If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for comply with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o

The Registrantregistrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment thatwhich specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 as amended, or until the Registration Statementregistration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. NEITHER WE NOR THE SELLING STOCKHOLDERS MAY SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED SEPTEMBER 8, 2006

PROSPECTUS

Kana Software, Inc.

7,670,898 Shares of Common Stock

This prospectus relates to an aggregate of up to 7,670,898 shares of common stock of Kana Software, Inc. which may be resold from time to time by the selling stockholders named on page 59 of this prospectus for their own account. Kana Software, Inc. will not receive any proceeds from the sale of the shares offered by the selling stockholders. See “Selling Stockholders”, “Plan of Distribution” and “Use of Proceeds” at page 59, 61 and 18 respectively.

Of the 7,670,898 shares of common stock of Kana Software, Inc. offered, up to 2,393,233 shares of common stock will be issued to the selling stockholders only upon the exercise of warrants to purchase shares of common stock at an exercise price of either $2.452 or $1.966 per share, as applicable and subject to certain adjustments. If the selling stockholders exercise any of the warrants for cash, Kana Software, Inc. may receive proceeds in the amount of the exercise price of each warrant being exercised. Of the 2,393,233 shares of common stock of Kana Software, Inc. that will be issued to the selling stockholders only upon the exercise of warrants 478,647 shares of common stock reflect the current good faith estimate of additional shares of common stock that Kana Software, Inc. may be required to issue to the selling stockholders based on adjustments to the number of shares issuable upon the exercise of the warrants in the event of (i) dilution resulting from stock splits, stock dividends or similar transactions or (ii) change in the exercise price of the warrants. See “Selling Stockholders”, “Plan of Distribution” and “Use of Proceeds” at page 59, 61 and 18 respectively.

Our common stock is quoted on the Pink Sheets under the symbol “KANA.PK”. The shares of common stock to be offered under this prospectus will be sold as described under “Plan of Distribution.” On September 6, 2006, the last reported sale price as reported on the Pink Sheets was $2.80 per share.

Investing in our securities involves risks. See “Risk Factors” beginning on page 6 for a discussion of these risks.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date ofinformation in this prospectus is , 2006.

TABLE OF CONTENTS

You should rely only onnot complete and may be changed. These securities may not be sold until the information contained in this prospectus. We have not,registration statement filed with the Securities and the selling stockholders have not, authorized any other person to provide you with different information.Exchange Commission is effective. This prospectus is not an offer to sell northese securities and it is it seeking an offernot soliciting offers to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 2023

PRELIMINARY PROSPECTUS

$30,000,000

SWK HOLDINGS CORPORATION

% Senior Notes due 2028

We are offering $30,000,000 in aggregate principal amount of our           % Senior Notes due 2028 (the “Notes”). Interest on the Notes will accrue from            , 2023, and will be paid quarterly in arrears on  March 31, June 30, September 30 and December 31 of each year, commencing on December 31, 2023 and at maturity. The informationNotes will mature on September 30, 2028. We may redeem the Notes for cash, in whole or in part, at any time or from time to time at our option (i) on or after September 30, 2025 (the “First Call Date”) and prior to September 30, 2026, at a price equal to the sum of 102% of their principal amount, (ii) on or after  September 30, 2026 and prior to September 30, 2027, at a price equal to the sum of 101% of their principal amount and (iii) on or after  September 30, 2027, at a price equal to the sum of 100% of their principal amount, as described elsewhere in this prospectus, plus (in each case noted above) accrued and unpaid interest to, but excluding, the date of redemption. In addition, at any time prior to the First Call Date, we may, at our option, redeem the Notes for cash, in whole at any time or in part from time to time at a redemption price equal to (i) 100% of the principal amount of Notes redeemed, plus (ii) a Make-Whole Amount (as defined herein), plus (iii) accrued and unpaid interest, if any, to, but excluding, the date of redemption. See “Description of Notes—Optional Redemption.” Additionally, upon the occurrence of a Triggering Event (defined below), holders of the Notes may require us to make an offer to repurchase all or any portion of the Notes for cash at a purchase price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the date of purchase. The Notes will be issued in denominations of $25 and in integral multiples thereof. The Notes will be our senior unsecured obligations, will rank pari passu (or equally) in right of payment with all of our existing and future senior unsecured indebtedness and will be senior to any other indebtedness expressly made subordinate to the Notes. The Notes will be effectively subordinated to all of our existing and future secured indebtedness (to the extent of the value of the assets securing such indebtedness) and structurally subordinated to all existing and future indebtedness and other liabilities of our subsidiaries, including trade payables.

Investing in the Notes involves a high degree of risk. See “Risk Factors” beginning on page 11 and in the documents incorporated by reference in this prospectus to read about factors you should consider before you make an investment decision.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We have applied to list the Notes on the Nasdaq Global Market (the “Nasdaq”) under the symbol “SWKHL.” If approved for listing, trading on such exchange is expected to begin within 30 business days of      , 2023, the original issue date. If such listing is obtained, we have no obligation to maintain such listing, and we may delist the Notes at any time

The underwriters expect to deliver the Notes to purchasers in book-entry form through the facilities of The Depository Trust Company (“DTC”) for the accounts of its direct and indirect participants, including Euroclear Bank SA/NV, as operator of the Euroclear System, and Clearstream Banking, S.A., on or about                 , 2023.

Joint Book-Running Managers

Co-Managers

The date of this prospectus is                      , 2023

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

You should rely only on the information contained in or incorporated by reference herein and in any free writing prospectus that we have authorized in connection with this offering. Neither we nor the underwriters have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or incorporated by reference herein or any applicable prospectus supplement or any free writing prospectuses prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the underwriters will make an offer to sell these securities in any jurisdiction where such offer or sale are not permitted. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or incorporated by reference herein, any applicable prospectus supplement or any related free writing prospectus. You should assume that the information appearing in this prospectus or incorporated by reference herein or any prospectus supplement is accurate as of the date on the front coverof those documents only, regardless of the time of delivery of this prospectus but the informationor any applicable prospectus supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.

We may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that date.a statement contained in such prospectus supplement or post-effective amendment modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should read both this prospectus together with the other information contained or incorporated by reference in this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement together with the additional information to which we refer you in the section of this prospectus titled “Where You Can Find More Information” and “Incorporation of Certain Information by Reference.”

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information” and “Incorporation of Certain Information by Reference.”

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the documents incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (“SEC”). Such statements include, without limitation, statements regarding our expectations, hopes or intentions regarding the future. Statements that are not historical fact are forward-looking statements. These forward-looking statements can often be identified by their use of words such as “expect,” “believe,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “seek,” “estimate,” “should,” “will,” “may” and “assume,” as well as variations of such words and similar expressions referring to the future. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws.

The forward-looking statements contained in or incorporated by reference herein are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve certain risks and uncertainties, many of which are beyond our control. If any of those risks and uncertainties materialize, actual results could differ materially from those discussed in any such forward-looking statement. Among the factors that could cause actual results to differ materially from those discussed in forward-looking statements are those discussed under the heading “Risk Factors” below and those discussed under the heading “Risk Factors” in other sections of our Annual Report on Form 10-K for the year ended December 31, 2022, as well as in our other reports filed from time to time with the SEC that are incorporated by reference herein. See “Prospectus Summary—Additional Information” and “Incorporation of Certain Information by Reference” for information about how to obtain copies of those documents. All readers are cautioned that the forward-looking statements contained in this prospectus and in the documents incorporated by reference herein are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or that the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements. All forward-looking statements in this prospectus and the documents incorporated by reference herein are made only as of the date of the document in which they are contained, based on information available to us as of the date of that document, and we caution you not to place undue reliance on forward-looking statements in light of the risks and uncertainties associated with them. Except as required by law, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

PROSPECTUS SUMMARY

This summary highlights key aspects of theselected information contained elsewhere in this prospectus.prospectus and in the documents incorporated by reference herein. This summary is not complete and does not contain all of the information that you should consider before investingdeciding whether to invest in our common stock.Notes. You should carefully read thisthe entire prospectus, carefully, especiallyincluding the risks of investingassociated with an investment in our common stockNotes discussed underin the “Risk Factors” beginningsection of this prospectus and incorporated by reference in our Annual Report on page6, andForm 10-K for the fiscal year ended December 31, 2022, as well as in our consolidated financial statements andother reports filed from time to time with the notes to those consolidated financial statements beginning on page F-1,SEC that are incorporated by reference herein, before making an investment decision. Some of the statements in this prospectus are forward-looking statements. See “Where You Can Find More Information” to obtain additional information about us and our SEC filings.the section titled “Cautionary Statement Regarding Forward-Looking Statements.”

THE COMPANYOverview

Company Information

KANA Software, Inc. (the “Company” or “KANA”) is a world leader in multi-channel customer service. Our software applications enable organizations to improve the quality and efficiency of interactions with customers and partners across multiple communication points. KANA’s integrated solutions allow companies to deliver consistent, managed service across all channels, including email, chat, call centers and Web self-service, so customers have the freedom to choose the service they want and how and when they want it. Our target market is the Global 2000 with a focus on large enterprises with high volumes of customer interactions, such as banks, telecommunications companies, high-tech manufacturers, healthcare organizations and government agencies.

We are headquartered in Menlo Park, California, with offices in Japan, Hong Kong and throughout the United States and Europe. We wereSWK Holdings Corporation was incorporated in July 1996 in California and reincorporated in Delaware in September 1999. In July 2012, we commenced a strategy of building a specialty finance and asset management business. In August 2019, we commenced a complementary strategy of building a pharmaceutical development, manufacturing and intellectual property licensing business. Our operations comprise two reportable segments: “Finance Receivables” and “Pharmaceutical Development.” We had no significant operations until 1997. Referencesevaluate and invest in a broad range of healthcare related companies and products with innovative intellectual property, including the biotechnology, medical device, medical diagnostics and related tools, animal health and pharmaceutical industries (collectively, “life science”). We allocate capital to each segment in order to generate income through the sales of life science products by third parties. We are headquartered in Dallas, Texas.

