SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

Among the important factors which could cause actual results to differ materially from those in the forward-looking statements are general market conditions, the current very difficult macro-economic environment and its impact on our business as our clients are reducing their overall marketing spending and our clients' customers are reducing their purchase of services contracts, the high degree of uncertainty and our limited visibility due to economic conditions, our ability to execute our business strategy, our ability to integrate acquisitions without disruption to our business, the effectiveness of our sales team and approach, our ability to target, analyze and forecast the revenue to be derived from a client and the costs associated with providing services to that client, the date during the course of a calendar year that a new client is acquired, the length of the integration cycle for new clients and the timing of revenues and costs associated therewith, our client concentration given that we are currently dependent on a few significant client relationships, potential competition in the marketplace, the ability to retain and attract employees, market acceptance of our service programs and pricing options, our ability to maintain 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-Q.

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.

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 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 approximately 90 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.

Critical Accounting Policies/Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to our revenues, asset impairments, income taxes, stock-based compensation and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual results have historically been reasonably consistent with management's expectations, the actual 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 they have reviewed the disclosures of such policies and management's estimates in this Management's Discussion and Analysis of Financial Condition and Results of Operations.

On January 1, 2007 we adopted Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with Financial Accounting Standards Statement No. 109, "Accounting for Income Taxes." Accordingly, we have disclosed that our policy for recording interest and penalties associated with audits 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. Interest and penalties are immaterial at the date of adoption of FIN 48. The adoption of FIN 48 did not have a material impact on our financial statements at January 1, 2007.

With the establishment of our Canadian foreign subsidiary and the subsequent purchase of Canadian based assets in 2007, we adopted a policy for recording foreign currency transactions and translation in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation" (SFAS No. 52). For our Canadian subsidiary, the functional currency has been determined to be the local currency, and therefore, assets and liabilities are translated at period-end exchange rates, and statement of operations items are translated at an average exchange rate prevailing during the period. Such translation adjustments are recorded in accumulated comprehensive income (loss), a component of stockholders' equity. Also in 2007, we acquired Qinteraction Limited and its Philippine-based subsidiary. As a result of this acquisition, we also adopted the policy mentioned above for recording foreign currency transactions and translations for this subsidiary as the functional currency has been determined to be the local currency for the Philippine-based subsidiary. In January of 2009, we established our Rainmaker Europe subsidiary in the United Kingdom. We adopted the policy mentioned above for recording foreign currency transactions and translations for this subsidiary as the functional currency has been determined to be the local currency (Great Britain Pound) for the UK based subsidiary. Gains and losses from foreign currency denominated transactions are included in interest and other income (expense), net in the consolidated statements of operations. Losses from foreign currency denominated transactions amounted to approximately $78,000 and $8,000 for the three months ended March 31, 2009 and 2008, respectively.

Management believes there have been no significant changes during the three months ended March 31, 2009 to the items that we disclosed as 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, 2008.

Results of Operations

The following table sets forth for the periods given selected financial data as a percentage of our revenue. The table and discussion below should be read in connection with the financial statements and the notes thereto which appear elsewhere in this report as well as with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008.

                                                      Three Months Ended
                                                          March 31,
                                                     2009           2008
         Net revenue                                  100.0 %        100.0 %
         Costs of services                             57.5           51.5

         Gross margin                                  42.5           48.5

         Operating expenses:
         Sales and marketing                           11.6           10.1
         Technology and development                    24.8           15.8
         General and administrative                    22.3           16.6
         Depreciation and amortization                 13.6            8.5

         Total operating expenses                      72.3           51.0

         Operating loss                               (29.8 )         (2.5 )
         Interest and other (expense) income, net      (1.0 )          1.7

         Loss before income tax expense               (30.8 )         (0.8 )
         Income tax expense                             0.7            0.5

         Net loss                                     (31.5 )%        (1.3 )%

Comparison of Three Months Ended March 31, 2009 and 2008

Net Revenue. Net revenue decreased $8.2 million, or 40%, to $12.4 million in the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. Our lead development product line revenue was $6.2 million and decreased $3.5 million from the prior year due to decreases in revenues from existing clients as they reduced their marketing budgets. Revenue from our contract sales product line was $5.0 million and decreased approximately $4.7 million as compared to the prior year as a result of a $5.2 million reduction in revenue from Dell which was partially offset by increased revenue from new and existing clients. Revenue from our training sales product line was $1.1 million and increased approximately $43,000 as compared to the prior year as a result of increased sales to new and existing clients.

Costs of Services and Gross Margin. Costs of services decreased $3.5 million, or 33%, to $7.1 million in the three months ended March 31, 2009, as compared to the 2008 comparative period. The decrease is attributable primarily to reductions in telesales workforce related to declining sales from our contract sales and lead development product lines. Our gross margin percentage decreased to 43% in the three months ended March 31, 2009 as compared to 49% for the three months ended March 31, 2008 primarily as a result of the loss of the Dell business and a shift in the mix of our business from contract sales to lead development.

