    |  |   | (170  | )
|                                |  |   |       |  
|Total purchase price allocation |  | $ | 4,297 |  
|                                |  |   |       |  



|(1) | In accordance with EITF 01-03, Accounting in a Business Combination of Deferred Revenue of an Acquiree, we have reduced the carrying value of the deferred revenue
by 13.6%, which represents the reduction from carrying value to fair value for the legal performance obligation assumed from CAS.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Amortization of the intangible assets is calculated using an accelerated method for customer relationships that is based on the estimated future cash flows for the relationship, and the straight-line method for the developed technology. The
estimated useful life of the amortizable intangible assets acquired is four years for customer relationships and two years for the developed technology. For developed technology and customer relations, we estimated the cash flows associated with the
excess earnings the technology and contacts would generate and allocated the present value of those earnings to the asset. We used a discount rate of 23.5%.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



ViewCentral Asset Purchase

On September 15, 2006, we closed an Asset Purchase Agreement with ViewCentral, Inc., a California corporation (ViewCentral), and Dan Tompkins as
representative of certain shareholders of ViewCentral. The results of ViewCentrals operations have been included in the consolidated financial statements since that date. ViewCentral is a provider of enterprise training and marketing program
management solutions, and is expected to enhance the Companys revenue delivery platform with modules for marketing and training event management. Under the terms of the Purchase Agreement, Rainmaker issued 754,968 shares of common stock
representing approximately 5.5% of Rainmakers 13,845,000 common shares outstanding as of August 31, 2006 and assumed certain liabilities of ViewCentral under its customer contracts, purchase orders and office lease in exchange for
substantially all of ViewCentrals assets. In connection with the acquisition, ViewCentrals employees became employees of Rainmaker. In connection with their employment, Rainmaker awarded a total of 28,976 shares of restricted stock in
the company that will be earned by each employee over one or two years of continued employment. See Note 8 for further discussion of the restricted stock awarded to the former ViewCentral employees. The estimated value of the 754,968 shares issued
was $4.4 million computed at a share price of $5.88 which is the average closing price for the period from September 15, 2006 through September 21, 2006.

Our acquisition of ViewCentral has been accounted for as a business combination. Assets acquired and deferred revenue assumed from ViewCentral were recorded at their estimated fair values as of September 15,
2006. The total purchase price was $4.6 million as follows:



|                                                     |  |                |      
|---------------------------------------------------- |  | -------------- | -----
|                                                     |  | (in thousands)
|Issuance of 754,968 shares of Rainmaker Common Stock |  | $              | 4,439
|Acquisition related transaction costs                |  |                | 180  
|                                                     |  |                |      
|Total purchase price                                 |  | $              | 4,619
|                                                     |  |                |      

Using the purchase method of accounting, the total purchase price was allocated to
ViewCentrals net tangible and identifiable intangible assets based on their estimated fair values. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill, which will be amortized over
15 years for tax purposes. Using the estimated future discounted cash flows from the assets acquired, management performed a valuation and the total purchase price was allocated as follows:



|                                |  |                |        |  
|------------------------------- |  | -------------- | ------ | -
|                                |  | (in thousands) |       
|Cash                            |  | $              | 634    |  
|Identified tangible assets      |  |                | 366    |  
|Developed technology            |  |                | 920    |  
|Customer relationships          |  |                | 2,190  |  
|Goodwill                        |  |                | 2,849  |  
|Deferred revenue assumed (1)    |  |                | (2,340 | )
|                                |  |                |        |  
|Total purchase price allocation |  | $              | 4,619  |  
|                                |  |                |        |  



|(1) | In accordance with EITF 01-03, Accounting in a Business Combination of Deferred Revenue of an Acquiree we have reduced the carrying value of the deferred revenue by 11.4%, which
represents our best estimate of the reduction from carrying to fair value for the legal performance obligation assumed from ViewCentral.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Amortization of the intangible assets is calculated using an accelerated method for customer relationships that is based on the estimated future cash flows for the relationship, and the straight-line method for the
developed technology. The estimated useful life of the amortizable intangible assets acquired is five years for



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



customer relationships and three years for the developed technology. For developed technology and customer relations, we estimated the cash flows associated
with the excess earnings the technology and contacts would generate and allocated the present value of those earnings to the asset. We used a discount rate of 16%.

On November 13, 2006, Rainmaker filed a registration statement with the Securities and Exchange Commission with respect to the shares issued to ViewCentrals shareholders that became effective
December 8, 2006. Such shares were initially subject to a contractual prohibition of sale. As of December 31, 2007, all contractual prohibitions of sale have expired.

Business Telemetry Asset Purchase

On May 16, 2006, we announced that we had entered into
and closed an Asset Purchase Agreement (the Purchase Agreement) with Business Telemetry, Inc. (d/b/a Metrics Corporation), a California corporation (Metrics), and Kenneth S. Forbes, III, as representative of the shareholders of Metrics. Pursuant to
the Purchase Agreement, Rainmaker acquired certain of the assets of Metrics, including certain software and related intellectual property. Under the terms of the Purchase Agreement, Rainmaker issued 158,480 shares of common stock in exchange for the
assets and incurred approximately $70,000 of acquisition related costs. Also, the shareholders of Metrics entered into non-compete agreements with Rainmaker and accepted employment positions with Rainmaker. The estimated value of the 158,480 shares
of Rainmaker common stock was $898,000 computed at a per share price of $5.67, the average closing price for the period from May 12, 2006 through May 18, 2006.

Our acquisition of Metrics has been accounted for as a business combination. Assets acquired from Metrics were recorded at their estimated fair values as of May 12, 2006. The total purchase price was $968,000 as
follows:



|                                                     |  |                |    
|---------------------------------------------------- |  | -------------- | ---
|                                                     |  | (in thousands)
|Issuance of 158,480 shares of Rainmaker Common Stock |  | $              | 898
|Acquisition related transaction costs                |  |                | 70 
|                                                     |  |                |    
|Total purchase price                                 |  | $              | 968
|                                                     |  |                |    

Using the purchase method of accounting, the total purchase price was allocated to Metrics
net tangible and identifiable intangible assets based on their estimated fair values. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill, which will be amortized over 15 years for tax
purposes. Using the estimated future discounted cash flows from the assets acquired, management performed a valuation and the total purchase price was allocated as follows:



|                                                |  |                |    
|----------------------------------------------- |  | -------------- | ---
|                                                |  | (in thousands)
|Developed technology and customer relationships |  | $              | 310
|Goodwill                                        |  |                | 658
|                                                |  |                |    
|Total purchase price allocation                 |  | $              | 968
|                                                |  |                |    

Amortization of the intangible assets is calculated using an accelerated method for customer
relationships that is based on the estimated future cash flows for the relationship, and the straight-line method for the developed technology. The weighted-average useful life of the amortizable intangible assets acquired is approximately three
years. For developed technology and customer relations, we estimated the cash flows associated with the excess earnings the technology and contacts would generate and allocated the present value of those earnings to the asset. We used a
discount rate of 22%.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Rainmaker filed a registration statement with the Securities and Exchange Commission on June 23,
2006 that became effective July 28, 2006 with respect to the shares that were issued to Metrics. Such shares were initially subject to a contractual prohibition of sale. As of December 31, 2007, all contractual prohibitions of sale have
expired.

Launch Project Asset Purchase

On July 1, 2005, Rainmaker and Sunset Direct entered into, and simultaneously closed, an Asset Purchase Agreement (the Purchase Agreement) with Launch Project, LLC, the members of Launch Project, LLC, and Chad Nuss, as representative
of the members (Launch Project). Pursuant to the Purchase Agreement, Sunset Direct acquired certain of the assets of Launch Project primarily including certain software and intellectual property. Under the terms of the Purchase Agreement, Sunset
Direct paid $40,000 in cash and Rainmaker issued 140,000 shares of common stock in exchange for the assets and incurred approximately $82,000 of purchase related costs. The estimated value of the 140,000 shares of Rainmaker common stock was $385,000
computed at a per share price of $2.75, the average closing price for the period from June 30, 2005 through July 7, 2005.

Assets
acquired from Launch Project were recorded at their estimated fair values as of July 1, 2005. The total purchase price was $508,000 as follows:



|                                                     |  |                |    
|---------------------------------------------------- |  | -------------- | ---
|                                                     |  | (in thousands)
|Issuance of 140,000 shares of Rainmaker Common Stock |  | $              | 385
|Cash payment for acquisition of Launch Project       |  |                | 40 
|Acquisition related transaction costs                |  |                | 83 
|                                                     |  |                |    
|Total purchase price                                 |  | $              | 508
|                                                     |  |                |    

Using the purchase method of accounting, the total purchase price was allocated to Launch
Projects net tangible and identifiable intangible assets based on their estimated fair values as of July 1, 2005. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill which
will be amortized over 15 years for tax purposes. Based upon a valuation by management, the total purchase price was allocated as follows:



|                                                |  |                |    
|----------------------------------------------- |  | -------------- | ---
|                                                |  | (in thousands)
|Developed technology and customer relationships |  | $              | 250
|Goodwill                                        |  |                | 258
|                                                |  |                |    
|Total purchase price allocation                 |  | $              | 508
|                                                |  |                |    

In connection with the asset purchase with Launch Project LLC, we filed a registration statement
with the SEC with respect to the shares that were issued to Launch Projects members that was declared effective August 12, 2005. Pursuant to that registration statement all shares are available for public sale.