Finance Receivables Segment

Our Finance Receivables segment strategy is to be a leading healthcare capital provider by offering sophisticated, customized financing solutions to a broad range of life science companies, institutions and inventors. This segment is primarily focused on monetizing cash flow streams derived from commercial-stage products and related intellectual property through royalty purchases and financings, as well as through the creation of synthetic revenue interests in commercialized products. Our business partners are primarily engaged in selling products that directly or indirectly cure diseases and/or improve the wellness of people or animals, or they receive royalties paid on the sales of such products. For example, our biotechnology and pharmaceutical business partners manufacture medication that directly treat disease states, whereas our life science tools partners sell a wide variety of research instrumentation to help other companies conduct research into disease states. We have been deploying our assets to earn interest, fees, and other income pursuant to this prospectusstrategy, and we continue to “we,” “our”identify and “us” collectively referreview financing and similar opportunities on an ongoing basis with financial solutions that are tailored to KANA,the individual needs of our predecessorbusiness partners. In addition, through our wholly-owned subsidiary, SWK Advisors LLC, we can provide non-discretionary investment advisory services to institutional clients in separately managed accounts to similarly invest in life science finance. We intend to fund transactions through our own working capital, our revolving credit facility (together with any additional credit facility, or amendment or refinancing thereof, the “Credit Facilities”) and the net proceeds of this offering, as well as by building our asset management business by raising additional third-party capital to be invested alongside our capital.

We fill a niche that we believe is underserved in the sub-$50 million transaction size market. Since many of our competitors that provide longer term, non-traditional debt and/or royalty-related financing options typically have much greater financial resources than us, they tend not to focus on transaction sizes below $50 million, as it is generally inefficient for them to do so. In addition, we do not believe that a sufficient number of other companies offer similar types of long-term financing options to fill the demand of the sub-$50 million market. As such, we believe we face less competition from such investors in transactions that are less than $50 million.

As of August 5, 2023, and since inception of the strategy, we and our subsidiariespartners have executed transactions with 50 different parties under our specialty finance strategy, funding an aggregate of approximately $725.7 million in various financial products across the life science sector. Our portfolio consist primarily of senior debt backed by royalties and synthetic royalties paid by companies in the life science sector, and purchased royalties generated by sales of life science products and related intellectual property.

The objective of our Finance Receivables segment is to maximize our portfolio total return in the context of a prudent level of risk, and thus, increase our net income and book value by generating income from three sources:

In our portfolio we seek to achieve attractive risk-adjusted returns as well as opportunities with the potential for equity-like returns combined with downside protection that credit provides.

The majority of our finance receivables transactions are structured similarly to factoring transactions whereby we provide capital in exchange for an interest in an existing revenue stream. We primarily provide capital to companies following the commercialization of a product, although in rare situations we consider pre-approval financings as well. The existing revenue stream can take several forms, but is most commonly either a royalty derived from the sales of a life science product (1) from the marketing efforts of a third party, such as a royalty paid to an inventor on the sales of a medicine, or (2) from the marketing efforts of a partner company, such as a medical device company that directly sells its predecessors.own products. Our structured debt investments may include warrants or other features, giving us the potential to realize enhanced returns on a portion of our portfolio. Capital that we provide directly to our partners is generally used for growth and general working capital purposes, as well as for acquisitions or recapitalizations in select cases. We generally fund the full amount of transactions up to $25 million through our working capital.

In circumstances where a transaction is greater than $25 million, we typically seek to syndicate amounts in excess of $25 million to both other investors and our investment advisory clients. We do not expect to earn investment advisory income in transactions where we partner with investors other than our investment advisory clients.

We source our investment opportunities through a combination of our senior management’s proprietary relationships within the industry, outbound business development efforts and inbound inquiries from companies, institutions and inventors interested in learning about our capital financing alternatives. Our investment advisory clients generally do not originate investment opportunities for us.

Pharmaceutical Development Segment

During 2019, we commenced our Pharmaceutical Development segment with the acquisition of Enteris BioPharma, Inc. (“Enteris”). Enteris is a clinical stage biopharmaceutical company offering innovative formulation solutions built around its proprietary oral drug delivery technologies, the Peptelligence® platform.

Our Pharmaceutical Development segment seeks to generate income by providing customers pharmaceutical development, formulation and manufacturing services.

We also intend to continue to out-license our Peptelligence® technology to pharmaceutical companies to create novel and important oral therapeutic treatments for a wide variety of indications. These licenses generate milestones and royalties for Enteris.

We seek to out-license to pharmaceutical companies our existing internal product pipeline of off-patent, previously approved drug compounds with which we have created novel formulations using our proprietary technology to develop treatments that have meaningful therapeutic benefits for patients and caregivers. We do not expect to fund additional clinical research and development.

Tax Attributes

We view our ability to carry forward our net operating losses, or NOLs, as an important and substantial asset. However, at this time, under current law, we do not anticipate that our current business strategies will generate sufficient income to permit us to utilize our NOLs that are not carried forward indefinitely prior to their respective expiration dates. As such, it is possible that we might pursue additional strategies that we believe might result in our ability to utilize more of our NOLs.

Corporate Information

We file annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act’’), with the SEC. Our SEC filings are available to the public from the SEC’s internet site at http://www.sec.gov.

Our internet site is http://www.swkhold.com. We will make available free of charge through our website in the “Investor Relations - SEC Filings” section our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and Forms 3, 4 and 5 filed on behalf of directors and executive officers and any amendments to those reports filed or furnished pursuant to the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also, posted on our website in the “Investor Relations - Corporate Governance” section are charters for our Audit Committee, Compensation Committee and Governance and Nominating Committee as well as our Code of Ethics and Insider Trading Policy governing our directors, officers and employees. Information on or accessible through our website is not a part of, and is not incorporated into, this prospectus.

Our principal executive offices are located at 181 Constitution Drive, Menlo Park, California 940255956 Sherry Lane, Suite 650, Dallas, Texas 75225, and our telephone number is (650) 614-8300. Our Internet(972) 687-7250. We maintain a website is located at http://www.kana.com. The informationwww.swkhold.com. Information on or that can be accessed through, our website is not incorporated by reference into or otherwise part of this prospectus.

2005 Private Placement TransactionsSummary Risk Factors

On June 25, 2005, we entered into a Common Stock and Warrant Purchase Agreement (the “First Purchase Agreement”) with NightWatch Capital Partners, LP, NightWatch Capital Partners II, LP and RHP Master Fund Ltd. (collectively, the “Investors”) pursuant to which we agreed to issue to the Investors $2,400,000 of units, with each unit consisting of (i) one share of our common stock, par value $0.001, and (ii) one half of a warrant, at a purchase price per unit which equaled to 90% of the volume weighted average trading price per share of common stock for three consecutive trading days beginning on June 27, 2005. On June 29, 2005, we issued an aggregate of 1,631,541 shares of common stock at $1.471 per share and warrants to purchase up to 815,769 shares of common stock at an exercise price of $2.452 per share (the “First Warrants”). In conjunction with the First Purchase Agreement, we entered into a registration rights agreement (the “First Registration Rights Agreement”) with the Investors.

On September 29, 2005, we amended the First Warrants and the First Registration Rights Agreement to extend the deadline of the filing date and the effective date of the registration statement to no later than the twentieth (20th) day following the filing of our Quarterly Report on Form 10-Q for the six months ended June 30, 2005 and 120 days from September 29, 2005, respectively (the “Amended First Registration Rights Agreement”).

On September 29, 2005, we also entered into a Common Stock and Warrant Purchase Agreement (the “Second Purchase Agreement”) with the Investors pursuant to which we agreed to issue to the Investors $4,000,000 of units, with each unit consisting of (i) one share of our common stock, and (ii) 0.36 of a warrant, at a purchase price per unit of $1.5227, for an aggregate of 2,626,912 shares of common stock and warrants to purchase up to 945,687 shares of common stock at an exercise price of $2.284 (the “Second Warrants”). In conjunction with the Second Purchase Agreement, we entered into a registration rights agreement (the “Second Registration Rights Agreement”) with the Investors that has the same deadline for the filing and effective date of the registration statement as the Amended First Registration Rights Agreement.

In the Second Purchase Agreement, we agreed to reset the purchase price per unit (through the issuance of additional units to the Investors) at a price equal to the volume weighted-average trading price per share of common stock for the three consecutive trading day period following the issuance of a press release announcing the delisting of our common stock if our common stock was delisted from The NASDAQ National Market (now designated The NASDAQ Global Market and, hereinafter, will be referred to as The NASDAQ Global Market) due to our failure to timely file our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005. The additional units were to be allocated among the Investors in proportion to the units issued to each Investor on September 29, 2005 and the exercise price of the additional warrants was to be calculated as 150% of the adjusted purchase price per unit.

We did not timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, and effective at the opening of business on October 17, 2005, our common stock was delisted from The NASDAQ Global Market. Accordingly, we issued to the Investors 425,358 additional shares of common stock and additional warrants to purchase up to 153,130 shares of common stock at an exercise price of $1.966 per share. We also amended the exercise price of the Second Warrants from $2.284 per share to $1.966 per share.

In May 2006, we amended the Amended First Registration Rights Agreement and Second Registration Rights Agreement (collectively, the “Amended Registration Rights Agreements”) to extend the registration deadline to register the shares of common stock and underlying shares of common stock of the warrants issued to the Investors and the date the registration statement must be effective to no later than September 30, 2006, and issued an additional 593,854 shares of common stock to the Investors.