Sales and Marketing Expenses. Sales and marketing expenses decreased $640,000, or 31%, to $1.4 million in the three months ended March 31, 2009, as compared to the 2008 comparative period. The decrease is primarily due to approximately $386,000 in decreased compensation costs due to decreases in sales & marketing personnel. Additionally marketing costs decreased approximately $113,000 and consulting fees decreased approximately $92,000 due to reduced corporate marketing project spending related to corporate website development and travel costs decreased approximately $68,000 due to corporate initiatives put in place to reduce these expenses. We expect sales and marketing expenses to decrease for the remainder of the year as compared to 2008 as the Company has reduced costs due to the challenging macroeconomic environment which has caused a slowdown in marketing spending by our customers.

Technology and Development Expenses. Technology and development expenses decreased $188,000, or 6%, to $3.1 million during the three months ended March 31, 2009, as compared to the 2008 comparative period. The decrease is primarily attributable to decreases in personnel costs of approximately $422,000 and travel & entertainment costs of approximately $60,000 due to the reduction in our workforce. These decreases were partially offset by increased equipment and maintenance expenses of approximately $207,000 and increased severance charges of $69,000 from the staff reductions. We expect technology and development expenses to decrease for the remainder of the year as compared to 2008 as we reduce spending due to the challenging macroeconomic environment.

General and Administrative Expenses. General and administrative expenses decreased $672,000, or 20%, to $2.8 million during the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. The decrease was primarily due to approximately $731,000 in decreased personnel costs related to the reduction in our workforce during 2008 and the first quarter of 2009. Additionally, audit fees decreased approximately $111,000 in the three months ended March 31, 2009 as compared to the 2008 comparable period. These decreases were partially offset by increased losses on retirement of assets of approximately $119,000 from the relocation of our facilities in Montreal and Manila, and increased legal fees of approximately $35,000 associated with new contract activity. In 2009, we will be required to comply with the Sarbanes-Oxley Act section 404(b) and have an audit of the Company's internal controls for the 2009 fiscal year. We were not required to do this in 2008. Because of this, we expect audit related fees to increase going forward for the 2009 fiscal year to maintain compliance with the Sarbanes-Oxley Act.

Depreciation and Amortization Expenses. Depreciation and amortization expenses decreased $71,000, or 4%, to $1.7 million for the three months ended March 31, 2009, as compared to the 2008 period. Amortization of intangible assets decreased by approximately $565,000 in the 2009 period, primarily as a result of the write-off of approximately $2.2 million of our amortizable intangible assets in the fourth quarter of our 2008 fiscal year. This decrease was partially offset by increases in depreciation expense of approximately $494,000 related to depreciation on assets placed in service during our 2008 fiscal year and the reduction of the useful life of leasehold improvements at our Austin facility. Because of the write-off of our amortizable intangible assets during 2008 and the reduction in our capital expenditures during 2009, we expect depreciation and amortization expense to be relatively flat as compared to the prior year for the remainder of 2009.

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

                                           Three Months Ended
                                                March 31,
                                            2009           2008      Change
             Interest income             $       28       $  352     $  (324 )
             Interest expense                   (83 )        (22 )       (61 )
             Currency translation loss          (78 )         (8 )       (70 )
             Other                               -            22         (22 )

                                         $     (133 )     $  344     $  (477 )

The decrease in interest income is attributable to our decrease in cash from $33.5 million as of March 31, 2008 to $17.7 million at March 31, 2009 as we had historically invested the net proceeds of $27.2 million received from our follow-on offering of common stock in April 2007 which was invested in interest bearing deposit accounts. Interest expense is the result of interest incurred on the notes payable issued with the purchase of the assets of CAS Systems and interest incurred on the Bridge Bank Equipment Sub-facility portion of our Revolving Line of Credit which converted to term debt at a minimum interest rate of 6% in January 2009. We have been making principal payments on the CAS Systems loan and the Bridge Bank loan during the quarter ended March 31, 2009.

The currency translation loss is primarily due to the fluctuation of currency exchange rates on a note payable to a third party denominated in United States dollars that is owed by our Canadian subsidiary in connection with our acquisition of CAS Systems. Fluctuations of currency exchange rates may have a negative effect in future periods on our financial results.

Income Tax Expense. Income tax expense decreased $25,000, or 23%, to $85,000 for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. Our income tax expense for the three month period ended March 31, 2009 is based on our estimate of taxable income for the full year ended December 31, 2009, and primarily consists of estimates of foreign taxes and domestic gross margin taxes for certain states. We do not anticipate material changes to our implied effective tax rate for the year.

Liquidity and Sources of Capital

Cash used in operating activities for the three months ended March 31, 2009 was $1.3 million as compared to $284,000 in the three months ended March 31, 2008. Cash provided by operating activities in 2009 was primarily the result of a net loss totaling $3.9 million, non-cash expenditures of depreciation and amortization of property and intangibles of $1.7 million, stock-based compensation charges of $622,000, the credit for the recovery of allowance for doubtful accounts of $197,000, loss on disposal of fixed assets of $158,000, and changes in operating assets and liabilities that provided $373,000 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 includes 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. The reduction in accounts receivable and payable in 2009 is a direct impact of the termination of the Dell services agreement in the quarter ended March 31, 2008.