Sunset Direct

On February 8, 2005, we
acquired all of the issued and outstanding voting securities of Sunset Direct by means of a merger of Sunset Direct and a wholly owned subsidiary of Rainmaker, with Sunset Direct continuing as the surviving corporation. The results of Sunset
Directs operations have been included in the consolidated financial statements since that date. Sunset Direct is an outsource provider of lead development services primarily to high-tech companies. As a result of the acquisition, Sunset Direct
has been accretive to our financial results and has provided certain other benefits including cross-selling, client diversification, expanded service



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offering and a larger, more cost-effective talent pool. Pursuant to our Agreement and Plan of Merger (the Merger Agreement) with Sunset Direct, we paid
approximately $3.5 million in cash that was used to retire approximately $3.3 million of debt and certain liabilities retained by Sunset Direct, issued 664,080 shares of common stock in exchange for the outstanding capital stock of Sunset Direct,
and incurred approximately $910,000 of acquisition related costs. The estimated value of the 664,080 shares of Rainmaker common stock was $2.2 million computed at a per share price of $3.32, the average closing price for the period from
February 8, 2005 through February 14, 2005.

Our acquisition of Sunset Direct has been accounted for as a business combination.
Assets acquired and liabilities assumed were recorded at their estimated fair values as of February 8, 2005. The total purchase price was $6.6 million as follows:



|                                                     |  |                |      
|---------------------------------------------------- |  | -------------- | -----
|                                                     |  | (in thousands)
|Issuance of 664,080 shares of Rainmaker Common Stock |  | $              | 2,205
|Cash payment for acquisition of Sunset Direct        |  |                | 3,476
|Acquisition related transaction costs                |  |                | 910  
|                                                     |  |                |      
|Total purchase price                                 |  | $              | 6,591
|                                                     |  |                |      

Using the purchase method of accounting, the total purchase price was allocated to Sunset
Directs net tangible and identifiable intangible assets based on their estimated fair values as of February 8, 2005. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill, which
is not deductible for tax purposes. Based upon a valuation by management, the total purchase price was allocated as follows:



|                                |  |                |        |  
|------------------------------- |  | -------------- | ------ | -
|                                |  | (in thousands) |       
|Tangible assets acquired        |  | $              | 1,866  |  
|Identifiable intangible assets  |  |                | 4,300  |  
|Goodwill                        |  |                | 3,223  |  
|Net liabilities assumed         |  |                | (2,798 | )
|                                |  |                |        |  
|Total purchase price allocation |  | $              | 6,591  |  
|                                |  |                |        |  

Goodwill represents the excess of the purchase price over the fair value of tangible and
identifiable intangible assets acquired. Goodwill amounts are not amortized, but rather are tested for impairment at the reporting unit level at least annually. In the event that we determine that the value of goodwill has become impaired, we will
incur an accounting charge for the amount of impairment during the fiscal quarter in which such determination is made.

Identifiable
intangible assets acquired consist of developed technology, customer relationships, trade names, and a proprietary database. The estimated fair value of identifiable intangible assets was determined by management. Amortization of the intangible
assets is calculated using an accelerated method for customer relationships that is based on the estimated future cash flows of the relationships, and the straight-line method for the proprietary database and developed technology. The
weighted-average useful life of the amortizable intangible assets acquired is approximately five years.

During the year ended
December 31, 2006, the Company determined that due to certain marketing and branding initiatives, the Sunset Direct trade name was now estimated to have a 10 year life as opposed to an indefinite life as originally determined at the
acquisition date. In accordance with SFAS 142 (Goodwill and Other Intangible Assets), a valuation to test for impairment was performed. No impairment was noted and the Sunset



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Direct trade name is being amortized over 10 years using an accelerated amortization method. During the years ended December 31, 2007 and 2006, we
recorded $192,000 and $158,000, respectively, in amortization related to the trade name.

On June 30, 2005, the Company filed a
registration statement with the Securities and Exchange Commission with respect to the shares were issued to Sunset Directs shareholders that was declared effective July 19, 2005. Pursuant to that registration statement all shares are
available for public sale.

The following unaudited pro forma information presents a summary of the results of operations of the Company
assuming the purchase of all of the outstanding stock from Qinteraction Limited and the purchase of assets from CAS Sytems and ViewCentral occurred at the beginning of the year ended December 31, 2006 and assumes the amortization of intangible
assets, the effect of compensation expense for the restricted stock awards, the reduction of revenue for the estimated fair value of the legal performance obligation in accordance with the guidance of EITF 01-03, and the tax effect of the
aforementioned adjustments (in thousands, except per share amounts):



|                                                        |  |                         |        |      |   |       
|------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------
|                                                        |  | Year Ended December 31,
|                                                        |  | 2007                    |        | 2006
|                                                        |  | (Unaudited)            
|Net revenue                                             |  | $                       | 78,681 |      | $ | 66,566
|                                                        |  |                         |        |      |   |       
|Net income                                              |  | $                       | 803    |      | $ | 1,315 
|                                                        |  |                         |        |      |   |       
|Pro forma  basic net income per share                  |  | $                       | 0.04   |      | $ | 0.09  
|                                                        |  |                         |        |      |   |       
|Pro forma  diluted net income per share                |  | $                       | 0.04   |      | $ | 0.08  
|                                                        |  |                         |        |      |   |       
|Pro forma weighted average shares outstanding  basic   |  |                         | 17,885 |      |   | 14,753
|                                                        |  |                         |        |      |   |       
|Pro forma weighted average shares outstanding  diluted |  |                         | 19,245 |      |   | 15,774
|                                                        |  |                         |        |      |   |       

The unaudited pro forma information presented above excludes the effects of the Metrics
acquisitions since the effect of this acquisition on the results of operations was deemed insignificant. Additionally, Sunset Direct and Launch Project were included in the Companys operations for both periods presented and thus no effects
from these acquisitions are included in the unaudited pro forma information presented above.

6. Commitments

As of December 31, 2007, our off-balance sheet arrangements include operating leases for our facilities that expire at various dates through 2014,
including an additional facility operating lease commitment assumed in connection with the Companys acquisition of Sunset Direct in February 2005, the lease for the Companys corporate headquarters in Campbell, California, and leases
assumed in connection with the acquisitions of CAS Systems and Qinteraction Limited during 2007. 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 up front cash flow related to purchasing the assets.

On November 13, 2006, the Company executed an amendment to the
operating lease for its corporate headquarters in Campbell, California. Under the lease and its amendment, we have a total of 23,149 square feet of usable office space. The lease term originally began on November 1, 2005 and will now end on
January 31, 2010. Beginning January 1, 2008 and through the expiration of the lease term, annual base rent will escalate from



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



approximately $418,000 in 2008 to $440,000 in 2009, the final full year of the lease. In addition, the Company must pay its proportionate share of operating
costs and taxes. In connection with the execution of the lease, the Company has issued a Letter of Credit to the Landlord in the amount of $100,000 as a security deposit.

In Austin, Texas we have rented a total of 59,466 square feet of office space under a lease and its amendments that expire in June of 2009. In August 2005, we renewed the existing lease for 46,366 square feet of space
and then in March 2006 we further amended the lease for an additional 7,623 square feet of space. On April 16, 2007, we entered into a sublease agreement in the same building as our lease in Austin for an additional 5,477 feet that expires on
July 31, 2008. The rent on the sublease space is fixed at $2,700 per month. Under the lease and its amendments, our annual base rent will escalate to approximately $453,000 in 2008, the final full year of the lease that ends in June 2009. In
both the California and the Texas facilities, we pay rent and maintenance on some of the common areas in each of our leased facilities.

As
a result of our acquisition of CAS Systems in January 2007, we now have facilities near Montreal, Canada, where we have approximately 18,426 square feet of space covered by leases that expire on December 31, 2007, and in Oakland, California
where we have approximately 10,039 square feet of space covered by a lease that expires on May 19, 2011. We have renewed the Canada lease as of January 1, 2008 for a 2-year term with options for subsequent continuance. The provisions of
the lease renewal in Canada specify that either party can terminate the lease for any reason by giving the other party at least 120 days prior written notice. Based on the exchange rate as of December 31, 2007, our annual base rent will
escalate from approximately $319,000 in 2008 to $329,000 in 2009. For the future minimum lease payment table below, we have only included 4 months of lease payments for this lease which represents the non-cancelable portion.

With our acquisition of Qinteraction, we assumed existing lease obligations at their Manila, Philippines offices. We have assumed 2 office space leases
and a parking lease. We occupy approximately 40,280 square feet on 3 floors in the BPI building in Manila. Our current lease for this space terminates on March 31, 2008, and we have signed a new lease that commences on April 1, 2008, has a
5 year term and terminates on March 31, 2014. Based on the exchange rate as of December 31, 2007, our annual base rent will escalate from approximately $518,000 in 2008 to $780,000 in 2013, the final full year of the lease that ends in
March 2014. We occupy approximately 15,460 square feet in the Pacific Star building in Manila. This lease commenced on October 1, 2007, has a 5 year term and terminates on September 30, 2012. Based on the exchange rate as of
December 31, 2007, our annual base rent will escalate from approximately $252,000 in 2008 to $281,000 in 2011, the final full year of the lease that expires in September 2012. Our parking lease began in March 2006, has a 5 year term and
terminates in February 2011. Based on the exchange rate as of December 31, 2007, our annual base rent on this lease is approximately $15,000.