THE OFFERING

This prospectus relates to the offer and sale of up to 5,277,665 outstanding shares of the common stock and 2,393,233 shares of common stock that may be issued on the exercise of outstanding warrants by the Selling Stockholders, including an additional 478,647 shares of common stock of which may be issued on the exercise of the warrants that may be issued upon the occurrence of an event of dilution resulting from stock splits, stock dividends or similar transactions or change in the exercise price (collectively, the “Shares”) by the selling stockholders identified in this prospectus. Such Shares may be offered and sold from time to time by the persons described in this prospectus under the heading “Selling Stockholders” or by pledgees, donees, transferees, assignees or other successors-in-interest of such persons (collectively, the “Selling Stockholders”).

The Selling Stockholders may offer their Shares from time to time through or to one or more underwriters, brokers or dealers on the Pink Sheets or other markets on which our common stock may from time to time be trading at market prices prevailing at the time of sale, in one or more negotiated transactions at prices acceptable to the Selling Stockholders or in private transactions. We will not receive any proceeds from the sale of the Shares by the Selling Stockholders. If the Selling Stockholders exercise any of the warrants for cash, we may receive proceeds in the amount of the exercise price of each warrant being exercised (approximately $5.4 million in the aggregate, which includes 478,647 shares of common stock that may be issued additionally). In connection with any sales, the Selling Stockholders and any underwriters, agents, brokers or dealers participating in such sales may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).

The Shares covered by this prospectus may be sold by the Selling Stockholders in the manner described under “Plan of Distribution.”

We will pay the expenses related to the registration of the Shares covered by this prospectus. The Selling Stockholders will pay commissions and selling expenses, if any, incurred by them.

As of August 31, 2006, there were 34,517,637 shares of common stock outstanding and issued, excluding shares exercisable under warrants that we have issued. The Shares offered in this prospectus, represents 22.2% of the total outstanding and issued shares of our common stock as of August 31, 2006, excluding shares exercisable under warrants that we have issued.

Our common stock currently trades on the Pink Sheets with the trading symbol “KANA.PK”. On August 31, 2006, the closing price of one share of our common stock was $2.65.

An investment in our common stock is speculative and involves substantial risks. See “Risk Factors” beginning on page 6 for a discussion of factors that you should consider carefully before deciding to purchase our common stock.

SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the consolidated financial statements and the related notes included elsewhere in this prospectus.

The consolidated statements of operations data for the years ended December 31, 2005, 2004 and 2003, and the consolidated balance sheets data as of December 31, 2005 and 2004 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The consolidated statements of operations data for the years ended December 31, 2002 and 2001 and the consolidated balance sheets data as of December 31, 2003, 2002 and 2001 are derived from our audited consolidated financial statements, which are not included in this prospectus. The consolidated statements of operations data for the six months ended June 30, 2006 and 2005 and the consolidated balance sheet data as of June 30, 2006 are derived from our unaudited condensed consolidated financial statements, which are included elsewhere in this prospectus. The diluted net loss per share computation excludes shares of common stock issuable upon exercise or conversion of other securities, including outstanding warrants and options to purchase common stock and common stock subject to repurchase rights, because their effect would be anti-dilutive. Historical results are not necessarily indicative of results to be expected for any future period. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

		June 30, 2006				December 31,
						2005				2004				2003			2002				2001
		(unaudited)				(in thousands)
Consolidated Balance Sheets Data:
Cash and cash equivalents		$	3,592			$	6,216			$	13,772			$	16,282		$	19,112			$	25,476
Marketable securities			—				—				6,361				16,674			13,386				14,654
Working capital (deficit)			(15,390	)			(18,439	)			(9,657	)			4,168			(4,533	)			(13,697	)
Total assets			29,274				35,706				50,361				69,878			80,550				160,672
Total long-term debt			—				—				—				—			—				108
Total stockholders’ equity (deficit)		$	(6,756	)		$	(9,794	)		$	3,164			$	21,532		$	21,952			$	66,839

		Six Months Ended June 30, (2)						Year Ended December 31, (3)
		2006			2005			2005			2004			2003			2002			2001
Cost of services		$	131		$	2		$	2		$	346		$	430		$	883		$	1,417
Sales and marketing			657			9			9			646			2,300			4,697			7,230
Research and development			408			2			2			82			2,149			4,384			4,226
General and administrative			570			23			25			157			991			6,656			3,007
		$	1,766		$	36		$	38		$	1,231		$	5,870		$	16,620		$	15,880

RISK FACTORS

We operate in a dynamic and rapidly changing business environment that involves substantial risks and uncertainties including but not limited to the specific risks identified below. The risks described below are not the only ones facing our Company. Additional risks not presently known to us, or that we currently deem immaterial, may become important factors that impair our business operations.

An investment in our common stockNotes involves a high degree of risk. You should carefully consider the risks summarized below. These risks are discussed more fully in the “Risk Factors” section of this prospectus and uncertaintiesin the documents incorporated by reference herein. These risks include, but are not limited to, the following:

Risks Related to Finance Receivables Segment

Risks Related to Our Business and Structure

Risks Associated with Investments in the Health Care and Life Science Industries

Risks Related to Pharmaceutical Development Segment

Risks Related to this Offering and the Notes

THE OFFERING

The summary below describes the principal terms of the Notes. Some of the terms and conditions described below together withare subject to important limitations and exceptions. See “Description of Notes” for a more detailed description of the terms and conditions of the Notes. All capitalized terms not defined herein have the meanings specified in “Description of Notes.” Unless otherwise indicated, the information in this prospectus assumes that the underwriters do not exercise their option to purchase additional Notes.

RISK FACTORS

Investing in the Notes involves a high degree of risk. Before investing in the Notes, you should consider carefully the risks and other information containeddescribed in, or incorporated by reference into, this prospectus, including the risks and uncertainties discussed in the “Risk Factors” sections in this prospectus, before making a decisionour most recent Annual Report on Form 10-K for the year ended December 31, 2022 and any subsequent Quarterly Reports on Form 10-Q, which are incorporated by reference herein in their entirety. Additional risks and uncertainties not presently known to buyus, or that we currently see as immaterial, may also harm our common stock from a Selling Stockholder.business. If any of the following risks actuallyincorporated by reference herein occur, our business, financial condition and operating results of operations could suffer. In these circumstances,be harmed, the markettrading price of our common stockthe Notes could decline and you maycould lose allpart or partall of your investment in our common stock.investment.

This prospectus also contains certain forward-looking statements that involve risks and uncertainties. These statements are not historical facts, but rather are based on current expectations, estimates and projections about our business and industry and our beliefs and assumptions. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will” and variations of these words and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in “Risk Factors” and elsewhere in this prospectus.

Risks Related to Our Businessthis Offering and to the Notes

We may be able to incur substantially more debt, which could have important consequences to you.

The relatively large size of many of our expected license transactions could contribute to our failure to meet expected sales in any given quarter and could materially harm our operating results.

Our quarterly revenues are especially subject to fluctuation because they depend on the completion of relatively large orders for our products and related services. The average size of our license transactions is generally large relative to our total revenue in any quarter, particularly as we have focused on larger enterprise customers and on licensing our more comprehensive integrated products, and as we have involved system integrators in our sales process. If sales expected from a specific customer in a particular quarter are not realized in that quarter, we are unlikely toWe may be able to generate revenue from alternate sources in time to compensate for the shortfall. This dependence on large orders makes our net revenue and operating results more likely to vary from quarter to quarter, and more difficult to predict, because the loss of any particular large order is significant. In recent periods, we have experienced increasesincur substantial additional indebtedness in the lengthfuture. The terms of a typical sales cycle. This trend may addthe indenture governing the Notes, other than the asset coverage covenant (as more fully described in the “Description of Notes”), do not prohibit us from doing so. If we incur any additional indebtedness that ranks equally with the Notes, the holders of that debt will be entitled to the uncertainty of our future operating results and reduce our ability to anticipate our future revenues. As a result, our operating results could suffer if any large orders are delayed or canceledshare ratably with you in any future period. Moreover,proceeds distributed in connection with any insolvency, liquidation, reorganization or dissolution. This may have the effect of reducing the amount of proceeds paid to you. Incurrence of additional debt would also further reduce the extent that significant sales occur earlier than anticipated, revenues for subsequent quarters may be lower than expected. In partcash available to invest in operations, as a result of increased debt service obligations. If new debt is added to our current debt levels, the related risks that we now face could intensify.

Our level of indebtedness could have important consequences to you, because:

Our operations may not generate sufficient cash to enable us to service our debt. If we fail to make a payment on the Notes, we could be in default on the Notes, and this aspectdefault could cause us to be in default on other indebtedness, to the extent outstanding. Conversely, a default under any other indebtedness, if not waived, could result in acceleration of the debt outstanding under the related agreement and entitle the holders thereof to bring suit for the enforcement thereof or exercise other remedies provided thereunder. In addition, such default or acceleration may result in an event of default and acceleration of other indebtedness of the Company, entitling the holders thereof to bring suit for the enforcement thereof or exercise other remedies provided thereunder. If a judgment is obtained by any such holders, such holders could seek to collect on such judgment from the assets of the Company. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us.

However, no event of default under the Notes would result from a default or acceleration of, or suit, other exercise of remedies or collection proceeding by holders of, our business,other outstanding debt, if any. As a result, all or substantially all of our quarterly revenuesassets may be used to satisfy claims of holders of our other outstanding debt, if any, without the holders of the Notes having any rights to such assets.

The Notes will be unsecured and operating results may fluctuate in future periods andtherefore will be effectively subordinated to any secured indebtedness that we currently have or that we may fail to meetincur in the expectations of investors and public market analysts, which could cause the pricefuture.

