| RAINMAKER SYSTEMS INC ITEM 1A RISK FACTORS We have incurred recent losses and expect to incur losses in the future |
| We incurred a net loss of dlra5dtta0 million for the year ended December 31, 2005, a net loss of dlra4dtta9 million for the year ended December 31, 2004, and a net loss of dlra3dtta1 million for the year ended December 31, 2003 |
| Our accumulated losses through December 31, 2005 were dlra63dtta0 million |
| We may incur losses in the future, depending on the timing of signing of new clients, costs to initiate service for new clients, impact of new and existing clients, our decisions to further invest in our technology or infrastructure, and our ability to continue to increase our operating efficiencies |
| We may need to raise additional capital which might not be available or which, if available, could be on terms adverse to our common stockholders |
| We anticipate that our existing capital resources and cash flow expected to be generated from future operations, along with the dlra5dtta4 million, net of estimated issuance costs, from our February 7, 2006 private placement of our common stock 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 |
| We may also require additional capital for the acquisition of businesses, products and technologies that are complementary to ours |
| Further, if we issue equity securities to raise capital, the ownership percentage of our stockholders would be reduced, and the new equity securities may have rights, preferences or privileges senior to those existing holders of our common stock |
| Because we depend on a small number of clients for a significant portion of our revenue, the loss of a single client could result in a substantial decrease in our revenue |
| We have generated a significant portion of our revenue from sales to customers of a limited number of clients |
| In 2005, two customers accounted for more than 10prca of our revenue and collectively represented 47prca of 10 ______________________________________________________________________ [32]Table of Contents our net revenue with the largest representing 36prca of our net revenue |
| In 2004 and 2003, combined sales to these customers accounted for 96prca, and 99prca, respectively, of net revenue and the largest individual client accounted for 47prca and 34prca of our net revenue in 2004 and 2003, respectively |
| We expect that a small number of clients will continue to account for a significant portion of our revenue for the foreseeable future |
| The loss of any of our principal clients could cause a significant decrease in our revenue |
| In addition, our software and technology clients operate in industries that experience consolidation from time to time, which could reduce the number of our existing and potential clients |
| Any loss of a single significant client may have a material adverse effect on our financial position, cash flows and results of operations |
| We are currently providing services to Sybase on a month to month basis as our contract with Sybase expired on December 31, 2005 |
| Our revenue will decline if demand for our clients’ products and services decreases |
| Our business primarily consists of marketing and selling our clients’ products and services to their customers |
| In addition, most of our revenue is based on a “pay for performance” model in which our revenues are based on the amount of our clients’ products and services that we sell |
| Accordingly, if a particular client’s products and services fail to appeal to its customers for reasons beyond our control, such as preference for a competing product or service, our revenue from the sale of the client’s products and services may decline |
| In addition, revenue from our lead generation product offering is predominately based on fixed-fee retainer contracts |
| Our customers are under no obligation to renew their engagements with us when their contracts come up for renewal from time to time |
| We are exposed to increased costs and risks associated with complying with increasing and new regulations of corporate governance and disclosure standards |
| In March 2005, the SEC postponed, for one year, the compliance date for reporting on internal control by non-accelerated filers |
| Despite this postponement, we expect to continue to spend an increased amount of management time and internal and external resources to comply with changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ Stock Market rules |
| In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires management’s annual review and evaluation of our internal control systems and attestations of the effectiveness of these systems by our independent auditors |
| We are currently documenting and testing our internal control systems and procedures and considering improvements that may be necessary in order for us to comply with the requirements of Section 404 by the end of 2007 |
| This process has required us to hire outside advisory services and has resulted in additional accounting and legal expenses |
| While we believe that we currently have adequate internal controls over financial reporting, in the event that our chief executive officer, chief financial officer or independent auditors determine that our controls over financial reporting are not effective as defined under Section 404, investor perceptions of our company may be adversely affected and could cause a decline in the market price of our stock |
| 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 and financial position |
| The potential for future terrorist attacks, the national and international responses to terrorist attacks or perceived threats to national security, and other acts of war or hostility have created many economic and political uncertainties that could adversely affect our business and results of operations in ways that cannot be presently predicted |
| We are predominantly uninsured for losses and interruptions caused by terrorist acts and acts of war |
| 11 ______________________________________________________________________ [33]Table of Contents Our quarterly operating results may fluctuate, and if we do not meet market expectations, our stock price could decline |
| We believe that quarter-to-quarter comparisons of our operating results are not a good indication of future performance |