Future minimum payments under our non-cancelable operating leases at December 31, 2007 are as follows (in thousands):



|                       |  |   |      
|---------------------- |  | - | -----
|2008                   |  | $ | 1,995
|2009                   |  |   | 1,781
|2010                   |  |   | 1,190
|2011                   |  |   | 1,056
|2012                   |  |   | 941  
|Thereafter             |  |   | 979  
|                       |  |   |      
|Total minimum payments |  | $ | 7,942
|                       |  |   |      

Rent expense under operating lease agreements during the years ended December 31, 2007, 2006
and 2005 was $2,142,000, $869,000 and $771,000, respectively.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



7. Income Taxes

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



|              |  |                          |       |      |   |       |  |   |        |  
|------------- |  | ------------------------ | ----- | ---- | - | ----- |  | - | ------ | -
|              |  | Years Ended December 31, |      
|              |  | 2007                     |       | 2006 |   | 2005  | 
|United States |  | $                        | 1,834 |      | $ | 3,701 |  | $ | (5,004 | )
|Foreign       |  |                          | 228   |      |   |      |  |   |       |  
|              |  |                          |      |      |   |      |  |   |       |  
|              |  |                          |       |      |   |       |  |   |        |  
|              |  | $                        | 2,062 |      | $ | 3,701 |  | $ | (5,004 | )
|              |  |                          |       |      |   |       |  |   |        |  

Income tax expense for the years ended December 31, 2007, 2006 and 2005 consists of the
following (in thousands):



|                         |  |      |     |      |   |      |  |   |  
|------------------------ |  | ---- | --- | ---- | - | ---- |  | - | -
|                         |  | 2007 |     | 2006 |   | 2005
|Current:                 |  |      |     |      |   |      |  |   |  
|Federal                  |  | $    | 106 |      | $ | 110  |  | $ | 
|State                    |  |      | 235 |      |   | 145  |  |   | 
|Foreign                  |  |      | 93  |      |   |     |  |   | 
|                         |  |      |     |      |   |      |  |   |  
|                         |  |      | 434 |      |   | 255  |  |   | 
|                         |  |      |     |      |   |      |  |   |  
|Deferred                 |  |      |     |      |   |      |  |   |  
|Federal                  |  |      | 98  |      |   | 40   |  |   | 
|State                    |  |      | 7   |      |   | 3    |  |   | 
|Foreign                  |  |      | 19  |      |   |     |  |   | 
|                         |  |      |     |      |   |      |  |   |  
|                         |  |      | 124 |      |   | 43   |  |   | 
|                         |  |      |     |      |   |      |  |   |  
|Total income tax expense |  | $    | 558 |      | $ | 298  |  | $ | 
|                         |  |      |     |      |   |      |  |   |  

A reconciliation between the provision for (benefit of) income taxes computed by applying the U.S.
federal tax rate to income (loss) before income taxes and the actual provision for income taxes for the years ended December 31, 2007, 2006 and 2005 is as follows (in thousands):



|                                                                  |  |      |      |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                  |  | 2007 |      |   | 2006 |   |        | 2005 | 
|Tax expense (benefit) computed at federal statutory rate          |  | $    | 701  |   |      | $ | 1,258  |      |  | $ | (1,701 | )
|Effect of state income taxes                                      |  |      | 160  |   |      |   | 148    |      |  |   |       |  
|Differences between statutory rate and foreign effective tax rate |  |      | 34   |   |      |   |       |      |  |   |       |  
|Change in valuation allowance                                     |  |      | (590 | ) |      |   | (1,214 | )    |  |   | 1,685  |  
|Stock based compensation                                          |  |      | 218  |   |      |   | 71     |      |  |   |       |  
|Other                                                             |  |      | 35   |   |      |   | 35     |      |  |   | 16     |  
|                                                                  |  |      |      |   |      |   |        |      |  |   |        |  
|Total income tax expense                                          |  | $    | 558  |   |      | $ | 298    |      |  | $ |       |  
|                                                                  |  |      |      |   |      |   |        |      |  |   |        |  



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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, 2007 and 2006 are as follows (in thousands):



|                                 |  |                         |         |   |      |   |         |  
|-------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                 |  | Years EndedDecember 31, |        
|                                 |  | 2007                    |         |   | 2006 |  
|Deferred tax assets:             |  |                         |         |   |      |   |         |  
|Net operating loss carryforwards |  | $                       | 15,869  |   |      | $ | 17,602  |  
|Depreciation and amortization    |  |                         | 1,116   |   |      |   | 355     |  
|Accrued reserves and other       |  |                         | 903     |   |      |   | 499     |  
|                                 |  |                         |         |   |      |   |         |  
|Total deferred tax assets        |  |                         | 17,888  |   |      |   | 18,456  |  
|Valuation allowance              |  |                         | (17,884 | ) |      |   | (18,456 | )
|                                 |  |                         |         |   |      |   |         |  
|Net deferred tax assets          |  |                         | 4       |   |      |   |        |  
|                                 |  |                         |         |   |      |   |         |  
|Deferred tax liabilities         |  |                         |         |   |      |   |         |  
|Acquired goodwill                |  |                         | (171    | ) |      |   | (43     | )
|                                 |  |                         |         |   |      |   |         |  
|Net deferred tax liability       |  |                         | (167    | ) |      |   | (43     | )
|                                 |  |                         |         |   |      |   |         |  
|Total net deferred tax liability |  | $                       | (167    | ) |      | $ | (43     | )
|                                 |  |                         |         |   |      |   |         |  

Realization of deferred tax assets is dependent upon future taxable earnings, the timing and
amount of which are uncertain. Due to operating losses in previous years, 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
decreased approximately $0.6 million and $1.1 million during the years ended December 31, 2007 and 2006, respectively. The reduction in valuation allowance is due to current utilization of our net operating losses. Included in the
December 31, 2007 valuation allowance is approximately $490,000 related to stock options which will be recorded to stockholders equity when realized for tax purposes.

As of December 31, 2007, we had net operating loss carryforwards for federal and state of California tax purposes of $45 million and $30 million
respectively. The net operating loss carryforwards will expire at various dates beginning in 2020 and 2012, respectively, for federal and California, if not utilized.

We performed an analysis of prior ownership changes which would result in a limitation on the availability of our net operating losses. This analysis indicated that the company twice had ownership changes as defined
under IRC section 382 which limit the utilization of our net operating losses. The amount of net operating losses available for utilization will be approximately $41 million in 2008. All historic losses incurred will be available as of 2010. In the
event that the company has another ownership change as defined under IRC section 382, the utilization of these losses could be further limited.

In July 2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in any entitys financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes and
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 FIN 48, 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, FIN 48 provides guidance on



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006.

The Company has adopted the provisions of FIN 48 as of January 1, 2007. As a result of
the implementation of FIN 48, the Company recognized no adjustment to retained earnings and no change in its liability for unrecognized tax benefits.

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 income (expense), net, in the statement of operations. There were no amounts accrued for interest and penalties related to uncertain tax positions as of December 31, 2007.

The Company does not anticipate any significant changes within twelve months of this reporting date of its unrecognized tax benefits.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. There are no ongoing examinations by taxing authorities at
this time. The Companys tax years starting from 1999 to 2007 remain open in various tax jurisdictions.

8. Stockholders Equity

Reverse Stock Split

On
December 15, 2005, the Company held a Special Meeting of Stockholders. At the meeting, the Stockholders approved the amendment the Companys Certificate of Incorporation to effect a reverse split of the outstanding shares of the
Companys common stock by a ratio of between one-for-three to one-for-ten, inclusive, without further approval or authorization of the Companys stockholders. On December 15, 2005, the Companys Board of Directors authorized an
amendment of the Companys Certificate of Incorporation to effect a one-for-five reverse split of the outstanding shares of the Companys Common Stock, which decreased the Companys total number of outstanding shares from
approximately 56.5 million to approximately 11.3 million, subject to adjustment for fractional shares. Stockholders equity has been restated to give retroactive recognition to the reverse stock split in 2005 by combining the par
value previously attributable to the common stock and then reclassifying the excess common stock par value resulting from the reverse split to additional paid-in capital. In addition, all references in the financial statements and notes to numbers
of shares and per share amounts have been restated to reflect the reclassification and the reverse stock split.

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, 2007 and 2006.

Common Stock and Warrants

On May 18,
2006 we amended our certificate of incorporation with the State of Delaware whereby, among other things, our authorized number of common shares was reduced from 80,000,000 to 50,000,000. Over the three years in the period ended December 31,
2007, we had several significant transactions that involved the issuance of our common stock and warrants to buy our common stock.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



On April 25, 2007, we announced that we had closed a public offering of an aggregate
of 4,165,690 shares of our common stock at a public offering price of $8.50 per share (the Offering). Pursuant to the Offering, 3,500,000 shares were sold by us and 665,690 shares were sold by the selling stockholders
named in the prospectus supplement, generating gross proceeds to the Company, after underwriting discounts and commissions, of $28.1 million. Net proceeds from the offering were approximately $27.2 million after payment of all expenses relating to
the offering. We expect to continue to use the net proceeds from this offering for general corporate purposes, including working capital and capital expenditures. We also used a portion of the net proceeds to acquire Qinteraction and may use a
portion of the net proceeds to acquire complementary technologies or businesses in the future when the opportunity arises.