The Notes will not be secured by any of our common stockassets. As a result, the Notes will be effectively subordinated to decline.any secured indebtedness that we have currently outstanding or may incur in the future to the extent of the value of the assets securing such indebtedness. The indenture governing the Notes, other than the asset coverage covenant (as more fully described in the “Description of Notes”), will not prohibit us from incurring additional secured (or unsecured) indebtedness in the future. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness may assert rights against the assets pledged to secure that indebtedness and may consequently receive payment from these assets before they may be used to pay other creditors, including the holders of the Notes.

The Notes will be structurally subordinated to the indebtedness and other liabilities of our subsidiaries.

The Notes will be obligations exclusively of the Company and not of any of our subsidiaries nor will the Notes be secured by any of the assets of our subsidiaries. The Notes will be effectively subordinated to any secured indebtedness of our subsidiaries currently outstanding or that they may incur in the future to the extent of the value of the assets securing such indebtedness. None of our subsidiaries will be a guarantor of the Notes, and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Therefore, in any bankruptcy, liquidation or similar proceeding, all claims of creditors (including trade creditors) of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, the Notes will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. Except as set forth in “Description of Notes – Covenants” below, the indenture does not otherwise prohibit us or our subsidiaries from incurring additional indebtedness in the future or granting liens on our assets or the assets of our subsidiaries to secure any such additional indebtedness. In addition, future debt and security agreements entered into by our subsidiaries may contain various restrictions, including restrictions on payments by our subsidiaries to us and the transfer by our subsidiaries of assets pledged as collateral.

The indenture governing the Notes will contain limited protection for holders of the Notes.

The indenture under which the Notes will be issued will offer limited protection to holders of the Notes. The terms of the indenture and the Notes will not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on your investment in the Notes. In particular, the terms of the indenture and the Notes will not place any restrictions on our or our subsidiaries’ ability to:

In addition, the indenture will not include any protection against certain events, such as a change of control, a leveraged recapitalization or “going private” transaction (which may result in a significant increase of our indebtedness levels), restructuring or similar transactions, except to the limited extent described in this prospectus supplement under “Description of Notes—Purchase of Notes Upon a Triggering Event.” Furthermore, the terms of the indenture and the Notes will not protect holders of the Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity. Also, an event of default or acceleration under our other indebtedness would not necessarily result in an “Event of Default” under the Notes.

Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the indenture and the Notes may have important consequences for you as a holder of the Notes, including making it more difficult for us to satisfy our obligations with respect to the Notes or negatively affecting the trading value of the Notes.

Other debt we issue or incur in the future could contain more protections for its holders than the indenture and the Notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of the Notes.

We may not be able to forecastgenerate sufficient cash to service all of our revenues accurately becausedebt, and may be forced to take other actions to satisfy our products have a long and variable sales cycle and we rely on systems integrator partners for sales.obligations under such indebtedness, which may not be successful.

The long sales cycle for

Our ability to make scheduled payments on, or to refinance our products may cause license revenueobligations under, our debt will depend on our financial and operating results to vary significantly from period to period. To date, the sales cycle for mostperformance and that of our product sales has taken anywheresubsidiaries, which, in turn, will be subject to prevailing economic and competitive conditions and to financial and business factors, many of which may be beyond our control.

We may not maintain a level of cash flow from 6operating activities sufficient to 18 months. Our sales cycle typically requires pre-purchase evaluation by a significant numberpermit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our debt. In the future, our cash flow and capital resources may not be sufficient for payments of individuals ininterest on, and principal of, our customers’ organizations. Along with third parties that often jointly marketdebt, and such alternative measures may not be successful and may not permit us to meet our software with us, we invest significant amountsscheduled debt service obligations. We may not be able to refinance any of timeour indebtedness or obtain additional financing. In the absence of such operating results and resources, educatingwe could face substantial liquidity problems and providing informationmight be required to prospective customers regardingdispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those sales, or if we do, at an opportune time, the use and benefitsproceeds that we realize may not be adequate to meet debt service obligations when due. Repayment of our products. Manyindebtedness, to a certain degree, is also dependent on the generation of cash flows by our subsidiaries (none of which will be guarantors) and their ability to make such cash available to us, by dividend, loan, debt repayment, or otherwise. Our subsidiaries may not be able to, or be permitted to, make distributions or other payments to enable us to make payments in respect of our customers evaluate our software slowly and deliberately, depending on the specific technical capabilities of the customer, the size of the deployment, the complexity of the customer’s network environment and the quantity of hardware and the degree of hardware configuration necessary to deploy our products. The continuing stagnancy of information technology spending in our markets has led to a significant increase in the time required for this process.

Furthermore, we rely to a significant extent on systems integrators to identify, influence and manage large transactions with customers, and we expect this trend to continue as our industry consolidates. Selling our products in conjunction with our systems integrators who incorporate our products into their offerings can involve a particularly long and unpredictable sales cycle, as it typically takes more time for the prospective customer to evaluate proposals from multiple vendors. In addition, when systems integrators propose the useindebtedness. Each of our productssubsidiaries is a distinct legal entity and, under certain circumstances, applicable U.S. and foreign legal and contractual restrictions may limit our ability to their customers, it is typically part of a larger project, which can require more levels of customer approvals. We have little or no control overobtain cash from our subsidiaries. In the sales cycle of an integrator-led transaction or our customers’ budgetary constraints and internal decision-making and acceptance processes.

As a result of increasingly long sales cycles, we have faced increased difficulty in predicting our operating results for any given period, and have experienced significant unanticipated fluctuations in our revenues from period to period. Any failure to achieve anticipated revenues for a period could cause our stock price to decline.

Our business relies heavily on customer service solutions, and these solutions may not gain market acceptance.

We have made customer service solutions our main focus and, in recent periods, have allocated a significant portion of our research and development and marketing resources to the development and promotion of such products. If these products are not accepted by potential customers, our business would be materially adversely affected. For our current business model to succeed, we believeevent that we will need to convince new and existing customers of the merits of purchasingdo not receive distributions or other payments from our customer service solutions over traditional customer relationship management, or CRM, solutions and competitors’ customer service solutions. Many of these customers have previously invested substantial resources in adopting and implementing their existing CRM products, whether such products are ours or are those of our competitors. Wesubsidiaries, we may be unable to convince customersmake required payments on our indebtedness.

An increase in market interest rates could result in a decrease in the value of the Notes.

In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value. Consequently, if you purchase the Notes, and potential customersthe market interest rates subsequently increase, the market value of your Notes may decline. We cannot predict the future level of market interest rates.

An active trading market for the Notes may not develop, which could limit the market price of the Notes in the secondary market and your ability to sell them.

The Notes are a new issue of debt securities for which there currently is no trading market. We have applied to list the Notes on the Nasdaq within 30 business days of the original issue date under the symbol “SWKHL.” There is no assurance that itNasdaq will approve the listing of the Notes. Even if the listing of the Notes is worth them purchasing substantial new software packages to provide them with our specific customer service capabilities. If our strategy of offering customer service solutions fails, weapproved by Nasdaq, an active trading market may not develop for the Notes and you may have difficulty selling the Notes or may not be able to sell sufficient quantities ofyour Notes. If the Notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our product offeringscredit ratings, general economic conditions, our financial condition, performance and prospects and other factors. The underwriters have advised us that they intend to generate significant license revenues, and our business could be harmed.

Our expenses are generally fixed and we will not be able to reduce these expenses quickly if we fail to meet our revenue expectations.

Most of our expenses, such as employee compensation and outsourcing of technical support and certain development functions, are relatively fixedmake a market in the short term. Other expenses like leasesNotes pending any listing of the Notes on the Nasdaq, but they are fixed and are more long term. Moreover, our forecast is based,not obligated to do so. The underwriters may discontinue any market-making in part, upon our expectations regarding future revenue levels. Asthe Notes at any time at their sole discretion. Accordingly, a result, in any particular quarter our total revenue can be below expectation, and we could not proportionately reduce operating expenses for that quarter. Accordingly, such a revenue shortfall would have a disproportionate negative effect on our expected operating results for that quarter.

If we fail to generate sufficient revenues to support our business and require additional financing, failure to obtain such financing would affect our ability to maintain our operations and to grow our business, and the terms of any financing we obtain may impair the rights of our existing stockholders.

In the future, we may be required to seek additional financing to fund our operations or growth, and such financingliquid trading market may not be available to us or may impairdevelop for the rights of our existing stockholders. Furthermore, any failure to raise sufficient capital in a timely fashion could prevent us from growing or pursuing our strategies or cause us to limit our operations and cause potential customers to question our financial viability. We had cash and cash equivalents of $3.6 million at June 30, 2006. It is possible that our cash position could decrease over the next few quarters and some customers will be increasingly concerned about our cash situation and our ongoing ability to update and maintain our products. This could significantly harm our sales efforts.

Factors such as the commercial success of our existing products and services, the timing and success of any new products and services, the progress of our research and development efforts, our results of operations, the status of competitive products and services, and the timing and success of potential strategic alliances or potential opportunities to acquire or sell technologies or assets may require us to seek additional funding sooner than we expect. In the event that we require additional cash, weNotes, you may not be able to secure additional financing on terms that are acceptable to us, especially insell your Notes at a particular time and the current uncertain market climate, and weprice you receive when you sell may not be successfulfavorable. To the extent an active trading market does not develop, the liquidity and trading price for the Notes may be harmed. Therefore, you may be required to bear the financial risk of an investment in implementingthe Notes until maturity of the Notes.

In addition, there may be a limited number of buyers when you decide to sell your Notes. This may affect the price, if any, offered for your Notes or negotiating other arrangementsyour ability to improvesell your Notes when desired or at all.

We may redeem the Notes before maturity, and you may be unable to reinvest the proceeds and obtain an equal effective interest rate.