Accounts receivable decreased at March 31, 2009 as compared to March 31, 2008 as a result of lower overall sales during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008. Our days sales outstanding, or DSO, increased to 27 days at March 31, 2009 as compared to 26 days at March 31, 2008. Since we record the gross billing to the end customer of our contract sales clients in our accounts receivable, we calculate DSO based on our ability to collect those gross billings from the end customers. We record revenue based on the net commission we retain. We expect DSO to increase in the future as lead development becomes a higher percentage of our revenue as these contracts tend to have longer payment terms.

Cash used in operating activities for the three months ended March 31, 2008 was primarily the result of a net loss totaling $277,000, non-cash expenditures of depreciation and amortization of property and intangibles of $1.8 million, stock-based compensation charges of $404,000, the provision for allowance for doubtful accounts of $172,000, amortization of discount on notes receivable of $68,000, and changes in operating assets and liabilities, net of assets acquired and liabilities assumed, that used $2.4 million of cash for the year.

Cash provided by investing activities was $177,000 in the three months ended March 31, 2009, as compared to cash used in investing activities of $2.7 million in the three months ended March 31, 2008. The change is primarily the result of $1 million paid in 2008 as additional purchase price from the CAS Systems acquisition in 2007 as the result of the achievement of certain performance metrics subsequent to the acquisition, decreases in capital expenditures of approximately $911,000 during the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, and a decrease in the restricted cash balance of approximately $779,000 in the three months ended March 31, 2009, as compared to an increase of $182,000 in the restricted cash balance for the three months ended March 31, 2008. Restricted cash represents the reserve for the refund due for non-service payments inadvertently paid to the Company by our clients' customers instead of paid directly to the Company's clients. At the time of cash receipt, the Company records a current liability for the amount of non-service payments received. The decrease in restricted cash represents the reduction of our balance of refunds due to customers.

Cash used in financing activities was approximately $1.3 million in the three months ended March 31, 2009, as compared to $992,000 in the three months ended March 31, 2008. Cash used in financing activities in 2009 was primarily a result of principal payments of $923,000 on our term loans and CAS notes, payments on our capital lease obligations of $226,000, purchases of treasury stock under company announced share repurchase plans of $56,000, and purchases of $45,000 of treasury stock from employees for shares withheld for income taxes payable on restricted stock awards vested during 2009. Cash used in financing activities in 2008 was primarily a result of principal payments of $938,000 on our term loans and CAS notes and purchases of $66,000 of treasury stock from employees and directors for shares withheld for income taxes payable on restricted stock awards vested. Additionally, we received approximately $12,000 from the exercise of stock options during the 2008 period.

Our principal source of liquidity as of March 31, 2009 consisted of $17.7 million of cash and cash equivalents and approximately $1.2 million available for borrowing under our Revolving Credit Facility. We anticipate that our existing capital resources 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.

Credit Arrangements

In June 2008, we entered into an amendment to our Revolving Credit Facility with our lender, Bridge Bank, which extended the maturity date of the Revolving Credit Facility to October 10, 2008. During October 2008, we executed further amendments to the Revolving Credit Facility. The amendments extended the maturity date of the Revolving Credit Facility from October 10, 2008 to October 10, 2009 and increase the maximum amount of revolving credit available from $4,000,000 to $6,000,000, with a $1,000,000

sub-facility for standby letters of credit and a new $3,000,000 sub-facility for the purpose of purchasing new equipment until December 31, 2008. The interest rate per annum for revolving advances under the Revolving Credit Facility is equal to the prime lending rate, which was 3.25% as of March 31, 2009. The interest rate per annum for advances under the equipment finance sub-facility is equal to the prime rate plus 0.50%, subject to a minimum interest rate of 6.00%. Bridge Bank, at its option, may increase the interest rate payable on advances under the Revolving Credit Facility by 1.25% per annum if Rainmaker does not maintain minimum deposits of $2,000,000 in demand deposit accounts and a total of $6,000,000 in unrestricted cash with Bridge Bank. Advances under the equipment finance sub-facility are being repaid in equal monthly installments that commenced in January 2009 and continue through October 2011.

The Revolving Credit Facility is collateralized by substantially all of our consolidated assets, including intellectual property. We are subject to certain financial covenants, including not incurring a year-to-date non-GAAP net loss exceeding by 10% the amount of loss recited in the Company's operating plan approved by Bridge Bank. The Revolving Credit Facility contains 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 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 Revolving Credit Facility. For the three months ended March 31, 2009, we violated the performance to plan financial covenant as our net loss exceeded by 10% the amount of loss in our operating plan approved by Bridge Bank primarily due to severance costs incurred during the three months ended March 31, 2009 that were not in our approved plan. We . . .