On
February 7, 2006, the Company entered into two Securities Purchase Agreements with certain new and existing investors. Pursuant to the Securities Purchase Agreements, the Company issued a total of 2,000,000 shares of the Companys common
stock at a price of $3.00 per share for gross proceeds of $6.0 million and issued warrants to the investors to purchase an additional 799,999 shares of common stock of the Company at an exercise price of $4.28 per share. The warrants have a 5-year
term and were exercisable beginning August 7, 2006. Net proceeds from the issuance were $5.3 million after payment of fees and costs. The securities issued pursuant to the Securities Purchase Agreements were not registered under the Securities
Act of 1933, as amended (the Securities Act), or the securities laws of certain states, in reliance on the exemptions provided by Section 4(2) of the Securities Act and Regulation D promulgated there under and in reliance on similar exemptions
under applicable state laws. Under the Securities Purchase Agreements, the Company also granted certain registration rights to each of the investors pursuant to which the Company filed a registration statement on Form S-3 that became effective on
March 21, 2006, with respect to the common stock issued under the Securities Purchase Agreements and the common stock issuable upon conversion of the related warrants. At December 31, 2007, all of the warrants were still outstanding.

On June 15, 2005, we entered into a Purchase Agreement with certain investors. Pursuant to the Purchase Agreement, we agreed to issue
1,340,444 shares of our common stock for gross proceeds of approximately $2.7 million to a group of investors that included members of our management and our board of directors. The sale to investors who were not members of management or the board
of directors consisted of 1,280,000 shares of our common stock at a price of $2.00 per share, for gross proceeds of $2,560,000, and the sale to investors who were members of management or the board of directors consisted of 60,444 shares of our
common stock at the market price of $2.25 per share, for gross proceeds of $136,000. In addition, we issued warrants to the investors to purchase a total of 201,066 shares of our common stock at an exercise price of $2.40 per share of which 98,817
were outstanding at December 31, 2007. Stock offering costs of $103,000 have been reflected as a reduction of the gross proceeds received.

In February 2004, we completed a private placement of common stock and common stock purchase warrants with certain institutional investors that resulted in net proceeds to the company of approximately $6.3 million. The Company sold an
aggregate of approximately 933,000 shares of common stock at $7.50 per share. The investors also received warrants to purchase an aggregate of 186,668 shares of our common stock at an exercise price of $9.375 per share. In connection with the
private placement, our investment banker also received a warrant to purchase 7,467 shares of our common stock at an exercise price of $9.375 per share. The common stock and shares of common stock underlying the warrants issued in the private
placement were subsequently registered on a commercially best efforts basis in March 2004. The warrants expire in February 2009 and the Company has reserved 194,135 shares of common stock for the exercise of the warrants. At December 31, 2007,
all of the warrants were still outstanding.

For each of the aforementioned private placements of common stock, we are required by the
terms of the respective Purchase Agreements to register the shares with the Securities Exchange Commission and maintain



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the effectiveness of the registration for periods of up to 2 years. In the event that we do not meet these obligations, we are potentially liable to the
investors to pay penalties that range between 15% and 36% of the gross proceeds of the transaction. In each of these transactions, we compared the potential impact of the penalty to the fair value of the unregistered shares and determined that the
penalties were not excessive and therefore recorded each as equity in accordance with EITF No. 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Companys Own Stock, and EITF No. 00-19-2,
Accounting for Registration Payment Arrangements. To date we have met these obligations and no penalties have been incurred.

As
described in Note 5, we have issued common stock as consideration given in five acquisitions of businesses during the three year period ended December 31, 2007. The following table summarizes the common stock issued in each of those
transactions:



|                   |  |                                            |  |                         |  |                           |      |                       |   |                            |  |                 
|------------------ |  | ------------------------------------------ |  | ----------------------- |  | ------------------------- | ---- | --------------------- | - | -------------------------- |  | ----------------
|                   |  | ($ in thousands, except per share amounts)
|Acquisition        |  | TransactionDate                            |  | # of CommonSharesIssued |  | Market PriceUsed perShare |      | Value of SharesIssued |   | RegistrationEffective Date
|Qinteraction Ltd.  |  | July 19, 2007                              |  | 559,284                 |  | $                         | 8.61 |                       | $ | 4,817                      |  | November 7, 2007
|ViewCentral        |  | September 15, 2006                         |  | 754,968                 |  | $                         | 5.88 |                       | $ | 4,439                      |  | December 8, 2006
|Business Telemetry |  | May 12, 2006                               |  | 158,480                 |  | $                         | 5.67 |                       | $ | 898                        |  | July 28, 2006   
|Launch Project     |  | July 1, 2005                               |  | 140,000                 |  | $                         | 2.75 |                       | $ | 385                        |  | August 12, 2005 
|Sunset Direct      |  | February 8, 2005                           |  | 664,080                 |  | $                         | 3.32 |                       | $ | 2,205                      |  | July 19, 2005   

For each of these transactions, the shares were subject to customary contractual prohibitions of
sale. At December 31, 2007, the contractual prohibition of sale was in place for all of the Qinteraction shares. At December 31, 2007, all of the shares issued for ViewCentral, Business Telemetry, Launch Project and Sunset Direct were
available for sale.

Stock Repurchases

At December 31, 2007, there were no shares of common stock subject to repurchase outstanding.

Treasury Stock

During the 2007 fiscal year, 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. Based on this, the Company
purchased 33,600 shares during the year with a cost of approximately $233,000 from employees and directors to cover federal and state taxes due.

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



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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.

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-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.

The number of shares authorized for
grant under the 2003 Plan automatically increases annually 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 600,000 shares. The Company may seek shareholder approval
to increase the shares available to grant to employees based on the significant growth of the Company.

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 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-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.

Stock-Based Compensation Expense

On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment, (SFAS 123(R)) which establishes standards for the accounting of 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. SFAS No. 123R requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments, including stock options, based on the grant-date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide
service in exchange for the award, usually the vesting period. SFAS 123(R) supersedes the Companys previous accounting under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) for periods
beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107



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(SAB 107) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

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. In 2006, we calculated the estimated compensation expense separately for Employee Stock Options (Options) and Employee Stock Purchase Plan (Purchase Plan).
During the year ended December 31, 2006, the Purchase Plan was revised to reduce the discount available for participants from 15% to 5%. Under the provisions of SFAS 123(R), shares purchased under the Purchase Plan are no longer compensatory.

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 under SFAS 123(R) for the years ended December 31, 2007 and 2006 as follows (in thousands):



|                                           |  |                        |       |      |   |    
|------------------------------------------ |  | ---------------------- | ----- | ---- | - | ---
|                                           |  | Year endedDecember 31,
|                                           |  | 2007                   |       | 2006
|Stock based compensation expense included: |  |                        |       |      |   |    
|Cost of services                           |  | $                      | 395   |      | $ | 45 
|Sales and marketing                        |  |                        | 331   |      |   | 61 
|Technology                                 |  |                        | 214   |      |   | 23 
|General and administrative                 |  |                        | 874   |      |   | 78 
|                                           |  |                        |       |      |   |    
|                                           |  | $                      | 1,814 |      | $ | 207
|                                           |  |                        |       |      |   |    

At December 31, 2007, approximately $9.2 million of stock-based compensation relating to
unvested awards had not been amortized and will be expensed in future periods through 2011. Under current grants unvested and outstanding, approximately $2.9 million will be expensed in 2008 as stock-based compensation.

The table below reflects net income and basic and diluted net income per share as if the fair value recognition provisions of SFAS 123 had been applied
for the year ended December 31, 2005 as follows (in thousands except per share amounts):



|                                                                        |  |                                                               |        |  
|----------------------------------------------------------------------- |  | ------------------------------------------------------------- | ------ | -
|                                                                        |  | Pro FormaResults underSFAS 123 forthe Year EndedDec. 31,
2005 |       
|Net loss as reported for the comparative period                         |  | $                                                             | (5,004 | )
|Stock-based employee compensation expense                               |  |                                                               | (4,124 | )
|                                                                        |  |                                                               |        |  
|Pro forma net loss including effect of stock based compensation         |  | $                                                             | (9,128 | )
|                                                                        |  |                                                               |        |  
|Basic and diluted loss reported for the comparative period              |  | $                                                             | (0.48  | )
|                                                                        |  |                                                               |        |  
|Pro forma basic net loss including effect of stock based compensation   |  | $                                                             | (0.87  | )
|                                                                        |  |                                                               |        |  
|Pro forma diluted net loss including effect of stock based compensation |  | $                                                             | (0.87  | )
|                                                                        |  |                                                               |        |  



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We calculate the value of our stock option awards when they are granted. Accordingly, we review our
valuation assumptions for volatility and the risk free interest rate each quarter 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, 2007, 2006 and 2005:



|                                 |  |                                                        |   |  |               |   |  |      |   |  |      |  |      |   |  |      |  
|-------------------------------- |  | ------------------------------------------------------ | - |  | ------------- | - |  | ---- | - |  | ---- |  | ---- | - |  | ---- | -
|                                 |  | Ranges of Valuation AssumptionsYears Ended December 31 |  
|                                 |  | Options                                                |   |  | Purchase Plan |  
|                                 |  | 2007                                                   |   |  | 2006          |   |  | 2005 |   |  | 2006 |  | 2006 |   |  | 2005 |  
|Expected life in years           |  | 4.3                                                    |   |  | 4.3           |   |  | 4.0  |   |  |     |  | 0.5  |   |  | 0.7  |  
|Volatility                       |  | 0.73                                                   |   |  | 0.80          |   |  | 1.09 |   |  |     |  | 0.92 |   |  | 0.94 |  
|Risk-free interest rate          |  | 4.7                                                    | % |  | 4.7           | % |  | 4.1  | % |  |     |  | 3.3  | % |  | 3.3  | %
|Dividend rate                    |  |                                                       |   |  |              |   |  |     |   |  |     |  |     |   |  |     |  
|Forfeiture Rates:                |  |                                                        |   |  |               |   |  |      |   |  |      |  |      |   |  |      |  
|Options                          |  | 5.9                                                    | % |  | 6.9           | % |  |     |   |  |     |  |     |   |  |     |  
|Restricted stock awards:         |  |                                                        |   |  |               |   |  |      |   |  |      |  |      |   |  |      |  
|Four year vesting schedule       |  | 5.9                                                    | % |  | 5.9           | % |  |     |   |  |     |  |     |   |  |     |  
|One or two year vesting schedule |  | 6.1                                                    | % |  | 6.1           | % |  |     |   |  |     |  |     |   |  |     |  

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.