We may redeem the Notes in whole or in part, at our option (i) on or after September 30, 2025 (the “First Call Date”) and prior to September 30, 2026, at a price equal to the sum of 102% of their principal amount, (ii) on or after September 30, 2026 and prior to September 30, 2027, at a price equal to the sum of 101% of their principal amount and (iii) on or after September 30, 2027 at a price equal to the sum of 100% of their principal amount, plus (in each case noted above) accrued and unpaid interest to, but excluding, the date of redemption. In addition, at any time prior to the First Call Date, we may, at our option, redeem the Notes for cash, position.in whole at any time or in part from time to time at a redemption price equal to (i) 100% of the principal amount of Notes redeemed, plus (ii) a Make-Whole Amount (as defined herein), plus (iii) accrued and unpaid interest, if any, to, but excluding, the date of redemption. See “Description of Notes—Optional Redemption.” Additionally, upon the occurrence of a Triggering Event (defined below), holders of the Notes may require us to make an offer to repurchase all or any portion of the Notes for cash at a purchase price equal to 100% of the aggregate principal amount thereof, plus accrued and unpaid interest to, but excluding, the purchase date. If a redemption does occur, you may be unable to reinvest the money you receive in the redemption in a comparable security at an equal or higher effective interest rate.

We may issue additional Notes.

Under the terms of the indenture governing the Notes, we raisemay from time to time without notice to, or the consent of, the holders of the Notes, create and issue additional funds throughNotes which may rank equally with the issuanceNotes. If any such additional Notes are not fungible with the Notes initially offered hereby for U.S. federal income tax purposes, such additional Notes will have a different CUSIP number.

The ratings for the Notes could at any time be revised downward or withdrawn entirely at the discretion of equitythe issuing rating agency.

Ratings only reflect the views of the issuing rating agency or convertible debt securities,agencies and such ratings could at any time be revised downward or withdrawn entirely at the percentage ownershipdiscretion of our stockholders would be reducedthe issuing rating agency. A rating is not a recommendation to purchase, sell or hold the Notes. Ratings do not reflect market prices or suitability of a security for a particular investor and the securities we issue might have rights, preferences and privileges senior to thoserating of our current stockholders. If adequate funds were not available on acceptable terms, our ability to achieve or sustain positive cash flows, maintain current operations, fund any potential expansion, take advantage of unanticipated opportunities, develop or enhance products or services or otherwise respond to competitive pressures would be significantly limited.

If we fail to grow our customer base or generate repeat business, our operating results could be harmed.

Our business model generally depends on the sale of our products to new customers as well as on expanded use of our products within our customers’ organizations. If we fail to grow our customer base or fail to generate repeat and expanded business from our current and future customers, our business and operating results will be seriously harmed. In some cases, our customers initially make a limited purchase of our products and services for pilot programs. These customersNotes may not purchase additional licensesreflect all risks related to expand their use of our products. If these customers do not successfully develop and deploy initial applications based on our products, they may choose not to purchase deployment licenses or additional development licenses. In addition, as we introduce new versions of our products, new product lines or new product features, our current customers might not require the additional functionality we offer and might not ultimately license these products. Furthermore, because the total amount of maintenance and support fees we receive in any period depends in large part on the size and number of licenses that we have previously sold, any downturn in our software license revenue would negatively affect our future services revenue. Also, if customers elect not to renew their maintenance agreements, our services revenue could decline significantly. If customers are unable to pay for their current products or are unwilling to purchase additional products, our revenues would decline. Additionally, a substantial percentage of our sales come from repeat customers. If a

significant existing customer or a group of existing customers decide not to repeat business with us our revenues would decline and our business, would be harmed.

or the structure or market value of the Notes. We face substantial competition and may not be ableelect to compete effectively.

The marketissue other securities for our products and services is intensely competitive, evolving and subject to rapid technological change. From time to time, our competitors reduce the prices of their products and services (substantially in certain cases) in orderwhich we may seek to obtain new customers. Competitive pressures could make it difficult for us to acquire and retain customers and could require us to reduce the price of our products.

Our customers’ requirements and the technology available to satisfy those requirements are continually changing. Therefore, we must be able to respond to these changes in order to remain competitive. If our international development partners do not adequately perform the software programming, quality assurance and technical documentation activities we outsourced, we may not be able to respond to such changes as quickly or effectively. Changes in our products may also make it more difficult for our sales force to sell effectively. In addition, changes in customers’ demand for the specific products, product features and services of other companies’ may result in our products becoming uncompetitive. We expect the intensity of competition to increasea rating in the future. Increased competition may result in price reductions, reduced gross margin and lossIf we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of market share. the Notes.

We may not be able to compete successfully against currentrepurchase the Notes upon a Triggering Event because we may not have sufficient funds.

Upon a Triggering Event, holders of the Notes may require us to make an offer to repurchase all or any portion of the Notes for cash at a purchase price equal to 100% of the aggregate principal amount thereof, plus accrued and future competitors,unpaid interest, if any, to, but excluding, the purchase date. Our failure to purchase such tendered Notes upon the occurrence of such Triggering Event would result in an Event of Default under the indenture governing the Notes and competitive pressures may seriously harmresult in a cross-default under the agreements governing certain of our business.

Our competitors vary in size andother indebtedness which may result in the scope and breadthacceleration of products and services offered. We currently face competition with our products from systems designed in-house and by our competitors. We expectsuch indebtedness requiring us to repay that these systems will continueindebtedness immediately. If such a Triggering Event were to be a major source of competition for the foreseeable future. Our primary competitors for eCRM platforms are larger, more established companies such as Oracle, which acquired Siebel Systems. The rate that competitors are consolidating is increasing. We also face competition from Chordiant Software, ATG, Amdocs, Knova, Talisma, eGain, RightNow, Instranet and Pegasystems with respect to specific applicationsoccur, we offer. We may face increased competition upon introduction of new products or upgrades from our competitors or if we expand our product line through acquisition of complementary businesses or otherwise. As we have combined and enhanced our product lines to offer a more comprehensive software solution, we are increasingly competing with large, established providers of customer management and communication solutions as well as other competitors. Our combined product line may not behave sufficient funds to successfully compete with the product offerings available from these companies, which could slow our growth and harm our business.

Many of our competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, significantly greater name recognition and a larger installed base of customers than we have.repay any such accelerated indebtedness. In addition, many of our competitors have well-established relationships with our current and potential customers and have extensive knowledge of our industry. We may lose potential customers to competitors for various reasons, including the ability or willingness of competitors to offer lower prices and other incentives that we cannot match. It is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. We also expect that competition will increase as a result of recent industry consolidations, as well as anticipated future consolidations.

We have a history of losses andyou may not be able to generate sufficient revenuerequire us to achieve and maintain profitability.

Since we began operationsrepurchase the Notes under the change of control provisions in 1997, our revenues have not been sufficient to support our operations, and we have incurred substantial operating lossesthe indenture in every quarter. Asthe event of June 30, 2006, our accumulated deficit was approximately $4.3 billion, which includes approximately $2.7 billion related to goodwill impairment charges. We continue to commit a substantial investment of resources to sales, product marketing, and developing new products and enhancements, and we will need to increase our revenue to achieve profitability and positive cash flows. Our expectations as to when we can achieve positive cash flows, and as to our future cash balances, are subject to a number of assumptions, including assumptions regarding improvements in general economic conditions and customer purchasing and payment patterns, many of which are beyond our control. Our history of losses has previously caused some of our potential customers to question our viability, which has in turn hampered our ability to sell some of our products. Additionally, our revenue has been affected by the uncertain economic conditions in recent years, both generally and in our market. As a result of these conditions, we have experienced and expect to continue to experience difficulties in attracting new customers, which means that we may continue to experience losses, even if sales of our products and services grow.

The report of our independent registered public accounting firm on our audited financial statements for the period ended December 31, 2005 indicates that there are a number of factors that raise substantial doubt about our ability to continuecertain important corporate events, such as a going concern.

Our consolidated financial statements as of December 31, 2005 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued its report dated June 15, 2006 in connection with the audit of our financial statements as of December 31, 2005, that included an explanatory paragraph describing the existence of conditions that raise substantial doubt about our ability to continue as a going concern due to our recurring losses from operations, net capital deficiency, negative cash flow from operations and accumulated deficit. If we are not able to continue as a going concern, it is likely our holders of common stock and the Investors will lose all of their investment. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We rely on marketing, technology and distribution relationships for the sale, installation and support of our products that may generally be terminated at any time, and if our current and future relationships are not successful, our growth might be limited.

We rely on marketing and technology relationships with a variety of companies, including systems integrators and consulting firms that, among other things, generate leads for the sale of our products and provide our customers with implementation and ongoing support. If we cannot maintain successful marketing and technology relationships or if we fail to enter into additional such relationships, we could have difficulty expanding the sales of our products and our growth might be limited.

A significant percentage of our revenues depend on leads generated by systems integrators, or “SIs”, and their recommendations of our products. If SIs do not successfully market our products, our operating results will be materially harmed. In addition, many of our direct sales are to customers that will be relying on SIs to implement our products, and if SIs are not familiar with our technology or able to successfully implement our products, our operating results will be materially harmed. We expect to continue increasing our leverage of SIs as indirect sales channels and, if this strategy is successful, our dependence on the efforts of these third parties for revenue growth and customer service remain high. Our reliance on third parties for these functions has reduced our control over such activities and reduced our ability to perform such functions internally. If we come to rely primarily on a single SI that subsequently terminates its relationship with us, becomes insolvent or is acquired by another company with which we have no relationship or decides not to provide implementation services related to our products, we may not be able to internally generate sufficient revenue orleveraged recapitalization (which would increase the revenues generated by our other SI relationships to offset the resulting lost revenues. Furthermore, SIs typically suggest our solution in combination with other products and services, some of which may compete with our solution. SIs are not required to promote any fixed quantities of our products, are not bound to promote our products exclusively and may act as indirect sales channels for our competitors. If these companies choose not to promote our products or if they develop, market or recommend software applications that compete with our products, our business will be harmed.