| Although our operating results have generally improved from quarter to quarter until recently, our future operating results may not follow past trends in every quarter, even if they continue to improve overall |
| In any future quarter, our operating results may be below the expectation 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 outsourced 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 (including the assets acquired from Launch Project); • the success of our direct sales force; • our ability to retain existing clients; and • our ability to integrate acquisitions |
| The length and unpredictability of the sales and integration cycles for our full solution service offering could cause delays in our revenue growth |
| Selection of our services often entails an extended decision-making process on the part of prospective clients |
| We often must provide a significant level of education regarding the use and benefit of our services, which may delay the evaluation and acceptance process |
| The selling cycle can extend to approximately nine to twelve months or longer between initial client contact and signing of a contract for our services |
| Additionally, once our services are selected, the integration of our services often 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 of our services, the length and unpredictability of the sales and integration cycles make it difficult for us to forecast the growth and timing of our revenue |
| 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 |
| Any difficulties 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 have obtained a life insurance policy in the amount of dlra6dtta3 million on Michael Silton |
| We have strong competitors and may not be able to compete effectively against them |
| Competition in CRM services is intense, and we expect such competition to increase in the future |
| Our competitors include system integrators, ecommerce solutions providers, and other outsource providers of 12 ______________________________________________________________________ [34]Table of Contents different components of customer interaction management |
| We also face competition from internal marketing departments of current and potential clients |
| Additionally, 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 name 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 results |
| The demand for outsourced sales and marketing services is highly uncertain |
| Demand and acceptance of our sales and marketing services is dependent upon companies’ willingness to outsource these processes |
| It is possible that these outsourced solutions may never achieve broad market acceptance |
| If the market for our services does not grow or grows more slowly than we currently anticipate, our business, financial condition and operating results may be materially adversely affected |
| 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 |
| Our business strategy may ultimately include 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 |
| Our long-term growth strategy may include expansion into international markets |
| As a result, we may need to establish international operations, hire additional personnel and establish relationships with additional clients and customers in those markets |
| This expansion may require significant financial resources and management attention and could have a negative effect on our earnings |
| In addition, we may be exposed to political risks associated with operating in foreign markets |
| We cannot assure you that we will be successful in creating international demand for our CRM services or that we will be able to effectively sell our clients’ products and services in international markets |
| Any business combinations 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 business combination prospects (which may include asset acquisitions) that would complement our existing business or enhance our technological capabilities, such as our acquisition of Sunset Direct and our acquisition of assets from Launch Project |
| Future business combinations by us could result in potentially dilutive issuances of equity securities, large and immediate write-offs, the incurrence of debt and contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could cause our financial performance to suffer |
| Furthermore, business combinations entail numerous risks and uncertainties, including: • difficulties in the assimilation of operations, personnel, technologies, products and the information systems of the combined companies; 13 ______________________________________________________________________ [35]Table of Contents • diversion of management’s attention from other business concerns; • 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 cannot be certain that we would be able to successfully integrate any businesses, products, technologies or personnel that might be acquired in the future, and our failure to do so could limit our future growth |
| Although we do not currently have any agreement with respect to any material business combinations, we may enter into business combinations with complementary businesses, products or technologies in the future |
| However, we may not be able to locate suitable business combination opportunities |
| 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 technological developments |
| We may be unsuccessful in anticipating, managing, adopting and integrating technological changes on a timely basis, or we may not have the capital resources available to invest in new technologies |
| Temporary or permanent loss of these systems could limit our ability to conduct our business and result in lost revenue |
| We make investments in technology and capitalize these costs and begin depreciating once the technology is deployed |
| If the technology is not deployable we would incur a charge for technology assets under development |
| We make technology and system improvements and capitalize those costs until the technology is deployed, at which time we begin to depreciate the asset over the expected useful life of the asset |
| As of December 31, 2005 we have dlra2dtta9 million in development that we have capitalized on our balance sheet and have not deployed |
| In the event that we do not deploy these assets, we would incur a charge to our income statement in the quarter that determination was made |
| 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 |
| A user 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 |