A summary of activity under our Stock Incentive Plans for the years ended December 31, 2007, 2006 and 2005 is as follows:



|                             |  |                 |   |  |                              |     
|---------------------------- |  | --------------- | - |  | ---------------------------- | ----
|                             |  | Stock Options  
|                             |  | Number ofShares |   |  | WeightedAverageExercisePrice
|Balance at January 1, 2005   |  | 1,097,948       |   |  | $                            | 4.75
|Granted                      |  | 1,386,900       |   |  |                              | 2.60
|Exercised                    |  | (258,116        | ) |  |                              | 1.22
|Canceled                     |  | (395,321        | ) |  |                              | 5.10
|                             |  |                 |   |  |                              |     
|Balance at December 31, 2005 |  | 1,831,411       |   |  |                              | 4.75
|Granted                      |  | 415,000         |   |  |                              | 6.70
|Exercised                    |  | (405,285        | ) |  |                              | 2.50
|Canceled                     |  | (125,640        | ) |  |                              | 9.21
|                             |  |                 |   |  |                              |     
|Balance at December 31, 2006 |  | 1,715,486       |   |  |                              | 4.20
|Granted                      |  | 203,250         |   |  |                              | 8.56
|Exercised                    |  | (426,185        | ) |  |                              | 2.61
|Canceled                     |  | (115,303        | ) |  |                              | 7.73
|                             |  |                 |   |  |                              |     
|Balance at December 31, 2007 |  | 1,377,248       |   |  | $                            | 5.03
|                             |  |                 |   |  |                              |     

The weighted average grant date fair value of options granted during the years ended
December 31, 2007, 2006 and 2005 was $5.11, $4.13 and $2.23, respectively per share.



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes the activity with regard to restricted stock awards during the years
ended December 31, 2007 and 2006. Restricted stock awards are issued from the 2003 Stock Incentive 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.



|                                                 |  |                 |   |  |                                    |     
|------------------------------------------------ |  | --------------- | - |  | ---------------------------------- | ----
|                                                 |  | Number ofShares |   |  | WeightedAverageGrantDate FairValue
|Balance at December 31, 2005                     |  |                |   |  | $                                  |    
|Granted                                          |  | 368,802         |   |  |                                    | 7.16
|Vested                                           |  |                |   |  |                                    |    
|Forfeited                                        |  |                |   |  |                                    |    
|                                                 |  |                 |   |  |                                    |     
|Balance of nonvested shares at December 31, 2006 |  | 368,802         |   |  |                                    | 7.16
|Granted                                          |  | 920,250         |   |  |                                    | 7.11
|Vested                                           |  | (98,736         | ) |  |                                    | 6.97
|Forfeited                                        |  | (167,034        | ) |  |                                    | 7.54
|                                                 |  |                 |   |  |                                    |     
|Balance of nonvested shares at December 31, 2007 |  | 1,023,282       |   |  | $                                  | 7.08
|                                                 |  |                 |   |  |                                    |     

The total fair value of the unvested restricted stock awards at grant date was $7.2 million as of
December 31, 2007.

Total shares available for grant under the 2003 Stock Incentive Plan was 131,981 at December 31, 2007.

The following table summarizes information about stock options outstanding as of December 31, 2007:



|                        |  |                     |  |                                        |  |                              |       |                                                           |   |                   |  |                              |  |                                                           |       |  |   |          
|----------------------- |  | ------------------- |  | -------------------------------------- |  | ---------------------------- | ----- | --------------------------------------------------------- | - | ----------------- |  | ---------------------------- |  | --------------------------------------------------------- | ----- |  | - | ---------
|                        |  | Options Outstanding |  | Options Vested                        
|Range of ExercisePrices |  | NumberOutstanding   |  | WeightedAverageContractualLife (Years) |  | WeightedAverageExercisePrice |       | AggregateIntrinsic ValueClosing Price at12/31/07 of $6.49 |   | NumberExercisable |  | WeightedAverageExercisePrice |  | AggregateIntrinsic ValueClosing Price at12/31/07 of $6.49
|$  1.10 - $  1.35       |  | 114,875             |  | 2.57                                   |  | $                            | 1.15  |                                                           | $ | 613,444           |  | 114,875                      |  | $                                                         | 1.15  |  | $ | 613,444  
|$  1.36 - $  2.29       |  | 94,403              |  | 4.60                                   |  | $                            | 1.59  |                                                           |   | 462,408           |  | 94,403                       |  | $                                                         | 1.59  |  |   | 462,408  
|$  2.30 - $  2.55       |  | 138,045             |  | 7.12                                   |  | $                            | 2.51  |                                                           |   | 549,327           |  | 138,043                      |  | $                                                         | 2.51  |  |   | 549,320  
|$  2.56 - $  2.80       |  | 257,195             |  | 7.81                                   |  | $                            | 2.57  |                                                           |   | 1,008,337         |  | 257,195                      |  | $                                                         | 2.57  |  |   | 1,008,337
|$  2.81 - $  3.90       |  | 53,600              |  | 7.53                                   |  | $                            | 2.91  |                                                           |   | 192,115           |  | 53,600                       |  | $                                                         | 2.91  |  |   | 192,115  
|$  3.91 - $  7.70       |  | 443,436             |  | 8.57                                   |  | $                            | 6.66  |                                                           |   | 173,176           |  | 156,849                      |  | $                                                         | 6.41  |  |   | 84,864   
|$  7.71 - $13.28        |  | 272,894             |  | 7.38                                   |  | $                            | 9.10  |                                                           |   |                  |  | 169,394                      |  | $                                                         | 9.07  |  |   |         
|$13.29 - $20.32         |  | 2,800               |  | 3.78                                   |  | $                            | 18.45 |                                                           |   |                  |  | 2,800                        |  | $                                                         | 18.45 |  |   |         
|                        |  |                     |  |                                        |  |                              |       |                                                           |   |                   |  |                              |  |                                                           |       |  |   |          
|$  1.10 - $20.32        |  | 1,377,248           |  | 7.22                                   |  | $                            | 5.03  |                                                           | $ | 2,998,807         |  | 987,159                      |  | $                                                         | 4.09  |  | $ | 2,910,488
|                        |  |                     |  |                                        |  |                              |       |                                                           |   |                   |  |                              |  |                                                           |       |  |   |          

The aggregate intrinsic value in the preceding table represents the total intrinsic value based on
our closing stock price of $6.49 as of December 31, 2007, which would have been received by the option holders had all option holders exercised their in-the-money options as of that date. The total intrinsic value of the options exercised
during 2007 was $2.3 million and the total intrinsic value of the options exercised during 2006 was $1.1 million.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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.
Unless terminated earlier at the discretion of our board of directors, the Purchase Plan terminates on the earlier of the last business day in October 2009, the date on which all shares available for issuance have been sold or the date on which all
purchase rights are exercised in connection with a change in control. The number of shares available for future issuance under the Purchase Plan automatically increases annually on the first trading day of January by an amount equal to the lesser of
1% of our outstanding common stock at the end of the calendar year, or 80,000 shares. 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, 2007, a total of 159,656 shares had been issued under the Purchase Plan and 591,621 shares were available for future issuance.

Warrants

In conjunction with equity
transactions in February 2006, June 2005 and February 2004 referred to above, 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, 2007 |           | Term from Dateof Issuance
|February 7, 2006              |  | $             | 4.28 |                                         | 799,999   |                           | Five Years
|June 15, 2005                 |  |               | 2.40 |                                         | 98,817    |                           | Five Years
|February 20, 2004             |  |               | 9.38 |                                         | 194,135   |                           | Five Years
|                              |  |               |      |                                         |           |                           |           
|Weighted average strike price |  | $             | 5.02 |                                         |           |                           |           
|Total outstanding             |  |               |      |                                         | 1,092,951 |                           |           
|                              |  |               |      |                                         |           |                           |           

9. Related Party Transactions

We have made purchases of computer equipment and services from several vendors including Dell and Hewlett-Packard, two of our largest clients. During the year ended December 31, 2007, we purchased equipment from
Dell and Hewlett-Packard totaling $378,000 and $37,000, respectively. During the year ended December 31, 2006, we purchased equipment from Dell and Hewlett-Packard totaling $399,000 and $95,000, respectively.