In addition to relying on SIs to recommend our products, we also rely on SIs and other third-party resellers to install and support our products. If the companies providing these services fail to implement our products successfully for our customers, the customer may be unable to complete implementation on the schedule that it had anticipated and we may have increased customer dissatisfaction or difficulty making future sales as a result. We might not be able to maintain our relationships with SIs and other indirect sales channel partners and enter into additional relationships that will provide timely and cost-effective customer support and service. If we cannot maintain successful relationships with our indirect sales channel partners, we might have difficulty expanding the sales of our products and our growth could be limited. In addition, if such third parties do not provide the support our customers need, we may be required to hire subcontractors to provide these professional services. Increased use of subcontractors would harm our margins because it costs us more to hire subcontractors to perform these services than it would to provide the services ourselves.

Reductions in our workforce may adversely affect our ability to release products and product updates in a timely manner.

We have substantially reduced our employee headcount over the last two years from a total of 211 as of December 31, 2003 to 181 as of December 31, 2004 to 125 as of December 31, 2005 and a slight increase to 131 as of June 30, 2006. The majority of this reduction was the result of our decision to shift a significant portion of our software programming, quality assurance and technical documentation activities to international development partners in early 2003, a strategy we have since reversed through our “back-shoring” process. We reduced the size of our research and development department from 88 employees as of December 31, 2003 to 34 employees as of December 31, 2004, to 30 employees as of December 31, 2005 and to 26 as of June 30, 2006. In addition, we reduced the level of our expenditures on outsourced developmentindebtedness, potentially resulting in 2005, and in December 2005, we consolidated a significant portiondowngrade of our research and development operations into one location in Menlo Park, California to optimize our research and development processes and decrease overall operating expenses. As a result, we terminatedcredit ratings, thereby negatively affecting the employment of 15 employees based in New Hampshire. The reductions in our research and development headcount and the reductions in our outsourced development capacity may limit our ability to release products within expected timeframes. For example, manyvalue of the employees who were terminatedNotes), reorganization, restructuring, merger or other similar transaction, unless such transaction constitutes a “Triggering Event” under the indenture. Such a transaction may not involve a change in headcount reductions possessed specific knowledgevoting power or expertisebeneficial ownership or, even if it does, may not involve a change that may prove to have been important toconstitutes a “Triggering Event” that would trigger our operation. As a result of these staff reductions, our ability to respond to unexpected challenges may be impaired and we may be unable to take advantage of new opportunities. Personnel reductions may also subject us to the risk of litigation, which may adversely impact our ability to conduct our operations and may cause us to incur significant expense. Our termination of two outsourcing arrangements in early 2005 may further reduce our ability to respond to development challenges and to introduce new products in expected timeframes.

We may be unable to hire and retain the skilled personnel necessary to develop and grow our business.

Concern over our long-term financial strength may create concern among existing employees about job security, which could lead to increased turnover and reduce our ability to meet the needs of our current and future customers. Because our stock price declined drastically in recent years, and has not experienced any sustained recovery from the decline, stock-based compensation, including optionsobligation to purchase our common stock, may have diminished effectiveness as employee hiring and retention devices. Ifthe Notes. Therefore, if an event occurs that does not constitute a “Triggering Event,” we are unable to retain qualified personnel, we could face disruptions to operations, loss of key information, expertise or know-how and unanticipated additional recruitment and training costs. If employee turnover increases, our ability to provide customer service and execute our strategy would be negatively affected.

For example, our ability to increase revenues in the future depends considerably upon our success in training and retaining effective direct sales personnel and the success of our direct sales force. We might not be successful in these efforts. Our products and services require sophisticated sales efforts. We have experienced significant turnover in our sales force including domestic senior sales management, and may experience further turnover in future periods. It generally takes a new salesperson nine or more months to become productive, and they may not be able to generate new sales. Our business will be harmed if we fail to retain qualified sales personnel, or if newly hired salespeople fail to develop the necessary sales skills or develop these skills more slowly than anticipated. Additionally, we need to recruit experienced developers as a result of our back-shoring initiative.

If we fail to respond to changing customer preferences in our market, demand for our products and our ability to enhance, our revenues will suffer.

If we do not continue to improve our products and develop new products that keep pace with competitive product introductions and technological developments, satisfy diverse and rapidly evolving customer requirements and achieve market acceptance, we might be unable to attract new customers. Our industry is characterized by rapid and substantial developments in the technologies and products that enjoy widespread acceptance among prospective and existing customers. The development of proprietary technology and necessary service enhancements entails significant technical and business risks and requires substantial expenditures and lead-time. In addition, if our international development partners fail to provide the development support we need, our products and product documentation could fall behind those produced by our competitors, causing us to lose customers and sales. We might not be successful in marketing and supporting our products or developing and marketing other product enhancements and new products that respond to technological advances and market changes, on a timely or cost-effective basis. In addition, even if these products are developed and released, they might not achieve market acceptance. We have experienced delays in releasing new products and product enhancements in the past and could experience similar delays in the future. These delays or problems in the installation or implementation of our new releases could cause us to lose customers.

Our failure to manage multiple technologies and technological change could reduce demand for our products.

Rapidly changing technology and operating systems, changes in customer requirements and evolving industry standards might impede market acceptance of our products. Our products are designed based upon currently prevailing technology to work on a variety of hardware and software platforms used by our customers. However, our software may not operate correctly on evolving versions of hardware and software platforms, programming languages, database environments and other systems that our customers use. If new technologies emerge that are incompatible with our products or if competing products emerge that are based on new technologies or new industry standards and that perform better or cost less than our products, our key products could become obsolete and our existing and potential customers could seek alternatives to our products. We must constantly modify and improve our products to keep pace with changes made to these platforms and to database systems and other back-office applications and Internet-related applications. Furthermore, software adapters are necessary to integrate our products with other systems and data sources used by our customers. We must develop and update these adapters to reflect changes to these systems and data sources in order to maintain the functionality provided by our products. As a result, uncertainties related to the timing and nature of new product announcements, introductions or modifications by vendors of operating systems, databases, customer relationship management software, web servers and other enterprise and Internet-based applications could delay our product development, increase our product development expense or cause customers to delay evaluation, purchase and deployment of our analytics products. Furthermore, if our international development partners fail to respond adequately when adaptation of our products is required, our ability to respond would be hampered even if such uncertainties were eliminated. If we fail to modify or improve our products in response to evolving industry standards, our products could rapidly become obsolete.

Failure to develop new products or enhancements to existing products on a timely basis would hurt our sales and damage our reputation.

The challenges of developing new products and enhancements require us to commit a substantial investment of resources to development, and we might not be able to develop or introduce new products on a timely or cost-effective basis, or at all, which could be exploited by our competitors and lead potential customers to choose alternative products. To be competitive, we must develop and introduce on a timely basis new products and product enhancements for companies with significant e-business customer interactions needs. Our ability to deliver competitive products may be negatively affected by the diversion of resources to development of our suite of products and responding to changes in competitive products and in the demands of our customers. If we experience product delays in the future, we may face:

Furthermore, delays in bringing new products or enhancements to market can result, for example, from potential difficulties with managing outsourced research and development, including overseeing such activities occurring in India and China or from loss of institutional knowledge through reductions in force, or the existence of defects in new products or their enhancements.

Failure to license necessary third party software incorporated in our products could cause delays or reductions in our sales.

We license third party software that we incorporate into our products. These licenses may not continue to be available on commercially reasonable terms or at all. Some of this technology would be difficult to replace. The loss of any of these licenses could result in delays or reductions of our applications until we identify, license and integrate or develop equivalent software. If we are required to enter into license agreements with third parties for replacement technology, we could face higher royalty payments and our products may lose certain attributes or features. In the future, we might need to license other software to enhance our products and meet evolving customer needs. If we are unable to do this, we could experience reduced demand for our products.

Our former and current independent registered public accounting firms have identified material weaknesses in our internal controls that, if not remediated, could affect our ability to prepare timely and accurate financial reports, which could cause investors to lose confidence in our reported financial information and have a negative effect on the trading price of our stock.

In the course of the audit of our consolidated financial statements for the year ended December 31, 2004, our former independent registered public accounting firm identified and reported material weaknesses in our internal control over financial reporting. A material weakness is a reportable condition in which our internal controls do not reduce to a low level the risk that undetected misstatements caused by error or fraud may occur in amounts that are material to our audited consolidated financial statements. In addition, our Chief Executive Officer and Chief Financial Officer performed an evaluation of our disclosure controls and procedures and found that they were not effective. First, we had weaknesses in our general accounting processes related to insufficient documentation and analyses to support our consolidated financial statements, failure to properly evaluate estimates of royalties due and insufficient staffing in the accounting and reporting function, which was exacerbated by changes in management and accounting personnel and insufficient training of our accounting department. Second, there was no independent review of journal entries, and insufficient documentation or support for journal entries and consolidation entries. In a number of cases, these required adjustments to our consolidated financial statements for the year ended December 31, 2004.

Finally, during the first quarter of 2005, our Audit Committee completed an examination of certain of our internal controls relating to travel and entertainment expenses and determined that we had made erroneous expense reimbursements to our then Chief Executive Officer and certain other executive officers, primarily as a result of inconsistent travel and entertainment policies, inadequate review of expense reimbursement requests and carelessness.

Our management has determined that these deficiencies constitute material weaknesses as of December 31, 2004 and that, with the exception of the material weakness relating to travel and entertainment expenses, they continued to exist during 2005 and the first half of 2006. As a result, we are unable to conclude that our disclosure controls and procedures were effective as of June 30, 2006. However, we believe that these deficiencies did not have a material impact on our financial statements included in this report due to the fact that we performed substantial analyses on and for the June 30, 2006 and prior periods balances, including performing historical account reconciliations, having account balance analyses reviewed by senior management and reconstructing certain account balances. However, these deficiencies increase the risk that a transaction will not be accounted for consistently and in accordance with established policyrequired to make an offer to repurchase all or accounting principles generally accepted in the United States of America (“GAAP”), and they increase the risk of error.