| Damage to our facilities may disable our operations |
| We have taken precautions to protect ourselves from events that could interrupt our services, such as off-site storage of computer backup data and a backup power source, but there can be no assurance that an earthquake, fire, flood or other disaster affecting any of our facilities would not disable these operations |
| In February 2005, we acquired Sunset Direct that has its primary facility located in Austin, Texas |
| We believe our combined operational facilities would help to minimize but not eliminate disruptions to the operations of the Company in the event of a business interruption in any one of our facilities on a short-term basis |
| In the event of the loss of a facility in either Campbell or Austin, our business would be impacted until such time as we were able to transfer operations to the sister facility |
| While we maintain insurance coverage for business interruptions, such coverage does not extend to losses caused by earthquake and such coverage may not be sufficient to cover all possible losses |
| 14 ______________________________________________________________________ [36]Table of Contents 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 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, although we believe that our proprietary rights do not infringe the intellectual property rights of others, other 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 United States, so if our business expands into foreign countries, risks associated with protecting our intellectual property will increase |
| We have applied to register the RAINMAKER SYSTEMS, RAINMAKER (and Design), CONTRACT RENEWALS PLUS, and EDUCATION SALES PLUS services marks in the United States and certain foreign countries, and have received registrations for the RAINMAKER SYSTEMS service mark in the United States, Canada, Australia, the European Community, Switzerland, Norway and New Zealand, the RAINMAKER (and Design) mark in the United States and the European Community, the CONTRACTS RENEWALS PLUS mark in the United States and Switzerland, and the EDUCATION SALES PLUS mark in the United States and Switzerland |
| 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 US 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 privacy 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 |
| We are subject to government regulation of direct marketing, which could restrict the operation and growth of our business |
| The Federal Trade Commission’s (“FTC’s”) telemarketing sales 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 |
| 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 email and facsimile transmissions |
| The failure 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 |
| 15 ______________________________________________________________________ [37]Table of Contents Our directors, executive officers and their affiliates own a large percentage of our stock and can significantly influence all matters requiring stockholder approval |
| Our directors, executive officers and entities affiliated with them together beneficially control approximately 16prca of our outstanding shares (based on the number of shares outstanding as of February 24, 2006) |
| As a result, any significant combination of those 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 Rainmaker, which, in turn, could depress the market price of our common 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 |
| The provisions of Delaware law and of our certificate of incorporation and bylaws could make it difficult for a third party to acquire us, even though an acquisition might be beneficial to our stockholders |
| Our certificate of incorporation provides our board of directors the authority, without stockholder action, to issue up to 20cmam000cmam000 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 |
| In addition, our bylaws establish an advance notice procedure for stockholder proposals and for nominating candidates for election as directors |
| Delaware corporate law also contains provisions that can affect the ability to take over a company |
| Our stock price may be volatile resulting in potential litigation |
| If our stock price is volatile, 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 |
| The trading price of our common stock could 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 • if we raise additional cash, this would likely be highly dilutive to investors and our stock price may decline |
| In addition, the securities markets in general have experienced extreme price and trading volume volatility in the past |
| The trading prices of securities of many business process outsourcing companies 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 |
| 16 ______________________________________________________________________ [38]Table of Contents We may have difficulty obtaining director and officer liability insurance in acceptable amounts for acceptable rates |
| Like most other public companies, we carry insurance protecting our officers and directors and us against claims relating to the conduct of our business |
| This insurance covers, among other things, the costs incurred by companies and their management to defend against and resolve claims relating to management conduct and results of operations, such as securities class action claims |
| These claims typically are extremely expensive to defend against and resolve |
| We pay significant premiums to acquire and maintain this insurance, which is provided by third-party insurers |
| Since 1999, the premiums we have paid for this insurance have increased substantially |
| One consequence of the current economic climate and decline in stock prices has been a substantial general increase in the number of securities class actions and similar claims brought against public corporations and their management |
| Many, if not all, of these actions and claims are, and will likely continue to be, at least partially insured by third-party insurers |
| Consequently, insurers providing director and officer liability insurance have in recent periods sharply increased the premiums they charge for this insurance, raised retentions (that is, the amount of liability that a company is required to itself pay to defend and resolve a claim before any applicable insurance is provided), and limited the amount of insurance they will provide |