During 2004, we purchased certain of our computer equipment and software from Dell through arrangements accounted for as capital leases. The single
remaining lease expired in February 2007.

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, 2007, we paid Saama Technologies $293,000 for technology services. During the year ended December 31, 2006, we paid Saama Technologies $150,000. We 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



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RAINMAKER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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. During the year ended December 31, 2007, we paid Market2Lead approximately $50,000 for marketing services. We will continue to utilize their services and may expand the scope of
the services that they provide to us in the future.

10. 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 match 25% of the first 6% of the employees compensation contributed to the plan. Participants contributions are fully
vested at all times. Our contributions vest incrementally over a four-year period. During the years ended December 31, 2007, 2006 and 2005, we expensed $132,000, $44,000 and $57,000, respectively, relating to our contributions under the plan.

11. Interest and Other Income (Expense), Net

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



|                          |  |                          |       |   |      |   |      |      |  |   |      |  
|------------------------- |  | ------------------------ | ----- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                          |  | Years Ended December 31, |      
|                          |  | 2007                     |       |   | 2006 |   |      | 2005 | 
|Interest income           |  | $                        | 1,436 |   |      | $ | 377  |      |  | $ | 113  |  
|Interest expense          |  |                          | (186  | ) |      |   | (178 | )    |  |   | (177 | )
|Currency translation gain |  |                          | 137   |   |      |   |     |      |  |   |     |  
|Other                     |  |                          | 20    |   |      |   | (12  | )    |  |   | (4   | )
|                          |  |                          |       |   |      |   |      |      |  |   |      |  
|                          |  | $                        | 1,407 |   |      | $ | 187  |      |  | $ | (68  | )
|                          |  |                          |       |   |      |   |      |      |  |   |      |  

Interest expense is net of interest capitalized with regard to the development of our order entry
system. We capitalized interest totaling $4,000, $63,000 and $100,000 during the years ended December 31, 2007, 2006 and 2005, respectively.

12.
Subsequent Events

Termination of Material Definitive Agreement

On February 1, 2008, the Company received written notice from Dell Marketing L.P. (Dell) that Dell has elected to terminate for
convenience the Amendment to Master Services Agreement dated April 1, 2006, between the Company and Dell (the Agreement). Under Dells intended transition plan set forth in the notice, Dell moved approximately half of the services
being provided by the Company under the Agreement internally effective on February 4, 2008, and intends to move the remainder over the subsequent three months, at the conclusion of which the Company would no longer be performing any services
for Dell. Dell represented 29% of our net revenue in 2007 and 38% of our net revenue in 2006.

Other Event

In connection with our acquisition of CAS Systems in January 2007, the purchase agreement provided for a potential additional payment at the end of twelve
months following the acquisition, based on the achievement of certain financial milestones specific to the acquisition. In January 2008, the Company paid $1 million relating to the CAS Systems acquisition as a result of the achievement of the
financial milestones.



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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, 2007, 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 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.

(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 generally accepted accounting principles. 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, 2007, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. That evaluation excluded the business operations of CAS Systems, Inc. and Qinteraction Limited which were acquired on January 25, 2007 and July 19, 2007, respectively, and both of
which are included in the consolidated balance sheets of Rainmaker Systems, Inc. as of December 31, 2007, and the related consolidated statements of operations, stockholders equity and comprehensive income (loss), and cash flows for the
year then ended. CAS Systems, Inc. and Qinteraction Limited constituted 18.7% of total assets as of December 31, 2007 and 17.1% of total net revenue



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for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of CAS Systems, Inc. and Qinteraction
Limited because of the timing of the acquisitions as well as management plans on integration.

The Companys independent registered
public accounting firm, BDO Seidman, LLP, has issued an attestation report on our internal control over financial reporting, which is included herein.

(c) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial
reporting during our fourth quarter ended December 31, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(d) Report of Independent Registered Public Accounting Firm

Board of
Directors and Stockholders

Rainmaker Systems, Inc.

Campbell,
California

We have audited Rainmaker Systems, Inc. internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Rainmaker Systems, Inc.s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.

We conducted our audit 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 effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

As indicated in Managements Report on Internal Control over Financial Reporting, managements
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of CAS Systems, Inc. and Qinteraction Limited which were acquired on January 25, 2007 and



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July 19, 2007, respectively, and both of which are included in the consolidated balance sheet of Rainmaker Systems, Inc. as of December 31, 2007,
and the related consolidated statements of operations, stockholders equity and comprehensive income (loss), and cash flows for the year then ended. CAS Systems, Inc. and Qinteraction Limited constituted 18.7% of total assets as of
December 31, 2007 and 17.1% of total net revenue for the year then ended. Management did not assess the effectiveness of internal control over financial reporting of CAS Systems, Inc. and Qinteraction Limited because of the timing of the
acquisitions as well as management plans on integration. Our audit of internal control over financial reporting of Rainmaker Systems, Inc. also did not include an evaluation of the internal control over financial reporting of CAS Systems, Inc. and
Qinteraction Limited.

In our opinion, Rainmaker Systems, Inc. maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Rainmaker Systems, Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2007 and our report dated March 10, 2008 expressed an unqualified opinion thereon.

/s/    BDO SEIDMAN, LLP

San Francisco, California

March 10, 2008



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

None.



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PART III

Certain information required in Part III of this report is incorporated by reference to our Proxy
Statement in connection with our 2008 Annual Meeting of Stockholders (the 2008 Annual Meeting) to be filed in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended.



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

The information required in Item 10 of Part III of this report is incorporated by reference to our Proxy Statement in connection with our 2008 Annual Meeting to be filed in accordance with Regulation 14A under the Securities Exchange
Act of 1934, as amended.

Code of Ethics

Our directors, officers and employees are required to comply with our Code of Business Conduct and Ethics. The purpose of our Code of Business Conduct and Ethics 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 Code of Business Conduct and Ethics 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 Code of Business Conduct and Ethics is
posted on our website, at www.rmkr.com, under the investor relations/corporate governance link. We will also disclose any amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics that applies to a director or
officer in accordance with applicable Nasdaq and SEC requirements.



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

The information required in
Item 11 of Part III of this report is incorporated by reference to our Proxy Statement in connection with our 2008 Annual Meeting to be filed in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended.



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

The information required in Item 12 of Part III of this report is incorporated by reference to our Proxy Statement in connection with our 2008 Annual
Meeting to be filed in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended.



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

The information required in Item 13 of Part III of this report is incorporated by reference to our Proxy Statement in connection with our 2008 Annual Meeting to be filed in accordance with Regulation 14A under
the Securities Exchange Act of 1934, as amended.



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

The
information required in Item 14 of Part III of this report is incorporated by reference to our Proxy Statement in connection with our 2008 Annual Meeting to be filed in accordance with Regulation 14A under the Securities Exchange Act of 1934,
as amended.



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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)   |  | Bylaws of Rainmaker Systems, Inc.                                                                                                                                                                                                 
|         | 
|3.2(1.1) |  | Restated Certificate of Incorporation of Rainmaker Systems, Inc.                                                                                                                                                                  
|         | 
|4.1(1)   |  | Specimen certificate representing shares of common stock of Rainmaker Systems, Inc.                                                                                                                                               
|         | 
|4.2(20)  |  | 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(21)  |  | 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(22)  |  | 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(29)  |  | 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(30)  |  | 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(38)  |  | Securities Purchase Agreement dated February 7, 2006, by and among the Company and the investors party thereto.                                                                                                                   
|         | 
|4.8(39)  |  | Securities Purchase Agreement dated February 7, 2006, by and among the Company and the investors party thereto.                                                                                                                   
|         | 
|10.1(1)  |  | Form of Indemnification Agreement.                                                                                                                                                                                                
|         | 
|10.2(1)  |  | 1999 Stock Incentive Plan.                                                                                                                                                                                                        
|         | 
|10.3(1)  |  | 1999 Stock Purchase Plan.                                                                                                                                                                                                         
|         | 
|10.4(2)  |  | Form of Notice of Grant of Stock Option.                                                                                                                                                                                          
|         | 
|10.5(3)  |  | Form of Stock Option Agreement.                                                                                                                                                                                                   
|         | 
|10.6(5) |  | Internet Applications Division (IAD) Reseller Agreement dated March 22, 1999 between Sybase, Inc. and Rainmaker Systems, Inc.                                                                                                     



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|           |  |                                                                                                                                                                                                                                                                                                                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           | 
|10.7(6)   |  | 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.                                                                                                                                                                                                               
|           | 
|10.8(7)   |  | Non Technical Services Agreement, dated April 6, 2001 between Rainmaker Systems, Inc. and International Business Machines Corporation.                                                                                                                                                                                                                                                  
|           | 
|10.9(8)   |  | Master Agreement, dated May 4, 2001, between Rainmaker Systems, Inc. and Caldera International, Inc.                                                                                                                                                                                                                                                                                    
|           | 
|10.10(4)   |  | Option Exchange Offer, dated November 30, 2001.                                                                                                                                                                                                                                                                                                                                         
|           | 
|10.11(9)* |  | Employment Agreement with Michael Silton, dated January 1, 2001.                                                                                                                                                                                                                                                                                                                        
|           | 
|10.12(10) |  | Master Services Agreement dated December 19, 2001 between Rainmaker Systems, Inc. and Dell Products L.P.                                                                                                                                                                                                                                                                                
|           | 
|10.13(32) |  | Services Sales Outsourcing Partner Agreement dated September 25, 2000, between Rainmaker Systems, Inc. and Hewlett-Packard Company.                                                                                                                                                                                                                                                     
|           | 
|10.14(13) |  | Services Sales Outsourcing Partner Agreement, Amendment No. 1 dated January 2, 2001, between Rainmaker Systems, Inc. and Hewlett-Packard Company.                                                                                                                                                                                                                                       
|           | 
|10.15(13) |  | 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.                                                                                                                                                                                              
|           | 
|10.16(13) |  | Services Sales Outsourcing Partner Agreement dated August 1, 2002, between Rainmaker Systems, Inc. and Hewlett-Packard Company.                                                                                                                                                                                                                                                         
|           | 
|10.17(13) |  | Business Rules Approval dated September 5, 2002, between Rainmaker Systems, Inc. and Hewlett-Packard Company (amend/adds to Exhibit 10.23).                                                                                                                                                                                                                                             
|           | 
|10.18(13) |  | Amendment to Internet Applications Division (IAD) Reseller Agreement and Outsourcing Addendum dated June 12, 2002, between Rainmaker Systems, Inc. and Sybase, Inc.                                                                                                                                                                                                                     
|           | 
|10.19(14)  |  | Form of Ethics Policy for financial executives.                                                                                                                                                                                                                                                                                                                                         
|           | 
|10.20(15)  |  | Amendment to Statement of Work dated January 16, 2003, between Rainmaker Systems, Inc. and Dell Products, L.P (amends/adds to the Master Services Agreement dated December 19, 2001, filed as
Exhibit 10.20 to the Report on Form 10-Q filed by Rainmaker Systems, Inc. on May 3, 2002).                                                                                                
|           | 
|10.21(15)  |  | Schedule A Statement of Work dated January 16, 2003, between Rainmaker Systems, Inc. and Dell Products, L.P (amends/adds to the Master Services Agreement dated December 19, 2001, filed as
Exhibit 10.20 to the Report on Form 10-Q filed by Rainmaker Systems, Inc. on May 3, 2002).                                                                                                  
|           | 
|10.22(15)  |  | 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).                     
|           | 
|10.23(16)  |  | 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).
|           | 
|10.24(17)  |  | 2003 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                              



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|           |  |                                                                                                                                                                                                                                                                                                      
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           | 
|10.25(18)  |  | Addendum to Schedule A to Statement of Work dated August 27, 2003, between Rainmaker Systems, Inc. and Dell Products, L.P. (amends/adds to the Master Services Agreement dated December 19, 2001,
filed as Exhibit 10.20 to the Report on Form 10-Q filed by Rainmaker Systems, Inc. on May 3, 2002).
|           | 
|10.26(18)  |  | Schedule B to Statement of Work dated August 27, 2003, between Rainmaker Systems, Inc. and Dell Products, L.P. (amends/adds to the Master Services Agreement dated December 19, 2001, filed as
Exhibit 10.20 to the Report on Form 10-Q filed by Rainmaker Systems, Inc. on May 3, 2002).            
|           | 
|10.27(23) |  | Master Services Agreement and accompanying Statement of Work dated April 22, 2004 between Rainmaker Service Sales, Inc. and Sony Electronics Inc.                                                                                                                                                    
|           | 
|10.28(24)  |  | 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.                                                                                       
|           | 
|10.29(25)  |  | Business Loan Agreement and Commercial Security Agreement, entered into February 8, 2005 and dated as of February 2, 2005 between Rainmaker Systems, Inc. and Bridge Bank, N.A.                                                                                                                      
|           | 
|10.30(26)* |  | Amendment of Employment Agreement between Rainmaker Systems, Inc. and Michael Silton dated February 24, 2005.                                                                                                                                                                                        
|           | 
|10.31(27)* |  | Amendment of Employment Agreement between Rainmaker Systems, Inc. and Martin Hernandez dated February 24, 2005.                                                                                                                                                                                      
|           | 
|10.32(28)* |  | Employment Agreement between Rainmaker Systems, Inc. and Steve Valenzuela dated February 24, 2005.                                                                                                                                                                                                   
|           | 
|10.33(31)  |  | 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.                                                                           
|           | 
|10.34(32)  |  | Business Loan Agreement, entered into and dated as of June 14, 2005 between Rainmaker Systems, Inc. and Bridge Bank, N.A.                                                                                                                                                                            
|           | 
|10.35(33)  |  | Business Loan Agreement (Asset Based) and Change in Terms Agreement, entered into and dated as of June 14, 2005 between Rainmaker Systems, Inc. and Bridge Bank, N.A.                                                                                                                                
|           | 
|10.36(34)  |  | Fifth Amendment to Lease entered into June 1, 2005 between HUB Properties Trust and Sunset Direct, Inc.                                                                                                                                                                                              
|           | 
|10.37(35)  |  | Guaranty entered into June 1, 2005 between HUB Properties Trust and Rainmaker Systems, Inc.                                                                                                                                                                                                          
|           | 
|10.38(36)  |  | Lease Agreement, dated as of July 19, 2005, by and between Rainmaker Systems, Inc., and OTR, an Ohio general partnership, as Nominee of The State Teachers Retirement Board of Ohio, a statutory
organization created by the laws of Ohio.                                                           
|           | 
|10.39(40)  |  | Business Loan Agreement (Asset Based) and Change in Terms Agreement, each dated as of December 16, 2005 between Rainmaker Systems, Inc. and Bridge Bank, N.A.                                                                                                                                        
|           | 
|10.40(41) |  | Amendment, entered as of April 1, 2006, modifying the Master Services Agreement, executed on December 19, 2001 by and between Rainmaker Systems, Inc. and Dell Products LP.                                                                                                                          
|           | 
|10.41(42)  |  | Sixth Amendment to Lease entered into March 27, 2006 between HUB Properties Trust and Sunset Direct, Inc.                                                                                                                                                                                            
|           | 
|10.42(43)* |  | Executive Employment Agreement, dated as of May 12, 2006, by and among Rainmaker Systems, Inc. and Kenneth S. Forbes, III.                                                                                                                                                                           



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|           |  |                                                                                                                                                                                                                                                                                                               
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           | 
|10.43(44)  |  | 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.                                                                                 
|           | 
|10.44(45)  |  | Change in Terms Agreements and Modification to Business Loan Agreement, each dated as of July 6, 2006 between Rainmaker Systems, Inc. and Bridge Bank, N.A.                                                                                                                                                   
|           | 
|10.45(46)  |  | Asset Purchase Agreement by and among Rainmaker Systems, Inc., ViewCentral, Inc., certain shareholders of ViewCentral and Dan Tompkins, as representative.                                                                                                                                                    
|           | 
|10.46(47) |  | Standard Services Agreement dated November 6, 2006 between Rainmaker Systems, Inc. and Hewlett Packard Company, a Delaware corporation.                                                                                                                                                                       
|           | 
|10.47(48)  |  | First Amendment to Office Lease dated November 3, 2006, executed on November 13, 2006, between OTR and Rainmaker Systems, Inc.                                                                                                                                                                                
|           | 
|10.48(49) |  | 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.           
|           | 
|10.49(50) |  | 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.
|           | 
|10.50(51)  |  | Promissory note between Rainmaker Systems, Inc. and CAS Systems, Inc.                                                                                                                                                                                                                                         
|           | 
|10.51(52)  |  | Promissory note between Rainmaker Systems (Canada) Inc., a Canadian federal corporation, and 3079028 Nova Scotia Company, a Nova Scotia unlimited liability company.                                                                                                                                          
|           | 
|10.52(53)* |  | Amendment to Executive Employment Agreement, dated as of February 1, 2007, by and among Rainmaker Systems, Inc. and Michael Silton.                                                                                                                                                                           
|           | 
|10.53(54)* |  | Amendment to Executive Employment Agreement, dated as of February 1, 2007, by and among Rainmaker Systems, Inc. and Steve Valenzuela.                                                                                                                                                                         
|           | 
|10.54(55)* |  | Amendment to Executive Employment Agreement, dated as of February 1, 2007, by and among Rainmaker Systems, Inc. and Kenneth Forbes, III.                                                                                                                                                                      
|           | 
|10.55(56)* |  | Executive Employment Agreement, dated as of February 8, 2005, by and among Sunset Direct, Inc. a wholly owned subsidiary of Rainmaker Systems, Inc. and Clinton J. Hauptmeier.                                                                                                                                
|           | 
|10.56(57)* |  | Executed Offer of Employment, executed as of May 24, 2005, by and among Sunset Direct, Inc. a wholly owned subsidiary of Rainmaker Systems, Inc. and Robert Langer.                                                                                                                                           
|           | 
|10.57(58)  |  | 2003 Stock Incentive Plan, as amended and restated effective May 15, 2007.                                                                                                                                                                                                                                    
|           | 
|10.58(59) |  | Stock Purchase Agreement by and among Rainmaker Systems, Inc., Qinteraction Limited, and James F. Bere, as representative.                                                                                                                                                                                    
|           | 
|10.59(60)* |  | Amended and Restated Executive Employment Agreement, dated as of August 14, 2007, by and among Rainmaker Systems, Inc. and Larry Norris.                                                                                                                                                                      
|           | 
|10.60(61)* |  | Amended and Restated Executive Employment Agreement, dated as of September 17, 2007, by and among Rainmaker Systems, Inc. and Moe Bawa.                                                                                                                                                                       
|           | 
|10.61(62)* |  | Amendment of Employment Agreement, dated as of November 19, 2007, by and among Rainmaker Systems, Inc. and Michael Silton.                                                                                                                                                                                    
|           | 
|10.62(63)* |  | Amendment of Employment Agreement, dated as of November 19, 2007, by and among Rainmaker Systems, Inc. and Steve Valenzuela.                                                                                                                                                                                  