Our management, with the oversightany portion of the Audit CommitteeNotes despite the event. See “Description of the BoardNotes—Purchase of Directors, is working to address the remaining control deficiencies and is committed to effective remediation of all these deficiencies as expeditiously as possible. Some new processes and controls have already been approved and are being implemented. We plan to develop and implement further improvements and additional controls. In addition, our management believes that it has remediated the material weakness relating to travel and entertainment expense reimbursement during the first quarter of 2005. Our other weaknesses will not be considered remediated until new internal controls are developed and implemented throughout the Company, are operational forNotes upon a period of time and are tested, and our management concludes that these controls are operating effectively.

Our remediation measures may not be successful in correcting the material weakness reported by our former and current independent registered public accounting firms. In addition, we cannot assure you that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future. In addition, controls may become inadequate because of changes in conditions and the degree of compliance with the policies or procedures may deteriorate. Any failure to remediate the material weaknesses described above or to implement and maintain effective internal controls could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Deficiencies in our internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

We face additional risks and costs as a result of the delayed filing of our Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2005 and March 31, 2006 and our Annual Reports on Form 10-K for the years ended December 31, 2004 and 2005.Triggering Event.”

As a result of missing an established deadline with the NASDAQ Qualifications Panel for filing our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005, we have experienced additional risks and costs. The March 31, 2005 10-Q was filed on October 11, 2005, past the NASDAQ Listing Qualifications Panel’s established deadline of October 7, 2005; thus, the NASDAQ Listing Qualifications Panel delisted the Company’s common stock effective as of the beginning of trading on October 17, 2005. Since our common stock was delisted from The NASDAQ Global Market, the ability of our stockholders to sell our common stock has been severely limited, causing our stock price to decline.

As a result of our delayed filings, we will be ineligible to register our securities on Form S-3 for sale by us or resale by others until we have timely filed all periodic reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for one year. Instead, the Company may be required to use Form S-1 to raise capital or complete acquisitions, which would increase transaction costs and adversely affect our ability to raise capital or complete acquisitions of other companies during this period.

Our common stock was delisted from The NASDAQ Global Market.

Our common stock was delisted from The NASDAQ Global Market effective at the opening of business on October 17, 2005 and our common stock is currently trading on the “Pink Sheets.” This delisting will likely reduce the liquidity of our securities, could cause investors not to trade in our securities and result in a lower stock price and could have an adverse effect on the Company. Additionally, we may become subject to the Securities and Exchange Commission (the “SEC”) rules that affect “penny stocks,” which are stocks below $5.00 per share that are not quoted on a NASDAQ Stock Market. These SEC rules would make it more difficult for brokers to find buyers for our securities and could lower the net sales prices that our stockholders are able to obtain. If our price of common stock remains low, we may not be able to raise equity capital. While we intend to seek to have our common stock quoted on the Over the Counter Bulletin Board (“OTCBB”), there can be no assurances as to when, or whether, they will become quoted on the OTCBB.

Our stock price has been highly volatile and has experienced a significant decline, and may continue to be volatile and decline.

The trading price of our common stock has fluctuated widely in the past and we expect that it will continue to do so in the future, as a result of a number of factors, many of which are outside our control, such as:

In addition, stock markets in general, and particularly The NASDAQ Stock Market and the “Pink Sheets,” have experienced extreme price and volume fluctuations that have affected the market prices of many technology and computer software companies, particularly Internet-related companies. Such fluctuations have often been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations could adversely affect the market price of our common stock. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. Securities class action litigation could result in substantial costs and a diversion of our management’s attention and resources.

Since becoming a publicly traded security listed on The NASDAQ Global Market in September 1999, our common stock has reached a sales price high of $1,698.10 per share and a sales price low of $0.65 per share. Our common stock was delisted from The NASDAQ Global Market effective at the opening of business on October 17, 2005 due to our failure to file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005. Since October 17, 2005, our common stock has been traded on the “Pink Sheets.” The last reported sale price of our shares on August 31, 2006 was $2.65 per share.

We have experienced transitionsbroad discretion in our management team, our board of directors and our independent registered public accounting firm in the past and may continue to do so in the future.

We have experienced a number of transitions with respect to our board of directors, executive officers and independent registered public accounting firms in recent quarters, including the following:

Such past and future transitions may continue to result in disruptions in our operations and require additional costs.

Our pending patents may never be issued and, even if issued, may provide little protection.

Our success and ability to compete depend upon the protection of our software and other proprietary technology rights. We currently have six issued U.S. patents, four of which expire in 2018 and two of which expire in 2020, and multiple U.S. patent applications pending relating to our software. None of our technology is patented outside of the United States. It is possible that:

We rely upon trademarks, copyrights and trade secrets to protect our proprietary rights, which may not be sufficient to protect our intellectual property.

In addition to patents, we rely on a combination of laws, such as copyright, trademark and trade secret laws, and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our proprietary rights. However, despite the precautions that we have taken:

Also, the laws of some other countries in which we market our products may offer little or no effective protection of our proprietary technology. Reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third parties to benefit from our technology without paying us for it, which would significantly harm our business.

We may become involved in litigation over proprietary rights, which could be costly and time consuming.

The software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. As the number of entrants into our market increases, the possibility of an intellectual property claim against us grows. Our technologies may not be able to withstand any third-party claims or rights against their use. Some of our competitors in the market for customer communications

software may have filed or may intend to file patent applications covering aspects of their technology that they may claim our technology infringes. Such competitors could make a claim of infringement against us with respect to our products and technology. Third parties may currently have, or may eventually be issued, patents upon which our current or future products or technology infringe. Any of these third parties might make a claim of infringement against us. For example, from time to time, companies have asked us to evaluate the need for a license of patents they hold, and we cannot assure you that patent infringement claims will not be filed against us in the future. Other companies may also have pending patent applications (which are typically confidential for the first eighteen months following filing) that cover technologies we incorporate in our products.

In addition, many of our software license agreements require us to indemnify our customers from any claim or finding of intellectual property infringement. We periodically receive notices from customers regarding patent license inquiries they have received which may or may not implicate our indemnity obligations. Any litigation, brought by others or us could result in the expenditure of significant financial resources and the diversion of management’s time and efforts. In addition, litigation in which we are accused of infringement might cause product shipment delays, require us to develop alternative technology or require us to enter into royalty or license agreements, which might not be available on acceptable terms, or at all. If a claim of infringement was made against us and we could not develop non-infringing technology or license the infringed or similar technology on a timely and cost-effective basis, our business could be significantly harmed.

We may face liability claims that could result in unexpected costs and damages to our reputation.

Our licenses with customers generally contain provisions designed to limit our exposure to potential product liability claims, such as disclaimers of warranties and limitations on liability for special, consequential and incidental damages. In addition, our license agreements generally limit the amounts recoverable for damages to the amounts paid by the licensee to us for the product or service giving rise to the damages. However, some domestic and international jurisdictions may not enforce these contractual limitations on liability. We may be subject to claims based on errors in our software or mistakes in performing our services including claims relating to damages to our customers’ internal systems. A product liability claim could divert the attention of management and key personnel, could be expensive to defend and could result in adverse settlements and judgments.

We may face higher costs and lost sales if our software contains errors.

We face the possibility of higher costs as a result of the complexity of our products and the potential for undetected errors. Due to the critical nature of many of our products and services, errors could be particularly problematic. In the past, we have discovered software errors in some of our products after their introduction. We have only a few “beta” customers that test new features and functionality of our software before we make these features and functionalities generally available to our customers. If we are not able to detect and correct errors in our products or releases before commencing commercial shipments, we could face:

Our security could be breached, which could damage our reputation and deter customers from using our services.

We must protect our computer systems and network from physical break-ins, security breaches and other disruptive problems caused by the Internet or other users. Computer break-ins could jeopardize the security of information stored in and transmitted through our computer systems and network, which could adversely affect our ability to retain or attract customers, damage our reputation and subject us to litigation. We have been in the past, and could be in the future, subject to denial of service, vandalism and other attacks on our systems by Internet hackers. Although we intend to continue to implement security technology and establish operational procedures to prevent break-ins, damage and failures, these security measures may fail. Our insurance coverage in certain circumstances may be insufficient to cover losses that may result from such events.

Our international operations expose us to additional risks.

A substantial proportion of our revenues are generated from sales outside North America, exposing us to additional financial and operational risks. Sales outside North America represented 25% of our total revenues for the three and six months ended June 30, 2006, respectively, compared to 27% and 30% of our total revenues for the three and six months ended June 30, 2005 and 30% of total revenues for the entire 2005 year. We have established offices in the United States, Europe, Japan and Hong Kong. Sales outside North America could increase as a percentage of total revenues as we attempt to expand our international operations. In addition to

the additional costs and uncertainties of being subject to international laws and regulations, international operations require significant management attention and financial resources, as well as additional support personnel. To the extent our international operations grow, we will also need to, among other things, expand our international sales channel management and support organizations and develop relationships with international service providers and additional distributors and system integrators. In addition, international operations can lead to greater difficulty with collecting accounts receivable, longer sales cycles and collection periods, greater seasonal fluctuations in business activity and increases in our tax rates. Any growth in our international operations would compound these difficulties. Furthermore, products must be localized or customized to meet the needs of local users, before they can be sold in particular foreign countries. Developing localized versions of our products for foreign markets is difficult and can take longer than expected.

International laws and regulations may expose us to potential costs and litigation.

Our international operations increase our exposure to international laws and regulations. If we cannot comply with foreign laws and regulations, which are often complex and subject to variation and unexpected changes, we could incur unexpected costs and potential litigation. For example, the governments of foreign countries might attempt to regulate our products and services or levy sales or other taxes relating to our activities. In addition, foreign countries may impose tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business. The European Union has enacted its own privacy regulations that may result in limits on the collection and use of certain user information, which, if applied to the sale of our products and services, could negatively impact our results of operations.