| Moreover, insurers typically provide only one-year policies |
| We renewed our director and officer insurance in the fourth quarter of 2005 for a one-year term |
| Particularly in the current economic environment, we cannot assure that we will be able to obtain 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 |
| Our business may be subject to additional obligations to collect and remit sales tax and, any successful action by state authorities to collect additional sales tax could adversely harm our business |
| We file sales tax returns in certain states within the United States as required by law and certain client contracts for a portion of the outsourced 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 authorities to compel us to collect and remit sales tax, either retroactively, prospectively or both, could adversely affect our results of operations and business |
| If we fail to meet the NASDAQ Capital Market listing requirements, our common stock will be delisted |
| Our common stock is currently listed on the NASDAQ Capital Market |
| NASDAQ has requirements that a company must meet in order to remain listed on the NASDAQ Capital Market |
| If we continue to experience losses from our operations, or 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 Capital Market, which include, among other things, that our stock maintain a minimum closing bid price of at least dlra1dtta00 per share (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 Capital Market, our stock would become harder to buy and sell |
| Consequently, if we were removed from the NASDAQ Capital 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 |
| As we previously reported on Form 8-K, on March 9, 2005, the Company received a notice from NASDAQ that the bid price of the Company’s common stock had closed below the minimum dlra1dtta00 per share requirement for 30 consecutive business days |
| The notice further provided that in accordance with Marketplace Rule 4310(c)(8)(D), the Company would be provided 180 calendar days, or until September 6, 2005, to regain 17 ______________________________________________________________________ [39]Table of Contents compliance |
| The notice also stated that if the Company could not demonstrate compliance with the minimum bid price requirement by September 6, 2005, but met all of the other NASDAQ Capital Market initial listing criteria as set forth in Marketplace Rule 4310(c) on such date, then the Company would be granted an additional 180 calendar days, or until March 6, 2006, to regain compliance with the minimum bid price requirement |
| As we also previously reported on Form 8-K, on September 7, 2005, NASDAQ notified the Company that as of September 6, 2005 the Company had met all initial inclusion criteria for the NASDAQ Capital Market set forth in Marketplace Rule 4310(c) except for the bid price |
| Therefore, in accordance with Marketplace Rule 4310(c)(8)(D), NASDAQ provided the Company with an additional 180 calendar days, or until March 6, 2006, to regain compliance with the minimum bid price requirement |
| In order to increase our closing bid price to meet NASDAQ’s dlra1dtta00 minimum requirement, on December 15, 2005 the Company’s stockholders approved, and the Company’s Board of Directors effected, a one-for-five reverse split of the outstanding shares of our common stock |
| Trading in our Common Stock on a post-split basis began on the NASDAQ Capital Market at the open of business on December 16, 2005 |
| On January 3, 2006, NASDAQ Capital Market notified the Company that it had regained compliance with the dlra1dtta00 minimum bid price requirement as a result of the stock trading for ten consecutive days above dlra1dtta00 |
| 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 February 24, 2006, we had 13cmam322cmam380 outstanding shares of common stock |
| This amount includes shares issued under the Securities Purchase Agreements on February 7, 2006, as described below |
| As of February 24, 2006, there were an aggregate of 2cmam994cmam377 shares of common stock issuable upon exercise of outstanding stock options and warrants, including 1cmam799cmam177 shares issuable upon exercise of options outstanding under our option plan and 1cmam195cmam200 shares of common stock issuable upon exercise of the outstanding warrants issued to the selling stockholders in our private placement transactions completed on February 7, 2006, June 15, 2005 and February 20, 2004 |
| Under our existing stock option plan and employee stock purchase plan, we may issue up to an additional 728cmam416 shares and 455cmam779 shares of our common stock, respectively, subject to the terms and conditions of such plans |
| We may issue and/or register additional shares, options, or warrants in the future in connection with acquisitions, compensation or otherwise |
| We have not entered into any definitive agreements regarding any future acquisitions and cannot ensure that we will be able to identify or complete any acquisition in the future |
| 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 2cmam000cmam000 shares of the Company’s common stock at a price of dlra3dtta00 per share for gross proceeds of dlra6dtta0 million and issued warrants to the investors to purchase an additional 799cmam999 shares of common stock of the Company at an exercise price of dlra4dtta28 per share |
| 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 expects to file a registration statement on Form S-3 by April 7, 2006, with respect to the common stock issued under the Securities Purchase Agreements and the common stock issuable upon conversion of the related warrants |
| 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, approximately 70cmam000 of such shares are available for 18 ______________________________________________________________________ [40]Table of Contents public sale, with an additional 35cmam000 of such shares available for sale April 1, 2006 and the final 35cmam000 of such shares available for sale July 1, 2006 |
| In addition 28cmam000 shares of common stock consideration have been placed in escrow to secure certain indemnity obligations and will not be released until July 1, 2006 subject to potential post closing adjustments |
| As of February 24, 2006, all 664cmam080 shares of common stock issued in connection with the Sunset Direct acquisition have been released and are available for public sale |