95



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|         |  |                                                                                                                                                   
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|         | 
|14(19)   |  | Code of Business Conduct and Ethics.                                                                                                              
|         | 
|21.1     |  | List of Subsidiaries.                                                                                                                             
|         | 
|23.1     |  | Consent of BDO Seidman, LLP, Independent Registered Public Accounting Firm.                                                                       
|         | 
|23.2(63) |  | Consent of legal counsel or company.                                                                                                              
|         | 
|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 the similarly numbered exhibit to the Registration Statement on Form S-1 filed by Rainmaker (Reg. No. 333-86445).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(1.1) | 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 exhibit number 99.2 to the Registration Statement on Form S-8 filed by Rainmaker (Reg. No. 333-91095).
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to exhibit number 99.3 to the Registration Statement on Form S-8 filed by Rainmaker (Reg. No. 333-91095).
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to exhibit (a)(1) to the Tender Offer Statement on Form SC TO-I filed by Rainmaker (Reg. No 005-58179).
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to exhibit 10.20 to the Report on Form 10-Q filed by Rainmaker on May 15, 2000.
|--- | ---------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to exhibit 10.26 to the Report on Form 10-Q filed by Rainmaker on May 2, 2001.
|--- | --------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to exhibit 10.27 to the Report on Form 10-Q filed by Rainmaker on August 10, 2001.
|--- | ------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to exhibit 10.28 to the Report on Form 10-Q filed by Rainmaker on August 10, 2001.
|--- | ------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-K filed by Rainmaker on March 29, 2002.
|--- | ----------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-Q filed by Rainmaker on May 3, 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-Q filed by Rainmaker on November 14, 2002.
|---- | -------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-K filed by Rainmaker on March 28, 2003.
|---- | ----------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-Q filed by Rainmaker on May 15, 2003.
|---- | --------------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-Q filed by Rainmaker on August 14, 2003.
|---- | -----------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed by Rainmaker on July 23, 2003 (Reg. No. 333-107285).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-Q filed by Rainmaker on November 14, 2003.
|---- | -------------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-K filed by Rainmaker on March 18, 2004.
|---- | ----------------------------------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference to the similarly numbered exhibit to the Registration Statement on Form S-3 filed by Rainmaker on March 22, 2004.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------



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|(21) | Incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed by Rainmaker on June 18, 2004.
|---- | ----------------------------------------------------------------------------------------------------------------

|(22) | Incorporated by reference to Exhibit 99.3 to the Current Report on Form 8-K filed by Rainmaker on June 18, 2004.
|---- | ----------------------------------------------------------------------------------------------------------------

|(23) | Incorporated by reference to the similarly numbered exhibit to the Report on Form 10-Q filed by Rainmaker on August 16, 2004.
|---- | -----------------------------------------------------------------------------------------------------------------------------

|(24) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on February 11, 2005.
|---- | --------------------------------------------------------------------------------------------------------------------

|(25) | Incorporated by reference to Exhibit 10.2 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 10.2 to the Current Report on Form 8-K filed by Rainmaker on February 25, 2005.
|---- | --------------------------------------------------------------------------------------------------------------------

|(28) | Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Rainmaker on February 25, 2005.
|---- | --------------------------------------------------------------------------------------------------------------------

|(29) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on June 16, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------

|(30) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rainmaker on June 16, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------

|(31) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on July 5, 2005.
|---- | ---------------------------------------------------------------------------------------------------------------

|(32) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on July 14, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------

|(33) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rainmaker on July 14, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------

|(34) | Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed by Rainmaker on July 14, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------

|(35) | Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed by Rainmaker on July 14, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------

|(36) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on August 5, 2005.
|---- | -----------------------------------------------------------------------------------------------------------------

|(37) | Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by Rainmaker on December 21, 2005.
|---- | -------------------------------------------------------------------------------------------------------------------

|(38) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on February 10, 2006.
|---- | --------------------------------------------------------------------------------------------------------------------

|(39) | Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed by Rainmaker on February 10, 2006.
|---- | --------------------------------------------------------------------------------------------------------------------

|(40) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on December 29, 2005.
|---- | --------------------------------------------------------------------------------------------------------------------

|(41) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on March 13, 2006.
|---- | -----------------------------------------------------------------------------------------------------------------

|(42) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on March 30, 2006.
|---- | -----------------------------------------------------------------------------------------------------------------

|(43) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on May 16, 2006.
|---- | ---------------------------------------------------------------------------------------------------------------

|(44) | Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by Rainmaker on May 16, 2006.
|---- | ---------------------------------------------------------------------------------------------------------------

|(45) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on July 10, 2006.
|---- | ----------------------------------------------------------------------------------------------------------------

|(46) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on September 19, 2006.
|---- | ---------------------------------------------------------------------------------------------------------------------



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|(47) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on November 13, 2006.
|---- | --------------------------------------------------------------------------------------------------------------------

|(48) | Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Rainmaker on November 17, 2006.
|---- | --------------------------------------------------------------------------------------------------------------------

|(49) | Incorporated by reference to Exhibit 99.2 to the Current Form on Form 8-K filed by Rainmaker on January 31, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------

|(50) | Incorporated by reference to Exhibit 99.3 to the Current Form on Form 8-K filed by Rainmaker on January 31, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------

|(51) | Incorporated by reference to Exhibit 99.4 to the Current Form on Form 8-K filed by Rainmaker on January 31, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------

|(52) | Incorporated by reference to Exhibit 99.5 to the Current Form on Form 8-K filed by Rainmaker on January 31, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------

|(53) | Incorporated by reference to Exhibit 99.1 to the Current Form on Form 8-K filed by Rainmaker on February 5, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------

|(54) | Incorporated by reference to Exhibit 99.2 to the Current Form on Form 8-K filed by Rainmaker on February 5, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------

|(55) | Incorporated by reference to Exhibit 99.3 to the Current Form on Form 8-K filed by Rainmaker on February 5, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------

|(56) | Incorporated by reference to Exhibit 99.1 to the Current Form on Form 8-K filed by Rainmaker on April 5, 2007.
|---- | --------------------------------------------------------------------------------------------------------------

|(57) | Incorporated by reference to Exhibit 99.2 to the Current Form on Form 8-K filed by Rainmaker on April 5, 2007.
|---- | --------------------------------------------------------------------------------------------------------------

|(58) | Incorporated by reference to Exhibit 99.1 to the Current Form on Form 8-K filed by Rainmaker on May 17, 2007.
|---- | -------------------------------------------------------------------------------------------------------------

|(59) | Incorporated by reference to Exhibit 99.1 to the Current Form on Form 8-K filed by Rainmaker on July 24, 2007.
|---- | --------------------------------------------------------------------------------------------------------------

|(60) | Incorporated by reference to Exhibit 99.1 to the Current Form on Form 8-K filed by Rainmaker on August 16, 2007.
|---- | ----------------------------------------------------------------------------------------------------------------

|(61) | Incorporated by reference to Exhibit 99.1 to the Current Form on Form 8-K filed by Rainmaker on September 20, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------

|(62) | Incorporated by reference to Exhibit 99.1 to the Current Form on Form 8-K filed by Rainmaker on November 21, 2007.
|---- | ------------------------------------------------------------------------------------------------------------------

|(62) | Incorporated by reference to Exhibit 99.2 to the Current Form on Form 8-K filed by Rainmaker on November 21, 2007.
|---- | ------------------------------------------------------------------------------------------------------------------

|(63) | Incorporated by reference to Exhibit 23.2 to the Registration Statement on Form S-1 filed by Rainmaker (Reg. No. 333-86445).
|---- | ----------------------------------------------------------------------------------------------------------------------------

| | 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, 2007, 2006 AND 2005



|                                 |  |                            |     |                                      |   |              |  |   |                      |   |  |   |    
|-------------------------------- |  | -------------------------- | --- | ------------------------------------ | - | ------------ |  | - | -------------------- | - |  | - | ---
|Description                      |  | Balance atBeginningof Year |     | AdditionsCharged toCosts andExpenses |   | Deductions * |  |   | Balanceat Endof Year
|                                 |  | (in thousands)            
|Allowance for doubtful accounts: |  |                            |     |                                      |   |              |  |   |                      |   |  |   |    
|Year ended December 31, 2007     |  | $                          | 233 |                                      | $ | 408          |  | $ | (356                 | ) |  | $ | 285
|Year ended December 31, 2006     |  | $                          | 422 |                                      | $ | 267          |  | $ | (456                 | ) |  | $ | 233
|Year ended December 31, 2005     |  | $                          | 208 |                                      | $ | 321          |  | $ | (107                 | ) |  | $ | 422



|* | Uncollectible accounts written off, net of recoveries.
|- | ------------------------------------------------------



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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 11th day of March 2008.



RAINMAKER SYSTEMS, INC.By:

/s/    MICHAEL SILTONMichael Silton, President, Chief Executive Officer and Director (Principal Executive
Officer)By:

/s/    STEVE VALENZUELASteve Valenzuela, 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, Director




100