We may suffer foreign exchange rate losses.

Our international revenues and expenses are denominated in local currency. Therefore, a weakening of other currencies compared to the U.S. dollar could make our products less competitive in foreign markets and could negatively affect our operating results and cash flows. We have not yet experienced, but may in the future experience, significant foreign currency transaction losses, especially because we generally do not engage in currency hedging. To the extent the international component of our revenues grows, our results of operations will become more sensitive to foreign exchange rate fluctuations.

If we acquire companies, products or technologies, we may face risks associated with those acquisitions.

We acquired Hipbone, Inc. in early 2004, and if we are presented with appropriate opportunities, we may make other investments in complementary companies, products or technologies. We may not realize the anticipated benefits of any acquisition or investment. For example, since inception, the Company has recorded $2.7 billion of impairment charges for the cost of goodwill obtained from acquisitions. If we acquire another company, we will likely face risks, uncertainties and disruptions associated with the integration process, including, among other things, difficulties in the integration of the operations, technologies and services of the acquired company, the diversion of our management’s attention from other business concerns and the potential loss of key employees of the acquired businesses. If we fail to successfully integrate other companies that we may acquire, our business could be harmed. Also, acquisitions can expose us to liabilities and risks facing the company we acquire, including lawsuits or claims against the company that are unknown at the time of the acquisition. Furthermore, we may have to incur debt or issue equity securities to pay for any additional future acquisitions or investments, the issuance of which could be dilutive to our existing stockholders. In addition, our operating results may suffer because of acquisition-related costs or amortization expenses or impairment charges relating to acquired goodwill and other intangible assets.

The role of acquisitions in our future growth may be limited, which could harm our business and strategy.

Because the recent trading prices of our common stock have been significantly lower than in the past, the role of acquisitions in our growth may be substantially limited. In the past, acquisitions have been an important part of our growth strategy. To gain access to key technologies, new products and broader customer bases, we have acquired companies in exchange for shares of our common stock. If we are unable to acquire companies in exchange for our common stock, we may not have access to new customers, needed technological advances, new products and/or enhancements to existing products. This would substantially impair our ability to respond to market opportunities.

Compliance with new regulations governing public company corporate governance and reporting will result in additional costs.

Our continuing preparation for and implementation of various corporate governance reforms and enhanced disclosure laws and regulations adopted in recent years requires us to incur significant additional accounting and legal costs. We, like other non-accelerated public companies, are preparing for new accounting disclosures required by laws and regulations adopted in connection with the Sarbanes-Oxley Act of 2002. In particular, we will be preparing to provide, if required, beginning with our Annual Report on Form 10-K for the fiscal year ending December 31, 2007, an Annual Report on our internal control over financial reporting and auditors’ attestation with respect to our report required by Section 404 of the Sarbanes-Oxley Act. Any unanticipated difficulties in preparing for and implementing these and other corporate governance and reporting reforms could result in material delays in compliance or significantly increase our costs. Also, there can be no assurance that we will be able to fully comply with these new

laws and regulations. Any failure to timely prepare for and implement the reforms required by these new laws and regulations could significantly harm our business, operating results and financial condition.

We have adopted anti-takeover defenses that could delay or prevent an acquisition of the Company.

Our Board of Directors has the authority to issue up to 5,000,000 shares of preferred stock. Without any further vote or action on the part of the stockholders, the Board of Directors has the authority to determine the price, rights, preferences, privileges and restrictions of the preferred stock. This preferred stock, if issued, might have preference over and harm the rights of the holders of common stock. Although the ability to issue this preferred stock provides us with flexibility in connection with possible acquisitions and other corporate purposes, it can also be used to make it more difficult for a third party to acquire a majority of our outstanding voting stock. We currently have no plans to issue preferred stock.

Our certificate of incorporation, bylaws and equity compensation plans include provisions that may deter an unsolicited offer to purchase us. These provisions, coupled with the provisions of the Delaware General Corporation Law, may delay or impede a merger, tender offer or proxy contest. Furthermore, our Board of Directors is divided into three classes, only one of which is elected each year. In addition, directors are only removable by the affirmative vote of at least two-thirds of all classes of voting stock. These factors may further delay or prevent a change of control of us.

The exercise of the warrants issued to the Investors could cause additional dilution to the holders of our common stock.

Holders of our common stock are subject to the risk of additional dilution to their interests as a result of the issuances of common stock in connection with the exercise of warrants issued to the Investors.

Risks Related to Our Industry

Future regulation of the Internet may slow our growth, resulting in decreased demand for our products and services and increased costs of doing business.

State, federal and foreign regulators could adopt laws and regulations that impose additional burdens on companies that conduct business online. These laws and regulations could discourage communication by e-mail or other web-based communications, particularly targeted e-mail of the type facilitated by our products, which could reduce demand for our products and services.

The growth and development of the market for online services may prompt calls for more stringent consumer protection laws or laws that may inhibit the use of Internet-based communications or the information contained in these communications. The adoptionnet proceeds of any additional laws or regulationsthis offering and may decrease the expansion of the Internet. A decline in the growth of the Internet, particularly as it relates to online communication, could decrease demand for our products and services and increase our costs of doing business or otherwise harm our business. Any new legislation or regulations, application of laws and regulations from jurisdictions whose laws do not currently apply to our business or application of existing laws and regulations to the Internet and other online services could increase our costs and harm our growth.

The imposition of sales and other taxes on products sold by our customers over the Internet could have a negative effect on online commerce and the demand for our products and services.use them effectively.

The imposition of new sales or other taxes could limit the growth of Internet commerce generally and, as a result, the demand for our products and services. Federal legislation that limits the imposition of state and local taxes on Internet-related sales will expire on November 1, 2007. Congress may choose to modify this legislation or to allow it to expire, in which case state and local governments would be free to impose taxes on electronically purchased goods. We believe that most companies that sell products over the Internet do not currently collect sales or other taxes on shipments of their products into states or foreign countries where they are not physically present. However, one or more states or foreign countries may seek to impose sales or other tax collection obligations on out-of-jurisdiction companies that engage in e-commerce within their jurisdiction. A successful assertion by one or more states or foreign countries that companies that engage in e-commerce within their jurisdiction should collect sales or other taxes on the sale of their products over the Internet, even though not physically in the state or country, could indirectly reduce demand for our products.

Privacy concerns relating to the Internet are increasing, which could result in legislation that negatively affects our business in reduced sales of our products.

Businesses using our products capture information regarding their customers when those customers contact them on-line with customer service inquiries. Privacy concerns could cause visitors to resist providing the personal data necessary to allow our customers to use our software products most effectively. More importantly, even the perception of privacy concerns, whether or not valid, may indirectly inhibit market acceptance of our products. In addition, legislative or regulatory requirements may heighten these concerns if businesses must notify website users that the data captured after visiting certain websites may be used by marketing entities to unilaterally direct product promotion and advertising to that user. If consumer privacy concerns are not adequately resolved, our business could be harmed. Government regulation that limits our customers’ use of this information could reduce the demand for our products. A number of jurisdictions have adopted or are considering adopting laws that restrict the use of customer information from Internet applications. The European Union has required that its member states adopt legislation that imposes restrictions on the collection and use of personal data and that limits the transfer of personally identifiable data to countries that do not impose equivalent restrictions. In the United States, the Children’s Online Privacy Protection Act was enacted in October 1998. This legislation directs the Federal Trade Commission to regulate the collection of data from children on commercial websites. In addition, the Federal Trade Commission has investigated the privacy practices of businesses that collect information on the Internet. These and other privacy-related initiatives could reduce demand for some of the Internet applications with which our products operate and could restrict the use of these products in some e-commerce applications. This could, in turn, reduce demand for these products.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our business and industry and our beliefs and assumptions. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will” and variations of these words and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, many of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in “Risk Factors” and elsewhere in this prospectus. All forward-looking statements appearing in this prospectus speak only as of the date of this prospectus. Forward-looking statements that were believed to be true at the time made may ultimately prove to be incorrect or false. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

USE OF PROCEEDS

The proceeds from the sale of all of the Shares covered by this prospectus will be received by the Selling Stockholders. We will not receive any of the proceeds from the sales by the Selling Stockholders of the Shares covered by this prospectus.

The Shares offered by the Selling Stockholders include shares underlying warrants held by the Selling Stockholders. Such warrants entitle the Selling Stockholders to purchase an aggregate of 1,914,586 shares of our common stock at an exercise price of either $2.452 or $1.966 per share, as applicable and subject to certain adjustments. In the event the Selling Stockholders exercise all of these warrants and pay the exercise price in cash, we would receive proceeds of approximately $4.3 million. If an event triggers dilution of our common stock or there is a change in the exercise price of the warrants it is our current good faith estimate that we may be required to issue an additional 478,647 shares of our common stock based on adjustments to the number of shares issuable upon the exercise of these warrants for cash, which would result in us receiving an aggregate proceed of approximately $5.4 million. We intend to use anythe net proceeds we receive from the exercise of warrantsthis offering for working capital and general corporate purposes.

HISTORICAL STOCK PRICE

Our common stock currently trades onpurposes, including funding future acquisitions and investments, repaying indebtedness, making capital expenditures and funding working capital. However, our management will have broad discretion in the “Pink Sheets” under the symbol “KANA.PK”. Prior to October 17, 2005, our common stock was listed on The NASDAQ Global Market. Our common stock traded on the “Pink Sheets” asapplication of the beginning of trading on October 17, 2005. The table below sets forthnet proceeds from this offering and could spend the high and low sales prices for our common stock as reported on The NASDAQ Global Market and the high and low bid information for our common stock as reported on the “Pink Sheets,” as applicable, for the periods indicated: